Asian Stocks Advance as Oil Climbs, Yen Halts Gain; Cnooc Rises

Honda Motor Co. production plant

June 28 (Bloomberg) -- Asian stocks rebounded from a two- week low, led by energy producers and Japanese exporters, after crude oil prices advanced and the yen halted a three-day climb.

Cnooc Ltd., China's largest offshore explorer, gained for the first time in six days. Toyota Motor Corp. advanced after Goldman, Sachs & Co. and Nomura Securities Co. said a weaker yen will boost automakers' profits.

LG.Philips LCD Co. rose after Woori Investment & Securities Co. lifted its share price estimate. Taiwan Semiconductor Manufacturing Co. gained after Oracle Corp. predicted higher sales than analysts forecast.

``I don't think Asia needs to worry too much about earnings,'' said Hugh Young, who oversees $35 billion as managing director at Aberdeen Asset Asia Ltd. in Singapore.

Energy shares posted the biggest gains on the Morgan Stanley Capital International Asia-Pacific Index. The measure climbed 0.6 percent to 151.77 at 5:30 p.m. in Tokyo, after yesterday posting its lowest close since June 14.

China's CSI 300 Index plunged 4.5 percent, the region's biggest drop. Japan's Nikkei 225 Stock Average added 0.5 percent to 17,932.27, halting a four-day, 2.1 percent loss. Benchmarks rose elsewhere in Asia, except for Indonesia, Malaysia and New Zealand.

HSBC Holdings Plc climbed in Hong Kong after the chief executive of Merrill Lynch & Co. said he sees few risks of widespread turmoil in credit markets as a result of rising defaults on U.S. subprime mortgages.

Oil Price

U.S. stocks rose yesterday for the first time in four days, helping the Standard & Poor's 500 Index climb 0.9 percent.

Cnooc jumped 4.1 percent to HK$8.81, snapping a five-day, 7.3 percent slump. PetroChina Co., the nation's largest oil explorer, climbed 2.5 percent to HK$11.62. Woodside Petroleum Ltd., Australia's second-largest producer, added 3 percent to A$45.75, while BHP Billiton Ltd., the largest, rose 2 percent to A$34.89.

Crude oil for August delivery gained 1.8 percent yesterday to $68.97 a barrel on the New York Mercantile Exchange and was recently at $69.11. Futures dropped 2 percent on June 26, the biggest loss in more than two weeks.

``We were due for some relief'' after recent losses, said Atul Lele, who helps manage about $380 million at White Funds Management in Sydney. ``Oil stocks are the clear winners from oil's jump yesterday, which is being sustained.''

Weaker Yen

Toyota, Japan's largest automaker, added 0.9 percent to 7,620 yen, its biggest advance since June 15. Goldman Sachs raised its rating on the stock to ``buy'' from ``neutral,'' while Nomura raised its rating on the industry to ``bullish'' from ``neutral.''

Japan's currency weakened to as low as 123.36 per dollar from 122.67 at yesterday's close of trading in Tokyo. The yen rose the most in 10 weeks against the dollar yesterday, completing three days of gains. Against the euro, it fell to 165.97 from 164.83 yesterday.

Honda Motor Co., Japan's No. 2 automaker by sales, climbed 2.1 percent to 4,420 yen, the most since June 11. Nissan Motor Co., the third biggest, added 1.4 percent to 1,301 yen. The shares also advanced after a report today said vehicle output in Japan by the country's 12 automakers rose 6.3 percent in May.

Nintendo Co., whose Wii game console is outselling rivals in the U.S., jumped 2.2 percent to 45,050 yen.

The yen has lost 4.3 percent against the dollar since the start of Japan's financial year in April, the worst performance among the 73 currencies tracked by Bloomberg, and 5.1 percent versus the euro. Most companies expected the currency to climb to about 114 per dollar this year, according to the Bank of Japan's latest Tankan business confidence report.

Significant Impact

``The yen has caught some people by surprise by how weak it's been and most people don't see the yen bouncing back too much,'' said Tathagata Guha Roy, who helps manage $1 billion for Alliance Trust Plc in Hong Kong. ``It has been significant enough'' to impact exporters' earnings.

LG.Philips, the world's second-largest maker of liquid- crystal displays, added 1.4 percent to 41,000 won. Woori raised its 12-month price estimate by 6.3 percent to 51,000 won.

LG.Philips' second-quarter consolidated operating profit, or sales minus the cost of goods sold and administrative expenses, will be 190 billion won ($205 million), compared with the market consensus of 61 billion won, analyst Young Park wrote in a report.

Taiwan Semiconductor, the world's largest customized-chip maker for computer and communication companies, rose 1.3 percent to NT$70.40. Lenovo Group Ltd., China's No. 1 personal-computer maker, surged 5.6 percent to HK$4.69.

`Solid Outlook'

Oracle, the world's third-largest software maker, said sales may rise to as much as $4.43 billion in its fiscal first quarter. Analysts had expected sales of $4.11 billion, according to a Bloomberg survey.

``The Oracle news signals the solid outlook for the computer-related industry,'' said Charles Chen, who helps manage the equivalent of $3.7 billion at JF Asset Management Co. in Taipei.

Shares tumbled in China, sending the CSI 300 to its biggest drop since June 4. The China Financial Futures Exchange said today it will introduce futures based on the index, while the Ministry of Finance announced plans to raise 1.55 trillion yuan ($204 billion) selling bonds to fund the State Investment Co.

``Both these measures are bearish for the stock market as they tend to divert funds,'' said Wang Zheng, who manages the equivalent of $500 million at the asset management unit of Everbright Securities Co. in Shanghai.

About 40 stocks including Tianjin FAW Xiali Automobile Co. fell by the 10 percent daily cap on the CSI 300. Tianjin FAW, a Chinese partner of Toyota, slumped 0.93 yuan to 8.36. Huadian Power International Corp., a power producer in the eastern province of Shandong, plunged 0.81 yuan to 7.29.

`Containable'

HSBC, the world's third-largest bank by market value, gained 0.4 percent to HK$143.50. Two-thirds of HSBC's $10.6 billion in loan defaults last year were in North America.

Merrill Lynch Chief Executive Officer Stanley O'Neal said yesterday the rising foreclosure rates on U.S. subprime mortgages aren't sapping confidence in other parts of the global debt market.

Concern of subprime fallout ``will come and go,'' said Khiem Do, who helps oversee $8.7 billion at Baring Asset Management (Asia) Ltd. in Hong Kong. ``It's not the end of bad news. But it's definitely containable.''

Meanwhile, Hong Kong Exchanges & Clearing Ltd. jumped 2.2 percent to HK$108.90 on expectations a surge in share trading will boost profit at the operator of the city's stock market.

An average HK$75 billion ($9.6 billion) worth of shares changed hands in the past month, compared with HK$29 billion of daily turnover in the same period a year earlier. Shares of Hong Kong Exchanges were the best performers on the 39-member Hang Seng Index during the period.

U.S. Stocks Gain, Led by Oil, Technology Shares; Intel Rises

June 28 (Bloomberg) -- U.S. stocks rose, led by fuel producers and technology companies, after oil prices jumped and analysts upgraded Intel Corp. and Cisco Systems Inc. on prospects for profit growth.

Exxon Mobil Corp. and Chevron Corp., the biggest U.S. oil companies, advanced after crude prices rose to a nine-month high. Intel, the world's largest computer-chip manufacturer, and Cisco Systems, the biggest maker of networking equipment, led the Standard & Poor's 500 Index higher for a second day.

The potential for higher profit growth at technology companies and energy producers helped equities rebound from early losses spurred by a government report showing inflation climbed more than forecast in the first quarter. Economists expect the Federal Reserve to leave interest rates unchanged after meeting today and for the rest of the year.

``People are underestimating what earnings are going to do here,'' said Wayne Wicker, who helps oversee $31.5 billion as chief investment officer of Vantagepoint Funds in Washington. ``Increasing earnings and global growth are going to be responsible for higher equity prices later on this year.''

The S&P 500 rose 4.61, or 0.3 percent, to 1510.95 as of 12:42 p.m. in New York. The Dow Jones Industrial Average climbed 20.64, or 0.2 percent, to 13,448.37. The Nasdaq Composite Index added 11.3, or 0.4 percent, to 2616.65.

Oil Climbs

Crude oil for August delivery rose 1.7 percent to $70.14 a barrel in New York as U.S. refineries increased output of gasoline and other fuels.

Exxon added 42 cents to $83.90. Chevron climbed 61 cents to $84.50.

Technology shares in the S&P 500 increased 0.4 percent as a group and contributed the most to the index's advance.

Intel gained 22 cents to $24.01. Lehman Brothers upgraded the shares to ``overweight'' from ``equal weight,'' saying a new series of semiconductors designed for laptop computers may boost revenue and earnings growth.

Cisco climbed 93 cents to $28.20. Merrill Lynch & Co. upgraded the world's largest maker of computer networking equipment to ``buy'' from ``neutral,'' saying fiscal fourth- quarter earnings may exceed analysts' estimates on ``strong'' business demand.

Dillard's Inc. had the S&P 500's top gain after a group of investors sent a letter to the department-store chain urging management to take action that will lift the share price. The stock added $3.06, or 9 percent, to $36.99.

Dominion Resources Inc. jumped $3.94 to $87.49 after the largest U.S. utility owner said it will offer to buy back almost 16 percent of its stock, following through on a plan to use cash from sales of oil and gas assets to reduce shares outstanding.

Monsanto

Monsanto Co. added $1.24 to $67.24. The world's biggest seed producer said third-quarter profit jumped to $1.03 a share from 60 cents a year earlier as U.S. corn farmers bought more of the company's products to meet rising demand for ethanol and animal feed. Profit was projected to be $1 a share, the average estimate of eight analysts surveyed by Bloomberg.

A gauge of raw-materials producers in the S&P 500 climbed 0.5 percent, helped also by the biggest jump in copper prices in two weeks and a second day of gains in the price of gold.

Freeport-McMoRan Copper & Gold Inc., the world's largest publicly traded copper company, added 94 cents to $83.01.

Airlines climbed after JPMorgan upgraded the industry and said it expects mergers next year. American Airlines parent AMR Corp. added 96 cents to $26.81. Alaska Air Group Inc., parent of Alaska Airlines, rose $1.49 to $28.45. United Airlines parent UAL Corp. increased $1.33 to $40.28.

The Fed's preferred measure of inflation, which strips out food and energy costs, climbed at a 2.4 percent annual rate, faster than economists' forecast and the government's previous estimate, both of which were 2.2 percent. The economy grew at an annual rate of 0.7 percent in the first quarter, the slowest pace in four years.

The policy-making Federal Open Market Committee will hold its target for the benchmark overnight-lending rate between banks at 5.25 percent for an eighth consecutive meeting today, according to the unanimous forecast of economists surveyed. The announcement is due at about 2:15 p.m.

Immigration Legislation Blocked Again in U.S. Senate (Update1)

June 28 (Bloomberg) -- The U.S. Senate again blocked passage of comprehensive immigration legislation, almost certainly ending chances Congress will act this year on the centerpiece of President George W. Bush's domestic agenda.

Supporters got just 46 of the 60 votes needed to conclude debate and proceed to final passage. Fifty-three senators voted against cutting off debate.

The measure, the biggest rewrite of U.S. immigration law since 1986, would offer 12 million illegal immigrants a path to citizenship while tightening the border with Mexico and creating a guest-worker program to help employers fill low-paying jobs.

Today's vote dimmed prospects the House of Representatives would act on immigration. Bush's fellow Republicans in the House voted 114-23 this week vote to adopt a resolution disapproving of the Senate measure.

``This vote effectively kills comprehensive immigration legislation in the 110th Congress,'' said Representative Zoe Lofgren, the chairwoman of a House Judiciary subcommittee on immigration.

House Speaker Nancy Pelosi, a California Democrat, has said she wants the support of 50 to 70 Republicans before she would bring the immigration measure to a vote. The House hasn't acted on immigration legislation this year while awaiting the Senate outcome.

Today's vote came three weeks after Majority Leader Harry Reid, a Nevada Democrat, pulled the measure off the Senate floor when supporters lost a similar procedural vote to limit debate. The measure was revived after a bipartisan group agreed on a package of some two dozen amendments that would be voted on.

Republican opponents of the legislation denounced it as amnesty for lawbreakers and said their constituents demanded it be rejected, with our without any amendments.

U.S. Economy: First-Quarter Expansion Was Slowest in 4 Years

June 28 (Bloomberg) -- The U.S. economy expanded at an annual pace of 0.7 percent last quarter, the slowest in four years, and a gauge of inflation watched by the Federal Reserve was unexpectedly revised up.

The increase in gross domestic product compares with the 0.6 percent rate estimated last month and followed a 2.5 percent gain in the last three months of 2006, according to a Commerce Department report today in Washington. The price measure rose at the fastest rate since the second quarter of 2006.

The slower growth, combined with the greater-than-forecast inflation, increases the chances that the Federal Reserve, which is projected to leave rates unchanged today, will do so for many months. More recent reports on trade, retail sales and inventories suggest the pace of expansion has already picked up and may exceed 3 percent in the quarter ending this week.

``The economy will accelerate from the first half into the second half,'' said Stephen Stanley, chief economist at RBS Greenwich Capital in New York. ``We are probably going to have continued pressures'' on inflation.

Economists forecast first-quarter growth would be 0.8 percent, according to the median of 73 estimates in a Bloomberg News survey. Projections ranged from 0.5 percent to 1.5 percent annual growth. Today's report is the final of three growth estimates.

The Fed's preferred inflation measure, which is tied to consumer spending and strips out food and energy costs, rose at a 2.4 percent annual rate, faster than the 2.2 percent previously estimated. The new estimate reflected higher costs for medical services.

Higher Prices

Some economists boosted forecasts for a report due tomorrow based on today's price revision. The Commerce Department's personal income and spending report was projected to show the price gauge rose 1.9 percent in the year ended May, easing within the 1 percent to 2 percent range preferred by policy makers such as Fed Chairman Ben S. Bernanke.

``Core inflation now is probably still running above 2 percent going into today's'' Fed meeting, said John Shin, an economist at Lehman Brothers Inc. in New York. ``That is significant. Inflation is still above the Fed's comfort zone.''

The policy-making Federal Open Market Committee will hold its target for the benchmark overnight-lending rate between banks at 5.25 percent for an eighth consecutive meeting today, according to the unanimous forecast of economists surveyed. The announcement is due at about 2:15 p.m.

Fewer Americans filed first-time claims for unemployment benefits last week, signaling the labor market remains healthy, a Labor Department report today also showed. Initial jobless claims decreased by 13,000 to 313,000 in the week that ended June 23.

Trade Deficit

Today's GDP revision mainly reflected a narrower trade deficit than previously estimated.

The trade gap last quarter was $606.2 billion at an annual pace, compared with $611.8 billion estimated last month. Trade subtracted 0.8 percentage point from growth, rather than the 1 percentage point estimated last month.

Companies reduced stockpiles at a $4.2 billion annual pace last quarter, compared with previous estimates of a $4.5 billion reduction.

``The inventory correction is over and with that usually comes an acceleration of growth,'' Jonathan Basile, an economist at Credit Suisse Holdings in New York, said before the report. ``What was ailing the economy last year and early this year is really behind us.''

One part of the economy still reeling is housing. Spending on residential construction projects fell at a 15.8 percent annual pace last quarter, after contracting at a 19.8 percent rate in the fourth quarter. The drop subtracted 0.9 percentage point from growth.

Home Sales

Combined sales of new and existing home dropped to a 6.905 million annual pace last month, the lowest level in four years, according to figures from the Commerce Department and the National Association of Realtors. Builders broke ground on fewer homes last month and the drop in sales suggests the slump will persist, economists said.

``We continue to see weak, and perhaps deteriorating, market conditions,'' Stuart Miller, chief executive officer of Lennar Corp., said in a statement this week. ``We currently expect to be in a loss position in our third quarter.''

Miami-based Lennar, the largest U.S. homebuilder, reported an unexpected loss for the quarter ended May 31 and said losses may persist into the next three months. New orders last quarter dropped 31 percent even as incentives rose 77 percent.

Bernanke said this month that restrictions on the availability of mortgage credit may slow housing demand even more. At the same time, he and other officials have said the slump hasn't spilled over into other parts of the economy.

Spending Moderating

Consumer spending will probably cool this quarter as record gasoline prices siphon money away from purchases of other goods and services, economists said.

Spending, which accounts for more than two-thirds of the economy and grew at a 4.2 percent annual rate last quarter, will expand at about half that pace this quarter, according to the median estimate of economists surveyed earlier this month.

The rebound in growth this quarter is based on trade and inventories rather than stronger demand, so the improvement is unlikely to be sustained, according to Jan Hatzius, chief U.S. economist at Goldman.

``Economic growth in the first half of 2007 is shaping up to look much stronger than seemed likely a couple of months ago,'' Hatzius said in a June 22 note to clients. ``The caveat is that final domestic demand is softening, a development that could foreshadow a renewed slowdown later in the year.''

Business Investment

A report yesterday cast doubt on the strength of a rebound in business investment. Durable goods orders excluding transportation equipment unexpectedly dropped 1 percent in May, according to a report from Commerce.

Non-defense capital goods orders excluding aircraft, a proxy for future business investment, dropped 3 percent, and shipments of those items, used in calculating GDP, fell 0.2 percent, the report also showed.

Increases in business investment are key to sustaining the expansion now that consumer spending is cooling, economists said.

Today's GDP report included a revised look at corporate profits for the quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, rose 1.4 percent. For all of last year, profits were up 21 percent.

Asian Stocks Slide to Two-Week Low on Metals, U.S. Home Sales

Toyota Motor Corp.'s Premio

June 27 (Bloomberg) -- Asian stocks fell to the lowest in two weeks after commodity prices dropped and on concern a U.S. housing slump will curb growth in the region's biggest export market.

Toyota Motor Corp., Japan's largest automaker, declined the most in almost three weeks. BHP Billiton Ltd., the world's biggest mining company, slid for a third day, its longest losing streak since January.

``It's not a great time for exporters, and we have lower commodities driving the miners down too,'' said Hans Kunnen, who helps manage $107 billion at Colonial First State Global Asset Management in Sydney. ``Markets seem unable to push higher as we get more news every day about the U.S. economy, particularly the housing troubles there.''

Shanghai Automotive Co. paced China's CSI 300 Index to a second day of gains after a government report showed profits by industrial companies jumped.

All 10 industry groups that make up the Morgan Stanley Capital International Asia-Pacific Index retreated. The measure, which rose to a record last week, lost 1.2 percent to 151.03 as of 7:33 p.m. in Tokyo, the lowest since June 14 and its biggest slide since June 8.

Japan's Nikkei 225 Stock Average dropped for a fourth day, falling 1.2 percent to 17,849.28, its longest string of declines in three months. Australia's S&P/ASX 200 Index slid 2 percent, the most since March 14. Benchmarks fell elsewhere in the region, except in Thailand and Pakistan.

In the U.S., the Standard & Poor's 500 Index slid 0.3 percent yesterday, heading for its biggest monthly retreat in more than a year. Purchases of new homes dropped in May, a report by the Commerce Department showed, while an index of consumer confidence fell this month to the lowest since August.

Reassessing the Risks

Toyota, which made almost two-thirds of its sales outside Japan last year, slipped 1.7 percent to 7,550 yen, the most since June 8. James Hardie Industries NV, the No. 1 maker of home siding in the U.S., dropped 3.2 percent to A$8.59, the lowest since April 17. HSBC Holdings Plc, who North American business generated 21 percent of its total pre-tax profit in 2006, lost 0.8 percent to HK$143. Samsung Electronics Co., the world's largest memory-chip maker, declined 1.2 percent to 581,000 won.

``The U.S. housing market is looking bad,'' said Koshi Kumagai, a fund manager at BNP Paribas Asset Management in Tokyo, which manages about $438 billion in assets worldwide. ``Global investors are now reassessing how much risk they're willing to take and that's causing shares to fall.''

Meanwhile, Japan's currency climbed for a third day against the dollar, trading at 122.69 at the close of share trading in Tokyo. The currency fell to a more than four-year low of 124.14 on June 22. The yen also gained against the euro for a third day to 164.84, from a record low of 166.94 last week.

Sony Corp., the maker of the Vaio computer and PlayStation console, lost 2.2 percent to 6,260 yen. Canon Inc., the world's largest digital-camera maker, slid 2.3 percent to 7,210 yen.

Metals, Oil

BHP Billiton retreated 1.8 percent to A$34.20. Its three-day loss is the longest since the period ended Jan. 8. Rio Tinto Group, the third biggest, fell 2.6 percent to A$95.75, extending a five- day, 2.8 percent drop. Sumitomo Metal Mining Co., Japan's biggest nickel producer, dropped 3.9 percent to 2,625 yen.

Signs of slowing consumption in China and the U.S., the world's largest users of copper, helped push prices of the metal 1.5 percent lower yesterday. Zinc and nickel prices also fell, sending a measure of six metals traded on the London Metal Exchange down 2.1 percent, its biggest drop since June 12.

Crude oil for August delivery fell 2 percent to $67.77 a barrel in New York yesterday, the biggest one-day decline since June 8. Futures were recently trading at $67.69.

Inpex Holdings Inc., Japan's largest oil explorer, slid 1.7 percent to 1.13 million yen. Santos Ltd., Australia's third- biggest producer, fell 3.4 percent to A$13.80. Cnooc Ltd., China's biggest offshore oil explorer, lost 1.6 percent to HK$8.46.

China Gains

Stocks in China gained after a government report showed profits generated by industrial companies climbed. Combined net income for five months through May 31 increased 42.1 percent from a year earlier to 902.6 billion yuan ($119 billion), the National Bureau of Statistics said today. Total sales jumped 27.4 percent to 14.2 trillion yuan.

``The figures boosted optimism about first-half earnings for listed companies,'' said Yan Ji, an investment manager at HSBC Jintrust Fund Management Co. in Shanghai, which manages about $517 million. ``Growth is still pretty fast.''

Shanghai Automotive, China's largest automaker, climbed 4 percent to 18.95 yuan. Shanghai Zhenhua Port Machinery Co., the world's biggest maker of container cranes, rose 7.3 percent to 20.77 yuan.

Melco International Development Ltd., a casino operator in Macau, southern China, soared 6.8 percent to HK$11.60 in Hong Kong, its biggest advance since April 3 and the No. 1 percentage gainer on the MSCI World Index. The company will operate the gaming operations of Playboy Enterprises Inc.'s entertainment complex in Macau, said Christie Hefner, Playboy's chairman and chief executive.

U.S. Stocks Advance, Led by Energy Producers; Oracle Gains

Freddie Mac headquarters, McLean, Virginia

June 27 (Bloomberg) -- U.S. stocks rose after a rebound in oil lifted energy producers and technology companies rallied on Oracle Corp. results that beat analyst estimates.

Exxon Mobil Corp., the biggest crude producer, and Chevron Corp., the second largest, advanced. Oracle, the No. 3 software maker, gained after saying sales may rise 21 percent.

The Standard & Poor's 500 Index added 1.91, or 0.1 percent, to 1494.8 as of 12:10 p.m. in New York. The Dow Jones Industrial Average slid 4.88 to 13,332.78. The Nasdaq Composite Index increased 8.6, or 0.3 percent, to 2582.76.

Exxon gained 98 cents to $82.80. Chevron climbed 82 cents to $83.52.

Crude oil for August delivery rose 44 cents to $68.21 a barrel in New York after an Energy Department report showed an unexpected decline in U.S. gasoline inventories last week.

Oracle added 34 cents to $19.50. The software industry's most acquisitive company said sales may rise as much as 21 percent in the quarter ending Aug. 31 to between $4.32 billion and $4.43 billion. Analysts had expected sales to rise 15 percent to $4.11 billion, according to a Bloomberg survey.

Brown Plans Change in U.K. to Meet Ordinary Concerns (Update2)

Gordon Brown, U.K. prime minister

June 27 (Bloomberg) -- Prime Minister Gordon Brown, who replaced Tony Blair today, said he will change the face of British politics by reaching across party lines and addressing the concerns of ordinary voters on education, health and housing.

``This need for change cannot be met by the old politics,'' Brown said in Downing Street after his formal appointment. ``I will reach out beyond narrow party interest. I will build a government that uses all the talents.''

Brown, 56, is seeking to revive the ruling Labour Party's flagging popularity after a decade in office under Blair. Brown, who served all that time as chancellor of the exchequer, is attempting to convince voters that his administration marks a change in the way the nation is governed. The Conservative opposition says only new leadership will improve schools, hospitals and police.

``Gordon Brown has always been a very important part of Tony Blair's government,'' Iain Duncan Smith, a former Conservative leader, said in an interview. ``The way we will deal with this is to take him seriously but to recognize his failings and to remind everyone that he didn't arrive out of nowhere.''

Election and Iraq

With three years before he must call another election, Brown has said he will focus on housing, health and education to improve Labour's standing with voters. Blair stepped aside after his support within the party and the electorate ebbed away as opposition to the war in Iraq mounted.

Blair will become an envoy to the Middle East for the ``Quartet'' including the U.S., United Nations, European Union and Russia and step down as a member of the U.K. Parliament.

Brown made his first remarks after meeting Queen Elizabeth II at Buckingham Palace earlier today. In a private ceremony, known as the ``kissing of hands,'' she asked him to form a government. Brown was elected unopposed as leader of the ruling Labour Party on June 24.

His first task is to appoint the rest of his government. Many of those appointments will be made tomorrow at ``lunchtime,'' according to his spokesman, Michael Ellam. Brown will also make changes to the machinery of government that will become apparent when the Cabinet is named, Ellam said.

Trade and Industry Secretary Alistair Darling is most likely to take over from Brown as chancellor of the exchequer, according to Ladbrokes, the world's biggest betting company.

`Need for Change'

``I have heard the need for change,'' Brown said. ``Change in our NHS. Change in our schools. Change with affordable housing. Change to build trust in government. Change to protect and extend the British way of life.''

In most opinion polls published during the past year, Labour has trailed the Conservatives, under leader David Cameron, 40. A YouGov Plc poll published today showed Labour with the support of 36 percent of voters compared with 37 percent for the opposition. The survey of 2,080 people was conducted June 22-25.

``For a political party that has been in power for 10 years the task of refreshing is pretty hard but in Gordon we see a figure of substance compared to David Cameron,'' said Hazel Blears, who served as Labour Party chairman under Blair.

Yesterday, Brown scored an early victory when Conservative lawmaker Quentin Davies announced his defection to Labour, saying that under Cameron's leadership the party has ``ceased collectively to believe in anything.''

Conservative Position

``An opposition party should be in a better place by now if it wants to win the next general election,'' Stephan Shakespeare, chief executive of YouGov, said in an interview. ``Although Cameron wins in the polls on charisma, he loses on toughness and leadership.''

The new prime minister's most immediate challenge will be to break from Blair's legacy in Iraq. More than three-quarters of British voters want the government to set a timetable to bring troops home or to pull them out immediately, according to a YouGov Plc poll finished on June 7.

Brown has already said ``mistakes'' were made ahead of the 2003 invasion of Iraq, though he has rebuffed calls for an independent inquiry into the decision. The U.K. is in the process of cutting the size of its force in Iraq to about 5,500 soldiers this summer from 7,100 in February.

Beginning his leadership campaign on May 11, Brown said education is his ``passion'' and the state-run National Health Service his ``immediate priority.''

Budget Squeeze

His new chancellor also must reduce a budget deficit. Brown ran up deficits totaling 169.4 billion pounds ($338 billion) in the five fiscal years since 2003, erasing three years of surpluses he built after taking office in 1997. The Treasury expects the shortfall to decline to 24 billion pounds in the 2011 fiscal year from 34 billion pounds last year, assuming it can cut the pace of spending growth in half.

The Institute of Fiscal Studies estimates that non-health and education spending growth must slow to 0.5 percent through 2011 if Brown keeps expanding health spending at 4.4 percent, the rate recommended by a report he commissioned in 2001.

``Spending will go back to half the rate departments had got used to in recent years,'' said Carl Emerson, deputy director at the IFS.

In March, Brown set out the size of the spending envelope through 2011. His successor will release a Comprehensive Spending Review in October divvying up the money. The figures call for public spending to rise 2 percent a year through that period, half the pace of the previous few years.

Education Ambition

On Sunday, Brown repeated his commitment to increasing education spending per pupil from 5,500 pounds a year to 8,000 pounds a year. In his emotional remarks in Downing Street, Brown recalled his childhood in Kirkcaldy, a district north of Edinburgh he now represents, and the importance of education.

``I grew up in the town that I now represent in Parliament, and I went to the local school,'' Brown said. ``I wouldn't be standing here without the opportunities that I received there. I want the best of chances for everyone. That is my mission.''

He also said he wanted to help young people who can't afford to buy their first homes. House prices tripled while Brown was chancellor. On May 13, he promised to spur construction of five new environmentally friendly cities as part of a plan to supply 200,000 new homes a year, up from an annual average of 148,000 between 1989 and 2005.

``Affordable homes for all is a very good cause to have adopted,'' said Andrew Cooper, co-founder of Populus Ltd., which conducts polls. ``It's a growing problem related to aspiration among middle classes as well as equality among the poor.''

U.S. Economy: Orders for Durable Goods Drop in May (Update1)

A customer looks at washing machines

June 27 (Bloomberg) -- Orders for U.S. durable goods fell more than forecast in May, the first report to cast doubt on the strength of the rebound in business investment.

Demand for goods meant to last several years fell 2.8 percent, the first drop in four months, after a revised 1.1 percent gain in April that was larger than previously estimated, the Commerce Department said today in Washington. Excluding transportation equipment, orders dropped 1 percent.

The decline, which was led by fewer orders for aircraft, metals, and machinery, spurred some economists to cut forecasts for economic growth this quarter. Federal Reserve policy makers, who predict a pick up in the pace of economic expansion later this year, are forecast to keep interest rates unchanged when their two-day meeting ends tomorrow.

``The optimism about business spending maybe was a bit overdone,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York. ``The economic rebound will be pretty modest.''

Treasury notes extended gains after the report. The yield on the benchmark 10-year note fell about 4 basis points to 5.04 percent at 10:18 a.m. in New York.

Economists forecast durable goods would fall 1 percent after an initially reported 0.8 percent rise in April, according to the median of forecasts in a Bloomberg News survey.

Excluding transportation equipment, orders were forecast to rise 0.2 percent, according to the survey median, after a previously reported 1.9 percent gain.

`Risk Averse'

``It's clear that businesses are still somewhat risk averse and that they are being cautious in light of the softness in the economy,'' said Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts. ``Capital spending is not moving forward with the strength we had hoped.''

Economists prefer to track the durable goods figures excluding transportation because orders for aircraft and automobiles tend to be volatile from month to month, obscuring underlying trends in spending.

Total orders have never been up for four months in a row since comparable records began in 1992. The last time bookings for durable goods rose for three consecutive months was from April through June 2005.

Forecasts Trimmed

Following the report, economists at Morgan Stanley in New York lowered their forecast for economic growth this quarter to an annual pace of 3.8 percent from a previous estimate of 4.2 percent. HSBC Securities USA Inc. in New York lowered its estimate to 3.2 percent from 3.5 percent.

Non-defense capital goods orders excluding aircraft, a proxy for future business investment, dropped 3 percent, the most since January, after increasing 2.3 percent in April. Shipments of those items, used in calculating gross domestic product, fell 0.2 percent after rising 0.9 percent a month earlier. Unfilled orders for such goods rose 0.6 percent.

Orders for commercial aircraft slumped 23 percent in May after dropping 11 percent in April. Boeing Co. received 92 plane orders in May, down from 136 a month earlier, according to its Web site. The government's figures don't always correlate with industry reports.

Demand for machinery fell 1.6 percent and bookings for metals dropped 3.6 percent.

Inventories

Orders excluding of military gear fell 3.2 percent last month after rising 1.2 percent in April. Inventories of all durable goods rose 0.2 percent. Manufacturers had a 1.46 month's supply of durable goods on hand at the current sales pace in May, the same as in April.

The figures contrast with other reports this month that had shown a pick up in manufacturing as production ramps up to fill increasing orders.

Manufacturing in the Philadelphia region accelerated in June at the fastest pace in more than two years as orders surged, a June 21 report from the Federal Reserve Bank of Philadelphia showed. A similar index from the New York Fed rose to a one-year high.

The Fed factory reports followed a survey from the Institute for Supply Management, which said that manufacturing accelerated last month at the fastest pace in a year.

Manufacturing gained in a majority of Fed districts, the central bank said this month in its regional survey known as the Beige Book. The report will be used by policy makers at their meeting today and tomorrow, after which they are projected to keep interest rates unchanged for an eight consecutive time.

Corporate Investment

Before today's report, economists forecast increased corporate investment and improving demand from overseas would help revitalize growth after the economy expanded at the slowest pace in more than four years during the first quarter.

Some industries are still grappling with too much inventory.

Charlotte, North Carolina-based Nucor Corp., the second- largest U.S.-based steel company, said earlier this month second-quarter profit probably will fall because of slumping metal demand by automakers and homebuilders. U.S. shipments fell after customers stocked up on steel during the first quarter, the company said.

Industrial production stalled last month, in part because manufacturers of cars and machinery scaled back, according to a Fed report on June 15.

Asian Exporter Stocks Fall on U.S. Spending Concern; Sony Drops

June 26 (Bloomberg) -- Asian exporter stocks fell on concern a slump in U.S. housing will curb spending in the world's biggest economy.

Sony Corp., which made 70 percent of its sales overseas last year, and Hon Hai Precision Industry Co., whose customers include Apple Inc., led declines after sales of previously owned homes fell to the lowest in almost four years.

``We had news the past few days suggesting the U.S. housing sector is coming back to haunt all markets,'' said Jason Teh, who helps manage about $4.3 billion at Investors Mutual Ltd. in Sydney. ``We stay away from all investments that are directly linked to that industry.''

China's CSI 300 Index gained, reversing earlier losses, as investors judged as excessive a tumble of as much as 12 percent from its closing high a week ago.

The dollar-denominated Morgan Stanley Capital International Asia-Pacific Index added 0.1 percent to 152.98 at 7:40 p.m. in Tokyo. More than three stocks declined for every two that rose.

SK Corp., South Korea's biggest oil refiner, surged after Samsung Securities Co. raised its stock-price estimate by 29 percent. Sun Hung Kai Properties Ltd. jumped after Goldman, Sachs & Co. increased its rating on the Hong Kong developer's shares to ``buy.''

Japan's Nikkei 225 Stock Average lost 0.1 percent to 18,066.11. Benchmarks fell also fell in Australia, New Zealand, Hong Kong, South Korea, Taiwan, Malaysia and Singapore, whose Straits Times Index slid 1.5 percent, the most in the region.

`Very Worrying Situation'

U.S. stocks slid yesterday after a report showed purchases of previously owned homes declined 0.3 percent in May, while the supply of unsold houses jumped to a record, the National Association of Realtors said. Shares also dropped on speculation Bear Stearns Cos. may have to salvage a second hedge fund that incurred losses linked to subprime, or high risk, mortgages.

