FedEx says it can grow by cutting costs

NEW YORK (AP) — FedEx may be pessimistic about the U.S. economy, but it's confident about growing its earnings.
The world's second-largest package delivery company, a bellwether for economic health because of the vast number and kinds of shipments it handles, lowered its economic forecast for the U.S., saying there remains a lot of uncertainty for the country.
FedEx maintained its earnings forecast for the full fiscal year ending in May, counting on a massive cost reduction plan and a slightly more optimistic view of growth overseas. Shares rose 84 cents to close at $93.20 Wednesday, even though its forecast for the current quarter, which includes the critical holiday season, falls short of Wall Street expectations.
FedEx Corp. posted earnings of $438 million, or $1.39 per share for the quarter that ended in November, compared with $497 million, or $1.57 per share, a year ago. Superstorm Sandy shaved 11 cents per share off of earnings in this year's quarter, as shipping volumes fell and costs rose.
Revenue rose to $11.1 billion from $10.6 billion a year ago, as the company scaled back its operation to better match demand and some of its raised rates.
Wall Street expected $1.41 per share in the recent quarter on revenue of $10.84 billion, according to FactSet.
Growth in the company's freight and ground operations boosted results, but FedEx reported "persistent weakness" in its core express network. Operating income in that segment fell 33 percent. FedEx and its larger rival UPS Inc. have seen consumers and businesses opt for slower shipping options to cut costs. As a result, FedEx is offering buyouts and shedding aircraft and other assets to reduce its costs and adjust to the new normal.
Earlier this month FedEx said it will offer some employees up to two years pay to leave, starting next year. The voluntary program is part of an effort to cut annual costs by $1.7 billion within three years.
FedEx said on Wednesday that it expects earnings of $1.25 to $1.45 per share in the third quarter. Analysts predicted per-share earnings of $1.45.
The company, based in Memphis, Tenn., also estimated $6.20 and $6.60 per share for the year ending in May, excluding charges from the company's buyout plan. Wall Street is looking for $6.34 per share.

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Burundi tea earnings rise 27 pct in November on high prices

BUJUMBURA (Reuters) - Burundi's tea export revenues rose 27 percent in November from the same month last year thanks to a stronger regional market, a tea board official said on Thursday.
The state-run tea board (OTB) said it collected $1.80 million from the sale of 589,907 kg, up from $1.42 million earned in November 2011 from the export of 563,140 kg.
"Supplies of the commodity in the region were low following a fall in overall production, especially with Kenya," Joseph Marc Ndahigeze, OTB's export official, told Reuters.
"This has boosted prices and earnings for Burundi's tea."
Kenya is the top tea producer in the East African region and landlocked Burundi exports 80 percent of its tea through a weekly auction held in Kenya's Indian Ocean port city of Mombasa.
Ndahigeze said the export average price per kg jumped to $3.06 from $2.54 the previous year.
OTB said total export earnings between January and November reached $24.7 million, exceeding the $22.2 million collected in 2011.
Tea is Burundi's second largest hard currency earner after coffee and employs some 300,000 small holder farmers in a nation of 8 million people.

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Discover Financial Services 4Q net income rises

 Discover Financial Services on Thursday reported higher earnings for its fiscal fourth quarter, as users of its namesake credit card stepped up purchases and the company wrote off fewer unpaid balances.
Even so, the Riverwoods, Ill.-based company's results fell short of Wall Street expectations, and investors sent its shares down over 3 percent Thursday.
Discover, the nation's sixth-largest credit card issuer, said total loans, credit card loans and Discover card sales volume increased 6 percent in the quarter, which coincided with the tail end of the back-to-school shopping season and the ramp up to the December holidays — key periods when consumers traditionally spend more.
Discover card sales volume increased to $26.5 billion, while credit card loans at the end of the quarter totaled $49.6 billion. Private student loans rose 6 percent, while personal loans climbed 24 percent, the company said.
"Our strong receivables and sales growth results demonstrate the effectiveness of our marketing programs, consumers' preference for cash rewards and our acceptance and awareness initiatives," Chairman and CEO David Nelms said during a conference call with analysts.
While Discover's customers racked up more debt, more of them paid off credit card balances on time. The delinquency rate on credit-card loans over 30 days past due was 1.86 percent, an improvement of 53 basis points from a year earlier. The rate of charge-offs, when the company writes off unpaid credit card balances, dropped to a historic low of 2.29 percent.
"While the continued improvement in credit appears to be nearing an end, we don't believe we are at a point where charge-offs are poised to rise significantly," Nelms said.
Nationwide the rate of credit card payments at least 90 days overdue edged up in the third quarter to 0.75 percent, according to credit reporting agency TransUnion. The rate is coming off historically low levels, however.
Discover has traditionally had one of the lowest rates for default and delinquency in the credit card industry, the result of tighter lending standards and close monitoring of problem accounts.
The company has reported improvement in its customers' default and late-payment rates since the Great Recession, as cardholders moved to pay down debt and boost savings.
Late-payment rates tend to creep higher in the fall, particularly as cardholders spend more money on holiday shopping, travel and other expenses. The company said that seasonal factor led to a slight increase in its credit card loan delinquency rate between the third and fourth quarter.
While Discover's rates for late payments and defaults remain low, the company has been making more loans. As a result, it has been setting aside more funds to cover potential loan losses.
In the September-to-November quarter, Discover increased its provision for loan losses by 6 percent to $338 million, noting that was somewhat offset by a drop in the number of unpaid credit card balances that had to be written off.
Meanwhile Discover's payment-services business, which competes with Visa and MasterCard, saw dollar volume increase 13 percent in the latest quarter.
In a client note Thursday, RBC Capital Markets analyst Jason Arnold said Discover is benefiting from increased acceptance of its cards and favorable credit trends.
"We remain very enthused by Discover's fundamental position and believe the company remains well positioned for loan and (earnings per share) growth," wrote Arnold, who has a $50 price target on the stock.
For the period ended Nov. 30, Discover earned $541 million, or $1.07 per share. That compares with $513 million, or 95 cents per share, a year earlier.
Analysts surveyed by FactSet expected earnings of $1.12 per share.
Revenue climbed 11 percent to $2 billion, after interest expense. Wall Street forecast $1.96 billion.
Also on Thursday, Discover declared a dividend of 14 cents per share. It will be paid on Jan. 17 to shareholders of record on Jan. 3.
Discover shares fell $1.36, or 3.4 percent, to close at $38.41 Thursday. The stock is up 60 percent this year.

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Richardson: NKorea trip is private, humanitarian

WASHINGTON (AP) — Former New Mexico Gov. Bill Richardson says the State Department should not be nervous about a visit he's making to North Korea with Google's executive chairman, Eric Schmidt.
The State Department has advised against his making the trip. But Richardson says he doesn't work for the U.S. government.
Richardson said Friday he's concerned about an American citizen detained in North Korea, Kenneth Bae, and has spoken to Bae's son. The former U.N. ambassador and U.S. energy secretary points out he has helped negotiate the release of American service members and hostages in the past. Richardson says he's also concerned about what the U.S. believes is covert nuclear testing.
Richardson tells CBS "This Morning" it's a private, humanitarian mission and says the State Department shouldn't be so worried.

