Stocks fight back from losses

The Dow Jones industrial average (INDU) lost a few points and broke its seven-day winning streak. The S&P 500 (SPX) index ended just above breakeven, and the Nasdaq (COMP) composite lost a few points.

Stocks tumbled through most of the session, but managed to cut losses near the close thanks to a late-session advance in financial and commodity shares.

After the close, Google (GOOG, Fortune 500) reported quarterly earnings that missed forecasts on revenue that beat estimates, sending shares lower in after-hours trading.

JPMorgan's profit report added to bets that quarterly earnings will hold up despite the slower growing economy. But that wasn't enough to distract investors from a spate of mixed-to-weaker economic reports, particularly in the aftermath of a big rally over the past week.

"We're coming off a strong rally over the last few days that was earnings driven," said Kim Caughey, senior equity analyst at Fort Pitt Capital Group. "Today we took a rest from looking at the earnings and took another look at the economy."

On Wednesday, the Federal Reserve lowered its forecast for GDP growth this year. On Thursday, a report showed that weekly jobless claims fell to a two-year low -- but continuing claims, a measure of long-term joblessness, rose. Weak reports on manufacturing in the New York and Philadelphia regions added to the jitters.

China also reported strong GDP growth of 10.3% in the second quarter. Still, that fell short of the 11.9% growth recorded in the first quarter.

On Thursday afternoon, the Senate approved the most far-reaching financial reform bill since the 1930s, which President Obama is expected to sign into law next week.

The legislation is designed to limit big banks, protect consumers and prevent the future reoccurrence of financial crises like the one that hit in 2008.

Results: Dow component JPMorgan Chase posted a second-quarter profit of $4.8 billion, or $1.09 per share, trouncing expectations. The bank's strength in the quarter was due partly to a decline in the number of consumers defaulting on loans. However, JPMorgan's shares slipped amid the broader market selloff.

"It's great to have earnings surprises but what we really need to see are companies issuing upbeat forecasts for the second half of the year," she said.

Earnings for the S&P 500 are expected to have risen 28% versus a year ago, according to the latest from earnings tracker Thomson Reuters.

On Wednesday, the Federal Reserve lowered its forecast for GDP this year to a range of between 3% and 3.5% versus the previous forecast of a range of 3.2% to 3.7%.

BP: Shares of the beleaguered oil company rallied 7.5% after BP (BP) said that it has managed to temporarily stop the flow of oil into the Gulf of Mexico, nearly three months after the explosion that caused the leak.

Company news: Private-equity firm Carlyle Group is buying vitamin maker NBTY (NTY) in a $3.8 billion cash deal that values NBTY's shares at $55 per share, a 47% premium above the stock's closing price Wednesday. Shares gained 43%.

World markets: European markets fell, with Britain's FTSE 100 down 0.8%, Germany's DAX off 1% and France's CAC 40 down 1.4%.

Asian markets ended lower. Japan's Nikkei fell 0.1%, Hong Kong's Hang Seng lost 0.2% and the Shanghai Composite fell 1.6%.

Currencies: The euro gained versus the dollar, hitting a two-month high. The dollar fell versus the Japanese yen.

Commodities: U.S. light crude oil for August delivery rose 26 cents to $76.88 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery gained $1.20 to $1,209.50 an ounce.

Bonds: Treasury prices rose, lowering the yield on the 10-year note to 2.98% from 3.05% late Wednesday. Debt prices and yields move in opposite directions.

Market breadth: Breadth was negative. On the New York Stock Exchange, losers beat winners by a narrow margin on volume of 1.12 billion shares. On the Nasdaq, decliners beat advancers 2 to 1 on volume of 1.99 billion shares.

Stocks set for lackluster start

Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were mixed ahead of the opening bell.

China: While China's economy continued to grow last quarter, the pace eased, a government report showed Thursday.

China's gross domestic product, the broadest measure of economic output, grew at an annual rate of 10.3% in the second quarter, down from the 11.9% rate during the first quarter.

Fed: Minutes from the Federal Reserve's June policy meeting released Wednesday showed that Fed officials are less optimistic about the health of the economy.