Sony, the world's biggest maker of game consoles, lost 0.9 percent to 6,400 yen. Taiwan's Hon Hai, the largest contract- manufacturer of electronics for customers including Apple Inc., dropped 1.9 percent to NT$282.50. James Hardie Industries NV, the No. 1 supplier of home siding in the U.S., slid 1 percent to A$8.87 in Australia.

Subprime defaults may eventually affect U.S. consumption, and ``the market is only just now factoring in that possibility,'' said Allan Conway, who oversees about $10 billion as head of emerging-market equities at Schroder Investment Management Ltd. in London. ``The complacency is starting to disappear and it's a very worrying situation,'' he said at a seminar in Seoul.

China Reverses Loses

Citic Securities Co., the country's most profitable brokerage, rose 1.5 percent to 56.10 yuan. The stock, which fell as much as 3.8 percent earlier today, slumped 13 percent in the past five days. Founder Technology Group Corp., the second- largest computer maker, jumped the 10 percent daily limit to 12.86 yuan, snapping a four-day, 23 percent decline.

China's CSI 300 gained 1.3 percent, snapping a two-day 7.6 percent slide. The measure was lower for most of the day as investor demand for stocks slowed.

Investors opened a daily average of 271,000 brokerage accounts for investments in mainland shares and mutual funds this month, down from an average 440,000 in May, according to the China Securities Depository & Clearing Corp.

``The sharp decline provides a good buying opportunity for investors chasing short-term profits,'' said Wei Wei, an analyst at West China Securities Co. in Shanghai.

SK, Sun Hung Kai

SK Corp. surged 8.7 percent to 125,000 won. Samsung Securities Co. raised its six-month stock-price estimate to 152,000 won from 118,000 won.

The company's full-year operating profit, or sales minus the cost of goods sold and administrative expenses, may be 1.64 trillion won, 13 percent higher than Samsung Securities' previous estimate. Investors should buy the stock before trading is halted for one month starting June 28 prior to the company's split into holding and operating companies, wrote Thomas Yi, an analyst.

Sun Hung Kai, Hong Kong's second-biggest developer by market value, advanced 2.5 percent to HK$93.70, the most since Jan. 15.

Goldman Sachs raised its recommendation on the shares to ``buy'' from ``neutral.'' The company may acquire more land in China, analysts at the brokerage, including Anthony Wu, wrote in a research note today.

Cosco, Posco

China Cosco Holdings Co. plunged in Hong Kong as some investors judged the stock's recent gains excessive, while its Shanghai-listed shares doubled on their debut.

China Cosco, Asia's largest container line, slid 2.3 percent to HK$11.74. The stock's 14-day relative strength index was at 74 yesterday, above the 70 mark that some analysts take as a sign the shares may fall. China Cosco surged 19 percent in the five days to June 22.

The company sold 15.1 billion yuan ($1.98 billion) of shares to buy new ships and a stake in a logistics company. The stock surged 93 percent to 16.38 yuan in Shanghai.

Posco, the world's fourth-biggest steelmaker, lost 1.1 percent to 443,000 won in South Korea. CJ Investment & Securities Co. said the ``weakness'' in global steel prices may continue for longer than expected.

Steel consumption in China has slowed by ``a large degree'' and the Beijing Olympics-related boost in demand may peter out this year, wrote Chung Ji Yun, an analyst at CJ Investment, in a report.

Kroger, Steelcase, Steak n Shake, Synnex: U.S. Equity Movers

June 26 (Bloomberg) -- The following is a list of companies whose shares are having unusual price changes in U.S. exchanges today. Stock symbols are in parentheses after company names. Share prices are as of 11:40 a.m. New York time.

Celgene Corp. (CELG US) gained $1.64, or 2.9 percent, to $57.89. The maker of drugs to treat blood cancers was raised to ``overweight'' from ``equal weight'' by Lehman Brothers Inc. Celgene will be the ``top revenue and earnings performer'' among large biotechnology companies, analyst Jim Birchenough wrote in a note to clients.

Christiana Bank & Trust Co. (CBTD US) jumped $9.95, or 38 percent, to $35.85. National Penn Bancshares Inc. (NPBC US) agreed to buy Christiana Bank for $37.85 a share.

Dolby Laboratories Inc. (DLB US) rose $1.58, or 4.8 percent, to $34.24. Shares of the audio technology company were raised to ``overweight'' from ``neutral'' by JPMorgan's Paul Coster, who said that proliferation of digital television and other new technologies will drive growth. Coster raised his earnings forecast for this year to $1 a share. Analysts expect $1.04, the average estimate in a Bloomberg survey.

Energy East Corp. (EAS US) rose $3.94, or 17 percent, to $26.48. Iberdrola SA (IBE SM) agreed to buy the provider of energy services in the northeast U.S. for $4.5 billion, or $28.50 a share in cash. Shares rose 17 cents to $22.54 in regular trading yesterday. Goldman Sachs raised its rating on the shares to ``neutral'' from ``sell'' and Jefferies raised its rating on the stock to ``hold'' from ``underperform.''

First Community Bancorp Inc. (FCBP US) rose $1.11, or 2 percent, to $57.09. Standard & Poor's said that the California- based bank holding company will replace Investors Financial Services Corp. in the S&P MidCap 400 index.

FreightCar America Inc. (RAIL US) fell 58 cents, or 1.2 percent, to $48.82. The maker of railroad freight cars said in a statement on Business Wire that it expects a second-quarter profit of 85 cents to 95 cents a share. Four analysts estimated the company would post a net income of $1.20 a share, the average in a Bloomberg survey.

GeoPharma Inc. (GORX US) rose 11 cents, or 2.6 percent, to $4.20. The medical products maker said in a statement sent by PR Newswire that fourth-quarter revenue rose 7.9 percent to $14.4 million.

General Growth Properties Inc. (GGP US) rose $1.31, or 2.5 percent, to $52.88. The second-largest owner of U.S. shopping malls by market value will replace Mellon Financial Corp. in the Standard & Poor's 500 Index, S&P said yesterday in a statement posted on its Web site.

Huntsman Corp. (HUN US) rose $5.35, or 28 percent, to $24.25. Basell Holdings NV agreed to buy Huntsman for $9.6 billion, including debt. Huntsman shareholders will receive $25.25 a share, Hoofddorp, Netherlands-based Basell said in an e- mailed statement.

IXYS Corp. (IXYS US) fell 88 cents, or 9 percent, to $8.88. The chipmaker reduced its revenue forecast for the current quarter, predicting sales of as much as $72 million. The company had anticipated $74 million.

Kroger Co. (KR US) fell $1.72, or 5.8 percent, to $27.94. The biggest U.S. supermarket chain said first-quarter earnings rose less than analysts estimated and profit margins fell on costs from a strike in Kentucky and competition with Wal-Mart Stores Inc. (WMT US).

Steak n Shake Co. (SNS US) rose $2.22, or 15 percent, to $17. The restaurant chain said in a U.S. Securities and Exchange Commission filing that hedge fund HBK Investments LP owned a 9.5 percent stake.

Steelcase Inc. (SCS US) fell $1.31, or 6.6 percent, to $18.50. The maker of office furniture said that, excluding some items, it expects to earn 19 cents to 24 cents a share in the second quarter. Analyst Matthew McCall at BB&T Capital Markets forecast 30 cents.

Synnex Corp. (SNX US) fell $1.18, or 5.5 percent, to $20.35. The provider of supply-chain services to the computer industry said it expects to earn 44 cents to 46 cents a share in the third quarter. Six analysts surveyed by Bloomberg had an average estimate of 46 cents.

Ventana Medical Systems Inc. (VMSI US) rose $25.29, or 49 percent, to $77.03. Roche Holding AG (ROG VX), the world's biggest maker of diagnostic tests, offered to buy Ventana for about $3 billion, or $75 a share, in cash.

W Holding Inc. (WHI US) fell $1.61, or 32 percent, to $3.40. The owner of Westernbank Puerto Rico disclosed in a filing with the U.S. Securities and Exchange Commission that one of its larger asset-based loans is ``impaired.''

White House Rejects Lugar's Call to Change Iraq War Policy

June 26 (Bloomberg) -- White House officials today rejected Republican Senator Richard Lugar's call for an immediate change of course in Iraq war policy, saying Congress should give the troop increase a chance to succeed.

Lawmakers should ``give the Baghdad security plan an opportunity to unfold'' before a September assessment due to Congress, White House spokesman Tony Snow told reporters today.

Army General David Petraeus is scheduled to report in September on whether President George W. Bush's policy, including sending 21,500 more combat troops into Iraq, is succeeding in reducing sectarian violence.

Lugar, 75, the top Republican on the Foreign Relations Committee, said yesterday that the troop increase strategy isn't working and the U.S. should alter its approach. While Democrats and some Republicans have opposed Bush's Iraq policy, Lugar hasn't previously called for a course change in Iraq.

``In my judgment, the costs and risks of continuing down the current path outweigh the potential benefits that might be achieved,'' said Lugar, of Indiana. ``Persisting indefinitely with the surge strategy will delay policy adjustments that have a better chance of protecting our vital interests over the long term.''

Lugar's comments are ``really not new,'' Snow said today. ``We've known that he's had reservations about the policy for some time.''

Senate Democratic Leader Harry Reid said that Lugar's remarks are a ``turning point'' in the debate and will aid Democrats' call for reduced U.S. troop levels.

``I look forward to working with Senator Lugar, and I hope and believe a growing number of Republicans, to put his words into action by delivering the responsible end to the war that the American people demand and deserve,'' Reid said.

House Majority Leader Steny Hoyer of Maryland said today that debate on Iraq will resume in the House next month when the chamber debates the annual defense spending legislation.

U.S. Economy: Consumer Confidence, Housing Weaken (Update1)

June 26 (Bloomberg) -- Consumer confidence in the U.S. dropped more than forecast and two other reports signaled that demand for houses is still falling in the second year of the home-building slowdown.

The New York-based Conference Board's index of consumer confidence fell to 103.9 in June from a revised 108.5 the prior month. Purchases of new homes fell 1.6 percent last month to an annual pace of 915,000, the Commerce Department reported in Washington, and housing prices in 20 cities in April fell by the most in at least six years, according to S&P/Case-Shiller.

Dwindling property values may further erode the confidence of shoppers, whose spending kept the economy afloat for the past year. While the Federal Reserve -- which begins a two-day meeting tomorrow that is likely to keep interest rates unchanged -- projects that economic growth will pick up in coming months, further such declines may call that into question.

``There are some pretty significant negative risks for economic growth,'' said Carl Riccadonna, an economist at Deutsche Bank Securities Inc. in New York. ``We are not at the bottom yet in housing. One of the biggest questions is how much longer can the consumer hang on, given the strong headwinds.''

Stocks surrendered gains after the reports before rebounding, while Treasury notes fell. The yield on the benchmark 10-year bond was 5.011 percent at 12:02 p.m. in New York.

The Conference Board's index was forecast to fall to 105, according to the median estimate in a Bloomberg survey of 69 economists, from an originally reported 108.

Labor Market

More Americans said jobs were getting harder to find, the survey showed, while gasoline prices have held near $3 a gallon after reaching an all-time high last month.

The share of consumers who said jobs are plentiful declined to 27 percent, the lowest since November, from 29.1 percent. The proportion who said jobs are hard to get rose to 21.1 percent from 19.7 percent.

The Conference Board's measure of present conditions fell to 127.9 from 136.1. The gauge of expectations for the next six months declined to 87.9 from 90.1.

``The housing market will be a damper on the consumer,'' said Joshua Shapiro, chief U.S. economist at Maria Fiorini Ramirez Inc. in New York. ``Mortgage equity withdrawal won't be a contributor to consumer spending.''

Housing Slump

A jump in mortgage rates this month and a glut of unsold properties on the market will continue to discourage home construction, economists said. The housing slump, already the worst since 1991, will restrain the economy for the rest of the year and potentially into next.

``The housing market is in a contractionary phase and we don't expect that to end anytime soon,'' said Julia Coronado, a senior economist at Barclays Capital Inc. in New York. ``We won't see another huge decline, housing will just sort of glide down.''

Economists forecast new home sales would decline to a 924,000 annual pace from an originally reported 981,000 rate the prior month, according to the median estimate in a Bloomberg survey of 72 economists.

Home values in the U.S. declined 2.1 percent in April from the same month a year earlier, according to a report today by S&P/Case-Shiller. It was the fourth straight drop in the group's index, which started in 2001.

Deteriorating Conditions

The confidence survey showed 16.4 percent of Americans think overall business conditions are deteriorating, up from 14.6 percent last month.

A survey by Reuters/University of Michigan released earlier this month showed sentiment also fell more than forecast in June. While the University of Michigan and Conference Board surveys generally track each other, the Conference Board's focuses more on labor market conditions.

More Americans filed first-time claims for unemployment benefits in the week ended June 16, suggesting the labor market may be starting to cool. While unemployment is at 4.5 percent, the second-lowest in six years, economists forecast the jobless rate to creep higher in coming months.

Consumer spending grew at a 4.4 percent rate in the first quarter, the biggest gain in a year. Consumer spending may slow to half that rate in the second quarter, according to the median forecast of economists surveyed by Bloomberg News.

Consumer Electronics

Best Buy Co., the largest U.S. consumer-electronics chain, said last week that earnings in the quarter ended June 2 fell more than analysts estimated. The Richfield, Minnesota-based company lowered its profit forecast for the year.

Consumer spending was also hurt by declining house prices and higher fuel costs, Chief Executive Officer Brad Anderson said in an interview June 19.

For now, higher wages are helping cushion the effects of gas prices and the housing slump for the consumer. Average hourly earnings were up 3.8 percent in May from the prior year, the government said June 1.

Consumer spending and retail sales were ``generally up,'' and several banks reported faster sales of ``luxury items'' than lower-end goods, the Fed said this month in its regional survey known as the Beige Book. In four districts, Fed contacts reported sales were ``disappointing or below expectations.''

Asian Stocks Decline on U.S. Home Sale Concern; Taiwan Advances

June 25 (Bloomberg) -- Asian shares fell, led by Sony Corp. and BHP Billiton Ltd., on concern figures this week will show a drop in U.S. home sales, signaling declining demand in the region's largest export market.

``Stocks globally take a fall every time there's more bad news on U.S. housing-related or lending data because there's a threat that this may spill over into other parts of the economy,'' said Eric Betts, a strategist at Nomura Australia Ltd. in Sydney. ``This wouldn't be good for companies that depend on the U.S. consumer.''

Citic Securities Co. led the CSI 300 Index to its biggest drop in three weeks after China's central bank governor Zhou Xiaochuan said the country's shares may be overvalued and interest-rate increases couldn't be ruled out.

The Morgan Stanley Capital International Asia-Pacific Index slid 0.4 percent to 153.03 as of 7:15 p.m. in Tokyo. Japan's Nikkei 225 Stock Average lost 0.6 percent. Taiwan Semiconductor Manufacturing Co. led the Taiex Index to a seven-year high after Citigroup Inc. raised its recommendation on the island's stock market. Thailand, India, Pakistan and Vietnam were the only other benchmarks in the region to rise.

Takeda Pharmaceutical Co. advanced after a study found the company's Actos drug may lower the risk of heart attack and death in diabetic patients with kidney disease.

U.S. stocks dropped on June 22, sending the Standard & Poor's 500 Index to its worst week since early March. The near collapse of a Bear Stearns Cos. hedge fund spurred speculation investors will have to write down the value of securities containing subprime mortgages.

Home Sales

Sony, the world's biggest maker of game consoles, fell 1.4 percent to 6,460 yen. BHP Billiton, the biggest mining company, lost 1.2 percent to A$34.94. Hynix Semiconductor Inc., the world's second-largest memory chipmaker, dropped 2.9 percent to 33,700 won.

A report later today from the National Association of Realtors may show sales of previously owned homes fell to an annual pace of 5.972 million in May from 5.99 million a month earlier, according to the median estimate of economists surveyed.

Tomorrow, the Commerce Department is forecast to report new homes sold at a 925,000 annual rate, down from April's 981,000 pace. The total of 6.897 million of combined sales based on the two estimates would be the lowest since April 2003.

Bubble Warning

Citic Securities, China's biggest publicly traded brokerage, lost 4.6 percent to 55.55 yuan. Shanghai International Airport Co., operator of the country's second-busiest airfield, fell 4.5 percent to 38 yuan. The CSI 300, which dropped 4.3 percent today after a 3.5 percent decline on June 22, has almost doubled in value this year.

China is worried its equity markets may be overvalued and is watching developments closely, Zhou told reporters in Basel, Switzerland, where he attended a meeting of central bankers at the weekend.

``We don't rule out further rate increases if necessary'' and inflation remains a concern, Zhou said.

``Zhou's remarks are damping sentiment in the market and as a result investors may be selling for fear of further'' policy initiatives, said Fan Dizhao, who helps manage about $1.8 billion at Guotai Asset Management Co. in Shanghai.

Taiwan's Taiex jumped 1.4 percent, to its highest since June 2000. Citigroup, the world's largest financial services company, raised its rating on the market to ``overweight'' from ``underweight.''

Government Approval

``Taiwan stocks are undervalued,'' said Eric Chou, who helps manage $1.8 billion at Jih Sun Securities Investment Trust Co. in Taipei. ``Citigroup upgraded Taiwan by two notches, and that will prompt some overseas funds to boost their Taiwan holdings.''

Taiwan Semiconductor, the world's largest maker of customized chips, added 3.1 percent to NT$70.40. The stock also rose after the Commercial Times reported revenue at the company may soar to NT$27.5 billion ($840 million) in June on orders from companies including Texas Instruments Inc. and Qualcomm Inc.

Advanced Semiconductor Engineering Inc., the world's biggest chip packager and tester, jumped 1.5 percent to NT$44.45. The company is among four chip packaging and testing groups that have received approval from the Taiwan government to invest in China, the Commercial Times reported without citing sources.

Greatek Electronics Inc. and Walton Advanced Engineering Inc. also received tacit approval from Taiwan's economic ministry while formal consent has yet to be given, the newspaper said. Greatek surged 3.4 percent to NT$58. Walton rose 5.1 percent to NT$22.70.

Sinopec, Takeda

China Petroleum & Chemical Corp., known as Sinopec, fell 2.9 percent to HK$8.79 in Hong Kong and 5.7 percent to 13.47 yuan in Shanghai, after the company said Chairman Chen Tonghai resigned for ``personal reasons.''

Asia's largest refiner said it will hold an extraordinary general meeting in Beijing on Aug. 10 to elect Su Shulin, a former China National Petroleum Corp. executive, as a director.

Takeda, Japan's No. 1 drugmaker by market value, jumped 1.2 percent to 7,950 yen. Actos may cut the risk of heart attack and death by 44 percent, according to findings reported on June 23. In a separate study, Actos reduced inflammation and blood clots more than a placebo.

Canadian Stocks Decline as Metals, Crude Oil Prices Drop

June 25 (Bloomberg) -- Canadian stocks declined for a fourth time in five days, led by such energy and raw-materials producers as Talisman Energy Inc. and Teck Cominco Ltd., as prices for crude oil, copper and gold declined.

Oil futures fell from a nine-month high in New York after a strike in Nigeria ended. Copper dropped a third day in London on concern that Asian demand may be slowing, while gold declined on speculation a drop in European equity markets may cut demand for bullion.

Raw-materials, energy and other commodities make up more than half of Canada's exports. Resource-related stocks account for nearly half of the main Canadian stock index's value and helped lift it to a record last week on takeovers and higher commodity prices.

The Standard & Poor's/TSX Composite Index fell 70.75, or 0.5 percent, to 13,915.28 as of 9:42 a.m. in Toronto. The benchmark has declined 1.8 percent from its June 18 record of 14,176.42,

Shares of Talisman Energy, which produces oil and gas in the North Sea, dropped 41 cents to C$21.05. Canadian Natural Resources Ltd., the nation's second-largest natural-gas company, declined C$1.42 to C$69.52. Suncor Energy Inc., the second-largest oil-sands producer, fell C$1.77 to C$94.32.

Teck Cominco, a miner of zinc and copper, slid C$1.07 to C$47.13.

Barrick Gold Corp., the biggest bullion miner, retreated 44 cents to C$31.36.

Oil, Gas

Measures of energy and raw-materials shares fell 1.4 percent and 0.7 percent, respectively, today. They account for more than 45 percent of the S&P/TSX's value and have been among the best performers this year among 10 industry groups.

Takeover speculation lifted some shares and helped limit losses in the broader market.

BCE Inc. rise 40 cents to C$40.56. Bidders are expected to submit their offers for Canada's second-largest phone company on June 26, with a decision being urged within 72 hours by company management and BCE's adviser, Goldman Sachs Group Inc., the Globe and Mail reported, citing unidentified people familiar with the situation. BCE spokesmen Mark Langton didn't immediately return a call from seeking comment

The Ontario Teachers' Pension Plan, which has teamed up with Providence Equity Partners Inc., confirmed on June 22 that it will submit a bid, the Globe and Mail reported, without saying where it got the information. In addition to Ontario Teachers, two other private-equity groups, the Canada Pension Plan Investment Board, which includes Kohlberg Kravis Roberts & Co., and Cerberus Capital Management LP may also submit bids, the newspaper said.

Shares of Telus Corp. declined 52 cents to C$63.50. Canada's second-largest phone company, which may also bid for rival BCE in what would be the biggest takeover in Canada, was downgraded to ``sector perform'' from ``sector outperform'' by Robert Goff at Haywood Securities Inc.

Goff was at least the third analyst in the past week to cut his recommendation on the stock, on concern a purchase would slow revenue and profit growth at Telus's wireless unit, which has outpaced that of BCE. Analysts at GMP Securities and National Bank Financial reduced their recommendations on June 21.

Iran Invites UN Atomic Agency Inspectors to Tehran (Update3)

June 25 (Bloomberg) -- A team of United Nations atomic inspectors is preparing to travel to Iran at the invitation of the country's top security chief to break the stalemate over the Islamic Republic's nuclear work.

Iran has ``invited the IAEA to send a team to Tehran to develop an action plan for resolving outstanding issues related to Iran's past nuclear program,'' the Vienna-based International Atomic Energy Agency said today in an e-mail. Iran's Supreme National Security Council secretary, Ali Larijani, issued the invitation to IAEA chief Mohamed ElBaradei yesterday.

ElBaradei predicted a breakthrough on June 22 after a two- hour meeting with Larijani in Vienna. IAEA inspectors want to draft a plan by Aug. 22 to resolve unanswered questions about Iran's atomic work. The Islamic Republic, which has the world's second-largest oil and natural gas reserves, says it wants the uranium to generate electricity. The U.S. says the Islamic Republic is trying to build a nuclear weapon.

The IAEA, which has been investigating Iran's nuclear work since 2003, said the inspection team will go to Tehran ``as early as practicable.'' Larijani made the offer to ElBaradei after meeting with European Union foreign policy chief Javier Solana in Lisbon on June 23.

``The series of negotiations we have had with Mr. Solana have helped us in paving the way for the negotiations to begin,'' Larijani said yesterday.

U.S. Position

The U.S. said it was taking a wait-and-see approach to the potential IAEA inspectors' visit. ``We certainly would like to see Iran cooperate fully wit the IAEA,'' said State Department spokesman Tom Casey, noting that Iranian cooperation with the IAEA was one ``though certainly not the only'' demand of Iran by the UN Security Council.

``They're supposed to be working out some kind of plan of action. I think for the moment we'll wait and see what actually happens. There's already been some statements by Iranian officials indicating that that plan of action may not actually lead to a lot,'' Casey added.

ElBaradei, who is also talking with Solana about Iran's nuclear work, is trying to identify the sources of crude blueprints for missiles and warheads found by inspectors in Iran. Traces of highly enriched uranium have also been discovered at an Iranian waste disposal site, the IAEA has reported.

``Establishing clear tracks on the ground will enable the development of a political solution,'' ElBaradei said June 22. ``Any policy to succeed has to be based on the actual facts.''

No Guarantee

The IAEA can't guarantee the ``exclusively peaceful nature'' of Iran's work, ElBaradei said May 23. IAEA inspectors said in a report last month that their knowledge of Iran's program was ``deteriorating.'' Iran curtailed access to military and research sites last year after the IAEA sent the country's case to the UN Security Council.

The Security Council is gearing up for a round of tighter sanctions against Iran, Group of Eight leaders said June 8 in Germany. Since December, the council has limited the transfer of nuclear technology to Iran and the international travel of some Iranian officials.

U.S. Stocks Rise as Bond Yields Decline; General Motors Gains

June 25 (Bloomberg) -- U.S. stocks advanced on prospects that General Motors Corp. will overcome demand for higher wages and after bond yields fell for a second day, easing concern about rising borrowing costs.

GM, the biggest U.S. automaker, climbed the most in the Dow Jones Industrial Average after Goldman, Sachs & Co. advised clients to buy the shares. Telephone companies and utilities rallied the most in the Standard & Poor's 500 Index as lower interest rates make their dividends more attractive.

The yield on the benchmark 10-year Treasury note fell 5 basis points to 5.08 percent, matching last week's low, as prices rose on speculation hedge-fund losses linked to subprime mortgage loans will fuel demand for safer government bonds. Stocks also got a boost from a drop in energy prices.

``As the price of oil continues to back off from $70 and the 10-year Treasury yields trade lower, it's a big positive for the market,'' said Robert Pavlik, who helps manage $325 million as chief investment officer of Oaktree Asset Management in New York. ``The fact that people are buying on the dip is encouraging.''

The S&P 500 Index added 9.84, or 0.7 percent, to 1512.40 as of 11:23 a.m. in New York. The Dow average increased 106.65, or 0.8 percent, to 13,466.91. The Nasdaq Composite Index rose 13.90, or 0.5 percent, to 2602.86.

U.S. stocks last week retreated the most since early March as concern intensified that banks will be saddled with losses on mortgage bonds.

General Motors

GM gained 82 cents to $36.28. Goldman upgraded GM to ``buy'' from ``neutral,'' saying the UAW may offer larger concessions to the automaker. Separately, people familiar with the matter said the United Auto Workers union will brief employees of GM's biggest supplier, Delphi Corp., today on a contract that ends the union's eight-year effort to keep pay and benefits the same as at GM.

Delphi spokesman Lindsey Williams and GM spokeswoman Renee Rashid-Merem declined to comment on specifics of the contract. Roger Kerson, a spokesman for the Detroit-based UAW, didn't return phone calls seeking a comment.

A gauge of telephone companies advanced 1.3 percent, while a measure of utilities rose 1.7 percent. Both industry groups have dividend yields of more than 3 percent, the highest among 10 industries in the S&P 500.

Home Sales

Sales of previously owned homes in the U.S. fell in May to the lowest in almost four years, reinforcing concerns about a protracted housing slump. Purchases last month declined 0.3 percent to an annual rate of 5.99 million from a revised 6.01 million in April, the National Association of Realtors said. The supply of unsold homes jumped to the highest in almost 15 years.

Weakening demand for existing homes, along with a decline in construction starts on new homes reported last week, makes the housing market the biggest threat to economic growth, economists said.

Energy shares in the S&P 500 fell 0.3 percent as a group. Crude oil for August delivery dropped 2 percent to $67.79 a barrel in New York after the end of a nationwide strike of oil workers in Nigeria eased concern supplies from Africa's biggest producer would be further disrupted.

Schlumberger Ltd., the world's biggest oilfield services provider, lost $1.94 to $87.26.

Bear Stearns Cos. declined $1.32 to $142.43. CIBC World Markets Inc. cut its price estimate for the shares by 12 percent to $159.

``We see tough headline risk and a lousy U.S. mortgage market in the coming three months,'' New York-based analysts at CIBC including Meredith Whitney wrote in a report dated June 24.

Bear Stearns, the second-biggest underwriter of mortgage bonds, last week offered $3.2 billion in loans to bail out one of its hedge funds, which lost about 20 percent this year because of bad bets on collateralized-debt obligations. CDOs are securities backed by bonds, loans, derivatives and other CDOs.

Nvidia Corp. dropped 51 cents to $43.11. Goldman cut its recommendation for the maker of graphics chips to ``neutral'' from ``buy'' and removed them from the bank's ``Americas Buy List.''

Asian Stocks Advance on Gain in Chip Prices, Japan's Exports

June 21 (Bloomberg) -- Asian stocks advanced for a sixth day, the longest winning streak in almost eight months, after prices of computer-memory chips jumped and a report today showed Japan's export growth almost doubled in May.

Samsung Electronics Co. and Toshiba Corp. paced technology shares higher, helping the Morgan Stanley Capital International Asia Pacific Index to a record. China Mobile Ltd. led Hong Kong's Hang Seng Index to a new high after the Chinese government gave its approval for mainland brokerages to buy shares overseas.

``People are more optimistic about the longer-term outlook and look for opportunities to buy shares that lagged benchmarks, such as semiconductor stocks,'' said Hiroshi Chano, who helps manage $7.3 billion at Yasuda Asset Management Co. in Tokyo.

The MSCI index added 0.4 percent to 154.46 as of 7:28 p.m. in Tokyo, after climbing 2.9 percent in the previous five trading sessions. The measure last rose for six days in a row in the period ended Oct. 27.

Japan's Nikkei 225 Stock Average added 0.2 percent to 18,240.30, its highest since May 2000. Benchmarks in Australia and Thailand were the only fallers among the region's 10 biggest markets. China's CSI 300 Index also climbed to a new high.

U.S. shares dropped by the most in two weeks yesterday after the yield on the 10-year Treasury note, which influences rates on mortgages and corporate loans, ended a three-day decline. Yields also climbed in Japan, Australia and South Korea.

DRAM Prices

Samsung, the world's No. 1 computer-memory chipmaker, added 2.1 percent to 589,000 won. Hynix Semiconductor Inc., the second largest, surged 7.3 percent to 34,500 won. Elpida Memory Inc., Japan's biggest, rose 4.4 percent to 5,720 yen. Powerchip Semiconductor Corp., the largest in Taiwan, gained 2.3 percent to NT$20.40.

Prices for the benchmark 512-megabit dynamic random access memory chip, or DRAM, soared 17 percent to $2.21 yesterday, according to Dramexchange.com, Asia's biggest spot market for chips. That's the highest in more than six weeks.

The Bloomberg Asia Pacific Semiconductors Index, which tracks 21 of the region's biggest chipmakers, gained 1.7 percent to 146.04, erasing its loss for the year. The MSCI index is up 9.9 percent since the start of 2007.

``Most investors had anticipated a rally in chip-related shares because of the outlook that demand will recover toward the second half of this year,'' said Koji Uchida, who helps oversee $61 billion at Mitsubishi UFJ Asset Management Co. in Tokyo. ``The DRAM spot price news was good timing.''

Japanese Exports

Japan's exports rose 15.1 percent from a year earlier, compared with 8.2 percent in April, the Ministry of Finance said today. The gain was more than economists expected, a Bloomberg survey showed, and helped the trade surplus widen 9.3 percent to 389.5 billion yen ($3.2 billion).

Toshiba, the world's fourth-largest maker of notebook computers, rose 2 percent to 1,002 yen. Canon Inc., the world's largest digital camera maker, added 0.4 percent to 7,370 yen.

The Hang Seng Index added 1.3 percent after the securities regulator said mainland brokerages will be able to invest money outside the mainland for the first time, including in Hong Kong equities.

``The impact is going to be huge as more money will be coming to Hong Kong,'' said Renault Kam, a director of Atlantis Investment Management Ltd., which oversees $3 billion in Asia. Mainland companies listed in the city are likely to most benefit, as investors would ``rather buy shares of companies with backgrounds they know about.''

Mainland Money

China Mobile, the world's largest mobile-phone operator by users, jumped 2.4 percent to HK$82.35. Ping An Insurance (Group) Co., China's second-biggest insurer, rose 4.6 percent to HK$54. The company also won government approval to buy Ping An Bank to strengthen its banking operations.

China Life Insurance Co., the nation's biggest insurer, jumped today after its asset management unit announced a partnership to invest in the Chinese property market. The stock gained 6.3 percent to HK$28.50 in Hong Kong and 8.3 percent to 43.42 yuan in Shanghai.

Some shares of regional exporters declined on speculation higher bond yields will slow global economic growth and deter consumer spending. The yield on 10-year U.S. Treasuries rose 6 basis points to 5.14 percent yesterday.

In Australia, the yield on the government's 10-year bond climbed 6 basis points, or 0.06 percentage point, to 6.25 percent. The yield on Japan's 20-year government bond gained 4.5 basis points to 2.33, while South Korea's benchmark five-year government bond yield rose 10 basis points to 5.47 percent.

Interest Rates

``You're going to see a reaction from interest rate- sensitive stocks,'' said Paul Xiradis, who manages about $8.3 billion in Australian stocks at Ausbil Dexia Ltd. in Sydney. ``Markets are also correcting from their earlier view that interest rates in the U.S. and perhaps globally were on their way down.''

Nissan Motor Corp., Japan's No. 3 automaker, lost 1.6 percent to 1,330 yen. LG Electronics Inc., the world's second- largest plasma display maker, fell 2.4 percent to 79,000 won. Lenovo Group Ltd., the world's third-biggest personal computer maker, dropped 3.2 percent to HK$5.14 in Hong Kong.

Singapore's Olam International Ltd. rose by the most in seven weeks after it raised its offer for Australia's Queensland Cotton Holdings Ltd. to A$166.5 million ($140 million), or A$5.90 a share, securing the support of rival Louis Dreyfus & Cie. SA.

Olam, which supplies ingredients to companies such as Nestle SA and Kraft Foods Inc., rose 6.1 percent to S$3.48, the most since May 4. Queensland's stock slid 0.3 percent to A$5.88.

``We were surprised that Louis Dreyfus has decided to throw in the towel,'' said Tom Elliott, whose Melbourne-based hedge fund MM&E Capital Pty has built an 8 percent stake in Queensland since Olam's first bid, and hasn't decided to sell.

Coles Group Ltd. shares declined 2.1 percent to A$16.55 in Australia. A TPG Inc.-led buyout group quit plans to bid for the retailer after talks about a joint offer with Woolworths Ltd. broke down, the Australia Financial Review reported, without saying where it got the information. Coles said TPG hasn't advised the company of any withdrawal.

U.S. Stocks Gain, Led by Energy Producers as Crude Oil Rises

June 21 (Bloomberg) -- U.S. stocks rose, led by energy companies, after the price of oil approached $70 a barrel and reports showed the economy is gaining momentum.

Exxon Mobil Corp., the biggest crude producer, climbed the most in more than a month. Advanced Micro Devices Inc., the second-biggest maker of personal-computer processors, rallied after an analyst raised his rating on the stock.

Energy shares in the Standard & Poor's 500 Index have led the market's advance this year, rising 18 percent as a group compared with the overall index's 7 percent climb. Stocks were also boosted today by reports that showed manufacturing in the Philadelphia area jumped and economic indicators strengthened more than forecast.

The S&P 500 Index increased 0.47 to 1513.31 at 12:14 a.m. in New York. The Dow Jones Industrial Average lost 16.01, or 0.1 percent, to 13,473.41, led lower by Caterpillar Inc. after an analyst said its earnings may trail estimates. The Nasdaq Composite Index added 3.84, or 0.2 percent, to 2603.8.