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Abbas sees Palestinian unity as Fatah rallies in Gaza

GAZA (Reuters) - President Mahmoud Abbas predicted the end of a five-year split between the two big Palestinian factions as his Fatah movement staged its first mass rally in Gaza with the blessing of Hamas Islamists who rule the enclave.
"Soon we will regain our unity," Abbas, whose authority has been limited to the Israeli-occupied West Bank since the 2007 civil war between the two factions, said in a televised address to hundreds of thousands of followers marching in Gaza on Friday, with yellow Fatah flags instead of the green of Hamas.
The hardline Hamas movement, which does not recognize Israel's right to exist, expelled secular Fatah from Gaza during the war. It gave permission for the rally after the deadlock in peace talks between Abbas's administration and Israel narrowed the two factions' ideological differences.
The Palestinian rivals have drawn closer since Israel's assault on Gaza assault in November, in which Hamas, though battered, claimed victory.
Egypt has long tried to broker Hamas-Fatah reconciliation, but past efforts have foundered over questions of power-sharing, control of weaponry, and to what extent Israel and other powers would accept a Palestinian administration including Hamas.
An Egyptian official told Reuters Cairo was preparing to invite the factions for new negotiations within two weeks.
Israel fears grassroots support for Hamas could eventually topple Abbas's Palestinian Authority (PA) in the West Bank.
"Hamas could seize control of the PA any day," Israeli Prime Minister Benjamin Netanyahu said on Thursday.
The demonstration marked 48 years since Fatah's founding as the spearhead of the Palestinians' fight against Israel. Its longtime leader Yasser Arafat signed an interim 1993 peace accord that won Palestinians a measure of self rule.
Hamas, which rejected the 1993 deal, fought and won a Palestinian parliamentary election in 2006. It formed an uneasy coalition with Fatah until their violent split a year later.
Though shunned by the West, Hamas feels bolstered by electoral gains for Islamist movements in neighboring Egypt and elsewhere in the region - a confidence reflected in the fact Friday's Fatah demonstration was allowed to take place.
"The success of the rally is a success for Fatah, and for Hamas too," said Hamas spokesman Sami Abu Zuhri. "The positive atmosphere is a step on the way to regain national unity."
Fatah, meanwhile, has been riven by dissent about the credibility of Abbas's statesmanship, especially given Israel's continued settlement-building on West Bank land. The Israelis quit Gaza unilaterally in 2005 after 38 years of occupation.
"The message today is that Fatah cannot be wiped out," said Amal Hamad, a member of the group's ruling body, referring to the demonstration attended by several Abbas advisers. "Fatah lives, no one can exclude it and it seeks to end the division."
In his speech, Abbas promised to return to Gaza soon and said Palestinian unification would be "a step on the way to ending the (Israeli) occupation".

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Malala Yousafzai, Pakistani teen shot by Taliban, is released from UK hospital

A daily summary of global reports on security issues.

Malala Yousafzai, the Pakistani teen who was shot in the head by the Taliban in the fall for promoting girls’ education, was released from a British hospital yesterday.

Malala, who will spend the next few weeks with her family in the UKbefore returning to the hospital for more surgery, quickly became an international symbol of resistance to the Taliban’s efforts to deny women and girls education after the attack last October.

"Malala is a strong young woman and has worked hard with the people caring for her to make excellent progress in her recovery," said Dave Rosser, Queen Elizabeth Hospital's medical director.

15-year-old Malala was targeted in the close-range shooting – which took place on a school bus – because of a blog she wrote for the BBC in Urdu. Her blog, which was nominated for several awards, was written under a pen name, and was highly critical of the Taliban's ban on education for girls in the Swat valley.

According to The Christian Science Monitor, Malala blogged “about her views and about the atrocities of Islamic militias controlling the valley from 2007-2009.” The Taliban’s reign supposedly came to an end there after an Army operation in 2009, reports Agence France-Presse.

Recommended: How much do you know about Pakistan? Take this quiz.

In interviews with Pakistani journalist Owais Tohid, Malala described her blog and motivation:

"I wanted to scream, shout and tell the whole world what we were going through. But it was not possible. The Taliban would have killed me, my father, my whole family. I would have died without leaving any mark. So I chose to write with a different name. And it worked, as my valley has been freed….

"I want to change the political system so there is social justice and equality and change in the status of girls and women. I plan to set up my own academy for girls.…”

The Taliban have bombed more than 1,500 schools since 2008 in the Pakistani province where Malala comes from, according to a separate Monitor story. Under 80 percent of children between the ages of 6 and 16 are enrolled in school across Pakistan, and among those, less than half are girls. Malala’s writing documents the Taliban’s control of the Swat valley, as schools were burned and extreme rules were created and enforced.

"Saturday January 3, 2009: Today our headmistress announced that girls should stop wearing uniform because of Taliban. Come to schools in casual wear. In our class only three out of 27 attended the school. My three friends have quit school because of Taliban threats."

"January 5, 2009: Today our teacher told us not to wear colorful dress that might make Taliban angry."

"Tuesday March 2009: On our way to school, my friend asked me to cover my head properly, otherwise Taliban will punish us."

Malala’s ordeal has inspired people around the world to take action on supporting girls’ education, and her survival has made her a hero to many.

Reuters reports that more than 250,000 people have signed a petition calling for her to receive theNobel Peace Prize, while the United Nations released a plan named after the young woman to motivate girls around the world to enroll in school by the end of 2015. The UN also created a “Malala day” in November to support education for girls, reports the AFP. The Pakistani government even renamed her former school in her honor, reports the Telegraph. The angry reaction to that move, however, highlighted the ongoing fears surrounding the Taliban, as many students worried that any reference to Malala would create additional targets for Taliban violence.

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A current student told the Telegraph, "The militants didn't spare Malala, then how can they be expected to spare a college named after her…. The government should refrain from politicizing our education. We want to pursue our studies in peaceful environments and the new name of our college can bring it into spotlight and Taliban could hit it.”

According to a separate Telegraph report, Malala has said she would like to return home to Pakistanonce she has fully recovered. Officials say, however, that she will remain a target of the Taliban “as long as terrorism threatens the country.”

Malala’s release coincides with the appointment of her father, Ziauddin Yousafzai, as education attaché for the Pakistani consulate in Birmingham, reports Pakistani news outlet The News. “It is widely believed that it was Ziauddin’s own experience of campaigning for education and human rights that originally inspired Malala as her parents encouraged her by every means to be confident and vocal,” The News reports.

Malala was flown to England after an initial surgery removed the bullet – which “grazed” her brain upon entry – in Pakistan last fall. Her next procedure will take place in late January or early February and will focus on the reconstruction of her skull, reports Reuters.

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What does Google want with North Korea?

Google chairman Eric Schmidt plans to visit North Korea as early as next week in what analysts see as part of North Korean leader Kim Jong-un’s drive to give an appearance of closing the vast digital divide between his isolated country and the rest of the world.
Although Mr. Schmidt is not expected to reach any real deal with the North, his presence there seems to show a desire in North Korea to improve the technological capabilities of people almost totally shut off from the Internet. Schmidt, for his part, has often noted the power of the Internet – and Google – to lift people out of poverty and political oppression.
“In the last few years, Google has met with NGOs that do work with North Korea,” observes David Kang, director of the East Asian Studies Center at the University of Southern California. “This is not a sudden or impulsive visit.”
Recommended: Kim 101: How well do you know North Korea's leaders?
Schmidt will be traveling with two figures who have been influential in recent years in developing contacts with North Korea. One of them, Bill Richardson, the former New Mexico governor who served as UN ambassador during the presidency of Bill Clinton, has advocated rapprochement with the North during several visits to Pyongyang.
Key in arranging Schmidt’s visit is assumed to be Richardson’s longtime adviser on North Korea, Tony Namkung, who has visited North Korea more than 40 times during the past 25 years.
Mr. Namkung, born to Korean parents in China and educated in the US, was instrumental in Mr. Clinton’s visit to North Korea in August 2009. That resulted in the release of the journalists Laura Ling and Euna Lee, who had been held for 140 days after their arrest while filming along the North’s Tumen River border with China. He also advised the Associated Press on opening a bureau in Pyongyang.
Schmidt's mission raised the possibility that he might be the type of high-level visitor to whom North Korea might be willing to release another American now in prison in Pyongyang. Kenneth Bae, a human rights activist from Oregon, was charged with "hostile acts" after entering North Korea legally from China as leader of a tour group to the Rason economic zone in the northeast. A devout Christian, he was believed to have been carrying religious material -- strictly forbidden in the North.
There was no doubt, though, that the overall rationale for the visit would be political, diplomatic and economic -- with a view to relations with the US.
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“I don't know for sure,” says Nick Eberstadt of the American Enterprise Institute, “but it certainly looks as if Google is the ‘dangle’ for the Richardson/Namkung mission to Pyongyang.” Mr. Eberstadt, who has written extensively on North Korea, adds, “What Schmidt/Google stand to achieve is another question altogether, of course.”
Just what’s in the visit for Schmidt is especially puzzling considering that no North Korean can use Google's search engine unless working for a high-level government agency with a need for vital facts and figures.
In addition, Tom Coyner, a longtime business consultant in Seoul, raises another concern: "What could be the long-term implications for Internet freedom of information as central governments become stronger in denying individual rights – including to free access to information."
Victor Cha, who served as director of Asian affairs on the National Security Council during the presidency of George W. Bush, observes that Google withdrew operations from China to Hong Kong in 2010 as a result of Chinese Internet censorship. The problem, he says, “would likely be exponentially worse in North Korea.”
Mr. Cha, in questions and answers posted by the Washington-based Center for Strategic and International Studies, where he serves as a senior adviser, said that “only about 4,000 North Koreans have access to the Web and under very tightly monitored conditions.”
Kim Jong-un, however, is believed to have played a key role in persuading his father, Kim Jong-il, to accept the inevitability of communication by mobile telephones several years ago. More than 1 million North Koreans now communicate on cellphones through a system set up by Orascom, the Egyptian telecommunications giant, that strictly blocks calls in and out of North Korea.
Thus David Straub, a former senior US diplomat in Seoul, believes that Schmidt may want to "look at what Orascom has done with cell phones in North Korea and thus that Google might be able to do something with the Internet there."
Kim Jong-un “clearly has a penchant for the modern accoutrements of life,” says Mr. Cha. “If Google is the first small step in piercing the information bubble in Pyongyang, it could be a very interesting development.”
Any attempt to formalize a deal between Schmidt and a North Korean state company, however, would run afoul of UN sanctions on doing business with the North. State Department spokeswoman Victoria Nuland says “we don't think the timing of this is particularly helpful,” especially in view of North Korea’s latest launch of a long-range rocket last month, in violation of sanctions.
Still, the State Department can do nothing to block the trip. “They are private citizens,” she says. “They are making their own decision.

