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.

Dollar Falls Below 97 Yen, First Time Since 1995, as Fed Cuts

The dollar fell below 97 yen for the first time in 12 years after the Federal Reserve cut its discount rate and financed a bailout of Bear Stearns Cos. by JPMorgan Chase & Co.

The dollar also dropped to a record low against the euro and the Swiss franc after the Daily Telegraph said yesterday Goldman Sachs Group Inc. will reveal $3 billion in writedowns when it releases quarterly earnings tomorrow. The dollar earlier trimmed losses after the Fed unexpectedly cut its discount rate by half a percentage point. Traders have also increased bets the Fed will slash the benchmark federal funds rate by 1 percentage point tomorrow.

The Fed's measures just provided a temporary impact, said Masafumi Yamamoto, head of foreign-exchange strategy for Japan at Royal Bank of Scotland Group Plc, the U.K.'s second- biggest bank. But those liquidity injections won't solve the problems. The injection of public money should be really needed. The dollar may fall to 96 yen this week.

The dollar fell to as low as 96.58 yen, the weakest since Aug. 28, 1995, before trading at 96.71 yen at 9:32 a.m. in Tokyo from 99.09 yen late in New York on March 14. Against the euro, the dollar fell to a record low of $1.5807. The dollar fell to an all-time low of 0.9804 Swiss francs.

The dollar also set record lows against the euro the previous four days as investor confidence tumbled, sending U.S. stocks lower for a third straight week and driving gold to a record high of $1,009 an ounce.

Fed Meeting

Easing monetary policy, ongoing uncertainties in the financial sector and rising fears of capital outflows are chief reasons for our short-term bearish outlook.

The U.S. currency has lost about 16 percent against the euro and 17 percent versus the yen in the past year as the worst housing slump since 1991 forced the Fed to cut its benchmark rate 2.25 percentage points to bolster the economy, lowering returns on dollar deposits.

The New York Fed agreed to provide financing through JPMorgan for up to 28 days after Bear Stearns said its liquidity position had significantly deteriorated. Bear Stearns shares fell 47 percent in New York trading.

The likelihood the Fed will cut its target rate for loans between banks by one percentage point to 2 percent at a meeting tomorrow rose to 56 percent on March 15, up from 6 percent a week earlier, futures on the Chicago Board of Trade showed. The balance of bets is on a cut to 2.25 percent. The euro region's main rate is 4 percent.

The dollar briefly recouped some of its losses after the Fed, in an emergency move, lowered the discount rate at which commercial banks borrow from the central bank to 3.25 percent from 3.50 percent. Primary dealers can borrow at the discount rate in exchange for a broad range of collateral, the Fed said in a statement today.

JPMorgan acquires troubled Bear

JPMorgan completes deal to acquire foundering Wall Street brokerage and stave off wider chaos in financial markets.

JPMorgan Chase & Co. said Sunday that it would acquire troubled Wall Street firm Bear Stearns amid deepening fears that Bear's demise could have sent shockwaves across the already shaky financial markets.

The deal values Bear Stearns at $236 million, or just $2 a share - shares had closed at $30 on Friday, down 47% that day.

JPMorgan is taking immediate responsibility for Bear's trading obligations and assuming "management oversight" of the firm's operations. The deal is subject to approval by shareholders but has already been approved by the Federal Reserve and other regulators, according to a statement released by JPMorgan. The Fed is providing special emergency financing for up to $30 billion in Bear Stearns (BSC, Fortune 500) assets.

With the global credit crisis worsening, the Fed - along with officials from the Treasury Department - has been taking dramatic action to help banks and prevent widespread panic through the financial markets.

"JPMorgan stands behind Bear Stearns," said Jamie Dimon, chairman and chief executive of JPMorgan. "Bear Stearns clients and counterparties should feel secure that JPMorgan is guaranteeing ... risk," he continued.

Bear Stearns was on the brink of financial collapse Friday when JPMorgan and the Federal Reserve Bank of New York said they would provide the brokerage a short-term loan. Bear was dealing with a classic run-on-the-bank: The firm's short-term creditors refused to lend the firm any more money and simultaneously demanded repayment of outstanding debt. The one-two punch overwhelmed Bear's cash position.

Treasury Secretary Henry Paulson said on Sunday that talks about how to rescue Bear had continued throughout the weekend. He defended the Fed's bailout on Friday as "the right decision" and said the Bush administration was ready to take other actions to bring stability to the financial markets.

The fast-track deal is expected to close by the end of June, the statement said.

Bear Stearns has approximately 14,000 employees worldwide.

A deep, fast fall

The deal marks an inglorious chapter for 85-year-old Bear Stearns, a storied Wall Street firm whose unraveling has been fast and furious.

Rumors that Bear Stearns was on the verge of collapse started buzzing around Wall Street trading desks last Monday. Chief Executive Alan Schwartz - who took over as CEO in early January from longtime chief Jimmy Cayne - appeared on television on Wednesday afternoon to reassure the markets that the firm was stable.

But by Thursday night, Bear was in a severe crunch. Some firms that trade with it effectively stopped offering it credit because they feared that Bear was running short of short-term funding, or liquidity.

Shares of Bear Stearns opened last week at $69.75 and traded as high as $159 last year.

JPMorgan-Bear deal close

JPMorgan nearing completion of deal to acquire foundering Wall Street brokerage Bear Stearns, Wall Street Journal reports.

JPMorgan Chase & Co. was reportedly close Sunday to acquiring troubled Wall Street firm Bear Stearns as fears deepened that Bear's demise could send shockwaves across the already shaky financial markets.

The Wall Street Journal cited unnamed sources who said the parties were trying to complete a tie-up before the financial markets open in Asia on Monday. The Journal also said that Bear Stearns executives are preparing for a possible bankruptcy filing - a move the firm might have to take if it doesn't consummate a deal.

Bear Stearns was on the brink of financial collapse Friday when JPMorgan and the Federal Reserve Bank of New York said they would provide the brokerage a short-term loan.

With the global credit crisis worsening, the Fed - along with officials from the Treasury Department and other government agencies - took the dramatic action to prevent the investment bank from going under and igniting widespread panic through the financial markets.

Treasury Secretary Henry Paulson said on Sunday that talks about how to rescue Bear had continued throughout the weekend. He defended the Fed's bailout on Friday as "the right decision" and said the Bush administration was ready to take other actions to bring stability to the financial markets.

