Markets rise as Alcoa sees stronger demand

LONDON (AP) — World stock markets rose Wednesday after the fourth-quarter earnings season got off to a positive start in the U.S. with aluminum giant Alcoa forecasting higher demand for 2013.
Sales of aluminum have been hurt by the weak global economy, but Alcoa predicted a 7 percent increase in demand this year, slightly better than the 6 percent increase in 2012. Because Alcoa supplies so many key industries, investors study its results for clues about the health and direction of the overall economy.
"Regional markets are mostly firmer after the Alcoa result set the tone early," said Stan Shamu of IG Markets in Melbourne in a market commentary. "Alcoa's results are generally considered a bellwether for the global economy and the fact that the aluminum giant forecasts higher demand in 2013 appeased investors."
Britain's FTSE 100 rise 1 percent to close at 6,098.65, having earlier traded above 6,100 for the first time since the spring of 2008. France's CAC-40 rose 0.3 percent to 3,717.45.
Germany's DAX ended 0.3 percent higher at 7,720.47, after official figures showed industrial production rose less than expected in November. The 0.2 percent gain was also not enough to offset a 2 percent fall the previous month and means German economic output overall likely fell in the fourth quarter.
Investors will look forward to a monetary policy meeting by the European Central Bank on Thursday for clues on whether the weakening economic outlook is likely to trigger an interest rate cut in the coming months.
On Wall Street, stocks rose as investors there got their first chance to react to the Alcoa results. The Dow Jones industrial average was up 0.6 percent at 13,414.66 while the S&P 500 rose 0.4 percent to 1,463.59.
In Asia, Hong Kong's Hang Seng advanced 0.5 percent to 23,218.47 after a downturn in the prior session, with sentiment helped by gains in mainland Chinese shares.
"Stability in China is helping. We are taking a lot of cues from China-Asia," said Jackson Wong, vice-president of Tanrich Securities in Hong Kong.
Japan's Nikkei 225 index opened lower on a strengthening yen but reversed course as the currency slipped against the dollar. The benchmark in Tokyo gained 0.7 percent to close at 10,578.57.
Australia's S&P/ASX 200 added 0.4 percent to 4,708.10. South Korea's Kopsi was 0.3 percent lower at 1,991.20. Benchmarks in Singapore, Taiwan, Thailand, and the Philippines rose. Indonesia and Malaysia fell. Mainland Chinese stocks were mixed.
Major indexes surged last week after U.S. lawmakers passed a bill to avoid a combination of government spending cuts and tax increases that have come to be known as the fiscal cliff. The deal, however, remains incomplete, and trading has been cautious since then. Politicians will face another deadline in two months to agree on more spending cuts.
In commodity markets, the benchmark crude oil contract for February delivery was down 13 cents to $93.02 per barrel in electronic trading on the New York Mercantile Exchange.
In currencies, the euro fell 0.1 percent to $1.3072 while the dollar rose against the Japanese yen, to 87.92 yen from 87.19 yen.

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Wall Street gains as earnings flow in; Alcoa up

NEW YORK (AP) — Stocks rose on Wall Street Wednesday after U.S. corporate earnings reports got off to a good start.
The Dow Jones industrial average rose 57 points to 13,396 as of 2:12 p.m. EST. The Dow is coming off of two days of losses.
The Standard & Poor's 500 index gained four points to 1,461 and the Nasdaq composite rose 16 points to 3,108.
Having rallied after a last-minute resolution stopped the U.S. going from over the "fiscal cliff," stocks are facing their first big challenge of the year as companies start to report earnings for the fourth quarter of 2012. Throughout last year, analysts cut their outlook for earnings growth in the period and now expect them to rise by 3.21 percent, according to data from S&P Capital IQ.
"Maybe earnings expectations were a little too low," said Ryan Detrick, a strategist at Schaeffer's Investment Research. "You don't need to have great earnings, you just need to beat those expectations" for stocks to rally, Detrick said.
Alcoa predicted rising demand for aluminum this year as the aerospace industry gains strength. Late Tuesday the company reported fourth-quarter revenue that beat analysts' estimates. Investors pay close attention to Alcoa's results and forecasts because the aluminum it makes is used in so many industries including construction and manufacturing.
Boeing was the biggest gainer of the 30 stocks in the Dow, accounting for 17 points of the Dow's increase. Boeing jumped $2.34 to $76.47 following two days of sharp declines triggered by new problems for its 787 Dreamliner. Boeing said it has "extreme confidence" in the plane even as federal investigators try to determine the cause of a fire Monday aboard an empty Japan Airlines plane in Boston and a fuel leak at another JAL 787 on Tuesday.
Consumer products maker Helen of Troy, whose brands include Dr. Scholl's, Vicks and Fabreze, rose 89 cents to $34.42 after reporting a 15 percent increase in net income. Agricultural products giant Monsanto gained 84 cents to $99.34 after it said that its profit nearly tripled in the first fiscal quarter as sales of its biotech corn seeds expanded in Latin America.
The yield on the 10-year Treasury note edged down to 1.86 percent from 1.87 percent.
Among other stocks making big moves:
— Wireless network operator Clearwire jumped 22 cents to $3.14 after Dish network made an unsolicited offer to buy the company, which has already agreed to sell itself to Sprint. Dish rose $1.17 to $37.14 and Sprint fell 8 cents to $5.89.
— Online education company Apollo Group plunged 6 percent after reporting a sharp decline in fall-term student sign-ups at the University of Phoenix. The stock fell $1.18 to $19.76.
— Seagate Technology, a maker of hard-disk drives, jumped $1.72 to $33.12 after predicting revenue for its fiscal second quarter that topped Wall Street expectations late Tuesday.
— Bank of America fell 47 cents to $11.51 after Credit Suisse analysts lowered their outlook on the lender to "neutral" for "outperform," saying the current stock price overestimates the improvement in cost reduction that the bank can achieve this year.

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Wall Street gains as earnings flow in; Boeing up

NEW YORK (AP) — Stocks rose on Wall Street Wednesday after U.S. corporate earnings reports got off to a good start.
The Dow Jones industrial average climbed 61.66 points to 13,390.51, its first gain of the week. The Standard & Poor's 500 index gained 3.87 points to 1,461.02, and the Nasdaq composite rose 14 to 3,105.81.
Having rallied after a last-minute resolution stopped the U.S. from going over the "fiscal cliff," stocks are facing their first big challenge of the year as companies start to report earnings for the fourth quarter of 2012. Throughout last year, analysts cut their outlook for earnings growth in the period and now expect them to rise by 3.21 percent, according to data from S&P Capital IQ.
"Maybe earnings expectations were a little too low," said Ryan Detrick, a strategist at Schaeffer's Investment Research. "You don't need to have great earnings, you just need to beat those expectations" for stocks to rally, Detrick said.
Early indications were decent. Aluminum maker Alcoa reported late Tuesday that it swung to a profit for the fourth quarter, with earnings that met Wall Street's expectations. The company brought in more revenue than analysts had expected, and the company also predicted rising demand for aluminum this year as the aerospace industry gains strength. Alcoa is usually the first Dow component to report earnings every quarter.
Despite the better revenue number, Alcoa's stock performance Wednesday was lackluster. It traded higher for part of the day then ended down 2 cents at $9.08.
Other companies fared better after reporting earnings. Helen of Troy, which sells personal care products under brands including Dr. Scholl's and Vidal Sassoon, rose 2.7 percent, up 90 cents to $34.43 after reporting a 15 percent increase in quarterly net income.
Boeing was the biggest gainer of the 30 stocks in the Dow. It jumped 3.5 percent, up $2.63 to $76.76, following two days of sharp declines triggered by new problems for its 787 Dreamliner. Boeing said it has "extreme confidence" in the plane even as federal investigators try to determine the cause of a fire Monday aboard an empty Japan Airlines plane in Boston and a fuel leak at another JAL 787 on Tuesday.
The yield on the 10-year Treasury note edged down to 1.86 percent from 1.87 percent.
Among other stocks making big moves:
— Wireless network operator Clearwire jumped 7.2 percent, or 21 cents, to $3.13, after Dish network made an unsolicited offer to buy the company, which has already agreed to sell itself to Sprint. Dish rose 88 cents to $36.85, and Sprint fell 9 cents to $5.88.
— Online education company Apollo Group plunged 7.8 percent after reporting a sharp decline in fall-term student sign-ups at the University of Phoenix. The stock fell $1.63 to $19.32.
— Seagate Technology, a maker of hard-disk drives, jumped 6.6 percent, up $2.09 to $33.48, after predicting revenue for its fiscal second quarter that topped Wall Street expectations late Tuesday.
— Bank of America fell 4.6 percent, down 55 cents to $11.43, after Credit Suisse analysts lowered their outlook on the bank to "neutral" for "outperform," saying the current stock price overestimates the improvement in cost reduction that the bank can achieve this year.