The central bank also lowered its forecast for U.S. gross domestic product, expecting GDP to grow between 3% and 3.5% this year, from its earlier outlook of 3.2% to 3.7%.

Economy: The Department of Labor will release its weekly jobless claims report Thursday morning. The number of Americans filing new claims for unemployment last week is expected to have fallen to 450,000 from 454,000 in the previous week.

The Producer Price Index, a measure of wholesale inflation, is due from the Commerce Department before the market open. The index is expected to have fallen 0.1% in June after falling 0.3% in May.

The so-called core PPI, which excludes volatile food and energy prices, is expected to have edged up 0.1% after rising 0.2% in the previous month.

Reports on industrial production and capacity utilization and manufacturing in the northeast are also on tap.

World markets: European shares were mixed in morning trading. The DAX in Germany gained 0.1%, France's CAC 40 fell 0.09% and Britain's FTSE 100 slipped 0.3%.

In Asia, the Nikkei in Japan dropped 1.1%, the Shanghai Composite fell 1.9% and the Hang Seng in Hong Kong slid 1.5%.

will it be the new catalyst for pushing the stocks/index higher or its no more an exciting news??

Stocks finish little changed

The Dow Jones industrial average (INDU) gained about 4 points to close at 10,366. The S&P 500 (SPX) index lost less than one point, while the Nasdaq (COMP) composite rose nearly 8 points, or 0.3%.

However, technology shares bucked the trend. The sector was supported by strong quarterly results and a bullish sales outlook from Intel (INTEL) on Tuesday.

Strong earnings and upbeat guidance from aluminum giant Alcoa (AA, Fortune 500) and transportation company CSX (CSX, Fortune 500) boosted the market Tuesday. Last week, the market booked its best weekly gain in a year on speculation the second-quarter earnings period will beat expectations.

But traders said the tone was more cautious Wednesday, with several more companies due to post results this week. A dour report on retail sales and a big drop in mortgage applications also weighed on the market.

"At the moment the economic news is trumping the earnings news," said Mark Luschini, chief investment strategist at Janney Montgomery Scott.

Earnings news could be back in focus early Thursday when JPMorgan Chase (JPM, Fortune 500) reports second-quarter results before the market opens. Analysts surveyed by Thomson Financial expect the bank to report a profit of 70 cents per share, up from 28 cents per share a year ago.

Bank of America (BAC, Fortune 500) and Citigroup (C, Fortune 500) are also due to report this week.

"If the financial's participate and we have good earnings, we're going to move higher," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.

In addition, Internet giant Google (GOOG, Fortune 500) is slated to report quarterly results after the market closes Thursday.

On the economic front, reports due Thursday include weekly initial jobless claims, consumer and wholesale inflation data as well as a regional manufacturing report.

Fed: According to the minutes of their June meeting, Fed officials discussed contingency plans to further stimulate the economy "if the outlook were to worsen appreciably."

The minutes also showed that the central banker reduced its outlook for U.S. gross domestic product. GDP is now projected to grow between 3.0% and 3.5% this year, down from an earlier forecast of 3.2% to 3.7%. In the first quarter, GDP rose at an annual rate of 2.7%.

In addition, the Fed predicts the unemployment rate will range between 9.2% to 9.5% this year, slightly worse than the 9.1% to 9.5% range it forecast in April. Unemployment was 9.5% in June, but has averaged 9.7% over the first half of the year.

"The Fed believes that the economy has recovered from disaster but is still extremely weak," said Doug Roberts, chief investment strategist for Channel Capital Research. "There is virtually no danger of higher rates in the near future."

Earnings: Some 21 S&P 500 companies will announce results this week, with most of the rest spread out over the next three weeks.

Second-quarter earnings are expected to be up 27%, according to trackers at Thomson Reuters. But investors are particularly focused on what corporate leaders expect for the second half of the year.

"Earnings have been quite outstanding, and the market has been in pretty good shape lately, but markets can't like everything about all the earnings reports," said Robert Brusca, chief economist at Fact and Opinion Economics. "At some point you're going to have to look for this to settle down."

