"U.S. steps up missile strikes in Pakistan: report"

Thu Mar 27, 1:03 AM ET

WASHINGTON (Reuters) - The United States has escalated air strikes against al-Qaeda fighters operating in Pakistan's tribal areas fearing that support from Islamabad may slip away, The Washington Post reported on Thursday.

U.S. officials, who were not identified, said Washington wants to inflict as much damage as it can to al Qaeda's network now because Pakistani President Pervez Musharraf may not be able to offer much help in the months ahead.

Musharraf, a vital U.S. ally in the campaign against terrorism who has generally supported such strikes, has seen his power wane dramatically over the past year.

Over the past two months, U.S.-controlled Predator aircraft have struck at least three sites used by al-Qaeda operatives, the Post reported.

About 45 Arab, Afghan and other foreign fighters have been killed in the attacks, all near the Afghan border, U.S. and Pakistani officials were cited as saying.

Neither U.S. nor Pakistani authorities officially confirm U.S. missile attacks on Pakistani territory, which would be an infringement of Pakistani sovereignty.

Many al Qaeda members, including Uzbeks and Arabs, and Taliban militants took refuge in North and South Waziristan, as well as in other areas on the Pakistani side of the border after U.S.-led forces ousted the Taliban in Afghanistan in 2001.

According to the Post, the goal was partly to try to get information on senior al-Qaeda leaders, including Osama bin Laden, by forcing them to move in ways that U.S. intelligence analysts can detect.

Citing an administration official, the report said the campaign was not specifically designed to capture bin Laden before U.S. President George W. Bush leaves office in January.

"It's not a blitz to close this chapter," a senior official who spoke on the condition of anonymity told the newspaper.

"If we find the leadership, then we'll go after it."

"But nothing can be done to put al-Qaeda away in the next nine or 10 months."

"In the long haul, it's an issue that extends beyond this administration."

(Writing by JoAnne Allen; Editing by Eric Beech)

"Stocks end seesaw session lower"

By TIM PARADIS, Associated Press

Last updated: 6:02 p.m., Thursday, March 27, 2008

NEW YORK -- Wall Street sank in volatile trading Thursday after the government confirmed that the last quarter of 2007 did indeed suffer a sharp economic slowdown.

For the second straight session, the Dow Jones industrial average fell more than 100 points.

The technology sector was particularly weak after business software maker Oracle Corp. posted worse-than-expected fiscal third-quarter sales and issued a cautious forecast.

Meanwhile, data suggesting that Google Inc.'s revenue from Internet users' clicks could slow also raised worries about tech stocks.

Oracle fell $1.51, or 7.2 percent, to $19.43, and Google dropped $14.11, or 3.1 percent, to $444.08.

Financial stocks lost ground Thursday as well, with investors uncertain about what is in store for the economy and the troubled financial sector.

But the sense of panic that emanated from the near-collapse of Bear Stearns Cos. at the start of last week has lessened, observers say.

The Federal Reserve on Thursday afternoon auctioned off $75 billion in credit to investment banks, whose demand was solid but not at the desperate levels some investors had feared.

"GDP was in line, so we're still expanding, even though we're expanding at a very small rate," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams.

"It's definitely a different mind-set than it was two weeks ago."

"A lot of smart people are telling us to buy on the dips."

"I think we'll be fine as long as there is not another Bear Stearns out there."

The Dow fell 120.40, or 0.97 percent, to 12,302.46.

Broader stock indicators also fell.

The Standard & Poor's 500 index declined 15.37, or 1.15 percent, to 1,325.76, and the technology-heavy Nasdaq composite index fell 43.53, or 1.87 percent, to 2,280.83.

Declining issues outpaced advancers by about 5 to 3 on the New York Stock Exchange.

Consolidated volume came to 3.90 billion shares, down from 3.99 billion on Wednesday.

The Russell 2000 index of smaller companies fell 9.72, or 1.38 percent, to 692.39.

Bond prices also fell.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.52 percent from 3.46 percent late Wednesday.

