EmpireGlobalfx ECN Broker

[EmpireGlobalfx]

Pressure rises for Greek debt buy-back, swap

 

German Chancellor Angela Merkel called on Sunday for private investors to make a major contribution to bailing out Greece, as pressure rose for radical action to cut the country's debt burden.

 

Officials proposed a range of schemes for Europe's bailout fund, the European Financial Stability Facility, to finance a buy-back or a swap in which private owners of Greek government bonds -- banks, insurers and other investors -- would accept cuts in the face value of their holdings.

 

European Central Bank Executive Board member Lorenzo Bini Smaghi suggested the EFSF be allowed to provide funds for a buy-back of bonds from the market, where prices have in some cases fallen 50 percent from levels at which the debt was issued.

 

"This would allow the private sector to sell bonds at market prices, which are currently below nominal value. At the same time, the public sector could benefit monetarily," Bini Smaghi told Sunday's To Vima newspaper in an interview.

 

Wolfgang Franz, head of Germany's "wise men" economic advisers to the government, said the huge size of Greece's 340 billion euro ($480 billion) debt pile meant it was "inevitable and justified" for the private sector to accept losses.

 

"One possibility would be that the current EFSF euro rescue mechanism swaps -- at a significant discount -- Greek bonds into bonds it issues and guarantees," Franz was quoted as telling Focus magazine at the weekend.

 

Alarmed by the spread of market jitters over Greece to Italy and Spain, where bond yields have surged in the past 10 days, European governments are struggling to put together a second bailout of Greece that would supplement a 110 billion euro rescue launched in May last year.

 

Germany is insisting private investors be involved in the second bailout, and Merkel indicated on Sunday that if they did not voluntarily agree to a major contribution now, they might eventually be forced into a more costly solution to the crisis.

 

"The more we can involve private creditors now on a voluntary basis, the less likely it is that we will have to take next steps," Merkel told public broadcaster ARD without elaborating on what those steps might be.

 

Three weeks of talks between European officials and the private sector have failed to reach a deal on the second bailout of Greece, but the lobby group representing commercial banks said on Sunday that some progress had been made.

 

"Progress has been made and the discussions are continuing," the Institute of International Finance said in a brief statement. It said the talks were focusing on "several options related to Greece's financing needs and longer-term debt sustainability.

 

Last week, European Council President Herman Van Rompuy announced that euro zone leaders would hold a summit in Brussels on Thursday this week to discuss the rescue of Greece.

 

But Merkel, while describing the summit as "urgently necessary," said she would only attend if lower-ranking officials had already prepared a clear rescue plan. "I will only go there if there is a result," she said.

 

BUY-BACK

 

Other options on the table include an extension of the maturities of Greek bonds. But German weekly magazine Der Spiegel, citing finance ministry sources, reported at the weekend that a debt buy-back had become the option most likely to attract a consensus.

 

Greece could cut its public debt by 20 billion euros if it bought back its sovereign bonds at market prices as part of a rescue deal, the magazine said.

 

Legal and technical obstacles may lie in the way of any step to involve the private sector in helping Greece. Bini Smaghi acknowledged, for example, that current EFSF rules did not provide for it to buy bonds from the secondary market; changing the rules might require approval by national parliaments.

 

Another potential obstacle is the ECB, since the central bank's president Jean-Claude Trichet has opposed any measure that would cause credit rating agencies to declare Greece in default, even on a limited basis.

 

But in an interview to be published on Monday, Trichet held out the possibility that a default could be managed smoothly. He said the ECB would stop accepting defaulted bonds as collateral in its money market operations -- a blow to Greek banks which depend on the operations for funding -- but suggested governments might provide other collateral.

 

"The governments would then have to step in themselves to put things right...The governments would have to take care the Eurosystem is presented with collateral that it could accept," Trichet told the Financial Times Deutschland without elaborating.

 

A deal on a private sector contribution to Greece would probably not by itself come close to solving the problem; officials and private economists estimate the country's debt would have to be cut by about half, to 80 percent of gross domestic product, to make it manageable in the long-term.

 

As part of the second bailout, officials are also looking at other measures to help Greece including up to 60 billion euros of additional emergency loans from European governments and the International Monetary Fund; steps to recapitalise Greek and European banks; and ways to stimulate economic growth in Greece.

 

As a key shareholder in the IMF, the United States is important to continued IMF support of Greece. U.S. Secretary of State Hillary Clinton, visiting Athens on Sunday, voiced strong support for Greece's effort to overcome its crisis, saying it was taking the hard steps needed for future growth.

[MFRU]

what is your minimum opening account balance requirement for the ecn account?

[EmpireGlobalfx]

Hi there MFRU. Our minimum acc requirement is USD 500. All accounts are ECN and you have indices, commodities, shares, metals and etf's apart from currency pairs.

 

Best regards!

[EmpireGlobalfx]

Gold rises above $1,600/oz as debt fears simmer

 

Gold prices rallied to record highs above $1,600 an ounce in Europe on Monday as investors spooked by the euro zone debt crisis and the threat of a U.S. default bought into the metal as a haven from risk.

 

Spot gold rose as high as $1,600.40 an ounce and was up 0.4 percent at $1,598.76 an ounce at 0845 GMT. Gold rose more than 3 percent for a second straight week to Friday, a feat it has not achieved since February 2009.

 

Data from U.S. futures regulator the Commodity Futures Trading Commission showed on Friday that managed money sharply raised bullish bets in U.S. gold futures and options in the week ended July 12 as bullion prices rallied.

 

"CFTC data shows a surge into gold, so despite the higher levels the professionals have returned to gold with a vengeance," said Saxo Bank analyst Ole Hansen.

 

"The stress test result was met with a lukewarm response with focus again switching back to Europe. When that happens gold is often allowed to perform despite the dollar strengthening at the same time."

 

Sovereign default fears are growing in both Europe and the United States. The United States is struggling with deficit reduction talks ahead of the White House's July 22 deadline on a deal to raise the $14.3 trillion debt ceiling.

 

Euro zone ministers will meanwhile meet on Thursday to discuss the financial stability of the euro area.

 

German Chancellor Angela Merkel called on Sunday for private investors to make a major contribution to bailing out Greece, as pressure rose for radical action to cut the country's debt burden.

 

On the foreign exchange markets, the euro slid 0.7 percent against the dollar. Sovereign debt worries led investors to shift funds into safe-haven currencies like the Swiss franc and cut exposure to riskier assets.

 

Gold rallied across a number of major currencies, also hitting record highs in euro, sterling, South African rand and Canadian dollar terms.

 

"Investors are increasingly looking to gold as a safe haven as the U.S. dollar, pound sterling and the euro continue to devalue against stronger currencies such as those of Canada, Australia, Norway and Switzerland," said Angelos Damaskos, chief executive of Sector Investment Managers.

 

"Sovereign debt problems in the developed world persist and continue to hamper economic growth. Quantitative easing is the easy solution but rising inflation creates a headache for central bankers."

 

STOCKS UNDER PRESSURE

 

Stock markets fell in Europe as bank stocks came under pressure after a capital stress test failed to dispel fears about the regional debt crisis, while Bund futures opened higher as uncertainty ahead of a euro zone meeting this week underpinned appetite for safe-haven assets.

 

U.S. 10-year Treasury notes fell in Asian trade on Monday, with intraday moves set to stay choppy in the near-term due to uncertainty about the fate of U.S. debt talks and worries over the euro zone's sovereign debt crisis.

 

U.S. gold futures for August delivery were up $9.50 an ounce at $1,599.60, having peaked at $1,601.20.

 

Other commodities appeared lackluster, meanwhile, with Brent crude oil easing 0.6 percent and U.S. crude futures 0.2 percent. Industrial metals like nickel and aluminum eased, while bellwether copper was little changed.

 

Growing worries of a possible sovereign debt default on either side of the Atlantic are also weighing on oil prices.

 

Other precious metals tracked gold higher, meanwhile, with silver rising above $40 an ounce for the first time since early May. The grey metal rallied to a record $49.51 an ounce in April before correcting sharply.

 

It has rallied more than 15 percent in the last two weeks, however, as gold prices have risen.

 

"Toward the end of the summer, an expected pick-up in interest in silver could take the gold/silver ratio lower for the rest of 2011," said BNP Paribas in a report released Friday. "In 2012, the silver price may in turn weaken as the outlook for gold turns more negative."

 

Silver peaked at $40.15 an ounce and was later bid at $39.95 an ounce against $39.27. Spot platinum was bid at $1,759.50 an ounce versus $1,748, while spot palladium was at $782.72 an ounce against $771.

[EmpireGlobalfx]

No consensus as Europe limps toward Greece summit

 

Confusion over competing policy proposals reigned among officials and bankers on Monday as Europe struggled to put together a second bailout of Greece and prevent the region's debt crisis from spreading.

 

French government spokeswoman Valerie Pecresse said she believed a summit of the euro zone's 17 national leaders scheduled for Thursday in Brussels would agree on a rescue of Greece, supplementing a 110 billion euro ($154 billion) bailout launched in May last year.

 

But after three weeks of preparatory talks, it remained unclear whether government officials and commercial bankers could agree on a way for private owners of Greek government bonds -- banks, insurers and other investors -- to contribute to the bailout by taking cuts in the face value of their holdings.

 

The uncertainty pushed the euro down against other currencies on Monday and the government bond yields of indebted euro zone states rose, with Italy's 10-year yield climbing more than 0.2 percentage point to a euro-era high.

 

Paul de Grauwe, a professor of international economics at Leuven University in Belgium who has informally advised European Commission President Jose Manuel Barroso, said politicians had delayed taking decisive action on Greece for so long that their options were narrowing fast.

 

"I'm afraid to hope. I still hope, yes, but I'm not optimistic," he said.