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France's Bardot threatens exile over elephants

PARIS (AP) — Sex symbol-turned-animal rights activist Brigitte Bardot is threatening to join actor Gerard Depardieu in Russian exile unless France halts the scheduled euthanasia of two sick circus elephants.
The 1960s screen diva says authorities have ignored her "numerous proposals" to save Baby and Nepal, a pair of 42-year-old elephants dying of tuberculosis at a Lyon zoo.
In a statement on her foundation's website Bardot says that if the elephants are killed she will request Russian citizenship "to flee this country that is now just a graveyard for animals."
This week France was shocked to learn Depardieu, an Academy Award-winner and pillar of French cinema, had received Russian citizenship after he was called "pathetic" by France's prime minister in a bust-up over the country's proposed 75 percent income tax for the superrich.

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Macy's key revenue figure rises in December

 Macy's said Thursday that revenue in stores open at least one year rose 4.1 in December, edging past Wall Street estimates.
But the figure grew less than the company expected during the combined two-month November and December period, the key holiday shopping months, and Macy's lowered its fourth-quarter guidance.
The department store chain also said it will close six underperforming stores.
Analysts had expected the December figure to rise 4 percent, according to Thomson Reuters.
Total revenue for the five weeks ended Dec. 29 rose nearly 4 percent to $5.1 billion from $4.92 billion last year.
The two months of November and December is a key holiday shopping period for retailers, which can make up to 40 percent of annual revenue during that time. Macy's said revenue in stores open at least one year rose 2.5 percent during the two months combined.
CEO Terry Lundgren said the rate of growth of revenue in stores open at least one year was less than expected, but that was due partly to uncertain economic news and the lingering effect of Superstorm Sandy.
Revenue in stores open at least one year is a key measure of a retailer's health, because it excludes revenue at stores that recently opened or closed.
Year-to-date, revenue in stores open at least one year rose 3.3 percent and total revenue also rose 3.3 percent to $25.89 billion from $25.07 billion.
The company now expects revenue in stores open at least one year to rise 3 percent to 3.5 percent in the fourth quarter, down from prior expectations of 4.2 percent.
Macy's now expects earnings of $1.91 to $1.96 for the fourth quarter, excluding costs related to a tender offer and store closings. Previously it expected earnings of $1.94 to $1.99 per share. Analysts expect $1.98 per share, according to FactSet.
Meanwhile, Macy's said it will close six underperforming stores as part of a normal review of its business. The stores include a Bloomingdales Fashion Show Home Store in Las Vegas, Nev.; and Macy's in the Paseo Colorado mall in Pasadena, Calif.; Belmont, Mass.; Honolulu, Hawaii; St. Paul, Minn.; and Houston, Texas. Closing the stores will cost $2 million to $4 million taken in the fourth quarter.
After the closings, Macy's will operate 798 stores in 45 states. Macy's said it plans to open nine other Macy's and Bloomingdale's around the country to replace the stores it is closing.
Macy's shares slipped 22 cents to $38.09 in morning trading. Its shares have traded in a 52-week range of $32.29 to $42.17.

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Stocks sink as Congress heads for another showdown

 The stock market pulled back slightly Thursday, a day after the Dow Jones industrial average posted its strongest gain in more than a year.
Retailers reported mixed sales and the prospect of a new budget battle in Congress helped nudge stocks lower.
The Dow Jones industrial average was down 25 points to 13,387 an hour after the opening bell. UnitedHealth Group led the Dow lower, sinking $1.65 to $52.88, a 3 percent drop, after analysts at Deutsche Bank and other firms cut their ratings on the insurer's stock.
The Standard & Poor's 500 index was off two points at 1,460 and the Nasdaq composite slipped three points to 3,110.
The Dow soared 308 points Wednesday, its largest point gain since December 2011. The rally was ignited after lawmakers passed a bill to avoid a combination of government spending cuts and tax increases that have come to be known as the "fiscal cliff." The law passed late Tuesday night averted that outcome for now, but other fiscal squabbles are already looming in Congress including disagreements over raising the government's borrowing limit.
Ross Stores led the S&P 500 with a 6 percent gain in early trading. The retailer said sales at stores open for at least a year increased 11 percent during the holiday shopping season. Ross Stores' stock was up $3.65 to $58.09.
Nordstom Inc. surged 2 percent after the department-store chain also reported strong holiday sales, especially in the South and Midwest. Nordstrom's stock was up $1.21 to $54.84.
Other retailers struggled during the holidays as shoppers held out for deep discounts.
Family Dollar Stores sank 12 percent after reporting earnings that fell short of analysts' projections. The company also forecast a weaker outlook for the current period and full year. Family Dollar's stock lost $7.25 to $56.75.
Hormel Foods, known for making Spam and other meat products, said Thursday that it's buying Skippy, the country's No. 2 peanut butter brand, for about $700 million, from Unilever. Hormel's stock jumped 5 percent, or $1.56, to $33.60.

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Stocks pause on Wall Street after a two-day rally

Stocks are little changed on Wall Street as the market pauses following a huge two-day rally.
The Dow Jones industrial average was off four points at 13,408 at midday Thursday. UnitedHealth Group led the Dow lower after analysts at Deutsche Bank and other firms cut their ratings on the insurer's stock.
The Standard & Poor's 500 index edged up a point to 1,463 and the Nasdaq composite rose three points to 3,115.
The Dow soared 308 points Wednesday, its largest point gain since December 2011. The rally was ignited after lawmakers passed a bill to avoid a combination of government spending cuts and tax increases that have come to be known as the "fiscal cliff." The Dow also rose 166 points on Monday, before the New Year's holiday.

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World stocks put relief rally on pause

 Enthusiasm faded on Wall Street and in European markets Thursday over U.S. legislators' deal to stave off the so-called fiscal cliff, a series of automatic tax increases and spending cuts that could have hurt the world's largest economy.
While the deal passed by Congress this week avoids the near-term risk of a major blow to businesses and households, it left unsolved several budget measures, mainly government spending cuts.
Major indexes fell modestly or saw only small gains as investors considered that U.S. politicians now have only two months to negotiate those cuts.
Wall Street lacked momentum after strong gains the previous day. The Dow industrials average was flat at 13,415.12 and the broader Standard & Poor's 500 index was up barely 0.1 percent at 1,464.31.
In Europe, Germany's DAX shed 0.3 percent to close at 7,756.44 and France's CAC-40 lost 0.3 percent to 3,721.17. Britain's FTSE 100 rose 0.3 percent to 6,047.34. Shares rose sharply in Switzerland, however, as markets there were closed on Wednesday.
A last-minute deal agreed to by U.S. lawmakers late Tuesday triggered a global market rally on Wednesday. But while it settled tax rates, the deal only postponed automatic spending cuts to defense and domestic programs for two months. And it doesn't include any significant deficit-cutting agreement, meaning the country still doesn't have a long-term plan on how to curb spending.
Rabobank analyst Jane Foley said that a "more realistic sense" of the situation with U.S. budget affairs "has started to trickle into market sentiment this morning."
"Over the next couple of months, U.S. budget talks are set to remain a threat to risk appetite," Foley wrote in a note to investors.
Looking ahead, investors will keep an eye on the U.S. monthly jobs report due Friday. The figures often move markets as they are a key indicator for the health of the U.S. economy, which has struggled to gain steam in recent months.
Figures from human resources firm ADP showed U.S jobless claims rose by more than expected to 372,000. But that was offset by more positive figures showing the economy created 215,000 new jobs during the month.
The ADP numbers are a prelude to Friday's official U.S. government numbers.
Earlier in Asia, benchmarks in Hong Kong and Sydney rose modestly and crested above the 19-month highs hit Wednesday. Hong Kong's Hang Seng Index rose 0.1 percent to 23,398.98, while Australia's S&P/ASX 200 rose 0.7 percent to 4,740.70. Benchmarks in Singapore, Taiwan, Indonesia, Thailand, the Philippines and New Zealand also rose.
Still, South Korea's Kospi fell 0.6 percent to 2,019.41 amid fears the weakening Japanese yen could hurt South Korean exporters.
Markets in Japan and mainland China were closed for extended holidays until Friday.
In currencies, the euro was down 0.6 percent at $1.311 while in commodity markets the benchmark crude oil contract was trading 5 cents higher at $93.17 in New York.