The dollar rose against other major currencies, while gold prices slipped.

Light, sweet crude rose $1.68 to $107.58 a barrel on the New York Mercantile Exchange as investors grew uneasy about Iraqi oil output after the bombing of key pipeline in that country.

While investors appear less cautious than they were after the Fed helped orchestrate the sale of the liquidity-starved Bear Stearns to JPMorgan Chase & Co., there have recently been fresh signs of strain in the economy.

Still, some upbeat news gave investors room for optimism.

While it wasn't enough to propel stocks higher, investors appeared pleased by the Labor Department's report that the number of workers seeking unemployment benefits fell last week by a seasonally adjusted 9,000 to 366,000.

Though the weekly figures can be volatile, the reading was better than the 371,000 many economists predicted.

Investors were kept busy digesting comments from a handful of Federal Reserve officials speaking Thursday.

However, none of the remarks on subjects such as the likelihood of recession and the need to further regulate Wall Street appeared to have discernible effects on the market.

George Shipp, chief investment officer at Scott & Stringfellow, said investors generally remain uneasy about whether they have an accurate read on the scale of the troubles in the financial sector and to what degree the parade of write-downs on bad investments might continue.

"It's hard to imagine there is going to be any good news."

"The question is whether it's been discounted," he said, referring to another round of potentially weak results from big banks in the coming months.

"The market is groping for a bottom."

"It's a difficult time."

Like the financial sector, homebuilders have caused much uncertainty among investors.

But stocks in the sector advanced Thursday after a better-than-expected snapshot of the business.

Lennar Corp. said it swung to a loss in the first quarter as it faced charges to write down asset values.

However, the company's results stripping out certain items came in better than Wall Street had forecast and helped boost shares of homebuilders.

Lennar rose 31 cents to $17.90.

Rival KB Home advanced 25 cents to $25.79, while DR Horton Inc. rose 33 cents, or 2.2 percent, to $15.53.

Overseas, Japan's Nikkei stock average closed down 0.80 percent.

Britain's FTSE 100 rose 1.01 percent, Germany's DAX index advanced 1.37 percent, and France's CAC-40 rose 0.92 percent.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

"Clear Channel gets favorable deal ruling"

By MICHELLE ROBERTS, Associated Press

Last updated: 4:22 p.m., Thursday, March 27, 2008

SAN ANTONIO -- A Texas judge issued a restraining order that effectively bars the banks that promised to finance the $19.5 billion buyout of Clear Channel Communications Inc. from backing out yet.

Bexar County Judge John D. Gabriel issued a temporary restraining order just four hours after Clear Channel and the private equity buyers, led by Bain Capital and Thomas H. Lee Partners LLC, filed suit Wednesday in Texas and New York.

The firms argued that the lenders were trying to avoid honoring the financing commitment they made 18 months ago by turning a long-term loan into a short-term one with restrictions.

The judge found there was enough evidence that the plaintiffs could prevail and would be irrevocably harmed unless he issued to justify an immediate restraining order.

He barred the six banks from "engaging in any other conduct that would operate to modify, compromise, jeopardize, sabotage, undermine, nullify, void, eliminate, hinder, or obstruct consummation of the merger agreement."

The banks, which include Citigroup Inc., Morgan Stanley, Credit Suisse Group, The Royal Bank of Scotland, Deutsche Bank AG and Wachovia Corp., declined to comment on the order through a Citigroup spokeswoman Thursday.

The restraining order doesn't necessarily mean the deal will close, said RBC Capital Markets analyst David Bank, but it does keep the banks from just leaving the deal for dead.

"It's possible that the court scares all the sides into settling," he said.

The financing commitment letter that Clear Channel and the equity firms are trying to legally enforce doesn't offer the banks many outs even though they stand to lose $3 billion to $4 billion when they loan the funds.

Only a major adverse change to the business really lets them off the hook, and because Clear Channel has been performing better than the industry, that argument is going to be a tough sell.

Gabriel ordered a hearing on an expedited trial April 8.

