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Market Snapshot

Stocks Finish Higher

U.S. stocks finished in positive territory Thursday after being in the red for much of the session. A drop in the Dow industrials below 8,000 appeared to lure buyers into the market.

On Thursday, the 30-stock Dow Jones industrial average finished higher by 12.35 points, or 0.15%, at 8,212.49. The broader S&P 500 index gained 1.12 points to 843.74. The tech-heavy Nasdaq composite index added 22.20 points, or 1.49%, to 1,516.62. Intel (INTC) was among tech stocks boosting the Nasdaq.

On the New York Stock Exchange, 17 stocks were higher in price for every 14 that gained. Nasdaq breadth was 16-12 positive.

Market watchers cited by S&P MarketScope also tied the rebound to media reports of a $100 billion-$200 billion Federal guarantee for Bank of America (BAC), which has seemingly bitten off more than it can chew in acquiring loss-ridden Merrill Lynch. Earlier media reports said that the U.S. government was close to finalizing a deal that would give billions in additional aid to BofA to help it close its acquisition of Merrill.

BofA, already the recipient of $25 billion in committed federal rescue funds, said that it was unlikely to complete its Jan. 1 purchase of Merrill because of Merrill's larger-than-expected losses in the fourth quarter, according to a person familiar with the talks cited by the Wall Street Journal.

BofA shares lost 1.88 to close at 8.32 on Thursday.

Indeed, worries about the outlook for financial stocks have plagued the market all week. On Thursday, Citigroup (C) reportedly denied the government was in talks to nationalize the bank.

Citi shares finished down 70 cents to 3.83 after sliding to 3.36 earlier in the session.

JPMorgan Chase & Co.'s (JPM) quarterly earnings were sharply lower, but ahead of Wall Street expectations. The company posted fourth-quarter EPS of 7 cents, vs. 86 cents one year earlier, on a 1% revenue drop. The company noted a $4.1 billion (pretax) increase to loan loss reserves in the fourth quarter and $2.9 billion (pretax) of net markdowns due to leveraged lending exposures and mortgage-related positions in the Investment Bank. The company said that if the economy deteriorates further, which is a distinct possibility, it is reasonable to expect additional negative impact on its market-related businesses, continued higher loan losses, and increases to its credit reserve.

Moody's cut the firm's senior debt rating to AA3 from AA2 due to the poor prospect of raising capital in the current recession appears to have put stocks under deeper pressure.

JP Morgan shares lost 1.57 to 24.34.

Apple Inc.'s (AAPL) shares lost 1.95 to 83.38 Thursday on the news that its CEO, Steve Jobs, is taking a leave of absence due to health reasons.

Data released Thursday showed lingering weakenss in the U.S. economy, with reports revealing a 54,000 jump in weekly jobless claims and a further deterioration in manufacturing activity.

Bonds were mixed, with the 10-year note yielding 2.21% at the close. The dollar index finished higher following the European Central Bank's decision to cut its benchmark interest rate by 50 basis points, to 2%. Gold futures were higher. Crude oil futures fell below $34 per barrel before rebounding to $34.72.

In economic news Thursday, the European Central Bank cut its refi rate by another 50 basis points, to 2%. The cut was in line with the consensus, but markets had been hoping for more. With inflation falling below the 2% target and the economy in recession, more cuts are expected, as the central banks all seem to be moving to a zero-rate policy. The move follows the Bank of England's cut last Thursday.

"[W]ith the continuing intensification of the economic downturn, we think the ECB will be forced to cut rates again to try to cushion the economy" says Colin Ellis of Daiwa Securities in London.

The Philadelphia Federal Reserve Bank reported that its Business Outlook Survey improved to negative 24.3 in January from negative 36.1. The consensus was for a a stable report near -35. The expectations index also improved, to plus 7.4 from minus 10.4.

The New York Fed's Empire State manufacturing survey, also released Thursday, continued to deteriorate in January, though at a -22.2 it was better than the record-low -27.8 in December. The index was better than the -25.0 expected by the market. The indexes for prices paid and prices received were negative for a second consecutive month, and employment indexes remained negative for a third consecutive month. The expectations index (six months ahead) fell 22 points, to -4.0, negative for the first time in the survey's history.

The Philly Fed report was far more upbeat than the New York Fed report, says S&P Economics, and suggests some turnaround may be beginning. "At the same time, the [Philly] survey remains below zero, so optimism should be kept in check, and the fact that the NY Fed expectations report turned negative is also some offset."

