U.S. Stocks Advance on Earnings; Citigroup, Google Shares Climb

U.S. stocks rose for a fourth day, poised for the best week since February, after companies from Citigroup Inc. to Google Inc. to Caterpillar Inc. reported results that exceeded analysts' estimates.

The market, battered last week by General Electric Co.'s disappointing results, rallied today after Citigroup's loss was less than the most pessimistic projections and profits at Google and Caterpillar were boosted by overseas growth. Honeywell International Inc. and Xerox Corp. also climbed on better-than- forecast results. All 10 industry groups in the Standard & Poor's 500 Index rose, extending its weekly gain to 4.3 percent.

The panic is overdone, and before you know it things are going to be just fine, said Michael Williams, who helps oversee about $2.8 billion as managing director of Genesis Asset Management in New York. The world's ticking along just fine.

The S&P 500 added 28.85, or 2.1 percent, to 1,394.41 at 12:45 p.m. in New York. The Dow Jones Industrial Average rallied 262.09, or 2.1 percent, to 12,882.58. The Nasdaq Composite Index increased 68.32, or 2.9 percent, to 2,410.15. Six stocks rose for each that fell on the New York Stock Exchange. European shares advanced, while Asia's benchmark index retreated.

Profits exceeded analyst estimates at 58 of the 100 companies in the S&P 500 that have released first-quarter results so far, even as earnings fell an average 37 percent from a year earlier, according to Bloomberg data. Overall, earnings are forecast to decline 12.3 percent in the first quarter, marking the third straight decrease.

S&P 500 Rebound

While the S&P 500 has rebounded 9.5 percent from a 19-month low on March 10, the benchmark for American equities is still down 5 percent in 2008. Companies in the index trade for an average 14.8 times estimated profits, the cheapest in 18 years when prices are compared with historical earnings.

Citigroup increased $1.77, or 7.4 percent, to $25.80. The bank said revenue fell 48 percent to $13.2 billion, topping the average estimate of $11.1 billion from analysts surveyed by Bloomberg. The first-quarter net loss of $1.02 a share compared with the $1.66 loss predicted by Merrill Lynch & Co.'s Guy Moszkowksi, Institutional Investor's top-rated brokerage analyst.

A lot of people were worried that we'd have a big negative surprise, Edgar Peters, chief investment officer at PanAgora Asset Management in Boston, which oversees $25 billion, said in a Bloomberg Television interview. When we didn't have a big negative surprise, that was a positive surprise.

Google, Caterpillar

Google rallied $94.04, or 21 percent, to $543.58, the most since its August 2004 initial public offering and the biggest gain in the S&P 500. The owner of the most popular Internet search engine said sales rose 46 percent as more users clicked on text advertisements. Overseas sales, accounting for 51 percent of revenue, increased 55 percent.

Caterpillar Inc. rose $6.20 to $84.79 for the biggest gain in the Dow average. First-quarter earnings rose 13 percent, topping analysts' estimates, as sales to China and India increased. Caterpillar in 2007 garnered 62 percent of revenue outside the U.S, according to Bloomberg data.

The dollar has fallen 5.8 percent against a basket of six major currencies this year following an 8.3 percent decline last year, making U.S. products cheaper overseas and increasing the dollar value of sales denominated in those currencies. Coca-Cola Co. and International Business Machines Corp. this week reported profits enhanced by the dollar's drop.

Dollar Advantage

Companies in the S&P 500 garnered 44 percent of their sales from outside the U.S. in 2006 and an estimated 47 percent to 48 percent in 2007, according to Standard & Poor's. The U.S. currency weakened to a record low of almost $1.60 per euro yesterday.

Honeywell International Inc. climbed $3.56 to $60.96. The world's largest maker of cockpit displays said first-quarter earnings rose 22 percent, more than analysts estimated, on sales of aircraft and building controls. Record oil prices led to more sales of refining equipment produced by Honeywell's specialty- materials division. The company, whose overseas sales accounted for 39 percent of revenue last year, said annual profit will be at the high end of the range it predicted in December.

Schlumberger Ltd., the world's biggest oilfield contractor, added $6.02 to $101.32. The company said first-quarter profit rose 13 percent as record oil prices prompted increased drilling by customers worldwide.

Xerox Corp. rose 39 cents to $14.89. The world's largest maker of high-speed color printers said first-quarter revenue rose 13 percent, more than analysts estimated. Chief Executive Officer Anne Mulcahy said the company is seeing steady improvement in markets including Russia, East Europe and India. It faces a challenging market in the U.S. where some companies are now delaying decisions on larger equipment purchases, she said.

E*Trade Financial Corp. rose 34 cents to $3.96. The online brokerage that posted a first-quarter loss of $91.2 million said it expects to return to profitability this year.

Newmont Mining Corp., the world's second-largest gold producer by volume, slid $1.27, or 2.7 percent, to $46.25 for the biggest drop in the S&P 500. Gold futures tumbled 2.8 percent to $916.60 an ounce.

Google in the eye of a slowdown

Google is sitting squarely in a troubling three-month slowing trend, and only some deft moves can spare the search giant from an apparent first-quarter shortfall.

ComScore numbers once again confirmed that people are searching less and clicking on advertisements at a much slower rate as the economy tanks and consumer spending pulls back. In March, Google’s paid clicks grew 2.7% over year-ago levels putting first-quarter paid click growth at 1.8%, a big slowdown from the 25% rate in the previous quarter and well below the 48% pace in the third quarter.

When your revenue engine is almost entirely fueled by Internet searches and ads clicks, it’s probably wise to watch your gauges. Analysts’ estimates for Google’s first quarter have been cut sharply ever since this trend was first spotted in January. But Google fans say the company has been honing its search efficiency and raising prices to offset the slump.

Additionally, some analyst point to Google’s ability to increase its U.S. market share to 55% in March from 53% at the beginning of the year.

Google reports earnings after the market closes Thursday. Analysts are looking for adjusted earnings of $4.52 a share on sales of $3.61 billion in the first quarter ended last month. That calls for a top line growth rate of 42% over last year’s revenue level.

If the company made adjustments, the chances of disappointing Wall Street will be limited. But if ComScore’s numbers are any indication, writes Henry Blodget of Silicon Alley Insider, Google “will miss by a mile.”

JPMorgan Net Drops 50%, Matching Analysts' Estimates

JPMorgan Chase & Co., the third- biggest U.S. bank, said the credit-market crisis is almost over after it reported a 50 percent drop in first-quarter profit on $5.1 billion of writedowns and provisions.

JPMorgan rose as much as 5.4 percent in New York trading as the losses from home-equity loans, financing for leveraged buyouts and subprime mortgages were smaller than analysts predicted and revenue exceeded expectations. Net income dropped to $2.37 billion, or 68 cents a share, matching estimates.

In this environment, being able to post earnings as they did is I think all-in good news, Charles Bobrinskoy, vice chairman of Ariel Capital Management LLC in Chicago, which owned more than 611,000 JPMorgan shares as of Dec. 31, said in a Bloomberg Television interview.

JPMorgan, which has posted about $10 billion of writedowns and losses since the beginning of last year, is now grappling with a sagging labor market that has hurt clients' ability to pay credit cards and consumer loans on time. The New York-based company set aside $1.1 billion in the first three months of 2008 for future home-equity loan defaults, after boosting those provisions by $395 million in the fourth quarter.

Chief Executive Officer Jamie Dimon, 52, said on a conference call with reporters that the credit-market crisis is more than halfway finished as financial firms reduce leverage, and may be as much as 80 percent over.

That side is working itself out, Dimon said. That doesn't mean the recession won't get worse or better.

Revenue Declines

Revenue fell 11 percent to $16.9 billion, compared with the average estimate of $16.8 billion among analysts surveyed by Bloomberg. Return on equity, a gauge of how effectively the company reinvests earnings, was 8 percent, compared with 17 percent a year earlier.

Profit declined from $4.79 billion, or $1.34 a share, in the same quarter a year earlier. Earnings matched the average estimate of 15 analysts surveyed by Bloomberg, and beat Thomson Financial's survey by 4 cents a share.

Wells Fargo & Co., the biggest bank on the U.S. West Coast, said first-quarter profit dropped 11 percent to $2 billion, a smaller decline than analysts estimated because the company was able to limit losses from home-price declines in California.

JPMorgan rose $2.16, or 5.2 percent, to $44.28 in composite trading at 12:26 p.m. on the New York Stock Exchange. The shares had fallen almost 16 percent in the past 12 months through yesterday, compared with 57 percent at bigger rival Citigroup Inc. Bank of America Corp., the second-largest U.S. bank by assets, has declined 30 percent.

Investment Banking

The investment-banking division lost $87 million in the first quarter, compared with profit of $1.5 billion in the year- earlier period. Revenue from that business fell by half as JPMorgan marked down $1.1 billion of leveraged loans and $1.2 billion of mortgage-related securities.

Profit from asset management dropped 16 percent to $356 million.

Consumer banking had a loss of $227 million after the bank increased its subprime-related provisions by $417 million. Chief Financial Officer Michael Cavanagh said on the call that the bank expects credit-card charge-offs to gradually rise during the rest of this year.

Dimon said home prices could fall another 7 percent to 9 percent this year, putting pressure on all mortgage-related assets including loans made to people with the best credit.

The banks have a lot of credit losses they're going to have to work through, Ryan Lentell, an analyst at Morningstar Inc. in Chicago, said in a Bloomberg Television interview.

Writedown Estimates

CreditSights Inc. analyst David Hendler estimated in an April 7 research note that JPMorgan's first-quarter losses and provisions would be $7.5 billion, including leveraged loans and mortgages.

Credit-default swaps tied to JPMorgan's bonds fell 6 basis points to 90 basis points, according to broker Phoenix Partners Group. The contracts, used to speculate on corporate creditworthiness or to hedge against losses, decline as investor confidence improves.

U.S. employers cut 80,000 jobs in March -- the most workers in five years -- and the unemployment rate rose to 5.1 percent, the highest since September 2005. The economy also lost jobs in January and February, according to Labor Department figures released April 4.

Consumers fell behind on credit-card, home-equity and auto loans at the fastest pace in 15 years during the fourth quarter of last year, according to a survey by the American Bankers Association released April 3.