The Journal report said the terms of the deal were still being negotiated, but that Bear Stearns could sell for about $2.2 billion, or slightly less than $20 a share. Bear Stearns shares closed at $30 on Friday, down 47%.

A deep, fast fall

The deal would mark an inglorious final chapter for 85-year-old Bear Stearns, a storied Wall Street firm whose unraveling has been fast and furious.

Rumors that Bear Stearns was on the verge of collapse started buzzing around Wall Street trading desks last Monday. Chief Executive Alan Schwartz - who took over as CEO in early January from longtime chief Jimmy Cayne - appeared on television on Wednesday afternoon to reassure the markets that the firm was stable.

But by Thursday night, Bear was in a severe crunch. Some firms that trade with it effectively stopped offering it credit because they feared that Bear was running short of short-term funding, or liquidity.

Shares of Bear Stearns opened last week at $69.75 and traded as high as $159 last year.

Dollar Declines to 12-Year Low Against Yen on Credit Losses

The dollar fell to a 12-year low against the yen on speculation more banks will report credit- market losses after JPMorgan Chase & Co. and the New York Federal Reserve bailed out Bear Stearns Cos.

The U.S. currency also traded near a record low against the euro as traders speculated the Fed will slash interest rates one percentage point this week to avert a recession. The dollar set record lows against the euro the past four days as investor confidence tumbled, sending U.S. stocks lower for a third straight week and driving gold to a record high of $1,009 an ounce.

The U.S. dollar will remain under pressure, Benedikt Germanier and Alina Anishchanka, strategists at UBS AG, the world's second-biggest foreign-exchange trader wrote in a March 14 week-ahead report. Easing monetary policy, ongoing uncertainties in the financial sector and rising fears of capital outflows are chief reasons for our short-term bearish outlook.

The dollar sank to as low as 99.08 yen in Wellington after reaching 98.90 yen on March 14, the lowest since September 1995. It lost 3.5 percent last week, the most since November.

The U.S. currency traded at $1.5677, after reaching $1.5652, the weakest since the European currency's 1999 debut. It fell 2 percent last week, its fifth straight decline, the longest slide since November.

The dollar has lost about 16 percent against the euro and 15 percent versus the yen in the past year as the worst housing slump since 1991 forced the Fed to cut its benchmark rate 2.25 percentage points to bolster the economy, lowering returns on dollar deposits.

Bear Bailout

The New York Fed agreed to provide financing through JPMorgan for up to 28 days after Bear Stearns said its liquidity position had significantly deteriorated. Bear Stearns shares fell 47 percent in New York trading.

The likelihood the Fed will cut its target by one percentage point to 2 percent at the March 18 meeting rose to 54 percent yesterday, from 6 percent a week earlier, futures on the Chicago Board of Trade showed. The balance of bets is on a cut to 2.25 percent. The euro region's main rate is 4 percent.

Bear Stearns May Lose Independence After Fed Bailout

Bear Stearns Cos.'s 85 years as an independent Wall Street firm may be coming to an end as JPMorgan Chase & Co. considers buying the crippled company.

Teetering on the brink of collapse from a lack of cash, New York-based Bear Stearns got emergency funding yesterday from the Federal Reserve and JPMorgan in the largest government bailout of a U.S. securities firm. The move failed to avert a crisis of confidence among Bear Stearns's customers and shareholders, who drove the stock down a record 47 percent.

After denying earlier this week that access to capital was at risk, Bear Stearns Chief Executive Officer Alan Schwartz said yesterday that the company's cash position had significantly deteriorated in the past 24 hours. The Fed agreed to provide financing through JPMorgan for up to 28 days, the bank said in a statement yesterday.

Now JPMorgan, led by Chief Executive Officer Jamie Dimon, is considering buying Bear Stearns, according to three people briefed on the matter. No agreement has been reached and it's possible no deal will be completed, said the people, who declined be identified because the discussions are confidential. A person close to JPMorgan said the bank may also be interested in buying Bear Stearns's prime brokerage unit, which provides loans and processes trades for hedge funds.

Dimon, whose New York-based firm has suffered fewer losses than rivals during the credit-market contraction, has said he's open to making an acquisition. The bank has plenty of capital, he told the audience at a dinner hosted by the Economic Club of Washington on March 12, the day before his 52nd birthday.

`Devastating Blow'

The Fed acted to prevent the failure of the second-biggest underwriter of U.S. mortgage bonds and forestall a potential market panic as losses by banks and brokers reached $195 billion and stocks plunged for a third day this week.

I don't think they can afford to let Bear go, said Charles Geisst, the author of 100 Years on Wall Street, referring to the New York Fed bailout. At this particular moment in time, it would be a devastating blow to the markets.

Bear Stearns, founded in 1923, acted in response to market rumors of a liquidity crisis, CEO Schwartz, 57, said in a separate statement. He said earlier this week that the company's liquidity cushion was sufficient to weather the credit-market contraction. Bear Stearns's cash shortfall began March 11 after rumors spread that it lacked sufficient access to capital, and lenders and clients began withdrawing funds, the Washington-based U.S. Securities and Exchange Commission said in a statement released late yesterday.

Shares Tumble

We have tried to confront and dispel these rumors and parse fact from fiction, Schwartz, who was named CEO less than three months ago, said in the company's statement yesterday. Nevertheless, amidst this market chatter, our liquidity position in the last 24 hours had significantly deteriorated.

The announcement caused financial shares to plunge, with Bear Stearns tumbling $27 to $30 in New York Stock Exchange composite trading. The stock has lost 66 percent of its value this year. The sinking share price has wiped out $10.5 billion of shareholder value in the last three months.

Lehman Brothers Holdings Inc., Citigroup Inc. and Bank of America Corp. also led declines as all 10 industry groups in the Standard & Poor's 500 Index fell yesterday. Lehman, the biggest underwriter of U.S. mortgage bonds, said it obtained a $2 billion, three-year credit line from 40 banks.

Bear Stearns's long-term counterparty credit rating was reduced three levels to BBB by Standard & Poor's. The rating may be cut further, New York-based S&P said. It lowered the short- term rating to A3 from A1. Moody's Investors Service also downgraded the company's long-term rating to Baa1 from A2.

Cayne's Pick

Bear Stearns, which survived the Great Depression and first sold shares to the public in 1985, helped trigger a crash in the market for home loans to borrowers with blemished credit histories after two of its hedge funds collapsed in July. The failure of the two funds, which invested in securities linked to subprime mortgages, prompted a sell-off of the assets, which in turn led investors to shun other high-yield debt.