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Stocks tread water as next fiscal showdown looms

The stock market crept higher in midday trading Thursday, one day after the Dow Jones industrial average posted its biggest gain in more than a year.
Retailers reported mixed sales and the prospect of a new budget battle in Congress loomed.
The Standard & Poor's 500 index inched up one point to 1,463 and the Nasdaq composite rose four points to 3,116.
UnitedHealth Group held back the Dow, sinking $1.65 to $52.88, a 3 percent drop, after analysts at Deutsche Bank and other firms cut their ratings on the insurer's stock. The Dow was up just seven points to 13,419 as of 12:22 EST.
"It's natural to relax a bit after such a huge day as yesterday," said Lawrence Creatura, who manages a small-company fund at Federated Investors.
The Dow soared 308 points Wednesday, its largest point gain since December 2011. The rally was ignited after lawmakers passed a bill to avoid a combination of government spending cuts and tax increases called the "fiscal cliff."
That deal gave the market a jump start into the new year. The Dow and the S&P 500 are already up more than 2 percent.
"We're off to a very strong start," Creatura said. "The dominant reason is the resolution of the fiscal cliff. But January is usually a strong month, as investors all shift money into the market at the same time. When the calendar flips, it's as if you're allowed the begin the race anew."
Economists had warned that the full force of the fiscal cliff could drag the country into a recession. The law passed late Tuesday night averted that outcome for now, but other fiscal squabbles are likely in the months ahead. Congress must raise the government's borrowing limit soon or be forced to choose between slashing spending or paying its debts.
Ross Stores surged 6 percent in early trading. The retailer said sales at stores open at least a year increased 11 percent during the holiday shopping season. Ross Stores rose $3.65 to $58.09.
Nordstom Inc. surged 2 percent after the department-store chain also reported strong holiday sales, especially in the South and Midwest. Nordstrom's stock was up $1.21 to $54.84.
Other retailers struggled during the holidays as shoppers held out for deep discounts.
Family Dollar Stores sank 12 percent after reporting earnings that fell short of analysts' projections. The company also forecast a weaker outlook for the current period and full year. Family Dollar's stock lost $7.25 to $56.75.
Among other stocks making big moves:
— Transocean jumped $3.33, or 7 percent, to $49.57. The owner of the oil rig that sank in the Gulf of Mexico in 2010 after an explosion killed 11 workers reached a $1.4 billion settlement with the Justice Department.
— Hormel Foods, known for making Spam and other meat products, said that it's buying Skippy, the country's No. 2 peanut butter brand, from Unilever for about $700 million. Hormel's stock jumped 5 percent, or $1.56, to $33.60.

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In South Korea, Kim Jong-un's New Year speech generates surprise - and doubt

North Korea’s leader Kim Jong-un signaled his desire for improved relations with South Korea in a New Year’s Day address that South Korean officials see as an unsatisfying attempt to appear conciliatory.
A day after Kim Jong-un stressed the need for resolving North-South confrontation, South Korean Foreign Minister Kim Sung-hwan responded Wednesday by calling for North Korea to make “wise and right decisions” by coordinating with “neighboring countries.”
Kim’s address was noteworthy for both the absence of the type of recriminations that characterize North Korean rhetoric and also because Kim Jong-un seized the occasion to speak publicly.
Recommended: Kim 101: How well do you know North Korea's leaders?
The address, broadcast by North Korean state radio and television, was also noteworthy for another reason: Kim Jong-un’s father, Kim Jong-il, who died in December 2011, never delivered a New Year’s address. His grandfather, “Great Leader” Kim Il-sung, last addressed his nation on New Year’s day in 1994, about six months before his death.
The relative restraint of Kim Jong-un’s remarks – and the fact that he made them in person, not in a written statement in the official North Korean media – strikes analysts as a positive sign despite contrary indications of rising North-South confrontation.
“The language was tempered,” says Mark Fitzpatrick, director of the nonproliferation program at the International Institute for Strategic Studies in London. “It wasn’t over the top like so much North Korean propaganda.”
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Mr. Kim, in an address that also focused on the economy, called on South Korea’s “antireunification forces” to “abandon their hostile policy against their fellow countrymen” and pursue “national reconciliation, unity, and reunification.”
While those words are staples of North Korean rhetoric, they were bereft of mention of South Korea’s outgoing president, Lee Myung-bak, or the incoming president, Park Geun-hye, the daughter of the long-ruling dictator Park Chung-hee.
North Korea has repeatedly attacked Mr. Lee with vitriolic language, castigating both him and Ms. Park for suggesting the North give up its missile and nuclear programs as a prerequisite for resuming the massive shipments of food and fertilizer sent by the South during the decade of the Sunshine policy from 1998 to 2008.
Kim Jong-un suggested the need to go back to that era by mentioning the joint declarations signed by South Korean presidents during summits with Kim Jong-il in Pyongyang in June 2000 and October 2007. The late Kim Dae-jung pursued the Sunshine policy as president of South Korea from 1998 to 2003, and his successor, Roh Moo-hyun, carried on the policy from 2003 to 2008, at which point the conservative Lee reversed course after a landslide victory over a liberal foe.
Kim Jong-un’s address may hint that North Korea might be willing, in the interest of resumed aid, to concede to South Korean conditions – such as avoiding harsh personal rhetoric, much less threats to attack South Korea in the Yellow Sea, the scene of periodic bloodshed, or across the demilitarized zone that has divided the Koreas since the Korean War ended in an armistice in July 1953.
Nonetheless, South Korean officials did not seem immediately receptive. South Korea’s unification minister, Yoo Woo-ik, described Kim Jong-un’s remarks as “bland” – with “no ground-breaking proposals.”
Mr. Fitzpatrick, a former senior nonproliferation official at the US State Department, cautions against taking Kim Jong-un’s remarks as a sharp shift in North Korean policy. “I didn’t read it as an olive branch,” he says. “I read it as presidential” – a sign that Kim wants to project a statesmanlike image as he enters his second year in power.
Park Geun-hye, while interested in resuming dialogue with North Korea, has said she is willing to authorize “humanitarian” aid to North Korea. She is expected to calibrate humanitarian aid depending on the North’s responses.
Rhetoric on both sides is likely to intensify as South Korea takes a seat this month on the UN Security Council as a nonpermanent member for a two-year term. South Korea has called for strengthening sanctions against the North as punishment for firing a long-range missile last month that put a small satellite into orbit. The Security Council imposed sanctions after the North conducted an underground nuclear test in May 2009, but the North continued to receive food, fuel, and other aid from China.
Fitzpatrick believes increased sanctions may have a negative effect. “There might be a nuclear device tested again,” he warns, noting that North Korea appears to have completed most preparations for its third such test. The North conducted its first nuclear test in October 2006.
Still, he sees Kim Jong-un’s speech as indicating his desire to rein in the North’s military establishment. “Three times he talked about uniting around the Workers’ Party,” he says. “That’s in keeping with the need to rebalance power. The subtext is to obey the party.”