Bear Stearns

JPMorgan agreed to acquire New York-based Bear Stearns Cos., once the fifth-biggest U.S. securities firm, on March 16 after lenders and clients fled on concern the company faced a cash shortage. JPMorgan, which got financial support from the Federal Reserve, raised the purchase price from $2 a share to $10 a week later to quell concerns that Bear Stearns shareholders would reject the deal.

Cavanagh said on the conference call with reporters that it's too early to say how many jobs will be lost in the takeover.

The acquisition doesn't preclude JPMorgan from pursuing other deals and the bank is looking at everything, Dimon said.

JPMorgan recently made a bid for Washington Mutual Inc., the largest U.S. savings and loan, according to a person familiar with the talks. Washington Mutual sold $7 billion in shares to an investor group led by private-equity firm TPG Inc. instead of accepting a buyout.

Lehman's Fuld Says `Worst Is Behind Us' in Crisis

Richard Fuld, chief executive officer of Lehman Brothers Holdings Inc., told shareholders the worst is behind us in the credit-market contraction that has cost the biggest banks and brokerages $245 billion so far.

Fuld, speaking at the annual shareholders meeting of his New York-based firm, said the current environment remains challenging.

The comments echo those of Lloyd Blankfein, chief executive officer of Goldman Sachs Group Inc., who told shareholders at the firm's annual meeting last week that we're closer to the end than the beginning of the crisis. John Mack, Morgan Stanley's CEO, said last week that the credit-market contraction will probably last a couple of quarters longer.

Lehman's chief financial officer, Erin Callan, said in an interview on April 11 that the firm had faced a very, very tough month, in March. I don't see what the real catalyst for change would be over the next several months, she said. We've got to look out to 2009 for where we're going to change.

Lehman, the fourth-largest U.S. securities firm, said on April 9 it had to bail out five short-term debt funds last quarter that were crippled by frozen credit markets. The firm took $1.8 billion of assets from the funds onto its books at the time, and recorded a $300 million loss. Earlier this month Lehman raised $4 billion from a stock sale, seeking to quell concern the firm was low on capital.

Sending a Message

Fuld said at the meeting that the sale was intended to strengthen capital and send a message to investors. He said the firm will continue to reduce leverage by selling assets, and can counter market rumors with good performance.

March was difficult because the collapse of Bear Stearns Cos. in the middle of the month created a sense of fear and paralysis about the securities industry, Callan said.

Derivatives used to hedge cash securities also diverged widely from their usual levels, she said. Investors were using indexes of credit-default swaps, which typically rise when perceptions of company creditworthiness worsen, to hedge against losses on everything from stocks to collateralized debt obligations. The indexes started to drop in mid-March at a faster rate than underlying securities improved, leaving investors with losses.

The world's biggest banks have recorded $245 billion in asset writedowns and credit losses since the beginning of 2007. Lehman avoided the much bigger losses reported by rivals such as Merrill Lynch & Co., which posted $25.1 billion of writedowns in the second half of last year.

Lehman, down 40 percent this year on the New York Stock Exchange, declined 9 cents to $39.29 at 11:58 a.m.

Oil, Gasoline Climb to Records as Investors Move to Commodities

Crude oil and gasoline rose to records as investors purchased commodities because their returns have outpaced stocks, bonds and other financial instruments.

Oil climbed to $113.93 a barrel in New York, the highest since futures began trading in 1983. Rising global demand for raw materials and a weakening dollar have led to record prices this year for commodities including corn, rice and gold. China said today diesel imports surged 49 percent in March.

Developing countries are still growing, which is boosting demand for metals, grains and energy, said Eric Wittenauer, an energy analyst at Wachovia Securities in St. Louis. It makes sense for investors and hedge funds to invest in these commodities with the weakness of other markets.

Crude oil for May delivery rose $1.80, or 1.6 percent, to $113.56 a barrel at 11:42 a.m. on the New York Mercantile Exchange.

Gasoline for May delivery climbed 3.9 cents, or 1.4 percent, to $2.8608 a gallon in New York. Futures touched $2.8715 today, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

U.S. pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.3 cents to a record $3.3386 a gallon, AAA, the nation's largest motorist organization, said today on its Web site.

Oil has risen 39 percent and the dollar has dropped 12 percent against the euro since the Federal Reserve began lowering interest rates on Sept. 18.

`Attractive' Investment

This is where the funds want to be, said Daniel Flynn, a broker with Alaron Trading Corp. in Chicago. Rate cuts and a weak stock market make commodities very attractive.

The UBS Bloomberg Constant Maturity Commodity Index, which tracks 26 raw materials, gained 0.9 percent to 1503.347 today. It's up 35 percent from a year ago.

Oil in New York surged 79 percent over the past year as the Standard & Poor's 500 Index dropped 9.8 percent and the Dow Jones Industrial Average declined 3.5 percent.

It doesn't look like there's anything to get in the way of the oil market, said Chip Hodge, a managing director at MFC Global Investment Management in Boston, who oversees a $4.5 billion energy-company bond portfolio. As long as the dollar goes lower, more money will go into commodities.

Exxon Mobil Corp. and Chevron Corp. led energy shares to the highest level since January because of rising oil and gasoline prices. Exxon, the biggest U.S. oil company, climbed 26 cents to $89.96. Chevron, the country's second biggest, added 24 cents to $89.54.

Demand Growth

The Organization of Petroleum Exporting Countries left its forecast for 2008 oil demand at 86.97 million barrels a day, a 1.2 million barrel-a-day gain over 2007, according to the group's monthly demand report today. OPEC's 13 members produce more than 40 percent of the world's oil.

China, the world's second-largest energy consumer, increased diesel imports as state refiners China Petroleum & Chemical Corp. and PetroChina Co. bought more to ensure supplies for the spring planting season.

Chinese oil demand this year will rise 4.7 percent to 7.9 million barrels a day, the International Energy Agency said in a report on April 11.

Brent crude for May settlement rose $1.73, or 1.6 percent, to $111.57 a barrel on London's ICE Futures Europe exchange. The contract touched a record $112.08 a barrel.

Petroleos Mexicanos, the third-largest supplier of crude oil to the U.S., reopened two of its oil-export terminals on the Gulf of Mexico after closing them April 13 because of heavy winds and rain. The terminals at the ports of Pajaritos and Cayo Arcas opened this morning, said Martha Avelar, a spokeswoman for Mexico City-based Pemex, as the company is known.

The Pacific port of Salina Cruz and the Gulf port of Dos Bocas are still closed, Avelar said.

U.S. Stocks Slide on Unexpected Drop in General Electric Profit

U.S. stocks tumbled the most in three weeks after General Electric Co. stunned investors by reporting a decline in profit and consumer confidence fell to the lowest level since the early days of Ronald Reagan's presidency.

GE, the world's biggest maker of power-plant turbines, jet engines and locomotives, dropped the most in 20 years after first-quarter earnings slumped 12 percent because of failed asset sales and losses at its finance businesses. The plunge triggered the worst retreat since 2001 for industrial shares as United Technologies Corp., 3M Co. and Honeywell International Inc. also slid. All 10 industry groups in the Standard & Poor's 500 Index decreased except for utilities as the benchmark for U.S. equities extended its biggest weekly drop in a month.

We are seeing the collateral damage to the economy, Bill Strazzullo, chief market strategist at financial advisory firm Bell Curve Trading, said in an interview with Bloomberg Television. Things are getting worse.

The S&P 500 sank 27.72 points, or 2 percent, to 1,332.83 and lost 2.7 in the week. The Dow average tumbled 256.56, or 2 percent, to 12,325.42. The Nasdaq Composite Index dropped 61.46, or 2.6 percent, to 2,290.24. More than nine stocks declined for every one that rose on the New York Stock Exchange. European shares reversed gains after GE's report. Asian markets, which closed before GE's results, rose for a second day.

Earnings Slump

GE's results capped the first week of an earnings season that is projected to mark the third straight quarter of declining profits. Alcoa Inc., the first company in the Dow to report results, posted earnings that trailed estimates on April 7 and Advanced Micro Devices Inc. said first-quarter sales fell short of forecasts. The next day United Parcel Service Inc. lowered its earnings estimate because of higher fuel prices and a weakening economy.

Stocks also retreated after the Reuters/University of Michigan preliminary index of confidence among U.S. consumers slumped to a 26-year low of 63.2 in April as the labor market continued to weaken and gasoline prices rose.

GE lost $4.70, or 13 percent, to $32.05. The company said profit from continuing operations dropped to $4.36 billion, or 44 cents a share, from $4.93 billion, or 48 cents, a year ago, trailing the average analyst estimate of 51 cents. GE's miss came without warning after it was forced to reduce the value of some securities in the last two weeks of March as capital markets seized, Chief Executive Officer Jeffrey Immelt said.

`Credibility Concerns'

Immelt cut the $2.42-a-share 2008 profit forecast, which he had called in the bag in December and had repeated as recently as March 13, to as little as $2.20 a share.

Goldman Sachs Group Inc. downgraded GE to neutral, saying the company's surprise profit decline raises credibility concerns.

GE's tumble wiped out almost $47 billion in value, more than the combined market capitalization of fellow Dow components Alcoa and General Motors Corp.

Industrial stocks including United Technologies fell after GE's report signaled the U.S. economy may be worsening. United Technologies, the maker of Otis elevators and Pratt & Whitney jet engines, slid $2.32, or 3.2 percent, to $69.53. Honeywell, the world's largest maker of airplane instruments, lost $1.81, or 3.1 percent, to $56.99. 3M, the maker of 50,000 products, slid $1.88 to $78.47.

The S&P 500 Industrials Index dropped 4.6 percent for the biggest decline among 10 industries in the S&P 500.

Reduced Profit Estimates

GE is indicative of what's going on in the world economy, Benjamin Pace, who helps oversee about $60 billion as chief investment officer at Deutsche Bank Private Wealth Management in New York, said in an interview with Bloomberg Television.