Schwartz, an executive with more than 30 years of experience at Bear Stearns, was the hand-picked choice of his predecessor, James Jimmy Cayne, 74, who remains non- executive chairman of the firm. Cayne stepped down after reporting an $854 million fourth-quarter loss, the first in the company's history.

On a conference call with analysts and investors after yesterday's announcement, Schwartz said that the company's book value was fundamentally unchanged. Clients continued to withdraw funds, he said.

For Sale

The firm has retained investment bank Lazard Ltd. to seek strategic alternatives, Schwartz said. Bear Stearns said it's also in talks with JPMorgan about long-term funding.

Steven Black, JPMorgan's co-head of investment banking, said on Feb. 27 that the bank was considering acquiring a prime brokerage that was for sale then. He didn't name the seller. Bank of America, which agreed to buy mortgage lender Countrywide Financial Corp. for $4 billion on Jan. 11, said four days later that it planned to sell its prime brokerage.

There happens to be one for sale and we are looking at it, Black said at a JPMorgan investor conference in New York.

Other potential Bear Stearns buyers include private equity firms such as J.C. Flowers & Co., the Wall Street Journal reported. HSBC Holdings Plc, Europe's largest bank by market value, also has the resources to make an acquisition.

`Good Pockets'

The London-based lender may rise 30 percent in London trading this year, outperforming other U.K. banks because of its rich capital reserves, Keefe, Bruyette & Woods Ltd. analyst James Hutson wrote in a March 13 note to investors.

Bear Stearns led Wall Street shares lower this year as the world's largest lenders and securities firms wrote down assets linked to the subprime mortgage market. Analysts in the past month have lowered expectations for earnings in the first quarter. Bear Stearns said it will report results on March 17.

JPMorgan, the third-largest U.S. bank by assets, has posted $3.7 billion in writedowns, a fraction of the $22.4 billion reported by Citigroup, the biggest U.S. lender.

JPMorgan is not loaded up with bad mortgage debt, said Vincent Farrell, principal at Scotsman Capital Management. Bear has a couple of very good pockets that any other firm would want to have if you can clear up the balance-sheet issue.

Lewis's Bet

About a sixth of the firm's income came from packaging and trading mortgage bonds, a market that has been almost completely frozen since July.

The future for Bear will be found in a forced marriage, said Charles Peabody, an analyst at Portales Partners LLC in New York who rates the stock a sell. Their business model is broken. They don't have the ability to go it alone.

Joseph Lewis, the second-largest shareholder in Bear Stearns Cos., wasn't planning to reduce his stake, a person close to him said March 11. Lewis, a 71-year-old billionaire, views his 9.4 percent investment as long-term, the person said.

The Fed is taking on the credit risk from collateral supplied by Bear Stearns, which approached the central bank for emergency funds, Fed staff officials said yesterday.

The Fed, under Chairman Ben S. Bernanke, voted unanimously to lend the funds through JPMorgan because it would be operationally simpler than a direct loan to Bear Stearns, the staff said on condition of anonymity. The regulator invoked a little-used law that allows it to make loans to corporations and private partnerships, which required a Board vote, according to the staffers.

Yen Gains, Approaches 12-Year High, as Asian Stocks Decline

The yen rose against the dollar, approaching a 12-year high as Asian stocks fell, prompting investors to pare investments in higher-yielding currencies funded with loans from Japan.

The currency advanced the most against the Australian and New Zealand dollars, favorites of the so-called carry trade. Bear Stearns Cos. yesterday fell to a five-year low on concern the company lacks sufficient access to capital after the Wall Street Journal said traders are reluctant to engage in transactions with the New York-based bank.

With stocks falling, traders are rushing into yen- buying, said Takeshi Tokita, vice president of foreign- exchange sales at Mizuho Corporate Bank in Tokyo, a unit of Japan's second-largest publicly traded lender by assets. ``There are some rumors hedge funds and banks will go into bankruptcy.

The yen rose to 100.10 against the dollar at 1:54 p.m. in Tokyo from 100.65 late yesterday, when it reached a 12-year high of 99.77. Against the euro, Japan's currency gained to 156.48 from 157.35. The euro bought $1.5628 from $1.5635, near a record high of $1.5645. The yen may rise to 99.20 per dollar today, Tokita forecast.

Asian Stocks Fall as Record Crude Oil Fuels Inflation Concern

Asian stocks fell for the first time in three days, on concern demand for the region's exports will slow as crude oil above $110 a barrel threatens to dent consumer spending worldwide.

Toyota Motor Corp., which gets 92 percent of its sales outside of Asia, dropped in Tokyo as the dollar slumped to the lowest against the yen since 1995. Mitsubishi UFJ Financial Group Inc. led declines among banks. Inpex Holdings Inc., Japan's largest oil explorer, rose.

The MSCI Asia Pacific Index fell 0.7 percent to 139.53 as of 10:24 a.m. in Tokyo, snapping a two-day, 2.3 percent gain. Nine of the gauge's 10 industry groups declined, with more than three stocks dropping for each one that climbed.

Japan's Nikkei 225 Stock Average fell 1.7 percent to 12,650.79. Australia's S&P/ASX 200 Index declined 1.4 percent. All markets open for trading fell except New Zealand.

The U.S. Standard & Poor's 500 Index lost 0.9 percent yesterday after investment banks including Goldman Sachs Group Inc. said a Federal Reserve plan to pour as much as $200 billion into the financial system may not eliminate gridlock in credit markets.

Crude oil traded near a record $110.20 a barrel in New York as the dollar dropped to an all-time low against the euro and its weakest against the yen since December 1995, prompting investors to buy commodities.

Dollar Falls to Lowest Since '95 Versus Yen Before Retail Sales

The dollar fell to the lowest since 1995 against the yen on speculation U.S. retail sales growth slowed, adding to evidence the economy is entering a recession.

The currency also slid to a record low against the euro as brokerages including ABN Amro Holdings NV and Westpac Banking Corp. said Arab nations in the Middle East may consider ending their fixed exchange rates and selling U.S. assets. The dollar traded near an all-time low versus the Swiss franc as U.S. President George W. Bush said the dollar is adjusting and its decline isn't good tidings.

We are in a clear bear trend for the dollar, said Tokichi Ito, deputy general manager of foreign exchange in Tokyo at Trust & Custody Services Bank Ltd., a unit of Mizuho Financial Group Inc., Japan's second-largest publicly traded lender. Signs that retail sales are falling off will expose the dollar to further declines.