Exxon rose $1.60 to $84.42. Chevron Corp., the second- biggest oil company, climbed $1.17 to $82.14.

Crude for August delivery climbed 55 cents to $69.41 a barrel in New York after Nigerian workers left the country's export terminals amid a nationwide strike in Africa's largest producer.

AMD, Nvidia

AMD gained 60 cents to $14.24 after Stifel, Nicolaus & Co. raised its rating on the stock to ``short-term trading buy'' from ``neutral,'' saying the company has likely retaken some market share.

Nvidia Corp. added $1.88 to $41.74. Lehman Brothers upgraded the maker of computer graphics chips to ``overweight'' from ``equal weight,'' citing improved demand for personal computers and the company's new Tesla chips.

Shares of Oakley Inc. jumped $3.17, or 13 percent, to $28.40 after the maker of sunglasses agreed to be acquired by Luxottica Group SpA for $2.03 billion in cash, or $29.30 a share.

The Andersons Inc. increased $3.88 to $44.28. The company, which sells and stores grain, increased its forecast, saying it expects to earn $2.80 to $3.05 a share this year. That topped the company's previous prediction of as much as $2.60 and beat the average estimate of $2.68 from analysts in a Bloomberg survey.

Economic Momentum

A gauge of leading U.S. economic indicators strengthened last month as stock prices jumped and fewer workers applied for unemployment benefits, a private report showed. The Conference Board's index of leading economic indicators increased 0.3 percent after a 0.3 percent drop in April. Economists had expected a 0.2 percent gain, according to a Bloomberg survey.

Manufacturing in the Philadelphia region accelerated in June at the fastest pace in more than two years as orders surged. The Federal Reserve Bank of Philadelphia's general economic index jumped to 18 this month, the highest since April 2005, from 4.2 in May, the bank said today. Economists in a survey expected a reading of 7.0. A positive number signals expansion. The index averaged 8.1 last year.

More Americans than forecast filed first-time claims for unemployment benefits last week, suggesting the labor market may be cooling. Initial jobless claims rose by 10,000 to 324,000 in the week ended June 16, the Labor Department said. Economists forecast claims would hold at 311,000 for a third eek, according to the median of 41 projections in a Bloomberg News survey.

Iraq Attacks Kill 14 U.S. Service Personnel in 3 Days (Correct)

June 21 (Bloomberg) -- Fourteen U.S. service members and four Iraqi civilians were killed in Iraq in the last three days, the Army said, as a suicide bomber left at least 11 people dead.

Two separate roadside bomb attacks killed nine U.S. soldiers and four Iraqi civilians in Baghdad today and yesterday. Another roadside bomb on June 19 killed two soldiers and wounded four others southeast of Baghdad.

A rocket-propelled grenade attack killed one soldier and wounded three others today in northern Baghdad. Two Marines were killed yesterday in the western province of al-Anbar, the U.S. military said today in separate e-mailed statements.

At least 80 members of the U.S. military have died in Iraq this month. American deaths have risen each month since the start of intensified security operations in February.

A suicide bomber blew up an oil tanker today near the northern Iraqi city of Kirkuk, killing at least 11 people and wounding 70. The blast happened outside a government building in the town of Suleiman Beg, about 90 kilometers (56 miles) south of Kirkuk, state television said.

U.S. forces have killed at least 41 suspected insurgents in the northeastern province of Diyala since an operation began there on June 19, the U.S. military said today in a separate e- mailed statement.

American units in the province have been augmented by about 3,000 additional soldiers since April, after the security crackdown in Baghdad and the western province of al-Anbar sparked an increase in violence there, U.S. commanders have said.

Some 3,529 U.S. service personnel have died in Iraq since the 2003 invasion, including 2,897 who were killed in action. More than 26,000 have been wounded, 11,742 of them so seriously that they couldn't return to duty, according to figures on the Defense Department Web site.

Philadelphia Fed's Factory Index Rose to 18 in June (Update1)

June 21 (Bloomberg) -- Manufacturing in the Philadelphia region accelerated in June at the fastest pace in more than two years as orders surged.

The Federal Reserve Bank of Philadelphia's general economic index jumped more than forecast to 18 this month, the highest since April 2005, from 4.2 in May, the bank said today. A positive number signals expansion. The index averaged 8.1 last year.

Companies, after trimming excess inventories, are revving up assembly lines to meet increasing U.S. and overseas demand. A pickup in manufacturing and improving business investment will help the economy strengthen during the rest of the year, economists said.

``With the inventory correction having run its course, the manufacturing sector should be poised for faster growth ahead,'' Michelle Girard, senior economist at RBS Greenwich Capital Markets Inc. in Greenwich, Connecticut, said before the report.

Economists expected the Philadelphia index to rise to 7, the median of 54 forecasts in a Bloomberg News survey. Estimates ranged from 1.5 to 15.

Other reports today showed a gauge of leading U.S. economic indicators strengthened more than forecast last month and jobless claims rose.

The Conference Board's index of leading economic indicators increased 0.3 percent after a 0.3 percent drop in April. The New York-based group's gauge points to the direction of the economy over the next three to six months.

The Labor Department reported that initial jobless claims unexpectedly rose last week to 324,000 from 314,000.

Orders

The Philadelphia Fed's index of new orders jumped to 18.3, the highest since March 2006, from 8.7. The shipments index eased to 5 from 9.3 and employment measure fell 5.6 from 12.9.

The index of prices paid dropped to 29.7 after 32.3 the prior month, while a gauge of prices received rose to 5.1 from 2.2.

Expectations for the next six months dropped to 16.7, the lowest this year, from 30.8, the report showed.

The headline index isn't composed of the individual measures and is considered by some economists to be a gauge of business sentiment.

The Philadelphia report corroborated a similar measure last week from the New York Fed, which surged more than forecast to 25.8 from 8 in May.

The two regional surveys provide early clues to the health of manufacturing nationwide, which accounts for about 12 percent of the economy.

Production

A Fed report on June 15 showed industrial production at factories, mines and utilities was unchanged in May following a 0.4 percent gain in April. Mild weather reduced demand for electricity and manufacturers of cars and machinery scaled back.

Other reports were more upbeat, signaling companies are replenishing stockpiles. The Institute for Supply Management's factory index rose in May to the highest in 13 months as orders jumped.

Fed Chairman Ben S. Bernanke projects the economy will grow at a ``moderate'' pace as the drag from housing wanes. The Fed's latest assessment of regional economic activity, issued this month, showed manufacturing improved in the Philadelphia district, though residential construction was ``generally slow.''

``Considerably more'' firms in the region have increased their capital spending plans since the beginning of the year than have trimmed them, according to the central bank's Beige Book. More than 40 percent of the manufacturers anticipated an increase in new orders, shipments and overall activity in the second half of 2007, the report said.

Innovative Solutions & Support Inc., an engineering company based in Exton, Pennsylvania, this week said it got an order to supply flat-panel display systems to American Airlines for 200 aircraft. Teleflex Inc., a Limerick, Pennsylvania-based maker of medical instruments, also said this week it won five contracts to provide respiratory devices to a health services company.

Manufacturers are also gaining from overseas demand. General Electric Co.'s transportation unit said June 13 its Grove City, Pennsylvania-based factory will make five diesel generator sets starting this month for a company based in the United Arab Emirates.

Asian Stocks Advance for a Fifth Day, Led by Hon Hai, Nintendo

June 20 (Bloomberg) -- Asian stocks climbed for a fifth day, led by companies that export to the U.S., after a drop in bond yields eased concern higher interest rates will damp spending in the world's largest economy.

Hon Hai Precision Industry Co. and Nintendo Co. paced gains, helping the Morgan Stanley Capital International Asia-Pacific Index to a new high. Hong Kong's Hang Seng Index and three other benchmarks in the region rose to records, while China and South Korea slid.

``There's some relief from where bond yields were heading a week or more ago,'' said Tom Murphy, who manages about $1 billion in Asian assets at Deutsche Bank AG in Sydney. ``The global economy is still going to remain strong, so you want to be exposed to stocks geared to higher growth, such as exporters.''

PetroChina Co. jumped to a record after the company said it plans to sell stock in Shanghai and as crude-oil prices held near a nine-month high. BHP Billiton Ltd. and Rio Tinto Group shares were dragged lower by a drop in metals prices and speculation they may bid for Canada's Alcan Inc.

The MSCI index gained 0.3 percent to 153.89 as of 7:44 p.m. in Tokyo, set to close at its third straight record. The measure advanced 2.7 percent in the previous four days.

The Nikkei 225 Stock Average rose 0.3 percent to 18,211.68 in Japan, where Deputy Governor Toshiro Muto said the central bank should raise interest rates gradually. Australia's S&P/ASX 200 Index reversed earlier losses after a measure of leading economic indicators rose, suggesting growth will accelerate.

The Taiex index jumped to a seven-year high in Taiwan, where the market was closed for the past two days. Cathay Financial Holding Co. led gains on speculation their insurance operations will benefit from an expected rise in interest rates.

Improved Outlook

U.S. stocks rose yesterday after home construction fell for the first time in four months in May. The 10-year Treasury note's yield, which influences mortgage rates, lost almost 0.15 percentage point over three days on speculation a housing slump will prevent the Federal Reserve from raising borrowing costs. Yields touched their highest in five years last week.

Hon Hai, Taiwan's No. 1 maker of customized electronics, jumped 2.5 percent to NT$288 in Taiwan. Its customers include Cuptertino, California-based Apple Inc. Nintendo, whose Wii video- game console outsells rival products by Sony Corp. and Microsoft Corp. in the U.S., rose 1.4 percent to 44,500 yen. Wipro Ltd., India's third-largest exporter of software services, rose 0.4 percent to 523.45 rupees.

``The outlook for the U.S. economy has improved and I favor blue-chip exporters for the time being,'' said Hideyuki Ookoshi, who oversees $365 million at Chiba-Gin Asset Management Co. in Tokyo.

PetroChina Surges

PetroChina, the country's largest oil producer, surged 5.2 percent to a record HK$11.74 after the company said it's seeking approval to sell as many as 4 billion shares in Shanghai. The sale would raise 43 billion yuan ($5.6 billion), based on its June 18 share price in Hong Kong, whose market was closed yesterday.

Crude oil for July delivery rose 1 cent yesterday to $69.10 a barrel in New York, after earlier reaching $69.56, the highest intraday price since Sept. 1. Futures were recently at $68.90.

Cnooc Ltd., China's largest offshore oil company, added 2.7 percent to HK$9.13 in Hong Kong. The stock was raised to ``outperform'' from ``neutral'' at Credit Suisse Group.

New Shares

Concern that new share sales by PetroChina and other companies will sap funds from existing stocks contributed to a 2.2 percent slump in China's CSI 300 Index.

China Cosco Holdings Co., operator of Asia's largest container line, said today it raised 15 billion yuan ($1.97 billion) selling 1.78 billion domestic shares. China Construction Bank Corp., the nation's No. 3 lender, said last week it may sell 9 billion shares domestically.

``The fast pace of new share sales has dampened sentiment,'' said Wei Wei, an analyst at West China Securities Co. in Shanghai.

China Merchants Bank Co., which has the biggest weighting in the CSI 300, slid 4.5 percent to 23.02 yuan. China Vanke Co., the nation's biggest listed property developer, retreated 3.6 percent to 20.06 yuan.

BHP, the world's largest mining company, fell 1.1 percent to A$34.55, retreating from a record. Rio Tinto, the third largest, slid 0.7 percent to A$100.49. Zinifex Ltd., the world's No. 3 zinc producer, dropped 1.6 percent to A$19.10.

A measure of six metals traded on the London Metal Exchange fell 2 percent yesterday, after sliding 1 percent on June 18. Copper dropped 1.5 percent, nickel tumbled 7.2 percent, while zinc slid 2 percent.

Alcan Bid?

Shares of BHP and Rio Tinto also slid on speculation they may bid for Canada's Alcan.

Alcan, seeking to fend off a $27.7 billion hostile bid from U.S.-based Alcoa Inc., opened a data room to BHP and Rio Tinto, the Sydney Morning Herald reported, without saying where it got the information. A data room allows potential acquirers to gather information that may not be in the public domain.

On June 18, the Times of London said BHP is reviving plans for a $40 billion takeover of U.S.-based Alcoa Inc. Merrill Lynch & Co. has been hired to advise BHP on a possible bid for Montreal- based Alcan, Reuters said the same day.

``Some kind of transaction is very likely in the mining industry,'' said Murphy of Deutsche Bank. ``It's possible that BHP could use its cash position to make a bid, either by itself or through some kind of hybrid with a partner.''

Lifting Profits

Taiwan's Taiex jumped 2.1 percent today, the region's best performance. Nine out of 10 economists surveyed by Bloomberg News expect the island's central bank to raise rates for a 12th quarter tomorrow by 12.50 basis points to 3 percent.

``Higher rates would increase the return on insurers' interest-bearing assets, lifting profits,'' said Vickie Hsieh, who helps oversees $1.4 billion at President Investment Trust Corp.

Cathay Financial, the island's largest life insurer, jumped 6.6 percent to NT$79. Fubon Financial Holding Co., the biggest property insurer, added 4.6 percent to NT$30.80.

Meanwhile, Kookmin Bank surged 3.9 percent to 89,000 won in South Korea. The nation's largest lender has nearly completed negotiations to buy Seoul-based Hannuri Investment & Securities Co. from its U.S. owner, the Maeil Business Newspaper said today, citing securities industry officials it didn't identify.

The bank said it's still looking at options, which include such a buyout.

Most U.S. Stocks Drop After Bond Yields Gain; Citigroup Falls

June 20 (Bloomberg) -- Most U.S. stocks fell after 10-year Treasury bond yields rose for the first time in four days, reviving concern higher borrowing costs will curb growth.

Citigroup Inc., JPMorgan Chase & Co. and Wells Fargo & Co. led declines in companies that benefit from low interest rates. All 32 energy companies in the Standard & Poor's 500 Index retreated after the price of oil slid from a nine-month high.

A surge in bond yields to a five-year peak sent stock indexes down from records earlier this month. The yield on the 10-year note, which influences rates on mortgages and corporate loans, advanced to 5.11 percent today after losing 0.14 percentage point over the previous three days.

More than eight stocks dropped for every five that gained on the New York Stock Exchange.

The S&P 500 declined 3.08, or 0.2 percent, to 1530.62 as of 11:41 a.m. in New York. The Dow Jones Industrial Average was little changed at 13,635.34. The Nasdaq Composite Index lost 0.38 to 2626.38.

Citigroup, the world's biggest financial-services firm, lost 42 cents to $53.84. JPMorgan, the third-largest U.S. bank, retreated 50 cents to $50.35.

Exxon Mobil Corp., the world's biggest oil company, fell $1.28 to $83.56. Occidental Petroleum Corp., the fourth-largest crude producer, lost $1.74 to $57.36.

Crude oil for July delivery fell $1.19 to $67.91 a barrel in New York after an Energy Department report showed U.S. oil and gasoline stockpiles increased last week.

MGM, Alcan

MGM Mirage, Las Vegas' largest casino owner, plummeted $6.49, or 7.5 percent, to $80.01. Kirk Kerkorian, who owns a 56 percent stake, may be backing away from plans to buy two properties from the casino operator, the Wall Street Journal reported, citing unidentified people familiar with the situation.

Alcan Inc. fell 48 cents to $83.83. The Sydney Morning Herald reported the aluminum maker, which is seeking to fend off a hostile bid from rival Alcoa Inc., gave BHP Billiton Ltd. and Rio Tinto Group access to financial data. The newspaper didn't say where it got the information. Alcoa dropped 40 cents to $41.18.

BHP and Rio, the world's largest and third-largest mining companies, are considered potential counter bidders to Alcoa, the newspaper said. Alcan declined to comment on the article, as did BHP and Rio.

Home Depot

Home Depot Inc. jumped $2.66, or 7 percent, to $40.93 for its steepest advance since May 2003. The retailer agreed to sell its contractor-supplies unit, which accounted for 13 percent of the company's $91 billion in sales last year, to three buyout firms. Its plans to buy back as much as $22.5 billion of stock equals 30 percent of the company's outstanding shares.

Sanford C. Bernstein & Co. raised its price estimate for Home Depot shares by 7 percent to $46.

Morgan Stanley added $1.68, or 1.9 percent, to $89.48. The New York-based firm said profit rose on gains from trading and investment banking. Net income climbed to $2.45 a share from $1.75 a year earlier. Analysts expected earnings of $2 a share, based on the average estimate in a survey by Bloomberg.

Google Inc., owner of the world's most-used Internet search engine, gained $1.13 to $515.44. Microsoft Corp. agreed to modify its Vista operating system after Google complained the program's design hurts competing search software in violation of a 2001 antitrust settlement. Google had said its desktop search program doesn't perform properly on Vista. Microsoft slid 12 cents to $30.34.

Yahoo, News Corp.

Yahoo! Inc. climbed 35 cents to $27.98. The company said six Asian mobile-phone operators agreed to use its search software, helping the operator of the second most-used Internet search engine boost advertising sales.

Separately, News Corp., run by Rupert Murdoch, discussed trading its social-networking Web site MySpace for a 25 percent stake in Yahoo, the Times of London reported.

News Corp. spokesman Andrew Butcher didn't immediately return a call seeking comment. The Times is owned by News Corp. Yahoo spokeswoman Joanna Stevens also didn't return a call. News Corp. added 23 cents to $23.91.

FedEx Corp. advanced $4.12 to $112.18. The world's largest air-cargo carrier said fourth-quarter profit rose 7.4 percent as gains from international express shipments overcame a depressed U.S. parcel delivery market.

Wal-Mart

Wal-Mart Stores Inc. added 15 cents to $48.96. The world's largest retailer said it will open financial-service centers where customers can cash checks, pay bills and transfer money in 1,000 stores.

Mortgage applications in the U.S. fell last week, signaling mortgage rates near an 11-month high may be starting to discourage home purchases and refinancing.

The Mortgage Bankers Association's index of applications to buy a home or refinance a loan fell 3.4 percent to 643.7 from 666.5 the prior week. The group's gauge of purchase applications fell 3 percent, and a measure of refinancing dropped 4.2 percent.

Israel Kills 7 Palestinians, Hits Rocket Launchers (Update1)

June 20 (Bloomberg) -- Israeli soldiers shot dead seven Palestinians in clashes, and an air strike destroyed two rocket launchers after southern Israel was hit by unguided Qassams for the first time since Hamas took over the Gaza Strip.

The gun battles in the West Bank and Gaza, the rocket attacks and the air strike marked the first extensive Israeli- Palestinian fighting since the Islamic Hamas's violent takeover of Gaza last week. Palestinian Authority President Mahmoud Abbas, leader of the Fatah movement, retains control of the West Bank along with an emergency government he named this week.

Five Palestinian militants died in fighting in central Gaza near Israel's Kissufim crossing, doctors at Nasser Hospital in the Gaza town of Khan Yunis, said in phone interviews. Hamas said in a leaflet that its gunmen, who accounted for three of those killed, fought the soldiers with grenades.

The clashes in Gaza began after Israeli forces crossed the border fence in an operation aimed at clearing out Palestinian fighters and destroying weapons-smuggling tunnels and other infrastructure, an Israel Defense Forces spokesman, speaking anonymously, said in a phone interview. The forces penetrated a few hundred meters into Gaza, he said.

The Israeli air strike on northern Gaza destroyed two rocket launchers in an open field and didn't cause injury, a Palestinian security official said on condition of anonymity. An Israeli army spokeswoman said the strike came after Palestinians fired rockets at southern Israel.

Palestinian militants have fired more than 300 Qassams at Israel since mid-May, although the barrage briefly stopped after Hamas wrested control of Gaza.

West Bank Raid

In the West Bank, Israeli soldiers on an arrest raid encountered heavy fire during which they killed two armed Palestinians, the army spokesman said.

Abbas dismissed Prime Minister Ismael Hania's cabinet last week, a move Hania and his Hamas movement rejected, leaving two competing governments in the Palestinian Authority.

U.S. President George W. Bush and Israeli Prime Minister Ehud Olmert pledged support yesterday for Abbas's government and said they will pursue efforts to revive peace talks. The U.S. and European Union, which consider Hamas a terrorist organization, have said they will resume aid to Abbas's government while continuing sanctions on Hamas.

`Humanitarian Cases'

Dozens of civilians fleeing Hamas have been waiting near the Palestinian side of the Erez crossing in the northern Gaza Strip to travel through Israel to the West Bank. Yesterday, Israeli tanks moved there after Palestinian gunmen attacked Erez, killing one of the civilians.

Israeli Defense Minister Ehud Barak today instructed the army to allow ``urgent humanitarian cases'' waiting on the Palestinian side of the crossing to enter Israel for medical treatment, his office said in a statement read over the telephone by a spokeswoman.

About 100 foreigners with Ukrainian and Russian passports crossed into Israel at the Erez checkpoint today along with four Palestinians, three of them wounded and one with leukemia, an army spokesman said. Trucks carrying medical and basic food supplies were allowed to enter Gaza, and Israel also sent food and water to the Palestinians waiting at the border.

The United Nations World Food Program said nine trucks carrying 225 metric tons (250 tons) were scheduled to cross the border today, bringing to 425 tons the amount of food delivered in the past two days. Shortages had caused the price of wheat flour to rise 40 percent in the past two days, the UN said in an e-mailed statement.

Israel's National Infrastructure Minister Binyamin Ben- Eliezer said Israeli suppliers will continue to sell gasoline, water and power to the Gaza Strip.

Morgan Stanley Net Surges 40 Percent, Beats Estimates (Update3)

June 20 (Bloomberg) -- Morgan Stanley, the world's No. 2 securities firm, said second-quarter profit rose 40 percent, beating analysts' highest estimates, on gains from trading stocks and bonds and fees from investment banking.

Net income climbed to $2.58 billion, or $2.45 a share, in the three months ended May 31, from $1.84 billion, or $1.75, a year earlier, the New York-based firm said today in a statement. The company's shares rose 1.7 percent.

Morgan Stanley's profit grew faster than larger rival Goldman Sachs Group Inc.'s for the second straight quarter as Chief Executive Officer John Mack overcame a slump in demand for mortgage-related securities. Fixed-income revenue at Morgan Stanley jumped 34 percent, while rising stocks fueled a 33 percent gain in equity trading.

``They really seem to have had a strong quarter across the board,'' said Mark Bronzo, who helps manage $500 million, including Morgan Stanley shares, at Nationwide Separate Accounts in Irvington, New York. ``What we were impressed by mostly is that the fixed-income trading and equity-trading numbers were better than expected.''

Morgan Stanley said revenue climbed 32 percent to $11.5 billion, an all-time high, while expenses increased 31 percent to $7.6 billion. Return on equity, a gauge of how effectively earnings are reinvested, rose to 27.5 percent from 23.7 percent a year earlier.

International Revenue

The company's profit grew faster than earnings at Goldman, Lehman Brothers Holdings Inc. and Bear Stearns, which reported results last week. Merrill Lynch & Co., the third-biggest securities firm by market value after Goldman and Morgan Stanley, releases its second-quarter figures next month. All of the firms are based in New York.

About 42 percent of Morgan Stanley's revenue came from outside the U.S. in the quarter, up from 38 percent a year earlier, David Sidwell, Morgan Stanley's chief financial officer, said in an interview. That compares with 52 percent at Goldman Sachs and 48 percent at Lehman in the second quarter.

Morgan Stanley generated $2.9 billion from fixed income, which includes mortgages, even as rising delinquencies on the riskiest home loans curbed demand for mortgage-backed bonds. Fixed-income revenue fell 24 percent at Goldman, 21 percent at Bear Stearns and 14 percent at Lehman.

``The diversification of what is in our results, that's really what has driven this strong performance,'' Sidwell said. He pointed in particular to record debt-trading income from emerging markets such as Brazil and Turkey.

Analysts' Estimates

Earnings were 25 cents a share higher than the most optimistic estimate in a survey of 18 analysts by Bloomberg. Shares of the company rose $1.52 to $89.32 at 10:21 a.m. in composite trading on the New York Stock Exchange. They gained 7.8 percent this year through yesterday, the second-best performance among the five largest U.S. securities firms after Goldman.

Morgan Stanley produced $2.2 billion in revenue from equities. The MSCI World Index of stocks rose 9 percent during the second quarter.

Average trading value-at-risk, a measure of how much the firm estimates it could lose in one day, rose to $81 million in the quarter from $63 million a year earlier. Wall Street's five largest firms are profiting from a regulatory change that's freeing up more capital for market bets.

``Their trading businesses are taking more risk, their trading businesses are becoming more Goldman-like,'' Brad Hintz, an analyst at Sanford C. Bernstein & Co. who rates Morgan Stanley shares ``market perform,'' said before the results.

Takeover Advice

Advisory revenue, which includes fees for takeover advice, almost doubled to a record $725 million, while underwriting revenue climbed 46 percent to $979 million. Morgan Stanley ended the first half of its fiscal year with $512.2 billion in completed mergers, just behind Goldman, according to data compiled by Bloomberg.

Revenue at the Discover credit-card division dropped 13 percent to $1.04 billion during the second quarter, the only division to show a decline. Mack, 62, will spin off Discover next week. The plan, originally proposed by former CEO Philip Purcell, will focus Morgan Stanley on investment banking, trading and money management, which are more profitable.

Mack followed his rivals by dedicating more capital to mortgages, including the $705 million purchase in December of Saxon Capital Inc., a home-loan servicing company.

The Mortgage Bankers Association reported last week that delinquency rates on subprime mortgages rose to 13.8 percent for the three months ended in March, up from 11.5 percent a year earlier.

Continued `Instability'

``You're going to have a continued period of instability in these markets while some of these issues get sorted through,'' Sidwell said. A recent increase in U.S. Treasury yields has increased concern about mortgage delinquencies and lowered the prices of some home loans and securities backed by them, he said.

Revenue at Morgan Stanley's brokerage unit climbed 17 percent to $1.64 billion while pretax income surged 67 percent to $269 million. The asset-management division's revenue increased 68 percent to $1.51 billion as pretax earnings increased 16 percent to $306 million.

``The brokerage and asset-management turnaround clearly has demonstrated significant traction,'' said Douglas Ciocca, who helps manage $850 million, including Morgan Stanley shares, at Renaissance Financial Corp. in Leawood, Kansas. ``I was very pleased across the board.''

Asian Exporter Stocks Fall, Led by Nissan; Woodside Advances

June 19 (Bloomberg) -- Asian exporter stocks fell after a report showed confidence in the U.S. homebuilding industry slipped to a 16-year low and oil prices traded near the highest in nine months.

Nissan Motor Co. and James Hardie Industries NV led a drop among companies that rely on U.S. sales on concern growth in the world's largest economy will slow. Tokyo Electric Power Co. and Hanjin Shipping Co. fell on speculation rising fuel costs will erode profits, while Woodside Petroleum Ltd. gained.

``While we're seeing that U.S. growth isn't as weak as we had feared, the problems with housing have always been a risk,'' said Teo Chon Kiat, who helps manage about $8 billion at DBS Asset Management Ltd. in Singapore. ``Rising crude-oil prices will also have an impact on investors' sentiment, even though we're not seeing this filter into inflation yet.''

Declines were limited as brokerages including Merrill Lynch & Co. raised their ratings on Daiichi Sankyo Co., Japan's second- largest drugmaker, to ``buy.'' South Korea's Hyundai Engineering & Construction Co. jumped after Daewoo Securities Co. said the building industry was entering a period of ``long-term growth.''

The Morgan Stanley Capital International Asia-Pacific Index was little changed at 153.28 as of 8:31 p.m. in Tokyo. The measure rose to a record yesterday. Japan's Nikkei 225 Stock Average climbed 0.1 percent to 18,163.61, while the broader Topix index dropped 0.4 percent.

India's Sensitive Index jumped 1.5 percent, the biggest advance in the region, led by ICICI Bank Ltd. after stock in a domestic share sale was snapped up. Measures rose elsewhere, except in Thailand, the Philippines and Pakistan. Markets in Hong Kong and Taiwan were closed for holidays.

Speed-Control

The Standard & Poor's 500 Index declined 0.1 percent yesterday in the U.S., paced by homebuilders Lennar Corp. and Centex Corp. The National Association of Home Builders/Wells Fargo index of sentiment declined to 28 this month from 30 in May, the lowest since February 1991. Economists surveyed by Bloomberg News forecast the gauge to stay unchanged.

Nissan, Japan's No. 3 automaker, dropped 1.5 percent to 1,340 yen. The company generated more than 40 percent of its fiscal 2006 revenue in North America. James Hardie, the biggest supplier of home siding in the U.S., fell 1.3 percent to A$9.25 in Australia.

The housing-market data ``will act as a speed-control mechanism for markets,'' said Kim Jun Ki, who manages $1.1 billion at Hanwha Investment Trust Management Co. in Seoul. ``The picture in the U.S. looks OK except for the property market.''

Tokyo Electric, Asia's biggest electricity producer, lost 1.3 percent to 3,880 yen. Kansai Electric Power Co., Japan's No. 2 utility, dropped 2.3 percent to 2,825 yen. Korea Electric Power Corp., the supplier of almost all the power in Asia's third- largest economy, declined 0.1 percent to 41,750 won.

On a Tear

Hanjin Shipping, South Korea's largest shipping line, lost 2.1 percent to 37,950 won. Mitsui O.S.K. Lines Ltd., Japan's No. 2 shipping company by sales, slid 2.5 percent to 1,580 yen. Nippon Yusen K.K., Japan's biggest, declined 1.5 percent to 1,143.

Higher oil prices will erode earnings for fuel-reliant companies including utilities and transport companies. Futures for July jumped 1.6 percent to $69.09 a barrel in New York yesterday, the highest close since Sept. 1 and its fourth consecutive gain. Prices were recently at $68.77.

``The price of oil has been on a tear recently,'' said Hiroyoshi Nakagawa, who helps look after about $1 billion in Asian equities at Societe Generale Asset Management Co. in Tokyo. ``Companies that are moving things from one place to another are going to be hard hit by higher fuel costs.''

Woodside, BHP

Woodside Petroleum, Australia's second-biggest oil producer, rose 2 percent to A$46.85. The shares also gained after LNG Intelligence said 34 percent shareholder Royal Dutch Shell Plc may bid for the company. Santos Ltd., the third largest, jumped 3.4 percent to A$14.44.

BHP Billiton Ltd., the world's largest mining company and Australia's No. 1 oil producer, rose 0.7 percent to a record A$34.92. The Times of London said BHP is reviving plans for a $40 billion takeover of Alcoa Inc.

``A deal in the industry isn't out of the question considering the commodities cycle,'' said Gary Armor, who helps manage $2.9 billion at AMP Ltd. in Sydney, including Woodside and BHP. ``Woodside is a particularly attractive option but Shell would have to consider its terms very carefully if it's to clear government approval.''

Drugmakers, Builders

Daiichi Sankyo jumped 4.4 percent to 3,360 yen. The drugmaker's stock rating was raised to ``buy'' from ``neutral'' at Merrill Lynch, while Daiwa Institute of Research raised its recommendation on the shares to ``buy'' from ``outperform.''

Astellas Pharma Inc., Japan's third-biggest drugmaker, added 0.4 percent to 5,420 yen. Chugai Pharmaceutical Co., the Japanese unit of Switzerland's Roche Holding AG, climbed 0.4 percent to 2,360 yen.

Hyundai Engineering, South Korea's No. 2 builder by market value, jumped 4.3 percent to 74,600 won. Daewoo Engineering & Construction Co., the biggest, advanced 2.4 percent to 27,800 won. Daelim Industrial Co., the fifth largest, surged 9.2 percent to 155,000 won.

The South Korean government will ease restrictions on the housing market to increase supply, while overseas orders will increase, wrote Lee Sun Il, an analyst at Daewoo Securities, in a report.

``The major builders are getting more of their sales from abroad,'' said Chung Yun Sik, who oversees about $6 billion in equities at Daehan Investment Trust Management Co. in Seoul. Also, ``domestic property-market policy will probably change for the better, turning toward a more market-friendly stance.''

Hyundai Heavy, ICICI

Also in South Korea, Hyundai Heavy Industries Co. advanced after Korea Investment & Securities Co. lifted its six-month share-price estimate by 41 percent to 500,000 won, saying ship prices will rise further. Shares of the world's biggest shipbuilder jumped 5.2 percent to 342,000 won.

ICICI Bank led Indian lenders higher after its domestic share sale received bids for the entire offering within 20 minutes of the opening.

ICICI gained 26.55 rupees, or 2.9 percent, to 944.4. In the nation's largest share sale, half the $4.3 billion of stock allocated to domestic investors was snapped up, while the other 50 percent was due to be sold overseas later in the day.

Investors bid for as many as 100.5 million shares, compared with the 98.87 million shares on offer earlier, India's National Stock Exchange said on its Web site.

U.S. Stocks Rise as Bond Yields Slip; GE, Textron Shares Gain

June 19 (Bloomberg) -- U.S. stocks rose after bond yields fell for a third day, easing concern that higher borrowing costs will restrain consumers and businesses.

Textron Inc., the world's largest maker of corporate jets, sent industrial shares to the biggest gain in the Standard & Poor's 500 Index after Goldman, Sachs & Co. advised clients to buy the shares. General Electric Co., Bank of America Corp. and JPMorgan Chase & Co. led shares of companies that benefit from falling interest rates.

A surge in the 10-year Treasury note's yield to its highest since 2002 pushed stock indexes down from records earlier this month. The benchmark yield, which influences rates on mortgages and corporate loans, has lost more than 0.07 percentage point over the last three days.

``There's a sigh of relief for investors that the spike in yields we saw last week didn't hold or push higher,'' said Scott Armiger, who oversees $350 million as portfolio manager at Greenville, Del.-based Christiana Bank & Trust.

The Standard & Poor's 500 Index added 2.28, or 0.2 percent, to 1533.33 at 1:01 p.m. in New York. The Dow Jones Industrial Average gained 22.93, or 0.2 percent, to 13,635.91. The Nasdaq Composite Index increased 1.39 to 2627.99.

Textron, maker of Cessna jets, rose $3.52 to $112.35. GE, the world's biggest maker of power generators, added $1.05 to $39.12.

The yield on the 10-year note slipped 4 basis points, or 0.04 percentage point, to 5.09 percent on speculation a slump in housing will continue to be a drag on the economy.

Bank of America, the second-largest U.S. bank, gained 77 cents to $50.68. JPMorgan, the third-biggest, rose 41 cents to $50.84.

Bristol-Myers, Expedia

Bristol-Myers Squibb Co. added $1.41, or 4.7 percent, to $31.72. The drugmaker won accelerated U.S. review for its experimental breast-cancer medicine ixabepilone, a new type of treatment for patients whose tumors have spread to other organs.

Expedia Inc. increased $3.63, or 14 percent, to $29.13. The world's largest Internet travel agency plans to spend as much as $3.5 billion buying back up to 42 percent of its common stock. The company will repurchase as many as 116.7 million shares for between $27.50 and $30 a share in a tender offer, Expedia said. $42.77.