Analysts have reduced profit estimates for 14 straight weeks this year on concern the fallout from the subprime mortgage market's collapse has spread beyond financial companies. Earnings at companies in the S&P 500 are forecast to fall an average 12.3 percent in the first quarter and 3.8 percent in the second, according to estimates compiled by Bloomberg. Profits at companies outside the financial industry are estimated to have grown 5.8 percent.

Analysts this week forecast for the first time that European companies' earnings will shrink in 2008.

`Very Tough Month'

Financial stocks declined 1.8 percent, led by JPMorgan Chase & Co., the third-largest U.S. bank, and American International Group Inc., the largest insurer by assets. Erin Callan, chief financial officer of Lehman Brothers Holdings Inc., said the global credit market crisis worsened last month and recovery for the securities industry may take until next year.

March was a very, very tough month, Callan, 42, said in a Bloomberg Television interview in New York. I don't see what the real catalyst for change would be over the next several months. We've got to look out to 2009 for where we're going to change.

JPMorgan lost $1.33, or 3 percent, to $42.53. AIG dropped $1.51, or 3.3 percent, to $44.05.

Washington Mutual Inc., the largest U.S. savings and loan, slid 47 cents to $10.95 after Goldman analysts recommended selling the shares short. The company will probably lose $3.30 a share this year, Goldman analysts, including New York-based James Fotheringham, said in a note to investors. Goldman previously forecast a 2008 loss of $1 a share.

BlackRock Inc., the largest publicly traded money manager in the U.S., fell $12.89 to $207.50. The stock lost buy ratings from analysts at Goldman and Wachovia Corp. after the shares rose 39 percent in the past year.

Frontier Bankruptcy

Frontier Airlines Holdings Inc. plunged $1.09, or 69 percent, to 48 cents after the U.S. discount carrier that serves 70 destinations from Denver filed for bankruptcy protection, becoming the fourth U.S. airline to do so in less than a month. Frontier said it took the step after its main credit-card processor began withholding proceeds from ticket sales.

CIT Group Inc., the commercial finance company trying to escape a cash squeeze, fell for a fourth day, dropping 57 cents, or 4.6 percent, to $11.79 on concern that earnings may be worse than forecast. JPMorgan Chase & Co. analyst George Sacco lowered his 2008 profit estimate 56 percent yesterday to $1.95 a share, from $4.45, forecasting lower fee revenue and losses from student lending. CIT said on April 3 its unprofitable student-lending unit stopped making government-guaranteed loans.

Hershey Co. dropped $2.46, or 6.4 percent, to $35.89. The largest U.S. candy maker was cut to underperform from market perform by Sanford C. Bernstein & Co. analysts who reduced their annual earnings estimate to $1.81 a share from $1.91 on weaker sales growth.

Nvidia

Nvidia Corp. had the third-steepest drop in the S&P 500, declining $1.35, or 6.8 percent, to $18.53. Deutsche Bank analyst Arnab Chanda lowered the price target for Nvidia, the world's second-largest maker of computer-graphics chips, to $22 from $24 and said slowing demand for personal computers is likely to hurt the company.

About 1.3 billion shares traded on the NYSE, 24 percent below the three-month daily average.

The Chicago Board Options Exchange Volatility Index climbed to the highest this month, gaining 6.7 percent to 23.46. The so- called VIX, a gauge of how much investors are paying for insurance against stock-market losses, had dropped 32 percent from its peak this year through yesterday.

The Russell 2000 Index, a benchmark for companies with a median market value 95 percent smaller than those in the S&P 500, fell 2.7 percent to 688.16. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, dropped 2 percent to 13,455.24. Based on its retreat, the value of stocks decreased by $346 billion.

Treasuries rose, snapping a three-week slide in two-year notes, as the stock market's decline boosted demand for the fixed returns of government debt. Traders have stepped up bets this week that the Federal Reserve will cut its benchmark lending rate by as much as a half-percentage point at its April 30 meeting to bolster the economy.

Oil Is Little Changed After Touching Record on Drop in Supplies

Oil was little changed in New York after touching a record $112.21 a barrel yesterday following an unexpected decline in U.S. crude supplies.

The 3.1 million-barrel drop in crude-oil stockpiles reported by the Energy Department sent the price up as much as 3.4 percent yesterday. Gasoline futures jumped as much as 2.6 percent to their highest ever. At the pump, U.S. consumers are paying a record $3.343 a gallon, said the American Automobile Association, the nation's largest motorist organization.

This reaction to the DOE numbers suggests that the supply and demand fundamentals are still important, said Adam Sieminski, Deutsche Bank's chief energy economist in Washington. It's not just the speculators that are driving prices higher.

Oil's 80 percent gain during the past year is the second biggest among 19 commodities on the Reuters/Jefferies CRB Index, trailing only wheat, which doubled. Rising global demand for raw materials and a weakening dollar have led to records this year for raw materials including corn, soybeans, rice and gold.

Crude oil for May delivery fell 31 cents to $110.56 a barrel at 9:27 a.m. Sydney time in after-hours trading on the New York Mercantile Exchange. Yesterday, futures climbed $2.37, or 2.2 percent, to settle at $110.87 a barrel, a record close. The intraday peak of $112.21 a barrel was the highest since Nymex futures trading began in 1983.

Record Pump Prices

Gasoline for May delivery fell 0.13 cent to $2.7729 a gallon after climbing 2.38 cents, or 0.9 percent, to close at $2.7742 a gallon yesterday. Futures had reached $2.8228, an intraday record for gasoline to be blended with ethanol, known as RBOB, which began trading in October 2005.

U.S. pump prices are following futures higher. Regular gasoline, averaged nationwide, rose 1.2 cents to the record, AAA said yesterday on its Web site. Diesel prices advanced 1.2 cents to $4.032 a gallon, AAA said. Diesel pump prices reached a record $4.037 on March 22.

Rising fuel prices and cooling demand will produce first- quarter losses at five of the seven biggest U.S. airlines, based on Bloomberg surveys of analysts. Four of the nation's five biggest airlines, all except AMR Corp.'s American Airlines, have started charging some passengers $25 for a second checked bag to blunt rising fuel costs.

Inflation has also been a source of concern, with higher commodity prices and the weaker dollar, Federal Reserve Chairman Ben S. Bernanke told Congress's Joint Economic Committee on April 2.

Demand May Drop

At the same time, Bernanke said the Fed expects inflation to moderate in coming quarters, echoing the Federal Open Market Committee's March 18 statement. A leveling out of commodity prices and slower global growth will help, Bernanke said.

U.S. gasoline demand may drop by 85,000 barrels a day this summer, Guy Caruso, administrator of the Energy Information Administration, said April 7. In 1991, gasoline use fell 1.4 percent in the summer, following a nine-month recession during George H.W. Bush's presidency, Caruso said.

Refineries operated at 83 percent of capacity last week, down from 88.4 percent a year earlier, the Energy Department report showed. Refiners operated at 82.2 percent in the week ended March 21, the lowest since October 2005.

The report is supportive across the board, said Tim Evans, an energy analyst at Citigroup Global Markets Inc. in New York. I'm surprised gasoline isn't up more because of the larger-than-expected drop in inventories.

Fog Delays

Supplies of gasoline and distillate fuel, including heating oil and diesel, also fell. Gasoline inventories dropped 3.44 million barrels to 221.3 million last week, yesterday's report showed. A 3-million-barrel decline was expected.

Crude-oil imports fell 13 percent to 8.91 million barrels last week, the report showed.

Most of the drop occurred on the Gulf Coast, which could be a result of fog delays in the Houston Ship Channel or because refiners may have been purchasing less oil, Evans said.

Inventories on the Gulf of Mexico coast, known as PADD 3, fell 2.4 million barrels to 167.1 million barrels, the report showed, the biggest drop since the week ended Jan. 4.

Crude-oil supplies last week were 316 million barrels, 0.1 percent above the five-year average for the period, the department said. A week earlier stockpiles were 1.8 percent higher. Gasoline inventories were 7.9 percent above the five- year average, compared with 9.1 percent above a week earlier.

Heating Oil

Heating oil for May delivery rose 12.43 cents, or 4 percent, to settle at a record $3.2345 a gallon in New York yesterday. Futures touched an intraday record of $3.2561 a gallon.

Supplies of distillate fuel fell 3.7 million barrels to 106 million last week, the report showed. A 1.5 million barrel decline was forecast.

Brent crude for May settlement rose $2.13, or 2 percent, to settle at a record $108.47 a barrel on London's ICE Futures Europe exchange yesterday. Futures earlier reached the highest- ever intraday level of $109.50.

It looks like this move will accelerate and prices will move toward $115, said Tom Bentz, a broker at BNP Paribas in New York. This is all part of the big uptrend, and where it stops nobody knows.

Japanese Stocks Decline on Record Oil Price, Writedown Concern

Japan's stocks fell after crude oil surged to a record and Wall Street firms reported owning more securities that are difficult to value, renewing concern financial companies will increase writedowns.

Sumitomo Trust & Banking Co., Japan's fifth-largest listed bank, slipped 1.6 percent, while Daiwa Securities Group Inc., the nation's second-largest brokerage, fell 1.9 percent.

There's growing concern Japanese companies will incur even bigger profit declines this business year because of rising material costs, Mitsushige Akino, who oversees the equivalent of $589 million at Ichiyoshi Investment Management Co. in Tokyo, said in an interview with Bloomberg Television.

The Nikkei 225 Stock Average declined 87.32, or 0.7 percent, to 13,024.57 as of 9:03 a.m. The broader Topix index fell 11.49, or 0.9 percent, to 1,251.41.

Crude oil surged 2.2 percent to a record $110.87 a barrel in New York trading yesterday after U.S. crude supplies unexpectedly dropped. U.S. brokerages including Goldman Sachs Group Inc. had more assets at the end of February whose market prices aren't readily available compared with the amount in November, according to filings.

Nikkei futures expiring in June retreated 0.8 percent to 13,020 in Osaka and slumped 1 percent to 13,015 in Singapore.

Citigroup May Sell $12 Billion of Loans

Citigroup Inc. is in talks to sell $12 billion of loans at a loss to Apollo Management LP, Blackstone Group LP and TPG Inc. as part of an effort to shrink the bank's balance sheet, a person briefed on the matter said.