The U.S. currency fell to 101.68 yen at 9:37 a.m. in Tokyo after reaching 101.10, the lowest since December 1995, from 101.79 in late New York yesterday. The dollar traded at $1.5527 per euro from $1.5551. It touched $1.5573 per euro, the weakest level since the European currency's 1999 debut. The euro fell to 157.82 yen from 158.30.

The dollar bought 1.0158 Swiss francs, just above a record low of 1.0128 reached yesterday. The British pound was little changed at $2.0268. The Australian dollar rose to 93.57 U.S. cents from 93.33 cents after data showed companies in the Southern Hemisphere country hired extra workers for a record 16th month. The Singapore dollar rose to a record of S$1.3826 against the U.S. currency.

`Real Trouble'

U.S. retail sales rose 0.2 percent in February after a 0.3 percent rise in the previous month, according to a Bloomberg survey. The Commerce Department will release the data later today in Washington. Crude oil in New York touched $110.20 a barrel, the highest intraday price since the futures began trading in 1983.

The Dollar Index traded on ICE Futures in New York, which compares the currency to those of six trading partners, declined to a record low of 72.20 yesterday and was last at 72.30.

The dollar looks in real trouble and there is no obvious resistance level against the euro, said Greg Gibbs, a currency strategist at ABN Amro in Sydney. I don't think you can pick a level for where it will stop.

Middle East, China

The Central Bank of Jordan is reducing the amount of dollars in its foreign reserves because of the declining value of the U.S. currency and the need to service debt, Deputy Governor Faris Sharaf said yesterday in an interview in Amman, Jordan. Sharaf would not provide a break down of the bank's reserves, totaling around $7 billion. The Jordanian dinar has been pegged to the dollar since October 1995 at an average price of 0.709 fils.

A Qatar central bank official denied an Emirates Business 24/7 report that Gulf-region policy makers will consider currency revaluation when they meet next week. The dollar's 10 percent drop against the euro last year has stoked inflation in the region.

China wants to invest more of its reserves abroad, Minister of Commerce Chen Deming said yesterday. China's reserves are the world's largest at $1.5 trillion.

We're probably going to remain in the situation where long-term money moves away from the dollar, said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp. `There is a lot of discussion in the market about China. There's also a lot of discussion about the Middle East dropping their dollar pegs. They're looking for an alternative store of wealth.

The U.S. currency may weaken below 100 yen, he said.

`Adjusting'

U.S. President George W. Bush said the dollar is adjusting. and its decline isn't good tidings for proponents of a strong dollar. Bush also reiterated his commitment to a strong dollar, in an interview with the U.S. Public Broadcasting Service to be aired later today.

Bush's comments were about as lukewarm as you can get, said Brian Dolan, research director at Forex.com, a unit of currency trading firm Gain Capital in Bedminster, New Jersey. Some may have interpreted his `adjusting' comment as tacit acceptance that we're in a broad-based dollar devaluation.

The dollar also fell as firms from Citigroup Inc. to Goldman Sachs Group Inc. said yesterday the Federal Reserve's plan to inject $200 billion into the banking system may fail to break the freeze in money-market lending.

U.S. Rates

Traders bet the Fed will cut its rate as much as 0.75 percentage point on March 18 to avert a recession. The likelihood of a reduction to 2.25 percent was 76 percent, according to futures on the Chicago Board of Trade. The balance of bets is on a cut to 2.5 percent.

The Fed's measures are not a panacea, more like an aspirin for the dollar, analysts led by Daniel Tenengauzer, New York-based head of global currency strategy at Merrill Lynch & Co., wrote in a research note. There is a reasonable risk that this Fed move reflects the depth of their concern with U.S. asset markets.

The dollar may decline to $1.57 per euro this month, according to a Merrill Lynch forecast released March 6.

U.S. Stocks Advance Most in Five Years on Fed's Liquidity Plans

U.S. stocks rallied the most in five years after the Federal Reserve said it will pump $200 billion into the financial system to shore up banks battered by mortgage- related losses.

Citigroup Inc., Bank of America Corp. and Fannie Mae led the Standard & Poor's 500 Financials Index to its biggest gain in eight years on expectations the Fed's move will spur lending. Washington Mutual Inc. climbed the most since 2000 on speculation the largest savings and loan will get a cash infusion from an outside investor. All 10 industry groups in the S&P 500 rose except for health-care companies, which fell after WellPoint Inc. cut its earnings forecast.

The S&P 500 added 47.28 points, or 3.7 percent, to 1,320.65, climbing the most since October 2002 and trimming its decline for the year to 10 percent. The Dow Jones Industrial Average surged 416.66, or 3.6 percent, to 12,156.81. The Nasdaq Composite Index increased 86.42, or 4 percent, to 2,255.76. Almost 11 stocks gained for every one that fell on the New York Stock Exchange.

It's like they're putting jumper cables onto a battery to kick-start the credit market, said Nick Raich, who helps manage $34 billion at National City Private Client Group in Cleveland. They're doing their best to try to restore confidence.

The S&P 500 rebounded from the lowest level since August 2006 as 479 of its members advanced. Yields on two-year Treasury notes gained the most since March 1996, as the Fed's move to relieve the credit crisis prompted investors to dump holdings of government debt. The dollar rose the most in six months against the yen and rebounded from a record low versus the euro.

Citigroup Rises

Citigroup, the largest U.S. bank, rallied $1.80 to $21.49. Bank of America, the second-biggest, climbed $2.41 to $37.72.

Financial shares in the S&P 500 gained 7.4 percent as a group and rebounded from the lowest level since May 2003.

Fannie Mae, the biggest provider of financing for U.S. mortgages, added $2.19 to $22. Freddie Mac, the second-largest, rose $2.77 to $20.16. Countrywide Financial Corp., the biggest U.S. mortgage lender, climbed 75 cents to $5.11.

Washington Mutual added $1.84, or 18 percent, to $11.88.

A potential capital infusion by Warren Buffett and Goldman Sachs is the rumor, said Mike Capitani, head of equity trading at Caris & Co. in New York. Buffett's always looking for a bottom on things, and he's flush with cash.

Michael DuVally, a Goldman Sachs Group Inc. spokesman in New York, declined to comment. Jackie Wilson, a spokeswoman for Buffett's Berkshire Hathaway Inc., also wouldn't comment. A call and e-mail to Washington Mutual spokesman Derek Aney weren't returned.