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RPT-Wall St Week Ahead: 'Cliff' concerns give way to earnings focus

NEW YORK, Jan 6 (Reuters) - Investors' "fiscal cliff"
worries are likely to give way to more fundamental concerns,
such as earnings, as fourth-quarter reports get under way this
week.
Financial results, which begin after the market closes on
Tuesday with aluminum company Alcoa, are expected to be
only slightly better than the third-quarter's lackluster
results. As a warning sign, analysts' current estimates are down
sharply from what they were in October.
That could set stocks up for more volatility following a
week of sharp gains that put the Standard & Poor's 500 index
on Friday at the highest close since Dec. 31, 2007. The
index also registered its biggest weekly percentage gain in more
than a year.
Based on a Reuters analysis, Europe ranks among the chief
concerns cited by companies that warned on fourth-quarter
results. Uncertainty about the region and its weak economic
outlook were cited by more than half of the 25 largest S&P 500
companies that issued warnings.
In the most recent earnings conference calls, macroeconomic
worries were cited by 10 companies while the U.S. "fiscal cliff"
was cited by at least nine as reasons for their earnings
warnings.
"The number of things that could go wrong isn't so high, but
the magnitude of how wrong they could go is what's worrisome,"
said Kurt Winters, senior portfolio manager for Whitebox Mutual
Funds in Minneapolis.
Negative-to-positive guidance by S&P 500 companies for the
fourth quarter was 3.6 to 1, the second-worst since the third
quarter of 2001, according to Thomson Reuters data.
U.S. lawmakers narrowly averted the "fiscal cliff" by coming
to a last-minute agreement on a bill to avoid steep tax
increases last week - driving the rally in stocks - but the
battle over additional spending cuts is expected to resume in
two months.
Investors also have seen a revival of worries about Europe's
sovereign debt problems, with Moody's in November downgrading
France's credit rating and debt crises looming for Spain and
other countries.
"You have a recession in Europe as a base case. Europe is
still the biggest trading partner with a lot of U.S. companies,
and it's still a big chunk of global capital spending," said
Adam Parker, chief U.S. equity strategist at Morgan Stanley in
New York.
Among companies citing worries about Europe was eBay
, whose chief financial officer, Bob Swan, spoke of
"macro pressures from Europe" on the company's October earnings
conference call.
REVENUE WORRIES
One of the biggest worries voiced about earnings has been
whether companies will be able to continue to boost profit
growth despite relatively weak revenue growth.
S&P 500 revenue fell 0.8 percent in the third quarter for
the first decline since the third quarter of 2009, Thomson
Reuters data showed. Earnings growth for the quarter was a
paltry 0.1 percent after briefly dipping into negative
territory.
On top of that, just 40 percent of S&P 500 companies beat
revenue expectations in the third quarter, while 64.2 percent
beat earnings estimates, the Thomson Reuters data showed.
For the fourth quarter, estimates are slightly better but
are well off estimates from just a few months earlier. S&P 500
earnings are expected to have risen 2.8 percent while revenue is
expected to have gone up 1.9 percent.
In October, earnings growth for the fourth quarter was
forecast up 9.9 percent.
In spite of the cautious outlooks, some analysts still see a
good chance for earnings beats this reporting period.
"The thinking is you need top-line growth for earnings to
continue to expand, and we've seen the market defy that," said
Mike Jackson, founder of Denver-based investment firm T3 Equity
Labs.
Based on his analysis, energy, industrials and consumer
discretionary are the S&P sectors most likely to beat earnings
expectations in the upcoming season, while consumer staples,
materials and utilities are the least likely to beat, Jackson
said.
Sounding a positive note on Friday, drugmaker Eli Lilly and
Co said it expects profit in 2013 to increase more than
Wall Street had been forecasting, primarily due to cost controls
and improved productivity.
(Wall Street Week Ahead moves every Sunday. Comments or
questions on this one can be sent to

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Wall Street cheers "cliff" deal, but only for now

When lawmakers delivered a long-delayed, last-minute agreement on the budget, Wall Street celebrated. And it would be easy to think that the surge in the Dow the following day meant that investors had put their concerns about Washington's political gridlock behind them.
The Dow Jones industrial average surged on the news, but that doesn't mean the volatility is over. In fact, there could be more turmoil in the market soon because decisions on cutting the federal budget deficit have been put off until March, when the government will reach its borrowing limit. Republicans have already said they will demand cuts to spending as a condition for extending the limit.
"The uncertainty is still there, the key issues are spending cuts and entitlement reforms and, for the most part, those were not addressed," says Terry Sandven, chief equities strategist at U.S. Bank Wealth Management. "This sets the stage for sharper rhetoric and increased market volatility as these discussions evolve."
The last time lawmakers tussled over the debt limit, the stock market plunged and the U.S. government lost its AAA debt rating. The Dow fell almost 7 percent in the two weeks before an agreement was reached Aug. 3, 2011.
Many business leaders objected to the agreement lawmakers reached late Tuesday. The Business Roundtable, an association of chief executive officers of leading U.S. companies, said that although it addressed some of the immediate negative consequences that the economy would have faced going over the "fiscal cliff," it failed to address the "serious and fundamental" reforms the economy needs. The National Retail Federation said that the deal was welcome, though it was only the first step in necessary tax reform.
Companies are likely to remain wary of investing until they get more clarity from Washington, says Joe Heider, a principal at Rehmann Financial in Cleveland, Ohio. He likens the current U.S. business climate to a sporting event where the referees tell the players to take the field before telling them that the rules of the game will only be decided on once the final whistle has been blown.
"Washington needs to get out of the way of the financial markets and American business," said Heider. "They need to create some certainty over how businesses should best deploy all the cash that they're sitting on."
And corporations are sitting on a lot of cash. Companies have been steadily building up their reserves over the last five years and are now sitting on record cash piles. By the end of the third quarter of last year, S&P 500 companies had accumulated more than $1 trillion in cash, according to data from S&P Dow Jones Indices.
At least for now, companies are unlikely to invest much of that money back into their businesses simply because demand just isn't strong enough, says U.S. Bank's Sandven. Instead they will spend it on acquisitions, stock buy-backs and pay higher dividends. Those are all actions that should boost stock prices in the near term, despite the ongoing uncertainty and increased volatility that will be caused by political wrangling.
Investors should take advantage of any volatility in the market created by the political wrangling to seek out stocks that have a history of growing their dividends, says Sandven. He estimates that half of the stocks in the S&P 500 have a dividend yield that is higher than the current 10-year U.S. Treasury note. The 10-year Treasury note was at 1.90 percent Friday.
He also recommends that investors buy the stocks of companies that have exposure to emerging markets that have a growing middle class and don't have the same debt issues as the U.S.
Joseph Tanious, a global markets strategist at J.P. Morgan Funds, says investors would be wise to remain calm when the negotiations in Washington around the debt ceiling start to heat up this spring.
The stock market dropped sharply in the weeks after the election Nov. 6 as investors worried that a divided government wouldn't get a deal done in time to meet a budget deadline by the end of the year, but it has rebounded since then. The S&P 500 is now 2 percent higher than it was on election day, even after falling by as much as 5 percent in the two weeks following the vote. On Friday it closed at 1,466, the highest since December 2007.
"When push came to shove, Congress did come together to reach an agreement," says Tanious. "Many people were saying you should be out of the market ... (that) markets are going to capitulate, and that didn't happen."
Stocks have rallied over the last three years as investors remain optimistic that the economy will maintain a slow, but steady, recovery from recession, as the housing market improves and as the outlook for jobs gets better.
And while investors also see the wisdom in addressing the nation's long-term debt problems, they point out that businesses and consumers have been aggressively paying down their own debts in the aftermath of the 2008 financial crisis. That leaves more flexibility for people and companies to shop, invest, and spend money, helping to lift the economy — and the stock market — even if Washington's political dysfunction worsens.