A sale to the private equity firms would shield the bank from further declines in the value of the debt, said the person, who declined to be identified because the negotiations are private. The loans are part of the $43 billion in financing Citigroup agreed to provide for leveraged buyouts last year before credit markets froze, saddling the company with the hard- to-sell assets.

Citigroup shares have plunged 19 percent this year, partly on concern that writedowns of leveraged loans might compound $24 billion of losses the New York-based bank has taken so far on mortgages and bonds that have tumbled in value. Chief Executive Officer Vikram Pandit is shedding high-risk holdings on the bank's $2.2 trillion balance sheet.

As a Citigroup investor you won't have to worry about more mark-to-market writedowns on these loans, said William B. Smith, senior portfolio manager at Smith Asset Management in New York, which oversees about $80 million, including about 66,000 Citigroup shares. There's now a consortium of private-equity firms saying what they're worth.

Daniel Noonan, a Citigroup spokesman, declined to comment, as did Apollo spokesman Steven Anreder and Blackstone spokesman Peter Rose. TPG didn't return messages seeking comment.

$200 Billion Logjam

The leveraged loan market seized up last year after losses on mortgage bonds prompted fixed-income investors to shun assets deemed risky. Leveraged loans are made to companies with credit ratings below investment grade, meaning they're considered by Moody's Investors Service and Standard & Poor's to carry a higher risk of default.

Citigroup is planning to complete the loan sale to Apollo, Blackstone and TPG as soon as next week, when the bank reports first-quarter results, the person briefed on the talks said. The deal may help clear the $200 billion logjam of unsold loans, said Chris Taggert, an analyst at research firm CreditSights Inc. in New York. Money managers who have raised funds to invest in distressed debt are striking deals with Citigroup and other banks now eager to unload them, he said.

It would definitely raise loan prices given that large- scale buyers are stepping in, Taggert said.

Record Low

Apollo, Blackstone and TPG stand to profit if demand for the loans pushes prices above Citigroup's discounted sale price, which may be about 90 cents on the dollar, the Financial Times reported earlier today. Apollo and Blackstone, which manages the world's biggest buyout fund, are based in New York. TPG, based in Fort Worth, Texas, led a group that bought a $7 billion stake today in Washington Mutual Inc., the largest U.S. savings and loan.

The most actively traded leveraged loans, which fetched 100 cents on the dollar as recently as last June, fell to a record low of 86.28 cents in February, according to Standard & Poor's. Prices have since rebounded to 90.14 cents as banks reduced their backlog of unsold loans.

Pandit is poised to dispose of more than $200 billion of the company's assets, which increased by almost $700 billion from 2005 through 2007. Since he succeeded Charles O. Chuck Prince in December, Pandit has been whittling down Citigroup's inventory of leveraged loans and high-yield bonds while balking at financing pending deals. Under U.S. accounting rules, Citigroup must record losses when the market value of the buyout loans on its balance sheet falls.

Greenspan Says Credit Crisis Is Worst in 50 Years

Former Federal Reserve Chairman Alan Greenspan said the current credit crisis is the worst in at least 50 years.

The current credit crisis is the most wrenching in the last half century and possibly more, Greenspan told a conference in Tokyo today via satellite from Washington.

Greenspan's remarks echo the assessments of economists including those at the International Monetary Fund, and may add to pressure on policy makers to strengthen their response to the credit crunch. Federal Reserve officials last week acknowledged that capital markets remain distressed even after the fastest interest-rate cuts in two decades.

Greenspan, 82, said the extent of damage stemming from the collapse of the subprime-mortgage market won't be known for months.

Have we reached a point where prices are stable? We cannot know that for a couple of months, he said. He added that prices may begin to stabilize by the start of 2009 as home inventories decline.

The yield on the 10-year note fell 1 basis point to 3.53 percent as of 10:07 a.m. in Tokyo, according to bond broker Cantor Fitzgerald LP.

Greenspan said inflation will be contained during the current slowdown before picking up as the world economy recovers momentum.

Economic Slack

It's difficult to imagine any major breakout of inflation as economic slack continues to increase, he said. What we will see is gradually rising inflationary pressures that will probably be subdued during the current period of slack, but that will surely reemerge when economies pick up.

Wall Street cuts gains by the close as optimism about WaMu, mergers, gives way to concern about earnings

Stocks ended mixed Monday, as investors welcomed news that Washington Mutual could see a $5 billion investment, but showed caution ahead of the quarterly earnings period, due to get underway after the close.

The Dow Jones industrial average and the broader Standard & Poor's 500 index both gained a few points. The Nasdaq composite lost 0.3%.

The major gauges struggled higher through the morning as investors welcomed corporate news, including the latest for the possible Microsoft-Yahoo combination and $5 billion investment for mortgage lender Washington Mutual.

But a spike in oil, gold and gas prices and some selling in the technology sector dragged on stocks in the afternoon, with the Nasdaq ending the session lower.

After the close, Dow component and aluminum producer Alcoa reported quarterly earnings that fell from a year ago and missed estimates on sales that fell from a year ago and beat estimates. As is traditional, Alcoa's earnings mark the unofficial start of the quarterly reporting period.

Results for the overall S&P 500 are expected to decline versus a year ago, due largely to a big drop in financial sector results amid the credit and housing market crises.

No big market-moving earnings are due Tuesday, with the focus instead on the morning's economic news.

The February pending home sales index is due in the morning and the minutes from the last Federal Reserve policy meeting are due in the afternoon.

Investors will also be sorting through comments from a pair of Fed officials expected late Monday night. Federal Reserve Vice Chairman Donald Kohn and San Francisco Fed President Janet Yellen are both expected to speak tonight in San Francisco.

Washington Mutual rumors. Earlier, financial stocks had rallied as investors continued to bet that the worst is over with for the market.

The potential ($5 billion) Washington Mutual investment was important for investor sentiment amid ongoing questions about whether the credit crisis has seen a turning point, said Joseph Saluzzi, co-head of equity trading at Themis Trading.

Private equity is generally seen as the smart money, and its been sitting on the sidelines lately, he said. So if this deal turns out to be true and the smart money is seeing value in companies like Washington Mutual, that's a good sign.

He said the market was also benefiting from an improvement in sentiment seen last week, when investors welcomed news that UBS and Lehman Brothers are raising cash - and took in stride a dismal March jobs report.

Washington Mutual is in talks to receive a $5 billion investment from private equity firm TPG and other investors, The Wall Street Journal reported. Shares jumped 29%.

Microsoft said over the weekend that Yahoo has three weeks to agree to a takeover or face a proxy fight for control of the company. On Monday, Yahoo said it isn't opposed to a deal, but wants a better offer than the current $41 billion.

Swiss drugmaker Novartis is buying 25% of Alcon with an option to ultimately buy more than 75% of the eye-care company in a deal that could be worth as much as $38 billion.

Market breadth was mixed. On the New York Stock Exchange, winners topped losers by 9 to 7 on volume of 1.27 billion shares. On the Nasdaq, decliners narrowly edged advancers on volume of 1.78 billion shares.

Commodity prices. U.S. light crude oil for May delivery rose $2.86 to settle at $109.09 a barrel on the New York Mercantile Exchange.

COMEX gold for June delivery rose $11.80 to $925 an ounce.

Other markets. The dollar rose versus the euro and the yen.

Treasury prices slumped, raising the yield on the benchmark 10-year note to 3.56% from 3.46% late Thursday. Bond prices and yields move in opposite directions.

Asia Stocks Decline, Led by Banks on Subprime Loss Concerns

Asian stocks fell for a second day, led by banks on speculation profits will be eroded by losses in subprime mortgage-related investments.

Mitsubishi UFJ Financial Group Inc. dropped after the Nikkei English News said Japan's six major banks may report a 40 percent drop in combined profit. Australia & New Zealand Banking Group Ltd. declined after saying it expects to set aside A$975 million ($898 million) to cover bad debts.

BHP Billiton Ltd. and Inpex Holdings Inc. led mining companies and oil producers higher after prices of metals and crude rose.

The MSCI Asia Pacific Index lost 0.2 percent to 144.95 as of 9:45 a.m. in Tokyo. The index is down 8.1 percent this year on concern the U.S. will enter a recession amid mounting losses at banks and brokerages. Financial stocks were the biggest drag on the stock benchmark today.

The Standard & Poor's 500 Index added 0.1 percent on April 4, while the Dow Jones Industrial Average fell 0.1 percent.

Bankruptcies Jump 30% in March, Led by Housing-Bust States

The jump in March bankruptcy filings is another indication the U.S. economy is in recession, led by states where the housing boom turned to bust.

The more than 90,000 bankruptcy filings in March were the highest since insolvency laws became more restrictive in October 2005, according to statistics compiled from court records by Jupiter eSources LLC. At a daily rate, filings in March were 30 percent above the pace in 2007.

Rising bankruptcies, together with mounting foreclosures and fewer jobs, are further signs the biggest housing slump in a generation is hurting consumers and businesses. Federal Reserve Chairman Ben S. Bernanke this week for the first time acknowledged the economy may be facing a recession and vowed to act to cushion the slowdown.

We're seeing fairly high readings in these measures of distress like bankruptcies, foreclosures and mortgage defaults, said Chris Low, chief U.S. economist at FTN Financial in New York. The most affected states are also where the most housing-related business growth was, said Low.

The states most affected by the housing recession, including California, Nevada and Florida, were among those with the largest increases in bankruptcies.

They are also among states where unemployment rates exceed the national average. The jobless rate in California is 5.7 percent and Nevada's is 5.5 percent in February. Nationally, 5.1 percent of workers were unemployed in March, the highest level since September 2005, the Labor Department reported yesterday.

California, Florida

California led the nation with a 42 percent increase in bankruptcy filings at an annual pace in the first quarter, according to Jupiter eSources LLC. Florida had a 35 percent increase and Nevada saw a 32 percent rise, according to the Oklahoma City-based Jupiter's service known as AACER, or Automated Access to Court Electronic Records.

Nevada led the nation with the highest foreclosure rate in February, with filings up 68 percent from a year before, and with one in every 165 households in default or foreclosure, according to RealtyTrac Inc., a seller of foreclosure data.

California had the second-highest rate, with one in every 242 households in default or foreclosure, followed by Florida, with one in every 254, RealtyTrac said March 13.