Fed's Plan

The Fed said it plans to lend Treasuries in exchange for mortgage-backed securities and other debt that has plunged in value as homeowners defaulted on their payments. Banks around the world have posted $188 billion in writedowns and credit losses stemming from the collapse of the subprime-mortgage market. The S&P 500 Financials Index had lost 20 percent this year through yesterday.

By lending Treasuries in exchange for mortgage-backed securities, the Fed will allow banks to switch debt that is less liquid for bonds that are easily tradable. Fed officials anticipate the so-called primary dealers that trade directly with the central bank, including Goldman, Bear Stearns Cos. and Merrill Lynch & Co., will lend the Treasuries on to other firms in return for cash, helping the dealers shore up their balance sheets.

Fed officials told reporters on condition of anonymity that the program may be increased as needed. The move may also allow the central bank to cut interest rates less drastically than previously expected, leading to lower inflation.

Rate Bets

Traders reduced bets on a 0.75 percentage point cut in the Fed's benchmark rate by March 18, according to Fed funds futures. They priced in 62 percent odds of a reduction of that size, down from 86 percent odds yesterday. The rest of the bets are for a half-point cut in the rate, which is currently 3 percent.

Previous easing by the Fed failed to boost stocks. Since the Fed first addressed credit losses by cutting its discount rate by half a percentage point on Aug. 17, the S&P 500 has fallen 6.4 percent.

The central bank subsequently lowered the federal funds rate at which banks led to each other from a five-year high of 5.25 percent to 3 percent in five steps, including its first rate cut between scheduled meetings since 2001 on Jan. 22. The discount rate at which banks can borrow from the Fed declined to 3.5 percent from 6.25 percent.

`Something Else'

The Fed needed to do something else, because the rate declines and expectations of future rate declines really weren't having any positive impact at all, James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $220 billion, said in an interview with Bloomberg Television. You have to applaud them for coming up creatively with a way that gets more at the center of this crisis.

Bear Stearns rose 67 cents to $62.97 after a person close to investor Joseph Lewis, the company's second-largest shareholder, said he may add to his holdings. Bear Stearns, the second-biggest underwriter of U.S. mortgage-backed securities, erased an earlier decline of as much as 11 percent that was spurred by speculation the company lacks sufficient access to capital.

Bear Stearns said there is absolutely no truth to the rumors of liquidity problems, and Chief Executive Officer Alan Schwartz said company finances remain strong. The firm will probably have $1.9 billion more writedowns in the first half, Deutsche Bank AG estimated in a report.

Most Since 2002

Exxon Mobil Corp. rallied $4.22, or 5.1 percent, to $86.68 for its biggest gain since October 2002. Energy shares in the S&P 500 rose 4.6 percent as a group. Gasoline pump prices in the U.S. climbed to an all-time high of $3.227 a gallon and may reach $4 before summer because of record crude-oil prices, AAA said.

Nucor Corp. surged $4.12, or 6.5 percent, to $67.42. That sent raw-materials producers in the S&P 500 to a 6 percent advance, the most since July 2002. Nucor said it may significantly boost exports this year as overseas demand rises and a weaker dollar increases the attractiveness of U.S. supplies.

Weyerhaeuser Co., the largest U.S. lumber producer, climbed $2.81 to $61.80 after UBS AG raised its recommendation on the stock to buy from neutral, saying risk from the housing slump is starting to be priced in as market expectations have become more realistic.

Trade Deficit

Stocks also rose after the Commerce Department reported the January U.S. trade deficit was smaller than forecast. The gap grew 0.6 percent to $58.2 billion, the Commerce Department said. Exports increased 1.6 percent to the highest level ever.

Texas Instruments Inc. lost 89 cents to $28.76. The second- biggest maker of chips that run mobile phones cut its sales and profit forecasts because of slowing handset demand.

Health-care companies in the S&P 500 lost 0.2 percent as a group. WellPoint fell the most ever, dropping $18.66, or 28 percent, to $47.26 after cutting its 2008 profit forecast and saying weakness in the U.S. economy has limited enrollment gains.

Six analysts downgraded WellPoint. Bear Stearns and Goldman Sachs cut share-price estimates for rivals and lowered the industry's rating.

Aetna Inc., the third-largest U.S. health insurer, declined $3.86 to $42.65. Humana Inc., the fourth-biggest, lost $15.32 to $47.38.

The S&P 500 Managed Health Care Index of six companies dropped the most since Aug. 6, 1998, when a $900 million charge by UnitedHealth Group Inc. derailed its plans to buy Humana.

Economic Survey

The economic slowdown in the U.S. will be deeper and the recovery weaker than previously forecast, according to a Bloomberg News monthly survey. The world's largest economy will grow at an annual rate of 0.3 percent from January through June, a half point less than projected in February, according to the median estimate of 62 economists polled from March 3 to March 10.

The Russell 2000 Index, a benchmark for companies with a median market value 96 percent less than the S&P 500's, climbed 4.6 percent for the biggest rally since July 2002. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, rose 3.6 percent to 13,286.61. Based on its advance, the value of stocks increased by $580.1 billion.

U.S. Stocks Retreat, Led by Financials; Bear Stearns Tumbles

U.S. stocks fell for a third day to the lowest level since 2006, led by a plunge in financial shares, on speculation earnings estimates will prove to be too high as the economy slows and credit losses spread.

The decline in banks steepened as Bear Stearns Cos. tumbled the most since 1987 on concern the brokerage was facing financial difficulties, even after former Chief Executive Officer Alan Ace Greenberg said the speculation was ridiculous. Fannie Mae and Freddie Mac, the largest U.S. mortgage finance providers, both lost more than 11 percent on expectations they face increasing losses as the housing slump deepens.

The Standard & Poor's 500 Index declined 20 points, or 1.6 percent, to 1,273.37 and is down almost 19 percent from its Oct. 9 record. The Dow Jones Industrial Average lost 153.54, or 1.3 percent, to 11,740.15. The Nasdaq Composite Index decreased 43.15, or 2 percent, to 2,169.34. Five stocks fell for every one that rose on the New York Stock Exchange.

It's a painful time for investors, said Sam Rahman, the Boston-based head of U.S. equities at Baring Asset Management Inc., which manages $36 billion. Not only are the concerns of economic weakness more palpable, but you're getting continued concerns about the impact of the credit crisis.