 

"We've had solutions in the past, but we haven't grasped them. Now it's too late for some of those solutions to work anymore; the opportunity has been lost."

 

"CANNOT RULE OUT ANYTHING"

 

Officials are wrestling with a range of schemes for Europe's bailout fund, the European Financial Stability Facility, to finance a voluntary buy-back or swap of Greek debt that would be conducted at a discount to face value, helping to reduce Greece's 340 billion euro mountain of sovereign debt.

 

But all of the schemes could face major technical and legal obstacles, in some cases requiring the approval of national parliaments in the euro zone. Other proposals still appear to be on the table; Germany's Die Welt newspaper reported on Monday that governments were considering a levy on banks as a way to involve private creditors in rescuing Greece.

 

An official of a major euro zone government who is familiar with the talks said he had not heard of a proposal for a bank levy, but added: "There are at the moment so many proposals that you cannot rule out anything."

 

If a deal on private creditor participation is reached, it may cut Greece's debt by just 20 or 30 billion euros, not nearly enough by itself to solve the problem. Analysts have estimated the debt would have to be roughly halved, to 80 percent of gross domestic product, to make it manageable in the long run.

 

German Chancellor Angela Merkel said on Sunday that while this week's summit was "urgently necessary," she would only attend if lower-ranking officials had already prepared a clear rescue plan. "I will only go there if there is a result."

 

BAILOUT

 

As part of the second bailout, officials have also been looking at other measures to help Greece including up to 60 billion euros of additional emergency loans from European governments and the International Monetary Fund; steps to recapitalize Greek and European banks; and ways to stimulate Greek economic growth.

 

Some official sources have said interest rates on bailout loans extended to Greece, Ireland and Portugal may be cut and maturities on those loans extended drastically, perhaps to 30 years.

 

There has also been talk of expanding the 750 billion euro bailout facility which the European Union and the IMF jointly created last year as the debt crisis erupted.

 

But de Grauwe said financial markets were now putting so much pressure on weak euro zone states that it was unclear whether cutting interest and extending maturities on their emergency loans would help them regain access to the markets.

 

"If that was to be a solution, it's a solution we should have implemented months ago, when it would have worked."

 

Another source of concern is signs that the IMF and other major governments around the world, which want to prevent the European crisis from poisoning debt markets globally, may lose patience with Europe's handling of the problem.

 

Die Welt quoted unnamed diplomatic sources as saying the IMF was angered by Europe's crisis management and that "influential parties" in the Fund wished not to take part in further bailouts of Greece. It did not elaborate.

 

Former U.S. Treasury Secretary and White House adviser Lawrence Summers, writing in a column contributed to Reuters on Sunday, said Europe needed to act much more aggressively than it had done so far to prevent the Greek crisis from damaging both the region's single currency and the global economic recovery.

 

He recommended steps including sharp cuts in interest paid on bailout loans, allowing countries to buy European Union guarantees for their issues of new debt, and a menu of options for private investors to become involved.

 

"It is to be hoped that European officials can engineer a decisive change in direction but if not, the world can no longer afford the deference that the IMF and non-European G20 officials have shown toward European policymakers over the last 15 months," Summers wrote.

 

Many private economists think some form of regional guarantee for countries' debt along the lines suggested by Summers -- or perhaps even the issuance of joint euro zone bonds -- may ultimately be the only way to emerge from the crisis without one or more weak states being forced out of the zone.

 

But Germany has shown no appetite for such a sweeping solution, which in any case would require a complex and time-consuming revision of the EU treaty.

 

"We are against euro bonds," German government spokesman Steffen Seibert said on Friday, repeating Berlin's concern that a common bond for the single currency area would provide no meaningful incentives for national governments to pursue prudent budget policies.

[EmpireGlobalfx]

Gold eases from record highs, eyes euro summit

 

Gold prices eased a touch on Tuesday after earlier hitting record highs, as a rebound in assets seen as higher risk, such as shares and the euro, took some of the heat out of appetite for safe havens.

 

Gold prices remained elevated, however, as investors continued to favor the metal amid heightened concerns that the debt crisis engulfing Greece may ensnare Italy and Spain, and as time grew short for raising the U.S. debt ceiling.

 

Spot gold hit a peak of $1,609.51 an ounce and edged down 0.1 percent to $1,601.96 an ounce at 1125 GMT. It is up 13 percent so far this year.

 

"In Europe we've seen huge demand for metal in some areas, and huge amounts of s**** coming in others, but demand seems to be winning the day," said Simon Weeks, head of precious metals at the Bank of Nova Scotia.

 

"Exchange-traded funds in the last five sessions have gained just over 50 tonnes, so there is clearly money coming back in," he added. "It's not going to be one-way traffic, but the fundamental issues and concerns haven't gone away.... and people have realized that gold is important as a currency."

 

The euro rose broadly on Tuesday as debt yields of some weaker euro zone countries retreated, taking a breather after sliding to record lows against the Swiss franc -- which is commonly seen as a safe store of value -- on Monday.

 

German government bond prices fell as lower-rated euro zone debt stabilized slightly, prompting investors to book profits in Bunds after their rally to near 8-month highs, while European shares rose after a sharp fall in the previous session.

 

But jitters remained in the financial markets given divisions among policymakers ahead of Thursday's euro zone summit, with few expecting a permanent solution to the region's debt crisis.

 

U.S. President Barack Obama and top lawmakers are also facing more pressure for a debt deal amid a growing sense that a last-ditch plan taking shape in Congress may be the only way to avoid a devastating U.S. default.

 

"Although the challenges facing the EU and U.S. are different, they share some common themes in that they are both based on sovereign debt issues and are seen as being political as well as economic in nature," said HSBC in a note.

 

"Taken together, the combined effect on gold prices is... bullish, as investors wary of dollar and euro assets, seek a safe alternative. Based on this, we believe at least one of these dilemmas has to be resolved or at the least some tangible progress made on a solution before gold is likely to retrace."

 

ETF HOLDINGS RISE

 

Holdings of precious metals-backed exchange-traded funds rose on Monday, with the amount of gold held by the largest gold ETF, New York's SPDR Gold Trust rising by 13.3 tonnes after a 10-tonne inflow the previous day.

 

The largest silver-backed ETF, the iShares Silver Trust said its holdings rose 39.4 tonnes on Monday.

 

The gold: silver ratio -- the amount of silver needed to buy an ounce of gold -- dipped under 40 this week for the first time since early May as silver outperformed gold in a rising market, a common phenomenon given its lower liquidity.

 

"Silver is clearly benefiting from its greater affordability, attracting investors who are keen on hard assets during these uncertain times," said UBS in a note. " (Its ratio to gold) looks poised to fall further in the near term, particularly if risk aversion continues to dominate."

 

Silver was bid at $40.23 an ounce against $40.51. Spot platinum was bid at $1,769.74 an ounce versus $1,769.98, while spot palladium was at $791.22 an ounce against $792.57.

 

U.S. gold futures for August delivery were up 10 cents to $1,602.50. Gold also held close to the record highs it hit in euro, sterling, Canadian dollar and South African rand terms on Monday as investors sought an alternative to some paper currencies.

[EmpireGlobalfx]

Wall Street rebounds on profits; IBM, Coke lead

 

Stocks jumped about 1 percent on Tuesday on strong earnings from IBM and Coca-Cola, offsetting investor disappointment in results from big financial firms.

 

The turnaround from Monday's losses over debt concerns also received a boost from unexpectedly strong housing data.

 

Dow component International Business Machines Corp (IBM.N) added 3.2 percent to $180.80 a day after it said new business at its services division was up more than expected, raising hopes for the technology sector.

 

The S&P information technology sector .GSPT gained 1.8 percent, the top gainer among S&P sectors. Shares of Apple (AAPL.O) hit a 52-week high ahead of its report due after the closing bell.

 

"The market is focused once again on corporate earnings, taking over for the debt talks," said Rob McIver, co-portfolio manager of the Jensen Portfolio in Portland, Oregon.

 

The market has been preoccupied with wrangling in Washington over a deal to raise the debt ceiling. There is a growing sense that a last-ditch plan taking shape in Congress may be the only way to avoid a U.S. default.

 

However, all 10 S&P 500 sectors rose on Tuesday, even financials, which were hit by declines in Goldman Sachs Group Inc (GS.N) and Bank of America following their results. After advancing in the morning, Bank of America (BAC.N) fell 2.5 percent to $9.48. Goldman lost 1.2 percent, to $127.82.

 

"Goldman is a bellwether of the rest of the banks, and it should set the tone for the rest of them, but I wouldn't be too pessimistic," said Robert Francello, head of equity trading for Apex in San Francisco.

 

Those losses were offset by a 4 percent rise in shares of Wells Fargo (WFC.N) to $27.99 after it said profit rose 30 percent.

 

The Dow Jones industrial average .DJI was up 121.40 points, or 0.98 percent, at 12,506.56. The Standard & Poor's 500 Index .SPX was up 12.80 points, or 0.98 percent, at 1,318.24. The Nasdaq Composite Index .IXIC was up 44.45 points, or 1.61 percent, at 2,809.56.

 

Housing starts topped forecasts in June to touch a six-month high, and permits for future construction unexpectedly increased, the government reported. Homebuilder D.R. Horton Inc (DHI.N) climbed 3.6 percent to $11.90 and the PHLX Housing Index .HGX rose 2 percent.

 

Goldman's second-quarter net income fell short of lowered expectations as fixed income trading revenue dropped sharply. Bank of America recorded a second-quarter net loss of $8.8 billion after a big settlement with mortgage bond investors.

 

Coca-Cola Co (KO.N) posted slightly higher-than-expected profit on strength in emerging markets. Johnson & Johnson's (JNJ.N) earnings topped estimates on a turnaround in its prescription medicines and stabilizing sales of over-the-counter medicines.

