Finance and Economic

Investors will be watching to see if the stock market can sustain its rally Wednesday, a day after the Dow Jones industrial average closed at its highest level in 2 1/2 years.

The Dow closed above 12,000 on Tuesday for the first time since June 2008. Another major market index, the Standard & Poor’s 500, closed above 1,300 for the first time since August 2008. A strong manufacturing report and positive earnings from companies such as UPS and Pfizer drove stocks higher.

Another round of earnings will likely sway stocks Wednesday.

Time Warner Inc. rose 3.5 percent ahead of the opening bell after the owner of Warner Bros., HBO and CNN said its fourth-quarter profit jumped 22 percent. The company also offered a forecast for 2011 that topped analysts’ estimates.

Mattel Inc. rose 5 percent in pre-market trading after the nation’s largest toymaker said its revenue rose 9 percent on strong sales of Barbie and Fisher-Price toys.

Hershey rose 1 percent ahead of the opening after the candy maker said its fourth-quarter profit increased nearly 7 percent thanks to brisk holiday sales in the U.S. and growth in emerging markets. The company also raised its quarterly dividend.

Ahead of the opening bell, Dow futures are down 24, or 0.2 percent, at 11,950. S&P 500 index future are down 4, or 0.3 percent, at 1,299. Nasdaq 100 index futures are down 5, or 0.2 percent, at 2,313.

Treasury prices are rising, pushing their yields lower. The yield on the 10-year Treasury note fell to 3.40 percent from 3.43 percent late Tuesday.

Payroll processor ADP reported that private companies added 187,000 jobs in January, more than the 145,000 that economists were expecting.

“This jobs report is very positive,” said Curvin Miller, vice president of Russell & Co., a wealth advisory firm. “This job growth we’re seeing is predictable and it’s increasing in strength.”

The most important report on the job market comes Friday when the Labor Department puts out its monthly survey of payrolls. Economists caution that ADP’s figures usually differ from the government’s _ sometimes by a wide margin.

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Canadians Trading Short Term Gain for Long Term Pain in Media Merger Review

This week the Canadian Radio-television and Telecommunications Commission will hold hearings on Canada

ST. JOHN

When Robert Weaver and his wife took ownership of their new home last November, they received a nasty shock.

The previous owner had changed the rental water heater three days before the deal closed, choosing an updated model from Direct Energy.

They decided to have it removed because it didn

The Bank of Canada will need to raise interest rates this year as inflation accelerates, and policy makers have overestimated how much slack is left in the economy, said Sheryl King, head of Canada economics at Bank of America Merrill Lynch.

The difference between Canada’s economic output and how much companies can produce without stoking inflation is about half a percentage point and shrinking quickly, King said in an interview yesterday in Toronto.

“We are closer to closing the output gap than the Bank of Canada is assuming,” King said. “There is a strong case to be made that potential output actually declined in late 2008 and early 2009” she said, noting a drop in industrial capacity utilization.

King’s view contrasts with the central bank’s last quarterly forecast in October, which said “the output gap is slightly larger” than policy makers expected and would take an extra year, until the end of 2012, to close. Governor Mark Carney and his deputies also said in October inflation would be at the bank’s 2 percent target at that time.

The movement of the economy to its full potential means the so-called core rate of inflation — which excludes eight volatile items and is used by the central bank to judge future inflation trends — will quicken to 2.7 percent by the end of 2011 from a December pace of 1.4 percent, King said.

The Bank of Canada’s benchmark overnight interest rate is 1 percent today and the next decision is on Jan. 18. The rate will rise to 2 no faxing payday loan.5 percent by the end of the year, King said. Her prediction is greater than the 2 percent median estimate in a Bloomberg News survey with 17 responses, including King’s.

Yield Gap to Disappear

The increase in the central bank’s rate and in foreign purchases of Canadian bonds means the gap between short-term and long-term bond yields will disappear this year, King said. Investors should protect themselves with purchases of 30-year government bonds and sales of short-term debt, she said.

“The yield curve by the time we get to the end of 2011 is going to be virtually flat,” she said at a presentation before the interview.