All 10 industry groups in the S&P 500 dropped today on growing concern that the economy will slip into a recession after banks posted $188 billion in subprime-related losses and analysts forecast earnings for members of the index will decline this quarter and next. The benchmark for U.S. equities is approaching a so-called bear market, which is marked by a decline of at least 20 percent from a peak.

Lehman to Cut 5% of Global Workforce as Economy Slows

Lehman Brothers Holdings Inc., the largest underwriter of mortgage-backed bonds, is eliminating 5 percent of its workforce as credit markets remain frozen and the U.S. economy slows, a person briefed on the plan said.

The cuts will affect all divisions and regions, according to the person, who declined to be identified because the New York-based firm hasn't announced the reductions. Based on Lehman's employee count at the end of November, about 1,400 jobs will be lost.

Chief Executive Officer Richard Fuld already eliminated almost 3,900 positions, mostly in units that made home loans, following the collapse of the U.S. subprime mortgage market last year. The bank, which closed its subprime unit and reported record earnings for 2007, awarded Fuld $40 million in annual pay. He now faces a credit-market contraction that may have pushed the U.S. economy into a recession, prompting the Federal Reserve to add as much as $200 billion to the banking system over the next month.

Job cuts are expected everywhere, said Roger Lister, the New York-based chief credit officer for financial institutions at DBRS. I wouldn't interpret it as a sign of weakness for Lehman or any other firm.

Hannah Burns, a Lehman spokeswoman, declined to comment on the latest round of firings. The company fell $3.38, or 7.3 percent, to $42.98 in New York Stock Exchange composite trading. The 12-member Amex Securities Broker/Dealer Index sank 4.7 percent, led by the 11.1 percent drop at Bear Stearns Cos.

Higher Expenses

Oppenheimer & Co.'s Meredith Whitney, who correctly predicted Citigroup Inc. would reduce its dividend, cut her 2008 and 2009 earnings estimates for Lehman. The job cuts will push expenses higher because of restructuring charges, Whitney wrote in a note.

Whitney reduced her fiscal 2008 estimate by 17 percent to $4.75 a share and lowered her 2009 estimate by 16 percent to $6.70. The New York-based analyst also cut her revenue forecasts for the company, which she still rates at outperform.

Credit-default swaps on Lehman rose 63 basis points to 398, according to Phoenix Partners Group. The swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A decline indicates improvement in the perception of credit quality; an increase, the opposite.

30,000 Jobs

Wall Street firms have eliminated more than 30,000 employees in the last seven months as the U.S. housing market contracted and the price of mortgage-related assets declined.

Banks and brokers have written down more than $188 billion of subprime-related assets since the beginning of 2007, according to data compiled by Bloomberg. Lehman has reported $1.5 billion of charges while larger rival Morgan Stanley has taken $9.4 billion of writedowns. Merrill Lynch & Co., the world's biggest brokerage, has posted $24.5 billion of writedowns.

William Tanona, an analyst at Goldman Sachs Group Inc. in New York, predicts Lehman's first-quarter writedowns will reach $3.5 billion.

The banks are starting the process of trimming to the bone, said Zaheer Ebrahim, executive director of London-based recruiting firm Kennedy Associates. This may go on for a while.

The Federal Reserve said last week that it increased the amount of funds to be auctioned to banks this month to $100 billion from $60 billion. The Fed also said in a March 7 statement in Washington that it would make $100 billion available through weekly 28-day repurchase agreements, where the central bank will lend cash in return for assets including mortgage-backed bonds.

Fed officials said at the time that the announcement was an effort to address the deterioration in credit markets.

Asia Stocks Fall on U.S. Payrolls

Asian stocks fell to a seven-week low, led by mining companies and automakers, after unexpected job losses in the U.S. last month heightened concern the world's largest economy is in recession.

Toyota Motor Corp., Japan's largest automaker, retreated after the yen climbed to an eight-year high on speculation the U.S. Federal Reserve will further cut interest rates. BHP Billiton Ltd., the world's biggest mining company, declined on concern metals demand will fall. Malaysia's stock benchmark tumbled the most since September 1998 after the ruling coalition lost a two-thirds parliamentary majority.

The global economy is deteriorating more rapidly, said Kiyoshi Ishigane, who helps oversee $61 billion in assets at Mitsubishi UFJ Asset Management Co. in Tokyo. That should continue to be a drag on the market.

The MSCI Asia Pacific Index slumped 1.2 percent to 137.95 at 10:16 a.m. Tokyo, set to close at its lowest since Jan. 23. Materials and industrial stocks led declines among the index's 10 industry groups.

Japan's Nikkei 225 Stock Average retreated 1.4 percent to 12,599.78. All regional markets open for trading dropped. Australia's S&P/ASX 200 Index lost 1.9 percent, while South Korea's Kospi index fell 1.7 percent.

In the U.S., the Standard & Poor's 500 Index declined 0.8 percent, a government report showed that February payrolls fell the most in five years. Economists had estimated jobs to rise. Signs the U.S. is in a recession, along with a further deterioration in credit markets, spurred traders to bet the Fed will cut its benchmark rate as low as 1.75 percent by June.

Dollar, Yen

The dollar weakened to 101.43 against the yen on March 7, the lowest since January 2000, and was recently at 102.25. A decline in the dollar erodes the value of Japanese companies' dollar-denominated sales.

Toyota, which counts North America as its biggest market, fell 1.7 percent to 5,240 yen. Every 1 yen gain in the Japanese currency against the dollar trims 35 billion yen ($342 million) from Toyota's annual operating profit, according to the company.

Sony Corp., which derived 24 percent of consumer- electronics sales from the U.S., lost 4.6 percent to 4,400 yen.

BHP dropped 3.2 percent to A$37.64, set for its weakest closing price since Feb. 13. Rio Tinto Group, the world's third- largest mining company, declined 3.1 percent to A$127.15. Sumitomo Metal Mining Co., Japan's biggest gold producer plummeted 8.1 percent to 2,045 yen.

Gold futures in New York fell for a third day from a record in after-hours trading, while copper declined as much as 0.7 percent. Platinum prices last week completed the biggest weekly decline in eight years.

Reduced Majority

Malaysia's Kuala Lumpur Composite Index tumbled 7.2 percent, the most since Sept. 8, 1998, after the ruling coalition government lost the two-thirds majority it has held in parliament for 34 years.

While the National Front coalition kept control of Southeast Asia's third-largest economy after the March 8 election, its reduced majority and loss of power in five of 12 states may see government-sponsored infrastructure projects face increased scrutiny, said Mushtaq Ibrahim, who manages about $1.4 billion at Amanah SSCM Asset Management Bhd.