Economy: The Commerce Department said retail sales fell 0.5% in June after dropping 1.1% in May, while sales excluding autos slipped 0.1%.

Economists surveyed by Briefing.com expected total sales to have fallen 0.2%, and sales excluding autos were forecast to have held steady after falling 0.8% in May.

Separately, mortgage applications fell last week to their lowest level in more than 13 years, according to the Mortgage Bankers Association.

World markets: European shares were mixed in active trading. Britain's FTSE 100 slipped 0.3% and France's CAC 40 fell 0.1%. The DAX in Germany gained 0.3%

In Asia, Japan's Nikkei surged 2.7%, the Shanghai Composite added 0.8% and the Hang Seng in Hong Kong rose 0.6%.

Currencies: The dollar rose against its main trading partners, including the euro, the British pound and the Japanese yen.

Commodities: U.S. light crude oil for August delivery fell 16 cents to settle at $76.99 a barrel.

COMEX gold's August contract fell $3.80 to $1,209.60 per ounce.

Bonds: Treasury prices rose, and the yield on the 10-year note fell to 3.05%. Bond prices and yields move in opposite directions.

I’ll buy that

If trust in capital markets is to return, investors must be able to believe due diligence has been conducted

GRET CHEN MORGENSON

I

For the most part, banks have said they cannot be called out in court on any of this because they had no idea that so many of these loans went to people who lacked the resources to make even their first mortgage payment.

Wall Street firms were intimately involved in the financing, bundling and sales of these loans, so their defence rings hollow. They provided hundreds of millions of dollars in credit to dubious underwriters and some even had their own people on site at the loan factories. Many Wall Street firms owned mortgage lenders outright.

Because many of the worst lenders are now out of business, investors in search of recoveries have turned to the banks that packaged the loans into securities.

But successfully arguing that Wall Street aided lenders in a fraud is tough under United States federal securities laws. This is largely a result of Supreme Court decisions barring investors from bringing federal securities fraud cases that accuse underwriters and other third parties as enablers.

Where there’s a will, however, there’s a way. And state courts are proving to be a more fruitful place for mortgage investors seeking redress, legal experts say.

Late last month, for example, Massachusetts Attorney-General Martha Coakley extracted US$102 million ($140 million) from Morgan Stanley in a case involving Morgan’s extensive financing of loans made by New Century, a notorious and now-defunct lender that was based in California.

Morgan packaged the loans into securities and sold them to clients, even after its due diligence uncovered problems with the underlying mortgages that New Century fed to the firm, Ms Coakley said. In settling the matter, Morgan neither admitted nor denied the allegations. The investigation is continuing.

On Friday, an investment management firm that lost US$1.2 billion in mortgage securities it bought for clients filed suit in Massachusetts state court against 15 banks, accusing them of abetting a fraud.

The firm, Cambridge Place Investment Management of Concord, Massachusetts, purchased US$2 billion in mortgage securities from the banks and it says the banks misrepresented the risks in the underlying loans — both in prospectuses and sales pitches

The complaint says the banks misled Cambridge Place by maintaining that the mortgages in the securities it bought had met strict underwriting requirements related to the borrowers’ ability to repay the loans. Cambridge also contends it relied on the banks’ claims of having conducted due diligence to verify the quality of the loans bundled into the securities.nvestors who lost billions on boatloads of faulty mortgage securities have had a hard time holding Wall Street accountable for selling the things in the first place.(see box).

‘ANYTHING GOES ’ LENDING

The complaint also details the anything- goes lending practices during the sub-prime mortgage boom.

Interviews in the complaint with 63 confidential witnesses turned up such gems as Fremont Investment Loan, which had been based in California, approving loans for pizza delivery men with reported monthly incomes of US$6,000, and management at Long Beach Mortgage, also in California, directing underwriters to “approve, approve, approve”.

One Long Beach programme made loans to self-employed borrowers based on three letters of reference from past employers. A former worker said some letters amounted to “So-and-so cuts my lawn and does a good job”, adding that the company made no attempt to verify the information, the complaint stated.