 

Coke rose 3 percent to $69.12, while J&J was 0.7 percent lower at $66.63. Both stocks are Dow components.

[EmpireGlobalfx]

Merkel: no spectacular solution for Greece at summit

 

Merkel dampens expectations ahead of key euro zone summit

 

HANOVER, Germany, July 19 (Reuters) - A meeting of euro zone leaders on Thursday will not be the final step in the resolution of Greece's debt crisis, Chancellor Angela Merkel said on Tuesday, dampening expectations ahead of the summit.

 

Euro zone leaders will try to agree on a second rescue package for Greece in Brussels but Merkel warned it was not politically responsible to agree a hasty solution -- comments which sent the euro lower against the dollar.

 

"Further steps will be necessary and not just one spectacular event which solves everything," she told a joint news conference with Russian President Dmitry Medvedev.

 

"Whoever takes political responsibility seriously knows that such a spectacular step won't happen."

 

In order to solve Greece's problems once and for all, the euro zone needed to consider the options for reducing its indebtedness and raising its competitiveness, she said.

 

"Europe is unthinkable without the euro and therefore it is worth making every responsible effort to really solve the problems at the very root," she said.

 

Euro zone financial woes are not a fault of the euro itself but a result of it being used by countries with uneven economics, said the Russian president.

 

"The euro's main problem today is that quite a strong and respectable currency serves countries with very different levels of economics," Medvedev said. "It never happened in the history of the mankind."

[EmpireGlobalfx]

Apple smashes Street views, shares soar

 

Blockbuster sales of the iPhone and strong Asian business again helped Apple Inc crush Wall Street's expectations, driving its shares up more than 7 percent to a record high and boosting Asian stocks.

 

Sales of its iconic products far outpaced forecasts, helping drive a near-doubling of revenue in the fiscal third quarter. Its shares leapt to a high of $405 after a brief after-hours trading suspension.

 

Apple sold 20.34 million iPhones during the quarter versus an expected 17 million to 18 million, which analysts say helped it vault past Nokia and Samsung Electronics to become the world's biggest smartphone maker.

 

That "figure may indeed make them the largest smartphone maker by volume, which is somewhat ironic in a quarter that many thought would be about the Mac," said CCS Insight analyst John Jackson. "That they accomplished this without a new model speaks volumes about both their strength and the relative challenges facing competitors."

 

Apple's earnings beat was spectacular even by its own lofty track record. Its quarterly EPS beat the average forecast by 33 percent, versus beats of about 20 percent in the past two quarters.

 

The stellar results came as concern over iPad 2 supply constraints eased, with Chief Financial Officer Peter Oppenheimer saying more than 1 million iPads remained in stock at the end of June but demand was still overstripping supply in some markets.

 

Oppenheimer hinted at an upcoming product launch, saying it would impact the September quarter, but he gave no details.

 

In coming months, Apple is expected to roll out a new iPhone, which is likely to give the world's most valuable technology company another shot in the arm and offer a stiff challenge to rivals such as Google Inc and Research in Motion.

 

"They never cease to amaze me, these guys," YCMNET Advisors Chief Executive Michael Yoshikami said. "The numbers are obviously very strong and they seem to be accelerating earnings on all fronts."

 

ASIA ON FIRE

 

The Cupertino, California company said its fiscal third-quarter revenue climbed 82 percent to $28.57 billion, trouncing the average analyst estimate of $24.99 billion, according to Thomson Reuters I/B/E/S.

 

The company posted net income for the fiscal third quarter ended June 25 of $7.31 billion, or $7.79 per share, up from $3.25 billion, or $3.51 per share. Analysts on average had expected Apple to report $5.85 per share, according to Thomson Reuters I/B/E/S.

 

Oppenheimer attributed the big margin boost to higher sales of the iPhone, particularly in Asia. International sales accounted for 62 percent of the quarter's revenue.

 

Shares in Apple's Asian suppliers including Taiwan's Hon Hai Precision and Largan Precision jumped 2.6 percent and 3.2 percent respectively, while Japan's Foster Electric, which makes headphones for smartphones, rose 1.7 percent by 0015 GMT.

 

In Korea, top chipmaker Samsung Electronics Co rose 2.9 percent, while LG Display jumped 4.1 percent, and Hynix Semiconductor were up 2.8 percent by 0015 GMT.

 

"Apple is doing well, but this does not mean other tech companies are doing well. Tech shares are rising after their recent sharp falls and on expectations that their earnings may not be as bad as previously concerned," said Lee Seon-yeob, an analyst at Shinhan Investment Corp in Seoul.

 

Apple Chief Executive Tim Cook told analysts they were particularly optimistic about Greater China, which includes mainland China, Hong Kong and Taiwan, where Apple's year-over-year revenue was up sixfold at $3.8 billion. Overall, Asia Pacific revenue more than tripled to $6.3 billion in the quarter.

 

"I firmly believe that we are just scratching the surface right now," Cook said of China. "I think there is an incredible opportunity for Apple there."

 

Cooks also remarked on Apple TV, one of the few Apple products that has not really connected with consumers, saying it still had a "hobby status" within the company.

 

Apple sold 9.25 million iPads and 3.95 million Mac computers. Gross margin for the quarter came to 41.7 percent.

 

Shares of Apple have emerged from the limbo they had fallen into after Chief Executive Steve Jobs took leave last January for unspecified medical reasons.

 

Based on a price of $400, Apple would have a market capitalization of $369.90 billion, putting it close to Exxon Mobil, the largest company in the Standard & Poor's 500 index, which has a $411.97 billion market value.

 

The stock has gained 16.8 percent so far this year and has had only two "down" years in the last 10: in 2002, when it lost 35 percent, and in 2008, when it dropped 57 percent.

 

On Tuesday, Jobs' health again came to the forefront after the Wall Street Journal reported that several Apple board members had discussed a successor to the Silicon Valley icon, and talked it over with at least one head of a high-profile tech company.

 

Succession planning at Apple has been a hot topic since Jobs announced his medical leave, with many not expecting him to return to lead the company he founded in 1976.

 

The fate of Apple is tied to how the iPhone and iPad maker handles the eventual departure of its iconic chief. Chief Operating Officer Tim Cook is overseeing day-to-day operations.

 

Shareholders representing almost a third of Apple's stock voted in February in favor of a proposal to disclose a succession plan for Jobs, underscoring worries over who will replace the visionary leader at the helm.

 

Apple, notorious for its conservative forecasts, estimated earnings for the September quarter of $5.50 a share on revenue of $25 billion, below analysts' average estimate of $6.45 a share on revenue of $27.7 billion.

[EmpireGlobalfx]

Yahoo revenue dips in Q2, shares fall 2 percent

 

Yahoo Inc plugged some of the holes that were weakening its Internet search business in the second quarter, but revealed new challenges that hurt its display advertising business.

 

The Internet company reported a slight decline in net revenue in the second quarter, as efforts to restructure its sales force caused disruptions that crimped revenue.

 

Shares of Yahoo, which are down more than 20 percent since their 52-week high of $18.84 in mid-May, were down 2.3 percent at $14.26 in after hours trading.

 

"They're trying to fix a lot of problems that do need to be fixed, but unfortunately as they're fixing those problems, new ones are popping up," said Macquarie Research analyst Ben Schachter.

 

"At the end of the day it's another disappointment," he said of the company's second quarter results.

 

Chief Executive Officer Carol Bartz, who is halfway through a four-year contract, is confronting a number of challenges in her quest to revitalize the Internet pioneer, including setbacks in a search partnership with Microsoft and tensions with Chinese partner Alibaba Group.

 

Meanwhile, the company is facing tough competition from social networking giant Facebook. A recent report by research firm eMarketer predicted that Facebook will displace Yahoo this year and collect the biggest slice of online display advertising dollars in the United States.

 

In a conference call with analysts on Thursday, Bartz said the shortfall in its display advertising business was not due to changes in the competitive landscape or to worsening business conditions.

 

A restructuring of the sales force - aimed at positioning Yahoo for more robust growth in the future - led to greater than anticipated employee turnover and left Yahoo under-equipped to meet demand, she said.

 

"The issue was we did not have enough sales people in front of the big clients," said Bartz.

 

The company forecast third-quarter net revenue, which excludes the fees that Yahoo pays to partner websites, of between $1.05 billion and $1.1 billion.

 

Yahoo executives said the company continued to make progress in efforts to unlock value from its Asian assets, which include a roughly 40 percent stake in China's Alibaba Group.

 

Yahoo's rocky relationship with Alibaba has raised questions about the extent to which it could profit from those assets. In May it was revealed that Alibaba had abruptly handed Alipay -- one of Alibaba's crown jewels -- to a company controlled by Alibaba founder Jack Ma.

 

Alibaba has said the transfer was necessary to comply with new Chinese regulations that restrict foreign ownership in e-payment companies.

 

"We've been working on this negotiation continuously, in fact daily," said Bartz.

 

But, she added, "until every word is finalized and every document is signed we're simply not done."

 

THE SEARCH GAP

 

Yahoo reported net income of $237 million, or 18 cents a share, compared with $213 million, or 15 cents a share, in the year-earlier quarter. Analysts polled by Thomson Reuters I/B/E/S, on average, were looking for 18 cents.

 

Yahoo's results come a few days after Google, the world's No.1 Internet search engine, reported better-than-expected profit and revenue.

 

Yahoo Chief Financial Officer Tim Morse told Reuters that the company was making progress in rectifying some of the problems in its search partnership with Microsoft, which had hurt Yahoo's revenue per search.

 

Last quarter, Yahoo said its search partnership with Microsoft was taking longer than expected to pay off due to technical imperfections in the search advertising system. As a result, Yahoo said its revenue per search won't rise to levels it experienced pre-Microsoft until the end of the year.