U.S. Gasoline Price at Record $3.20

The average price of regular gasoline at the pump in the U.S. rose 9 cents in the past two weeks to a record $3.20 a gallon, according to oil industry analyst Trilby Lundberg's survey of 7,000 filling stations nationwide.

Gasoline futures rose to $2.6943 a gallon on the New York Mercantile Exchange on March 7, the highest closing price for a contract closest to delivery since the reformulated fuel began trading in 2005. Crude-oil futures climbed to a record $106.54 a barrel the same day.

We will probably see 20 or 30 cents more at the pump very soon, possibly within a month, Lundberg said in an interview today. This is all if crude oil prices don't slide substantially, and it doesn't seem likely that they will.

The previous record of $3.18 a gallon, set in May, remains the highest on an inflation-adjusted basis, she said.

Rising prices have caused demand for gasoline to fall 1.3 percent from a year ago to 9.07 million barrels a day, a U.S. Energy Department report on March 5 showed.

Oil prices increased as the dollar weakened to a record low against the euro. Investors use physical commodities, including oil and gasoline, to hedge against a weakening dollar. As the dollar declines, dollar-denominated commodities become cheaper.

The euro climbed to $1.5459 on March 7, the highest since the currency's debut in 1999.

Last week, the Organization of Petroleum Exporting Countries refused to raise production after President George W. Bush said it would be a mistake to let high energy prices slow the economy.

Oil also rose after Venezuelan President Hugo Chavez sent 10 tank battalions to the border with Colombia in response to a Colombian air raid against a guerrilla camp in Ecuador. Venezuela and Ecuador are the only OPEC members in the Western Hemisphere.

The highest average price for self-serve regular gasoline was $3.58 a gallon in San Francisco, Lundberg said. The lowest was in Cheyenne, Wyoming, at $2.95 a gallon. On New York's Long Island, the price was $3.30 a gallon.

JPMorgan says nation is in a recession

The investment bank's chief U.S. economist says the country is in a 'short' recession that started in January.

The U.S. economy is two months into a recession, according to a research note released Friday by JPMorgan Chase & Co.

JPMorgan anticipates the current recession remaining short, unless there is an "abrupt change in corporate behavior."

In a short recession, the bottom occurs at about five months, Thomas Lee an analyst with JPMorgan wrote in a research note. Lee said during typical "short" recessions, equity markets gain about 12% in the year following the bottom.

Lee said if the recession lasts more than 12 months, stocks are likely to have additional downside. Only eight of the 22 recessions since 1900 have lasted longer than a year, Lee added.

JPMorgan originally estimated the Standard & Poor's 500 index would rise to 1,590 during the year. It also did not predict a recession, instead saying the economy would face a period of "slow growth." With the revision in the economic outlook to a recession, JPMorgan now estimates the S&P 500 will bottom out in May before rising toward 1,450 by the end of the year.

The S&P 500 fell 11 points to 1,293 in afternoon trading.

$100 oil hurts, just like a recession

Economists, once so dismissive of pricey crude's economic impact, say it's going to hurt.

Five months ago many economists said high oil prices wouldn't hurt the economy - now they're eating their words.

Back in October, when oil prices were near $90 a barrel and the economy was still humming along economists said high oil prices shouldn't cut into economic growth. The economy used oil more efficiently than it did in the 1970s, and spending on gas was just a small percent of people's budget, the experts said.

Fast forward to March and you've got a sputtering economy, and economists saying $105 oil deserves a big part of the blame.

Even the White House is beginning to sound more pessimistic, predicting Friday that the the economy could contract.

You have a very significant restraint on consumer spending, said Chris Lafakis, an associate economist at Moody's Economy.com, an economic consultancy. It acts as a tax would.

Lafakis said consumers spend an extra $5 billion each year for each $1 increase in the price of crude.

When economists were predicting that oil wouldn't negatively impact the economy, they based their assertion on a price of about $80 a barrel.

But if oil stays at $100 a barrel for the next 12 months, consumers will have shelled out an extra $100 billion on oil by next year. That's an extra $100 billion not being spent at the mall, mega-mart or multiplex.

The entire stimulus package could be drained by higher energy costs, Lafakis said, referring to the $120 billion lawmakers will refund to taxpayers in an effort to keep the economy out of recession. That has the potential to turn a mild recession into something more dark.

Worse to come

Of course, high oil prices are not the only thing weighing on consumer spending, which accounts for about two-thirds of all U.S. economic activity. Declining home values mean people can't access cash through a home equity loan or profit from higher sale prices. In addition, the economy is shedding jobs, and unemployed people tend to spend less money.

On its own, $100 oil wouldn't pull the economy into recession, said Beth Ann Bovino, a senior economist at Standard and Poor's. But given the other factors, it's just another shoe to drop.

Both Bovino and Lafakis have similar predictions for the economy - a mild recession lasting the first and second quarters of 2008, then a modest recovery beginning in the second half of this year.

However, if oil goes to $115 or $120 a barrel - certainly not an outlandish thought given that crude prices have nearly doubled over the last 12 months - then those bets may be off.

Bovino said $115 oil, along with worsening conditions in the credit and foreign investment market, could be enough to keep the economy in recession through the first part of 2009.

It would sure give the pessimistic forecast more credibility, she said.

U.S. Consumer Debt Up $6.9 Billion in January on Credit Cards

U.S. consumer borrowing rose in January as Americans doubled their credit-card debt from a month earlier, Federal Reserve statistics showed.

Consumer credit increased by $6.9 billion for the month to $2.52 trillion, the Fed said today in Washington. In December, credit gained $3.7 billion, less than a previously reported increase of $4.5 billion. The report doesn't cover borrowing secured by real estate, such as home-equity loans.

Consumers once dependent on home-equity financing are turning to other forms of short-term borrowing after the collapse in subprime mortgages made it tougher to qualify for loans, economists said. Personal income in January rose at a slower pace than inflation, and credit card usage in January rose for a second straight month.

The uncertainties surrounding home values, employment, soaring prices, and general macroeconomic conditions sent chills down the spines of the American consumer, said Richard Yamarone, an economist at Argus Research in New York, before today's report.

Economists had forecast January consumer credit would increase by $7 billion, according to the median of 32 estimates in a Bloomberg News survey.

After adjusting for inflation, consumer spending stalled for a second month in January, increasing concern that the economy is headed for a recession. Consumer spending accounts for two-thirds of the economy.