If the deal closes, the banks are likely looking at $3 billion to $4 billion in write-downs, something they're loath to suffer when they're already worried about other investments related to the struggling real estate market.

The lenders are likely to have trouble reselling the debt in a credit market that has slowed dramatically since borrowers began widely defaulting on subprime mortgages last year.

The equity firms have agreed to pay $39.20 per share for San Antonio-based Clear Channel, far more than recent share prices as investors have fretted about whether the deal would close.

The stock was hard hit Wednesday after a report that the deal was near the brink of collapse, but on Thursday, it partially rebounded -- up $2.68, 10 percent, to end at $29.60.

The buyers have insisted they still want to own the company.

If they walk away, they face $500 million to $600 million in fees, and the financing negotiated 18 months ago allowed them to put up less capital than would likely be available in the current credit market.

Clear Channel, which owns 900 radio stations nationwide and 800,000 billboards worldwide, has had success before in forcing a deal through legal action.

The $1.1 billion sale of its television group closed after the company lowered the price by $100 million and sued Providence Equity Partners, which had been having difficulty getting Wachovia to make good on its earlier financing commitment.

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On the Net:

Clear Channel Communications Inc.: http://www.clearchannel.com

"Bear Stearns CEO Cayne sells stake"

Associated Press

Last updated: 5:13 p.m., Thursday, March 27, 2008

NEW YORK -- Bear Stearns Cos. Chairman James Cayne on Thursday sold his holdings in the embattled investment bank ahead of its expected acquisition by JPMorgan Chase & Co.

Cayne sold 5.66 million shares for exactly $10.84 a share for $61.3 million.

However, it was not known if those shares were dumped into the open market or if Cayne sold them to another party.

A spokesman for Bear Stearns would not comment on the sale.

JPMorgan has offered about $10 per share in its acquisition of Bear Stearns.

That was increased from the original offer of $2 per share amid speculation that major shareholders would not accept the deal on those terms.

Shares of Bear Stearns have traded above the prices offered since the deal was announced as some investors felt a rival bid might be in the offing.

There has also been speculation that Cayne might try and muster a competitive offer with Joseph Lewis, a billionaire financier who is Bear Stearns' second-largest shareholder.

Telephone calls to Lewis were not immediately returned.

Bear Stearns shares rose 2 cents to $11.23 in trading Thursday.

JPMorgan shares fell $1.25 to $42.86.

"Economy nearly stalled in 4th quarter"

By JEANNINE AVERSA, Associated Press

Last updated: 6:02 p.m., Thursday, March 27, 2008

WASHINGTON -- The economy nearly sputtered out at the end of the year and probably is faring even worse now amid continuing housing, credit and financial woes.

The Commerce Department reported Thursday that the gross domestic product, or GDP, increased at a feeble 0.6 percent annual rate from October through December.

The reading, unchanged from a previous estimate a month ago, provided stark evidence of just how much the economy has weakened.

In the previous three months, the economy had a sizzling 4.9 percent growth rate.

The GDP measures the value of all goods and services produced in the United States and is the best barometer of economic health.

Many economists say they believe growth in the current January-through-March quarter will be even weaker than the 0.6 percent figure from late 2007.

A growing number says the economy actually may be shrinking now.

Under one rough rule, the economy needs to contract for six straight months to be considered in a recession.

The government will release its estimate for first-quarter GDP in late April.

"The economy just kept its head above water" in the fourth quarter, said Nigel Gault, chief U.S. economist at Global Insight.

"We think that GDP will decline, albeit slightly, during the first half of 2008," he said.

"The first half outlook is bleak."

Commerce Secretary Carlos Gutierrez, in an interview with The Associated Press, said, "We know the first quarter will be difficult."

On Wall Street, the GDP report pulled stocks down, with the Dow Jones industrials falling 120.40 points.

In a second report, fewer people signed up for unemployment benefits last week, although that did not change the broader picture of a deteriorating job market.

The Labor Department said jobless claims fell by 9,000 to 366,000, a better showing than many economists forecast.

Still, unemployment is expected to rise this year given all the problems affecting the economy.