 

"Of the gap that we identified as of the April call, we closed about 20 percent of it in this quarter," said Morse.

 

Search revenue declined 45 percent year-over-year to $467 million.

 

Yahoo said net revenue in the second quarter was roughly $1.1 billion, compared with $1.13 billion in the year-earlier period and in line with Wall Street expectations.

 

ThinkEquity analyst Aaron Kessler said the signs of progress on search were encouraging, but said the market would be watching what happens with the company's display business in the months ahead.

 

"It makes for a little more caution on the core business," he said.

[EmpireGlobalfx]

Euro climbs on Greece hope; contagion fears linger

 

The euro rose against the dollar on Wednesday on hopes euro-zone leaders would reach a deal to ease Greece's debt burden, though concerns about contagion to other European economies should keep the single currency vulnerable.

French ministers said European leaders were less divided than the media was reporting and were likely to reach an accord at Thursday's summit to help Greece avert a potential default that could roil financial markets.

 

Analysts cautioned, however, that fears remained Greece's crisis will spread to bigger economies in the region such as Italy and Spain. Yields on the two countries' bonds jumped above 6 percent earlier this week before easing back.

 

"We expect a new framework for Greece to be agreed, involving the first real efforts to reduce Greece's debt burden. But we expect little concrete in terms of measures to reduce contagion more broadly," said Jens Nordvig, global head of G10 FX strategy at Nomura in New York.

 

"Hence, bond markets in Spain and Italy will largely remain 'on their own' in coming weeks. We continue to trade the euro from the short side in the current environment."

 

The euro was last up 0.4 percent at $1.4217. Initial resistance is seen around $1.4282, the euro's high on July 14, according to Commerzbank technical analyst Karen Jones. Support lies around $1.3915, the 200-day moving average.

 

Euro-zone sources said a summit of euro-zone leaders would be delayed slightly to allow time for a deal to be reached on private-sector involvement in shouldering the costs of a Greek debt resolution.

 

While an agreement on Greece would be welcomed by investors, the success of the summit would be better judged by the performance of Italian and Spanish bonds, analysts said.

 

Spain will auction 10- and 15-year bonds on Thursday ahead of the EU leaders' meeting. Investors will closely watch the costs of funding to gauge the stress level on peripheral debt markets.

 

U.S. DEBT PROGRESS

 

Signs of progress on a U.S. budget deal also prompted a rise in risk tolerance. A group of Democratic and Republican senators, dubbed the "Gang of Six," presented a new plan late on Tuesday that could revive stalled U.S. debt talks and avert a default by the world's biggest economy.

 

Alan Ruskin, global head of G10 currency strategy at Deutsche Bank in New York, in a note said a striking feature of the more favorable news on U.S. fiscal development was how short-lived the U.S. dollar gains were.

 

"It is worth considering, whether the U.S. dollar can benefit from the budget," he said. Negative debt ceiling news is a clear dollar negative, but while positive news on U.S. debt discussions is good for the dollar, it's also likely to boost risk appetite, which would largely negate any positive dollar reaction, he said.

 

The dollar fell 0.4 percent to 78.76 yen, while against a basket of major currencies, the dollar index slipped 0.5 percent to 74.828 .DXY.

 

Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey, said the dollar's only real chance at a rally would probably come if the EU meeting fails to ease euro-zone debt fears and the euro sells off.

 

The New Zealand dollar gained 0.1 percent to $0.8562, near Tuesday's post-float high of $0.8573. The Canadian dollar reached its highest since early May, helped by Chinese oil producer CNOOC Ltd's (0883.HK) saying it would buy Canada's Opti Canada Inc. (OPC.TO).

[EmpireGlobalfx]

Morgan Stanley stuns market with second-quarter beat

 

Morgan Stanley stunned investors with better-than-expected second-quarter results, outperforming Goldman Sachs and other rivals as it gained market share in tough trading conditions.

 

The bottom line was helped by strong equity and sales trading, surprisingly resilient fixed income, currency and commodities (FICC) trading, and a lead underwriting position on several big technology IPOs. Morgan Stanley shares rose as much as 7 percent in premarket trading to $23.17.

 

Asked about the market's reaction to the bank's results, Chief Financial Officer Ruth Porat told Reuters, "I like that phrase 'knock-the-socks-off results.' We're pleased in particular because it's the breadth across the businesses."

 

The bank reported a quarterly loss of 38 cents per share, weighed down by a big one-time charge and a weak trading environment that swept across Wall Street.

 

But the loss was much smaller than analysts expected. The average Wall Street forecast was a loss of 62 cents a share, according to Thomson Reuters I/B/E/S.

 

The loss included a charge of $1.02 per share and a dilution of the bank's share base from the conversion of a $7.8 billion preferred stock investment by Japan's Mitsubishi UFJ Financial Group. The conversion allows Morgan Stanley to avoid expensive dividends to the Japanese bank in the future.

 

In FICC, a traditionally lucrative area that has come under pressure in recent quarters, Morgan Stanley's revenue dropped just 9 percent to $2.1 billion. Chief rival Goldman Sachs Group Inc reported a stunning 53 percent decline in that area on Tuesday.

 

"Morgan Stanley is the new Goldman Sachs," said Richard Bove, a bank analyst at the brokerage Rochdale Securities. "Every one of their divisions shows an improvement, and the improvement in trading operations is especially impressive."

 

Chief Executive James Gorman has been on an aggressive campaign to increase market share in FICC trading, trying to woo clients away from competitors and getting existing customers to trade more on Morgan Stanley's platform. He reinstalled Ken deRegt, a former head of FICC trading, back into that position in January to revitalize the business.

 

Porat said the bank's management is not yet thrilled with its FICC performance, since it is still coming from a small base. "It's progress against a level that we thought was too low for this franchise," she said.

 

RARE SYMMETRY

 

In a rare symmetry, both net revenue and total noninterest expenses at the company grew 17 percent from a year earlier, signaling that Morgan Stanley is keeping its cost growth in check.

 

Compensation, traditionally the biggest part of an investment bank's expenses, totaled $4.7 billion, or 50 percent of Morgan Stanley's net revenue. That compares with 57 percent in the first quarter and 49 percent a year earlier.

 

Second-quarter results were boosted by a strong increase in equity sales and trading revenue, up by more than a third from a year ago at $1.9 billion. Investment banking revenue surged 57 percent to $1.7 billion.

 

Revenues in another key division, wealth management, rose 13 percent, and earnings in that segment rose by almost two-thirds. Morgan Stanley is in the process of acquiring the giant Smith Barney wealth management franchise from Citigroup Inc, and the business now contributes about one-third of its revenue.

 

Gorman has targeted a pretax operating margin of 20 percent for the business, but high costs have kept profits in check. The wealth management business posted a 9 percent margin in the second quarter.

 

Porat said management is pleased with the integration of the wealth management business so far but is cutting lower-performing financial advisers in an effort to trim costs and boost profits. At the end of June, the bank's brokerage force stood at 17,638, down from 18,087 at the end of the first quarter.

[EmpireGlobalfx]

Euro soars after Europe eyes solutions for Greece

 

The euro rallied to a two-week high against the dollar on Thursday after a draft plan by European officials to provide cheap loans to Greece and other heavily indebted euro zone countries eased fears of contagion.

 

They were considering a sweeping expansion of the role of the European Financial Stability Facility rescue fund to help states sooner, recapitalize banks and intervene in the secondary bond market, a draft summit statement obtained by Reuters showed.

 

"The fact that the EU has thrown everything including the kitchen sink into this is very comforting for investors and unless the rating agencies say this is not enough for Greece to avoid a default, the euro should hold onto its gains," said Kathy Lien, director of currency research at GFT in New York.

 

The euro climbed as high as $1.4402 on trading platform EBS, the highest level since July 6, before easing slightly to $1.4371, up 1.1 percent on the day. It also rose about 0.8 percent to 1.1744 Swiss francs.

 

According to the draft, the EFSF will provide loans to Greece, Ireland and Portugal at a lower interest rate and for longer maturities.

 

In a policy reversal, the European Central Bank signaled that it is willing to let Greece default temporarily under the crisis response that would also involve a bond buyback and a debt swap, but no new tax on banks.

 

Slow progress on resolving Greece's debt crisis has been a major headwind for the euro. Investors fear Europe's debt crisis, which has also engulfed Portugal and Ireland, could spread to the much bigger economies of Spain and Italy.

 

"If the ECB was not able to accept Greek bonds as a collateral, the financing for Greek banks would stop and that would pull down the whole European banking system," said Vassili Serebriakov, currency strategist at Wells Fargo in New York. "That's where the biggest worry was before the meeting."

 

Peripheral debt rallied after news of the draft documents. Yields tumbled on short-dated Greek debt, down more than 4.5 percent in the two-year segment, while the more liquid Italian and Spanish debt markets also showed substantial relief.

 

CONCERNS REMAIN

 

Some key questions remained, analysts said, such as the total cost of the program, whether it can win the backing of member nations, and how weaker economies can reduce their debt burdens to sustainable levels over the long term.

 

"The ultimate success of the new EU crisis management program will be determined not by its ability to halt the market contagion of recent weeks but by its ability to halt the fundamental deterioration of EU sovereign credits. The total cost of stabilizing the EU's weakest link has yet to become clear," said Lena Komileva, global head of G10 strategy at Brown Brothers Harriman in London.

 

In contrast to the optimism on Europe, investors remained wary ahead of an August 2 deadline for raising the U.S. public debt ceiling to avoid a default, and the threat of a downgrade to the United States' triple-A credit rating.

 

Ratings agency Standard & Poor's said on Thursday there was a 50-50 chance it would lower the long-term U.S. credit rating within the next three months.