Such tales are hardly shockers.

But they provide important context when Cambridge moves up the ladder to the banks that bundled and sold the loans.

For example, the complaint contended that Credit Suisse, from whom it bought US$88 million of mortgage securities in 2005 and 2006, told Cambridge of its “superior” due diligence, including a performance review of every loan.

Three-quarters of these loans are delinquent, in default, foreclosure, bankruptcy or repossession, the complaint said.

Bear Stearns, now a unit of JPMorgan Chase, sold Cambridge US$65 million of securities. It owned three mortgage lenders and told Cambridge it sampled the loans it sold to check underwriting procedures, borrower documentation and compliance, the complaint said.

Among others named in the suit are Bank of America, Barclays, Citigroup, Countrywide, Deutsche Bank, Goldman Sachs, Merrill Lynch, Morgan Stanley and UBS. All of those, as well as Credit Suisse and JPMorgan, declined to comment.

FAILURE TO TELL THE TRUTH

Cambridge’s lawyers brought its case in Massachusetts under laws barring those who sell securities from making false statements about them or omitting material facts. A senior partner at Bernstein Litowitz Berger Grossmann, which represents Cambridge, said: “This case represents yet another example of Wall Street banks’ failure to live up to their basic responsibility to investors — to tell the truth about the securities they are selling.”

The firm has jousted with Wall Street underwriters before.

In 2004, it recovered US$6 billion in a suit against banks that underwrote debt issued by WorldCom, the defunct telco. Ms Denise L Cote, the federal judge overseeing that matter, concluded that because investors rely so heavily on underwriters, courts must be “particularly scrupulous in examining the conduct”, she said.

It is too soon to tell if investors will recover losses in mortgage securities. But the efforts are reminiscent of those in the mid-90s against brokerage firms that cleared trades and provided capital to dubious penny-stock outfits. For decades, companies that cleared such trades — Bear Stearns was a big one — escaped liability for fraud at these socalled “BUCKET SHOPS”.

But regulators went after clearing firms by accusing them of facilitating such acts; in a 1999 lawsuit, the Securities and Exchange Commission accused Bear Stearns of enabling a fraud at AR Baron. Bear Stearns paid US$35 million in fines and restitution to settle the case.

If trust in capital markets is to return, investors must be able to believe what they read in prospectuses.

Without that minimum standard, how can Wall Street expect the markets to function again? ¢ THE NEW YORK TIMES

The writer is assistant business and financial editor and a columnist at The New York Times. She won the Pulitzer Prize in 2002 for her “trenchant and incisive” coverage of Wall Street.

Goldman Sachs, Citigroup and Morgan Stanley have been sued by a Boston-based fund seeking reimbursement for losses related to sub-prime loans, according to lawyers for the firm.

Cambridge Place Investment Management, founded by ex-Goldman Sachs bankers, lost more than US$1.2 billion ($1.66 billion) as a result of the banks’ untrue statements, the company claims in a complaint filed on July 9 in state court in Massachusetts.

The banks sold securities backed by mortgages that came from a “small group of now notorious subprime mortgage originators”, used faulty appraisals, accepted misleading information in loan applications and violated their own standards for underwriting, the firm claims. The banks offered or sold US$2.4 billion of residential mortgage-backed securities using untrue statements, according to the lawsuit.

“The Wall Street banks created an environment of improper lending practices, conducted inadequate due diligence and failed to satisfy their own responsibilities,”

Cambridge Place said in the lawsuit. BLOOMBERG

¢

Fremont Investment Loan approved loans for pizza delivery men with reported monthly incomes of US$6,000.

Long Beach Mortgage made loans to selfemployed borrowers based on three letters of reference from past employersAbout the Cambri dge Place suit ...

STI opens higher

Stocks rally on Alcoa profit, Greek auction

After the close, Intel reported higher quarterly sales and earnings that rose from a year ago and topped expectations. It was the company's best quarter ever, reflecting strong demand from business customers.