The housing recession, coupled with weakening consumer spending and mounting credit losses at financial firms, is dragging the economy toward its first recession since 2001.

Payrolls Drop

The economy lost 80,000 jobs in February, the biggest loss since March 2003, following larger than previously reported declines of 76,000 in each of the two prior months, the Labor Department also said yesterday.

Economists surveyed by Bloomberg in the first week of March forecast growth would slow to a 0.1 percent pace in the first quarter, from a 0.6 percent rate in the last three months of 2007. The odds of a recession were even.

Since then, most of the data has indicated deterioration. Retail sales fell 0.6 percent in February, for a second decline in three months. Cars and light trucks sold at an average 15.2 million annual pace in the first three months of the year, the fewest since the third quarter of 1998.

Consumer spending has faltered as record energy prices and falling home values leave Americans feeling less wealthy and with less cash to spend. Spending rose in February at the slowest pace in more than a year, the government said last week.

Business bankruptcies and reorganizations posted gains too. First-quarter filings to liquidate or reorganize in Chapter 11 grew at an annual pace of 16 percent. If that rate were to continue for the rest of the year, 8,100 businesses would be in Chapter 11 compared with 6,240 in 2007.

The jump in filings over the first three months of 2008 reversed a trend from late 2007, when filings shrank.

The number of Americans seeking bankruptcy fell in late 2005 and early 2006 after jumping ahead of the October 2005 law making it harder for people to erase debt.

In the two weeks before the new law, 630,000 Americans sought bankruptcy protection, bringing total filings in 2005 to a record 2.1 million. There were 590,500 filings in 2006 and 827,000 in 2007.

Sinking feeling at Yahoo

Yahoo shares fell 6% in after-market trading Friday after Reuters reported Microsoft is “evaluating” its $42 billion offer for the Internet company. The news agency cited a person familiar with the matter.

The comments, which suggest Microsoft is considering walking away should Yahoo fail to agree to terms, come on the heels of reports that executives at the two tech titans met this week but failed to reach an agreement on the cash-and-stock offer. Microsoft’s worried that a slowing economy and changes in Yahoo’s business stand to lower its value, Reuters reports.

Yahoo’s top brass is to meet Monday to discuss the situation, CNBC reports. It seems unlikely that either side would let the deal collapse at this point, given Microsoft’s strategic challenges in competing with Google and the apparent failure of Yahoo to attract any rival bidders. But Friday’s late action shows that Yahoo shareholders, who have seen the value of their investment jump 48% since Microsoft unveiled its offer on Feb. 1, are starting to get nervous.

U.S. Economy: Employers Cut Most Workers Since 2003

Employers in the U.S. cut the most workers in five years last month, signaling that the economic contraction is deepening and that the Federal Reserve will continue to lower interest rates.

Payrolls shrank by 80,000, more than forecast and the third monthly decline, the Labor Department said today in Washington. The jobless rate rose to 5.1 percent, the highest level since September 2005, from 4.8 percent.

This is the final blow, said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. It's clear the U.S. economy is in a recession. That's going to shake the confidence of investors and companies across the world and cause people to curtail spending in other countries.

Traders raised bets the Fed will cut its benchmark rate half a point this month after central bankers already enacted the deepest reductions in borrowing costs in two decades last quarter. Officials signaled increasing concern about the economy and credit markets this week, with Chairman Ben S. Bernanke saying for the first time the U.S. may enter a recession.

Financial Markets

Treasuries climbed, with 10-year note yields falling to 3.47 percent at 4:20 p.m. in New York, from 3.59 percent late yesterday. Odds of a half-point rate cut at the Fed's April 29- 30 meeting rose to 40 percent from 20 percent yesterday, futures show. Stocks ended mixed, with the Standard & Poor's 500 Index up 0.1 percent at 1,370.40 while the Dow Jones Industrial Average slipped 0.1 percent to 12,609.42.

Workers' average hourly wages were 3.6 percent higher than a year earlier, the smallest increase since March 2006.

In a sign that investor concern about inflation is diminishing, U.S. debt that adjusts to inflation outperformed regular Treasuries. Regular 10-year notes yielded 2.30 percentage points more than similar-maturity Treasury Inflation Protected Securities, the least since March 27. The so-called breakeven rate reflects the rate of inflation that traders expect for the next decade.

The loss of jobs in February was revised to 76,000 from 63,000. Economists had projected payrolls would fall by 50,000 in March, according to the median of 79 forecasts in a Bloomberg News survey. Economists' forecasts ranged from a decline of 150,000 to a gain of 65,000.

If you're ever going to ring a bell on a recession, these numbers do it, Stuart Hoffman, chief economist at PNC Financial in Pittsburgh said in a Bloomberg Television interview. You have had job losses all year.

IMF Meeting

The job figures come a week before Bernanke and Treasury Secretary Henry Paulson meet their counterparts from the Group of Seven major industrial nations alongside the spring meetings of the International Monetary Fund in Washington.

IMF Chief Economist Simon Johnson said yesterday in a statement that the U.S. economy has slowed to a virtual standstill, hurting global growth prospects. A document featuring IMF forecasts obtained by Bloomberg News this week showed the fund characterized the U.S. financial crisis as the worst since the Great Depression.

Gains in government jobs prevented a deeper drop in payrolls last month as private employers cut 98,000 workers, the fourth straight monthly decline. A survey from ADP Employer Services issued yesterday had projected private payrolls would rise by 8,000.

Labor revisions subtracted 67,000 jobs from the originally reported total figures for January and February. The last time the economy lost jobs for at least three months coincided with the start of the Iraq War in 2003.

Bernanke Says U.S. Economy May Slip Into a Recession

Federal Reserve Chairman Ben S. Bernanke acknowledged for the first time that a U.S. recession is possible because homebuilding, employment and consumer spending will deteriorate.

It now appears likely that real gross domestic product will not grow much, if at all, over the first half of 2008 and could even contract slightly, Bernanke told Congress's Joint Economic Committee today. He also said the Fed's emergency loan to Bear Stearns Cos. followed a March 13 warning by the firm that it would have to file for bankruptcy the next day.

Bernanke, making his first extensive public comments since the Fed's decisions two weeks ago to back the takeover of Bear Stearns and lower interest rates by 0.75 percentage point, is trying to fend off criticism of the deal while struggling to prevent a deeper economic slump. He said he thought long and hard about the decision, and doesn't anticipate the need for a similar rescue of another company.

While the Fed expects the economy to return to its long- term growth pace in 2009, in light of the recent turbulence in financial markets, the uncertainty attending this forecast is quite high and the risks remain to the downside, he said.

Treasury notes and stocks were little changed after Bernanke's remarks. The benchmark 10-year note yielded 3.59 percent at 12:26 p.m. in New York.

Bleaker Outlook

This is a much more pessimistic assessment of the economy than what the Fed had three months ago or six months ago, said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina, who previously worked as a senior economist in Congress. Certainly, the Fed and the capital markets have been surprised the economy has slowed so quickly.

The Fed, in an emergency decision on Sunday, March 16, voted to authorize a loan against $29 billion of Bear Stearns assets, including mortgage-backed securities, so JPMorgan Chase & Co. would buy the company.

Bernanke, questioned by lawmakers about putting taxpayer money at risk, expressed confidence the Fed won't lose money on the Bear Stearns deal. The Fed last week said JPMorgan will shoulder the first $1 billion of any losses.

I feel reasonably confident that we'll be able to recover all the principal and indeed some interest, and there is some chance of even upside beyond that, Bernanke said.

Bear Collateral

The Fed chief also said the central bank's investment adviser, BlackRock Inc., has gone through those assets, and they are confident, or at least reasonably confident, that we will be able to recover the full amount if we dispose of these assets on a measured basis, rather than to sell them all at once.

The central bank also expanded its powers last month by opening up lending directly to Wall Street investment banks. In addition, the Fed cut the interest rate on loans to banks, and now securities firms, by a quarter point.

Two days later, the Federal Open Market Committee cut the main lending rate to 2.25 percent and said the outlook for economic activity has weakened further. Officials also showed renewed concern about inflation, making a smaller reduction than traders anticipated. Two policy makers dissented in favor of less aggressive action.

The Fed agreed to the emergency Bear Stearns loan to prevent a disorderly failure of the company and the unpredictable but likely severe consequences of such a failure for market functioning and the broader economy, Bernanke said.

Senate Probes

The Senate's banking and finance committees have started separate inquiries into the transaction, raising questions about the role of the regulators in facilitating it.

With financial conditions fragile, the sudden failure of Bear Stearns likely would have led to a chaotic unwinding of positions and could have severely shaken confidence, the Fed chief said.

Bernanke said that the U.S. economy is going through a very difficult period.

The U.S. economy grew at an annual pace of 0.6 percent from October to December. Growth probably slowed to a 0.2 percent annual rate in the first quarter, according to the median estimate of analysts surveyed by Bloomberg News.

Monetary and fiscal policies are in train that should support a return to growth in the second half of this year and next year, Bernanke said. Policy makers expect that the rate cuts and financial-market actions this year will help to promote growth over time and to mitigate the risks to economic activity.

Fed Statement

He didn't repeat the expectation of moderate growth from the FOMC's March 18 statement.

Traders expect the Fed to lower the overnight interbank lending rate by a quarter-point at the next FOMC meeting April 29-30, based on futures prices.

Separately today, the International Monetary Fund cut its forecast for global growth this year and said there's a 25 percent chance of a world recession, citing the worst financial crisis in the U.S. since the Great Depression. Also, orders to U.S. factories fell more than forecast in February, a Commerce Department report showed.

Treasury Secretary Henry Paulson told Bloomberg Television in an interview from Beijing that the IMF numbers appear overblown to me. He indicated a willingness to consider congressional plans to stem foreclosures by expanding government guarantees for mortgages.

Inflation `Concern'

Bernanke said that inflation has also been a source of concern, with higher commodity prices and the weaker dollar. At the same time, he said the Fed expects inflation to moderate in coming quarters, echoing the FOMC statement. A leveling out of commodity prices and slower global growth will help, Bernanke said.