 

The White House said there was growing momentum toward a significant deficit reduction plan that would include both spending cuts and tax increases. Congressional aides, however, said the parameters of any potential agreement remained fluid.

 

The dollar hit a four-month low against the yen of 78.31, according to Reuters data, the lowest since joint G7 intervention in mid-March to stem a rise in the Japanese currency. The dollar was last down 0.3 percent at 78.55 yen.

 

"The pendulum is clearly swinging ... toward Europe right now, whereas the U.S. is a little bit trailing behind in terms of waiting for positive news," Wells Fargo's Serebriakov said.

[EmpireGlobalfx]

Greece defaults - By Felix Salmon.

 

The latest Greek bailout is done — the official statement is here — and it involves Greece going into “selective default,” which is, yes, a kind of default.

 

I can’t remember a major financial story which has been covered so inadequately by the financial press. All the incomprehensible eurospeak seems to have worked, along with the fact that the deal was announced in Brussels, where the general level of journalistic financial literacy is substantially lower than it is in London or New York or Frankfurt. On top of that, statements are coming from so many different directions — Eurocrats, heads of state, the Institute of International Finance, Greek officials, Portuguese and Irish officials, you name it — that it’s extremely hard to put it all together into one coherent whole.

 

Oh, and to complicate things even further, most of the day’s discussion was based on various widely-disseminated draft documents which differed substantially from the final statement.

 

This is a bail-in as well as a bail-out: while Greece is getting the €109 billion it needs to cover its fiscal deficit, both the official sector and the private sector are going to take losses on their loans to the country.

 

As such, it sets at least two hugely important precedents. Firstly, eurozone countries will be allowed to default on their debt. Secondly, a whole new financing architecture is being built for Greece; French president Nicolas Sarkozy called it “the beginnings of a European Monetary Fund.”

 

The nature of massive precedent-setting international financing deals is that they never happen only once. There’s lots of talk today that this deal is for Greece and for Greece only, but some of the more explicit language to that effect was excised from the final statement. On thing is for sure: these tools will be used again, in future. They will be used again in Greece, since this deal is not enough on its own to bring Greece into solvency; and they will be used in other countries on Europe’s periphery too, with Portugal and/or Ireland probably coming next.

 

As far as the public sector is concerned, the European Union will do four main things. First, it will extend the maturities on Greece’s debt from the current 7.5 years to somewhere between 15 years and 30 years: the loans that the EU is currently giving Greece aren’t designed to be repaid, in some instances, until 2041.

 

Second, the interest rate on those loans will be extremely low — essentially, Greece is getting those EU funds at cost, currently about 3.5%. The EU is also extending these ultra-low financing rates to Portugal and Ireland, so as not to implicitly punish countries which don’t default.

 

Third, the EU will put together its own stimulus plan for Greece. The phrase “Marshall Plan” was taken out of the final statement, but there’s still talk of “mobilizing EU funds” and building “a comprehensive strategy for growth and investment.” This is vague, of course, but it does at least constitute an attempt to help Greece through a period of very painful austerity.

 

Fourth, the Maastricht treaty will get resuscitated, with all eurozone countries except Greece, Ireland and Portugal committing to bring their deficit down to less than 3% of GDP by 2013. Paul Krugman is screaming about this, but this was a central part of the eurozone project from the get-go, and clearly the eurozone needs some kind of fiscal straitjacket for its constituent members to prevent the rest of them from running up enormous deficits and then getting bailed out by Germany.

 

Finally, the EU will provide “credit enhancement” for Greece’s private-sector bonds. This is a central part of the default plan, and it looks a lot like the Brady plan of the late 1980s. The official statement from the IIF, which is representing private-sector creditors in this matter, is a little vague, but essentially if you’re a holder of Greek bonds right now, you have three choices.

 

1. You can do nothing, and hope that Greece pays you in full and on time.

2. You can extend your maturities out to 30 years, and accept a modest coupon of 4.5%; in return, your principal will be guaranteed with an embedded zero-coupon bond from an impeccable triple-A-rated EU institution, probably the EFSF.

3. You can extend your maturities out to 30 years, take a 20% haircut, and get a higher coupon of 6.42%; again, the principal is guaranteed with zero-coupon collateral.

4. You can extend your maturities out to 15 years, take a 20% haircut, get a coupon of 5.9%, and have only a partial principal guarantee through funds held in an escrow account.

 

The first option is by far the most interesting. No one has come out and said that Greece is going to default on bondholders who don’t exchange their bonds; instead, there’s just a lot of arm-twisting of big banks to do all this “voluntarily.” But that won’t stop the credit rating agencies giving Greece’s bonds a default rating — this is a coercive deal, which clearly reduces the value of banks’ Greek debt. (After all, just look at those haircuts.)

 

Is it possible for other bondholders — those who haven’t had their arms twisted — to free-ride on the back of this deal and continue to get paid in full? I suspect that it probably is. Which is one reason why this Greek restructuring won’t be the last.

 

Overall, this looks like a deal which can quite easily be scaled up and used as a framework for future default/restructurings. I don’t know if that’s the intent. But there’s nothing here to reassure holders of Portuguese and Irish bonds — or even Spanish and Italian bonds, for that matter — that they’re home safe. Greece will be the first EU country to default on its debt. But I doubt it’ll be the last.

[EmpireGlobalfx]

Brent crude rises above $118 on Europe debt deal

 

Brent crude oil jumped above $118 on Friday, supported by Europe's latest agreement to bail out Greece, but U.S. crude made only slight gains due to concern about talks to avert an unprecedented U.S. default

 

The Brent futures contract for September rose 91 cents at $118.42 a barrel by 11:17 a.m. EDT. U.S. crude rose 25 cents at $99.38 a barrel, after earlier trading as low as $98.43.

 

Analysts and traders said the preliminary solution to the euro zone debt crisis presented in Brussels on Thursday was still providing some support for Brent, but ongoing wrangling over the U.S. debt ceiling was impinging on U.S. crude.

 

"The U.S. debt ceiling crisis hasn't been solved and there has been mixed economic data, so that might not be enough to keep crude above $100, even though we are up at the moment," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

 

In the United States, efforts are continuing to secure a last-minute deficit-reduction deal before the August 2 deadline to raise the country's debt ceiling.

 

Data showing that Chinese manufacturing contracted in July also has made some analysts and traders cautious. Commodity markets are focused on the economy of China as a major source of future demand growth.

[EmpireGlobalfx]

Wall St Week Ahead: Markets edgy on debt talk stalemate

 

Much of the United States may be frying in near-record temperatures but Wall Street has been feeling the heat for months. Wrangling over the debt ceiling has kept markets on edge, and investors are still waiting for a breakthrough that leads to a deal to avoid a devastating default.

 

Investors have viewed as extremely unlikely the possibility of a U.S. default if the federal government does not agree to raise the debt ceiling. But the odds are growing, and Congress and the White House remained at odds just a few hours before Asian markets opened on Monday.

 

"Unless during the course of the day there is a specific, concrete proposal that placates the market before Asian markets open, the worst-case scenario is that the markets just sell off -- sell off dramatically," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

 

White House officials and Republican leaders scrambled on Sunday to reassure global markets the United States would avert a debt default, but the two sides gave no sign they were moving closer to a deal.

 

White House Chief of Staff Bill Daley warned that there would be a "few stressful days" ahead for financial markets, with the deadline to lift the $14.3 trillion U.S. borrowing limit now only nine days away.

 

"To some degree the outcome of there being no deal has been priced in, but the discounting is not fully in the market and this is adding to uncertainty that has already been coupled with the events in Europe and expectations that growth was already going to be weak," Krosby said.

 

Wall Street is set to close its worst three months in a year as July draws to an end this week after a roller-coaster ride for markets.

 

With euro zone leaders having reached a deal for yet another bailout for debt-laden Greece, investors will be free to chew over the rancor in Washington with even more attention.

 

In addition, the corporate earnings season suggests other risks could dog the market. Despite generally good results so far, there have been some worrisome signs.

 

The S&P 500 rallied 6 percent in the run-up to reporting season, but earnings misses from big industrial names like Rockwell Collins and Caterpillar Inc weighed on the Dow and S&P 500 on Friday.

 

Earlier in the week several big consumer names such as Whirlpool and Pepsi warned about sluggishness in developed markets, sending their shares sharply lower.

 

"The market still has a high degree of skepticism in it," said Nick Kalivas, an analyst at MF Global in Chicago, summing up the earnings season so far.

 

Kalivas said he will be closely following earnings from sector and economic bellwethers this week. Those include the package delivery company UPS, chipmaker Texas Instruments, and online retailer Amazon.

 

Around 30 percent of the S&P 500's $12.3 trillion market cap have reported earnings so far. They have outpaced consensus estimates by 3.8 percent, and only 7 percent have missed estimates, according to data from Morgan Stanley.

 

But share prices of those that have fallen short of estimates have taken a severe beating. Given the fragile sentiment, a few more prominent misses could derail the market.

 

"The market is punishing these misses more than it is rewarding beats, an asymmetry we have been calling for and we forecast will continue," Morgan Stanley's U.S. equity strategist Adam Parker wrote in a note to clients.

 

"Our view remains that first half of the year numbers are achievable, but the second half of the year looks challenged," he said.

 

This week is also a big week for economic data. Fears of a slowdown in the economy have been a large driver of market volatility over the last few months, and the coming releases will be parsed very closely.

 

They include early regional manufacturing data from Chicago and New York, a reading of consumer sentiment, and a first reading of U.S. growth for the second quarter, expected to show the economy grew just 1.9 percent in the period.

 

Bob Doll, chief equity strategist at BlackRock, one of the world's largest fund managers with around $1.6 trillion of equities under management, said last week that the U.S. economy is at a critical juncture.

 

Doll points out that since 1960 every time year-on-year growth has fallen under 2 percent the U.S. economy has gone into recession.