The Dow Jones industrial average (INDU) added 147 points, or 1.4%. The S&P 500 (SPX) index rose 16 points, or 1.5%, and the Nasdaq (COMP) composite jumped 44 points, or 2%.

Aluminum giant Alcoa (AA, Fortune 500) reported higher quarterly sales and earnings that topped estimates late Monday, beginning the quarterly reporting period on a positive note. The Dow component also estimated that aluminum demand would rise by 12% this year, versus the previous forecast for a rise of 10%.

Profits are expected to have risen about 27% in the second quarter versus a year ago, while revenue is expected to have jumped 9%.

But investors will focus more on what companies say about the second half of the year.

Investors are hoping to see that corporate profits have held up despite recent worries about the pace of the economic recovery and the European debt crisis. Those worries sent the major gauges down over 15% in two months.

But in the last week stocks have rebounded, with the major gauges jumping 5% last week to post the biggest weekly gains in a year. Stocks were mixed Monday before resuming the rally Tuesday.

"The market was oversold on the fear and panic regarding Europe and the threat of contagion," said William McDermott, managing director at Morgan Joseph. "Now a few earnings reports and guidance have turned things around."

However, he said that a lot of the rally has been about traders and funds jumping in and deciding to follow the momentum for the short term. Whether the rally is sustainable will depend on the earnings forecasts and continued news out of Europe in the upcoming weeks, he said.

"There was tremendous pessimism for weeks, followed by a strong rally off the lows," said Larry Glazer, managing director at Mayflower Advisors.

But he cautioned that there are still negatives lurking, including the impact of financial reform, worries about debt and the weakness in the housing and labor markets.

Results: Also after the close Monday, railroad operator CSX (CSX, Fortune 500) reported higher-than-expected quarterly sales and earnings. However, shares fell Tuesday.

Other Dow companies reporting this week include JPMorgan Chase (JPM, Fortune 500) on Thursday and General Electric (GE, Fortune 500) and Bank of America (BAC, Fortune 500) on Friday. Also on tap: Google (GOOG, Fortune 500) on Thursday and Citigroup (C, Fortune 500) on Friday.

AIG: Shares of the troubled insurance giant surged about 6% after reports said the AIG (AIG, Fortune 500) board plans to meet on Wednesday to discuss a public offering of its Asian life insurance division, AIA.

A sale or public offering of that unit is a crucial part of AIG's strategy to raise funds by divesting divisions of its company to pay back the $102 billion it owes U.S. taxpayers.

Europe: Moody's cut Portugal's debt rating two notches to A1 with a stable outlook. The rating is still investment grade; however, the agency says it expects the country's outlook is "likely to remain relatively week."

Last month, news that a ratings agency had cut its rating on one of the so-called PIIGS -- Portugal, Italy, Ireland, Greece and Spain -- would have sent stocks lower.

But investors seemed willing to shrug off Portugal's downgrade, after Greece staged a successful auction of its government debt, raising about $2 billion to repay some of the country's outstanding loans.

The news boosted European markets and sent the euro to a fresh two-month high against the dollar.

European markets gained, with Britain's FTSE 100, Germany's DAX and France's CAC 40 all climbing about 2%.

Asian markets ended lower. Japan's Nikkei fell 0.1%, Hong Kong's Hang Seng lost 0.2% and the Shanghai Composite fell 1.6%.

Currencies: The euro gained versus the dollar, posting a two-month high in intra-day trade. The greenback also fell versus the Japanese yen.

Commodities: U.S. light crude oil for August delivery rose $2.29 to settle at $77.15 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery gained $12.60 to settle at $1,213.50 an ounce.

Bonds: Treasury prices fell, raising the yield on the 10-year note to 3.11% from 3.05% late Tuesday. Debt prices and yields move in opposite directions.

Market breadth: Breadth was positive and volume was fairly light. On the New York Stock Exchange, winners beat losers by 7 to 1 on volume of 1.13 billion shares. On the Nasdaq, advancers beat decliners 5 to 1 on volume of 2.35 billion shares.