The Fed's preferred inflation gauge, which excludes food and energy costs, has increased at least 2 percent from the year earlier, the upper end of officials' long-term projections, for five straight months through February. Bernanke said the rate has edged down recently.

Senator Charles Schumer, the New York Democrat who chairs the House-Senate panel, said today that the Fed's actions on Bear Stearns provided some much-needed breathing room to the financial markets.

But there are many legitimate, looming, and unanswered questions about what happened both before and after the Bear Stearns action, Schumer said.

Dollar Tumble Wrecks Forecasts; Deutsche Bank Predicts Losses

Dollar bulls are in retreat after the currency's biggest quarterly drop against the euro since 2004 and the largest slump in almost a decade versus the yen.

The dollar will likely gain 1.6 percent to $1.55 per euro and remain little changed near 100 yen by the end of June, according to the median estimate of 40 analysts and economists surveyed by Bloomberg. At the start of 2008, they expected the dollar to strengthen to $1.48 per euro and 110 yen.

Deutsche Bank AG, the world's largest foreign-exchange trader, and Royal Bank of Scotland Group Plc cut their estimates last month as global credit market losses climbed above $200 billion and reports signaled the U.S. economy may be shrinking. Private foreign investors sold a net $38.2 billion in U.S. securities in January, the most since September, Treasury Department said March 17.

We now view the U.S. economy as having slipped into recession while the rest of the world slows more modestly, said John Horner, a currency strategist in Sydney for Frankfurt- based Deutsche Bank. That scenario argues for further dollar weakness, he said.

U.S. growth likely expanded 0.2 percent last quarter, compared with 0.6 percent in the final three months of 2007, according to the median forecast of 85 economists and strategists surveyed by Bloomberg.

Relative Rates

The greenback tumbled 7.6 percent against the euro last quarter to $1.5788. It plummeted 10.8 percent to 99.69 yen, the steepest drop since falling the same amount in the third quarter of 1999, as a decline in stock markets from the U.S. to Tokyo and credit market losses led investors to sell high-yielding assets funded with low-interest loans in the currency.

The Bank of Japan's benchmark rate is 0.5 percent, compared with 2.25 percent in the U.S. and 4 percent for the European Central Bank. The rate in Switzerland, another source of funds for the so-called carry trades, is 2.75 percent.

We hold a bearish dollar outlook, said Thanos Papasavvas, the London-based head of currency management at Investec Asset Management in Johannesburg. It's impossible to forecast where the bottom is going to be.

Investec, which manages the equivalent of $65 billion, decided on March 28 to keep betting against the dollar, Papasavvas said.

The dollar fell against the 16 most actively-traded currencies except the Canadian dollar, South Korean won and South African rand. It declined the most against the Swiss franc, depreciating 12.4 percent, and gained 2.7 percent versus Canada's currency, 5.9 percent against the won, 17.9 percent to the rand and was little changed per pound.

`Great Concerns'

Deutsche Bank expects the dollar will weaken this quarter to $1.60 per euro, surpassing the $1.5903 reached March 17, the lowest since the single European currency began trading in 1999. A Bloomberg survey in January showed the bank predicted the dollar would rise to $1.43 by yesterday from $1.4589.

Royal Bank of Scotland in Edinburgh, the fourth-biggest foreign-exchange trader, forecasts the dollar will trade at $1.57 per euro by June 30, after the currency exceeded its previous estimate of $1.52 by March 31.

There are great concerns about additional unrealized losses on subprime loans, the size of which we can't reasonably forecast, said Hiroaki Hoshi, who oversees the equivalent of about $5.7 billion as a senior fund manager at Daiwa Asset Management Co. in Tokyo. Once these are realized, the dollar will fall, he said.

Slowdown Spreads

Banks, brokers and hedge funds may report $460 billion in credit losses, New York-based Goldman Sachs Group Inc. predicted last month. Government and private reports this week may show the U.S. lost jobs for a third month in March and manufacturing contracted at the fastest pace in five years, according to the median estimates of economists surveyed by Bloomberg.

The U.S. currency may strengthen as a slowdown in the world's largest economy spreads to other regions, weakening their currencies, according to London-based Barclays Capital, the fifth-biggest currency trader.

Global growth is recoupling to U.S. growth and other central banks will have to start to play catch-up in terms of rate cuts, said David Forrester, a Singapore-based currency economist at Barclays, which forecasts $1.50 against the euro in three months.

The dollar rallied against the pound, gaining 2.2 percent, as the Bank of England cut rates by a half-percentage point since Dec. 6 to revive growth. The pound will weaken 0.2 percent to $1.98 by June 30, according to the survey of strategists. It closed yesterday at $1.9837.

Japan's yen, which gained 3.6 percent versus the euro in the first quarter, will likely appreciate 2.8 percent to 153 per euro by June 30, the survey showed.

There will still be most likely bad news that will come out on the global economy, said Stephen Jen, global head of currency research at Morgan Stanley in London. There's definitely a downside risk if the crisis morphs into something more extreme.

The second-largest U.S. securities firm forecasts the dollar will appreciate to $1.55 per euro and weaken to 97 yen.

Delta, U.S. Rivals Target Heathrow Amid `Open Skies'

Delta Air Lines Inc., Continental Airlines Inc. and Northwest Airlines Corp. began flights into London Heathrow airport today as a new Open Skies treaty expands trans-Atlantic air travel.

The European Union-U.S. accord ends a lock on flights between the U.S. and Heathrow for British Airways Plc, Virgin Atlantic Airways Ltd., United Air Lines Inc. and American Airlines under a 1977 agreement. The airport is Europe's busiest and attractive to other carriers as the continent's key hub for premium travel.

The main battleground is the corporate traveler using the business-class cabin, said Chris Tarry, an independent airline analyst in London. U.S. airlines which are new entrants to Heathrow can now offer their corporate clients a greater range of opportunities to London and via Heathrow.

Delta, Continental and Northwest are the third-, fourth- and fifth-largest U.S. airlines, respectively, and their Heathrow arrivals will be joined by a flight from US Airways Group Inc., the No. 7 carrier. Tomorrow, Air France-KLM Group will fly from the U.K. to Los Angeles.

The influx of flights means seating capacity between Heathrow and the U.S. for the summer season is up 21 percent from a year earlier, according to Aviation Economics, a London- based consulting company. Total capacity is up 3.1 percent.

Fuel Cost

The fuel cost increase will overwhelm the benefits of more competition, said Patrick Murphy, a Washington consultant and deputy assistant transportation secretary under Presidents Bill Clinton and George H.W. Bush. If anyone's looking for a price reduction overnight, that's not going to happen.

U.S. airlines have lifted fares or surcharges 10 times since Jan. 1 as jet-fuel prices rose 80 percent in the past year. EU carriers including British Airways and Aer Lingus Group Plc have also increased fees this year.

Delta's first flight into Heathrow departed last night from New York and landed at 9 a.m. today. Another flight from Atlanta, where Delta is based, was scheduled to arrive at noon. The service is part of a revenue-sharing partnership with Air France-KLM, Europe's biggest airline, announced in October.

Being able to add Heathrow to our portfolio was absolutely key for our corporate customers, said Armin Venencie, Delta's regional manager for Europe, Africa and the Middle East, in a telephone interview.

Heathrow Premium

Opportunities to fly from Heathrow are limited by a flight schedule that's already at 99 percent of capacity, forcing carriers to pay top dollar for operating rights. Continental paid $209 million for four pairs of takeoff and landing slots at the airport.

Continental and others are paying a gazillion dollars for slots at Heathrow, said James Higgins, an analyst with Soleil Securities Corp. in Solebury, Pennsylvania.

Continental's first flights today were scheduled to arrive from New Jersey's Newark Liberty airport and from Houston, its headquarters city, while Eagan, Minnesota-based Northwest was flying from Minneapolis. Tempe, Arizona-based US Airways was flying from its Philadelphia hub.

Open Skies also gives European Union carriers the right to fly to the U.S. from any of the bloc's countries instead of just their home nations. Air France will take advantage of that by operating non-stop from Heathrow to Los Angeles, while British Airways plans to start a subsidiary carrier -- called OpenSkies -- that will fly between Paris and New York from June.

British Airways has also shifted some trans-Atlantic services to Heathrow from London Gatwick as Open Skies lets it fly to more U.S. destinations than previously allowed.

Mergers, Partnerships

The weak U.S. dollar and high fuel prices are preventing bigger changes under Open Skies, which may include mergers and more airline partnerships by 2009 or 2010, said William Swelbar of the Massachusetts Institute of Technology's International Center for Air Transportation in Boston.

We are caught in a transformational period, Swelbar said. We're going to see carriers emerge and begin to do some new and different flying from what is done today.

The EU and U.S. introduced Open Skies amid hopes it would encourage competition and reduce ticket prices. The U.K.'s Civil Aviation Authority forecasts fares across the Atlantic may fall by as much as 10 percent as a result of the treaty.

EU governments say they may suspend traffic rights for U.S. airlines in the future if a second-stage Open Skies agreement allowing greater access to North America is not reached. Such a deal would allow European carriers to fly domestic U.S. routes and acquire more than 50 percent of U.S. competitors.

The start of the new Heathrow services came as British Airways canceled 37 of its flights from the airport's new Terminal 5 amid disruption to its baggage-handling operations.

Japan's Stock Futures Rise as U.S. Home Sales Unexpectedly Gain

Japan's Nikkei 225 Stock Average futures advanced after sales of existing homes in the U.S. unexpectedly rose, boosting confidence consumption in the biggest market for Japanese manufactures will weather an economic slowdown.

U.S.-traded receipts of Canon Inc., the world's biggest digital-camera maker, climbed 1.8 percent from the closing share price in Tokyo yesterday. Komatsu Ltd., the world's second- biggest maker of earthmoving equipment, advanced 1.5 percent, while Sony Corp. added 1.7 percent.

Investors' sentiment is improving, Mamoru Shimode, Tokyo-based chief equity strategist at Deutsche Securities Inc., said in an interview with Bloomberg Television. For stocks to continue rallying, the market needs more positive news from the macroeconomics side.