 

"Our bottom line view is that investors should maintain a reasonably constructive bias toward risk assets, but should also be prepared to scale back exposure if evidence of economic growth acceleration does not materialize," said Doll.

 

And many believe economic activity will be depressed if a failure to raise the debt ceiling interrupts key government services such as social security and Medicare.

 

The uncertainty is sure to stress markets further, and fund managers hitting the beach in August may find themselves fiddling with their BlackBerrys more than the little umbrella in their cocktails.

 

"I need a vacation, man. After all the stuff that's happened in the last three months I'm pretty much shot, I'm getting weird, even my 6-year-old looks at me," said one New Jersey-based fund manager, who was packing his bags for a destination in the Caribbean as temperatures topped 100 degrees Fahrenheit in New York City.

[EmpireGlobalfx]

Gold hits record with debt talks deadlocked

 

Gold prices hit record highs on Monday after negotiations to lift the U.S. debt ceiling hit stalemate over the weekend, raising fears over a possible default and boosting the appeal of bullion versus assets like Treasuries and the dollar.

 

Democrats and Republicans in Congress are bitterly divided over plans to cut the U.S. deficit, a necessary move before the debt ceiling can be raised.

 

With the August 2 deadline for a resolution fast approaching, the world's largest economy is facing an unprecedented debt default. If this happens, investors could dump the dollar and U.S. Treasuries.

 

While most investors believe a deal will be done, nervousness ahead of the decision is still pressuring the dollar, hurting long-dated U.S. Treasuries and benefiting gold.

 

"Ultimately you need some sort of political resolution, some sort of acknowledgement that there are long-term financial problems that need to be dealt with," said Natixis analyst Nic Brown.

 

"There are ultimately two options -- you either have monetization of debt, or you have a move toward fiscal consolidation, and a move toward fiscal sustainability. Until we get the latter, the market will assume the former. That is just a great bid for the gold market."

 

Spot gold peaked at $1,622.49 an ounce and was up 1.1 percent at $1,615.74 an ounce at 9:54 a.m.

 

It has reached record highs in each of the last five consecutive quarters, and is on track for its biggest monthly gain since April this month on concerns over euro zone debt levels as well as the U.S. negotiations.

 

The stalemate in Washington led to safe-haven German Bunds outperforming U.S. Treasuries on Monday, as risks of a U.S. default outweighed worries over euro zone debt. U.S. Treasury yields rose and European shares slipped.

 

Long-dated U.S. Treasury debt prices fell and the cost of insuring the country's debt from default rose on Monday on investor concern that the world's biggest economy could lose its prized top-notch credit rating after debt talks collapsed.

 

The dollar dipped against a basket of currencies, while the Swiss franc, often seen as a haven for investors, rose against the euro and the U.S. unit. The euro slipped after Moody's downgraded Greece by three notches.

 

"With little optimism on U.S. debt talks at the moment, the gold price acutely reflects investor nervousness that limited progress will be made before the August 2 deadline," UBS said in a note. "This nervousness is in many ways justified as the threat of a U.S. ratings downgrade is very real."

 

"S&P has threatened that a ratings downgrade is possible even this month, if progress on the negotiations is insufficient. With just a few days left in the month, it is increasingly likely that investors will continue to buy gold as a defensive trade."

 

Rating agency Standard & Poor's last week reiterated that there was a 50-50 chance the U.S. AAA credit rating could be cut within three months.

 

SPECULATORS PROVE BULLISH

 

Hedge funds and other large speculators last week boosted their bullish bets in U.S. gold futures to the highest in nearly two years as gold rallied on the euro zone's debt crisis and uncertainties around the U.S. debt talks.

 

Managed money in COMEX gold added 16,135 lots in the week ended July 19, boosting their net long position to 238,319 lots, which marked the highest holding for the key speculator group since the week of October 18, 2009.

 

U.S. gold futures for August delivery were up $16.80 an ounce at $1,618.30, off a high of $1,624.30.

 

"The stumbling block for gold is the relatively large size of Comex specs," said UBS.

 

"These are of course not normal times, so the extension in the Comex gold book can continue for a while longer. But the danger is that positive headlines out of the U.S. debt ceiling discussions could prompt recent gold specs to liquidate."

 

Among other precious metals, silver was bid at $40.42 an ounce against $40.02, tracking gains in gold.

 

The gold:silver ratio -- the number of ounces of silver needed to buy an ounce of gold: eased back below 40 on Monday as silver outperformed, approaching last week's two-month low.

 

Spot platinum was bid at $1,787.50 an ounce versus $1,793, while spot palladium was at $796.97 an ounce against $804.25.

[EmpireGlobalfx]

Dollar hits record low versus Swiss franc on debt standoff

 

The dollar slumped to a record low against the Swiss franc and a four-month trough versus the yen on Monday, with more losses seen if U.S. lawmakers fail to compromise on a deficit reduction plan.

 

With a little more than a week before the August 2 deadline to raise the $14.3 trillion U.S. debt ceiling, there is an ever-increasing threat of a ratings downgrade and default, an event that could cause a frenzy in financial markets.

 

Congressional Democrats and Republicans pursued separate budget proposals with no clear path to bring them together.

 

U.S. Senate Democrats would offer a $2.7 trillion spending-cut plan while U.S. House Speaker John Boehner, the top Republican candidate in Congress, introduced a new plan on Monday.

 

President Obama will make an address on the debt limit at 9 p.m. EDT.

 

"While investors still appear to be giving Washington lawmakers the benefit of the doubt that they will reach a deal, every day that passes without a resolution will likely see markets price in a higher risk premium into the dollar's valuation," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

 

SWISS FRANC SOARS

 

Overall, the Swiss franc was the biggest beneficiary of the demand for safe havens, pushing the dollar to an all-time low of 0.80210 francs on trading platform EBS. The dollar has fallen in three of the last four sessions against the Swiss currency. It last traded at 0.8058, down 1.5 percent on the day.

 

"While a deal is still likely to be reached in the 11th hour every day that passes is likely to see investors become increasingly unwilling to hold dollar denominated assets," Esiner said.

 

The euro also fell versus the franc, dropping as much as 1.7 percent, as did sterling. Traders reported heavy selling of the pound ahead of Tuesday's UK gross domestic product data for the second quarter.

 

The U.S. debt ceiling stalemate, however, helped the euro gain against the dollar. It last traded at $1.4374, up 0.2 percent on the day, according to Reuters data.

 

Moody's further slashing of Greece's debt rating on Monday did not benefit the dollar much as a safe-haven alternative to the euro but instead boosted the Swiss franc and gold.

 

Despite the new bailout introduced by the European Union last week, there are still unanswered questions on how the group plans to implement the unprecedented measures, according to David Song, currency analyst at DailyFX in New York.

 

"In turn, the European Central Bank may show an increased willingness to keep the benchmark interest rate at 1.50 percent for the remainder of the year, and the Governing Council may have little choice but to maintain its unconventional tools as the EU struggles to address the sovereign debt crisis."

 

Against the yen, the dollar fell as low as 78.055 yen, its weakest since mid-March.

 

Many traders say the dollar could test a record low of 76.250 yen if concerns about the U.S. debt ceiling worsen, while they also expect the U.S. currency will keep plumbing all-time troughs versus the Swiss franc.

 

In related news, global foreign exchange turnover rose in April from October, driven by increasing volume across spot, forwards, swaps and options activities, according to a semiannual survey released by major central banks on Monday.

 

The ICE Futures' dollar index .DXY slipped 0.1 percent to 74.108, not far from a six-week low of 73.889 hit last week.

[EmpireGlobalfx]

Moody's warns Greek default almost certain

 

Moody's cut Greece's credit rating further into junk territory on Monday and said it was almost certain to slap a default tag on its debt as a result of a new EU rescue package.

 

It was the second rating agency to warn of a default after euro zone leaders and banks agreed last week that the private sector would shoulder part of the burden of a rescue deal that offers Greece more cash and easier loan terms to keep it afloat and avoid further contagion.

 

"The announced EU program along with the Institute of International Finance's statement implies that the probability of a distressed exchange, and hence a default, on Greek government bonds is virtually 100 percent," Moody's said in a statement.

 

Bank lobby IIF, which led private sector negotiations, aims to attract 90 percent investor participation in the bond exchange plan which comes on top of the EU's new 109 billion euro bailout.

 

Moody's cut Greece's rating by three notches to Ca, just one notch above default, to reflect the expected loss implied by the proposed debt exchanges.

 

Greece now has the lowest rating of any country in the world covered by Moody's, which, like Fitch last week, said it would review Greece's rating after the debt swap is completed.

 

"Once the distressed exchange has been completed, Moody's will reassess Greece's rating to ensure that it reflects the risk associated with the country's new credit profile, including the potential for further debt restructurings," it said.

 

However, whereas Fitch pledged to quickly give Greece a higher, "low speculative grade" after its bonds had been exchanged, Moody's said it could not forecast when the rating would change or how.

 

"It all depends how quickly the debt exchange takes place," said Alastair Wilson, Moody's Managing Director for EMEA Credit Policy. "Once we have greater visibility over that, we will reassess the credit profile quite quickly. Whether the rating will change, that's a different question," he told Reuters.

 

A senior EU official said on Saturday that the aim was to start a voluntary swap of privately-held Greek bonds in late August and conclude it in early September.

 

Greek bank shares and the broader stock market were unfazed by Moody's action. Analysts said the downgrade and the default warning were priced in and less worrying following assurances provided by the EU deal.

 

"The EU Council last week effectively secured Greek banks' continued access to ECB liquidity, even in the case that PSI (private sector involvement) triggers a selective default," said Platon Monokroussos, an economist at EFG Eurobank.