Purchases of provincial and Canadian federal government bonds from January to October of last year have already exceeded annual records, Statistics Canada said Dec. 16. Demand for the country’s bonds may be supported by Finance Minister Jim Flaherty’s goal of balancing the government’s budget by 2015-16, making Canada the first Group of Seven country to do so.

“I don’t think that the bid of foreigners goes away” for Canadian debt, King said.

King joined Merrill Lynch as a senior economist in 2004, serving as the U.S. macroeconomic forecaster in New York. Prior to joining Merrill Lynch, She worked at Toronto-Dominion Bank in Toronto for four years, and eight years at the Bank of Canada.

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Treasury Secretary Timothy F. Geithner and federal regulators need to fix the mortgage foreclosure process so that it doesn’t derail the economic recovery, Senator Jack Reed and 16 other senators wrote in a letter yesterday.

“Mortgage market issues point to an emerging threat to financial stability that should be forcefully addressed now,” wrote Reed, a Democrat from Rhode Island. The letter, obtained by Bloomberg News, was also signed by Senator Bernie Sanders, an independent of Vermont, and 15 other Democrats including Senators John Kerry and Dick Durbin.

The letter shows increasing concern from lawmakers that the Obama administration hasn’t done enough to stem the housing crisis. Home prices may decline 5 percent this year as the housing market starts to stabilize, Jan Hatzius, chief U.S. economist at Goldman Sachs, said in a Dec. 31 Bloomberg Television interview.

The senators’ letter was also addressed to the Financial Stability Oversight Council, often referred to as FSOC, created last year to guard against future financial crises.

The oversight council discussed foreclosures at its November meeting and is waiting for the findings of an Obama administration foreclosure task force.

“The reviews are ongoing,” Treasury spokesman Steve Adamske said today. “We are awaiting the conclusions of the reviews.”

‘Poorly Handled’

The financial system faces “serious” problems from “poorly handled, if not illegal” foreclosure processing that has created headaches for state and federal governments, according to the 17 lawmakers.

The senators called for a “robust and comprehensive solution” that would protect homeowners and investors. They urged the council to respond “promptly” and indicate whether it needs additional tools or legislative changes.

“The FSOC should determine whether there is a need for some independent referee, whether it is a bankruptcy court or other institution, in finally addressing these foreclosure processing and loan modification issues,” the senators wrote. They said that bankruptcy courts are increasingly involved in “creatively and proactively” addressing foreclosure issues.

Geithner and the council, which includes the heads of the Federal Reserve, the Securities and Exchange Commission and other regulatory agencies, also should lead and coordinate efforts among state and federal authorities, the senators said. They said homeowners should be “quickly and fairly” evaluated for loan modifications to prevent foreclosures.

Claims of wrongdoing by banks and loan servicers triggered a 50-state investigation last year into whether hundreds of thousands of foreclosures were properly documented as the housing market collapsed. The probe came after JPMorgan Chase & Co. and Ally Financial Inc. said they would stop repossessions in 23 states where courts supervise home seizures and Bank of America Corp. froze U.S. foreclosures.

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Companies are using extra cash built up during the recession to repurchase stock, moves that are likely to please investors who see the value of their shares rise.

But the buyback surge may not please President Barack Obama, who is urging companies to instead use surplus cash to hire more workers, hoping to generate jobs to sustain the economic recovery.

Standard & Poor’s reported Monday that stock repurchases by S&P 500 companies more than doubled to $79.6 billion in the July-to-September period from $34.9 billion in last year’s third quarter.

It was the fifth consecutive quarter of increasing buyback activity among the 500 largest publicly traded companies, many of them with substantial cash holdings built up during and after the recession that officially ended in mid-2009.

Stock buybacks indicate companies have enough cash to take their shares off the market, which increases the value of investors’ remaining shares and boosts per-share earnings results.

Buyback growth in the latest quarter “marks the full return of corporate participation in the equity markets,” S&P analyst Howard Silverblatt said. “While we do not expect a return to the 2005-2007 buyback bonanza, we do see this as a strong, positive sign for the overall health of the market.”