The newly released fourth-quarter GDP figure matched analysts' expectations.

Thursday's report was evidence of the fallout from the collapse in the housing market, which has dragged down housing prices, pushed home foreclosures up to record highs and has led to a glut of unsold homes.

Builders slashed spending on housing projects by 25.2 percent on an annualized basis in the fourth quarter, the biggest cut in 26 years.

To limit the damage, the Federal Reserve has cut a key interest rate over the past two months by the deepest in a quarter-century.

After the crash of the fifth-largest investment firm, Bear Stearns, the Fed resorted to its greatest expansion of lending authority since the 1930s.

Big securities firms temporarily can go to the Fed directly for loans -- a privilege that had been afforded only to commercial banks.

Democratic presidential candidate Barack Obama on Thursday called for an overhaul of financial regulations.

Rival Hillary Rodham Clinton proposed a new job retraining program to bolster the economy.

Consumers boosted buying at a 2.3 percent pace in the fourth quarter.

But businesses cut back sharply on their inventories of unsold goods.

That shaved 1.79 percentage points off fourth-quarter GDP, the most in more than two years.

Spending by businesses on equipment and software, meanwhile, rose at a pace of 3.1 percent in the final quarter of last year.

There was a bright spot in the mostly gloomy report, however.

Sales of U.S. goods and services to other countries grew at a 6.5 percent pace.

U.S. exports have been helped by the sinking value of the dollar, which makes U.S. goods less expensive to foreign buyers.

The dollar recently plunged to record lows against the euro and has fallen sharply against the Japanese yen.

An inflation measure linked to the GDP report showed that overall prices increased at a rate of 3.9 percent in the fourth quarter.

Another gauge showed that core prices -- excluding food and energy -- grew at a rate of 2.5 percent at the end of last year.

That was down from a previous estimate of a 2.7 percent pace but was up from the prior quarter's 2 percent growth rate.

The new core inflation figure is above the Fed's comfort zone -- the upper bound of which is a 2 percent inflation rate.

Although the Fed's No. 1 job is trying to save the economy from a deep and prolonged recession, it is also keeping close tabs on inflation and soaring energy prices.

Oil prices shot past $107 a barrel on Thursday.

Gasoline prices have marched higher, too.

The combination of slowing economic growth and rising inflation make the Fed's job more difficult.

It also has raised fears the country may be headed for a bout of stagflation, a scenario the U.S. hasn't experienced since the 1970s.

Fed Chairman Ben Bernanke, however, has said that's not the case.

The Fed's rate reductions along with the government's $168 billion economic aid plan should help revive economic growth in the second half of this year, economists said.

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, was less optimistic.

"The recovery in growth I had expected in the second half of this year may be delayed," he said.

"Gold down slightly on stronger dollar"

By STEVENSON JACOBS, Associated Press

Last updated: 5:52 p.m., Thursday, March 27, 2008

NEW YORK -- Gold prices edged slightly lower Thursday after the dollar gained against the euro, leading investors to sell the precious metal traditionally viewed as a haven against inflation.

Other commodities traded mixed, with crude oil briefly rising above $108 a barrel and wheat and soybean futures retreating.

The dollar strengthened against the euro after the U.S. Commerce Department reported that the economy grew slightly in the fourth quarter.

The euro bought $1.5766 in Thursday trading, down from $1.5815 in New York late Wednesday.

A stronger greenback often encourages investors to sell hard assets like gold and silver, which are seen as hedge investments during times of economic uncertainty and rising inflation.

A stronger dollar also makes dollar-denominated commodities seem more expensive to overseas buyers.

Gold for April delivery inched 40 cents lower to settle $944.20 an ounce on the New York Mercantile Exchange, after earlier trading as low as $940.

"Gold seems to be following the euro," said Scott Meyers, analyst with Pioneer Futures in New York.

"I think it's a brief pause in the upward trend but we have to keep an eye on the dollar."

Other precious metals traded higher.

Silver for May delivery rose 16.7 cents to settle at $18.55 an ounce on the Nymex, while May copper added 14.80 cents to settle at $3.873 a pound.