U.S. producer prices fell 1.9% in December, but were up 0.2% excluding food and energy. The changes were in line with the market consensus of negative 2.0% and plus 0.1%, respectively. Energy prices plunged 9.3% in the month. Crude materials prices fell 5.3% and intermediate goods 4.2% (down 2.2% and 3.0%, respectively, excluding food and energy). Finished goods prices are down 0.9% from a year earlier, thanks to the 20.3% drop in energy prices. The core inflation rate, however, actually accelerated to 4.3% over the 12-month period.

There was no real surprise in the data, says S&P Economics. "Core inflation remains calm, and the headline numbers are dropping because of lower oil prices."

Initial claims for unemployment insurance benefits jumped 54,000 to 524,000 in the week ending Jan. 10. The rise was an offset to the unexpected drop the previous holiday week. The four-week average, a more meaningful indicator, fell 8,000 to 518,500. The number of individuals receiving benefits dropped 115,000 to 4.497 million in the week ending Jan. 3, holding the insured unemployment rate at 3.4%.

"The data show continued, though expected, deterioration in the labor market," according to Action Economics.

RealtyTrac Inc., an online marketplace for foreclosure properties, said its 2008 U.S. Foreclosure Market Report shows 3,157,806 foreclosure filings -- default notices, auction sale notices and bank repossessions -- were reported on 2,330,483 U.S. properties during the year, an 81% increase in total properties from 2007 and a 225% increase in total properties from 2006. The report also shows that 1.84% of all U.S. housing units (one in 54) received at least one foreclosure filing during the year, up from 1.03% in 2007.

Among other stocks in the news Thursday, Motorola (MOT) announced it will further reduce its workforce in 2009 by approximately 4,000 positions; the cuts will include about 3,000 positions associated with its Mobile Devices business and about 1,000 positions associated with corporate functions and other business units. Motorola said Mobile Devices shipped about 19 million units in the fourth quarter; the company noted continued weakness in end consumer demand and customer inventory reductions. It expects fourth-quarter total corporate sales of $7 billion-$7.2 billion, and a GAAP net loss from continuing operations of 7 cents-8 cents per share.

According to the Wall Street Journal, Microsoft (MSFT) is seriously exploring a significant workforce reduction that could be announced as early as next week, in a sign that the weak economy is prompting tough decisions even at one of the steadiest ships in the technology industry.

Yahoo Inc. (YHOO) shares fell Thursday. S&P notes that Reuters and other outlets offer unconfirmed reports indicating that new CEO Carol Bartz yesterday told employees that her "gut instinct is to hang on to the company's search business."

General Motors (GM) offered an updated review of its business outlook before auto analysts, essentially downgrading its forecasts for the industry globally through 2012 due to the economic uncertainty and detailing its restructuring plans. Action Economics reports that GM is considering cutting nameplates from 48 to 40, considering the fate of Hummer, SAAB and Saturn units and aiming to break even by 2010 after cost reductions and reorganization. A formal plan is due on President-elect Obama's desk by Feb 17.

Eli Lilly & Co. (LLY) reached a resolution with the U.S. Attorney, Office of Consumer Litigation of the Dept. of Justice regarding previously-reported investigation into the drugmaker's past U.S. marketing and promotional practices for Zyprexa. Lilly will plead guilty to one misdemeanor violation of the Food, Drug, and Cosmetic Act, settling the federal government's civil investigation. As part of the deal regarding the criminal investigation, Lilly will pay $615 million; under terms for civil settlement Lilly will make payments totaling nearly $800 million.

Forest Laboratories (FRX) and Cypress Biosciences announced that Savella (milnacipran HCl), a selective serotonin and norepinephrine dual reuptake inhibitor, was approved by the FDA for management of fibromyalgia. In two U.S. pivotal phase III clinical trials, Savella doses of 100 mg/day and 200 mg/day demonstrated statistically significant and clinically meaningful concurrent improvements in pain, patient global assessment, and physical function.

Trimble Navigation (TRMB) expects fourth-quarter revenue of $268 million-$269 million and EPS of 22 cents-24 cents. The company noted continued weakness in demand for engineering and construction products. It added that its 2009 outlook for the Engineering and Construction segment is unclear.

Rio Tinto (RTP) will reduce net debt by $10 billion in 2009. The company cut its $9 billion-plus 2009 capital expenditure to $4 billion; it also set commitments to reduce controllable operating costs by at least $2.5 billion per year in 2010; and to cut global headcount by 14,000 (8,500 contractor and 5,500 employee roles). The company said the 2008 dividend will be held at the 2007 level, with no 20% uplift in 2008 and 2009. Rio Tinto also set an expanded scope of assets targeted for divestment including significant assets not previously highlighted for sale.

Liberty Shipping announced that it is withdrawing its proposal to buy International Shipholding (ISH) for $25.75 per share in cash.

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