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Mandela's recovery "on track" at home: South African government

 Former South African President Nelson Mandela's recovery is 'on track' at his home in Johannesburg, the government said on Wednesday in its first statement since the anti-apartheid hero was released from hospital a week ago.
Mandela, 94, who has been in frail health for several years, spent nearly three weeks in a Pretoria hospital in December for treatment of a lung infection and surgery to remove gallstones, his longest stay for medical care since his release from prison in 1990.
"Madiba's recovery continues on track," presidency spokesman Mac Maharaj said referring to Mandela by his clan name.
"We are now in the phase where if we do not hear from his doctors, we assume he is all right," he said, without giving details on Mandela's condition.
Mandela has been receiving what the government calls "home-based high care" at his residence in an upscale Johannesburg neighborhood.
Mandela became South Africa's first black president after the first all-race elections in 1994, serving a five-year term.
He has been mostly absent from the political scene for the past several years due to poor health, while questions have been raised as to whether his ruling African National Congress (ANC) has lost the moral compass he left behind.
Under such leaders as Mandela, Walter Sisulu and Oliver Tambo, the ANC gained a stellar global reputation. Once the yoke of apartheid was thrown off, it began ruling South Africa in a blaze of goodwill from world leaders who viewed it as a beacon for a troubled continent and world.
Close to two decades later, this image has dimmed as critics inside and outside the country, and in the movement itself, accuse ANC leaders of indulging in the spoils of office, squandering mineral resources and engaging in power struggles.
Mandela's "Rainbow Nation" of reconciliation has come under strain under President Jacob Zuma, a Zulu traditionalist with a history of racially charged comments, including a statement in December where he reportedly said dog ownership was for whites and not part of African culture.
Nobel Peace Prize laureate Mandela has a history of lung problems dating back to when he contracted tuberculosis as a political prisoner. He spent 27 years in prison, including 18 years on the windswept Robben Island off Cape Town.
Mandela was also admitted to hospital in February because of abdominal pain but released the following day after a keyhole examination showed there was nothing seriously wrong with him.
He has spent most of his time since then in another home in Qunu, his ancestral village in the impoverished Eastern Cape province.
His poor health has prevented him from making public appearances in the past two years, although he has continued to receive high-profile visitors, including former U.S. President Bill Clinton.

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Italy's Monti fires opening salvo of second-term campaign

 Italy's outgoing Prime Minister Mario Monti pledged to cut labor taxes to fuel growth on Wednesday as he shed his neutral technocrat stance and fired the opening salvo of his campaign for a second term.
The former European Commissioner was appointed in November 2011 to lead an unelected right-left government of experts to save Italy from financial crisis after Silvio Berlusconi quit amid a sex scandal and a crisis that threatened the euro.
Berlusconi's party withdrew its support for Monti in December, and Monti resigned on December 21, about two months earlier than had been planned.
On Friday Monti abandoned his mediator role he played to enter politics in his own right and lead a centrist alliance to fight the February 24-25 parliamentary vote.
The 69-year-old's bloc is now in a three-way race with the Democratic Party (PD) on the left and four-time prime minister Berlusconi's People of Freedom (PDL) on the right - his allies until 12 days ago.
A poll published on Wednesday said Monti's bloc would win 12 percent of the vote, while one published last week said it could gain up to 16 percent, depriving rivals of a clear win, but not enough to govern.
They show the PD and its coalition ally are on track to win the vote, at least in the lower house. Monti repeated on Wednesday that he wanted to form a broad coalition of pro-Europe, pro-reform parties after the election.
To Italians who have borne the brunt of austerity measures he introduced in late 2011 to save Italy from a Greek-style debt crisis, Monti promised to lower labor taxes and "redistribute" wealth from the richest to the poorest if he wins.
"We need to reduce taxes on the labor force, both on workers and companies, by cutting spending," he said in an hour-long interview with state radio.
Monti again ridiculed Berlusconi, saying he was personally "confounded" by his "illogical" swings from praising his government to attacking it.
"I hope voters are less confused than I am," he said. The 76-year-old Berlusconi has attacked Monti, saying he took orders from German Chancellor Angela Merkel, while at the same time offering him the leadership of the center-right.
"Monti is no longer credible," Berlusconi counter-attacked in an interview on SkyTG24. "He broke his word" by entering the election race after promising he would not when he took over as head of a technocrat government, Berlusconi said.
Berlusconi also said that he could cede the premiership to someone else should his bloc win the election, probably as a way of renewing an alliance with the Northern League party.
The Piepoli poll published on Wednesday put Bersani's center-left bloc at more than 40 percent, more than 10 percentage points ahead of the center-right. Without the League, Berlusconi's bloc trails by more than 16 percent.
For the first time, Monti also directly attacked the center-left, saying Pier Luigi Bersani's PD and its SEL ally were too close to labor union positions aimed at protecting jobs and not creating new ones.
BROAD COALITION
The center-left "wants to conserve - for noble reasons and in good faith I'm sure - a crystallized labor market, hyper-protective compared with other countries," Monti said.
Three days after Bersani pressed Monti to say what side of the political spectrum he was on, the former European commissioner responded that he was on the side of those who want to change the country.
"Now we need a new type of government - one that is in favor of reforms and not of conserving the status quo," Monti said. Last week Monti said he wanted to lead a coalition that went beyond the traditional left-right split.
Under the complex electoral law, Bersani's two-party coalition could win a comfortable majority in the lower house without taking a secure command of the Senate, possibly making an alliance with Monti's bloc crucial to creating a stable parliamentary majority.
Pier Ferdinando Casini, leader of Monti's ally the UDC party, said on Wednesday Bersani should not become prime minister if his bloc does not win an outright majority in both houses.
In an interview with newspaper Avvenire, Casini suggested Monti should be given the top job even if his bloc wins fewer votes than Bersani's, an opinion rejected by Bersani's PD.
Monti is the favorite of the markets, the business establishment and the Catholic church, and the PD has said it would continue down the Europe-minded path of Monti's government, though with adjustments to boost growth and jobs.
Monti has helped restore investor confidence in Italy. The key measure of this - the difference in interest rates on Italian 10-year government bonds and safer German Bunds - lay on Wednesday at around half the level it was when he took office.

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After 'peaceful' 2012, Kashmiris urge end to war-time measures

Government tallies in Kashmir find that 2012 was the most peaceful year since an armed rebellion began in the disputed region in 1989. Despite that, no measures have been taken to demilitarize the region or to revoke the draconian laws that provide impunity to paramilitary forces here.
A report released by the Jammu and Kashmir state last week put hard numbers on the widely-observed notion that armed separatism has steadily declined and is nearing extinction. “There have been 33 grenade attacks and IED explosions this year up to November end as compared to 41 last year. 95 people, including 23 civilians, 14 paramilitary forces’ personnel and 58 militants, were killed in 2012. It is much lesser as compared to the year 2011 in which 173 people were killed,” the report said.
The relative peace has brought a revival in tourism to Kashmir, but a political dialogue for resolving Kashmiri aspirations remains moribund. Many residents of the mostly-Muslim Kashmir Valley still express a desire for independence, and India remains wary of lifting its heavy military presence.
“The year 2012 was peaceful if we look at the general change in the atmosphere but despite that nothing happened on demilitarization. The reason for it is that we are still operating under the security paradigm and we have not sufficiently moved away to a political paradigm yet,” says Gul Wani, a political analyst and academic at Kashmir University.
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That security paradigm persists partly out of a sense that the peace here is so fragile that it could be upset by a single incident of violence.
Still, that shouldn't preclude some movement on the political front, Mr. Wani argues. “The security establishment will remain the determining factor but within that the political actors, whether mainstream or separatists, will also continue to ask for liberalizing the civilian space, demilitarization, revocation of some laws."
Kashmiris have been pushing for years for the revocation of two laws in particular; the Armed Forces Special Powers Act (AFSPA) and Public Safety Act (PSA). AFSPA grants broad immunity to Indian forces operating in Kashmir, and the PSA allows for detention without trial for a minimum of six months and maximum of one year.
Also at issue is the heavy presence of military forces and bunkers throughout the state, including roughly 600,000 troops (including paramilitary and police forces), according to the Jammu and Kashmir Coalition of Civil Society, a prominent human rights organization.
“The militancy has died down to a trickle; a security review is required that could involve re-deployment of the troops,” agrees Radha Kumar, the director general of the Delhi Policy Group that works on track two diplomacy.
“There is a volatile situation but an uneasy calm. There has been steady decline in militancy. The dialogue is very important. We should look at this more positive way. We had recommended three things – stabilizing the situation on the ground, re-integration of divided areas and returning of former militants, and the peace process with the separatist groups,” says Ms. Kumar, a former member of a team of "interlocutors" appointed by the Indian government to start a dialogue with Kashmiris.
The state's chief minister, an ally of India's ruling coalition in New Delhi, has argued publicly for AFSPA's revocation. But last month the chief minister said that the Army has scuttled the proposal.
The National Conference Party, which currently rules the state, issued a statement on Dec. 28 after the Indian Army allegedly fired on protesters in Pulwama district saying that the Army cannot continue to use AFSPA to act with impunity, and that by such actions the Army was only making things difficult for the proponents of peace. The party also accused the Army of being responsible for the 2010 civil uprising in which 112 people were killed by paramilitary forces and police.
The Indian military cautions that it's too soon to assume the region will remain peaceful.
“One year being peaceful doesn’t mean the peace has returned, instead, there has to be durable peace,” says Lt. Col. J S Brar, Srinagar-based Defense spokesperson of India. He declined to comment on AFSPA saying that the “Army’s views on it are very well known that have been articulated by senior commanders and I will not comment on it.” The Army has argued that in most other states of India there is some legal protection for soldiers under a different law that is not fully applicable in Jammu and Kashmir.
There is also some push-back from human rights groups here about the extent of the peace. A report released today by the Jammu and Kashmir Coalition of Civil Society says that the year 2012 has passed just like previous years, and the state government has disgracefully claimed the year to be peaceful. Giving figures that contradict the home ministry, it says 148 people have lost their lives in 2012 because of violent incidents. It includes 35 civilians, 75 alleged militants, 36 armed forces personnel, 1 unknown person, and 1 retired police officer.