 

The government has repeatedly criticized ratings firms for their downgrades and its spokesman threatened on Monday to end its subscriptions to these agencies as the new rescue package means Greece will not issue new bonds for years.

 

"All governments pay a subscription to these agencies. We, I think, do not need the reviews anymore. They have no practical value," Elias Mosialos told Radio 9. "Perhaps the finance ministry should end its subscription."

 

CONTAGION CONTAINED ... FOR NOW

 

Moody's said it would take into account the possibility of a second default while reassessing Greece's rating.

 

"Our experience is that relatively small restructurings have often been followed by deeper defaults," Wilson said, adding that he could not say if this would be the case for Greece.

 

The rescue package for Greece benefits other euro zone countries by containing near-term contagion risks but it was not necessarily positive in the longer run as it set a precedent for private sector involvement in rescue deals, Moody's said.

 

"The support package sets a precedent for future restructurings should the finances of another euro area sovereign become as problematic as those of Greece. The impact of Thursday's announcement for creditors of Ireland and Portugal is therefore likely to be credit-neutral," it said.

 

The cost of insuring most peripheral euro zone government debt against default rose on Monday on market doubts that the fresh aid package for Greece agreed last week will protect bigger economies from contagion.

 

Standard & Poor's and Fitch rate Greece CCC, broadly in line with Moody's rating. S&P has not yet said how the EU summit deal will affect Greece's rating.

[EmpireGlobalfx]

Ford profit tops expectations, shares up

 

Ford Motor Co's quarterly profit beat Wall Street expectations, helped by higher prices and improved sales in North America.

 

Ford, the only U.S. automaker that did not accept a government bailout, has posted a net profit for eight straight quarters. It had racked up net losses of $30 billion from 2006 through 2008 when it cut jobs, sold unprofitable brands and reshaped a lineup laden with large SUVs and pickup trucks.

 

In North America, Ford's pretax profit for the second quarter rose 0.5 percent to $1.91 billion.

 

North America was the only region where the company's profit improved. In Europe, where Ford's performance has been lagging in recent quarters, pretax profit was trimmed nearly in half to $176 million.

 

Ford shares were up 1.7 percent at $13.40 in trading before the market opened on Tuesday.

 

Chrysler also reported on Tuesday, posting a wider second-quarter net loss after the U.S. automaker repaid $7.6 billion in debt stemming from its 2009 federal bailout.

 

Ford did not alter its North American production outlook or its 2011 U.S. auto sales forecast.

 

However, Ford Chief Financial Officer Lewis Booth said the company now expects full-year U.S. industry auto sales to be at the low end of a range of 13 million to 13.5 million vehicles. It had expected 2011 sales at the high end of that range earlier in the year, he said.

 

Ford's sales forecast includes medium and heavy trucks, which account for 250,000 to 300,000 in annual sales.

 

Excluding one-time items, Ford's quarterly profit fell to 65 cents per share from 68 cents a year ago. Analysts on average had expected earnings of 60 cents per share excluding one-time items, according to Thomson Reuters I/B/E/S.

 

Revenue rose 13 percent to $35.5 billion.

 

Net income fell to $2.4 billion in the quarter, or 59 cents per share, from $2.6 billion, or 61 cents per share.

 

"We delivered very good quarter results while growing the business globally and serving more customers in every region," said Ford Chief Executive Alan Mulally. "Despite an uncertain business environment, we further strengthened our balance sheet and continued to invest for the future."

 

Booth said the company continued to lower its automotive debt, by $2.6 billion in the quarter to $14 billion.

 

INVESTMENT GRADE PROGRESS

 

"This wasn't the easiest of quarters," Booth said. "We've got through the Japanese tsunami issues very well. We lost some units (vehicle production) in Asia Pacific, but managed to lose a lot less than we expected and we didn't really lose any significant units anywhere else in the world. It's just evidence that the plan's working."

 

Ford is striving to return to an investment grade rating by the major ratings agencies. Booth said he could not predict when the company may return to investment grade.

 

Most major agencies have Ford rated two notches below investment grade. Ford was last at investment grade in May 2005.

 

However, Booth said he expected a re-examination by the agencies once labor talks with the United Auto Workers union are completed. Those talks will officially begin this Friday for Ford.

 

The UAW represents about 41,000 Ford auto production workers.

 

Ford's hourly "all-in" labor cost per worker is about $58, compared with about $50-$51 per hour for Chrysler and about $57 per hour at GM.

 

The gap between Ford and its Japanese rivals with U.S. plants has narrowed from about $25 to $30 in 2007 to about $5 to $10 now, according to the Center for Automotive Research of Ann Arbor, Michigan.

 

Ford's labor costs are higher than Chrysler mainly because it has hired fewer than 100 so-called second-tier workers who make about half the pay of veteran UAW-represented workers, while about 12 percent of Chrysler's 22,800 union auto workers make the lesser wage.

 

The Ann Arbor consultant also said that Ford's estimated U.S. auto production labor costs are about $5.1 billion annually.

 

COMMODITY COSTS UP

 

Booth said that Ford's profit was hampered by higher commodity costs related mainly to higher oil prices. He said prices for plastics, steel, aluminum, cooper and precious metals are all on the rise and affecting profit margins.

 

"As we continue to see growth in Asia, commodities stay under pressure," he said.

 

In its home U.S. market, the No. 2 U.S. automaker had a 16.9 percent market share through the first half of this year, compared with 17 percent a year ago.

 

Ford's sales in the first half of the year rose 12 percent versus a 17 percent rise for General Motors Co and 20 percent for Chrysler Group LLC.

[EmpireGlobalfx]

Greece hopes for quick debt swap in August

 

Greece wants a voluntary swap of government bonds for longer maturity paper to start in August and be completed fast to emerge rapidly from an expected default rating, its deputy finance minister said on Tuesday.

 

Greece's private sector creditors will take a 21 percent loss on their bond holdings as part of a 37 billion euro ($53 billion) contribution to the country's latest bailout plan, agreed at a euro zone summit last week.

 

"In the coming days, in collaboration with (bank lobby) IIF, talks outlining the exact procedure that will be followed so that holders of Greek government bonds choose one of four options and proceed to a debt swap will be completed," Deputy Finance Minister Filippos Sachinidis told Mega TV.

 

"Yes, this procedure will start in August," he said.

 

The International Institute of Finance (IIF) has estimated a take-up rate of about 90 percent for the voluntary program, which gives banks the option to swap Greek debt with new bonds with maturities of up to 30 years.

 

"If the IIF will be the format that will be finally used, the 90 percent (assumed) participation rate does look optimistic," said Justin Knight, head of European rates strategy at UBS.

 

Investment bank JPMorgan also questioned whether enough investors would take up the swap offer, and challenged the estimate that investors would take a 21 percent "haircut" under the scheme. It said the loss of capital investment would be more like 34 percent.

 

Greece's creditors in banking, insurance and fund management are looking for more clarity on the options to swap debt for 15-year or 30-year bonds, paying interest Greece can more easily afford.

 

"It's a complex matter and should be done sooner rather than later. The government is in talks to hire a team of banking and legal advisers," a senior Greek banker who declined to be named told Reuters.

 

BRIEF STAY IN "SD?"

 

Credit rating agencies have said they will view the planned bond exchange as a partial default but have left the door open for the overborrowed country to emerge from the rating once the transaction is completed.

 

Fitch has said it will place Greece in "restricted default" during the swap.

 

On Monday, Moody's warned it will almost certainly slap a default tag on Greece, after downgrading it by three notches to Ca, just one notch above default, to reflect the expected loss implied by the proposed bond swap.

 

The agency plans to review the rating after the swap is done, but unlike Fitch which has pledged to quickly raise Greece to a "low speculative grade," Moody's did not say when the rating would change or how.

 

With a first working meeting on implementing the plan set to take place in Athens on Thursday, Greek officials hope the bond exchange can be done fast.

 

"The goal is for this (bond swap) to last as briefly as possible," Sachinidis said. "It appears that we will manage to secure a satisfactory participation to proceed with the exchange."

[EmpireGlobalfx]

Wall Street opens down in third day of losses

 

Stocks fell for a third straight day on Wednesday as a political deadlock over raising the debt ceiling and a decline in durable goods orders kept investors away.

 

The Dow Jones industrial average .DJI was down 73.38 points, or 0.59 percent, at 12,427.92. The Standard & Poor's 500 Index .SPX was off 9.18 points, or 0.69 percent, at 1,322.76. The Nasdaq Composite Index .IXIC dropped 18.98 points, or 0.67 percent, at 2,820.98.

[EmpireGlobalfx]

Gold drops amid risk aversion after record highs

 

Gold fell on Wednesday after hitting record highs near $1,630 an ounce, as a broad sell-off of riskier assets prompted bullion investors to take profits amid mounting fears of a U.S. debt default.

 

Gold initially benefited on news a vote on a deficit reduction plan offered by House of Representatives Speaker John Boehner was pushed back to Thursday from Wednesday amid stiff opposition by his fellow Republicans and Democrats.

 

Trading volume just partway through the session was the highest since May and was on track to be one of the heaviest trading days of the year as investors focused on the gold market as a safe haven on looming risks of a U.S. default.

 

Bullion could pull back sharply if a deal to cut long-term U.S. deficit dampen market fears, analysts said. The metal is still up around 8 percent in July on euro zone debt fears and uncertainty ahead of the August 2 deadline to raise the U.S. debt ceiling.

 

"With each passing hour of this brinkmanship on the U.S. debt situation, gold becomes more attractive," said Bill O'Neill, partner of commodity investment firm LOGIC Advisors. "However, there is a very definite danger of a quick snapback if the debt talks were to settle very quickly."

 

Spot gold was down 0.5 percent at $1,609.89 by 12:34 p.m. EDT, after rallying to a record $1,628 an ounce.