Builders broke ground on new houses at an annual rate of 1.474 million last month, 2.1 percent less than April, the Commerce Department said. Housing construction is in its worst recession since 1990-1991, cutting 0.9 percentage point from growth in the first quarter after detracting 1.2 percentage points in the second half of 2006.

Stocks fell yesterday after the National Association of Home Builders/Wells Fargo index of sentiment dropped to its lowest since 1991.

U.S. Army Begins Offensive Against Al-Qaeda in Iraq (Update6)

June 19 (Bloomberg) -- The U.S. military began an air and ground offensive against suspected al-Qaeda insurgents northeast of Baghdad involving about 10,000 American soldiers. A bombing in the Iraqi capital killed 75 people, the Associated Press said.

The operation targeting al-Qaeda, codenamed ``Arrowhead Ripper,'' began with nighttime air strikes in Baquba and continued as ground forces, backed by helicopters, killed about 22 insurgents in and around the city, the U.S. military said.

About 30,000 American soldiers have deployed to Iraq since the start of the year to combat sectarian violence and attacks on Iraqi and coalition forces, taking the total number of U.S. military personnel in the country to about 150,000. Today's operation is intended ``to destroy al-Qaeda influences in this province and eliminate their threat against the people,'' Brigadier General Mick Bednarek said in an e-mailed statement.

``Now that the entirety of the five combat brigades as part of the `surge' are here, we can implement the counterinsurgency strategy as it was designed,'' Lieutenant Colonel Christopher Garver said in an e-mailed statement from Baghdad. ``We have forces in the belts around Baghdad and Baghdad proper in order to find the insurgents, terrorists and extremists and capture or kill them.''

The operation in Baquba, the capital of Diyala province, is in its ``opening stages'' and involves the 3rd Stryker Brigade Combat Team, 2nd Infantry Division and the 25th Combat Aviation Brigade, according to the statement.

Public Executions

Al-Qaeda has conducted public executions in Baquba's main square and sought to enforce Islamic law, AP reported. A new U.S. operations center in Diyala province will try to coordinate police and army operations, help Iraqi ministries provide services, and ``build the trust and confidence of the people in the provincial government,'' Bednarek said.

Today's truck bombing in Baghdad, in a commercial district near a Shiite Muslim mosque, wounded more than 200 people, AP reported.

A U.S. soldier was killed in a small-arms attack on a patrol in eastern Baghdad yesterday, the military said. The number of U.S. military deaths has risen every month since intensified security operations in and around Baghdad began in February.

About 1,200 soldiers from the 3rd Infantry Division pushed into Baghdad's southeastern Jabour district over the weekend in an operation codenamed ``Marne Torch'' to stop insurgents from moving bomb-making equipment into the capital, the military said in an e-mailed statement yesterday.

Too Dangerous

Jet fighters dropped four ``precision-guided bombs'' on June 16 to support the operation, named after a U.S.-British offensive in North Africa in World War II.

More than 500 U.S. service members have died in Iraq this year, bringing the total since the 2003 invasion to 3,517, including 2,888 who were killed in action. More than 25,000 have been wounded, 11,667 of them so seriously that they couldn't return to duty, according to the Department of Defense Web site.

United Nations Secretary-General Ban Ki-moon said in a report to the Security Council last week that the U.S. security surge is failing and that the fortified Green Zone in Baghdad has become too dangerous for UN workers.

U.S. Economy: Housing Starts Drop; Slump May Persist (Update3)

June 19 (Bloomberg) -- Home starts in the U.S. fell for the first time in four months in May as interest rates rose, suggesting the worst housing recession in 16 years will persist.

Builders broke ground on new houses at an annual rate of 1.474 million, down 2.1 percent from the prior month, the Commerce Department said today in Washington. Building permits increased 3 percent to 1.501 million.

The slump, which has lasted almost two years, is restraining economic growth even as inflation is too high for the comfort of Federal Reserve officials. Meanwhile, the average rate on a 30-year fixed mortgage has jumped to the highest in more than a year, putting pressure on first-time buyers and raising the prospect of additional defaults.

``There is still some more downside to the housing market,'' said Nariman Behravesh, chief economist at Global Insight Inc. in New York. ``Mortgage rates started up again and there is still a shakeout going on in subprime.''

Behravesh came closest to predicting the drop in starts among 68 economists surveyed by Bloomberg News. The median forecast was for a decline to a 1.472 million pace.

The housing industry is also wrestling with soaring foreclosures among subprime borrowers -- those with poor or incomplete credit histories. Lower prices and more incentives have failed to spur interest as buyers wait for bigger bargains.

Treasury notes were little changed, as were stocks. The yield on the benchmark 10-year note was 5.12 percent at 10:51 a.m. in New York. A six-week rout pushed the yield to a five- year high of 5.32 percent on June 13.

Weakness in West

The drop in starts was led by a 20 percent slump in the West. Construction also fell 1.6 percent in the South. Starts rose 16 percent in both the Northeast and Midwest.

Housing's recession cut 0.9 percentage point from growth in the first quarter after detracting 1.2 percentage points in the second half of 2006.

The drop in homebuilding slowed economic growth to a 0.6 percent annual rate in the first quarter, the weakest in four years. Economists surveyed by Bloomberg forecast the economy will grow 2.1 percent this year, compared with an average of 3.1 percent over the last three decades.

Borrowing Costs

The average rate on a 30-year fixed rate mortgage rose to 6.74 percent last week, according to figures from Freddie Mac, the No.2 buyer of U.S. mortgages. The increase reflected expectations of faster global growth and fears inflation would accelerate. The rate averaged 6.22 percent last month and 6.18 percent in April.

Starts were down 24 percent in the 12 months ended in May.

``The trend down is still intact,'' said Kevin Logan, senior market economist at Dresdner Kleinwort in New York, who forecast a fall to 1.47 million units. ``The housing contraction is going to be a drag for the rest of the year.''

Construction of single-family homes fell 3.4 percent last month to a 1.17 million rate. Work on multifamily homes, such as townhouses and apartment buildings, increased 3.1 percent to an annual rate of 304,000, the most this year.

The increase in permits was led by a jump in multifamily authorizations. Permits for single-family homes dropped 1.8 percent to a 1.05 million annual pace, the lowest since July 1997.

``We continue to see a deterioration in demand for single- family homes, and so it looks like there's more downside to go for the housing market,'' said Tim McGee, chief economist at U.S. Trust Corp. in New York.

Unsold Homes

Record levels of unsold homes suggest the slump is far from over. Fed policy makers now acknowledge the housing recession may linger longer than previously forecast.

``The adjustment in the housing sector is still ongoing, and the slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected,'' Chairman Ben S. Bernanke said June 5.

A record number of Americans were at risk of losing their homes last quarter because they couldn't make payments as interest rates rose and growth slowed, according to a report last week from the Mortgage Bankers Association. The share of all mortgages entering foreclosure rose to 0.58 percent from 0.54 percent in the fourth quarter.

The failure of at least 50 subprime lenders, who make loans to consumers with poor or limited credit history, combined with the increase in foreclosures has raised concern more homes will be thrown back on the market.

Subprime

Some banks have made it more difficult for borrowers to qualify for a mortgage in the wake of the subprime debacle. Add the jump in rates, and affordability has taken a hit.

Declines in sales, construction and prices this year are going to be steeper than previously thought, the National Association of Realtors said June 6, in its fourth forecast revision this year. Housing starts are likely to fall 21 percent to 1.43 million from 1.8 million last year, the group said.

Sales of previously owned homes probably will tumble 4.6 percent to 6.18 million and the median price likely will fall 1.3 percent to $219,100, the Chicago-based trade group said. A month earlier, the association projected 2007 home sales to decline 2.9 percent. Sales of new homes will fall to 860,000 from 1.05 million last year, the group said.

A report yesterday showed builders turned more pessimistic this month. The National Association of Home Builders/Wells Fargo sentiment index dropped to 28, a 16-year low, from 30 in May. Readings below 50 mean most respondents view conditions as poor.

`Really Worried'

``Builders are really worried now, not only by the credit tightening in the mortgage market, but now all of a sudden by an increase in the fundamental mortgages as well,'' David Seiders, chief economist at the National Association of Homebuilders, said in an interview yesterday.

Hovnanian Enterprises Inc., New Jersey's largest homebuilder, last month reported its third consecutive quarterly loss as it cut prices and wrote off land options while sales continued to plummet.

``Without a doubt, things have slowed since about March,'' said Ara Hovnanian, the builder's chief executive officer in an interview yesterday. ``There is not a recovery that is about to happen.''

Asian Stocks Climb for Third Day on Yen, Metals; China Jumps

June 18 (Bloomberg) -- Asian stocks rose for a third day, driving benchmarks in China, Hong Kong and South Korea to records, as prices of metals and crude oil advanced and the yen weakened against the dollar.

Rio Tinto Group climbed, becoming the first A$100 share on the Australian stock exchange. Toyota Motor Corp. gained on expectations a weaker yen will boost dollar-denominated sales. China's CSI 300 index surged 3.1 percent, having taken less than two weeks to rebound from a rout that erased more than $400 billion of market value.

``The commodities boom is a key theme for investors, based largely on the view that demand from China is going to continue to hold up,'' said Atul Lele, who helps manage about $380 million at White Funds Management in Sydney. ``Rio is playing a big role, given its size and the diversified nature of its businesses.''

The Morgan Stanley Capital International Asia-Pacific Index added 1.3 percent to 153.48 as of 7:08 p.m. in Tokyo, extending a two-day 1.4 percent rally. Measures in Singapore, Indonesia, the Philippines and Pakistan also set new highs. Indexes rose around the region, except in India and Sri Lanka. Taiwan's market was closed for a holiday.

Japan's Nikkei 225 Stock Average gained 1 percent to 18,149.52. Sony Corp. climbed as a report showed U.S. core inflation slowed, suggesting borrowing costs in the world's largest economy won't be raised.

Rio Tinto, the world's third-largest mining company, jumped 2.7 percent to A$99.99, after touching A$100 earlier. Its shares are the first to reach three figures since the nation's state- based stock exchanges merged in April 1987.

Reaching a Milestone

``It is fitting that a mining company was the first to reach the milestone given resources stocks' role in the Australian share market's rise in the past few years,'' said Lele of White Funds.

BHP Billiton Ltd., the world's No. 1 mining company, added 2 percent to A$34.68, a record. Jiangxi Copper Co., China's second- biggest producer of the metal, advanced 1.6 percent to HK$13.86 in Hong Kong.

A measure of six metals traded on the London Metal Exchange climbed 0.7 percent on June 15. Copper added 0.6 percent, nickel rose 1 percent and zinc gained 0.7 percent. Crude oil futures gained 0.5 percent to $68 a barrel in New York, a nine-month high. Prices were recently at $68.08.

Support for Markets

Woodside Petroleum Ltd., Australia's No. 2 oil producer, climbed 2.1 percent to A$45.95. PetroChina Co., the country's biggest oil explorer, gained 3.3 percent to HK$11.16. Cnooc Ltd., China's largest offshore oil explorer, jumped 5.1 percent to HK$8.89.

``Prices of metals and oil are all being pushed higher by demand for those commodities in China and India, where economic growth is strong,'' said Elan Cohen, a Singapore-based portfolio manager at JPMorgan Private Bank, which has $350 billion in assets. ``That growth, along with the robust market in the U.S., is a factor that will support Asian equity markets.''

Toyota, Japan's largest automaker, gained 0.5 percent to 7,730 yen. It generated more than a third of its fiscal 2006 revenue in North America. Canon Inc., the world's largest digital-camera maker, rose 2.1 percent to 7,330 yen. The company made 75 percent of its total sales outside Japan last year.

The yen fell 1.4 percent to 123.44 per dollar last week, touching 123.67, the lowest since December 2002. Japan's currency dropped 1.52 percent to 165.26 per euro, touching 165.27, the all-time low since the currency debuted in 1999.

A weaker yen inflates the value of Japanese exporters' overseas sales and makes their products more competitive.

Revenue Boost

U.S. stocks gained on June 15, helping the Standard & Poor's 500 Index to its biggest weekly advance since April. So-called core consumer prices, which exclude food and energy, rose 0.1 percent in May after increasing 0.2 percent the previous month, damping speculation interest rates will be raised to tame inflation in the region's No. 1 export market.

``Automaker and technology shares will be leading gainers for the time being since their revenues are boosted by the weak yen,'' said Masaru Hamasaki, senior strategist at Toyota Asset Management Co. which oversees $3.3 billion in Tokyo. ``Investors shifted their focus to the strength of the U.S. economy and price stability.''

Samsung Electronics Co., Asia's biggest maker of chips and mobile phones, added 2.6 percent to 589,000 won. The company accounted for 16 percent of South Korean exports last year. Sony, the maker of the Vaio computer and the PlayStation game console, climbed 0.8 percent to 6,710 yen. Li & Fung Ltd., which sells goods to Wal-Mart Stores Inc. and Target Corp., surged 6.9 percent to HK$27.90.

Li & Fung, Hong Kong

Li & Fung also rose after saying it will pay $120 million to acquire a health, beauty and cosmetics supplier. The company said it will acquire CGroup, a Hong Kong-based health, beauty and cosmetics supplier.

Also in Hong Kong, China Mobile Ltd., the world's largest mobile-phone operator by users, climbed 6 percent to HK$80.35, its highest on record.

The company may raise up to 80 billion yuan ($10.5 billion) selling yuan-denominated shares in Shanghai as early as next month, the China Business Journal said on June 16, citing an unidentified person familiar with the situation.

Rainie Lei, a spokeswoman for China Mobile, said the company has ``no new update on the listing plans'' and that the report is ``speculative.''

Shares rose in China after data last week that showed accelerating inflation didn't spur the central bank to raise interest rates. Gains by the CSI 300 have helped the index recoup losses of as much as 22 percent in a rout that began on May 30.

China's Recovery

China's inflation accelerated last month at the fastest pace in more than two years and fixed-asset investment surged in the first five months, the statistics bureau said last week, fueling speculation the central bank would raise interest rates to cool the economy. Higher borrowing costs may dent bank lending.

``Investors keep buying shares as a rumored clampdown involving measures such as interest-rate increases failed to materialize,'' said Chen Shide, who manages the equivalent of $212 million at GF Fund Management Co. in Guangzhou. ``It can't be ruled out that the government will still take action.''

China Merchants Bank Co., which has the biggest weighting in the CSI 300, jumped 8 percent to 23.98 yuan. China Vanke Co., the largest listed developer, climbed 4.6 percent to 19.97 yuan.

Auckland International Airport Ltd. surged 13 percent to NZ$3.20, the biggest percentage advance on the MSCI World index.

Shares of New Zealand's busiest airport rose after the company said it is in talks with the Canada Pension Plan Investment Board and other parties. The fund made an offer of NZ$3.10 a share for Auckland Airport, valuing the company at NZ$3.79 billion ($2.8 billion).

Singapore Exchange Ltd. gained after Tokyo Stock Exchange, the operator of the world's second-biggest equities market, said on June 15 it bought a 4.99 percent stake in the Singapore bourse for 37.4 billion yen ($303 million) to enhance an alliance. The shares added 0.5 percent to a record S$10.

National Instruments, Symantec, Wendy's: U.S. Equity Movers

June 18 (Bloomberg) -- The following is a list of companies whose shares are having unusual price changes on U.S. exchanges. Stock symbols are in parentheses after company names. Share prices are as of 1:15 p.m. New York time.

Alcoa Inc. (AA US) rose $1.19, or 2.9 percent, to $42.79. The London-based Times said BHP Billiton Ltd. may consider a $40 billion takeover of the U.S. aluminum maker. BHP is in the early stages of considering an offer and hasn't made an approach to Alcoa, the newspaper reported without saying where it got the information.

Alleghany Corp. (Y US) rose $16.62, or 4.5 percent, to $387.60. Shares of the U.S. insurance and investment company that's similar to Warren Buffett's Berkshire Hathaway Inc. may surge 50 percent in the next three years, Barron's reported, without citing anyone.

American Technical Ceramics Corp. (AMK US) rose $7.09, or 42 percent, to $23.90. AVX Corp. (AVX US), a maker of electronic components controlled by Kyocera Corp., agreed to buy American Technical for $231 million, or $24.75 a share.

Apple Inc. (AAPL US) climbed $3.74, or 3.1 percent, to $124.24. The maker of Macintosh computers and iPod music players said the battery on its new iPhone will last longer than the company expected when Chief Executive Officer Steve Jobs unveiled the handset in January.

Authorize.Net Holdings Inc. (ANET US) gained 90 cents, or 5.4 percent, to $17.63. CyberSource Corp., a processor of online transactions, said it agreed to buy the company for $565 million.

Cadence Design Systems Inc. (CDNS US) lost 98 cents, or 4.2 percent, to $22.32. Blackstone Group LP and Kohlberg Kravis Roberts & Co.'s bid to buy the maker of computer-chip design software has stalled because of disagreements on a purchase price, the New York Times reported, citing people close to the matter. The talks for Cadence appear to be suspended, though they could resume in the future, according to the Times, citing the unidentified people.

China Medical Technologies Inc. American depositary receipts (CMED US), each representing 10 shares, climbed $3.68, or 14 percent, to $30.93. The maker of devices for the treatment of tumors said it earned $37.5 million in the fiscal fourth quarter. That exceeded UBS AG analyst Vicky Yun Chen's $35.9 million estimate.

CV Therapeutics Inc. (CVTX US) rose 79 cents, or 7 percent, to $12.16. The biotechnology company could be a takeover target, CNBC host Jim Cramer said on his ``Mad Money'' show.

Encysive Pharmaceuticals Inc. (ENCY US) fell $1.78, or 43 percent, to $2.32. The drugmaker lost a battle with Gilead over whose treatment for a fatal lung disease would be the first to win U.S. approval. Encysive may have to make ``significant reductions'' in its workforce because its drug, Thelin, failed to win market clearance, the company said in a statement on June 15.

Friendly Ice Cream Corp. (FRN US) jumped 81 cents, or 5.6 percent, to $15.14. The 72-year-old chain will be acquired for roughly $337.2 million by an affiliate of buyout firm Sun Capital Partners Inc.

Genesco Inc. (GCO US) rose $4.08, or 8.2 percent, to $53.68. Finish Line Inc. (FINL US) agreed to buy the owner of the Johnston & Murphy and Journeys shoe-store chains for $1.5 billion in cash. Finish Line, a sports-clothing and footwear retailer, will pay $54.50 for each Genesco share, 9.9 percent more than Genesco's stock price at the end of last week. The transaction will add to Finish Line's earnings, excluding some amortization costs, in the first year after the purchase is completed, Finish Line said. Finish Line shares fell 6.3 percent to $11.83.

Labopharm Inc. (DDSS US) rose 32 cents, or 11 percent, to $3.21. The Canadian drugmaker said in a statement distributed by PRNewswire that its once-daily tramadol was approved for sale in Canada.

Lee Enterprises Inc. (LEE US) dropped $2.22, or 9.3 percent, to $21.71. The owner of newspapers including the St. Louis Post- Dispatch forecast fiscal third-quarter profit that missed analysts' estimates because of continuing declines in advertising sales.

Lexicon Pharmaceuticals Inc. (LXRX US) rose 17 cents, or 5.5 percent, to $3.25. The Texas biotechnology company has reached an agreement with two private-equity firms, Invus Group LLC and Symphony Capital Partners LP, for as much as $610 million in drug-development financing.

National Instruments Corp. (NATI US) rose $2.18, or 6.9 percent, to $33.95. The maker of industrial test-and-measurement gear was raised to ``overweight'' from ``neutral'' by JPMorgan analyst Mark Moskowitz, who wrote in a note that the company may benefit from increased research and capital spending by semiconductor makers.

ScanSource Inc. (SCSC US) rose $3.89, or 14 percent, to $32.50. The distributor of bar-code scanners and magnetic-strip readers said it expects revenue of as much as $532 million in the fiscal fourth quarter. Five analysts in a Bloomberg survey had an average estimate of $524.1 million. The company also said it filed results for the previous three quarters as well as fiscal 2006 with the U.S. Securities and Exchange Commission after an internal probe of its accounting for stock options.

Symantec Corp. (SYMC US) rose 51 cents, or 2.6 percent, to $20.21. Goldman, Sachs & Co. raised its rating on the shares of the largest maker of anti-virus software to ``buy'' from ``neutral'' and increased the price it expects the shares to reach to $25 from $21. Analyst Sarah Friar cited the company's June 14 announcement that it would spend $2 billion to buy back about 11 percent of its outstanding shares and ``impressive upcoming releases of its flagship products.''

Tektronix Inc. (TEK US) rose $1.45, or 4.5 percent, to $33.50. The maker of test equipment for chip factories was boosted to ``overweight'' from ``underweight'' by analyst Mark Moskowitz at JPMorgan.

Wendy's International Inc. (WEN US) fell $1.25, or 3.2 percent, to $38.48. The third-largest U.S. hamburger chain reduced its profit forecast and said a board committee will consider a sale of the company. Earnings this year will be $1.09 to $1.23 a share, compared with a previous forecast of as much as $1.32, Wendy's said in a statement. Analysts estimate profit of $1.28, the average of 14 projections compiled by Bloomberg.

U.S. to Resume Direct Financial Aid to Palestinians

June 18 (Bloomberg) -- The U.S. will restore direct financial aid to the Palestinian Authority to support the emergency government set up by President Mahmoud Abbas, Secretary of State Condoleezza Rice said.

The decision to resume assistance after the violent Hamas takeover of the Gaza Strip followed a similar European Union action to end a financial embargo on the Palestinian Authority. The U.S. and EU imposed the aid limits after last year's parliamentary election victory by Hamas, which refuses to recognize Israel and which the U.S. and EU regard as a terrorist organization.

``A fundamental choice confronts Palestinians and all people in the Middle East,'' Rice said at a news conference today in Washington. ``More clearly now than ever, it is a choice between a violent extremism on the one hand and tolerance and responsibility on the other.''

Rice said the U.S. rejects the division of the ``Palestinian nation'' represented by the Gaza takeover. ``It is the position of the U.S. that there is one Palestinian people and there should be one Palestinian state,'' she said.

The U.S. will contribute $40 million to the United Nations Relief and Works Agency to address humanitarian needs in Gaza, Rice said. The agency offers health care and educational services.

EU Aid

Earlier today, the EU announced it was resuming direct aid to the Abbas's government and called on Israel to back Abbas as the only legitimate Palestinian leader. The EU had been the biggest donor to the Palestinians, providing 259 million euros ($347 million) in the first half of 2006.

President George W. Bush spoke earlier in the day by telephone with Abbas and pledged support without offering immediate backing for the resumption of peace talks, a step sought by the Palestinian leader.

``What is important is that you have to have a partner who is committed to peace, and we believe president Abbas is,'' White House Press Secretary Tony Snow told reporters in Washington, in describing the call.

Nabil Abu Rudeineh, an aide to Abbas, said at a news conference in the West Bank city of Ramallah today that Israel and the so-called Quartet of powers backing a Middle East peace agreement, which includes the U.S., should resume peace talks immediately.

Abbas's new government, which is committed to the 1994 Oslo peace accords, is ``a test of Israel's good faith'' toward the peace process, he said. The charter of Hamas, an Arabic acronym for Islamic Resistance Movement, calls for the destruction of the Jewish state.

Bush and Abbas talked a few hours before Israeli Prime Minister Ehud Olmert arrived in Washington to draw up a new blueprint with Bush for making peace with the Palestinians. Olmert meets tonight with Rice and with Bush tomorrow.

Investment Banks Shielded From Suit by Top U.S. Court

June 18 (Bloomberg) -- The U.S. Supreme Court gave Goldman Sachs Group Inc. and other investment banks a new shield from antitrust claims, throwing out lawsuits that accused the securities industry of rigging 900 initial public offerings.

The justices, voting 7-1, today overturned a federal appeals court ruling that had permitted suits against 16 investment banks and institutional investors, a group that also included Credit Suisse Group and Merrill Lynch & Co. The investors were seeking billions of dollars in damages.

The suits had threatened to roil the IPO business. Wall Street's revenue from stock underwriting has climbed an average 13 percent a year since 1995, reaching a record $19 billion in 2006, and is on pace to surpass that figure this year, based on estimates by Bank of America analyst Michael Hecht. Goldman Sachs had the most revenue from the business, $1.47 billion, according to Hecht, followed by Citigroup Inc., UBS AG, Morgan Stanley and Merrill Lynch.

The antitrust suits ``would have opened up a real hornet's nest,'' said James Cox, a professor of corporate and securities law at Duke University in Durham, North Carolina. ``The practices that were being challenged were a variety of practices that the underwriters customarily follow.''

The high court said an antitrust shield was warranted because the Securities and Exchange Commission regulates IPOs and lays out detailed rules governing what steps underwriters can and can't take. Writing for the court, Justice Stephen Breyer said antitrust suits created ``a substantial risk of injury to the securities markets.''

`Complete Termination'

``Had the court taken the opposite view, the industry would have faced massive legal exposure and a major engine of American growth would have been unnecessarily damaged,'' Marc Lackritz, chief executive officer of the Securities Industry and Financial Markets Association, said in a statement.

Today's ruling is the latest Supreme Court decision to protect companies from class-action claims and other lawsuits. The court last month threw out an antitrust suit alleging collusion by the nation's largest phone companies.

Christopher Lovell, the lead lawyer for the investors at the high court, said the ruling underscores the importance of separate cases that investors are seeking to press against the banks under federal securities laws.

``The court decision is saying that the premise is that the securities laws will redress this,'' Lovell said. ``This puts the focus on the securities cases.''

Too Wide-Ranging

A federal appeals court last year said a securities suit against the industry was too wide-ranging to move forward as a single class action case. The appeals court later said lawyers suing the industry can ask a trial judge for permission to pursue a suit on behalf of a smaller group of investors.

Lovell previously said the antitrust dispute had the potential to be a multibillion-dollar case. Under federal antitrust law, damages are automatically tripled.

``This was a monster, huge case that tried to sue everybody for everything on behalf of all investors,'' said Roy Englert, a Washington lawyer who filed a brief in the case on behalf of the U.S. Chamber of Commerce and SIFMA, as the securities-industry trade group is known.

The antitrust lawsuits said the securities firms profited at the investing public's expense by ensuring that the prices of Amazon.com Inc., EBay Inc. and hundreds of other Internet stocks would soar soon after they began trading publicly.

`Laddering'

The companies were accused of demanding kickbacks from clients and engaging in ``laddering'' -- requiring clients to buy more stock, at higher prices, after the securities were sold to the public.

Hundreds of Internet start-ups were rushed to market during the IPO frenzy of the late 1990s and 2000. First-day gains from IPOs averaged 87 percent in 1999 and 71 percent in 2000, according to IPO researcher CommScan LLC, and underwriters pocketed billions of dollars in fees and commissions.

The defendants also included Citigroup, Morgan Stanley, Lehman Brothers Holdings Inc., Bank of America Corp., Fidelity Investments, Janus Capital Group Inc. and Comerica Inc.

Breyer said antitrust lawsuits were problematic even when focused on conduct forbidden by the SEC. He said that ``only a fine, complex, detailed line'' separates IPO practices encouraged by the SEC -- including the syndicates banks use to share the risk of offerings -- from forbidden conduct.

`Serious Mistakes'

``There is no practical way to confine antitrust suits so that they challenge only activity of the kind the investors seek to target, activity that is presently unlawful and will remain unlawful under the securities law,'' Breyer wrote. ``Antitrust courts are likely to make unusually serious mistakes in this respect.''

Justice Clarence Thomas was the lone dissenter. He said two Depression-era laws that protect investors ``contain broad saving clauses that preserve rights and remedies outside of the securities laws.''

Justice Anthony Kennedy didn't take part in the case.

``We are very pleased with the decision,'' said Stephen M. Shapiro, a Chicago lawyer who represented the investment banks in the case. ``It appears to be a complete termination of this lawsuit.''

The Bush administration largely backed the securities industry in the high court case, though the government said the investors might be able to re-draft their lawsuit to focus only on conduct not permitted by the SEC. The majority went beyond that position and threw out the lawsuits.

$425 Million

John Nester, an SEC spokesman, didn't have any immediate comment. Brookly McLaughlin, a Treasury spokeswoman in Washington, didn't immediately respond to a request for comment.

JPMorgan Chase & Co. last year agreed to pay $425 million to settle IPO-rigging claims. Separately, the issuers have agreed to pay $1 billion, which would be reduced by any sum the investors recover from the underwriters. Both settlements are tentative and still need court approval.

Merrill Lynch is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News.

Palestinians Name New Cabinet; Deemed `Opportunity' by Israel

June 17 (Bloomberg) -- Palestinian President Mahmoud Abbas swore in a new cabinet that excludes Hamas, a move judged by Israeli Prime Minister Ehud Olmert to be an ``opportunity'' for resuming peace talks stalled for more than a year.

Abbas and newly named Prime Minister Salam Fayyad swore in 11 ministers in a ceremony broadcast live from the West Bank town of Ramallah. Hamas, deemed terrorists by the European Union and U.S., took over the Gaza Strip last week, leaving Abbas's Fatah party in charge of the West Bank. The unity government collapsed.

``The Palestinian Authority has changed, and we are going to do everything we can to take advantage of the opportunity,'' Olmert told reporters today as he left for talks with U.S. President George W. Bush. ``A Palestinian government that does not include Hamas can be a partner.''

Peace talks between Israel and the Palestinians stalled after Hamas, sworn to Israel's destruction, won elections in March 2006. International aid was cut off and Hamas and Fatah gunmen often clashed on the streets of Gaza in a fight for power. More than 130 people died last week in Gaza street battles, according to the Palestinian Health Ministry.

Abbas's new cabinet includes only one Fatah member, Interior Minister Abdel Razaq al-Yahya, who will be responsible for security forces. All the other posts went to independent lawmakers and include two women and two Christians. A further three ministers will be named later on.

Fayyad, who will also serve as finance and foreign minister, held the treasury position in previous cabinets. An independent lawmaker, he is a former World Bank and International Monetary Fund official. He was born in 1952. After the swearing-in ceremony he said his biggest priority was to restore security.

New Government

What the Palestinians need ``is not a new government but to reestablish dialogue between Fatah and Hamas,'' said Basem Ezbidi, a professor of political science at the West Bank's Birzeit University.

What ``the government announced today is an act of convenience,'' Ezbidi said by phone. ``It doesn't have any real chance to function.''

Abbas has enjoyed continued U.S. support and an aide to the Palestinian president said the U.S. may resume aid, curtailed when Hamas won elections last March, once the new Palestinian cabinet is in place. Abbas today said his top priority was getting that aid restored.

Abbas today outlawed Hamas's police force and militias, who he said carried out an ``armed rebellion.'' Ismael Hania, the Hamas prime minister in Gaza, has refused to recognize Abbas's right to dissolve the government.

Israeli Territory

In Gaza, food prices escalated, with residents joining long queues to buy supplies. Dor Energy in Israel Ltd. halted gasoline supplies to Gaza today, although it will continue to provide fuel to the seaside strip's power plant. In New York before a meeting with UN Secretary-General Ban Ki-Moon, Olmert pledged to continue to supply Gaza with electricity.

The West Bank's 2.5 million residents are separated from the 1.5 million Palestinians in Gaza by 45 kilometers (28 miles) of Israeli territory.

Hundreds of Palestinians gathered at the Erez crossing point between Gaza and Israel today, seeking to leave the Palestinian territory, a spokesman for the Israel Defense Forces said by phone, speaking on condition of anonymity. A ``small'' number are being allowed through, he added.

Hamas gunmen installed checkpoints about 200 meters from the crossing and check every car for members of the Fatah party, a secular and nationalist movement. Hamas is urging residents to stay, pledging safety, security and a territory ``clean of corruption.''

Ehud Barak, Israel's new defense minister, plans to attack the Gaza Strip within the next several weeks to destroy Hamas's military assets, the London-based Sunday Times reported, citing military officials it didn't name.

The attack may be precipitated by a resumption of rocket attacks on Israel or by suicide bombings, the newspaper said. Israel may send 20,000 troops into Gaza to face an estimated 12,000 Hamas militants, the newspaper said.

Housing Starts Probably Declined in May: U.S. Economy Preview

June 17 (Bloomberg) -- Residential construction declined in May to a four-month low and homebuilder confidence stayed depressed, reports this week may show, indicating the housing slump will persist even as other parts of the economy show renewed strength.

Housing starts slid to an annual rate of 1.472 million in May from 1.528 million the prior month, according to the median forecast of 58 economists in a Bloomberg News survey ahead of the Commerce Department's June 19 report.

Sluggish demand is keeping builders focused on getting rid of unsold homes before they take on more new projects. That's one reason Federal Reserve policy makers say the housing market may take longer to emerge from its slump than they previously expected.

``Housing is still trying to find its low point,'' said Lynn Reaser, chief economist at the Investment Strategies Group of Bank of America Corp. in Boston. ``Builders have a lot of inventory, and prices probably need to fall further. Housing will remain a drag on the economy as the bottoming-out is likely to take a number of months.''

Estimates of May housing starts ranged from 1.43 million to 1.59 million. The same Commerce Department report may show building permits, an indicator of future construction, rebounded in May from the lowest level in almost a decade, economists said.

Building Permits

The median forecast in the Bloomberg News survey shows building permits rose to a 1.48 million annual pace in May from a revised 1.457 million annual rate the prior month. Estimates ranged from 1.42 million to 1.56 million.

A private report on June 18 may show the National Association of Home Builders/Wells Fargo index of homebuilder sentiment held at 30 for a second month, economists predicted. The gauge hasn't been lower since February 1991.

Economists' estimates for the sentiment index ranged from 28 to 31. A reading below 50 means most respondents view conditions as poor.

``The slowdown in residential construction now appears likely to remain a drag on economic growth for somewhat longer than previously expected,'' Fed Chairman Ben S. Bernanke said at a conference in Cape Town, South Africa, earlier this month.

Foreclosures

The number of Americans who may lose their homes because of late mortgage payments rose to a record in the first quarter, led by subprime borrowers, the Mortgage Bankers Association said June 14. Defaults by subprime borrowers, those with a poor or patchy credit history, are adding to the risk that more homes may be returned to the market, economists said.

``The housing market is teetering on the margin,'' Richard DeKaser, chief economist at National City Corp. in Cleveland, said in an interview this week.

At the same time, the economy looks set to rebound from last quarter's 0.6 percent annual pace of growth, which was the slowest in more than four years, economists said. One reason is the housing recession isn't spilling over much into other parts of the economy, they said.

A Conference Board report June 21 may show a gauge of the economy's future course improved last month. The group's index of leading economic indicators rebounded 0.3 percent after a 0.5 percent drop in April, according to the median of economists' forecasts.

Support for the anticipated pickup in growth is coming from gains in the stock market and a resilient labor market, encouraging Americans to keep spending in spite of declines in home values and higher gasoline prices. Consumer spending accounts for more than two thirds of the economy.

The number of Americans filing first-time claims for unemployment benefits stayed unchanged at 311,000 for the third consecutive week, economists forecast in a Bloomberg survey ahead of a Labor Department report on June 21.