However, stock repurchases aren’t rebounding as rapidly as they were earlier. The latest quarter’s buyback figure is up just 3 percent from the second quarter’s total of $77.6 billion. That’s a significant slowdown from double-digit percentage increases in each of the preceding four quarter-to-quarter comparisons.

Obama met at the White House last week with 20 CEOs, urging corporate America to shake loose $1.9 trillion in untapped cash and create more jobs by hiring and investing in their businesses. Obama is trying to cut a national unemployment rate that rose to 9.8 percent in November and is slowing the broader economic recovery.

But many companies are reluctant to take cash off the sidelines, fearing consumer demand for the goods and services they provide is still too meager to support more hiring or capital spending payday loans. Companies also are reluctant to spend until the outlook for new government regulations becomes more clear. The latter worry could ease because of last week’s congressional agreement to keep in place Bush era tax rates.

When companies build up cash from rising profits, their options include hiring more workers, investing in capital spending or acquisitions, buying back stock, and raising dividends paid to shareholders. Many companies have been opting for the latter two, which please shareholders.

Much of the recent buyback surge has been driven by technology companies, which fared better than most corporations through the recession because they entered it with relatively little debt and have seen demand for their products hold up. In the latest quarter, information technology companies, including Microsoft Corp., Hewlett-Packard Co. and IBM Corp., made up nearly 29 percent of all buybacks, up from 27 percent in the second quarter.

Wal-Mart Stores Inc. and Exxon Mobil Corp. were among the other names making large buybacks in the latest quarter.

Health care companies repurchased less stock, with their share of buybacks slipping to 13 percent in the third quarter from 19 percent in the second.

Silverblatt expects a slight overall increase in buybacks in the fourth quarter. For the first part of next year, he expects companies will continue to be cautious and refrain from purchasing an excessive amount of shares.

Dividend payouts by U.S. corporations also are expected to rise this year. Third-quarter dividend payouts totaled $51.3 billion for S&P 500 companies and are nearly back to their first-quarter 2009 level of $51.7 billion.

But Silverblatt said payouts likely won’t return to 2008 levels until 2013.

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Copper and U.S. stocks retreated amid concern that demand from China will slow, while the U.S. dollar weakened against Australian and New Zealand counterparts as reports showed increased orders for durable goods. Oil rose.

Copper futures retreated 0.4 percent to $4.2585 a pound, while the Standard & Poor’s 500 Index slipped 0.2 percent to 1,256.77 at 4 p.m. New York time after a five-day rally drove its valuation to 15.7 times reported earnings, the highest since June. The U.S. dollar fell 0.5 percent versus Australia’s currency, 0.9 percent against New Zealand’s and 0.7 percent compared with the yen. Crude oil futures climbed 1.1 percent to $91.51, the highest settlement price since October 2008.

London Metal Exchange data show copper inventories rose for a ninth straight day, reaching the highest level since Oct. 29, signaling slowing demand. China is the world’s biggest metals user. Orders for U.S. capital equipment rebounded in November, sapping demand for the American currency today. The S&P 500 stalled after climbing to a two-year high.

“The economic data points that we’re getting are good on balance, but not madly positive,” said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management, which oversees $342 billion. That could explain the muted response of investors. There’s downward pressure on commodities. That should weigh on today’s light action.”

U.S. stock markets are closed tomorrow in observance of the Christmas holiday. Volume on exchanges amounted to less than 4.6 billion shares, the lowest total for a full day this year.

Homebuilders Fall

Lennar Corp. and KB Home dropped at least 4.1 percent in U.S. stock trading after a government report showed that fewer new homes than forecast were sold in November payday lenders. Bank of America Corp. slumped 2.4 percent after a judge gave MBIA Inc. permission to use statistical sampling, rather than going through every loan, in a fraud lawsuit. Micron Technology Inc. lost 4.1 percent as the largest U.S. maker of computer-memory chips reported fiscal first-quarter sales that missed analysts’ estimates.

The S&P 500 completed its recovery this week from the 46 percent plunge that followed Lehman Brothers Holdings Inc.’s bankruptcy in September 2008 as government data showed that the world’s largest economy grew at a faster pace in the third quarter than previously estimated. The stock index rallied 6.6 percent in December through yesterday after posting a combined gain of 13 percent in September and October, the biggest increase during those months since 1998.