 

U.S. gold futures for August delivery were down $5.80 an ounce at $1,610.90. Trading volume already topped 320,000 lots, set to be one of the heaviest sessions in 2011.

 

Silver was down 1.4 percent at $40.29 an ounce.

 

Sharp losses in the U.S. equity markets and industrial commodities such as crude oil prompted investors to take profits in the gold market to cover losses elsewhere, analysts said.

 

Gold option traders said that more investors are using option strategies to protect their profits made in the underlying gold futures.

 

"The dealers are definitely buying puts and selling calls," said COMEX gold options floor trader Jonathan Jossen. "When you see these dealers are doing this ... they are looking for a move down or just locking in their risks."

[EmpireGlobalfx]

Lawmakers seek elusive compromise to escape debt debacle

 

Top Republicans and Democrats worked behind the scenes on Wednesday on a compromise to avert a crippling U.S. default, looking to salvage a last-minute deal from rival debt plans that have little chance of winning congressional approval on their own.

 

With financial markets increasingly on edge, the White House said it saw no alternative to striking a deal to raise the government's borrowing limit by an August 2 deadline to allow the world's largest economy to keep paying all of its bills.

 

"People keep looking for off-ramps. They don't exist," White House spokesman Jay Carney told reporters, saying the government would be "running on fumes" after the deadline unless the limit was raised.

 

Even if a deal is reached to lift the $14.3 trillion debt ceiling, a budget plan that flinches from hefty cuts in the deficit may result in a downgrade of the top-notch U.S. credit rating. This would push up U.S. borrowing costs and rattle global investors.

 

The faltering moves to break the deadlock are weighing on markets. Along with the uncertainty, Wall Street was hit by weak earnings and lackluster economic data, suffering its worst day in eight weeks.

 

"The market is beginning to show real concerns in terms of a default. I don't think it's going to happen ... (but) are we headed for a downgrade? That is becoming more of a possibility as each day goes by," said Peter Cardillo, chief market economist at Avalon Partners in New York.

 

The dollar rebounded after a sell-off this week but policy makers in countries from Japan to France fretted over how a crisis of confidence in U.S. solvency could spill into the international economy.

 

Worried investors shifted funds into gold and the Swiss franc, traditional safe havens that both rose to record highs in dollar terms.

 

The Treasury will lay out a plan in the next few days for how the government will operate if the August 2 deadline is missed.

 

Leaders in the Republican-controlled House of Representatives and Democratic-controlled Senate scrambled to find common ground but complications with their competing plans could send attempts at a compromise right down to the wire.

 

"You're going to have to make sure that you can have a spending cut package that can pass both chambers -- there's going to be some work to do there," senior White House adviser David Plouffe said on the PBS show "NewsHour."

 

Senate Democratic Leader Harry Reid, House Speaker John Boehner, the top Republican in Congress, and Senate Republican Leader Mitch McConnell have been talking about how to break the impasse, several lawmakers said.

 

President Barack Obama, a Democrat, opposes the two-step Boehner plan because it would extend borrowing authority only temporarily, risking a rerun of the standoff in the run-up to the November 2012 election when Obama will seek a second term.

 

"GET YOUR a** IN LINE"

 

Boehner, facing a mutiny by Republican lawmakers aligned with the fiscally conservative Tea Party movement, has been feverishly canvassing support for a vote on Thursday on his reworked deficit reduction bill. It is expected to be close.

 

At a morning meeting, he appeared to be firming up support from several wavering lawmakers as he told them to "get your a** in line" behind what he has described as the best chance to win the deep spending cuts that Republicans seek.

 

Reid says Boehner's plan would be "dead on arrival" in the 100-seat Senate. On Wednesday, 53 senators -- all 51 Democrats and the two independents who usually vote with them -- signed a letter to Boehner saying they would not back his bill.

 

But Boehner's negotiating position could be strengthened if his measure gets the 217 votes needed in the House. If it fails, Boehner would be weakened and his job may be on the line.

 

Senate Democratic aides said they hoped support would grow for Reid's one-step remedy, which Obama backs, if Boehner's plan is killed, either by the House or Senate.

 

If Congress does not increase the debt limit, the United States could eventually suffer its first full government default. That could put its faltering economic recovery into reverse and send shock waves through the global economy.

 

Analysts expressed confidence a compromise can be reached.

 

"We continue to believe it is overwhelmingly likely that a debt deal is passed without a crisis," Eurasia Group said in a briefing note. "The two sides have furnished proposals that significantly overlap and leave room for compromise."

 

Reid said he could easily modify his own bill to incorporate elements of Boehner's bill in a way that could win support from both parties in the Senate. This would improve the chances for a compromise that has so far been elusive.

 

"There will be sufficient cooperation so a bill will pass that allows the debt limit to be lifted, with deficit reduction," Democratic Senator Max Baucus said.

 

Both sides acknowledge similarities between their plans.

 

Reid's measure has a concession aimed at winning Republican support -- no tax increases. It also cuts more spending than Boehner's proposal, according to an independent assessment.

 

Tea Party groups have called on Republican lawmakers to reject any compromise, including the Boehner plan.

 

A Tea Party rally outside the Capitol in Washington drew about 40 participants, including presidential candidate Herman Cain, who urged Republican leaders to "hold the line" in demanding spending cuts and opposing tax increases.

 

"Government's too big. That's what this is about," said one protester, Kathy Smith from Fairfax, Virginia.

 

WORLD "NEEDS" U.S. DEBT DEAL

 

Boehner rushed to revise his two-step proposal after an analysis by the non-partisan Congressional Budget Office found it would cut spending by $350 billion less than the $1.2 trillion over 10 years he had claimed.

 

His new plan, which may make it easier for him to obtain backing from fiscal conservatives, reduces the debt ceiling increase to a maximum of $900 billion, covering the nation's borrowing needs until about November. A technical tweak boosts the projected spending cuts to $917 billion.

 

Some analysts say the government may have enough cash on hand to pay bills until the middle of the month but the Obama administration says the August 2 deadline is unavoidable.

 

Several House Democrats planned a news conference for Thursday to urge Obama to invoke an obscure clause of the U.S. Constitution to raise the debt ceiling on his own if needed.

 

The White House has dismissed this idea of using the 14th Amendment but Obama has a range of unilateral options he can take.

 

"A default or downgrade on U.S. debt would cause considerable problems for Japan's financial system," said Hidetoshi Kamezaki, a board member of the Bank of Japan.

 

France's budget minister, Valerie Pecresse, urged Washington to come to an agreement.

 

"The global economy needs an American agreement," Pecresse said.

[EmpireGlobalfx]

EURO GOVT-High Italian funding costs keep investors on edge

 

Italian funding costs hit 11-year high at auction

 

* Yields rise across the Italian, Spanish curves

 

* Outlook for risk assets hangs on U.S. debt debate

 

 

LONDON, July 28 (Reuters) - Italian bond yields rose across the curve in a volatile trading session on Thursday, after high auction yields inflamed worries about the country's debt burden against the nervy backdrop of U.S. politicians flirting with a default.

 

Safe-haven German debt made only limited gains, but rose to within a tick of the highest settlement close since last November as continued deadlock in talks over raising the U.S. debt ceiling supported demand for triple-A assets.

 

This highlighted the prevailing unease among market participants over how and when the sweeping rescue plan announced last week to save Greece and ease contagion concerns will be implemented.

 

"There's no clear timeline at this point ... There's a vacuum in the market, and market sentiment wasn't that good to start off with owing to the debt discussions in the U.S," said Elwin de Groot, senior strategist at Rabobank.

 

"Overall it's a pretty bad cocktail."

 

Italy has continued to feel pressure from markets because the package of euro zone anti-crisis measures did not include an increase in the size of the bloc's rescue fund, analysts said.

 

This is seen as essential if the European Financial Stability Facility is to provide assistance for Italy, the region's third-largest economy.

 

Italy issued 10-year debt at the highest yield in 11 years early in the session. While high yields were widely expected, markets were disappointed that the chunky returns on offer didn't draw in stronger bidding. As a result, the bonds underperformed in secondary markets after the sale as primary dealers tried to pass on the issues to end investors.

 

Cash yields hit a session high of 5.99 percent, but later recovered some ground to stand at 5.84 percent into the European close.

 

A trader said he had doubts Italy could defend the 6 percent line for too long, as many investors prefer to stay on the sidelines.

 

"From the way the market has been behaving over the past month, I think there's just fast money moving around. I don't think there's too much real money getting involved here because there's just too much uncertainty," the trader said.

 

Monument Securities strategist Marc Ostwald said Italian yields could only come down sustainably if the EFSF's size was increased and its power boost approved smoothly in European parliaments.

 

Evidence of deep structural reforms would be needed then to cap them at more comfortable levels, he said.

 

Spanish bonds , also seen suffering from concerns about the implementation of the rescue deal, were up over 5 bps, trading at 6.05 percent.

 

US OR THEM

 

U.S. politicians have yet to find a compromise on a deal to lift the country's borrowing limit to avoid default before an Aug. 2 deadline.

 

Even if a deal is reached, a budget plan that does not include hefty deficit cuts may result in a downgrade of the United States' AAA credit rating.

 

Given that most investors hold U.S. Treasuries because there are few other AAA-rated alternatives, a risk-averse environment would probably see outflows from equities into fixed income.

 

"If the U.S. retains benchmark status, which seems likely, the rise in funding costs is not likely to be that dramatic," said Charles Diebel, head of market strategy at Lloyds.

 

"The risk is that investment behaviours and market technicalities overreact and prompt some form of liquidity crisis in the short term but we would suggest this is a tail risk at best."

 

In the event a deal was struck, the risk premium priced into Treasury debt could unwind, driving the yield gap between German and U.S. bonds wider, and boosting riskier assets in the short term, analysts said.