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Analysis - U.S. fiscal crisis seen hurting tech earnings

Warning to investors: major U.S. technology companies could miss estimates for fourth-quarter earnings as "fiscal cliff" worries likely led some corporate clients to tighten their belts last month and refrain from spending all of their 2012 IT budgets.
Tech companies usually enjoy a spike in orders in December as corporations use money left over in their budgets to buy goods on their wish lists - information technology products that are nice to have, rather than essential.
But the so-called year-end budget flush was not as deep in 2012 as in typical years, according to tech analysts and other experts citing conversations with corporate technology buyers and sales sources. They said companies held back on IT purchases in December in part because of Washington's protracted negotiations to avoid the fiscal cliff, which is a package of automatic tax hikes and spending cuts that could have pushed the already soft U.S. economy into recession.
It took until late on January 1 for House Republican lawmakers led by John Boehner to agree to a bill to avert the cliff, which President Barack Obama signed into law the next day.
"CIOs and CFOs were not making investments," said Andrew Bartels, an analyst with Forrester Research who advises corporate technology buyers. "If Boehner and Obama had been able to strike a deal by around December 15, we would have had end-of-quarter investments."
Analysts say they expect tech spending to remain subdued through at least the first quarter, as businesses wait to see if Congress can resolve another looming fiscal fight, this time over the debt ceiling and federal spending cuts.
Wall Street has already significantly lowered expectations for the tech sector, which has been underperforming the overall market.
The Street now expects tech companies in the S&P 500 to report a 1.0 percent drop in fourth-quarter earnings, against an average 2.8 percent rise for companies in the full S&P 500. Three months ago, analysts were expecting tech sector earnings to rise 9.4 percent in the fourth quarter, according to Thomson Reuters I/B/E/S.
First-quarter tech profit growth estimates have also been lowered to 2.6 percent, from 9 percent three months ago, according to Thomson Reuters I/B/E/S.
Greg Harrison, a corporate earnings research analyst with Thomson Reuters, said he expects analysts will cut their predictions further after tech companies report fourth-quarter results.
Intel Corp will report its quarterly earnings on January 17, the first of a group of big tech companies reliant on enterprise spending. Intel will be followed by IBM, Microsoft Corp and EMC Corp later in January. Cisco Systems Inc, Dell Inc and Hewlett-Packard Co close their quarterly books in about a month.
Mark Luschini, chief investment strategist at Janney Montgomery Scott, which manages about $54 billion (33.7 billion pounds), said he generally expects fourth-quarter tech results to disappoint, but has yet to determine by how much.
He expects the sluggish performance to continue into the first quarter, then improve in the second half of the year, assuming Democrats and Republicans reach a deal on the debt ceiling and spending cuts.
"So far we only have one piece," he said of the fiscal cliff deal.
USE IT OR LOSE IT
Even if Washington politicians eventually resolve their differences over fiscal issues, that is not expected to fully restore losses already caused to tech spending, experts said.
Technology projects that were axed at the end of last year will not likely be resumed any time soon because annual tech budgets are allocated on a "use it or lose it" basis, according to experts who advise companies on technology investments.
"These budgets are based on how the business is doing at the time. All of these are postponable decisions," said Howard Anderson, a senior lecturer at the MIT Sloan School of Management and frequent adviser to chief investment officers at Fortune 500 companies.
Analysts said that makers of hardware, from computers to networking gear, likely missed out on the year-end budget flush because businesses can postpone upgrades for years by buying new software that is compatible with older equipment.
They said they expect some companies to have postponed the purchase of new PCs in the fourth quarter, which could hit the results of Windows and Office maker Microsoft, along with PC makers Dell and HP, as well as chipmakers Intel and Advanced Micro Devices Inc.
Nucleus Research analyst Rebecca Wettemann said some businesses likely delayed buying new PCs to avoid having to upgrade to Windows 8, which was introduced late last year.
"A new operating system causes huge disruptions for businesses," she said. "Who wants to take that on in the face of all the other uncertainty?"
Microsoft, Dell, HP and Intel declined to comment. AMD did not return requests for comment.
Beyond concerns about the U.S. economy, corporate IT buyers are also worried about the potential for further weakness in Europe and Asia.
Last Thursday, Forrester cut its closely watched forecast for 2013 global IT sales, citing the fiscal cliff debacle as one reason. Forrester now expects global IT sales to rise 3.3 percent to $2.2 trillion this year, down from its previous forecast for 4.3 percent growth.
VIRTUAL STORAGE
Analysts say the weak economy may boost adoption of recently introduced data storage technologies that allow companies to put more data on the equipment they already own, reducing the need for them to buy more hardware.
Some companies have already paid for that technology, but have yet to implement it because staff are not yet comfortable using it, said analyst Cindy Shaw of investment research firm Discern.
Shaw said that executives at those companies are likely to tell their IT staff to implement that technology to get full use out of existing equipment before they can buy more.
Storage equipment makers NetApp Inc and EMC, along with hard drive makers Western Digital Corp and Seagate Technology are likely to suffer the most from more use of the new technologies, which include storage virtualization. NetApp and Western Digital declined to comment. EMC and Seagate could not be reached for comment.
Defenders of the tech industry say the fallout from the fiscal cliff is already factored into share prices. The S&P 500 Information Technology Index has climbed 1.6 percent over the past month, below the 4.0 percent increase in the broader S&P 500 Index.
Some technology companies appear poised to outperform the pack.
Oracle Corp said on December 18 that it expects software sales growth to stay strong in 2013 despite fears about the fiscal crisis. The company's earnings beat Wall Street forecasts in its most recent quarter as strong software sales offset a sharp drop in hardware revenue.
Analysts said that IBM, whose quarter ended December 31, may have fared better than other big technology companies, because it is has a large amount of recurring revenue from its services and software divisions.
"Oracle and IBM both have super strong sales teams that can bring home what they need to year after year," said Kim Forrest, senior analyst of Fort Pitt Capital.
IBM and Oracle could not be reached for comment.

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Hong Kong shares may trim strong 2013 start after Fed voices concern

HONG KONG, Jan 4 (Reuters) - Hong Kong shares could end a
two-day rally on Friday, tracking Wall Street weakness after
signs that the U.S. Federal Reserve has growing concerns about
its stimulative monetary policy.
Any losses could be limited if mainland China markets reopen
strongly on Friday, trading for the first day in 2013 after a
three-day New Year holiday.
On Thursday, the Hang Seng Index ended up 0.4 percent
at 23,398.6, its highest since June 1, 2011. The China
Enterprises Index of the top Chinese listings in Hong
Kong added 0.8 percent, reaching another peak since August 2011.
On the week, the indexes are up 3.2 and 5.5 percent,
respectively. The H-share index's relative strength index (RSI)
value suggests that it is now at its most overbought since
October 2010.
Elsewhere in Asia, Japan's Nikkei is up 3 percent in
its first trading session for the year, while South Korea's
KOSPI is down 0.4 percent at 0042 GMT.
FACTORS TO WATCH:
* Consolidation of Austria's cutthroat telecom market moved
ahead on Thursday when Hutchison Whampoa Ltd completed
its 1.3 billion euro ($1.7 billion) takeover of Orange Austria,
making it the country's third-biggest mobile operator.
* Hong Kong's Li & Fung Group agreed to acquire a
majority stake in South Korean children's apparel maker Suhyang
Networks for roughly 200 billion won ($188 million), a South
Korean newspaper reported on Thursday.
* Hong Kong November 2012 retail sales rose 9.5 percent from
a year earlier.
* Bestway International Holdings Ltd has cancelled
part of its mining area in Mongolia due to the implementation of
new regulations.
* Chinese property developer Kaisa Group Holdings Ltd
has issued $500 million in senior notes due 2020
bearing an interest rate of 10.25 percent per annum.
* Chinese property developer Country Garden has
issued $750 million senior notes due 2023 with an interest rate