Gold had moved higher in the previous two sessions, breaking out of last week's commodities slump that saw big drops in everything from corn to copper.

Gold has gained 12 percent this year, driven up by U.S. interest rate cuts, record-high crude prices and nervousness about the economy.

The metal reached a record 1,033.90 this month, and analysts say it could go even higher.

"We're going to see sustained acceleration in the (gold) market," Meyers said.

"There's enough nervousness about the dollar and I don't know if there's enough bullets in (Federal Reserve Chairman Ben) Bernanke's gun to keep lowering rates."

In energy markets, oil futures briefly rose above $108 a barrel after the bombing of a major oil pipeline in Iraq.

Dow Jones Newswires reported that the attack cut off exports from the southern city of Basra, although oil officials said exports weren't affected.

Light, sweet crude for May delivery added $1.68 to settle at $107.58 a barrel on the Nymex after earlier rising as high as $108.22.

Other energy futures traded mixed.

April gasoline futures fell 2.66 cents to settle at $2.7163 a gallon, while April heating oil futures rose by 10.45 cents to settle at $3.1483 a gallon.

In agriculture markets, wheat prices fell after the dollar rebounded.

Wheat for May delivery dropped 19 cents to settle at $10.14 a bushel on the Chicago Board of Trade, after earlier falling as low as $10 a bushel.

Other agriculture futures traded mixed.

Corn for May delivery added 3.25 cents to settle at $5.55 a bushel on the CBOT, while May soybean futures declined 24.75 cents to settle at $13.2725.

"Treasurys dip on drop in jobless claims"

By MADLEN READ, Associated Press

Last updated: 5:42 p.m., Thursday, March 27, 2008

NEW YORK -- Treasurys fell Thursday as a better-than-expected reading on unemployment and tame demand from investment banks for a $75 billion credit auction led investors to pare back their holdings in safe government securities.

The Labor Department said initial claims for unemployment benefits dropped by 9,000 to 366,000 last week, which was better than most economists anticipated.

Thursday's data did little to draw investors' money into stocks, though, with the four-week average of initial jobless claims rising by 1,750 to 358,000 last week -- the highest it's been since October 2005.

Wall Street dipped Thursday due to hard-to-shake economic worries, as well as disappointing sales and a cautious forecast from software maker Oracle Corp.

That jitteriness in the stock market led to some wobbly trading in Treasurys.

"It's been a pretty whippy, choppy session."

"That said, we're kind of ending up where we started after all is said and done," said Michael Wallace, global markets strategist at Action Economics.

Thursday afternoon, the Federal Reserve put $75 billion in credit up for auction to investment banks.

Total bids submitted were $86.1 billion and $75 billion of those were accepted, and the "stop-out rate" -- the lowest accepted bid rate -- came in at 0.33 percent, up from the 0.25 percent minimum bid but lower than many investors anticipated.

"The market took it as a sign of lower stress in the financial system," Wallace said.

The benchmark 10-year Treasury note fell 23/32 to 99 20/32, and yielded 3.55 percent, up from 3.46 percent late Wednesday, according to BGCantor Market Data.

Prices and yields move in opposite directions.

The 2-year note fell 21/32 to 100 2/32, with a yield of 1.72 percent, up from 1.62 percent late Wednesday.

The 30-year long bond fell 1 8/32 to 99 26/32, with a yield of 4.39 percent, up from 4.33 percent.

In after-hours trading, Treasury yields slipped back a bit.

As of 5:30 p.m. Eastern time, the 10-year yield was at 3.52 percent, the 2-year yield was at 1.70 percent, and the 30-year yield was at 4.38 percent.

Treasurys have been under some pressure because further deterioration in the economy could mean more interest rate cuts.

Lower rates normally encourage bond buying, but recently have been raising worries about inflation, which erodes the value of long-term bonds over time.

The Fed has already slashed its benchmark fed funds rate over the past six months to 2.25 percent from 5.25 percent.