Stocks set for early gains

At 5 a.m. ET, Dow Jones industrial average (INDU), S&P 500 (SPX) and Nasdaq (COMP) futures were higher.

World markets: In Europe, Britain's FTSE 100, Germany's DAX and France's CAC 40 were all up more than 1% in morning trading.

Asian markets ended the session in negative territory. The Shanghai Composite tumbled 1.6% while the Hang Seng in Hong Kong and Japan's Nikkei edged lower. 

STI lower at midday

Stocks seesaw ahead of corporate results

The Dow Jones industrial average (INDU) added 18 points or 0.2%, while the S&P 500 (SPX) index and Nasdaq (COMP) each gained around 0.1%

After the close, Dow component Alcoa (AA, Fortune 500) reported quarterly earnings of 13 cents per share, beating expectations by a penny and showing a big improvement from a year ago when the aluminum producer posted a quarterly loss. Alcoa also reported higher sales versus a year ago that topped forecasts.

The company also boosted its forecast for aluminum demand to 12% from 10% for 2010. Shares gained 3% after the close.

Railroad operator CSX (CSX, Fortune 500) reported higher-than-expected quarterly sales and earnings, sending shares up in extended-hours trading.

Four other Dow names report this week: Intel (INTC, Fortune 500) on Tuesday, JPMorgan Chase (JPM, Fortune 500) on Thursday and General Electric (GE, Fortune 500) and Bank of America (BAC, Fortune 500) on Friday.

BP: BP is closer to containing the Gulf of Mexico spill and is also reportedly in talks to sell itself or at least some of its assets.

BP (BP) shares jumped 8% after multiple published reports said U.S. oil behemoths Exxon Mobil (XOM, Fortune 500) and another big firm, likely Chevron (CVX, Fortune 500), have sought government approval to make a bid for U.K.-based BP that could be worth $150 billion.

Separately, reports said that a deal with Houston-based Apache could be in the works to sell its stake in the Prudhoe Bay project in Alaska for as much as $10 billion.

In addition, the company said it has made progress with the latest capping system and that the relief well it is drilling should be usable by mid-August, in line with earlier projections.

Company news: Insurance brokerage Aon Corporation (AON, Fortune 500) is set to buy outsourcing company Hewitt Associates (HEW) in a $4.9 billion cash-and-stock deal. Shares of Hewitt jumped 32%, while Aon shares lost 7%.

Playboy (PLA) shares rallied 39% after founder Hugh Hefner proposed to take the company private. Following the announcement, rival Penthouse said it would place a bid.

Weyerhaeuser (WY, Fortune 500) shares jumped 8.3% after the wood products company said it will pay a special dividend of $5.6 billion - a step required as it transitions into becoming a real estate investment trust.

Wall Street reform: Congress plans to resume its work on financial reform this week after it took a summer recess on July 2. A key Republican senator, Scott Brown, R-Mass, announced his support for the Wall Street reform bill on Monday, placing Senate Democrats within one vote of getting around a filibuster and passing the bill.

The final bill includes measures to strengthen consumer protection, shine a light on complex financial products, create a new process for closing so-called "too big to fail" firms, and making them stronger to prevent such failure.

World markets: European markets gained, with Britain's FTSE 100 rising 0.7%, Germany's DAX advancing 0.2% and France's CAC 40 climbing 0.3%.

Asian markets ended mixed. Japan's Nikkei fell 0.4%, Hong Kong's Hang Seng gained 0.4% and the Shanghai Composite rose 0.8%.

Currencies: The euro fell versus the dollar, while the U.S. currency fell versus the Japanese yen.

Commodities: U.S. light crude oil for August delivery fell $1.24 to $74.84 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery lost $10 to $1,199.80 an ounce.

Bonds: Treasury prices rose, lowering the yield on the 10-year note to 3.05% from 3.06% late Friday. Debt prices and yields move in opposite directions.

Market breadth: Breadth was negative and volume was fairly light. On the New York Stock Exchange, losers beat winners by about 2 to 1 on volume of 855 million shares. On the Nasdaq, decliners topped advancers by more than 2 to 1 on volume of 1.78 billion shares.