Nikkei 225 Stock Average futures expiring in June last traded at 12,685 in Chicago, 2.2 percent higher than the close of 12,410 in Osaka and Singapore yesterday. The Bank of New York Japan ADR Index, which tracks American depositary receipts of Japanese companies, added 2.9 percent.

Yesterday, the Topix index edged up 0.3 percent to 1,224.15, while the Nikkei was little changed at 12,480.09 in Tokyo. Almost the same number of stocks rose and fell on the Topix.

Purchases of existing homes rose 2.9 percent to an annual rate of 5.03 million in February, the National Association of Realtors said yesterday in Washington, surpassing an estimated 4.85 million. The Standard & Poor's 500 Index jumped 1.5 percent to the highest in almost a month.

Elsewhere, land prices in Japan rose for a second year in 2007, according to a government report released yesterday after the market shut. Prices increased 1.7 percent on average after climbing 0.4 percent a year earlier, as private funds and real- estate investment trusts snapped up properties in large cities.

U.S. Stocks Rise; Bear Stearns, Tiffany, Monsanto Shares Climb

U.S. stocks rallied to the highest level this month as JPMorgan Chase & Co.'s increased bid for Bear Stearns Cos. and a gain in home sales boosted speculation the economy will recover from $200 billion in credit losses.

Bear Stearns, which almost collapsed before the Federal Reserve helped broker a takeover, nearly doubled after JPMorgan raised its offer to about $10 a share from $2.52. Tiffany & Co., the second-largest luxury jewelry retailer, climbed the most in more than two years on better-than-forecast earnings. Monsanto Co., the biggest seed producer, posted its steepest advance since January after UBS AG advised buying the shares.

The Standard & Poor's 500 Index added 20.37 points, or 1.5 percent, to 1,349.88 as nine of its 10 industry groups advanced. The Dow Jones Industrial Average increased 187.32, or 1.5 percent, to 12,548.64. The Nasdaq Composite Index gained 68.64, or 3 percent, to 2,326.75. Nine stocks rose for every two that fell on the New York Stock Exchange.

It appears that people are interested in buying stocks every time there's just a whiff of good news, John Carey, who manages $13 billion at Pioneer Investments in Boston, said in an interview with Bloomberg Radio. We're starting from a fairly modest level of valuations in this downturn and so perhaps people are right in suggesting that downside is limited.

The S&P 500 trimmed its loss for the year to 8.1 percent and posted its first back-to-back gains of the month. The market extended its rally after an industry report showed existing home sales climbed in February for the first time in seven months. Asian shares advanced, led by Taiwan's biggest increase in six weeks. All major European markets were closed for a holiday.

Bonds, Gold Drop

Yields on Treasury securities climbed, the dollar advanced against the yen, and gold fell as traders pared bets on additional interest-rate cuts by the Federal Reserve.

Bear Stearns climbed $5.29, or 89 percent, to $11.25. JPMorgan will exchange stock worth about $10 for each Bear Stearns share, the New York-based firms said in a statement. Under the terms of the deal the two firms struck March 16, the takeover price had been $2.52 a share, based on last week's closing price.

Banks, brokerages and insurance companies in the S&P 500 rose 0.7 percent as a group, extending their advance in the past week to 14 percent. Citigroup Inc., the biggest U.S. bank, contributed the most to the gain, adding 77 cents, or 3.4 percent, to $23.27.

A lot of market turns tend to happen on watershed events such as the takeover of Bear Stearns, said Greg Woodard, a portfolio strategist at Manning & Napier in Fairport, New York, which oversees $18 billion. The increased bid holds out hope for a quick culmination, rather than a long, drawn-out battle with the shareholders.

$150 Billion in Mortgage Bonds

Financial shares also gained after Federal Home Loan Banks were freed to increase their purchases of mortgage-backed bonds by about $150 billion, the latest in a series of government initiatives to resuscitate lending by financial institutions.

Lehman Brothers Holdings Inc. fell $2.01, or 4.1 percent, to $46.64 after being downgraded to perform by Oppenheimer & Co.'s Meredith Whitney. Whitney, who correctly predicted Citigroup would cut its dividend this year, cited a protracted challenging capital markets environment and abandoned her price target for Lehman.

Tiffany rallied $4.05, or 10 percent, to $42.65 after saying ongoing earnings excluding items were $1.27 in the fourth quarter, six cents better than the average analyst estimate in a Bloomberg survey. Fourth-quarter revenue was $1.053 billion, beating the $1.049 billion average estimate.

'Not That Bad Off'

Tiffany is bringing back to focus that the economy still is not that bad off, said Tom Wirth, senior investment officer at Chemung Canal Trust Co. in Elmira, New York, which manages $1.8 billion.

Monsanto climbed $7.13, or 7.3 percent, to $104.26 after UBS analyst Chris Shaw said results from the company's seed and agricultural productivity businesses may help boost the shares to $125 in the next 12 months.

Companies in the S&P 500 traded at 13.82 times estimated profit when the market opened, according to Bloomberg data. Index members last traded at a valuation of less than 14 times historic earnings in October 1990.

Sales of existing homes in the U.S. unexpectedly rose in February, easing concern credit restrictions and falling prices would hurt demand. Purchases increased 2.9 percent to an annual rate of 5.03 million, the National Association of Realtors said. Economists in a survey had forecast a decline of 0.8 percent.

Homebuilders Rally

D.R. Horton Inc., the second-largest U.S. homebuilder, climbed $1.02 to $16.70, leading gains in 14 of 15 homebuilders in S&P indexes. The group's 5.2 percent advance extended its climb in the past week to almost 26 percent.

Home-improvement specialists Home Depot Inc. and Lowe's Cos. led retailers in the S&P 500 to a 3.5 percent gain. Home Depot climbed $1.20 to $29.26. Lowe's added $1.06 to $24.29.

CIT Group Inc. surged $3.40, or 35 percent, to $13.03. The commercial finance company that tapped $7.3 billion of emergency credit lines last week climbed after Stifel Nicolaus & Co. said it may be a takeover target.

Walgreen Co. added $1.83 to $38.61. The largest U.S. drugstore chain's second-quarter profit was bigger than analysts estimated because of increased sales of prescription drugs. Walgreen's net income of 69 cents a share beat the average analyst estimate of 67 cents a share in a Bloomberg poll.

Best Buy, HCP

Best Buy Co. rose 86 cents to $43.27. The largest U.S. consumer-electronics retailer, which is gaining market share from Circuit City Stores Inc., is benefiting from growth in sales of video-game software, Barron's reported. Best Buy shares may climb to $52 once investors overcome fears of how the retailer will fare in a recession, Barron's reported, citing unnamed analysts.

Citigroup Cuts 2,000 More Jobs in Securities Division

Citigroup Inc. will cut 2,000 more trading and investment-banking jobs as the collapse of the subprime mortgage market puts the biggest U.S. bank on track for its second-straight quarterly loss.

The reductions are in addition to about 4,000 disclosed in January, a person familiar with the plan said. They add up to about 10 percent of the staff in Citigroup's securities division, said the person, who declined to be identified because the bank hasn't formally announced the decision. Most of the cuts will take place by the end of March.

Wall Street firms have fired more than 30,000 employees in the last seven months as the U.S. housing market contracted and the price of mortgage-related assets plummeted. Citigroup has lost almost half its market value since October, costing Chief Executive Officer Charles Chuck Prince his job and forcing his successor, Vikram Pandit, to raise about $30 billion from outside investors.

When it comes to Citi, what you're going to see for the next year is layoffs, said Jeanne Branthover, managing director of Boyden Global Executive Search in New York. Every financial services firm is on red alert.

Citigroup posted a loss of almost $10 billion in the fourth quarter, the biggest in its 196-year history, and analysts expect another loss this quarter. The company's shares climbed $2.09, or 10 percent, to $22.50 as of 4:10 p.m. in New York Stock Exchange composite trading. They're down 24 percent this year.

Pandit's Review

Pandit, who stepped in last December, says he's traveled as far as Warsaw, Istanbul and Seoul in a front-to-back review of the company's expenses and businesses. In January, the bank said it would take a $337 million after-tax restructuring charge to eliminate 4,200 jobs. Most of those were in the trading and investment-banking division.

Citigroup had 374,000 full-time employees as of Dec. 31. The company's Institutional Clients Group, which includes trading and investment banking as well as hedge-fund management, has about 60,000 employees worldwide.

The new round of cuts will be spread across offices in New York and London as well as smaller sites in Asia and Europe, the person familiar with the matter said.

Each year we identify the bottom 5 percent of performers in the Institutional Clients Group, and some number of these people leave the firm, the bank said in an e-mailed statement today. This year we will have a larger number of reductions as we continue to strengthen the business and lower our expense base.

Job Outlook

Citigroup doesn't expect significant additional job cuts this year in the investment-banking division, though that may change if markets worsen, according to the person familiar with the plans.

The job cuts were reported earlier today by the New York Times.

The Institutional Clients Group posted a $4.6 billion loss last year, compared with an $8.4 billion profit, or almost 40 percent of the total, in 2006. Earlier this week, Pandit installed longtime associate and former Morgan Stanley colleague John Havens as the group's new head. Prince had promoted Pandit into that position last October, when former trading chief Thomas Maheras quit.

The business has gone away so you don't want to have an overloaded investment bank, Punk Ziegel & Co. analyst Richard Bove said. He rates the bank a buy. I think Citigroup is going to lose 30,000 people before this is all over.

Commodity Prices Plunge, End Week With Biggest Drop Since 1956

Commodities plunged, capping the biggest weekly drop in five decades, on speculation that slower global growth will curb demand for energy, metals and grains.

The Reuters/Jefferies CRB Index of 19 commodities tumbled 8.3 percent this week, marking the steepest drop since at least 1956. After reaching records this week, gold plummeted as much as $129 an ounce and crude oil tumbled more than $13 a barrel.

We started to see a speculative frenzy in commodities, said Brian Hicks, who helps manage $1.5 billion at U.S. Global Investors Inc. in San Antonio. Growth is going to be quite muted, and that does not bode well for commodities.

Slowing global growth signals commodity demand will soften, the International Monetary Fund said this week.

The weighted UBS Bloomberg Constant Maturity Commodity Index of 26 raw materials had gained 20 percent this year before the week began, reaching a record on Feb. 29. The gauge climbed in each of the past six years, more than tripling in value.