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Analysis: Alimta patent seen as Lilly's "wild card"

NEW YORK (Reuters) - Eli Lilly & Co may have a $15 billion wild card up its sleeve as it waits for desperately needed new drugs to bear fruit.
Should an obscure patent on Lilly lung cancer drug Alimta survive a court challenge this year, the company would be able to wring more than five additional years of peak sales out of the fast-growing product that it would otherwise lose to cheaper generics.
Annual sales of Alimta are expected by Wall Street to climb to $3.5 billion by 2016, when its basic patent lapses. Once faced with generic competition, branded drugs typically lose more than 80 percent of sales within a year.
While the likelihood of a Lilly victory is not a widely held view, a growing number of patent attorneys and industry analysts believe the particular patent being challenged will pass legal muster.
Alimta may keep its marketing exclusivity until 2022, thanks to protection from a separate so-called method-of-use patent on the way the drug is administered that many investors and Wall Street watchers are not aware of or have failed to appreciate.
Historically, method-of-use patents have had a much tougher time holding up in court than basic chemical patents on medicines. They are often viewed as manipulative, blatant efforts to extend the sales life of products.
But this one could be different because of specific safety language in the Alimta label that could provide a road block to cheaper generics.
The so-called '209 patent covers the administration of two nutrients - folic acid and vitamin B12 - to patients before they receive Alimta, to protect against toxic side effects of the cancer drug. Alimta's approved label instructs doctors to administer the nutrients prior to and during use of the medicine.
"For a generic to win approval, it usually has to copy the branded drug's label," said patent attorney Ben Hsing, a partner in the law firm of Kaye Scholer in New York.
Generics could have a hard time doing so because Lilly has a separate patent on the pre-administration of the nutrients, said Hsing, who last year successfully defended Roche Holding AG's Tarceva lung cancer drug from patent challenges by generic drugmaker Mylan Inc. "So I think generics would have a tough time" prevailing.
If generic versions of Alimta cannot mention use of the nutrients in their own labels, they could be compromising patient safety, which is not likely to sit well with health regulators that must approve any generic, according to patent attorneys.
Lilly, whose attorneys declined to comment for this story, is expected to counter legal arguments that use of folic acid and vitamin B12 is "obvious" and therefore not patentable by arguing that its researchers discovered the protective effects of the nutrients with respect to Alimta specifically.
Gary Frischling, a Los Angeles-based patent attorney for Irell & Manella, agreed that the language in Alimta's label could keep cheap generics at bay until 2022.
"This seems to be a case in which research done on how to safely use this particular drug has turned out to be very economically important," said Frischling, who has represented Elan Corp and other drugmakers.
PATENT WIN WOULD PROVIDE NEEDED BOOST
Lilly badly needs new medicines to replace ones that have already lost patent protection or will in the next two years.
In October 2011, the company began facing one of the worst patent cliffs in industry history when its biggest drug, Zyprexa for schizophrenia, began facing generics. Sales of the former $4.5 billion-a-year drug have plunged by two-thirds.
The pain worsens in December of 2013, when Lilly's current top seller, the $5 billion-a-year anti-depressant Cymbalta, goes generic, and after cheap versions of its $1 billion Evista osteoporosis drug arrive in early 2014.
Blockbuster Alimta sales well into 2022 could go a long way toward easing some of that pain, while other new medicines work their way toward approvals.
Generic drugmakers Teva Pharmaceuticals Industries Ltd and APP Pharmaceuticals LLC have challenged the validity of the '209 patent, and will battle Lilly this summer in federal court in the drugmaker's hometown of Indianapolis.
The U.S. Court of Appeals in Washington last August upheld the validity of the patent on the drug's chemical structure, protecting it from generics through late 2016.
If the method of use patent also holds up in court, Alimta would then be protected from 2017 to 2022, according to Seamus Fernandez, an analyst with Leerink Swann, who received a four-star rating from StarMine for his predictions about Lilly over the previous two years.
His "outperform" rating on Lilly is based partly on that expectation, even though the general consensus on Wall Street is to the contrary.
"We see a real opportunity here," said Fernandez, who estimated Lilly's earnings per share would get more than a 25 percent lift in 2017, 2018 and 2019 if the patent is upheld.
"It would provide a pretty nice runway to launch products and get them to market," said Fernandez. He cited Lilly treatments for Alzheimer's disease, arthritis, psoriasis, diabetes and cancer now in late-stage studies.
Michael Liss, portfolio manager at American Century Investments, said Lilly's profits and share price could expand significantly if only a few good-selling drugs are introduced during the next few years.
Sanford Bernstein's Tim Anderson also has an "outperform" rating on Lilly, based largely on confidence the method of use patent will prevail in court. Anderson also received a four-star out of five StarMine professional rating for his analysis of Lilly.
The company has taken a conservative stance, not stressing the possibility of a patent victory. Lilly Chief Financial Officer Derica Rice has said an extension of Alimta's patent would be an "upside" for Lilly.
Attorneys for Lilly declined to comment on the case. A Teva spokeswoman also declined to comment.
To be sure, keeping Alimta patent protection beyond 2016 is no lock. Based on historical precedence, Morningstar analyst Damien Conover offered little hope the patent will pass muster with the federal court. "Most people expect the patent to fail," Conover said. "Method-of-use patents tend to be particularly weak."
But most people may be underestimating the protective differences of this particular patent, according to legal experts.
Patricia Carson, a patent lawyer with the firm of Kirkland & Ellis in New York, said pre-administration of folic acid and vitamin B12 appears to be "specific to Alimta" and not a procedure common with other drugs.
"In development (of Alimta), they came up with this type of method," she said.
Even so, Carson said Lilly may have to convince the court the method would not have been obvious to the ordinary researcher.
Should the Alimta patent prevail, Conover said it would significantly bolster Lilly's attractiveness and profits beginning in 2017. It also would help Lilly cope with a second patent cliff that would begin that year, as its Cialis impotence treatment and Effient blood clot drug begin facing generics. The drugs now have annual sales of $2 billion and $450 million, respectively.
Lilly's fourth-quarter results, due later this month, are expected to show earnings tumbled about 24 percent in 2012. The company expects to begin rebounding from its patent cliff in 2015.
Cowen and Co analyst Steve Scala, called the patent case a "wildcard opportunity" for Lilly.
Lilly shares rose 19 percent in 2012, compared with a 10 percent gain for the ARCA Pharmaceutical Index of large U.S. and European drugmakers, suggesting confidence in an eventual turnaround for Lilly.

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Stocks fade after Fed discloses split on stimulus