Asian Stocks Rise as U.S. Retail Sales, Metals Prices Climb

June 16 (Bloomberg) -- Asian stocks advanced this week after U.S. retail sales rose more than expected and the Federal Reserve said the world's biggest economy is growing without stoking inflation. Toyota Motor Corp. and Hon Hai Precision Industry Co led gains by exporters.

``A resilient U.S. economy gives consumers a reason to shop and investors an incentive to buy stocks,'' said Barro Liao, who helps manage $2.7 billion at PCA Securities Investment Trust Co. in Taipei.

BHP Billiton Ltd. and Aluminum Corp of China Ltd. led mining shares higher after metals prices climbed. Inpex Holdings Inc., Japan's largest energy explorer, rose as crude oil prices reached a nine-month high.

The Morgan Stanley Capital International Asia-Pacific Index this week added 0.7 percent to 151.58, with energy stocks posting the biggest increase among 10 industry groups included in the benchmark. In Japan, home to Asia's biggest stock market, the Nikkei 225 Stock Average rose 1.1 percent.

China's CSI 300 Index posted its biggest weekly gain in two months as savings rates that trail inflation prompted investors to put more of their savings into equities.

U.S. retail sales rose 1.4 percent in May, more than the 0.6 percent economists expected in a Bloomberg News survey. The Fed, in its so-called Beige Book report, said economic expansion hasn't increased ``overall'' pressures on wages and prices, helping damp speculation that borrowing costs will be raised.

Retail Sales

Toyota, the world's largest automaker by market value, advanced 3 percent to 7,690 yen. The company made 63 percent of its sales outside Japan last business year. Taiwan-based Hon Hai, the biggest contract-electronics manufacturer, climbed 11 percent to NT$281. Its shares also gained after they were rated ``outperform'' in new coverage at Credit Suisse Group.

``Retail sales exceeded forecasts and the Beige Book confirmed the U.S. economy is expanding with little inflation risk,'' said Mitsushige Akino, who oversees $470 million at Ichiyoshi Investment Management Co. in Tokyo. ``These are positive developments for high tech and auto companies.''

BHP, the world's biggest mining company, advanced 3.4 percent to a record A$34. Aluminum Corp., China's largest maker of the metal, surged 28 percent to HK$13.20, after Goldman, Sachs & Co. raised its rating on the stock to ``buy,'' citing soaring demand and prices.

A measure of six metals traded on the London Metal Exchange, including copper and nickel, rose 3 percent. Crude oil prices also advanced 5 percent, posting their biggest weekly gain this quarter and closing at $68 a barrel in New York for the first time since September.

Metals, Oil

Inpex gained 1.8 percent to 1.16 million yen. PetroChina Co., the country's largest oil explorer, advanced 3.1 percent to HK$10.80. Woodside Petroleum Ltd., Australia's No. 2 oil producer, rose 3.8 percent to A$45.

``Globally, economic growth looks strong enough to sustain high levels of demand for commodities so you can expect strength to continue in related stocks for as long as that view holds,'' said Hans Kunnen, who helps manage $107 billion at Colonial First State Global Asset Management in Sydney.

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, surged 6.8 percent to 4099.38 this week. The benchmark is about 70 points away from its record close on May 29, after tumbling as much as 22 percent from the high following a tripling of stamp duty.

Investors opened 328,624 accounts at brokerages on June 13, the highest daily tally since June 1, and more than 200,000 on each of the previous two days, according to China Securities Depository & Clearing Corp.

`Fresh Liquidity'

Household yuan deposits fell by 278.4 billion yuan ($36.4 billion) in May, after sliding in April for the first time since February 2003, according to the central bank. The CSI 300 has doubled this year, while savings rates offered by banks are capped at the central bank's one-year deposit rate of 3.06 percent -- less than the 3.4 percent inflation rate.

``Fresh liquidity keeps coming into the market and that will continue to push share prices higher,'' said Fan Dizhao, who helps manage about $1.8 billion at Guotai Asset Management Co. in Shanghai.

Daqin Railway, operator of China's biggest coal transport line, surged 20 percent to 17.39 yuan. China Vanke Co., the nations' largest publicly traded real-estate company, gained 6 percent to 15.33 yuan.

Ameristar, Build-A-Bear, Penn National:U.S. Equity Movers Final

June 15 (Bloomberg) -- The following is a list of companies whose shares had unusual price changes in U.S. exchanges today. Stock symbols are in parentheses after company names. Share prices are as of 4 p.m. New York time.

Shares of some manufacturers of lead paint advanced after Sherwin-Williams Co. (SHW US) and other companies won dismissal of a lawsuit by cities and counties in New Jersey that claimed the companies' products endangered public health.

Sherwin-Williams, the largest U.S. paint retailer, rose $1.52, or 2.3 percent to $67.67. NL Industries Inc. (NL US), the company that was once the largest maker of lead pigment used in paint, rose 47 cents to $11.06. Shares of other defendants in the case also gained at least 1 percent, including DuPont Co. (DD US), the third-largest U.S. chemical maker, and Millennium, a unit of Lyondell Chemical Co. (LYO US).

AllianceBernstein Holding LP (AB US) fell $3.43, or 3.7 percent, to $88.30. The U.S. money manager controlled by France's Axa SA (AXA US) was downgraded to ``neutral'' from ``strong buy'' at Buckingham Research Group.

The downgrade came after the Senate Finance Committee introduced legislation yesterday to prevent hedge fund and private equity firms from using a 20-year-old tax provision that allows investors in publicly traded partnerships to pay capital gains taxes of 15 percent on income distributions. Companies pay a tax rate as much as 35 percent. Fortress Investment Group LLC (FIG US), a private-equity and hedge-fund firm, fell $1.64, or 6.5 percent, to $23.47.

Build-A-Bear Workshop Inc. (BBW US) fell $6.89, or 23 percent, to $22.72. The maker of customized stuffed animals cut its second-quarter profit forecast in half because of slumping sales. Profit for the quarter ending June 30 will be 7 cents to 10 cents a share, down from a previous forecast of 15 cents to 19 cents, the company said.

Cenveo Inc. (CVO US) rose $2.10, or 9.3 percent, to $24.68. The commercial printer of books and catalogs said it agreed to acquire Madison/Graham ColorGraphics Inc. for an undisclosed price and expects the transaction to add to earnings.

Coinmach Service Corp. (DRA US) surged $1.57, or 13 percent, to $13.28. Babcock & Brown Ltd. (BNB AU), Australia's second- largest investment bank, agreed to buy the laundry company for about $713 million, or $13.55 a share. That's 16 percent more than the closing price of Coinmach's class A shares yesterday.

EpiCept Corp. (EPCT US) rose 23 cents, or 11 percent, to $2.41. The pharmaceutical company said animal tests show its Azixa drug may effectively slow the growth of human tumors. Results of the tests will appear in today's edition of Cancer Research, published by the American Association of Cancer Research, according a statement from EpiCept. The research suggests that Azixa can slow the growth of solid tumors in mice, EpiCept said.

Hansen Natural Corp. (HANS US) rose $3.96, or 9.9 percent, to $43.90. The maker of Monster Energy drinks was upgraded to ``buy''' from ``neutral'' at Goldman, Sachs & Co., which said Hansen sales and earnings growth may accelerate in the second half as management turns its attention from an options investigation to developing new products. ``We also see significant upside optionality for Hanson as an acquisition candidate,'' Goldman wrote.

Intel Corp. (INTC US) rose $1.01, or 4.4 percent, to $24.24. Goldman upgraded shares of the world's largest chipmaker to ``buy'' from ``neutral'' and said Intel should benefit from rival Advanced Micro Devices Inc.'s (AMD US) likely decision to farm out production.

Lexmark International Inc. (LXK US) rose 82 cents, or 1.6 percent, to $51.65 and traded as high as $52.71. The second- biggest U.S. printer maker would be an attractive acquisition candidate and a leveraged buyout is ``doable'' in the $60 to $70 range, said Sanford C. Bernstein & Co. analyst Toni Sacconaghi. ``Its valuation is significantly more attractive than other recently announced technology LBOs,'' he wrote.

Monsanto Co. (MON US) climbed $1.55, or 2.5 percent, to $64.86 and traded as high as $67.86. The world's biggest seed producer boosted its profit forecast for the fiscal year that ends in August because of increased U.S. demand for corn seed and crop chemicals.

Nvidia Corp. (NVDA US) rose $1.72, or 4.6 percent, to $39.55. The world's second-largest producer of computer-graphics chips was initiated with a ``strong buy'' rating by Raymond James & Associates analyst Hans Mosesmann, who cited the company's market share gain outlook. Nvidia's forecasts for sales growth and gross margins were also ``conservative,'' the analyst wrote.

Nymex Holdings Inc. (NMX US), the operator of the New York Mercantile Exchange, the world's largest energy market, gained $2.32, or 1.7 percent, to $142.12 and traded as high as $148. The New York Mercantile Exchange is exploring a sale to NYSE Euronext, Deutsche Boerse AG or Chicago Mercantile Exchange Holdings Inc., said two people involved in the discussions. Nymex Holdings may be worth $155 a share, or $14.3 billion, 11 percent more than yesterday's closing price, said one of the people, who asked not to be identified because the talks are confidential.

Penn National Gaming Inc. (PENN US) jumped $10.98, or 21 percent, to $62.12. The owner of 18 casinos and horse racing tracks agreed to be acquired by Fortress for $6.1 billion, or $67 a share. The deal also includes debt totaling about $2.8 billion.

Other gaming companies also climbed.

Boyd Gaming Corp. (BYD US) added $1.35 to $51.15. Isle of Capri Casinos Inc. (ISLE US) rose $2.45, or 11 percent, to $25.09. Pinnacle Entertainment Inc. (PNK US) advanced $2.35 to $30.83. Ameristar Casinos Inc. (ASCA US) gained $2.55 to $34.95.

Power Integrations Inc. (POWI US) fell $2.77, or 9.4 percent, to $26.75. The maker of chips used in consumer electronics reduced its revenue forecast. It predicted as much as $43 million in the second quarter, down from the original projection of up to $46 million. Analyst Tore Svanberg at Piper Jaffray & Co. cut the stock's rating to ``market perform'' from ``outperform.''

RAIT Financial Trust (RAS US) gained $1.75, or 6.2 percent, to $29.98. The real-estate investment trust boosted its quarterly dividend to 84 cents from 80 cents.

ShengdaTech Inc. (SDTH US) rose 86 cents, or 18 percent, to $5.55. The Chinese chemicals maker said it expects 43 cents to 45 cents a share this year on revenue of as much as $98 million.

Silverleaf Resorts Inc. (SVLF US) rose 64 cents, or 14 percent, to $5.34. The timeshare developer and manager increased its profit forecast for this year to a range of 70 cents to 72 cents a share.

Smith & Wesson Holding Corp. (SWHC US) rose $1.24, or 8.3 percent, to $16.15. The parent of gun manufacturer Smith & Wesson Corp. boosted its forecast for fiscal 2008, predicting profit of 62 cents a share. Three analysts surveyed by Bloomberg had an average estimate of 60 cents.

Walt Disney Co. (DIS US) rose 61 cents, or 1.8 percent, to $34.40 and traded as high as $34.75. The world's largest theme park operator was upgraded to ``buy'' from ```neutral'' by SMH Capital analyst David Miller, who said that investors may be ``underestimating'' the free cash flow and earnings potential of the company. Miller also said e believed that there was a company-wide initiative to boost operating margins in each of Disney's businesses.

Wolseley Plc (WOS US) American depositary receipts, each worth one share, rose $94 cents, or 3.7 percent, to $26.35. The world's biggest distributor of plumbing and heating equipment may be the target of a leveraged buyout. ``There are a number of persistent rumors out there,'' said Simon Brown, an analyst at Evolution Securities in London. ``Today there is a rumor of private-equity interest again. Wolseley is vulnerable, it's cheap and it's a very attractive business.''

XM Satellite Radio Holdings Inc. (XMSR US) rose 61 cents, or 5.8 percent, to $11.13. The pay-radio service that is trying to combine with Sirius Satellite Radio Inc. (SIRI US) will air college sports from the Big 12 U.S. schools in an agreement with Disney's ESPN. XM will carry selected football games each week and the Big 12 conference championship, the pay-radio company said yesterday in a statement.

Palestinian Coalition Dismantled; Olmert Taps Barak

June 16 (Bloomberg) -- A power struggle among Palestinians intensified as the emergency government declared by the Fatah leadership in the West Bank was rejected by Hamas, which took control of the Gaza Strip in bloody clashes this week.

Israel sought to contain potential threats from Gaza, appointing former Prime Minister Ehud Barak as its new defense minister. Prime Minister Ehud Olmert leaves tonight for the U.S., where the emerging Palestinian crisis will be at the center of his June 19 White House talks with President George W. Bush.

Palestinian Authority President Mahmoud Abbas of Fatah named independent lawmaker Salam Fayyad prime minister of an emergency government he called after dismantling a unity coalition with the Islamic Hamas. Hamas's Ismael Hania, who was prime minister of the jointly run government, said he would not step down.

''We are the legitimate government, which is leading the democratically elected parliament,'' Hania said in an interview with the French newspaper Le Figaro published today. ``We will make law and discipline rule in Gaza."

Abbas's decision to dismantle the Palestinian cabinet came after nine days of fighting left at least 130 dead, according to the Palestinian Health Ministry. Hamas fighters took over Fatah security positions, including a compound that holds Abbas's residence and offices in Gaza. His home and that of Mohammed Dahlan, the national security adviser, were looted.

With security guards having abandoned their posts, Gaza residents also ransacked the former home of Yasser Arafat, the Palestinian leader who died in a Paris hospital in 2004.

Strategic Failures

Olmert expedited yesterday's appointment of Barak, 65, a retired general and military chief of staff, in response to the events in Gaza. He replaces Amir Peretz, who offered his resignation yesterday.

The state-appointed Winograd Commission criticized Olmert and Peretz in April for strategic failures during last year's war in Lebanon, calling attention to their lack of military experience.

``Barak will provide a steadying hand in the Defense Ministry,'' Daniel Kurtzer, former U.S. ambassador to Israel, said on Bloomberg TV. ``This is important as, in addition to diplomatic steps, Israel has to secure itself.'' He said Gaza may be ``a terrorist state in the making.''

Miri Eisin, a spokeswoman for Olmert, said the prime minister and Bush will try to make ``a realistic assessment'' of the Gaza situation and seek ways ``to empower the moderates.''

Talks were under way to select more ministers for the Palestinian emergency government, which Fayyad told reporters in Ramallah would be announced by noon tomorrow.

End to Unity

The fighting between the two factions left Gaza residents in a near-crisis, the United Nations said yesterday in a statement, warning that the 1.5 million Palestinians in the strip will begin running out of food in a week. Only emergency treatment is being provided by hospitals, four of which were fired on during the violence, the World Health Organization said.

The Hamas takeover of Gaza, while the secular Fatah retains control of the West Bank, may mark the end of Palestinian unity. It also creates a dilemma for Israel and powers such as the U.S. that have been involved in the Middle East peace effort, and may further delay resumption of aid to the Palestinians.

The U.S. said it approved of Fayyad's appointment. ``This is a person that the international community has long experience with, has great confidence in,'' State Department spokesman Sean McCormack said in Washington yesterday. ``He has a sterling reputation.''

Gauntlet Thrown Down

Kurtzer said that much depends on how the West reacts. ``The gauntlet has been thrown down and the question is what Abbas does now and what the rest of us do to support him.''

Olmert pledged in a phone call to Egyptian President Hosni Mubarak to do what was possible to aid ``the moderate forces in the Palestinian Authority,'' his office said yesterday.

While Fatah favors talks with Israel, Hamas is sworn to Israel's destruction and is designated a terrorist organization by the U.S. and the European Union. The Western powers imposed a ban on aid to the Palestinian government after Hamas formed a government early last year, following its victory in legislative elections.

Other than several meetings between Olmert and Abbas that failed to bring progress, peace talks have stalled.

``Hamas's control of Gaza offers Israel an opportunity to break the political stalemate by establishing a Palestinian address in the West Bank under the control of Fatah,'' Gidi Grinstein, founder and president of the non-partisan, non-profit, privately funded Reut Institute, said in an e-mailed statement.

The EU, which this week suspended humanitarian aid to Gaza for the first time, condemned Hamas's seizure of the area and backed Abbas's measures, according to an e-mailed statement from the German presidency. Germany holds the current six-month rotating presidency of the EU.

While Fatah agreed in February 2006 to become a junior partner in a government led by Hamas's Hania, the two movements didn't settle their differences over Israel or stop the fighting between their loyalists.

Fatah, which is a secular and nationalist movement, retained control of Preventive Security and other police agencies, while the Hamas-led Interior Ministry formed its own security force in Gaza to buttress its militia.

Former Official

Fayyad, who was born in 1952, is a former World Bank and International Monetary Fund official who was brought in as finance minister in 2002, when Yasser Arafat ruled the Palestinian Authority, to clean up corruption and waste. He isn't a member of Fatah and ran as an independent in the 2006 legislative elections.

In an apparent gesture of goodwill, Hamas called for the release of British Broadcasting Corp.'s Alan Johnston, who was abducted in March, and said it was working with his captors for his freedom.

U.S. Stocks Rally, S&P 500 Rises Most in Eight Weeks; GM Gains

June 16 (Bloomberg) -- U.S. stocks rallied and the Standard and Poor's 500 Index posted its best weekly gain since April after bond yields fell from a five-year high and the Federal Reserve said the economy is growing without fueling inflation.

General Motors Corp., Alcoa Inc. and Intel Corp. helped push the S&P 500 and Dow Jones Industrial Average to within 0.5 percent of records. Exxon Mobil Corp., the world's largest oil company, led energy shares to the best gain among 10 industry groups in the S&P 500 as crude prices climbed to the highest since September.

The Fed's upbeat assessment of U.S. regional economies and a Labor Department report showing so-called core consumer prices rose less than forecast last month suggested a pickup in manufacturing and hiring isn't spurring inflation. The yield on the benchmark 10-year Treasury note added 6 basis points, its smallest gain in three weeks, easing concern that rising borrowing costs would curb corporate profits and make takeovers more expensive.

``Inflation fears have receded substantially,'' said Les Satlow, who helps manage $450 million at Cabot Money Management in Salem, Massachusetts. ``That's always a good thing for the equity markets.''

The S&P 500 added 1.7 percent to 1532.91, the best weekly gain since the period ended April 20. The index is 0.4 percent below its all-time high of 1539.18 reached June 4.

The Dow average climbed 1.6 percent to 13,639.48, within 0.3 percent of its 13,676.32 closing record, also reached June 4. The Nasdaq Composite Index rose 2.1 percent to 2626.71, the highest since Feb. 6, 2001.

Beige Book

The 10-year yield, which determines interest rates on home mortgages and corporate loans, ended the week at 5.15 percent. Yields climbed as high as 5.32 percent after former Fed Chairman Alan Greenspan said he expects an increase in benchmark yields and greater premiums on emerging-market debt.

Economic growth, along with higher costs of fuel and food, hasn't increased ``overall'' pressures on wages and prices, the Fed said in its survey, known as the Beige Book for the color of its cover.

Consumer prices excluding food and fuel costs rose 0.1 percent last month, following a 0.2 percent gain in April. Economists had projected a 0.2 percent increase. From a year ago, core prices rose 2.2 percent, the smallest 12- month gain since March 2006.

In other economic data this week, retail sales rose 1.4 percent in May, the most in more than a year. Economists expected a gain of 0.6 percent, according to the median forecast in a Bloomberg survey. Purchases excluding automobiles rose 1.3 percent, the Commerce Department said.

GM, Alcoa

The Fed Bank of New York's manufacturing index jumped to 25.8 from 8.0. That's more than double the median economist estimate compiled by Bloomberg.

``The market is telling us that we don't have nearly as much to worry about as we had perceived,'' said Michael Williams, who helps oversee about $2.8 billion as managing director of Beamreach Trust in New York.

GM, the biggest U.S. automaker, jumped 12 percent to $34.66 for the best gain in the Dow industrials. Alcoa, the biggest U.S. aluminum company by market value, added 4.9 percent to $41.60.

Intel jumped 11 percent to $24.24 for its best weekly gain since April 2003. The world's largest chipmaker said it plans to slash the price of some processors during the next three months to regain market share from rival Advanced Micro Devices Inc.

Separately, Goldman, Sachs & Co. advised clients to buy Intel shares because the company should benefit from Advanced Micro's likely decision to farm out production.

Oil Climbs

Energy shares in the S&P 500 jumped 4.6 percent as a group for the top advance among 10 industries.

Crude prices rose to $68 a barrel in New York on concern that U.S. refiners will be unable to keep up with growing gasoline demand. Prices climbed 5 percent this week.

Exxon gained 3.9 percent to $85.94. Chevron Corp., the second-biggest U.S. oil producer, rose 3.1 percent to $83.17.

Utilities rebounded 3.5 percent as bond yields fell from their highs of the week, making the stocks' dividends more attractive. Collectively, utility shares in the S&P 500 have a dividend yield of 3 percent, the second-highest among 10 industries behind phone companies.

Exelon Corp., owner of the largest U.S. fleet of nuclear power plants, added 5.4 percent to $74.48. Southern Co., the biggest electricity generator, gained 2.9 percent to $35.61.

Elsewhere, Freeport-McMoRan Copper & Gold Inc. advanced 11 percent to $84.42 for its best weekly gain in a year. The world's biggest publicly traded copper company said it may sell assets to pay for debts it incurred in its $26 billion acquisition of Phelps Dodge Corp.

Kodak, Steel Shares

Eastman Kodak Co., the world's largest photography company, jumped 10 percent to $29.31, its best advance since November 2005. Citigroup Inc. said Kodak's new image- sensor technology that eliminates dark and blurry photos will drive the company's growth.

U.S. Steel Corp., the largest steelmaker based in the U.S., fell 7.1 percent to $116.12 for the worst performance in the S&P 500. ThyssenKrupp AG denied on a report it was in talks to buy the company. U.S. Steel shares on June 8 rose the most since November after the Interfax news agency reported Dusseldorf, Germany-based ThyssenKrupp was in talks to buy the company.

Nucor Corp. dropped 5.4 percent to $63.02. The second- largest U.S.-based steel company said second-quarter profit will fall more than analysts estimated as demand from automakers and homebuilders slowed.

Asian Stocks Advance, Led by BHP Billiton on Metals, Oil Rise

June 15 (Bloomberg) -- Asian stocks rose for a second day, led by BHP Billiton Ltd. and Sumitomo Metal Mining Co., after prices of copper, nickel and crude oil climbed.

``Globally, economic growth looks strong enough to sustain high levels of demand for commodities,'' said Hans Kunnen, who helps manage $107 billion at Colonial First State Global Asset Management in Sydney. ``You can expect strength to continue in related stocks for as long as that view holds.''

China Construction Bank Corp. led Hong Kong's Hang Seng Index to a record high after saying it plans to sell shares valued at $5.5 billion in Shanghai. Cathay Financial Holding Co. paced Taiwan's Taiex index to its highest in almost seven years after the island's lawmakers approved a bill to allow insurers to invest more of their assets overseas.

The Morgan Stanley Capital International Asia-Pacific Index advanced 0.6 percent to 151.55 as of 6:40 p.m. in Tokyo, set for a 0.7 percent gain this week. Raw materials and energy-related shares jumped the most among the benchmark's 10 industry groups.

Japan's Nikkei 225 Stock Average added 0.7 percent. Toyota Motor Corp. led exporters higher after the yen fell to the lowest against the dollar in four years, boosting the value of U.S. sales. Benchmarks in South Korea, Singapore, the Philippines and Indonesia also closed at new highs.

BHP, the world's biggest mining company, added 0.3 percent to A$34. Sumitomo Metal Mining, Japan's second-biggest copper smelter and No. 1 nickel producer, advanced 2.8 percent to 2,720 yen. Cnooc Ltd., China's biggest offshore oil producer, rose 1.9 percent to HK$8.46 in Hong Kong.

Construction Bank

A measure of six metals traded on the London Metal Exchange gained 1.9 percent yesterday. Copper prices added 2.2 percent while nickel jumped 4.9 percent. Crude oil rose 2.1 percent in New York. Commodity prices have been driven up by demand from China, which said today that factory and property investment had surged.

SK Corp., South Korea's biggest oil refiner, added 6.6 percent to 130,000 won after Daewoo Securities Co. said earnings will improve on strong gasoline prices and easing competition.

Construction Bank, the nation's third-largest lender, climbed 3.2 percent to HK$4.91 in Hong Kong. Bank of China Ltd., the No. 3, added 1.3 percent to HK$3.85. The Hang Seng Index closed at a record 21,017.05.

Construction Bank said it may sell 9 billion yuan- denominated shares to raise as much as $5.5 billion in Shanghai, where valuations are higher. The stock sale would be the nation's biggest this year.

``The overall trend for companies to list in the mainland is a solid positive factor,'' said Renee Hung, who helps manage $3.5 billion at Value Partners Ltd. in Hong Kong. ``Shares of these companies will have a short-term run.''

Separately, Bank of China shareholders approved the sale of as much as 3 billion yuan ($392 million) of bonds in Hong Kong in what may be the city's first sale of Chinese-currency debt.

Taiwan Insurers

Cathay Financial, Taiwan's largest life insurer, advanced 3.5 percent to NT$74.10. Fubon Financial Holding Co., the island's biggest property insurer, added 2.4 percent to NT$29.45. The Taiex index rose 1.5 percent to its highest close since July 2000.

Taiwan's parliament yesterday approved a bill allowing the island's insurers to invest up to 45 percent of their assets abroad, raising the ceiling from 35 percent. The move will allow Taiwanese insurance companies to invest NT$700 billion ($21.1 billion) more abroad, Susan Chang, deputy chairwoman of the Financial Supervisory Commission, said.

``Parliament's decision gives more room for Taiwan insurers to maximize profitability by investing globally,'' said Yin Nai- yun, who oversees $172 million at Prudential Securities Investment Trust Enterprise in Taipei.

Yen, Exporters

Toyota, Japan's largest automaker, added 1.6 percent to 7,690 yen. Honda Motor Co., its No. 2 automaker by sales, gained 1.9 percent to 4,350 yen. Toyota generated more than a third of its fiscal 2006 revenue in North America while Honda had 55 percent of its sales there.

The yen weakened to as low as 123.13 to the dollar yesterday, the first time it has fallen to the 123 level since December 2002. Japan's currency also dropped against the euro for a second day, losing 0.2 percent to 163.63 yen. It changed hands at 123.02 to the dollar and 163.86 to the euro at the close of Japanese stocks trading.

A weaker yen increases the value of Japanese exporters' overseas sales when converted back to local currency, while their products become more competitive abroad.

China Stocks

China's CSI 300 jumped 6.8 percent this week, its best performance since the five days ended April 6, as savings rates that trail inflation prompt investors to switch funds into equities. The measure is about 70 points from its record close on May 29.

Shanghai Pudong Development Bank Co., the Chinese partner of Citigroup Inc., jumped 5 percent to 35.91 yuan. Youngor Group Co., China's No. 1 maker of men's clothing by sales, climbed 4.2 percent to 29.28 yuan. The stocks gained 14 percent and 15 percent, respectively, this week.

Household yuan deposits fell by 278.4 billion yuan ($36.4 billion) in May, after sliding in April for the first time since February 2003, according to the central bank. The CSI 300 has doubled this year, while savings rates offered by banks are capped at the central bank's one-year deposit rate of 3.06 percent --less than the 3.4 percent inflation rate.

``Fresh liquidity keeps coming into the market and that will continue to push share prices higher,'' said Fan Dizhao, who helps manage about $1.8 billion at Guotai Asset Management Co. in Shanghai.

Meanwhile, Yahoo Japan Corp., a unit of world's most- visited Internet directory, climbed 3.8 percent to 43,350 yen. The company will partner with Apple Inc. to sell music via Apple's iTunes Music Store, the Nikkei newspaper reported.

EnTie Commercial Bank, a Taipei-based lender, surged 6.9 percent to NT$8.36. Longreach Group, a buyout firm founded by former UBS AG investment banker Mark Chiba, agreed to pay NT$18.8 billion ($567.3 million) for a 51 percent stake of EnTie on a fully diluted basis.

Lexmark, Power Integrations, Silverleaf: U.S. Equity Movers

June 15 (Bloomberg) -- The following is a list of companies whose shares are having unusual price changes in U.S. exchanges today. Stock symbols are in parentheses after company names. Share prices are as of 11:40 a.m. New York time.

Build-A-Bear Workshop Inc. (BBW US) fell $5.75, or 19 percent, to $23.86. The maker of customized stuffed animals cut its second-quarter profit forecast in half because of slumping sales. Profit for the quarter ending June 30 will be 7 cents to 10 cents a share, down from a previous forecast of 15 cents to 19 cents, the company said.

Cenveo Inc. (CVO US) rose $1.61, or 7.1 percent, to $24.19. The commercial printer of books and catalogs said it agreed to acquire Madison/Graham ColorGraphics Inc. for an undisclosed price and expects the transaction to add to earnings.

Coinmach Service Corp. (DRA US) surged $1.53, or 13 percent, to $13.24. Babcock & Brown Ltd. (BNB AU), Australia's second- largest investment bank, agreed to buy the laundry company for about $713 million, or $13.55 a share. That's 16 percent more than the closing price of Coinmach's class A shares yesterday.

EpiCept Corp. (EPCT US) rose 27 cents, or 12 percent, to $2.45. The New Jersey-based pharmaceutical company said animal tests show its Azixa drug may effectively slow the growth of human tumors. Results of the tests will appear in today's edition of Cancer Research, published by the American Association of Cancer Research, according a statement from EpiCept. The research suggests that Azixa can slow the growth of solid tumors in mice, EpiCept said.

Expedia Inc. (EXPE US) added 97 cents, or 4 percent, to $25.43. Theflyonthewall.com reported that Chairman Barry Diller may take the world's largest online travel agency private for $30 a share, citing an unidentified source. A phone message seeking comment from Expedia wasn't immediately returned. Stifel Nicolaus analyst Scott Devitt said that a deal ``would make sense.''

Hansen Natural Corp. (HANS US) rose $3.07, or 7.7 percent, to $43.01. The maker of Monster Energy drinks was upgraded to ``buy''' from ``neutral'' at Goldman, Sachs & Co., which said Hansen sales and earnings growth may accelerate in the second half as management turns its attention from an options investigation to developing new products. ``We also see significant upside optionality for Hanson as an acquisition candidate,'' Goldman wrote.

Intel Corp. (INTC US) rose 97 cents, or 4.2 percent, to $24.20. Goldman upgraded shares of the world's largest chipmaker to ``buy'' from ``neutral'' and said Intel should benefit from rival Advanced Micro Devices Inc.'s (AMD US) likely decision to farm out production.

Lexmark International Inc. (LXK US) rose $1.83, or 3.6 percent, to $52.66. The second-biggest U.S. printer maker would be an attractive acquisition candidate and a leveraged buyout is ``doable'' in the $60 to $70 range, said Sanford C. Bernstein & Co. analyst Toni Sacconaghi. ``Its valuation is significantly more attractive than other recently announced technology LBOs,'' he wrote.

Monsanto Co. (MON US) climbed $2.39, or 3.8 percent, to $65.70. The world's biggest seed producer boosted its profit forecast for the fiscal year that ends in August because of increased U.S. demand for corn seed and crop chemicals.

Motient Corp. (MNCP US) fell 35 cents, or 2.6 percent, to $13.80. The wireless communications provider said it expects to begin trading on NASDAQ on June 20.

Nymex Holdings Inc. (NMX US), the operator of the New York Mercantile Exchange, the world's largest energy market, gained $3.67, or 2.6 percent, to $143.47. The New York Mercantile Exchange is exploring a sale to NYSE Euronext, Deutsche Boerse AG or Chicago Mercantile Exchange Holdings Inc., said two people involved in the discussions. Nymex Holdings may be worth $155 a share, or $14.3 billion, 11 percent more than yesterday's closing price, said one of the people, who asked not to be identified because the talks are confidential.

Penn National Gaming Inc. (PENN US) jumped $11.35, or 22 percent, to $62.49. The owner of 18 casinos and horse racing tracks agreed to be acquired by buyout firm Fortress Investment Group LLC (FIG US) for $6.1 billion, or $67 a share. The deal also includes debt totaling about $2.8 billion.

Fortress fell $1.15, or 4.6 percent, to $23.96.

Other gaming companies also climbed.

Boyd Gaming Corp. (BYD US) added $2.50, or 5 percent, to $52.30. Isle of Capri Casinos Inc. (ISLE US) rose $2.16, or 9.5 percent, to $24.80. Pinnacle Entertainment Inc. (PNK US) advanced $2.52, or 8.9 percent, to $31.

Power Integrations Inc. (POWI US) fell $3.52, or 12 percent, to $26. The maker of chips used in consumer electronics reduced its revenue forecast. It predicted as much as $43 million in the second quarter, down from the original projection of up to $46 million. Analyst Tore Svanberg at Piper Jaffray & Co. cut the stock's rating to ``market perform'' from ``outperform.''

RAIT Financial Trust (RAS US) gained $1.81, or 6.4 percent, to $30.04. The real-estate investment trust boosted its quarterly dividend to 84 cents from 80 cents.

ShengdaTech Inc. (SDTH US) rose $1, or 21 percent, to $5.69. The Chinese chemicals maker said it expects 43 cents to 45 cents a share this year on revenue of as much as $98 million.

Silverleaf Resorts Inc. (SVLF US) rose 60 cents, or 13 percent, to $5.30. The timeshare developer and manager increased its profit forecast for this year to a range of 70 cents to 72 cents a share.

Smith & Wesson Holding Corp. (SWHC US) rose 92 cents, or 6.2 percent, to $15.83. The parent of gun manufacturer Smith & Wesson Corp. boosted its forecast for fiscal 2008, predicting profit of 62 cents a share. Three analysts surveyed by Bloomberg had an average estimate of 60 cents.

Wolseley Plc (WOS US) American depositary receipts, each worth one share, rose 91 cents, or 4 percent, to $26.32. The world's biggest distributor of plumbing and heating equipment may be the target of a leveraged buyout. ``There are a number of persistent rumors out there,'' said Simon Brown, an analyst at Evolution Securities in London. ``Today there is a rumor of private-equity interest again. Wolseley is vulnerable, it's cheap and it's a very attractive business.''

Abbas Names Fayyad Prime Minister; Hamas's Hania Refuses to Go

June 15 (Bloomberg) -- President Mahmoud Abbas of Fatah named independent lawmaker Salam Fayyad prime minister of an emergency government as Hamas's Ismael Hania refused to give up the post, pushing the Palestinian Authority closer to a breakup.

``Fayyad has obtained collective approval from the Palestinian leadership and the Palestinian Liberation Organization,'' Nabil Amr, Abbas's media adviser, said on al- Arabiya television. Nabil Abu Rudaina, spokesman for the president, told reporters in Ramallah that talks to select the ministers for the emergency government were under way.

In the Gaza Strip, where Hamas forces yesterday overran the last centers of Fatah power, Hania said in a speech broadcast on al-Jazeera television that he will continue to serve as the head of government and termed Abbas's moves to assemble a new cabinet a violation of the Palestinian constitution.