Total borrowing increased at a 3.3 percent annual rate in January after rising at a 1.8 percent pace during December. By category, revolving debt such as credit cards rose $5.5 billion during January and non-revolving debt, including auto loans, increased $1.4 billion for the month.

Job Losses

Earlier today, the Labor Department said the U.S. unexpectedly lost jobs in February for the second consecutive month, adding to evidence the economy is in a recession. Payrolls fell by 63,000, the most in five years, after a revised decline of 22,000 in January. The jobless rate dropped to 4.8 percent, reflecting a shrinking labor force as some people gave up looking for work.

The U.S. central bank's Federal Open Market Committee is scheduled to meet to discuss interest-rate policy March 18, and economists anticipate the central bank will again lower its benchmark lending rate.

At its Jan. 30 session, the Fed panel lowered the rate by a half percentage point to 3 percent for the fifth reduction since September. Commercial banks, in turn, lowered their prime lending rate to 6 percent from 6.5 percent.

The housing contraction, now in its third year, has hurt both borrowers and lenders. Mortgage foreclosures rose to an all-time high at the end of 2007 as borrowers with adjustable- rate loans surrendered their properties, the Mortgage Bankers Association said yesterday.

Late payments and charge-off rates on credit cards will probably increase for the next year, according to a Feb. 11 statement by Moody's Investors Service in New York.

Fed Boosts Lending to Banks as Credit Rout Continues

The Federal Reserve moved to add as much as $200 billion to the banking system over the next month to offset a deepening credit crisis that may have already pushed the U.S. economy into a recession.

The central bank raised to $50 billion each from $30 billion the amount intended for auctions of funds on March 10 and March 24. The Fed also said in a statement in Washington today that it will make $100 billion available through weekly 28-day repurchase agreements, where the central bank will lend cash in return for assets including mortgage-backed bonds.

The decision is the central bank's latest attempt to reduce the threat to the economy from banks curtailing loans to companies and households. Banks and securities firms have posted losses exceeding $188 billion since the start of last year as the impact of surging defaults on subprime mortgages rippled through world financial markets.

Given what we have seen in terms of illiquidity in the financial markets in the last four or five days, this came right in time, Ajay Rajadhyaksha, head of fixed-income strategy at Barclays Capital in New York, said in an interview with Bloomberg Television.

The Fed said it will increase the sizes of both the so- called Term Auction Facility operations and the repurchases if conditions warrant.

Interest Rates

Traders increased bets that the Fed will lower its benchmark interest rate by three quarters of a point this month after a government report showed the biggest job loss in five years, adding to evidence the economy is contracting. Odds of a smaller, half-point reduction fell to 6 percent from 26 percent yesterday, futures prices showed.

Fed officials said today's announcement wasn't related to the jobs report, and instead was aimed at addressing the deterioration in credit markets. The officials, speaking on condition of anonymity in a conference call with reporters, also said the measures won't expand the Fed's balance sheet.

At the same time, the central bank's balance sheet will likely change in composition as a result of today's announcements. Changes in the way the Federal Reserve Bank of New York accepts bids for repos will probably boost the level of mortgage-backed debt the Fed holds, while reducing the level of Treasuries, a Fed official said.

In effect, the Fed is using its own balance sheet to help banks and bond dealers finance assets riskier than U.S. government debt.

Investor Exodus

The move comes as investors are questioning the worth of even the highest-rated securities after Standard & Poor's and Moody's Investors Service assigned AAA grades to bonds backed by mortgages to borrowers who are now struggling to make their payments.

Carlyle Group's mortgage-bond fund was suspended in Amsterdam today after creditors forced the sale of some holdings, jeopardizing shareholders' capital. The fund borrowed to buy about $22 billion of AAA rated mortgage debt issued by Fannie Mae and Freddie Mac.

Citigroup Inc., the fourth-largest U.S. home lender by new loan volume, said March 6 it plans to pare its mortgage and home-equity loan holdings by about $45 billion, or 20 percent, over the next year.

Federal Open Market Committee members are next scheduled to meet on March 18. As credit stresses increased since the last gathering on Jan. 29-30, speculation has increased among traders that officials will consider lowering rates before the next meeting, as they did on Jan. 22.

Rate Target

Officials said they will keep the benchmark federal funds rate target around the level set by the FOMC, indicating they don't plan for the liquidity measures to drive the rate lower.

The central bank introduced the TAF, a lending tool that allows banks to give the Fed a range of collateral in return for loans, in December. The TAF loans for this month have a 28-day maturity.

What the Fed's saying with the TAF changes is, `We hear you and we want to ensure everybody has financing for good collateral,' said Joe Tully, managing director of the money- market desk in Newark, New Jersey, at Prudential Investment Management, which oversees about $55 billion.

The New York Fed said in a statement that the first of the 28-day repo operations will be conducted today, in the amount of $15 billion. It also said it will sell $10 billion of Treasury- bill holdings, to maintain a level of reserves consistent with keeping the federal funds rate around the current target.

Helping Banks

Repos allow the central bank to inject funds into primary dealers, a group of 20 banks that trade securities directly with the New York Fed. By contrast, the TAF operations offer funds to deposit-taking institutions; the most recent auction included 72 banks.

The Fed said it is in close consultation with other central banks. In December, the Fed loaned $24 billion to the European Central Bank and Swiss National Bank through a swap agreement to make more dollars available to banks in Europe.

If need be, we could certainly continue to coordinate with the Fed, ECB spokeswoman Regina Schueller said, citing remarks by President Jean-Claude Trichet.

The SNB said it has no plans to join in dollar auctions, spokesman Werner Abegg said.

Job Losses

The Fed is also trying to contain the fallout on the broader U.S. economy, which is moving closer to recession. Employers cut payrolls by 63,000 after a loss of 22,000 in January, the Labor Department said today.

The central bank said that the TAF operations will be continued for at least the next six months. Fed Chairman Ben S. Bernanke said in January that officials may make the resource a permanent addition to the Fed's toolbox.

Former Fed Chairman Alan Greenspan yesterday said March 5 that the credit markets won't recover until house prices stop falling. He said in a conference call organized by Deutsche Bank AG that home construction needs to decline to clear a surfeit of unsold properties and stabilize home prices.

I don't think there's that much the Fed can do about this, Harvard University economist Kenneth Rogoff, a former chief economist of the International Monetary Fund, said in an interview in Paris. It's very limited what monetary policy can do in the wake of a once-in-many-decades housing-price crash.