NEW YORK (AP) — A two-day rally in the stock market came to an end Thursday afternoon when an account of the Federal Reserve's last meeting revealed a split between bank officials over how long the Fed should keep buying bonds to support the economy.
The Dow Jones industrial average and the Standard & Poor's 500 index treaded water for much of the day, then slid into the red around 2 p.m. Eastern, after the Fed released the minutes from its December meeting.
The Dow ended with a loss of 21.19 points at 13,391.36.
The S&P 500 lost 3.05 points to 1,459.37 and the Nasdaq composite fell 11.70 to 3,100.57.
At last month's meeting of the Federal Reserve's policy-making committee, the central bank pledged to buy $85 billion of Treasurys and mortgage-backed bonds and also keep a benchmark interest rate near zero until the unemployment rates drops below 6.5 percent.
On Thursday, the minutes from that meeting showed Fed officials were divided over the bond purchases. Some of its 12 voting members thought they should continue through this year, while another group thought they should be slowed or stopped much earlier. Just "a few" members saw no need for a time frame, according to the minutes.
"It's pretty surprising," said Thomas Simons, market economist at the investment bank Jefferies. "I think everybody thought there was broad agreement on policy, but now it seems like few of them really wanted to vote for it."
The stock market opened on a weak note after retailers reported mixed holiday sales and as the prospect of a new budget battle in Congress loomed. UnitedHealth Group led the Dow lower. The insurance giant's stock fell $2.55 to $51.99 after analysts at Deutsche Bank and other firms cut their ratings on the stock.
"It's natural to relax a bit after such a huge day as yesterday," said Lawrence Creatura, who manages a small-company fund at Federated Investors.
The Dow soared 308 points Wednesday, its largest point gain since December 2011. The rally was ignited after lawmakers passed a bill to avoid a combination of government spending cuts and tax increases called the "fiscal cliff."
That deal gave the market a jump start into the new year. The Dow and the S&P 500 are already up more than 2 percent.
"We're off to a very strong start," Creatura said. "The dominant reason is the resolution of the fiscal cliff. But January is usually a strong month, as investors all shift money into the market at the same time. When the calendar flips, it's as if you're allowed to begin the race anew."
Economists had warned that the full force of the fiscal cliff could drag the country into a recession. The law passed late Tuesday night averted that outcome for now, but other fiscal squabbles are likely in the months ahead. Congress must raise the government's borrowing limit soon or be forced to choose between slashing spending and paying its debts.
In other Thursday trading, prices of U.S. government bonds fell, sending their yields higher. The yield on the benchmark 10-year Treasury note rose to 1.90 percent from 1.84 percent late Wednesday, a sign that some bond traders believe the Fed minutes hinted at an early end to its bond buying.
Family Dollar Stores sank 13 percent after reporting earnings that fell short of analysts' projections. The company also forecast a weaker outlook for the current period and full year. Family Dollar's stock lost $8.30 to $55.74.
Nordstom Inc. surged 3 percent after the department-store chain reported strong holiday sales, especially in the South and Midwest. Nordstrom's stock was up $1.64 to $55.27.
Among other stocks making big moves:
— Transocean jumped $2.96 to $49.20. The owner of the oil rig that sank in the Gulf of Mexico in 2010 after an explosion killed 11 workers reached a $1.4 billion settlement with the Justice Department.

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Private hiring jumps in December despite fiscal worries

Private-sector employers added more new jobs than expected last month even as a potential budget crisis loomed, helping the job market end 2012 on a high note, a report by a payrolls processor showed on Thursday.
The ADP National Employment Report showed the private sector added 215,000 jobs in December, comfortably above economists' expectation of a 133,000 gain.
The increase came even as companies worried the economy might fall off a "fiscal cliff" at year end, which would have meant higher taxes and, some predicted, suppressed hiring.
"All the labor market data...has held up very, very well so (there is) no sign of the fiscal cliff impact on the job market," Mark Zandi, chief economist at Moody's Analytics, told CNBC television. The ADP report is jointly developed with Moody's Analytics.
On a conference call about the results, he said the report showed "the resilience of the economy in the face of some pretty significant uncertainty with regard to what's been going on in Washington," adding "I expected more of an impact on the job market than we have observed."
A last-minute deal to avoid going over the fiscal cliff was struck on New Year's Day, though decisions on some important spending issues were delayed rather than decided.
"The underlying economy has momentum, and the employment data confirms that," said John Brady, managing director at R.J. O'Brien & Associates in Chicago. "The hope and prayer of the market is that our political leaders don't screw it up."
A revival in new construction jobs was also a hopeful sign, Zandi said, though the gains were likely boosted by rebuilding efforts after Superstorm Sandy hit the U.S. East Coast in October.
November's private payrolls tally was also revised upward to show a gain of 148,000 from the previously reported 118,000.
The ADP data has had a mixed track record when it comes to predicting changes in the Bureau of Labor Statistics' more comprehensive payrolls data. The December report, due on Friday, is expected to show the economy added 150,000 jobs last month after adding 146,000 in November.
"In terms of implications for the payrolls report tomorrow, we tend to discount this a little bit, especially around the turn of the year, because ADP tends to be very volatile in December in particular," said Yelena Shulyatyeva, U.S. economist at BNP Paribas in New York.

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Fiscal cliff market relief fades in Europe

Enthusiasm waned Thursday in Europe over U.S. legislators' deal to stave off the so-called fiscal cliff, a series of automatic tax increases and spending cuts that could have hurt the world's largest economy.
While the deal passed by Congress this week avoids the near-term risk of a major blow to businesses and households, it left unsolved several budget measures, mainly government spending cuts. Major indexes fell modestly as investors considered that U.S. politicians now have only two months to negotiate those cuts.
In afternoon trading in Europe, Germany's DAX shed 0.3 percent to 7,758.71 and France's CAC-40 lost 0.5 percent to 3,714.87. Britain's FTSE 100 rose a bare 0.1 percent to 6,035.18. Some broader indexes of European shares rose slightly, boosted by sharp gains in Switzerland. The 18-country STOXX 600 rose 0.3 percent to 286.14.
Wall Street also appeared headed for a lower open Thursday after gains Wednesday. Dow Jones futures were down 0.1 percent to 13,311 while S&P 500 futures lost 0.2 percent to 1,454.10.
A last-minute deal agreed to by U.S. lawmakers late Tuesday triggered a global market rally on Wednesday. But while it settled tax rates, the deal only postponed automatic spending cuts to defense and domestic programs for two months. And it doesn't include any significant deficit-cutting agreement, meaning the country still doesn't have a long-term plan on how to curb spending.
Rabobank analyst Jane Foley said that a "more realistic sense" of the situation with U.S. budget affairs "has started to trickle into market sentiment this morning."
"Over the next couple of months, U.S. budget talks are set to remain a threat to risk appetite," Foley wrote in a note to investors.
Some traders may have decided to sell and lock in this week's gains. "After the euphoric mood of markets yesterday...a degree of profit taking was perhaps inevitable," GFT Markets strategist Fawad Razaqzada said.
Looking ahead, investors will keep an eye on the U.S. monthly jobs report due Friday. The figures often move markets as they are a key indicator for the health of the U.S. economy, which has struggled to gain steam in recent months.
Figures from human resources firm ADP showed U.S jobless claims rose by more than expected to 372,000. But that was offset by more positive figures showing the economy created 215,000 new jobs during the month.
The ADP numbers are a prelude to Friday's official U.S. government numbers, but sometimes differ.
Earlier in Asia, benchmarks in Hong Kong and Sydney rose modestly and crested above the 19-month highs hit Wednesday. Hong Kong's Hang Seng Index rose 0.1 percent to 23,398.98, while Australia's S&P/ASX 200 rose 0.7 percent to 4,740.70. Benchmarks in Singapore, Taiwan, Indonesia, Thailand, the Philippines and New Zealand also rose.
Still, South Korea's Kospi fell 0.6 percent to 2,019.41 amid fears the weakening Japanese yen could hurt South Korean exporters.
Markets in Japan and mainland China were closed for extended holidays until Friday.
Benchmark oil for February delivery fell 42 cents to $92.59 in electronic trading on the New York Mercantile Exchange. The euro fell 0.6 percent to $1.3108, while the dollar slipped 0.5 percent to 86.90 yen.

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Monti says political rivals should sideline extremists

 Mario Monti, bidding for a second term as Italy's prime minister, said on Thursday a left-wing party on track to lead the next government should sideline "extreme" elements who hinder vital economic reforms.
The 69-year-old former European Commissioner was appointed in November 2011 to lead an unelected right-left government of experts to save Italy from financial crisis after then-Prime Minister Silvio Berlusconi quit.
On Friday, he turned against his former allies and entered a three-way race against the Democratic Party (PD) on the left and Berlusconi's People of Freedom (PDL) on the right. The election is scheduled for February 24-25.
Opinion polls suggest PD leader Pier Luigi Bersani's center-left, two-party coalition is most likely to form a government, either alone or in alliance with other groups.
Bersani's pro-European stance makes him the most likely ally for Monti's centrist bloc after the vote should the PD not win a solid majority in both houses of parliament.
"If (Bersani) wants a PD and a left that truly watches out for the needs of workers and acts dynamically to create job possibilities, then he should, with an act of courage, silence a little this wing that I consider conservative," Monti told the Uno Mattina program on state television.
Monti said PD economic adviser Stefano Fassina and Nichi Vendola - head of the PD coalition ally Left, Ecology, and Freedom party - espoused the over-protective labor policies of the left-wing labor union CGIL.
COURAGE
Monti has blamed the CGIL and a minority of PD supporters for blocking more radical labor market changes that he had wanted to introduce with his reform last year.
"I'll never shut anyone up," Bersani shot back after meeting with his party rival, Florence mayor Matteo Renzi, who Bersani defeated in a primary vote last year.
"The courage that is being asked of me I've already demonstrated, and it wasn't used to shut people up, but to make them participate," Bersani said, referring to the primary that crowned him the center-left leader.
Susanna Camusso, head of the CGIL, replied that Monti did not understand the country nor the desperate conditions of workers.
A poll published on Wednesday said Monti's grouping would win 12 percent of the vote. One published last week said it could gain up to 16 percent, depriving rivals of a clear win, but not enough to govern.
Under a complex electoral law, Bersani's coalition could win a comfortable majority in the lower house without taking secure command of the Senate, possibly making an alliance with Monti's bloc crucial to creating a stable parliamentary majority.
Monti also said Berlusconi's PDL had caved to pressure from lobbyists, especially the pharmacy sector, and had watered down an effort by his government to deregulate services.
Kicking off his political campaign on Wednesday, Monti pledged to cut labor taxes and redistribute wealth from the richest to the poorest if he wins.
That was a shift from his role doling out painful austerity to Italians to shore up public finances.