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Is Russia trying a dead whistle-blower because of a US law?

At the center of the stormiest US-Russia diplomatic crisis since the cold war stands the enigmatic figure of Sergei Magnitsky, for whom the US Senate has named a punitive new law that imposes harsh visa and economic sanctions against scores of Russian officials who are deemed to have committed serious human rights violations.
The tale of Mr. Magnitsky, a corporate lawyer who blew the whistle on a vast corruption scheme, was arrested by the same officials he had implicated, and was allegedly beaten to death in prison over three years ago, appears to validate all the worst suspicions held in the West about the nature of Vladimir Putin's Russia. The Magnitsky Act, signed into law by President Barack Obama last month, is a controversial new breed of legislation that aims to compensate for the perceived failures of Russia's justice system by meting out punishment to about 60 Russian officials deemed to have been involved in the wrongful prosecution and alleged murder of Magnitsky.
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The Kremlin's incandescent response makes it likely that the mutual acrimony will expand in weeks to come. Mr. Putin called the Magnitsky Act a "purely political, unfriendly act" that demanded a stern riposte. Last week he signed the retaliatory Dima Yakovlev Act, whose key provision is a ban on all adoptions of Russian children by US citizens.
But in an apparent effort to overturn the widely-held Western narrative, which sees Magnitsky as the victim of corrupt officials and a lawless state, Russian prosecutors have announced they will put the deceased Magnitsky on trial later this month, seeking to prove that he and his former boss, Bill Browder, head of the London-based Hermitage Capital, were the real criminals.
The pending trial has been fiercely opposed by Magnitsky's mother – who will be required to stand in for her dead son – and lawyers, who argue that a posthumous trial is against Russian law in all cases except when a family asks the court to "rehabilitate" a victim of an unjust verdict (a common legacy of the Stalin era).
"We did not ask for this, and we do not think the deputy prosecutor had any right to revive Sergei's case after it was closed upon his death," says Natalia Magnitskaya, Magnitsky's mother.
"We seriously doubt that the very same people who prosecuted Sergei hold out any prospect of rehabilitating him. So, our family doesn't want to take any part in these illegal actions," she adds.
Last week a Russian court acquitted Dmitry Kratov, a prison doctor who is the only official ever to have been charged in connection with Magnitsky's death. Mr. Kratov had been accused of failing to render timely medical assistance on the night Magnitsky died in handcuffs on the floor of a Moscow prison cell. A post-mortem report issued by the Russian Ministry of Health indicated that "the injuries on Magnitsky's body were most likely caused by multiple injuring impacts of a blunt object that might possibly be a rubber baton."
"This case was never properly investigated by authorities," says Lyubov Volkova, a member of the Public Oversight Commission, an independent watchdog mandated by Russian law to report on prison conditions. It was the first non-governmental group to look into the circumstances of Magnitsky's death.
"In Kratov's court case, both the judge and prosecutors acted as though they were his lawyers.... It seems that Kratov was just a scapegoat from the very beginning. That's not surprising, since deputy prosecutor Viktor Grin's name is on the US Magnitsky List, so obviously he wants to do everything possible to protect himself and make Magnitsky look guilty."
The narrative of Magnitsky's prosecution and death accepted by the US Senate, and several other Western legislatures that are considering variants of the Magnitsky law, is largely based on a 75-page report compiled by investigators working for Mr. Browder and also a 2011 investigation presented to then-President Dmitry Medvedev by the Kremlin's own in-house human rights commission. At the time, a somewhat shaken Mr. Medvedev appeared to agree that "at least some crimes" had been committed leading to Magnitsky's death.
According to that version, Hermitage's attorney Magnitsky went twice in 2008 to the Kremlin's State Investigative Committee to testify that corrupt police and tax officials had embezzled $230 million paid in taxes by Hermitage Fund companies, using corporate seals and charters seized in an earlier police raid on Hermitage's Moscow headquarters.
"My offices and our law firm's offices were raided by about 25 officers of Russia's Interior Ministry, who took all our official company documents," says Browder – once the biggest foreign investor in Russia – who had been barred from re-entering Russia about 18 months earlier on "national security" grounds.
"Those documents were then used in a complicated scheme to steal $230 million we had paid in taxes the previous year to the Russian government," he says. When Browder complained, he was charged by the same officers, in absentia, with underpaying his taxes in 2001.
After Magnitsky testified, Browder says, the same officers arrested him and placed him in the Butyrka prison, where he died a year later.
The investigations bankrolled by Browder have found that many of the police officers and other officials implicated by he and Magnitsky have since become inexplicably wealthy, and some have purchased expensive foreign properties. Aside from the doctor, Kratov, no Russian investigations have been opened into any of the 60 or so officials Browder alleges to have been involved in the corruption scam and the subsequent prosecution and untimely death of Magnitsky.
The Russian government's case, which will feature at Magnitsky's upcoming posthumous trial, appears to be summarized in a document handed out to US senators last summer by visiting Russian parliamentarians. It alleges that Browder, who had long championed minority shareholder rights in Russia, was guilty of acquiring more shares of the state natural gas monopoly Gazprom than he was legally entitled to, and that Hermitage companies had engaged in tax evasion and other wrongdoing. It also appears to claim that the $230 million tax theft was the work of Browder – who had been exiled to London more than a year earlier – operating in league with Magnitsky.
"The case against Magnitsky and me was entirely trumped up," says Browder.
"The clear aim of Putin and his government is to say 'Magnitsky died of natural causes, he was not killed, and his arrest was lawful because he was a criminal'. In order to create the right formal backdrop for that narrative they have exonerated all 60 people who played a role in the Magnitsky case. The most recent was Kratov last week," he says.
"Now their next step is to prosecute and convict Magnitsky [and me].... This obviously won't play well in any forum where people have looked at the evidence, but Putin is more concerned about what they can put on state television to justify their actions before the less informed Russian audience," he adds.

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A look back at memorable days on Wall Street

2012 had its fair share of big days on the stock market. Here's a look back at what set off the biggest moves in the Dow Jones industrial average.
The Biggest Drops:
— Nov. 7: Down 313 points. On the day after the presidential election, investors worried that a divided government wouldn't reach deal on the budget in time to avoid across-the-board government spending cuts and tax increases Jan. 1.
— June 1: Down 275 points. A dismal report on hiring and employment for May sent the market swooning.
— June 21: Down 251 points. A sharp decline in a closely watched measure of manufacturing in the Northeast got investors worried about the U.S. economy. China also reports a slowdown at its factories.
— October 23: Down 244 points. Big companies including Xerox, DuPont and 3M report slumping revenues for the third quarter.
— April 10: Down 214 points. Rising borrowing costs for Spain and Italy made investors worry that those two major countries would become the latest to be engulfed in Europe's government debt crisis.
The Biggest Gains:
— June 6: Up 287 points. Hope that European officials would find ways to ease the region's debt crisis launched a rally.
— June 29: Up 278 points. Markets stormed higher after European leaders came up with a plan to rescue banks, relieve debt-burdened governments and restore investor confidence.
— Sept. 6: Up 244 points. Mario Draghi, the head of the European Central Bank, unveiled a program to buy government bonds from the region's struggling countries with the aim of lowering their borrowing costs.
— March 13: Up 218 points. U.S. banks led a powerful rally after JPMorgan Chase said it plans to buy back as much as $15 billion of its stock and raise its dividend. The government also reported strong retail sales for February.