The rally may be coming to an end as the U.S., the world's largest economy, slips into a recession, damping global expansion, said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois.

Commodities were a bubble that is now bursting, Kaplan said. Prices will go lower than you can believe.

The CRB index fell 6.56, or 1.7 percent, to 381.74 in New York. On March 17, the gauge plunged 4.6 percent, the most in five decades. It dropped 4.1 percent yesterday.

`Recession Fears'

Global-recession fears are causing selling pressure in all commodities, said James Mound, head analyst for MoundReport.com, a commodities newsletter, in Palm Coast, Florida. The markets are focusing on want-based items instead of need-based items.

Investor demand for commodities led to a buying orgy, Paul Touradji, founder of the $3.5 billion hedge fund Touradji Capital Management, told clients on March 10. Commodities have all gone parabolically higher on frenzied money flow, he said.

A slumping dollar and less-attractive returns on equities and bonds boosted the appeal of commodities as a hedge against inflation and an alternative investment, said Michael K. Smith, president of T&K Futures & Options in Port St. Lucie, Florida. Investors are now selling raw-material futures to raise cash, he said, citing demands for investors to put up more collateral.

Margin Calls

There's a lack of liquidity to cover margin calls, Smith said. There's a panic in the market that's taken hold very quickly. We could see commodity prices continue to tumble.

Gold futures for April delivery fell $25.30, or 2.7 percent, to $920 an ounce on the Comex division of the New York Mercantile Exchange. The price reached a record $1,033.90 an ounce on March 17. The precious metal plunged $59 yesterday.

The dollar has rebounded this week from a record against the euro and a 12-year low against the yen.

Crude-oil futures for May delivery fell 70 cents, or 0.7 percent, to $101.84 a barrel on the Nymex. The price soared to a record $111.80 a barrel on March 17.

Oil probably will fall toward $90 a barrel this spring as the slowing U.S. economy encourages traders to exit commodity markets, Goldman Sachs Group Inc. analysts including Jeffrey Currie said in a report today.

The oil-price slump, along with all the other commodities, resulted from the dollar staging a rally, so the large funds flowed out of the commodities complex, said Victor Shum, senior principal at consultants Purvin & Gertz Inc. in Singapore. Investors have found a trigger to focus more on fundamentals.

Cocoa plunged more than 9 percent today, and wheat tumbled 8.1 percent. Soybeans and corn dropped almost 4 percent. Among the 26 commodities in the UBS Bloomberg index, only cattle and hogs gained this week.

There are 361 commodity funds that had $98 billion in assets as of Feb. 28, compared with 345 funds with $80 billion at the end of 2007, James Proudlock, commodity product head for Europe, Middle East and Asia at JPMorgan Securities Ltd., said at a sugar conference yesterday in Geneva.

The money flowing into commodities was absolutely enormous, Proudlock said.

U.S. Stocks Rally on Goldman, Lehman Earnings, Fed Rate Cut

U.S. stocks rallied the most in five years as earnings from Lehman Brothers Holdings Inc. and Goldman Sachs Group Inc. allayed concern investment banks are collapsing and the Federal Reserve cut its benchmark rate.

Lehman, the fourth-biggest securities firm, had its steepest advance ever and helped lead financial stocks to their biggest gain since 2000. Goldman, the largest securities firm, rallied the most in almost nine years. All 10 industry groups in the Standard & Poor's 500 Index added at least 1.7 percent after the Fed cut the target rate for overnight lending by 0.75 percentage point, helping the market erase a two-day tumble that wiped out $767 billion following Bear Stearns Cos.'s collapse.

The run on the investment banks would appear to be over, said Doug Peta, a New York-based market strategist at J&W Seligman & Co., which oversees about $19 billion. It seems certain we are going to finish the week with the four investment banks we started with, and we couldn't be sure of that Monday morning. The Fed decision is actually a bit of a sideshow.

The S&P 500 rose 54.14 points, or 4.2 percent, to 1,330.74, its biggest rise since October 2002. The Dow Jones Industrial Average climbed 420.41, or 3.5 percent, to 12,392.66, its fourth-biggest point gain ever. The Nasdaq Composite Index increased 91.25, or 4.2 percent, to 2,268.26. Almost 16 stocks rose for every one that fell on the New York Stock Exchange, the broadest advance since September. Treasuries dropped and the dollar surged the most in nine years against the yen.

Financial shares in the S&P 500 gained 8.5 percent as a group, the top advance among 10 industries, after the better- than-forecast earnings at Lehman and Goldman assuaged concern that Wall Street firms were overvalued. The group is still down 13 percent this year after the world's largest financial firms posted $195 billion in credit losses and asset writedowns stemming from the collapse of the subprime mortgage market.

Lehman, Goldman

The Fed reduced its benchmark rate to the lowest level in more than three years. The central bank has cut the rate six times and slashed the discount rate for direct loans to banks eight times since the middle of August, when the collapse of subprime mortgages started to infect markets around the world.

Goldman surged $24.57, or 16 percent, to $175.59. Net income fell to $1.51 billion, or $3.23 a share, in the three months ended Feb. 29 from $3.2 billion, or $6.67, a year earlier, Goldman said in a statement. The average estimate of 17 analysts surveyed by Bloomberg was for $2.59 a share, with forecasts ranging from $1.95 to $3.40.

`Bad Bet'

Lehman, which lost 19 percent yesterday, climbed 46 percent today to $46.49. First-quarter net income declined to $489 million, or 81 cents a share, from $1.15 billion, or $1.96, a year earlier, the New York-based firm said. That beat the 72- cent average estimate of 16 analysts surveyed by Bloomberg. Earnings were depressed by a $1.8 billion writedown caused by the slump in the mortgage market.

Assuming Lehman will fail because Bear Stearns did is a bad bet to make, said Punk Ziegel & Co. analyst Richard Bove. While both are involved in mortgage securities, Lehman has more diversity from overseas operations, money-management businesses and high-profile deals, Bove wrote in a note to clients.

Citigroup Inc., the biggest U.S. bank, advanced $2.09 to $20.71. JPMorgan Chase & Co., the third-largest U.S. bank, gained 6 percent. Merrill Lynch & Co., the third-biggest securities firm, added 13 percent.

U.S. financial stocks are getting closer to bottoming out, analysts at Morgan Stanley said.

We view the banks as vulnerable to the credit cycle, with Fed rate cuts only a partial offset, the analysts, led by Nigel Dally, wrote in a report to clients. But some of these risks are now in the stocks.

Bear Stearns

Financial shares tumbled to their lowest level in almost five years yesterday on concern Wall Street's biggest firms may be overvalued following the $2-a-share takeover of Bear Stearns by JPMorgan.

Bear Stearns, which lost 84 percent yesterday, climbed 23 percent to $5.91 today on speculation the company may receive a higher offer. JPMorgan's $240 million bid was a 90 percent discount to Bear's closing price at the end of last week.

Getting some reinforcement that the wheels weren't falling off of all the brokers was a great thing, because everyone was fixated on the troubles at Bear, said E. William Stone, who oversees $77 billion as chief investment strategist at PNC Wealth Management in Philadelphia. It had gotten so negative that people were thinking the entire financial system might be collapsing, so anything short of that was seen as a positive.

Exxon, GM

Exxon Mobil Corp., the largest U.S. oil company, increased $2.68 to $88.47 as oil recovered some of yesterday's 4.1 percent retreat, the steepest decline since August. Chevron Corp., the second-biggest U.S. energy company, added $1.93 to $86.12.

Crude oil for April delivery rose 3.5 percent to $109.42 a barrel in New York on speculation the interest rate reduction will strengthen the economy.

General Motors Corp. climbed $1.58 to $19.41. The largest U.S. automaker has enough cash and doesn't expect any fallout from its ties to Bear Stearns, Chief Operating Officer Fritz Henderson said.

Yahoo! Inc. added $1.81, or 7 percent, to $27.66. The Internet search company that snubbed advances from Microsoft Corp. reaffirmed its forecasts for the first quarter and the year in a bid to prove it can stay independent. Cash flow may almost double in the next three years, Yahoo said.

A measure of homebuilders in the S&P indexes climbed the most in almost eight weeks, gaining 9.9 percent. Hovnanian Enterprises Inc., New Jersey's biggest homebuilder, and Standard Pacific Corp., the worst-performing stock in the index in the past year, each climbed 18 percent.

Economy Watch

Prices paid to U.S. producers rose less than forecast in February, while prices excluding food and energy jumped the most since November 2006. The 0.3 percent increase followed a 1 percent gain in January, the Labor Department said. Excluding food and energy, so-called core wholesale prices climbed 0.5 percent, more than double the gain economists forecast.

Housing starts in the U.S. dropped in February and construction permits fell to the lowest level in more than 16 years, signaling construction will continue to hurt economic growth. Builders broke ground at an annual rate of 1.065 million homes, down 0.6 percent from a revised 1.071 million pace in January that was higher than previously reported, the Commerce Department said.

The Fed has cut the benchmark lending rate by 2 percentage points this year, the most aggressive easing since the federal funds rate became an explicit target of policy in the late 1980s.

Recent data show the economic outlook has weakened further while inflation remains elevated, the Federal Open Market Committee said in a statement.

Bets on Bigger Cut

Stocks rallied even though traders had priced in 86 percent odds that the Fed would cut rates by a full percentage point, according to futures trading.

This is maybe the start of the Fed trying to walk the market back from the brink and not necessarily following every single demand the market makes of it, said Joseph Veranth, who helps manage about $2.8 billion as chief investment officer at Dana Investment Advisors in Brookfield, Wisconsin. The market's taking it very well.

The S&P 500 has dropped 9.9 percent since Sept. 17, the day before the Fed cut its benchmark lending rate for the first time in four years. The worst housing market in a quarter century and $195 billion of credit losses at the world's biggest financial firms have hindered the central bank's efforts to restore confidence in financial markets and prevent the first U.S. recession since 2001.

The Russell 2000 Index, a benchmark for companies with a median market value 22 times smaller than the S&P 500, climbed 4.8 percent to 681.93. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 4.1 percent to 13,354.94.