The Islamic Hamas's takeover of Gaza while the secular Fatah retains control of the West Bank appeared to spell the end of Palestinian unity. It also creates a dilemma for Israel and powers such as the U.S. that have been involved in the Middle East peace process while efforts to resume aid to the Palestinians are stalled.

While Fatah favors talks, the Islamic Hamas is sworn to Israel's destruction and is designated a terrorist organization by the U.S. and the EU. The Western powers imposed a ban on aid to the authority after Hamas formed a government early last year, following its victory in legislative elections.

There were no gun battles in Gaza today, for the first time in more than a week, after Hamas fighters consolidated control of the enclave. They occupied Abbas's Gaza City compound and arrested Palestinian Authority security officials loyal to Fatah, Hamas's al-Aqsa Radio reported.

Looted Installations

People were seen looting Fatah installations, and the green banner of the Hamas movement was flying over Abbas's home. Hamas supporters rallied in front of the Palestinian Legislative Council building, distributing sweets and firing gunshots into the air in celebration.

In central Gaza, an unknown gunman fired at people participating in another rally, killing one, an official for the Hamas security services, speaking on condition of anonymity, said in a telephone interview.

``The Hamas side have taken control of all the security compounds over the last few days and last night they took control of the Presidential Guard compound, and that has marked an end to the fighting,'' John Ging, director of the United Nations Relief and Works Agency, which runs Palestinian refugee camps, told the British Broadcasting Corp. from Gaza.

Rafah Crossing

Hamas agreed to allow 150 members of the Fatah-aligned Presidential Guard to continue to operate the Palestinian post at the Rafah crossing between southern Gaza and Egypt, so that Egypt wouldn't close the border there, al-Aqsa Radio said.

Hania declared an amnesty for other Fatah officials who have been arrested, and Abu Obaida, a spokesman for the movement, told reporters that 10 had been freed.

Hamas spokesmen, meanwhile, tried to reassure secular Palestinians. ``We are not going to be like the Taliban,'' Fawzi Barhoom said told reporters late yesterday. ``We will spread Islam in a very civilized way to make this home safe.''

Israel said that for now it wasn't taking any action. ``No one has any interest in seeing a humanitarian crisis develop in Gaza,'' Miri Eisin, a spokeswoman for Prime Minster Ehud Olmert, said by telephone. ``The water is still flowing, and we're monitoring the situation.''

The U.S. and EU both backed Abbas's steps today and condemned Hamas.

U.S. Support

``The United States supports President Abbas and those who want to find a peaceful solution that leads to a Palestinian state that will take care of its people,'' said Gordon Johndroe, spokesman for the National Security Council. ``Hamas has demonstrated all they have to offer is violence, when negotiation is the right course of action.''

The European Union, which yesterday suspended humanitarian aid to Gaza for the first time ever, condemned Hamas's seizure of the area and backed Abbas's measures, according to an e-mailed statement from the German presidency. Germany holds the current six-month rotating presidency of the EU.

The EU ``condemns the killing of innocent civilians and members of the legal security forces,'' the EU said today. ``The EU Presidency emphatically supports President Abbas' decision, in keeping with the Palestinian Basic Law, to dismiss the government and to appoint a caretaker.''

U.K. Foreign Secretary Margaret Beckett told BBC Radio 4 it would be wrong for the international community to reward what was effectively a ``coup d'etat'' by Hamas.

Junior Partner

While Fatah agreed in February 2006 to become a junior partner in a government led by Hamas's Hania, the two movements didn't settle their differences over Israel or stop the fighting between their loyalists.

Fatah, which is a secular and nationalist movement, retained control of Preventive Security and other police agencies while the Hamas-led Interior Ministry formed its own security force in Gaza to buttress its militia.

Abbas announced in a decree late yesterday that he had dissolved the Hamas-Fatah coalition and dismissed Hamas's Hania as prime minister. A ``national salvation'' government will serve until elections are held, according to a decree from Abbas read by Tayeb Abdel Rahim, an official in his office.

Fayyad, who was born in 1952, is a former World Bank and International Monetary Fund official who was brought in as finance minister in 2002 when Yasser Arafat ruled the Palestinian Authority to clean up corruption and waste. He isn't a member of Fatah and ran as an independent in the 2006 legislative elections.

U.S. Stocks Surge After Consumer Price Gauge Slows; Intel Gains

June 15 (Bloomberg) -- U.S. stocks rallied for a third day after a measure of consumer prices increased less than forecast in May, easing concern inflation will spur higher interest rates.

Intel Corp., the world's largest maker of computer chips, rose after Goldman Sachs advised clients to buy the shares. Home Depot Inc., the biggest home-improvement retailer, gained on speculation it will sell a unit for $10 billion. Utilities and telephone companies climbed for a third day after a decline in bond yields made their dividends more attractive.

The 0.1 percent rise in so-called core prices, which exclude food and energy, followed data this week showing retail sales advanced at twice the forecast rate. Signs the economy is growing without stoking inflation helped stocks erase declines prompted by a five-week jump in bond yields.

``Inflation measures are starting to subside, and future growth is accelerating,'' said Keith Wirtz, who helps oversee $23 billion as chief investment officer at Fifth Third Asset Management in Cincinnati. ``Those are great ingredients for stock investors.''

The Standard & Poor's 500 Index added 12.13, or 0.8 percent, to 1535.1 at 11:30 a.m. in New York. The Dow Jones Industrial Average surged 113, or 0.8 percent, to 13,666.72, pushing the 30-stock gauge to its biggest three-day rally in a year. The Nasdaq Composite Index advanced 27.10, or 1 percent, to 2626.51.

All prices paid by consumers rose 0.7 percent in May for the biggest increase since September 2005, led by a jump in gasoline costs, the Labor Department said. Growth in core prices slowed from April's 0.2 percent. Economists expected the core index to stay at that level in May.

Home Depot, Intel

Home Depot gained 55 cents to $38.34. The company will receive offers for its contractor-supplies unit from two groups, people familiar with the negotiations said. A spokeswoman for the Atlanta-based retailer wouldn't comment.

Intel rose 82 cents to $24.05, the highest price in 1 1/2 years. Goldman, Sachs & Co. upgraded shares of the world's largest chipmaker to ``buy'' from ``neutral'' and said Intel should benefit from rival Advanced Micro Devices Inc.'s likely decision to farm out production.

Utilities gained the most in the S&P 500 as the yield on the benchmark 10-year Treasury note fell about 4 basis points, or 0.04 percentage point, to 5.18 percent. As a group, utility companies return 2.95 percent in dividends, the second-highest among industries in the S&P 500. Shares of telephone companies, whose 2.97 percent yield is biggest, gained 0.5 percent.

Nymex Bids

Nymex Holdings Inc. surged to a record after two people familiar with the discussions said the largest energy market is exploring a sale. The company may be worth $155 a share, or $14.3 billion, 11 percent more than yesterday's closing price, said one of the people. The shares gained $5.21 to $145.01.

The three potential bidders are NYSE Euronext, Deutsche Boerse AG and Chicago Mercantile Exchange Holdings Inc., said the people who asked not to be identified because the talks are confidential. Spokesmen for Nymex and the three suitors declined to comment.

Trading was above average today because futures and options on stock indexes and individual stocks expire. So-called quadruple witching occurs once every three months. In the first 15 minutes of trading, 455 million shares changed hands on the New York Stock Exchange, five times the 89.4 million in the same period yesterday.

Shares of casino companies surged after Penn National Gaming Inc., the owner of casinos and horse racing tracks, agreed to be acquired by buyout firm Fortress Investment Group LLC for $6.1 billion. Investors will get $67 a share in cash, Penn National said. Penn National gained $10.63 to $61.77. Fortress lost $1.09 to $24.02.

Boyd Gaming Corp. jumped $2.65 to $52.45. Isle of Capri Casinos Inc. rose $1.86 to $24.50.

Teleflex, Monsanto

Teleflex Inc., the maker of surgical instruments, car parts, and boat engines, rose to its highest price after saying it plans to buy back as much as $300 million of its shares, or about 9.5 percent of its stock outstanding. The shares gained $3.43 to $83.21.

Monsanto Co., the world's biggest seed producer, rose $2.65 to a record $65.96 after boosting its profit forecast for the fiscal year on increased demand for corn seed and crop chemicals. Profit will be $1.75 to $1.80 a share, compared with a previous forecast of $1.60 to $1.65 a share, the company said.

Shares of PPL Corp., owner of Pennsylvania's second-biggest utility, added $1.66 to $46.37 after the finance committee of its board of directors authorized a $750 million share buyback.

Novartis AG's American depositary receipts, each representing one share, gained $1.35 to $56.31. Europe's third- largest drugmaker said a study showed its Prexige painkiller reduced blood pressure in people with osteoarthritis.

Economy Watch

U.S. stocks rallied for a second day yesterday, boosted by energy companies, as oil climbed to a nine-month high.

In other economic reports today, the Fed Bank of New York's manufacturing index jumped to 25.8 from 8.0. That's more than double the median economist estimate compiled by Bloomberg.

Confidence among U.S. consumers dropped to 83.7 this month, the lowest since August, reported the Reuters/University of Michigan's preliminary index of sentiment. Last month, the survey reported 88.3.

S. Korea's Stocks Jump Most in 11 Months: World's Biggest Mover

June 14 (Bloomberg) -- South Korean stocks jumped the most in 11 months after U.S. retail sales rose and the Federal Reserve said growth isn't stoking inflation, damping speculation interest rates will be increased in the world's biggest economy. LG.Philips LCD Co. and Hyundai Motor Co. led exporters higher.

``As concerns recede a bit people can see what's really happening, which is that economies are still strong,'' said Kim Young Il, who oversees about $1.1 billion as chief investment officer at Hanwha Investment Trust Management Co. in Seoul. ``There will be rate increases but only enough to control, rather than cut off economic momentum. It's OK to buy stocks.''

The Kospi index surged 47.19, or 2.7 percent, to close at 1769.18 in Seoul. That's the biggest gain since July 20, 2006 and the largest fluctuation among markets included in global indexes. The Kosdaq climbed 2.3 percent to 783.02. Kospi 200 futures expiring in June climbed 2.1 percent to 223.00, while the underlying index rose 2.7 percent to 224.46.

Today was so-called triple witching, when equity and index options, and index futures contracts expire. Stock markets are often volatile on the expiration day because of a pickup in program trading, which refers to financial institutions' purchases and sales of more than 15 stocks at a time.

The Kospi extended its advance by about 13 points in the last minute of trading as program trading surged, Korea Exchange data shows.

U.S. Economy

LG.Philips, the world's second-largest maker of liquid- crystal displays, added 2,100 won, or 4.9 percent, to 45,000. Hyundai Motor, South Korea's biggest automaker, climbed 1,900 won, or 2.6 percent, to 74,000. North America accounted for about a fifth of Hyundai's sales in the five months through May.

Retail sales in the U.S. grew 1.4 percent in May, more than double the gain forecast by economists in a Bloomberg News survey, and the Fed yesterday said economic expansion hasn't increased ``overall'' pressures on wages and prices. The U.S. is South Korea's second-largest export market, after China.

Kia Motors Corp., which gets more than 70 percent of its sales from abroad, rose 100 won, or 0.7 percent, to 13,550. Samsung Electronics Co., South Korea's biggest exporter, advanced 8,000 won, or 1.4 percent, to 581,000.

Separately, improving conditions in the chip market will drive Samsung's share price higher after the second quarter, BNP Paribas Securities Korea Co. said in a report.

LG Electronics Inc., South Korea's second-largest handset maker, rose 3,100 won, or 4.1 percent, to 79,000. Daiwa Securities SMBC Co. raised its six-month price estimate by 16 percent to 86,000, in a note. The brokerage cited the company's mobile-phone business, which is ``quickly turning around in both volume and profitability.''

Samsung Techwin

Companies tied to the local economy gained on speculation growth will pick up.

``Conditions for employment will continue to improve this year,'' said Vice Finance Minister Chin Dong Soo. ``The number of people employed in June will increase as the impact of the economic recovery becomes more evident.''

Lotte Shopping Co., South Korea's largest department store chain, added 8,000 won, or 2.1 percent, to 386,000. Shinsegae Co., which runs the biggest discount-store chain, climbed 28,000 won, or 4.5 percent, to 650,000.

About 576 million shares valued at 8.5 trillion won ($9.1 billion) changed hands on the Korea stock exchange, 76 percent more than the three-month daily average of 4.8 trillion won.

The following shares also rose or fell. Stock symbols are in brackets after company names.

Samsung Electro-Mechanics Co. (009150 KS), an electronics- parts maker, gained 1,900 won, or 3.9 percent, to 51,000. Korea Investment & Securities Co. lifted its six-month price estimate by 13 percent to 54,000 won, in a report. The company's display- parts businesses will turn to profit in the third quarter and drive next year's earnings growth, wrote Greg Roh, an analyst.

Samsung Techwin Co. (012450 KS), a maker of digital-imaging products, lost 100 won, or 0.2 percent, to 54,800. HSBC Holdings Plc cut its recommendation to ``underweight,'' from ``overweight,'' in a report, citing recent price gains. The price estimate was raised 26 percent to 55,000 won ``with no upside,'' wrote Nam Park, a Hong Kong-based analyst.

Blackboard, Furniture Brands, Intersil, ITT: U.S. Equity Movers

June 14 (Bloomberg) -- The following is a list of companies whose shares are having unusual price changes in U.S. exchanges today. Stock symbols are in parentheses after company names. Share prices are as of 1:10 p.m. New York time.

Aluminum Corp. of China Ltd. American depositary receipts (ACH US), each worth 25 H-shares of the China's largest maker of the metal, rose $2.71, or 7.6 percent, to $38.31. Goldman Sachs Group Inc. raised its rating on the stock to ``buy'' from ``neutral'' on soaring aluminum demand and prices.

Beverly Hills Bancorp Inc. (BHBC US) rose 32 cents, or 4.3 percent, to $7.71. The holding company of First Bank of Beverly Hills said it's seeking ``strategic alternatives,'' including a sale of the company.

Blackboard Inc. (BBBB US) declined $2.71, or 6.3 percent, to $40.14. The maker of software for schools said it plans to sell as much as $150 million of convertible debt. Blackboard said it may use some proceeds from the sale to fund potential acquisitions.

Casey's General Stores Inc. (CASY US) rose $1.80, or 6.8 percent, to $28.47. The operator of convenience stores in the Midwest said that, excluding some items, it earned 30 cents a share in the fourth quarter. The average estimate from four analysts in a Bloomberg survey was 26 cents.

Clearwire Corp. (CLWR US) rose $3.28, or 17 percent, to $23.15. The wireless Internet service provider said in a statement sent by Business Wire that it agreed to promote services with DirecTV Group Inc. (DTV US) and EchoStar Communications Corp. (DISH US). Clearwire will sell the two companies' satellite video services to its customers, while they'll sell Clearwire's Internet service to their own.

Crystallex International Corp. (KRY US) rose 62 cents, or 16 percent, to $4.53. The developer of a Venezuelan gold mine said in a statement sent by Market Wire that it completed the final step needed for a permit to develop a Venezuela gold mine that may contain 14 million ounces of gold. The Ministry of the Environment and Natural Resources approved the environmental impact study for the mine, Richard Marshall, vice president of investor relations for Toronto-based Crystallex, said.

Eastman Kodak Co. (EK US) rose $1.24, or 4.6 percent, to $28.27. The company, trying to boost digital-photography revenue, said it will introduce new image-sensor technology that helps eliminate dark, blurry pictures.

Furniture Brands International Inc. (FBN US) gained 86 cents, or 6.1 percent, to $14.87. The maker of the Broyhill and Thomasville brands forecast a second-quarter loss excluding some items of 1 cent to 5 cents a share. That compares with the average estimate for an 8 cent loss from three analysts surveyed by Bloomberg.

Goldman Sachs Group Inc. (GS US) fell $7.16, or 3.1 percent, to $226.48. The world's biggest securities firm said profit growth in the second quarter was the slowest in three quarters and fixed-income trading slumped as rising defaults on the riskiest home loans hurt revenue from mortgages.

Hoku Scientific Inc. (HOKU US) jumped $2.33, or 51 percent, to $6.93. The company agreed to a $678 million contract to deliver silicon for solar panels to China's Suntech Power Holdings Co. (STP US), starting in mid-2009.

Intellect Neurosciences Inc. (ILNS US) rose $1, or 36 percent, to $3.80. The biopharmaceutical company said its stock started trading on the over-the-counter bulletin board.

Intersil Corp. (ISIL US) climbed $1.64, or 5.3 percent, to $32.45. The semiconductor maker was upgraded to ``buy'' from ``neutral'' at Banc of America Securities.

ITT Educational Services Inc. (ESI US) dropped $6.88, or 5.8 percent, to $111.92. The provider of technology-oriented postsecondary degree programs was cut to ``equal weight'' from ``overweight'' at Lehman Brothers.

Jones Soda Co. (JSDA US) fell 80 cents, or 5.1 percent, to $14.88. The Seattle Post-Intelligencer reported on its Web site late yesterday that Starbucks Corp. stores will stop selling sodas made by the maker of Fufu Berry soft drinks and other flavors. Jones gets about 3 percent of revenue from sales at Starbucks and benefits from ``high visibility'' at the coffee shops, Mark Astrachan, an analyst at Stifel Nicolaus & Co., wrote in a note.

Luna Innovations Inc. (LUNA US) rose $1, or 27 percent, to $4.75. The maker of aerospace instruments, medical monitors and polymers said in a statement sent by Business Wire that it signed an agreement to supply Intuitive Surgical Inc. (ISRG US), a maker of robotic surgical products, with fiber-optic sensing and tracking systems.

Oracle Corp. (ORCL US) added 31 cents, or 1.6 percent, to $19.61. The world's third- largest software maker was raised to ``outperform'' from ``sector perform'' by analyst Brendan Barnicle at Pacific Crest Securities. Oracle had a ``very strong'' fourth quarter across all product lines, the analyst said, adding that the shares could reach $25 on the possibility the company may raise 2008 earnings estimates to a range of $1.15 to $1.20 a share.

Progressive Corp. (PGR US) rose $1.50, or 6.5 percent, to $24.75. The third-largest U.S. auto insurer announced its board of directors approved a $2 a share extraordinary dividend and authorized the repurchase of as many as 100 million more common shares in the next 24 months.

Sanofi-Aventis SA ADRs (SNY US), each representing a half a share, fell $1.66, or 3.9 percent, to $41.40. A U.S. panel blocked the company's new weight-loss pill because it was linked to suicides. The Paris-based company didn't get a single vote yesterday in favor of Zimulti from a Food and Drug Administration panel, which found that the weight lost didn't justify the danger of psychiatric or neurological side effects. The company's stock rating was downgraded at several brokerages including Goldman, Sachs & Co., JPMorgan and Merrill Lynch & Co.

Amylin Pharmaceuticals Inc. (AMLN US) rose $1.53, or 3.7 percent, to $42.79. The company may boost sales of its drug Byetta following the decision by the FDA panel to block rival Zimulti, according to Jim Reddoch, an analyst with Friedman Billings Ramsey & Co. ``Byetta will now remain the only new drug that causes weight loss in Type II diabetes patients,'' Reddoch wrote.

Syntax-Brillian Corp. (BRLC US) snapped a seven-day losing streak, gaining 62 cents, or 14 percent, to $5.18. The maker of high-definition televisions was reiterated at ``sector outperform'' at CIBC World Markets. Analyst Daniel Gelbtuch wrote that speculation the company will move its business to Best Buy Co. (BBY US) from Circuit City Stores Inc. (CC US) was ``way, way off'' and that it expects Syntax-Brillian to raise prices, leading to higher margins.

Hamas Seizes Control of Fatah-Run Gaza Security Bases

June 14 (Bloomberg) -- Hamas fighters stormed Gaza City's Fatah-controlled security and intelligence compounds after taking over Palestinian posts at the border with Egypt today as the Islamic group grew closer to gaining control of the Gaza Strip.

After hours of anti-tank missile and machinegun fire, Fatah fighters in the Preventive Security unit surrendered. Video of the takeover was provided by Hamas-run television and aired by international broadcasters. Fatah later surrendered the intelligence headquarters, known as the Sephina, or boat.

Fourteen people died in today's fighting, bringing the death toll to at least 79 since June 11. More than 80 were hurt at the security headquarters, medics said. The border posts in Rafah were among many Gaza security sites seized, Hamas said.

The Gaza home and offices of Palestinian Authority President Mahmoud Abbas came under heavy mortar shelling while the Fatah leader was in the West Bank. In the town of Ramallah, the Palestine Liberation Organization's executive committee recommended that Abbas dismantle the coalition with Hamas, the president's spokesman, Nabil Amr, told reporters.

Hamas forces attacked and set fire to a station of the pro- Fatah Voice of Palestine radio in Gaza, Sky News said, citing the Associated Press.

While the Palestinian Authority is governed by a coalition of the two movements, Fatah had retained control of Preventive Security and other police agencies and Hamas set up its own security force in Gaza. Fatah's Central Committee voted yesterday to suspend participation in the government.

Abbas was considering the recommendation by the PLO, an international umbrella group of Palestinian organizations that is separate from the Palestinian Authority. Abbas's Fatah faction is dominant in the PLO. Hamas doesn't belong.

Call to Surrender

Hamas called on Fatah to surrender a second key security installation in Gaza City over Hamas-run al-Aqsa radio station. ``The era of justice and Islamic rule has arrived,'' Islam Shahawan, a spokesman for Hamas' militia, said on the radio.

As fears spread among secular Palestinians, other Hamas spokesmen sought to soften the message.

``We are not going to be like Taliban,'' Hamas government spokesman Fawzi Barhoom said. ``We will spread Islam in a very civilized way to make this home safe.''

Abbas rejected conditions Hamas set for a truce between the factions, which include removing several security chiefs who are opposed by the Islamic movement and reforming the Fatah-led Palestine Liberation Organization.

``The president demands a full cease-fire by Hamas before he discusses their eight conditions,'' Abbas's political adviser, Nemer Hamad, told reporters in Ramallah.

White House `Concern'

In Washington, White House spokesman Tony Snow said the situation in Gaza was a ``source of profound concern'' for President George W. Bush. ``It's important that the violence cease and that democracy -- real democracy get a chance to succeed,'' Snow said.

Israeli Prime Minister Ehud Olmert said yesterday the West must seriously consider introducing a multinational force in Gaza. Italian Foreign Minister Massimo D'Alema said today that the formation of such a force, made up of Arab troops and combined with humanitarian aid, ``must be seriously examined.'' United Nations Secretary General Ban Ki-Moon had mentioned such a proposal, he added.

Saeb Erekat, an adviser to Abbas, said on Israel Army Radio that he would support the deployment of such a force. Hamas rejected the idea, Haaretz said.

EU Suspends Aid

The security deterioration led the European Union today to suspend humanitarian aid to Gaza for the first time ever, EU Commissioner Louis Michel said in a statement on the European Commission's Web site.

The fighting has left many members of the Abbas-affiliated forces dead. Hamas raids on houses of senior Fatah officials have also killed members of their families. The director of emergency services at Shifa Hospital, Mu'awia Hassanin, said the 77 people killed in the last three days include 16 who died yesterday.

Fatah agreed in February 2006 to become a junior partner in a government led by Hamas Prime Minister Ismael Hania, though the two movements didn't settle differences over Israel or stop fighting between their loyalists for control of Gaza. Fatah advocates ending attacks on Israel and renewing peace talks, while Hamas is sworn to the Jewish state's destruction. Hamas is designated a terrorist group by the U.S. and EU.

Near Takeover

The Gaza violence escalated yesterday into a near-takeover by Hamas after the group realized its strength, Shmuel Bar, director of studies at the Institute for Policy and Planning at the Herzliya Interdisciplinary Center in Israel, said in a phone interview. ``With the food comes the appetite,'' he said.

A Hamas-controlled Gaza is in the interest of Iran, Syria and al-Qaeda, and isn't a situation likely to be reversed soon, Bar added.

``Israel is going to have to make some very hard decisions,'' he said. The Palestinians buy electricity and fuel from Israeli suppliers, something Israel may rethink if it is dealing with an enemy state launching rockets at its southern communities, Bar said.

Almost 300 unguided Qassam rockets have been fired at Israel from Gaza since mid-May, killing two Israelis and prompting dozens of Israeli air strikes that left more than 50 Palestinians dead.

Fatah's next step probably will be to consolidate its control over the West Bank, which may pave the way for Israel to hold separate talks on a settlement with Palestinians there, Bar said.

`Black Hole'

``The conventional wisdom that you have to have a comprehensive solution is wearing out,'' Bar said. ``It is very possible that we have to start thinking about a Jordanian- Palestinian solution in the West Bank that is divorced from Gaza. Gaza will be a black hole.''

The nationalist Fatah dominated the Palestinian Authority government from its formation in 1994 until the death of the movement's leader, authority President and PLO Chairman Yasser Arafat, in 2005. Hamas won control of the authority in legislative elections in January 2006.

Fatah controlled the PLO with an ideology that advocated military means to establish a state. Hamas was formed in 1988 as an alternative, with a charter that called for Israel's destruction and the establishment of an Islamic Palestinian state in its place.

Fight on Corruption

Hamas refused to take part in the Palestinian Authority when it was formed in 1994, though it later changed its strategy and ran a victorious campaign in the 2006 elections with a campaign that promised to get rid of corruption associated with Abbas's party.

In September 2005, Israel withdrew its troops and evacuated its settlements from the 350 square-kilometer (140 square-mile) strip on the Mediterranean coast that is home to almost 1.5 million people. Jibril Rajoub, a former security chief in the West Bank, said that Israel's decision to unilaterally withdraw meant that they ``threw the keys of Gaza to the streets.''

Israeli tanks shelled the southern town of Rafah today, killing four Palestinians, including three children, Agence France-Presse reported, citing medical personnel. The Israeli army denied the report, saying its forces had not fired into Gaza, the Associated Press said.

U.S. Stocks Rise, Led by Energy, Mining Shares; Exxon Advances

June 14 (Bloomberg) -- U.S. stocks rallied for a second day, led by energy companies and miners, after oil and metal prices advanced on prospects that an expanding economy will stoke demand for raw materials.

Exxon Mobil Corp., the largest crude producer, and rival Chevron Corp. helped the Standard & Poor's 500 Energy Index climb to a record. Freeport-McMoRan Copper & Gold Inc., the biggest copper company, climbed to a second straight peak.

Oil, metal and chemical companies powered the stock market's rally this year, rising more than 16 percent. Alcoa Inc.'s 37 percent climb is the biggest gain in the Dow Jones Industrial Average in 2007, while Exxon has jumped 10 percent after more than doubling over four years.

``It really seems like the market just wants to head higher,'' said Michael Church, who helps manage $2.5 billion at Church Capital Management in Philadelphia. ``It's a growing global economy and you want to hold a lot of these energy names that have led the bull market.''

The S&P 500 added 7.63, or 0.5 percent, to 1523.3 at 2 p.m. in New York. The Dow average increased 77.55, or 0.6 percent, to 13,559.90. The Nasdaq Composite Index advanced 18.13, or 0.7 percent, to 2600.44.

Energy, Raw Materials

Energy shares rose 1.9 percent as a group for the steepest advance among 10 industries in the S&P 500. Producers of raw materials added 0.9 percent.

Exxon climbed $1.48 to $84.83 after crude oil for July delivery rose $1.33 to $67.59 a barrel. Chevron added $1.20 cents to $82.35.

Freeport-McMoRan increased $2.27 to $84.02. The miner rallied to a record yesterday after saying it may sell assets to pay for debts incurred in its $26 billion acquisition of Phelps Dodge Corp. It hit a new high today after copper futures for September delivery jumped 2.5 percent to $3.40 a pound.

Gold futures for August delivery climbed $2.10 to $654.80 an ounce in New York. Silver rose 12 cents to $13.18 an ounce.

Barrick Gold Corp., the world's largest gold miner, added 16 cents to $28.40. Newmont Mining Corp., the world's second- biggest gold producer, rose 35 cents to $40.07.

CBOT Holdings Inc., operator of the Chicago Board of Trade, rose $2.54 to a record $204.04. The Chicago Mercantile Exchange Holdings Inc. said it will boost its bid for CBOT by adding a one-time dividend.

Inflation Watch

Prices paid to U.S. producers rose 0.9 percent in May, more than the 0.6 percent predicted by economists. So-called core prices, which exclude fuel and food costs, climbed 0.2 percent, the Labor Department said, matching the median forecast of economists in a Bloomberg News survey.

Bear Stearns Cos., the fifth-biggest U.S. securities firm, dropped $1.54 to $147.95 after it reported second-quarter profits that missed the average analyst estimate.

The company reported the first quarterly earnings drop in two years as mounting home-loan defaults reduced trading revenue. Second-quarter profit, excluding a one-time charge, dropped to $3.40 a share, the company said. That fell short of the average estimate of $3.51 a share from a Bloomberg survey.

Goldman Sachs Group Inc., the world's biggest securities firm, slipped $7.63 to $226.01 after posting its slowest profit growth in three quarters. Net income in the three months ended May 25 climbed to $2.33 billion, or $4.93 a share, from $2.31 billion, or $4.78, a year earlier.

Kodak, Progressive Surge

Progressive Corp. jumped $1.46, or 6.3 percent, to $24.71 for the steepest gain in the S&P 500. The third-largest U.S. auto insurer said its board approved a $2-a-share extraordinary dividend and authorized the repurchase of as many as 100 million more common shares in the next two years.

Eastman Kodak Co. surged $1.56, or 5.8 percent, to $28.59 for the second-biggest gain in the S&P 500. The world's largest photography company said it will introduce new image-sensor technology that helps eliminate dark, blurry pictures.

News Corp. gained 53 cents to $22.23. The media company controlled by Rupert Murdoch said yesterday that it plans to sell nine Fox-affiliated television stations. News Corp. may get as much as $1.65 billion for the sale, said analysts at Sanford C. Bernstein.

Dow Jones & Company Inc. dropped 97 cents to $58.17. Investors should sell shares of the company, which is the target of a $5 billion takeover bid by News Corp., because there is no guarantee that the controlling Bancroft family will accept the offer, UBS AG said. Dow Jones also boosted the weekday cover price of The Wall Street Journal by 50 percent to $1.50.

Sanofi, Amylin

Sanofi-Aventis SA, the world's third-largest drugmaker, fell after a U.S. panel blocked the company's new weight-loss pill because it was linked to suicides. American depositary receipts, each representing half a share of the French company, slid $1.70 to $41.37.

Amylin Pharmaceuticals Inc., a company that makes a rival weight loss drug, gained $1.62 to $42.88.

Autodesk Inc., the maker of software for architects and designers, lost $1.80, or 3.8 percent, to $45.24, its biggest drop since September. Analysts at Goldman, Sachs & Co. downgraded the stock to ``neutral.''

Counterfeit Colgate

Colgate-Palmolive Co., the world's biggest toothpaste maker, dropped the most in a month after it said it found counterfeit Colgate that may contain a poisonous chemical at stores in four U.S. states. The shares slid 59 cents to $66.87.

Clearwire Corp. soared $3.14 to $23.01 after the wireless Internet company agreed to promote services with DirecTV Group Inc. and EchoStar Communications Corp.

Yesterday, stocks rallied after the Federal Reserve's Beige Book report gave an upbeat assessment of U.S. regional economies, saying manufacturing and job growth picked up.

Asian Stocks Fall to Two-Week Low on Bond Yields; Samsung Drops

June 13 (Bloomberg) -- Asian stocks fell to a two-week low on concern interest rates will rise and sap growth in the world's largest economies.

Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. led declines among exporters after yields on U.S. bonds climbed to the highest in five years. BHP Billiton Ltd. led mining shares lower after metals prices dropped.

``A short-term correction looks inevitable for global markets,'' said Chang In Whan, president of KTB Asset Management Co. in Seoul, which has $3.8 billion in equity assets. Global inflationary pressure will ``squeeze liquidity,'' he said.

The Morgan Stanley Capital International Asia-Pacific Index slid 0.9 percent to 149.38 as of 8:02 p.m. in Tokyo, set for the lowest close since May 30. Japan's Nikkei 225 Stock Average dropped 0.2 percent, while the Topix index lost 0.3 percent.

Canon Inc. advanced after the yen weakened against the dollar and euro. China Merchants Bank Co. paced gains in China, where the CSI 300 Index approached a record high. Markets in Sri Lanka and Pakistan had the only other benchmarks that rose.

U.S. stocks fell as 10-year bond yields rose, reaching 5.31 percent after former Federal Reserve Chairman Alan Greenspan predicted borrowing costs will advance in the U.S. and emerging economies. Yields gained in Asian markets including Japan, Australia, Thailand and the Philippines.

Samsung, South Korea's largest exporter, slid 0.9 percent to 573,000 won. The company accounted for about 16 percent of South Korean exports last year. Taiwan Semiconductor, the world's biggest supplier of made-to-order chips, fell 1.1 percent to NT$64.10. It makes about three-quarters of its sales in the U.S.

Consumption Concern

``Everybody has started to think interest rates will continue to rise,'' said Hideo Arimura, who helps look after $16 billion at Dai-Ichi Kangyo Asset Management Co. in Tokyo. ``Some people are also worried about the possibility that U.S. consumption will be curbed.''

Australia & New Zealand Banking Group Ltd., Australia's third-largest bank, fell 1.2 percent to A$28.67. PTT Pcl, Thailand's biggest energy company, slid 3.9 percent to 248 baht. SM Prime Holdings Inc., the Philippines' No. 1 shopping-mall operator, declined 3.8 percent to 2.75 pesos.

HSBC Holdings Plc, a London-based lender that controls two of Hong Kong's biggest banks, dropped 0.3 percent to HK$143. Movements in Hong Kong's interest rates typically track the U.S. because the local currency is linked to the U.S. dollar.

``Most sectors are taking a hit, and you certainly wouldn't want to be holding on to lots of banks, interest-rate sensitive stocks, or anything that is highly leveraged to the economic cycle,'' said Troy Angus, who helps manage the equivalent of $2.1 billion at Paradice Investment Management Ltd. in Sydney.

Metals Prices Drop

BHP Billiton, the world's largest mining company, slid 1.7 percent to A$32.79. Sumitomo Metal Mining Co., Japan's No. 2 copper smelter and biggest nickel producer, plunged 4.2 percent to 2,620 yen.

A measure of six metals traded on the London Metal Exchange dropped 2.4 percent yesterday. Copper slipped 2.5 percent, zinc fell 1.1 percent and nickel slumped 5.8 percent.

Japanese exporters gained. Canon, the world's biggest digital-camera maker, added 0.6 percent to 7,190 yen. Sony Corp., the No. 1 maker of game consoles, rose 1.2 percent to 6,660 yen. Honda Motor Co., Japan's No. 2 automaker by sales, gained 0.5 percent to 4,240 yen.

The yen dropped to 122.28 against the dollar from 121.69 late in New York yesterday. It reached 122.30 earlier, the lowest since December 2002. The yen fell to 162.45 per euro from a one-month high of 161.51.

A weaker yen increases value of exports sold in dollars when converted to the local currency.