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December retail sales mixed, nimble chains do better

Several major U.S. retailers beat expectations of modest sales increases in December as shoppers wrapped up holiday buying, but overall results were mixed and only stores that were nimble enough thrived in an uncertain economy.
Costco Wholesale Corp , Nordstrom Inc , TJX Cos Inc and Ross Stores Inc were among the winners of the month, while such chains as Target Corp and Family Dollar Stores Inc felt the pinch as cautious consumers focused purchases on food and other basics.
Across 17 retailers including discounters, department stores and apparel chains, December sales at stores open at least a year rose 4.5 percent, topping analysts' estimates for 3.3 percent growth. The result reported Thursday also topped 1.6 percent growth in November 2012 and a 4.2 percent increase in December 2011, according to Thomson Reuters I/B/E/S.
Companies like Costco, TJX and Ross "are able to thrive in whatever economic environment they happen to be operating in" by adjusting their business models, inventory levels and sales strategies better than many peers, said Craig Johnson, president of Customer Growth Partners.
The stronger-than-expected December is likely to help retailers overcome a softer start to the key holiday season. The 2012 season was never expected to be stellar, but even the single-digit growth anticipated by chains and analysts came under pressure as Superstorm Sandy, the ever-present headlines about the "fiscal cliff" and the Connecticut school shootings affected consumers' moods in November and December.
With the number of chains that report monthly sales dwindling in recent years, Thursday's tally offered a limited snapshot of consumer behavior. Industry heavyweights like Wal-Mart Stores Inc and sector leaders like consumer electronics chain Best Buy Co Inc have yet to report sales for the holiday season.
Retail stocks, which largely missed out on Wednesday's market rally, rose on Thursday. The S&P 500 retail index <.spxrt> added nearly 1 percent near midday, while the S&P 500 index <.spx> inched up 0.1 percent.
CONSUMER CONFIDENCE
With the country moving past the fiscal cliff debate, retailers will be watching whether the expiration of the payroll tax cut takes a toll on consumer spending.
The expiration of the payroll tax holiday, which this week raises Social Security taxes for workers to 6.2 percent from 4.2 percent, may be more important to the economy than the income tax hike for wealthy people, said Michael Wilson, head of research at Morgan Stanley's wealth management division.
"A two percent hit off the top for the average person is meaningful," he said. "It will change their spending behavior."
While it was hard to say American consumers were tapped out, they are "fragile," said Chris Donnelly, global head of Accenture's retail practice. "It doesn't take much to rattle the consumer."
As cautious U.S. consumers try to stick to their budgets, it remains a very competitive marketplace for retailers, Donnelly said.
Madison Riley, managing director of retail consulting firm Kurt Salmon, predicted that if the upcoming debt ceiling debate goes better than the Washington wrangling to avoid the cliff, there could be a bigger uptick in consumer spending in 2013.
HO-HUM SPRING
As retailers finish up their quarter this month, they are bringing out fresh merchandise while offering deep discounts to move winter goods.
Michael Niemira, chief economist of the International Council of Shopping Centers, sees a ho-hum spring selling season. He expects sales growth in the 2013 spring season to be weaker than in 2012.
Higher food prices this year mean "a little less discretionary spending power" for U.S. shoppers, he said.
One bright spot this spring could be home goods. Home improvement chains such as Home Depot Inc and Lowe's Cos Inc and retailers selling home goods and furnishings could benefit as people start to update their homes with the turn in the housing market, said Customer Growth's Johnson.
HITS AND MISSES
TJX and Ross, which appeal to bargain hunters with marked-down name-brand merchandise, posted stronger-than-expected sales and raised their fourth-quarter earnings forecasts.
But at Barnes & Noble Inc , holiday sales fell sharply, with a decline in the number of Nook devices sold and shoppers at its stores.
Kohl's Corp slashed its fourth-quarter profit outlook, as holiday sales came late in the season at deeper discounts than planned. Still, its 3.4 percent rise in December same-store sales topped forecasts.
Gap Inc's December same-store sales topped expectations. The retailer also said it would buy women's luxury retailer Intermix.
Target's same-store sales were essentially flat, while analysts anticipated a 0.8 percent increase. Target said fourth-quarter earnings should meet or somewhat exceed the low end of its forecast, but the warning was not as dire as some may have anticipated, and its shares were up 2.3 percent.
Limited Brands Inc sales rose less than anticipated, marking a rare miss for the owner of the Victoria's Secret chain. Limited said its merchandise profit margin came in below its own forecast. Its shares fell 5.4 percent.
Wet Seal Inc expects a fourth-quarter loss at or near the bottom of its prior forecast after December same-store sales fell 9.7 percent, the steepest decline among the 17 chains. Its shares were flat.
Family Dollar's same-store sales rose about 2.5 percent in December after increasing 6.6 percent in the preceding quarter. Its shares slid 11 percent.
"The holiday selling season proved to be more challenging than we expected as customers faced increasing financial uncertainty," said Family Dollar Chairman and CEO Howard Levine.

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World stocks put relief rally on pause

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

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Egypt budget deficit expected to widen to 200 billion pounds: agency

 Egypt's budget deficit in the year to end-June 2013 could widen by 50 percent from the original forecast made in July, according to a figure released by the planning minister on Monday.
"The budget deficit is expected to rise to 200 billion Egyptian pounds ($31.5 billion) in the current fiscal year unless strict economic policies are put in place to confront it," the state news agency quoted Ashraf al-Araby as saying on Monday.
The 2012/13 budget released in July had forecast a deficit of 135 billion pounds compared to an actual deficit of 166.7 billion pounds for the previous year. Economists at the time said that forecast was optimistic.
President Mohamed Mursi earlier this month suspended a series of planned tax increases as the country prepared for a referendum on a contentious new constitution, which was passed on December 22.
The unpopular measures were deemed necessary to secure $4.8 billion Egypt is seeking from the International Monetary Fund, which wants Egypt to rein in its deficit.
The government said last week it would not implement the measures for at least two more weeks to give it time to explain them to different parts of society.
Prime Minister Hisham Kandil said on Sunday he expected talks with the IMF to resume in January.
Al-Araby predicted in November that this year's deficit would be 10.4 percent of gross domestic product, without stating the figure in pounds, up from the original forecast of 8 percent.