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Stocks shoot up as investors bet on 'cliff' deal

 The stock market shot higher on Monday even as the "fiscal cliff" neared. By the time trading ended, Republicans and Democrats still hadn't reached a budget compromise — but investors were betting that they would.
It was a dramatic day on what turned out to be a strong year for stocks. The Standard & Poor's 500 index rose 13.4 percent for the year, after finishing flat in 2011. It was the index's best year since 2009, and it came despite overhanging problems like Europe's debt crisis and anemic U.S. growth, bringing U.S. indexes close to their highs reached before the 2008 financial crisis.
Including dividends, the gain for the S&P 500 was even higher — 16 percent.
The close Monday was a high note in what had been a choppy day for the market, as choppy as the "fiscal cliff" deal-making that has been yanking it around. It also marked a turnaround after five straight days of "cliff"-influenced losses. The Dow Jones industrial average and the Standard & Poor's 500 both climbed more than 1 percent. The Nasdaq composite index rose 2 percent.
Stocks fell at the opening of trading Monday and struggled for direction throughout the morning. The indecisiveness overlaid a day of dramatic budget negotiations in Washington, where lawmakers were trying to hammer out a new budget deal to avert the "fiscal cliff." That refers to automatic tax increases and government spending cuts that will kick in without a budget deal.
Stocks jerked higher at midday following reports that the bare outline of a deal to avoid the "cliff" had been knit together. The gains faded after President Barack Obama said in the early afternoon that a compromise was "within sight," but not finalized. Then, in the late afternoon, the indexes shot higher again. Congressional Republicans and the Democratic White House said they had agreed on some measures, but still had no final deal in hand.
At the close of trading, Dow Jones industrial average was up 166.03 points, finishing the year at 13,104.14. That's a gain of 7.3 percent for the year, its fourth straight year of gains.
The S&P 500 rose 23.76 to 1,426.19. The Nasdaq composite climbed 59.20 to 3,019.51. For the year the Nasdaq rose 15.9 percent.
With the "fiscal cliff" still closing in, investors' opinions about its potential impact varied, making its long-term effect on the market hard to guess.
Some investors are unruffled. They think that even if the U.S. does go over the "cliff," it would be more akin to the anti-climactic Y2K scare than a true Armageddon. The "cliff's" impact would be felt only gradually, they reason. For example, workers might get more taxes withheld from their first couple of paychecks in the new year, but it's not as if they'd have to pay all their higher taxes up front on Tuesday. And Congress could always retroactively repeal those higher taxes.
Others are more concerned. The higher taxes and lower government spending could take more than $600 billion out of the U.S. economy and send it back into recession. Investors would have no good read on the country's long-term policy for taxes and spending.
The psychological impact — the U.S. would essentially be broadcasting that its lawmakers can't compromise — would also hurt.
"We're having a fragile recovery, with the pain of 2008 still fresh on everybody's mind," said Joe Heider, principal at Rehmann Group outside Cleveland. "It's fear of the unknown. And fear is one of the greatest drivers of the financial markets."
Tim Speiss, partner in charge of the personal wealth advisers practice at EisnerAmper in New York, followed the "cliff" negotiations on Monday and wondered if the U.S. would get its debt rating cut again. The Standard & Poor's ratings agency cut its rating of the U.S. government amid similar negotiations in August 2011, when lawmakers were arguing over the government's borrowing limit. S&P said at the time that the "political brinksmanship" highlighted how "America's governance and policymaking (is) becoming less stable, less effective, and less predictable." Its rating cut sent the stock market into a tailspin.
The other major ratings agencies, Moody's and Fitch, have suggested that they might lower their ratings of the U.S. because of the "fiscal cliff."
"That is, unfortunately, the big story," Speiss said.
It's also one of the only stories. There's been little other news to trade on during the holiday season, giving the "fiscal cliff" drama outsized influence. No major companies are scheduled to report earnings this week. The most significant economic indicator scheduled for this week, the government's monthly jobs report, won't be released until Friday.
The yield on the benchmark 10-year Treasury note rose to 1.76 percent from 1.70 percent late Friday, a sign that investors were moving money into stocks.
Some of the best-performing stocks for the year were those that were making up for deep losses in 2011. Homebuilder PulteGroup nearly tripled after falling for five of the previous six years. Appliance maker Whirlpool and Bank of America more than doubled over the year, after falling by double-digit percentages in 2011.
Some of the worst performers of 2012 were Best Buy, Hewlett-Packard and J.C. Penney. All are struggling to keep up with competitors who have adapted more quickly to changing technologies and customer tastes. They were all up for the day, but were all down at least 44 percent for the year.

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A surprisingly good vintage as market logs gains

 If you'd told investors what was going to happen in 2012 — U.S. economic growth at stall speed, an intensifying European debt crisis, a slowdown in China, fiscal deadlock in Washington, decelerating corporate earnings growth — and asked how the stock market would perform, few would have predicted a good year.
But that's just what they got.
The Dow Jones industrial average, the Standard & Poor's 500 and the Nasdaq composite index all ended the year substantially higher, despite losing ground in the final days of year as concerns about the looming "fiscal cliff" mounted.
The Dow gained 7 percent for the year, its fourth consecutive annual advance, having started the year at 12,217. The S&P 500, which started the year at 1,257, is up 13 percent, beating the 7.8 percent average annual gain of the past 20 years. The Nasdaq also logged a better-than-average gain, 16 percent.
Including dividends, the total return on the S&P 500 index was even better: 16 percent.
Financial companies led the gains among S&P 500 stocks, advancing 26 percent, as banks continued their restructuring efforts after the recession. Bank of America more than doubled, gaining $6.05 to $11.61 and Citigroup advanced $13.25, or 50 percent, to $39.56. Utilities, the best-performing industry group last year, was the only sector of 10 industry groups in the index to decline, dropping 2.9 percent.
"There's been a lot thrown at this market, and it's proven to be very resilient," said Gary Flam, a portfolio manager at Bel Air Investment Advisors in California. "Here we are at the end of the year, and it's still relatively strong."
Stocks started the year on a tear, with optimism about an improving job market and a broader economic recovery providing the backdrop to the S&P 500's best first-quarter rally in 14 years.
The index advanced 12 percent by the end of March, closing the quarter at 1,408, its highest in almost four years, with financial companies and technology firms leading the charge. The Dow ended the first quarter at 13,212, logging an 8 percent gain.
Apple was one of the star performers of the first quarter and was probably the year's most talked-about company.
The popularity of the iPhone and iPad led to staggering sales growth that helped push its stock up 48 percent to almost $600 at the end of March. Apple also announced a dividend and overtook Exxon Mobil as the U.S.'s most valuable company.
At the start of the second quarter, the intensifying European debt crisis and concerns about the impact that it would have on global economic growth prompted a sell-off.
By the start of June, U.S. stocks had given up the year's gains. Borrowing costs for Spain surged and investors fretted over the outcome of Greek elections that had the potential to pull the euro currency bloc apart.
The outlook for growth in China, the world's second-largest economy, also began to weigh on investors' minds. Economic growth there slowed to 8.1 percent in the first quarter as export demand waned, and investors worried that it would keep falling.
The Dow fell as low as 12,101 June 4. The S&P dropped to 1,278 June 1.
The second quarter was also marred by Facebook's initial public offering.
The stock sale was one of the most keenly anticipated initial public offerings in years, but investors didn't "like" the $16 billion market debut. The social network priced its IPO at $38 per share, and the stock started to fall soon after the first day of trading on concern about the company's mobile strategy.
Facebook closed as low as $17.73 on Sept. 4 before recovering some of the ground it lost to close the year at $26.62.
Company earnings reports were also starting to make uncomfortable reading for investors. Earnings growth for S&P 500 companies fell as low as 0.8 percent in the second quarter, according to S&P Capital IQ data.
The stock market only recovered its poise after the European Union put together loans to bail out Spain's banks on June 10 and the head of the European Central Bank, Mario Draghi, pledged to do "whatever it takes" to save the euro.
Speculation that the Federal Reserve was set to provide the economy with more stimulus to prevent it from slipping back into recession also bolstered stocks.
The rally even survived a blip when a software glitch at trading firm Knight Capital threw stock prices into chaos Aug. 1.
The firm said the problem was triggered by new trading software it installed. Erroneous orders were sent to 140 stocks listed on the New York Stock Exchange, causing sudden price swings and surging trading volume.
Apple launched the iPhone 5, the latest version of its smartphone, in September, and the company's stock climbed to a record close of $702.10 on Sept. 19. That gave Apple a market value of $658 billion, and many analysts predicted more gains lay ahead.
By the time Fed Chairman Ben Bernanke announced Sept. 13 that the U.S. central bank would start a third round of its bond-purchase program, which is intended to push longer term interest rates lower and encourage borrowing and investment, the S&P 500 had surged 14 percent from its June 1 low. A day later, the index peaked at five-year high of 1,466. The Dow Jones reached its peak for the year of 13,610, Oct. 5.
As is often the case on Wall Street, investors "bought the rumor and sold the fact," and quickly turned their attention to the challenges that lay ahead.
Analysts had also been cutting their outlook for growth in the final quarter of the year. At the start of the second quarter, estimated earnings growth for the period was 15.7 percent. That forecast had fallen to 3.4 percent by Dec. 27.
"One of the blessings that supported the stock market's moves in prior years was earnings growth," said Lawrence Creatura, a portfolio manager at Federated Investors. "That's true this year, but at a decelerating rate. It's not gone unnoticed that earnings growth is slowing, and many forecasts now include a full stall."
Apple's halo also began to slip in the final three months of the year. Its iPad Mini tablet, launched Nov. 2, met with lukewarm reviews, there were hints of unrest among its executive ranks. Investors began to fret that the intensifying competition in the smartphone market would crimp Apple's profits. The stock tumbled, and despite rallying in recent days is still down 27 percent from its September peak.
The year's final twist came in Washington.
Stocks wavered ahead of a presidential election that at times seemed too close to call, and while President Barack Obama ultimately reclaimed the White House by a comfortable margin, the Republicans retained control of the House.
The divided government set the stage for a tense end to the year as Democrats and Republicans sought to thrash out a budget plan that would avoid the U.S. falling off the "fiscal cliff," a series of tax hikes and government spending cuts that economists say would push the economy back into recession.
Initially, markets fell as much as 5 percent in the 10 days after the elections as investors worried that a divided government would not be able to agree on a budget plan to cut the U.S. deficit.
While the S&P 500 managed to recoup those losses by December on optimism that a deal would be reached, some investors are still urging caution. Any agreement will still be "ill-tasting medicine" to the economy, as it will almost certainly involve both spending cuts and tax hikes, says Joe Costigan, director of equity research at Bryn Mawr Trust Company.
"The question is, how much will the drag from the government be offset by business and personal spending," says Costigan. "The market has reasonable expectations for growth priced in, so I don't think we're going to see a big run-up.