Continued Benefit

``There's no chance of the yen starting on a sudden strengthening trend,'' said Akihide Kinugawa, who helps look after the equivalent of $19 billion in Japanese stocks at T&D Asset Management Co. in Tokyo. ``Carmakers and other exporters are going to continue to benefit from the yen's weakness.''

China's CSI 300 Index rose 2 percent to 4118.27, its seventh day of gains, approaching a record close of 4168.29 set May 29. Investors set up 242,125 securities accounts for investing in mainland shares and mutual funds on June 11, bringing the tally to 103.6 million, according to the latest future from the China Securities Depository & Clearing Corp. More than a million accounts were opened last week.

China Merchants, the nation's seventh-largest lender, gained 4.7 percent to 22.64 yuan. China Vanke Co., the biggest listed property developer, rose 5.5 percent to 19.55 yuan.

``High liquidity and huge earnings potential for Chinese companies are key factors driving the market up,'' said James Liu, who helps manage the equivalent of $2.3 billion with APS Asset Management Ltd. in Shanghai.

Meanwhile, Daido Steel Co. posted the biggest percentage advance on the MSCI Asian Index after the Nikkei newspaper reported prices for some automotive steel will gain by about 12 percent. Japan's largest specialty steelmaker jumped 11 percent to 863 yen.

U.S. Stocks Gain After Retail Sales Rise, Bond Yields Decline

June 13 (Bloomberg) -- U.S. stocks gained after retail sales jumped more than forecast and bond prices rose.

Target Corp., the second-biggest discount chain, and Home Depot Inc., the largest home-improvement retailer, climbed. Energy producers led by Exxon Mobil Corp. and ConocoPhillips contributed the most to the increase in the Standard & Poor's 500 Index after oil prices advanced.

Stocks plummeted yesterday after the 10-year U.S. Treasury yield soared to its highest since 2002 and heightened concern that rising borrowing costs will reduce takeovers and corporate profits. Bond yields fell today even after the retail sales report and a higher-than-expected gain in import prices stoked inflation concerns.

``Positive retail sales numbers improve the prospects that the second quarter is going to be stronger than the first, which is what investors are looking for,'' said Steve Neimeth, who manages about $850 million at AIG SunAmerica Asset Management in Jersey City, New Jersey. ``With bond yields down, that should add more support to the market.''

The S&P 500 added 8.71, or 0.6 percent, to 1501.71 at 1:49 p.m. in New York. The Dow Jones Industrial Average increased 61.43, or 0.5 percent, to 13,356.44. The Nasdaq Composite Index advanced 11.76, or 0.5 percent, to 2561.53.

The 10-year Treasury yield fell 7 basis points, or 0.07 percentage point, to 5.23 percent.

Retail Sales

Retail sales in the U.S. rose by the most in more than a year in May, the Commerce Department said, easing concern that record gasoline prices and falling home values would slow consumer spending. The 1.4 percent increase was more than twice the median forecast in a Bloomberg survey of economists. Purchases excluding automobiles rose 1.3 percent.

Target added 44 cents to $62.90. Home Depot increased 26 cents to $37.62.

Financial shares in the S&P 500 added 0.5 percent to the S&P 500's gain as lower borrowing costs may increase demand for loans.

Citigroup, the world's biggest financial firm, added 50 cents to $53.10. JPMorgan, the third-largest U.S. bank, rose 44 cents to $49.80.

Energy shares gained 1.1 percent as a group after crude oil jumped $1 to $66.35 a barrel. A government report showed a smaller-than-expected gain in U.S. supplies of motor fuel last week.

Exxon Mobil Corp., the world's biggest oil company, added 68 cents to $82.68. ConocoPhillips, the No. 2 U.S. refiner, climbed 45 cents to $77.56. Schlumberger Ltd., the world's largest oilfield-services provider, rose $1.62 to $80.36.

Import Prices

Prices of goods imported into the U.S. increased three times faster than forecast in May on higher prices for oil and industrial supplies, renewing concern that inflation may accelerate. The 0.9 percent rise in the import price index followed a 1.4 percent gain in April, the Labor Department reported today.

More than three stocks rose for every one that fell on the New York Stock Exchange. Some 718 million shares changed hands, 3.9 percent less than the same time a week ago.

Utility companies in the S&P 500 gained 1.1 percent as a group and telephone shares increased 0.5 percent, as falling bond yields make their dividends more attractive.

Utilities and telecommunications companies both have dividend yields of 3.02 percent, the highest among 10 industries.

Duke Energy Corp., the fifth-largest U.S. utility owner, rose 25 cents to $18.50. AT&T Inc., the biggest U.S. phone company, increased 37 cents to $39.45.

AvalonBay, Molson Coors

AvalonBay Communities Inc. jumped $5.92, or 4.9 percent, to $126.81 for the steepest advance in the S&P 500. Investors speculated the third-largest U.S. real estate investment trust for apartments will be bought after Tishman Speyer Properties LP and Lehman Brothers Holdings Inc. purchased rival Archstone- Smith Trust for $13.5 billion last month.

Molson Coors Brewing Co. added $4.02 to $93.62, the biggest gain since February. The brewer was upgraded to ``buy'' at UBS AG, which said the shares will benefit from growing U.S. and Canadian sales, cost savings and speculation about a merger or acquisition.

Freeport-McMoRan Copper & Gold Inc. rose to a record and led a measure of material producers higher after saying it may sell assets to pay for debts incurred in its $26 billion acquisition of Phelps Dodge Corp. The world's biggest publicly traded copper company surged $3.63 to $82.60.

Boeing, Bristol-Myers

Boeing Co. added $1.45 to $97.93. The world's second- largest commercial airplane maker raised its 20-year forecast for world jetliner deliveries by 5.2 percent because of increasing demand in Asia and Russia.

Bristol-Myers Squibb Co. climbed 76 cents to $29.45. The maker of the blood-thinner drug Plavix was raised to ``buy'' from ``hold'' by Citigroup.

Blockbuster Inc. jumped 34 cents, or 8.6 percent, to $4.30, its steepest advance in more than six months. A Citigroup Investment Research analyst recommended buying the stock, saying the company may win subscribers with lower prices. The largest video-rental chain yesterday introduced an online-movie rental plan that's cheaper than rival Netflix Inc.

Netflix lost 98 cents to $19.10.

Stocks also got a boost from a report that showed mortgage applications unexpectedly jumped.

Mortgage Applications

The Mortgage Bankers Association's index of applications to buy a home or refinance a loan rose 6.6 percent last week, the biggest increase since March. Analysts surveyed by Bloomberg had expected a decrease of 1.7 percent.

Investors were also awaiting the Federal Reserve regional economic survey, known as the Beige Book for the color of its cover, at 2 p.m. New York time.

The S&P 500 plunged 1.1 percent yesterday, while the Dow average lost 1 percent and the Nasdaq Composite retreated 0.9 percent.

Fatah Quits Palestinian Cabinet Until Fighting Stops

June 13 (Bloomberg) -- Palestinian Authority President Mahmoud Abbas's Fatah movement voted to boycott meetings of the coalition Cabinet led by Hamas as clashes between the groups' militants in the Gaza Strip left at least 12 people dead today.

Fatah won't return to the national-unity government until the fighting stops, the group said in a statement late yesterday. Fatah's Central Committee made the decision during a meeting chaired by Abbas in the West Bank city of Ramallah. Some 59 people have been killed in the clashes over the past week.

The committee told Fatah supporters to ``foil a coup attempt carried out by a violent group of Hamas militants against the Palestinian Authority and its security apparatus,'' according to the statement.

Fatah agreed in February 2006 to become a junior partner in a government led by Hamas Prime Minister Ismael Hania, though the two movements didn't settle differences over Israel or stop fighting between their loyalists for control of the Gaza Strip. Fatah advocates ending attacks on Israel and renewing peace talks, while Hamas is sworn to the Jewish state's destruction.

Hamas issued an ultimatum today to Fatah fighters to put down their weapons by June 15 and accused the movement of seeking to stage its own coup d'etat.

``If Fatah was interested in stopping the clashes, they can simply clamp down on the coup-makers and the traitorous stream among its members,'' Hamas spokesman Sami Abu Zuhri said in a statement.

Protesters Shot

Two people were killed when gunmen fired on a group of demonstrators who were protesting the violence, said Joma'a al- Saqqa, chief of emergency medicine at Shifa Hospital, in a phone interview. Palestinian television showed protesters trying to stop masked gunmen from shooting at each other.

The deaths today included six people who were killed when Hamas militants stormed the home of Fatah spokesman Maher Miqdad, said al-Saqqa said.

Hamas has seized all but four Fatah positions in Gaza, Abu Obaida, spokesman for Hamas's military wing, told reporters today. In Khan Yunis, Hamas militants tunneled under the city's security headquarters and blew it up, said an official for the Preventive Security Forces, speaking on condition of anonymity.

A Fatah spokesman, Tawfiq Abu Khoussa, said the most important positions were still in the hands of the Palestinian Authority, most of whose security forces are loyal to Fatah.

Cease-Fire Urged

Abbas, speaking at a news conference in the West Bank city of Ramallah, urged the two sides agree to a cease-fire.

``If the clashes continue, we will be forced to take necessary measures as soon as possible,'' he said in a news conference with Dutch Foreign Minister Maxime Verhagen without giving specifics.

Fatah and Hamas gunmen, competing for influence and power, have ignored calls by party leaders for a cease-fire.

General Burhan Hammad, chief of the Egyptian security delegation in Gaza, said he would meet with Hamas and Fatah leaders later today in another bid to impose a truce. Egypt shares a border with southern Gaza.

The latest round of clashes erupted a week ago in the 350 square-kilometer (140 square-mile) enclave on the Mediterranean coast that is home to almost 1.5 million people.

Gaza is getting ``very close'' to civil war, said Basem Ezbidi, a professor of political science at Birzeit University in the West Bank. ``Things are getting out of hand,'' he said in a telephone interview. ``The government, the Cabinet, has no authority, no power, no mandate and no presence.''

West Bank Battle

The West Bank had been quiet during the Gaza conflict until a gun battle today in which militants from the al-Aqsa Martyrs Brigades, a Fatah-linked group, attacked a Hamas television station in the city of Nablus, Agence France-Presse reported. No one was injured, AFP said.

Israeli analysts, including Meir Litvak, a professor of Middle East history at Tel Aviv University, say Hamas is seeking to eliminate the military power of Fatah in Gaza.

The nationalist Fatah dominated the Palestinian Authority from its formation in 1994 until the death of the movement's leader, Yasser Arafat, in 2005. Hamas, an Islamic movement designated a terrorist group by the U.S. and European Union, wrested control of the authority in legislative elections in January 2006.

No Final Decision

Fatah hasn't made a final decision on whether to remain inside the government with Hamas, Palestinian Foreign Minister Ziad Abu Amr, who is an unaligned minister, told reporters in Tokyo today during a tour in which he is seeking foreign aid for the authority.

``I don't think it makes very much sense to undermine the national unity government,'' he said. ``The government has no responsibility in terms of the fighting between Hamas and Fatah. In fact, at the government level Hamas and Fatah work together in harmony.''

He blamed the violence on Israel's blockade of Gaza and the deadlock over peace talks. He urged a resumption of talks and the restoration of foreign aid, which was suspended after Hamas took control of the government.

To contact the reporters on this story: David Rosenberg in Jerusalem at drosenberg1@bloomberg.net ; Saud Abu Ramadan in Gaza City through the Jerusalem bureau at .

Treasuries Advance as Yields at Five-Year High Attract Buyers

June 13 (Bloomberg) -- U.S. 10-year Treasuries surged the most since February as speculators bet that yields at a five- year high will curb the economy and inflation.

Government debt due in 2017 rose as investors wagered that Treasuries would halt a five-week slide, the longest since 2005. Ten-year yields fell back below the Federal Reserve's 5.25 percent target, after exceeding that rate yesterday for the first time in a year.

``The selling is temporarily exhausted,'' said Donald Ellenberger, who oversees $6 billion as co-head of government and mortgage bonds at Federated Investors Inc. in Pittsburgh. Treasuries may be ``appropriately priced to a Fed-on-hold scenario, as opposed to inappropriately priced for an easing scenario that we were not going to see.''

The yield on the benchmark 10-year note fell 7 basis points, or 0.07 percentage point, to 5.23 percent at 1:30 p.m. in New York, according to bond broker Cantor Fitzgerald LP. The price of the 4 1/2 percent note due May 2017 rose 1/2, or $5 per $1,000 face amount, to 94 13/32. Yields, which move inversely to prices, reached 5.327 percent today, the highest since April 2002.

Treasuries strengthened today even as government data showed retail sales climbed. Benchmark two-year note yields fell 2 basis points to 5.08 percent, and 30-year yields dropped 10 basis points to 5.3 percent. The 10-year note yield climbed to 20 basis points above two-year yields yesterday, the most since May last year.

Momentum Gauge

``People have come in to take advantage of some really higher yields,'' said David Coard, head of fixed-income trading in New York at Williams Capital Group.

One gauge of momentum has signaled the past two weeks that Treasuries' were poised to rebound. The 14-day relative strength index for the futures contract on the 10-year note was 16 today, the 10th straight day it has been under 25. Readings below 30 indicate the note's price may rise, while readings above 70 indicate it may fall.

Higher Treasury yields raise costs for consumers and companies. The average 30-year fixed mortgage rate was 6.53 percent last week, up from 6.15 percent a month earlier, according to McLean, Virginia-based Freddie Mac, the second- largest buyer of U.S. mortgages after Fannie Mae. The increase adds about $50 a month to payments on a $200,000 mortgage.

Yields on corporate bonds jumped about a half-percentage point to an average of 6.63 percent in the past month, index data from New York-based Merrill Lynch & Co. show. Hewlett- Packard Co., the Palo Alto-based computer maker, yesterday sold $2 billion of floating-rate notes after having to raise the yields amid the sell off in Treasuries.

Hedge Fund Losses

Demand for Treasuries also rose today after the Wall Street Journal and Business Week reported yesterday that a Bear Stearns Cos. hedge fund lost value in the first four months of the year because of investments in mortgages made to riskier borrowers. Russell Sherman, a Bear Stearns spokesman in New York, declined to comment.

``They're not the only ones holding'' similar securities, said Ray Remy, head of fixed income in New York at Daiwa Securities America Inc. The firm is one of 21 primary dealers that trade with the Fed.

Emerging market debt rallied today, signaling investors weren't pulling back from riskier assets.

The yield to the 2015 call on Brazil's 11 percent bonds due 2040, a proxy for emerging-market debt, declined 5 basis points to 6.20 percent, according to JPMorgan Chase & Co.

`Permanent Feature'

Gains in Treasuries helped European debt pare some losses. European government bonds fell today, pushing 10-year yields to the highest since August 2002. Germany's benchmark 10-year bond yielded 4.64 percent.

Treasury yields surged yesterday after former Fed Chairman Alan Greenspan said he expects an increase in benchmark yields and greater premiums on emerging-market debt.

In separate comments today, Greenspan said low long-term rates are ``not a permanent feature.'' He spoke today via video- link to a conference in Mexico City.

Foreign investors and central banks have helped drive down U.S. yields. These investors doubled their holdings of Treasuries to $2.1 trillion in the five years ended February, according to Treasury Department data.

`Unambiguously Strong'

Statistics today suggested the economy is strengthening. Retail sales in the U.S. jumped 1.4 percent in May, the most in more than a year, a Commerce Department report showed.

``If you can't take the market down on unambiguously strong data it's a sign of an oversold market,'' said Wan-Chong Kung, who helps oversee $36 billion in fixed income at FAF Advisors in Minneapolis, the asset-management arm of U.S. Bancorp.

Regular 10-year notes yielded about 2.47 percentage points more than 10-year Treasury Inflation Protected Securities. The difference was near the widest since April, a sign of increasing demand for notes that hedge against inflation.

Producer prices may have risen 0.6 percent in May, after a 0.7 percent jump in April, according to the median estimate of economists surveyed by Bloomberg News before the government's release of the data tomorrow. Consumer prices likely increased 0.6 percent last month, compared with 0.4 percent in April, a separate survey showed. The government releases the consumer price data on June 15.

Inflation expectations may increase further, pushing 10- year note yields as high as 6 percent later this year, Morgan Stanley strategists Joachim Fels and Manoj Pradham wrote in a research note dated today.

Options on fed funds futures show about 33 percent of investors expect at least one rate cut this year, while 34 percent expect at least one increase. The rest expect no change. A month ago, 74 percent of traders expected one or more Fed rate cuts by the end of 2007, with no bets on an increase.

Goldman Sachs Group Inc. and Merrill, which predicted the Fed would cut rates this year three or more times, abandoned their forecasts last week.

Merrill's MOVE Index, a volatility gauge based on prices of over-the-counter options on Treasuries maturing in two to 30 years, reached 85.2 yesterday, the highest since July 7, 2005.

Asian Mining and Energy Stocks Rise on Rebound in Metals, Oil

June 12 (Bloomberg) -- Asian mining and energy stocks advanced after prices of metals and crude oil rebounded.

BHP Billiton Ltd. climbed to a record, leading advances on the Morgan Stanley Capital International Asia-Pacific Index. Millea Holdings Inc., Japan's biggest insurer, led the Nikkei 225 Stock Average lower on speculation recent gains have been excessive given their profit outlook.

``You're going to see upgrades to resource companies' earnings as analysts and investors get used to commodities at these levels,'' said Michael Birch, who helps manage $133 million at Wallace Funds Management in Sydney. ``The stocks aren't going anywhere but up over the longer term.''

China's CSI 300 Index fell after the National Bureau of Statistics announced that inflation accelerated in May, fueling speculation interest rates will rise.

The MSCI index was little changed at 150.69 as of 12:37 p.m. in Tokyo. The Nikkei 225 slid 0.5 percent after earlier rising as much as 0.2 percent. Other benchmarks in the region rose, except in Hong Kong and Thailand.

U.S. energy and financial shares yesterday rallied on prospects for higher earnings, lifting the Standard & Poor's 500 Index by 0.1 percent.

Rebound

BHP, the world's largest mining company, gained 1.8 percent to A$33.46. Rio Tinto Group, the third biggest, rose 1.5 percent to A$93.31. Sumitomo Metal Mining Co., Japan's No. 2 copper smelter and biggest nickel producer, added 0.6 percent to 2,690 yen.

A measure of six metals traded on the London Metal Exchange added 2.2 percent yesterday, rebounding from a four-day 6.7 percent slide. Copper climbed 3.1 percent, while zinc advanced 3.3 percent.

Crude oil yesterday gained 1.9 percent to settle at $65.97 a barrel in New York, the biggest jump in three weeks. It was recently at $65.82 in after-hours trading. The contract slipped 3.2 percent on June 8.

Mitsubishi Corp., Japan's largest trading company which generated 46 percent of its fiscal 2006 revenue from fuel and metals, rose 1.3 percent to 3,180 yen. Woodside Petroleum Ltd., Australia's second-largest oil explorer, climbed 0.7 percent to A$43.65. Inpex Holdings Inc., Japan's biggest, advanced 0.9 percent to 1.14 million yen. PetroChina Co., China's largest oil explorer, added 0.6 percent to HK$10.54 in Hong Kong.

``The rebound in commodities like gold and oil benefits the trading companies and other related shares,'' said Yutaka Miura, a market analyst at Shinko Securities Co. in Tokyo. ``Oil prices look like they still have some room to gain.''

`Locking in Profits'

Millea lost 2.2 percent to 5,330 yen. The stock has gained 10 percent so far this month. Mitsui Sumitomo Insurance Co., a casualty insurer, fell 4.5 percent to 1,618 yen, trimming its June gains to 6.5 percent.

The Topix Insurance Index has climbed 7.7 percent this month, the biggest advance among 33 industry groups. Its 14-day relative strength index, a moving average based on gains and declines, yesterday rose to 74. Readings of 70 or above indicate to some analysts that prices are poised to drop.

``The insurance industry had been doing extremely well,'' said Hideyuki Ookoshi, who oversees $365 million at Chiba-Gin Asset Management Co. in Tokyo. ``Now investors are locking in those profits.''

China Falls

China's CSI 300 lost 0.5 percent, reversing gains of as much as 1 percent. Consumer prices gained 3.4 percent in May from a year earlier, exceeding the median estimate of a 3.3 percent increase by 19 economists in a Bloomberg News survey.

China Vanke Co., the nation's largest publicly traded real- estate developer, lost 1.2 percent to 18.38 yuan. China Merchants Bank Co., the country's seventh-biggest lender, fell 2.3 percent to 21.30 yuan.

The central bank is ``closely'' watching rising food costs and will study the inflation data before any interest-rate change, Governor Zhou Xiaochuan said June 5. China will probably increase lending and deposit rates at least once more in 2007, a Bloomberg News survey showed. The benchmark one-year lending rate is 6.57 percent and the deposit rate is 3.06 percent after increases last month.

Toshiba, AU Optronics

Among technology stocks, Toshiba Corp. rose 1.1 percent to 953 yen. Japan's biggest chipmaker plans to boost flash-memory production capacity by 70 percent by June 2008 to gain a greater market share of chips used in PCs and mobile devices, Nikkei English News reported.

Rival Hynix Semiconductor Inc. dropped 1.9 percent to 31,400 won in South Korea. Samsung Electronics Co., Asia's largest chipmaker, slid 0.5 percent to 575,000 won.

Taiwan's AU Optronics Corp. and Innolux Display Corp. gained after the Economic Daily News reported they are developing touch- screen panels to try to lure orders from Apple Inc.

AU Optronics, the world's third-largest LCD maker, climbed 2 percent to NT$55.80. Innolux Display, the LCD monitor-making arm of Hon Hai Precision Industry Co., jumped 6.8 percent to NT$118. Hon Hai gained 3.1 percent to NT$263.50.

Elsewhere, China Agri-Industries Holdings Ltd., the bio-fuel unit of China's largest grain trader, tumbled 11 percent to HK$5.54, the biggest loser on the MSCI regional index.

China Agri said it has not received official notice that the Chinese government plans to ban projects that produce ethanol from grain crops. The company has not changed its business plan and will only discuss the effects of the policy changes on its business if it receives official documentation, it said yesterday.

Alliance One, Jamba, Massey, Take-Two: U.S. Equity Preview

June 12 (Bloomberg) -- The following is a list of companies whose shares may have unusual price changes in U.S. exchanges today. This preview includes news that broke after exchanges closed yesterday. Stock symbols are in parentheses after company names.

Alliance One International Inc. (AOI) increased 47 cents, or 4.7 percent, to $10.46 in trading yesterday after the official close of U.S. markets. The tobacco grower expects to exceed its earnings guidance of 25 cents to 32 cents a share for the fiscal year that ended March 31.

American Commercial Lines Inc. (ACLI US) fell $3.93, or 14 percent, to $24.97 in extended trading yesterday. The operator of barges and ship-repair facilities said it will earn $1.45 to $1.65 a share this year, down from an earlier forecast of as much as $1.95.

Cyberonics Inc. (CYBX US) declined $1.44, or 8 percent, to $16.50 in after-hours trading yesterday. The medical-device maker said its fiscal fourth-quarter loss widened to 42 cents a share from 17 cents a year earlier. The stock rose 8 cents to $17.94 in regular trading.

Ditech Networks Inc. (DITC US): The maker of voice processing equipment for telecommunications networks announced Edwin L. Harper as board chairman. The company split the positions of chairman and chief executive officer. The shares gained 5 cents to $7.66 in regular trading yesterday.

Dow Jones & Co. (DJ US): The newspaper publisher said the Wall Street Journal's advertising revenue fell 3.4 percent in May because of declines in technology, general and classified ads. By volume, ads at the newspaper decreased 7.3 percent, Dow Jones said. The stock fell 21 cents to $60.21 in regular trading.

Jamba Inc. (JMBA US) gained $1, or 10 percent, to $11 in after-hours trading yesterday. The owner of Jamba Juice stores said first-quarter net income was 20 cents a share, compared with a loss of $3.88 a share a year earlier.

Massey Energy Co. (MEE US) declined 50 cents, or 1.8 percent, to $27 in after-hours trading yesterday. The fourth- largest U.S. coal producer will remain an independent public company after completing a strategic review process with Goldman Sachs Group Inc.

Rubio's Restaurants Inc. (RUBO US): The owner and operator of Rubio's Baja Grill restaurants named Frank Henigman as chief financial officer. Henigman has been acting CFO since May. Shares of Rubio's declined 22 cents to $11.05 in regular trading yesterday.

Sunstone Hotel Investors Inc. (SHO US): The owner of Hiltons, Hyatts and other hotel brands said it would repurchase as much as $100 million of stock, which is about 5 percent of outstanding shares. Sunstone shares declined 8 cents to $28.68 in regular trading yesterday.

Texas Instruments Inc. (TXN US) fell 71 cents, or 2 percent, to $35.08 in extended trading yesterday. The world's biggest maker of mobile-phone chips said its second-quarter sales and profit won't reach the high end of its previous estimates as a slump in handset demand continues. Sales will be $3.36 billion to $3.51 billion, compared with an estimate of $3.32 billion to $3.6 billion two months earlier.

Take-Two Interactive Software Inc. (TTWO US) rose 21 cents, or 1.1 percent, to $19.15 in extended trading yesterday. The maker of the ``Grand Theft Auto'' video games reported a second- quarter loss and said the company will consolidate some businesses to reduce costs. Excluding some items, the company had a loss of 41 cents a share, narrower than the 56-cent average estimate from analysts in a Bloomberg survey.

Obama, Thompson Gain Ground on Clinton, Giuliani, Poll Shows

June 12 (Bloomberg) -- Rudy Giuliani and Hillary Clinton are the frontrunners for their parties' presidential nominations, though Fred Thompson has the most momentum on the Republican side and Democrat Barack Obama has the broadest appeal of any candidate.

A new Bloomberg/Los Angeles Times poll shows Thompson with 21 percent support, trailing only Giuliani, who has 27 percent; Arizona Senator John McCain and former Massachusetts Governor Mitt Romney run well behind. Thompson, who has yet to announce his candidacy, beats everyone among self-described conservatives, considered the base of the Republican Party.

``Thompson was able to resonate because the Republicans are not that thrilled with their candidates,'' said Susan Pinkus, the Los Angeles Times poll director.

Among Democrats, Clinton, 59, is in first place, with 33 percent support, followed by Obama, 45, with 22 percent, and former Vice President Al Gore, who has said he won't be a candidate, with 15 percent. The survey of 1,056 registered voters was conducted June 7 to 10 and has a margin of sampling error of 3 percentage points.

Obama, an Illinois senator, is clearly the strongest general-election candidate. He is the only Democrat who beats all three major Republican contenders: Giuliani, McCain and Romney. Clinton runs behind all three Republican contenders in head-to-head match-ups.

Obama Versus Giuliani

Obama also does better than any other Democrat among independent voters who will vote in the Democratic primary, who often are central to electoral success. Moreover, he has more appeal with some Republican voters. For example, 15 percent of Republicans say they would choose Obama in a head-to-head match- up against Giuliani, 63, a former New York City mayor. Just 3 percent of Republican respondents say they would pick Clinton in a similar contest.

The poll shows other areas of strength for Obama. A majority of Democrats say they favor ``a candidate who can bridge partisan divides'' -- a central theme of his campaign -- over a candidate ``with long experience in government and policy making,'' a cornerstone of Clinton's self-presentation. Independents voting in the Democratic primary say they favor unity over experience by more than 2-to-1.

Primary Voters

In addition, 18 percent of Democratic primary voters say they couldn't vote for Clinton, the highest negative rating of any Democrat. Five percent say they couldn't vote for Obama.

Obama is ``a new breed, and I think he can work with other people better than she can,'' said John Bryan, a 58-year-old retired budget analyst from Springfield, Illinois who favors Obama.

Clinton still does better among core Democrats, according to the poll. While Obama is the first African-American to have a serious chance at winning the Democratic nomination, Clinton runs more than 2-to-1 ahead among minority voters. She also does much better with female voters than the other major candidates, though she isn't nearly as strong with males.

Former Senator John Edwards, 54, who is in third place by a large margin behind the two Democratic frontrunners, has lost almost half his support since the last poll in April. Edwards stands at 8 percent, down from 14 percent two months ago.

Republican Field

When the Republican field is narrowed to the four strongest candidates, it remains largely a two-man race. Giuliani leads with 32 percent, closely followed by Thompson, with 28 percent. McCain, 70, trails with 17 percent, followed by Romney with 14 percent.

Thompson's strength in the Republican Party comes among males, with whom he runs even with Giuliani, and among self- described religious conservatives, where he runs ahead of the pack.

Penny Crider, a 44-year-old bus driver from Livonia, Michigan, says she opposes abortion and likes Thompson partly because he has consistently opposed abortion rights. ``His core beliefs have never changed,'' Crider, a Republican, said in a follow-up interview. ``He doesn't flip-flop.''

Thompson, 64, a former Republican senator from Tennessee, may also benefit from his fame as a film and television actor. ``When I watch him on `Law and Order' I've always loved him,'' said Al Pepe, a 79-year-old retired electronics manager from Jacksonville, Florida.

`Reagan'

``He reminds me of Reagan,'' said Pepe, a Republican who favors Thompson. ``You want to listen to him.''

Giuliani appears to derive much of his support from his image as the hero of Sept. 11. A strong majority of poll respondents say national security is more important than social issues, such as abortion, where Giuliani's pro-choice position puts him out of sync with the majority of his party's voters. Giuliani does better with female voters than the other Republican candidates.

McCain's weakening support may stem from several issues, one of which probably is his backing for immigration-overhaul legislation favored by President George W. Bush and many congressional Democrats, and opposed by much of the Republican base. Among the almost one-fifth of Republican primary voters who say immigration is the most important issue facing the county, McCain receives almost no support.

Moreover, his visible support for Bush on immigration and Iraq appears to be paying no political dividends. Among the minority of Republican voters who want the next president to continue Bush's policies, McCain finishes a distant fifth.

McCain

In the poll, 22 percent of Republican primary voters say they couldn't vote for McCain, almost twice as many as any other candidate.

In the hypothetical general-election match-ups, Clinton barely loses to McCain and Romney, 60, while trailing Giuliani 49 percent to 39 percent. Edwards runs ahead of Romney and Giuliani and behind McCain.

Obama has a double-digit lead over Romney and McCain. He defeats Giuliani, 46 percent to 41 percent. The Illinois senator runs well among independent voters and self-described moderates.

In a generic test, registered voters, by 49 percent to 41 percent, say they would prefer a Democrat to be the next president. Among the third of the electorate that considers the Iraq war the most important issue, Democrats are favored by a 2- to-1 margin.

China's Inflation Accelerates, Adding Rates Pressure

June 12 (Bloomberg) -- China's inflation accelerated to a 27-month high in May as pork prices soared, increasing the likelihood that interest rates will be raised further in the world's fastest-growing major economy.

Consumer prices gained 3.4 percent from a year earlier, the National Bureau of Statistics said today. That was more than the 3.3 percent expected by economists. April's inflation rate was 3 percent, matching the central bank's 2007 target.

The central bank is ``closely'' watching rising food costs and will study the inflation data before any interest-rate change, Governor Zhou Xiaochuan said June 5. A surge in grain costs and a shortage of pigs has pushed up pork prices, raising concern that social instability may follow in the world's biggest consumer of the meat.

``Today's number and the stock market for the past few days make a stronger case for a rate hike,'' said Wang Qing, chief China economist at Morgan Stanley in Hong Kong. ``If loan and fixed-asset investment growth shows continued rebound, the probability for an imminent rate hike is higher.''

The yuan rose 0.21 percent to 7.6468 against the dollar as of 10:10 a.m. in Shanghai, the biggest gain since May 11.

China will probably increase lending and deposit rates at least once more in 2007, a Bloomberg News survey showed. The benchmark one-year lending rate is 6.57 percent and the deposit rate is 3.06 percent after increases last month.

Food Prices

Food accounts for a third of the consumer price index and meat for 7 percent. Meat product prices increased 26.5 percent in May from a year earlier after rising 17.6 percent in April, the statistics bureau said.

Food prices climbed 8.3 percent after increasing 7.1 percent, while prices of consumer goods jumped 3.9 percent after rising 3.4 percent. Non-food inflation was unchanged at 1 percent.

For the first five months, consumer prices rose 2.9 percent from the same period last year, the statistics bureau said.

Record trade surpluses are pumping the financial system full of cash and fueled an 11.1 economic expansion in the first quarter. The May surplus rose 73 percent from a year earlier to $22.45 billion. The People's Bank of China has ordered banks to set aside larger reserves and sold bills to try to rein in the money supply.

Stock Market

Accelerating consumer prices make it harder for the government to cool the stock market because inflation is outpacing returns on bank deposits, encouraging households to switch their money to shares.

``Interest rates are low and that is going to push up asset prices,'' said Paul Cavey, an economist at Macquarie Securities in Hong Kong.

The CSI 300 Index is up 93 percent for the year, after more than doubling in 2006 and former Federal Reserve Chairman Alan Greenspan warned last month of a looming ``dramatic contraction.''

``The stock market is like the place for legal gambling in China,'' said Jim Walker, chief economist at CLSA Asia-Pacific Markets in Hong Kong. ``It's getting dangerous now, with so many people speculating on it that a collapse could lead to social problems.''

The benchmark plunged 6.8 percent on May 30 and 7.7 percent on June 4 after the tripling of a stamp tax on share trading and amid speculation that the government would introduce a capital- gains tax. It's climbed 12 percent in the past five trading days.

``The stamp duty is nothing compared to a capital-gain tax,'' said Jerry Lou, China strategist at Morgan Stanley in Hong Kong. ``The Chinese government should add it soon because they are running out of options.''

India's Inflation

China's inflation rate is running at a slower pace that than of India, the world's second-fastest growing major economy. India's wholesale price index, the key inflation indicator, rose 4.85 percent for the week ended May 26.

In China, overcapacity of manufactured goods and government controls on electricity and fuel help to hold down prices. About 70 percent of 600 consumer goods were in oversupply last year, the Ministry of Commerce said.

China's pork shortage has been exacerbated by outbreaks of Blue Ear Disease, or Porcine Reproductive and Respiratory Syndrome. Premier Wen Jiabao has pledged incentives to boost supply of the staple food in the Year of the Pig.

Asian Stocks Rise on Japan's Growth; Mitsubishi UFJ Advances

June 11 (Bloomberg) -- Asian stocks gained for the first time in three days after Japan raised its first-quarter growth estimate for the region's biggest economy.

Mitsubishi UFJ Financial Group Inc., Japan's largest bank, climbed on expectations stronger growth will boost profits for domestic businesses. Sony Corp. and Samsung Electronics Co. rose after a decline in U.S. bond yields damped speculation that the Federal Reserve will raise interest rates in Asia's largest export market.

The forecast ``will relieve people's cautiousness toward the Japanese economy,'' said Soichiro Monji, who helps oversee about $47 billion at Daiwa SB Investments Ltd. in Tokyo. ``Stronger private consumption should favor the banking stocks.''