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Egypt's leader sees currency stabilising "within days"

 Egypt's pound fell to a record low on Monday as the president signalled his government would allow it to depreciate slowly for several more days to stop a drain on foreign reserves that has driven the economy into crisis since the fall of Hosni Mubarak.
Hit by a new bout of political turmoil in the last month, the pound had weakened to a record low on Sunday at a new dollar auction brought in by the central bank. It fell further at a second auction on Monday, last trading at 6.37 to the dollar on the interbank market.
The drop means the central bank has allowed the pound to slide by almost 3 percent over the last two days after limiting its decline to only 6 percent since the uprising that removed Mubarak from power almost two years ago.
The pound's fall, which is certain to increase the price of imported staples such as tea and sugar, underlines the economic crisis facing President Mohamed Mursi as his administration tries to contain the political fall-out of his move to fast-track a contentious new constitution passed into law last week.
Egyptians panicked by street clashes between Mursi's Islamist backers and his more secular-minded opponents on the streets of Cairo and other cities have rushed to change their pounds into dollars in recent weeks, fearing it would be devalued further.
"The market will return to stability," Mursi told Arab journalists on Sunday evening, the state news agency MENA reported.
The pound's fall "does not worry or scare us, and within days matters will balance out," he said.
Having just sold their last dollar bills, dealers at one Cairo foreign exchange bureau did not bother changing their price board when the new low appeared on their trading screens.
"He took our last dollars," said one of the traders, pointing to a man walking out of the door.
Outside, another man told a friend his dollar hunt had failed. "They have no dollars. What can I do?" he said by mobile phone. "I went to many dealers and could not find dollars."
The fall has been driven mainly by ordinary citizens who have been trying to turn their savings into foreign currency, worried that the pound will weaken further because of the latest political turmoil.
The crisis wiped 10 percent off the value of Egyptian stocks when it erupted in late November. But the main index has mostly recovered since then, climbing in the two sessions since the introduction of the new foreign currency system.
Market participants attribute the rise to buying by Arab and international investors using the cheaper pound to bargain hunt.
FREE FLOATING POUND
The auctions are part of a shift announced on Saturday and designed to conserve foreign reserves, which the bank says are now at "critical" levels that cover just three months of the food, fuel and other goods Egypt imports.
Bankers have described the new system as a move towards establishing a free market value for the pound, which has been tightly controlled since a managed devaluation which ended in 2004.
The head of the Egyptian banking federation said the new system was an "important first step" towards a free float.
In remarks to MENA, Tarek Amer, who is also chairman of Egypt's largest bank, state-owned National Bank of Egypt, said the new system was a success on its first day and had "significantly reduced" demand for dollars.
The central bank has sold about $75 million at each of Sunday's and Monday's auctions.
The run on the pound prompted officials last week to impose controls on how much cash could be physically carried out of the country. Security men at one Cairo bank branch had to remove one customer angered by a $10,000 limit on how much currency he could withdraw, witnesses said.
The changes announced on Saturday include regular foreign currency auctions and also limit how much foreign currency companies can withdraw at a time.
The central bank had spent more than $20 billion - or more than half of its reserves - over the past two years to defend the currency. The reserves fell by a further $448 million in November to about $15 billion.
Prices of imports have already started to rise. Pyramid Oil Field, a firm that imports chemicals for use in water treatment and oil fields, had put up its prices by 10 to 15 percent last week, fearing a further weakening of the pound.
"This instability obliges you to increase the price, to have a safety factor," said Ashraf el-Gamal, president and managing director of the company, told Reuters. "From now on, the contracts will be of a very short validity."
To be on the safe side, he was projecting that the pound would weaken to stand at 9 against the euro, compared to a previous level of 8.
ECONOMY FRAGILE
Prime Minister Hisham Kandil said on Sunday that the economy was in "a very difficult and fragile" situation, adding that he expected talks with the International Monetary Fund on a $4.8 billion loan to resume in January.
Egypt won preliminary approval in November from the IMF for the loan, but delayed seeking final approval until January after it suspended a series of tax increases to allow more time to explain a heavily criticized package of economic austerity measures to the public.
Kandil's efforts to revive the economy have been hit by the latest turmoil, which scared off tourists who had begun to return. On the eve of the anti-Mubarak revolt, Egypt's tourism industry accounted for one in eight jobs.
Mursi hoped that the passage of a new constitution would stabilise Egypt's politics, giving him space to implement economic reforms and attract investment. The constitution, written by Mursi's Islamist allies, was approved in a popular referendum in December.
But it remains the focus of controversy, and the opposition is likely to seize upon austerity measures demanded under an IMF deal as a stick to beat the Muslim Brotherhood ahead of a parliamentary vote expected in early 2013.
Two-fifths of Egypt's 84 million population live around the poverty line and depend on subsidies that are straining the treasury.
Gamal of Pyramid Oil Field said he knew of at least three foreign companies that were hesitant to make large investments in the country because of the instability.
"They are feeling insecure because of everything that is happening," he said. "One is looking to invest billions."

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Egypt budget deficit expected to widen to 200 bln pounds: agency

Egypt's budget deficit in the year to end-June 2013 could widen by 50 percent from the original forecast made in July, according to a figure released by the planning minister on Monday.
"The budget deficit is expected to rise to 200 billion Egyptian pounds in the current fiscal year unless strict economic policies are put in place to confront it," the state news agency quoted Ashraf al-Araby as saying on Monday.
The 2012/13 budget released in July had forecast a deficit of 135 billion pounds compared to an actual deficit of 166.7 billion pounds for the previous year. Economists at the time said that forecast was optimistic.
President Mohamed Mursi earlier this month suspended a series of planned tax increases as the country prepared for a referendum on a contentious new constitution, which was passed on December 22.
The unpopular measures were deemed necessary to secure $4.8 billion Egypt is seeking from the International Monetary Fund, which wants Egypt to rein in its deficit.
The government said last week it would not implement the measures for at least two more weeks to give it time to explain them to different parts of society.
Prime Minister Hisham Kandil said on Sunday he expected talks with the IMF to resume in January.
Al-Araby predicted in November that this year's deficit would be 10.4 percent of gross domestic product, without stating the figure in pounds, up from the original forecast of 8 percent.

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Nigerian forex reserves up 34.4 pct yr-on-yr by December 24

Nigeria's foreign exchange reserves rose 34.45 percent year-on-year to $44.25 billion by December 24, latest figures from the central bank showed on Monday.
The forex reserves of Africa's second biggest economy were down from their year peak of $44.64 billion on December 7. Reserves stood at $44.03 billion a month ago and $32.91 billion the same the same time last year.
Nigeria's central bank has been on a drive to increase foreign exchange reserves this year in a bid to protect Africa's biggest crude exporter from oil price shocks and to defend the naira currency.

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Markets calm despite looming fiscal cliff