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Housing and jobs key to lifting S&P toward record

It may be a big if, but assuming Washington lawmakers can get past the "fiscal cliff," many analysts say that the outlook for stocks next year is good, as a recovering housing market and an improving jobs outlook helps the economy maintain a slow, but steady recovery.
An advance of 10 percent in 2013 would send the S&P 500 toward, and possibly past, its record close of 1,565 reached in October 2007.
A mid-year rally in 2012 pushed stocks to their highest in more than four years. Both the Standard & Poor's 500 and the Dow Jones industrial average gained in 2012. Those advances came despite uncertainty about the outcome of the presidential election and bouts of turmoil from Europe, where policy makers finally appear to be getting a grip on the region's debt crisis.
"As you remove little bits of uncertainty, investors can then once again return to focusing on the fundamentals," says Joseph Tanious, a global market strategist at J.P. Morgan Funds. "Corporate America is actually doing quite well."
Although earnings growth of S&P 500 listed companies dipped as low as 0.8 percent in the summer, analysts are predicting that it will rebound to average 9.5 percent for 2013, according to data from S&P Capital IQ. Companies have also been hoarding cash. The amount of cash and cash-equivalents being held by companies listed in the S&P 500 climbed to an all-time high $1 trillion at the end of September, 65 percent more than five years ago, according to S&P Dow Jones Indices.
By the time trading ended Monday, Republicans and Democrats still hadn't reached a budget compromise — but investors were betting that they would — after President Barack Obama said that a compromise was "within sight," but not finalized. Without a budget agreement, millions of Americans face the prospect of higher taxes and the government would be forced to slash spending, measures that would probably push the economy into recession, economists say.
Assuming a budget deal is reached in a reasonable amount of time, investors will be more comfortable owning stocks in 2013, allowing valuations to rise, says Tanious.
Stocks in the S&P 500 index are currently trading on a price-to-earnings multiple of about 13.5, compared with the average of 17.9 since 1988, according to S&P Capital IQ data. A lower-than-average ration suggests that stocks are cheap.
The stock market will also likely face less drag from the European debt crisis this year, said Steven Bulko, the chief investment officer at Lombard Odier Investment Managers. While policy makers in Europe have yet to come up with a comprehensive solution to the region's woes, they appear to have a better handle on the region's problems than they have for quite some time.
"There is still some heavy lifting that needs to be done in Europe," said Bulko. Now, though, "we are dealing with much more manageable risk than we have had in the past few years."
Next year may also see an increase in mergers and acquisitions as companies seeks to make use of the cash on their balance sheets, says Jarred Kessler, global head of equities at broker Cantor Fitzgerald.
While the number of M&A deals has gradually crept higher in the past four years, the dollar value of the deals remains remains well short of the total reached five years ago. U.S. targeted acquisitions totaled $964 billion through Dec. 27, according to data tracking firm Dealogic. That's slightly down from last year's total of $1 trillion and about 40 percent lower than in 2007, when deals worth $1.6 trillion were struck.
M&A deals are good for stock prices because the acquiring company typically pays a premium for the one it's buying.
Falling interest rates also set off a rally in the bond market. Concerns about swings in stock prices prompted investors to switch money out of stocks and into bond funds. If investors decide that the bond rally may be nearing an end, that flow of funds may be reversed, providing a support for stocks.
"Equities are the best house in a bad neighborhood," says Cantor's Kessler. "Bonds are, not priced to euphoria, but they are definitely rich compared to equities right now."
Not all investors are as sanguine about the prospects for 2013.
The rally in stocks in 2012 had less to do with company earnings and the economy and more to do with monetary stimulus from the Federal Reserve and other central banks around the world, says David Wright, a managing director and co-founder at Sierra Investment Management in Santa Monica, Calif.
Federal Reserve Chairman Ben Bernanke announced Sept. 13 that the central bank would add another round to its bond-purchase program, known as "quantitative easing" on Wall Street, which is intended to lower borrowing costs and boost growth. Speculation that more stimulus was coming had pushed the S&P 500 index to 1,466, its highest close of the year, a day earlier. The Dow peaked for the year at 13,610, Oct. 5.
"The Fed has done everything it can do and is probably pretty close to having used its last bullet," said Wright. "It's been a good year for stocks, but we think that's an artifact of monetary stimulus."
This year's peaks in the Dow and the S&P 500 won't be surpassed in 2013 and stocks may even slump in the first quarter, as investors lower their earnings expectations, Wright says. The money manager also says that any budget plan, regardless of the details, will be negative for stocks as it will involve higher taxes and lower government spending.
Wells Fargo Securities market analyst Gina Martin Adams also says companies will struggle in the first half of the year as the economy flirts with recession. Export growth is slowing and policymakers are struggling to come up with a plan to reduce the budget deficit.
The bank recommends that investors add to their holdings of financial and utilities stocks because low rates should help support steady earnings growth in the early part of the 2013. Financial stocks advanced 25 percent in 2012, making them the best performing industry group in the S&P 500. Utility stocks fell 3.4 percent, the worst performing of 10 industry groups in the index. The bank says investors should reduce their exposure to so-called consumer discretionary stocks, such as hotels and restaurant companies, because consumer spending will likely take a hit next year as taxes rise.
With a backdrop of historically low interest rates and an economy that still needs to address its fiscal imbalances, investors should remain realistic about the returns they are going to get from the stock market, says Darell Krassnoff, managing director at Bel Air Investment Advisors.

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