The Morgan Stanley Capital International Asia-Pacific Index climbed 0.3 percent to 150.90 at 7:16 p.m. in Tokyo, as eight of the measure's 10 industry groups gained. Stocks fell last week on concern rising global interest rates will curb consumer spending and corporate profits.

Japan's Nikkei 225 Stock Average added 0.3 percent to 17,834.48. Shares also gained after the yen weakened the most in six weeks against the dollar on June 8, increasing the value of exporters' dollar-denominated sales.

China's CSI 300 Index advanced for a fifth day after an unexpected slowdown in producer-price inflation helped damp speculation interest rates will increase. Taiwanese stocks rose after Citigroup Inc. raised its forecast for the Taiex index.

Benchmarks climbed elsewhere in the region, except in South Korea. Australia and the Philippines were closed for holidays.

Improving Sentiment

U.S. stocks rebounded on June 8, ending a three-day slump, after bond yields fell from the highest in five years and oil prices declined. The Standard & Poor's 500 Index added 1.1 percent, the best one-day gain since March 21.

Mitsubishi UFJ rose 0.7 percent to 1.4 million yen. Nippon Telegraph & Telephone Corp., the world's largest phone operator, added 1.5 percent to 548,000 yen.

Japan's gross domestic product rose at a 3.3 percent annualized rate in the three months ended in March, the Cabinet Office said. That exceeded the median forecast of 3.2 percent growth by 27 economists surveyed by Bloomberg News. The government's original estimate was for 2.4 percent growth.

``The revised GDP figure will improve investor sentiment even though many people had already expected the better numbers,'' said Seiichi Suzuki, a strategist at Tokai Tokyo Securities Co. in Tokyo. ``Growth is still being supported by capital spending, so companies linked to overseas demand and large domestic shares such as banks are attracting some buying.''

Rebound

Sony, the maker of the PlayStation game console and Vaio computer, added 0.8 percent to 6,640 yen, after losing 5 percent last week. Overseas sales accounted for 70 percent of Sony's income last year.

Shares plunged early last week after 10-year U.S. bond yields breached 5 percent for the first time since August. The yield fell on June 8 by almost 2 basis points, or 0.02 percent, before rebounding 3 basis points to 5.13 percent as of 10.42 a.m. in London, according to bond broker Cantor Fitzgerald LP.

Samsung, South Korea's largest exporter, rose 1.1 percent to 578,000 won. Venture Corp., Singapore's biggest publicly traded electronics maker for customers including Hewlett-Packard Co., gained 3.3 percent to S$15.90.

Yen

Toyota Motor Corp., the world's largest automaker by market value, climbed 0.9 percent to 7,540 yen. The company made 63 percent of its sales outside Japan last business year.

The yen fell 0.6 percent to 121.73 against the dollar on June 8 in New York, the biggest drop since April 26. A weaker yen increases the value of Japanese exporters' dollar-denominated sales when converted into local currency, while their products become more competitive abroad. Japan's currency recently changed hands at 121.68 to the dollar.

China's CSI 300 rose 2.5 percent, capping its longest rally since a similar period ended April 26. Producer prices gained 2.8 percent in May from a year earlier, after climbing 2.9 percent in April, the statistics bureau said today. Economists expected a 3 percent increase, a Bloomberg News survey showed.

The yield on the benchmark three-year Chinese government bond fell 1 basis point, or 0.01 percentage point, to 3.25 percent, according to the China interbank bond market.

Reducing Expectations

The slower pace of producer-price rises ``helped reduce expectations of an interest rate hike,'' said Fan Hongyu, an investment manager at China Jianyin Investment Securities Co. in Shanghai. ``That will help keep funds flowing into the market.''

GD Midea Electric Appliances Co., China's biggest publicly traded appliance maker by sales, jumped by the 10 percent daily limit to 30.86 yuan. Wuliangye Yibin Co., its biggest sprits maker, climbed 5.1 percent to 32.80 yuan.

In Taiwan, the Taiex climbed 0.5 percent to 8338.88 after Citigroup raised its 12-month estimate for the index by 13 percent to 9550, saying earnings are improving and gains in other markets in the region have made the island's stocks relatively cheap.

Hon Hai Precision Industry Co., Taiwan's largest contract electronics maker, added 0.6 percent to NT$256.50. United Microelectronics Corp., the world's second-largest customized chipmaker, gained 1.5 percent to NT$20.

Hon Hai also gained after it said on June 8 its sales increased 48 percent to NT$85.1 billion ($2.6 billion) in May from a year earlier.

Doosan Heavy

Doosan Heavy Industries & Construction Co., South Korea's No. 1 maker of power equipment, dropped 9.9 percent to 82,100 won, its biggest slide since May 2004. The stock was rated ``sell'' in new coverage at Goldman, Sachs & Co., which has a 12-month share- price forecast of 70,500 won.

``We are hard pressed to justify current valuations,'' wrote Rajeev Das, a Seoul-based analyst at Goldman Sachs.

Cosco Corp. Singapore Ltd., a bulk carrier and ship-repair unit of China's biggest shipping company, surged 13 percent to S$3.38, a record. The stock posted the biggest advance on the MSCI index.

The company received contracts including $525 million of orders for 14 bulk carriers from shipowners in Turkey, India, Portugal and Greece. Cosco Singapore also received an order valued at $669 million from Cosco International Ship Trading Co. for 12 bulk carriers and four vessels that can move cars.

China Unicom

Meanwhile, China Unicom Ltd., the smaller of China's two mobile-phone carriers, jumped 5.8 percent to HK$11.70 on speculation the company will sell units to its rivals.

The Assets Supervision and Administration Commission, which oversees state-owned Chinese companies, approved a plan for China Unicom to sell units to China Telecom Corp. and China Netcom Corp. (Hong Kong) Ltd., the South China Morning Post said on June 9, citing a June 7 report in the Shanghai Securities News that quoted unidentified sources.

``We've seen money flowing back into telecom stocks recently,'' said Ben Kwong, head of research at KGI Asia Ltd. in Hong Kong. ``The market is speculating that a restructuring of the telecom sector will accelerate in the second half of this year.''

China Telecom, the larger of the nation's fixed-line phone companies, added 2.3 percent to HK$4.55. China Netcom, the smaller, gained 2.8 percent to HK$20.45.

U.S. Stocks Rise on Takeover Speculation; Exxon, H&R Block Gain

June 11 (Bloomberg) -- U.S. stocks gained after a jump in oil prices lifted energy producers and investors speculated companies in the financial services and automotive industries may be acquisition targets.

Exxon Mobil Corp., the largest oil producer, led the Standard & Poor's 500 Index higher. H&R Block, the biggest tax preparer, had its steepest gain in eight-months after UBS AG said it may receive a leveraged buyout bid.

More than $1 trillion in takeovers helped the S&P 500 and Dow average reach records this year. Surging bond yields pushed the benchmarks down from their peaks last week.

``We still think that stocks have room to rally,'' said Sean Clark, who helps manage about $1.3 billion as chief investment officer at Clark Capital Management in Philadelphia. ``Valuations are very palatable currently for the market and stocks are cheap relative to bonds.''

The S&P 500 gained 3.18, or 0.2 percent, to 1510.85 as of 12:11 p.m. in New York. The Dow average increased 10.4, or 0.1 percent, to 13,434.79. The Nasdaq Composite Index added 2.83, or 0.1 percent, to 2576.37.

H&R Block added $1.10 to $23.62. UBS AG encouraged investors to buy the stock, saying the company may receive a leveraged buyout bid following the sale of its mortgage unit.

Crude oil for July delivery rose 30 cents to $65.06 a barrel in New York.

Exxon gained 66 cents to $83.34.

H&R Block added $1.10 to $23.62.

Ford, the second-largest U.S. automaker, advanced 13 cents to $8.37. London newspaper CityAM said Alchemy Partners LLP may offer $6 billion for its Jaguar and Land Rover brands. The paper cited Jon Moulton, managing partner of the private equity firm. In an interview, Moulton later denied that he's planning a 3 billion-pound ($6 billion) bid for the brands. ``It's not on our deal list,'' he said. ``There have been discussions. I'm interested only at an emotional level.''

General Motors climbed 32 cents to $31.32.

U.S. Criticizes Iran; IAEA Sees Conflict `Brewing' (Update2)

June 11 (Bloomberg) -- The U.S. increased its criticism of Iran's stonewalling of nuclear inspectors, and the United Nations atomic agency's chief warned of a ``brewing confrontation'' over the Islamic Republic's uranium enrichment program.

``I am increasingly disturbed by the current stalemate and the brewing confrontation -- a stalemate that urgently needs to be broken, and a confrontation that must be defused,'' International Atomic Energy Agency Director General Mohamed ElBaradei told diplomats today at the IAEA's Vienna offices, according to a copy of prepared remarks given to reporters.

The IAEA said May 23 that inspectors are learning less about Iran's atomic work than they did before the UN Security Council imposed sanctions in December, exacerbating fears that the Islamic Republic may be diverting uranium for military purposes. The UN's knowledge of Iran's nuclear work is ``deteriorating,'' ElBaradei said. The IAEA's 35-member board of governors began a new session on Iran today.

Inspectors' reports show the continuation of ``a trend of Iran increasingly withholding cooperation from the IAEA,'' Gregory Schulte, the U.S. ambassador to the agency, said today at a news conference in the Austrian capital. Iran's refusal to show IAEA inspectors preliminary plans for nuclear installations means the country can't be trusted, the U.S. State Department said today in a statement.

Access Suspended

Iran suspended IAEA access to military and research sites last year after the agency referred the dispute over the nuclear program to the Security Council. The IAEA report also found that Iran continued to enrich uranium in defiance of a UN demand to suspend the work, triggering a new round of sanctions including a freeze on the assets of a state-owned Iranian bank and imposition of penalties on some Iranian military commanders.

Iran says it is enriching uranium as part of a nuclear- energy program permitted under the Non-Proliferation Treaty. The U.S. says the Islamic Republic is disguising plans to build an atomic bomb, a violation of the accord.

Iran, with the world's second-largest oil and natural gas reserves, has been at the center of U.S. mistrust since President George W. Bush in 2002 labeled the Islamic Republic part of an ``axis of evil,'' along with Iraq under Saddam Hussein and North Korea.

Senator's Comments

Iranian support for anti-U.S. forces in Iraq may justify attacking the Iranian base where fighters are trained, U.S. Senator Joe Lieberman said yesterday on the CBS ``Face the Nation'' program. The Bush administration has stepped up contact with Iran and Syria in recent weeks in an effort to stabilize Iraq. The administration says the two countries are fueling the insurgency in Iraq and providing arms and training to terrorists.

``We have good evidence'' of what the Iranians are doing, said Lieberman. ``If they don't play by the rules, we have to use our force.''

Iran will attack U.S. interests in the Persian Gulf if American forces launch an assault on the nation over its nuclear program, Deputy Interior Minister Mohammad Bagher Zolghadr said.

``The U.S. may initiate a devilish act, but continuing and ending that event would certainly be out of its control,'' the state-run Fars news agency reported Zolghadr as saying on June 9. ``All U.S. bases in the region'' are ``within the range'' of Iran's weapons, he said.

The Islamic Republic has refused to give IAEA inspectors preliminary plans for a heavy-water reactor in Arak, ElBaradei told the board. The Arak reactor will produce plutonium, which can be used to generate electricity or build a weapon.

`Lack of Progress'

Iran may be able to build a bomb by 2009 if it's able to conceal work from IAEA inspectors, the Washington-based Institute for Science and International Security has said.

``The lack of progress on our verification mission, coupled with additional limitations on our verification authority, has resulted in a deterioration of the agency's level of knowledge regarding certain aspects of Iran's nuclear program,'' ElBaradei said.

European Union and Iranian negotiators met today in Vienna, the Islamic Republic News Agency reported. The sides are meeting to ``prepare the ground'' for the next round of formal talks, the agency quoted Supreme National Security Council deputy head Javad Vaeedi as saying.

In negotiations headed by European Union foreign policy chief Javier Solana, the U.S. and European governments have offered economic benefits and technical assistance as an incentive for Iran to suspend the program.

Solana held a round of exploratory talks last week with Iran's top nuclear diplomat, Ali Larijani, seeking to bring Iran back to the table for more formal negotiations.

U.S. Notes Fall as Pianalto Says Inflation `Uncomfortably High'

June 11 (Bloomberg) -- U.S. Treasuries fell, extending five weeks of losses, as Federal Reserve Bank of Cleveland President Sandra Pianalto said inflation is ``uncomfortably high.''

Fourteen of the 21 primary dealers that underwrite the government's debt boosted their year-end estimate for the central bank's target rate or the 10-year note's yield. This week the government will release reports on consumer and wholesale prices. Yields on 10-year notes exceed two-year securities by 14 basis points, the most since May 2006.

``A lot of people are throwing in the towel and the curve needs to steepen,'' said Richard Schlanger, who manages about $4 billion of fixed-income assets, including Treasuries, at Pioneer Asset Management in Boston.

The yield on the benchmark 10-year note rose 3 basis points, or 0.03 percentage point, to 5.14 percent at 11:34 a.m. in New York, according to bond broker Cantor Fitzgerald LP. The price of the 4 1/2 percent note due May 2017 fell 1/4, or $2.50 per $1,000 face amount, to 95 3/32. Yields move inversely to prices.

The two-year note yield was unchanged at 5 percent. Two-year note yields have been lower than 10-year Treasuries for four days as investors demand higher returns on long-term debt to compensate for the risk alternative investments will provide greater returns over time.

`Uncomfortably High'

The Fed ``has described our core rate of inflation as being uncomfortably high and has stressed the importance of further moderation in inflation,'' Pianalto said today at a conference in Dublin. The Fed's Open Market Committee is likely to keep its target rate for overnight loans between banks at 5.25 percent when it meets on June 28, according to the median forecast in a Bloomberg News survey of economists.

The Commerce Department's price gauge tied to spending patterns and excluding food and energy costs rose 2 percent from April 2006, according to data released June 1. The index hasn't been below 2 percent since March 2004.

Bill Gross, manager of the Pacific Investment Management Co.'s $103 billion Total Return Fund, the world's biggest bond fund, is sticking with his forecast for the Fed to lower interest rates in a ``schizophrenic'' market probably within six months or more.

Housing-Led Slowdown

The central bank will keep its target rate for overnight loans between banks at 5.25 percent until a housing-led slowdown will drop inflation below 2 percent, Gross said today in an interview in New York.

Producer prices excluding food and energy rose 0.2 percent in May after being flat during April, according to the median estimate of 69 economists in a Bloomberg survey.

Consumer prices excluding food and energy also rose 0.2 percent in May, the same as in April, according to the median forecast of 72 economists in a separate survey.

U.S. Treasuries underperformed their European peers. The extra yield that investors demand for holding the 10-year U.S. note over the equivalent maturity German bund rose to 57 basis points from 53 basis points on June 8.

``The market is fearful that not only is the Fed not going to cut rates, but that it may have to raise rates,'' said Nick Stamenkovic, a strategist at RIA Capital Markets Ltd. in Edinburgh. ``The Treasury yield has further to rise. I think at least it will be 5.25 percent, if not 5.50, for the 10-year note before we see investors buying again.''

Options prices on fed funds futures on June 8 showed about 44 percent of investors are betting the Fed's benchmark rate will rise to 5.5 percent and 39 percent wagering on at least one cut by year-end. On May 1, they showed no expectations for an increase.

Volatility Gauge

Merrill Lynch & Co.'s MOVE Index, a volatility gauge based on prices of over-the-counter options on Treasuries maturing in two to 30 years, rose to 79.10 June 8, the highest since November 2005, as Treasury yields posted their biggest weekly increase since June 2006.

``We had volatility so low for a long time as the market became complacent about the Fed,'' said Theodore Ake, head of U.S. Treasury trading at primary dealer Mizuho Securities USA Inc. in New York. ``With global rates moving up and the Fed ease off the table, and a possible tightening, volatility will remain raised.''

Fed policy makers kept the overnight lending rate between banks at 5.25 percent at their last seven meetings.

`Good Buying Opportunity'

``The current levels actually present a good buying opportunity,'' said Dariusz Kowalczyk, chief investment officer at CFC Seymour Ltd. in Hong Kong. ``I don't think that the gains, especially at the long end of the curve, have been justified fundamentally, so in the medium term it's probably a very attractive level to jump back into the market.''

Fund managers who oversee $1.34 trillion said Treasury and agency securities fell to 26 percent of their holdings from 36 percent as of May 18, according to a survey by Ried Thunberg & Co., a Jersey City, New Jersey-based research firm.

``Ten-year yields at 5.25 percent would be too high,'' said Shun Totani, who helps manage about $600 million of non-Japanese bonds at Asahi Life Asset Management Co. in Tokyo. He bought 10- year Treasuries on June 8 and may add to his holdings should yields rise above 5.15 percent again.

Iran Threatens to Hit U.S. Interests; Lieberman Suggests Raid

June 11 (Bloomberg) -- Iran will attack U.S. interests in the Persian Gulf if American forces launch an assault on the nation over its nuclear program, Deputy Interior Minister Mohammad Bagher Zolghadr said.

``The U.S. may initiate a devilish act, but continuing and ending that event would certainly be out of its control,'' Zolghadr said over the weekend, the state-run Fars news agency reported. ``All U.S. bases in the region'' are ``within the range'' of Iran's weapons, he said.

Iranian support for anti-American forces in Iraq might require attacking the Iranian base where fighters are trained, U.S. Senator Joe Lieberman said yesterday on the CBS ``Face the Nation'' program. President George W. Bush's administration has stepped up contact with Iran and Syria in recent weeks in an effort to stabilize Iraq. The administration says the two countries are fuelling the insurgency in Iraq and providing arms and training to terrorists.

``We have good evidence'' of what the Iranians are doing, said Lieberman. ``If they don't play by the rules, we have to use our force.''

Limited Strike

Lieberman said he was not calling for a full-scale invasion of Iran. The U.S. military should target the training camp inside Iran, something that might be done using air power alone, he said.

``They have a base in Iran,'' said Lieberman, an Independent from Connecticut. According to some estimates, fighters trained at the base ``have killed some 200 American soldiers,'' he said.

The U.S. has led international efforts to make Iran abandon its uranium enrichment program because of concern it could be used to make nuclear weapons. Iran has already ignored several United Nations deadlines to halt enrichment and pressed ahead with plans for ``industrial-scale'' fuel production. Iran says the fuel is needed to generate electricity.

Zolghadr also warned that oil prices would rise to $250 a barrel ``if security in the region, the Strait of Hormuz and the Persian Gulf is disturbed.'' Brent crude oil closed at $68.60 a barrel on June 8.

Iran sits on one side of the Strait of Hormuz in the Persian Gulf, through which almost a quarter of the world's oil flows. Iran is the second-biggest producer in the Organization of Petroleum Exporting Countries.

Iran announced in November the test-firing of a Shahab-3 ballistic missile capable of traveling 2,000 kilometers (1,200 miles), a range that puts Israel's major cities within reach.

The same month, Iran organized 10 days of war games that were aimed at intimidating U.S. allies in the region and dissuading them from cooperating in a potential strike against Iran, U.S. officials said at the time.

Japan's Stocks Climb After GDP Report Shows Faster Growth

June 11 (Bloomberg) -- Japanese stocks advanced after a report on gross domestic product showed the nation's economy grew at a faster pace in the first quarter than initially estimated, boosting confidence in the outlook for domestic businesses.

Banks led gains. Mizuho Financial Group Inc. climbed to the highest in more than four months.

Investors welcomed confirmation of stronger growth after reports during the last two weeks on industrial production, retail trade and machine orders missed economist forecasts. The report also showed consumer spending expanded at a 3.1 percent annualized rate.

Toyota Motor Corp. led exporters higher after the yen weakened the most in six weeks against the dollar on June 8, increasing the value of their dollar-denominated sales.

The GDP report is ``positive because it will relieve people's cautiousness toward the Japanese economy,'' said Soichiro Monji, who helps oversee about $47 billion at Daiwa SB Investments Ltd. in Tokyo. ``Investors regard banks as domestic demand-related. In this sense, stronger private consumption should favor the banking stocks.''

The Nikkei 225 Stock Average advanced 84.15, or 0.5 percent to 17,863.24 at the 11 a.m. break in Tokyo. The broader Topix index climbed 10.34, or 0.6 percent, to 1766.50.

Insurance companies jumped on speculation the GDP report will give the Bank of Japan reason to boost interest rates, allowing insurance companies to make better returns on their bond investments.

Faster Growth

Mizuho, Japan's second-largest bank by assets, added 8,000 yen, or 0.9 percent, to 907,000, the highest since Jan. 23. Mitsubishi UFJ Financial Group Inc., the biggest, jumped 30,000 yen, or 2.2 percent, to 1.42 million. Sumitomo Mitsui Financial Group Inc., the third largest, climbed 10,000 yen, or 0.8 percent, to 1.2 million.

Japan's economy expanded at a 3.3 percent annualized rate in the three months ended in March, the Cabinet Office said. That exceeded the median forecast of 3.2 percent growth by 27 economists surveyed by Bloomberg. The government's original estimate was for 2.4 percent growth.

``The revised GDP figure will improve investor sentiment even though many people had already expected the better numbers,'' said Seiichi Suzuki, a strategist at Tokai Tokyo Securities Co. in Tokyo. ``Growth is still being supported by capital spending, so companies linked to overseas demand and large domestic shares such as banks are attracting some buying.''

Toyota, which had 63 percent of its sales outside Japan last fiscal year, climbed 90 yen, or 1.2 percent, to 7,560. Sony Corp., which makes about 70 percent of its sales outside Japan, advanced 70 yen, or 1.1 percent, to 6,660.

Denso Gains

The yen fell 0.6 percent to 121.73 against the dollar on June 8 in New York. That was the biggest drop since April 26. A weaker yen increases the value of Japanese exporters' dollar- denominated sales when converted back into local currency, while their products become more competitive abroad. Japan's currency recently changed hands at 121.55 against the dollar.

Sony also rose after the Taiwan's Commercial Times newspaper said the company has started outsourcing production of its 32-inch liquid-crystal display televisions to Hon Hai Precision Industry Co. for the first time.

Millea Holdings Inc., the nation's largest property and casualty insurer by market value, jumped 130 yen, or 2.4 percent, to 5,510. Sompo Japan Insurance Inc., the No. 3 non-life insurer, rose 42 yen, or 2.6 percent, to 1,660. Nomura Securities Co. lifted its rating on Sompo to ``buy'' from ``neutral'' today.

Higher Interest Rates?

Faster growth will be encouraging for Bank of Japan Governor Toshihiko Fukui and his policy-making colleagues, who gather in Tokyo later this week for a regular monetary policy meeting.

``The Bank of Japan should be gaining more confidence with today's revision, which increased the probability of the next rate hike in August,'' said Tomoko Fujii, head of economics and strategy for Japan at Bank of America N.A. in Tokyo.

Insurance companies keep most of their investments in bonds. Once a bond matures, they can reinvest the principal in a higher-yielding issue if rates are rising.

Denso Corp., Japan's biggest maker of diesel engine parts, gained 110 yen, or 2.5 percent, to 4,490. The company plans to start making pollution-curbing electronic fuel-injection devices for a Chinese automaker as early as 2009, the Nikkei newspaper said yesterday.

CyberAgent Inc., an internet services provider, soared 8,300 yen, or 11 percent, to 82,000. The stock was rated ``buy'' in new coverage by Sumito Takeda, an analyst at UBS AG in Tokyo. The company may be able to take a leading position in the weblog market and profit from that status, the analyst wrote.

Nikkei futures expiring in June rose 0.6 percent to 17,890 in Osaka and gained 0.5 percent to 17,880 in Singapore.

Stock Rally May Fizzle as Bond Yields Rise on Fed Rate Concerns

June 11 (Bloomberg) -- The best may be over for the 2007 U.S. stock market rally.

Gains in the Standard & Poor's 500 Index will slow in the second half of the year amid rising concern that the Federal Reserve will raise interest rates, investors said.

``The rate expectation game has changed, and it has been quite a big adjustment,'' said James Swanson, chief investment strategist at MFS Investment Management in Boston, which oversees $192 billion. Stocks ``don't resume the upward march this week or next. It's too soon for the market to suddenly brush this off.''

Government reports this week may show higher consumer prices and a jump in retail sales reflecting record costs for gasoline. Signs of faster economic growth and inflation drove 10-year Treasury yields to the highest in five years, halting a rally that lifted the Standard & Poor's 500 Index to a record.

The benchmark for American equity fell 1.9 percent last week, reducing this year's gains to 6.3 percent. That's still within 3 percent of the year-end level predicted in December by Wall Street strategists tracked by Bloomberg and 5 percent below their current average.

The S&P 500 closed at 1507.67. The Dow Jones Industrial Average retreated 1.8 percent to 13,424.39, while the Nasdaq Composite Index fell 1.5 percent to 2573.54.

Utilities in the S&P 500 dropped the most, losing 5.4 percent, the steepest in 4 1/2 years. The group's average dividend yield of 3.04 percent is the highest among the S&P 500's 10 industries. Chicago-based Exelon Corp., the biggest U.S. utility by market value, lost 7.8 percent to $70.66. Constellation Energy Group, based in Baltimore, dropped 7.2 percent to $83.92.

Bond Losses

The drop in shares mirrored bond losses, which drove the yield on the benchmark 10-year Treasury note up 15 basis points to 5.10 percent. The yield reached 5.25 percent on June 8, the highest since May 2002.

The odds of a quarter-point increase in the Federal Reserve's benchmark interest rate rose to 44 percent last week, options on the fed funds rate showed. They were zero a month earlier.

Reports this week may show economic growth is fueling inflation. The Labor Department will say June 15 that consumer prices rose 0.6 percent in May after a 0.4 percent gain in April, according to a Bloomberg survey of economists. Retail sales may rise 0.7 percent in May after falling a month earlier, boosted by energy prices.

Oil touched a nine-month high last week, while regular gasoline was $3.22 a gallon on May 23, the highest pump price ever.

`Negative for Stocks'

``It certainly doesn't help that oil prices are going up,'' said Neil Wolfson, who oversees $32 billion as president of Wilmington Trust Investment Management in New York. ``Rising inflation, all else being equal, is a negative factor.''

Higher bond yields may lower corporate profits, make takeovers more expensive and reduce the appeal of dividends.

``As long as rates go up, that's going to be negative for stocks,'' said Jack Ablin, who oversees $52 billion as chief investment officer at Harris Private Bank in Chicago. ``It's astounding to me that yields moved as quickly as they did.''

Stocks ended a six-day advance June 5 after Fed Chairman Ben S. Bernanke said core inflation ``remains somewhat elevated.'' The Labor Department said a day later that first- quarter labor costs rose three times the rate first estimated.

``We still have a ways to go before we get to the level of inflation that I'm comfortable with on a longer-term basis,'' Federal Reserve Bank of Chicago President Michael Moskow said in a June 8 interview on CNBC. ``Inflation is the predominant risk that I see in the economy.''

Close to Target

The five-week slide in bonds has made them cheaper relative to stocks. Estimated profits at companies in the S&P 500 represent a yield of 6.22 percent of share prices, or 1.12 percentage points more than 10-year Treasuries yield. The advantage is down from 1.88 percentage points in the first quarter, the biggest in 20 years.

This year's rally in stocks has also brought the S&P 500 close to the level predicted at the beginning of the year by Wall Street strategists. A Bloomberg survey on Jan. 2 showed an average estimate for the S&P 500 of 1550 by the end of 2007.

The benchmark closed within 11 points of that on June 4 before dropping the next three days. Strategists have revised their forecasts higher since the start of the year and the average estimate is now 1584, or 5 percent above the last close.

Thomas McManus, chief investment strategist at the brokerage unit of Bank of America Securities in New York, said rising bond yields may limit further advances.

``Stocks could adjust a little bit more forcibly than we've seen so far,'' McManus said. He has a 12-month forecast of 1550 for the S&P 500.

Earnings Outlook

The accelerating economy may boost corporate earnings and lift U.S. equities, said James Paulsen, who helps oversee $175 billion as chief investment strategist at Wells Capital Management in Minneapolis.

``The catalyst to this sell-off was a realization that the economy is growing far better than they thought,'' said Paulsen, who expects the S&P 500 to climb to 1650 by year end. ``Ultimately, what's bad about that?''

If stocks do rise in coming months, the gains won't be as steep as they were in the first five months of the year, according to Wolfson of Wilmington Trust.

``We're expecting the stock market to rally, but not nearly what it has rallied,'' Wolfson said. ``Rising rates are typically not good for stocks. They make bonds relatively more attractive and weigh on valuation levels.''

Asian Stocks Rise on Japan's Economic Growth; Mizuho Advances

June 11 (Bloomberg) -- Asian stocks rose for the first time in three days after a report today showed Japan's economy grew at a faster pace than initially estimated and U.S. bond yields retreated.

Mizuho Financial Group Inc., Japan's second-largest bank, rose to a four-month high on expectations stronger growth will boost profits for domestic businesses. Sony Corp. and Samsung Electronics Co. tracked a rally in U.S. shares as speculation eased that the Federal Reserve will raise interest rates in the region's largest export market.

The gross domestic product report ``should be positive because it will relieve people's cautiousness toward the Japanese economy,'' said Soichiro Monji, who helps oversee about $47 billion at Daiwa SB Investments Ltd. in Tokyo. ``Investors regard banks as domestic demand-related. In this sense, stronger private consumption should favor the banking stocks.''

The Morgan Stanley Capital International Asia-Pacific Index climbed 0.5 percent to 151.23 as of 10:15 a.m. in Tokyo, ending a two-day, 1.8 percent loss. All 10 industry groups advanced.

Japan's Nikkei 225 Stock Average climbed 0.6 percent to 17,881.53. Shares also gained after the yen weakened the most in six weeks against the dollar on June 8, increasing the value of exporters' dollar-denominated sales.

Benchmarks in markets open for trading elsewhere gained, except for New Zealand and South Korea. Australia and the Philippines are closed today for holidays.

U.S. stocks rebounded on June 8, ending a three-day slump, after bond yields fell from the highest in five years and oil prices declined. The Standard & Poor's 500 Index added 1.1 percent, the best one-day gain since March 21.

Improving Sentiment

Mizuho gained 1.1 percent to 90,900 yen, the highest since Jan. 22. Mitsubishi UFJ Financial Group Inc., Japan's largest bank, rose 2.2 percent to 1.42 million yen.

Japan's economy expanded at a 3.3 percent annualized rate in the three months ended in March, the Cabinet Office said. That exceeded the median forecast of 3.2 percent growth by 27 economists surveyed by Bloomberg News. The government's original estimate was for 2.4 percent growth.

``The revised GDP figure will improve investor sentiment even though many people had already expected the better numbers,'' said Seiichi Suzuki, a strategist at Tokai Tokyo Securities Co. in Tokyo. ``Growth is still being supported by capital spending, so companies linked to overseas demand and large domestic shares such as banks are attracting some buying.''

Rebound

Sony, the maker of the PlayStation game console and Vaio computer, added 1.5 percent to 6,690 yen, after losing 5 percent last week. Overseas sales accounted for 70 percent of Sony's income last year.

Shares plunged early last week after 10-year bond yields breached 5 percent for the first time since August, fueling speculation the Fed will raise interest rates. The yield declined on June 8 by almost 2 basis points, or 0.02 percent, after earlier rising to as high as 5.25 percent, its highest level since 2002.

The odds of an increase in the Fed's benchmark interest rate to 5.5 percent rose to as high as 40 percent last week, options on the fed funds rate showed, up from zero a month earlier.

Samsung, South Korea's largest exporter, rose 1.1 percent to 578,000 won. Venture Corp., Singapore's biggest publicly traded electronics maker for customers including Hewlett-Packard Co., gained 2 percent to S$15.70.

Toyota Motor Corp., the world's largest automaker by market value, climbed 0.8 percent to 7,530 yen. The company had 63 percent of its sales outside Japan last business year.

The yen fell 0.6 percent to 121.73 against the dollar on June 8 in New York. That was the biggest drop since April 26. A weaker yen increases the value of Japanese exporters' dollar- denominated sales when converted into local currency, while their products become more competitive abroad. Japan's currency recently changed hands at 121.68 to the dollar.

Asian Stocks Fall Most in Seven Weeks on Interest Rate Concerns

June 8 (Bloomberg) -- Asian stocks dropped the most in seven weeks on concern rising global interest rates will curb consumer spending and corporate profits.

All 10 industry groups of the Morgan Stanley Capital International Asia-Pacific Index retreated. Toyota Motor Corp., which gets almost two-thirds of its revenue from overseas sales, had its biggest fall in two months after U.S. bond yields jumped.

``There's now strong odds global interest rates are on the rise, which is the last thing equity markets need at the moment,'' said Gerard Minack, a strategist at Morgan Stanley in Sydney. ``If rates go up that's going to choke up the support for equities.''

Rio Tinto Group, the world's third-largest mining company, led materials stocks lower along with metals prices. Japanese non- bank lenders including Credit Saison Co. plunged after the nation's Supreme Court ruled they must apply excess interest payments by customers to the principal on loans.

The MSCI Asia index lost 1.3 percent to 150.87 as of 6:07 p.m. in Tokyo, the most since April 19, after yesterday sliding 0.2 percent from a record high. The measure has slipped 0.3 percent this week, snapping a two-week, 2.7 percent advance.

In Japan, the Nikkei 225 Stock Average dropped 1.5 percent to 17,779.09. Shares also declined after a report today showed April machinery orders rebounded less than some economist estimates.

Benchmarks also plunged more than 1 percent in Australia, South Korea, Singapore, Indonesia, New Zealand and Hong Kong, where HSBC Holdings Plc slid on concern higher interest rates will dent demand for loans. Ping An Insurance (Group) Co. led China's CSI 300 Index 0.9 percent higher.

Toyota, Hon Hai

U.S. stocks fell yesterday, pushing the Standard & Poor's 500 Index and the Dow Jones Industrial Average down by the most in three months. The U.S. is Asia's biggest export market.

Toyota, Japan's largest automaker by market value, slid 2 percent to 7,470 yen, the biggest drop since April 13. Westfield Group, which operates 59 malls in the U.S., lost 1.6 percent to A$21.12 in Australia. Hon Hai Precision Industry Co., Taiwan's largest electronics company by sales, fell 1.6 percent to NT$254. Hon Hai's U.S. customers include Apple Inc. and Motorola Inc.

The U.S. Treasury 10-year note fell the most in more than three years, pushing yields to 5.13 percent yesterday. Options on the Federal Reserve funds rate show that as of June 6, the odds of an interest-rate increase to 5.50 percent from 5.25 percent are at almost 41 percent. A month earlier, the odds were zero.

European 10-year note yields climbed to 4.5 percent, a 4 1/2- year high after the central bank lifted the refinancing rate to 4 percent on June 6. Interest rates in the U.S., Europe, Australia, the U.K. and South Korea are at six-year highs and at a record in New Zealand.

Stocks and Bonds Blow

``There's inflation pressure in the U.S. and a rate increase in Europe, which has dimmed expectations for interest-rate cuts,'' said Chu Moon Sung, who oversees about $5.8 billion in global equities at Shinhan BNP Paribas Investment Trust Management Co. in Seoul. ``Inflation deals