Markets appeared Monday to take in stride the ongoing failure of U.S. politicians to agree to a budget deal in time to avoid automatic tax increases and spending cuts that many economists think could tilt the world's largest economy back into recession.
With just hours to go before the U.S. falls off the so-called "fiscal cliff," Republicans and Democrats remained divided over taxes and spending, raising the prospect that markets will start 2013 without a clear idea of America's budget policy.
Unless an agreement is reached and approved by Congress by the start of New Year's Day, more than $500 billion in 2013 tax increases will begin to take effect and $109 billion will be carved from defense and domestic programs.
Discussions in the Senate broke off Sunday night without agreement. Senators are due to reconvene at 11 a.m. EST (1600 GMT) to try to hammer out a deal before the deadline.
"With precisely zero headway made on the fiscal front resulting from the early weekend return by Congressional lawmakers, hopes are fast-fading of any sort of compromise before the end of 2012," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co.
However, it's not the first time that budget discussions in the U.S. have gone down to the wire only for a deal to be eventually reached.
Many investors remain confident that some sort of deal will be struck in time following positive noises coming out from late Sunday discussions between Senate Minority Leader Mitch McConnell, a Republican, and Vice President Joe Biden, a Democrat.
Even if a deal is not reached in time, many investors think that the possible damage can be contained for a while at least.
A backup proposal that would address only a few issues is expected to be presented by Senate Majority Leader Harry Reid, a Democrat, if a bipartisan deal is not reached.
"It is likely that many of the fiscal cliff measures allow a certain amount of room within which the government can introduce measures to refrain from any tax increases," said Joshua Mahony, an analyst at Alpari.
The prospect of counter-measures to offset the "fiscal cliff" impact helps explain why markets were fairly calm in Europe and Asia, and Wall Street was poised to open higher on the last day of a year that's seen many indexes post strong gains, partly through rising hopes over Europe's 3-year debt crisis.
In Europe, the FTSE 100 index of leading British shares closed down 0.5 percent at 5,897.81. For the year as a whole, the FTSE ended 5.8 percent higher.
The CAC-40 in France closed 0.6 percent higher on the day at 3,641.07. In 2012, it rose 15.2 percent.
Those European indexes that were open only traded for half the day. Others, including Germany's DAX, were closed. The DAX was one of the world's best-performers in 2012 with its annual rise of 29.1 percent.
U.S. stocks opened solidly despite the "fiscal cliff" uncertainty, with the Dow Jones industrial average up 0.1 percent at 12,149 and the broader S&P 500 index up 0.4 percent at 1,407.
Despite the recent worries, U.S. stocks have had a strong 2012, with the Dow up around 6 percent so far and the S&P 11.5 percent higher.
Developments over the U.S. budget will likely be one of the big issues in financial markets in 2013, especially in the early part, alongside Europe's ongoing efforts to contain its debt crisis and the state of the Chinese economy, now the world's second biggest.
Clearly, the full imposition of the "fiscal cliff" measures would hobble the U.S. economy that has shown some signs of late of a more sustainable economic recovery. Waning U.S. economic growth would have an impact worldwide.
Some economists predict the effects of the "fiscal cliff" could eventually throw the U.S. economy back into recession — although if the deadline passes, politicians still have a few weeks to keep the tax hikes and spending cuts at bay by repealing them retroactively once a deal is reached.
Still, the failure to adhere to the deadline following weeks of squabbling and procrastination could be view negatively by the major credit rating agencies and weigh on investor confidence going into 2013.
"I think the market reaction to that will be very negative. This means the U.S. will never be able to bring its house in order. And the deficit will continue to accumulate," said Francis Lun, managing director of Lyncean Holdings in Hong Kong. "No meaningful reform and no solution in sight. You can throw confidence out of the window."
Earlier in Asia, the picture was fairly subdued in those markets that were open — among others, markets in Japan, were closed for the New Year's holidays. After a stellar performance in December, Japan's Nikkei ended the year almost 23 percent higher.
Hong Kong's Hang Seng, trading for a half-day, closed marginally lower at 22,656.92, to also end the year nearly 23 percent higher.
Mainland Chinese stocks rose Monday after a private survey showed the country's manufacturing growth at its strongest level in 18 months in December. Australia's S&P/ASX 200 fell 0.5 percent to close at 4,648.90.
There was also a fairly calm atmosphere in other financial markets, with the euro down just 0.2 percent at $1.3190. Despite the endless debate over its future, the euro has actually ended the year modestly higher against the dollar.

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Egypt fears over currency lead to dollar rush

 As Egypt prepared to release official results of the divisive constitutional referendum on Tuesday, the country edged deeper into economic crisis with some worried residents hoarding dollars for fear that the local currency could weaken significantly.
The anxiety over the economy was visible at currency exchanges in the upscale Cairo neighborhood of Zamalek, which ran out of dollars by midday and offered only euros — a rare occurrence. Some banks, too, said they had run out of cash dollars, forcing people to seek foreign currency from exchanges around the city.
"I asked around in many exchange places and can't find dollars anywhere," said Cairo resident Mahmoud Kamel after unsuccessfully visiting one exchange office in Zamalek. "I want to exchange money because I'm afraid the Egyptian pound will not have any value soon."
Both political instability and economic fundamentals are playing a role in Egypt's growing financial distress. A constitution drafted by Islamist allies of President Mohammed Morsi deeply polarized the country and sparked huge street demonstrations that at times exploded into deadly violence. According to unofficial results the constitution passed in a referendum over the past two weekends with a 64 percent "yes" vote.
The official result due out later Tuesday is expected to confirm the unofficial tallies.
The dash to sell Egyptian pounds for dollars prompted the Central Bank of Egypt to issue a statement on Monday calling on banks not to listen to rumors circulating about the fiscal health of the nation.
In a statement carried on official news websites, the bank declared its commitment to guarantee all deposits in local and foreign currencies to banks in Egypt and said banks are "financially strong enough" to ensure the fulfillment of any obligations toward clients.
Late Monday, the president issued a decree banning people from leaving Egypt with more than $10,000 or its equivalent in other currencies.
There was one particularly nerve-rattling report in recent days that longtime Central Bank Governor Farouk Okdah had resigned. The report came on Saturday during the second and final round of voting on the constitutional referendum.
Official media quickly retracted the news after reporting it. The governor then turned up at a meeting of the government's economic team on Sunday in an apparent attempt to quell nervousness over the state of the economy.
Egypt's currency had been stable trading around 6 pounds to the dollar for the first half of the year. It has since slipped, especially in the past two months as political instability worsened. The Central Bank of Egypt listed Tuesday that the dollar was selling at 6.18 to the Egyptian pound. To buy dollars at currency exchanges, the rate was 6.20.
Since Egypt's uprising nearly two years ago, the country has lost more than half of its foreign currency reserves from $36 billion in 2010 to around $15 billion currently. The reserve level has been slightly propped up by some Qatari deposits in past months.
Underlining the cash shortage, unofficial estimates put Egypt's reserves at just around $4 billion in hard currency, with the rest in gold and dollar treasury bills for the local market.
Major foreign currency earners, such as foreign direct investment and tourism, have dropped off because of political unrest and deterioration in security following Hosni Mubarak's ouster in February 2011.
Egypt has requested a $4.8 billion loan from the International Monetary Fund to bridge the burgeoning budget deficit, but talks largely stalled this month after mass protests turned violent over disputes around the draft constitution.
Economic experts say that Egypt's current foreign reserves barely cover three months of imports, which is the IMF's minimum recommended coverage.
In another blow, Standard & Poors downgraded Egypt's long-term credit rating by one notch to B-, six steps below investment grade.
One of biggest problems facing the market, according to those experts, is a lack of transparency on the part of President Mohammed Morsi's government.
"The economy is a reflection of the political unrest," said Khaled Abdel-Hamid, head of Treasury at Union National Bank of the UAE in Egypt. "We need transparency. The people have to know the real position of the economy in Egypt."
He predicted in 2013, the pound will continue to devalue and inflation rates will rise, affecting the price of food and basic commodities.
"What matters is the end result. People want to live. If people can't find food or security, what does it mean if there is a president or constitution?" banker Abdel-Hamid said.
The London-based consultancy Capital Economics has said, though, that the Egyptian pound "looks significantly overvalued" and estimated that it might need to fall by around 20 percent in order to restore competitiveness.
Core inflation, which excludes regulated items and fruit and vegetables, rose to 4.6 percent in October month from 3.8 percent on an annual basis in September. Subsidy cuts and tax increases linked to the IMF agreement could push inflation to 8 percent next year, Capital Economics estimated.
Egyptian Prime Minister Hesham Kandil said Tuesday that his government was focused on luring foreign investors back to Egypt, supporting the foreign reserves and plugging the budget deficit.
"A priority for the government to raise employment rates, reduce inflation levels and increase Egyptian exports' competition abroad," he said.
Leading civil society and rights groups have protested against the IMF deal, saying that the government has not released the terms of the agreement being worked out. Rumors swirling around impending tax hikes, subsidy cuts and other bread-and-butter issues have heightened the public's concern. Around 40 percent of Egyptians live just at or below the poverty line of surviving on around $2 a day.
Promises by Morsi and his Muslim Brotherhood group that the Islamist-drafted constitution would bring about the stability Egyptians crave were dismissed by economic experts who warned that without enough currency reserves, there is little to stop the pound from falling steeply in value.
"If anything, we were stable. We are still entering the period of instability," said Haytham Abdel Fattah, head of the Treasury and International Markets Manager at Industrial Development Bank. "The instability of the foreign exchange rate is not at all detached from the political instability. It is a reflection and clear mirror to what is happening," he added.
Tens of thousands of Egyptians protested ahead of the referendum on the charter to demand a new and more diverse assembly to draft the constitution. Instead, the Islamist-dominated assembly hurriedly passed it before a court could rule on the panel's legitimacy. Morsi issued decrees, later rescinded, that gave him near-absolute powers to push the constitution to a nationwide vote.
Backers of the Brotherhood and others Islamist parties also rallied in support of the charter, leaving the country split and leading to violent clashes between the two camps on Dec. 5 that killed 10 outside the presidential palace in Cairo this month. The turmoil rocked Egypt's stock market, delayed the IMF loan talks and hurt the country's peak tourism season.

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