Confidence among newsletter writers that U.S. stocks will rally has risen to the highest level since the middle of October 2007, the week after the S&P 500 and the Dow climbed to records. The proportion of bullish publications tracked by Investors Intelligence jumped to 58.8 percent on Dec. 21 from 56.8 percent a week earlier, the firm said yesterday. Sentiment has improved since October 2008, when the financial crisis drove the figure to a 20-year low of 22.2 percent.

“Optimism on stocks got very high yet people are afraid to short the market,” said Mark Bronzo, who helps manage $21 billion at Irvington, New York-based Security Global Investors. “The economy is growing at a moderate pace, but most data points are moving on the right direction. The U.S. will likely surprise positively.”

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Federal prosecutors in the Metro East will announce a major law-enforcement action on Monday against a telemarketer that sold extended auto-service contracts, the U.S. Attorney’s office for southern Illinois announced today.

Authoritites won’t identify the company involved or detail allegations against it, other than to say they involve illegal robo-calling. The action would be the first federal criminal prosecution of any service-contract seller.

The Post-Dispatch has reported a federal investigation into Wentzville-based US Fidelis, which was at one point believe to be the nation’s leading robo-caller. Agents from the FBI and Postal Inspection Service interviewed a former top executive, and the independent management team that has run the company since it filed for bankruptcy on March 1 have turned over company records to federal prosecutors quick payday loan.

However, US Fidelis was hardly the only seller of extended service contracts. At least 40 such firms have operated in recent years in the St. Louis area, a hub for the industry.

The U.S. Attorney’s office won’t release any additional information until a court hearing Monday afternoon before U.S. Magistrate Judge Donald G. Wilkerson at the federal courthouse in East St. Louis.

The leaders of the midwestern offices for the Federal Trade Commission and U.S. Postal Inspection Service are expected to be present in the court room.

It is not known whether the company is based in the Metro East. To bring charges against a company, federal prosecutors need only local victims.

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WikiLeaks published a new set of cables Wednesday, and in a defiant message posted online the secret-spilling website promised that the leaks would keep on flowing despite the arrest and jailing of its founder on sex allegations.

WikiLeaks is under pressure on many fronts: its editor-in-chief Julian Assange is in prison fighting extradition to Sweden. Nearly simultaneous moves by credit card companies Visa and MasterCard to stop processing donations to the website have impaired its ability to raise money, and mysterious cyberattacks have periodically crippled its servers.

In a message published to Twitter on Wednesday, spokesman Kristinn Hrafnsson shrugged off the pressure.

On Tuesday evening, “the latest batch of cables were released, and our media partners released their next batch of stories,” Hrafnsson said. “We will not be gagged, either by judicial action or corporate censorship. … Wikileaks is still online. The full site is duplicated in more than 500 locations. Every day, the cables are loaded more than 50 million times.”

WikiLeaks has benefited from a massive groundswell of online support. Twitter is choked with messages of solidarity. The site’s Facebook page has 1 million fans. And tech-savvy supporters are organizing boycotts and other stunts.

The latest cables cover the details of British-Libyan relations in the run-up to the release of convicted Lockerbie bomber Abdel Baset Ali al-Megrahi, a sensitive subject that roiled relations between Washington and London. Another cable describes, in detail, the eccentricities of Libya’s Moammar Gadhafi, while the WikiLeaks website also details an underground Halloween party _ complete with moonshine, top-shelf liquor and prostitutes _ thrown by a wealthy Saudi prince in the city of Jeddah.

“Behind the facade of Wahhabi conservatism in the streets, the underground nightlife for Jeddah’s elite youth is thriving and throbbing,” the cable notes. The party-happy royal’s name has been redacted.

Meanwhile, Assange faces a new extradition hearing next week, in which his lawyers say they will reapply for bail. The 39-year-old Australian is accused of rape, molestation and unlawful coercion stemming from separate sexual encounters in August with two women in Sweden. Assange denies the allegations.

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