"The feeling is when the economy bounces back, it will bounce back with much higher prices," said Kevin Giddis, managing director of fixed income at Morgan Keegan.

The Commerce Department issued on Thursday its final report on fourth-quarter gross domestic product, which showed growth at an annual pace of 0.6 percent.

That was down sharply from the third quarter, but unchanged from the department's prior estimate.

The department upwardly revised its reading on the consumer spending component of the GDP data.

Investors will want to see more up-to-date signs of a strong consumer in Friday's data on February personal spending and personal income.

On Thursday, before the Fed's $75 billion credit auction, the Treasury Department auctioned off $18 billion in 5-year notes on Thursday.

The auction's rate of 2.595 percent suggested high demand, but only caused a brief lift in Treasury prices.

The 3-month Treasury bill had a yield of 1.31 percent, up from 1.26 percent late Wednesday, and a discount rate of 1.28 percent, up from 1.24 percent.

"Lennar swings to loss, sales skid"

By ADRIAN SAINZ, Associated Press

Last updated: 4:23 p.m., Thursday, March 27, 2008

MIAMI -- Lennar Corp., one of the nation's largest homebuilders, said Thursday it swung to a loss in the first quarter as it absorbed charges to adjust land values, while new home sales and prices sank amid the stumbling real estate market.

Stuart Miller, chief executive of the Miami-based builder, said in a conference call that he believed the economy has slipped into recession, based on factors such as a weakening labor market, growing jobless claims, and higher food and energy prices.

But Miller expressed hope the housing market, and thus the economy, could be helped by initiatives that have been or could be proposed to fix it.

"There is a growing consensus that the deterioration of the housing market has likely led us into recession, and the stabilization and recovery of the housing market will likely lead us out," Miller said in Lennar's earnings release.

"Accordingly, we expect that some of these initiatives and the many that are being discussed will lead to a bottom and recovery."

Lennar reported a loss of $88.2 million, or 56 cents per share, in the three months ended Feb. 29 compared with profit of $68.6 million, or 43 cents per share, in the year ago quarter.

The results included a 38 cent-per-share charge related to valuation adjustments and write-offs of option deposits and pre-acquisition costs.

After those adjustments, Lennar's loss was 18 cents per share.

The adjusted results were better than estimates on Wall Street, where the mean estimate of analysts polled by Thomson Financial was for a loss of $1.07 per share.

Some analysts include write-down estimates in their predictions, while others do not.

Sales fell 62 percent to $1.06 billion from $2.79 billion in the year-ago period.

The average selling price fell 8 percent.

Deliveries of new homes were down 60 percent to 3,596 homes.

New home orders were down 57 percent to 3,045, with a cancellation rate of 26 percent.

Despite the drop in sales and orders, Lennar said it was encouraged that it had no outstanding balance on its credit facility and had $1.1 billion in cash for home building, as of the quarter's end on Feb. 29.

Miller said the "heavy lifting" on impairment charges was likely over, and the company was seeing improvements in homebuilding margins.

Lennar shares rose 31 cents, or 1.8 percent, to $17.90 Thursday.

They are still well below their 52-week high of $47.41.

While the quarter's results showed no signs of stabilizing, Lennar is "staying ahead of the curve by focusing on converting inventory into cash and by solidifying the company's balance sheet," Soleil Securities Group Inc. analyst Anna E. Torma wrote in a report.

The Lennar report comes a day after the Commerce Department reported that sales of new homes fell in February for the fourth straight month, pushing activity down to a 13-year low.

The median price of a new home sold last month dropped to $244,100, 2.7 percent less than the level of a year ago.

The median sales price is the point where half the homes sold for more and half for less.

For Lennar, the average sales price of homes delivered dropped to $278,000, down from $303,000 in the year-ago period, partly due to higher sales incentives offered to homebuyers.

The company averaged $48,000 in incentives per home delivered in the first quarter, compared to $45,500 per home delivered in the first quarter of 2007.

Miller said supply continues to outstrip demand for homes, which lowers the amount of new home sales and depresses prices.

Lennar is holding off on buying land and adjusting operations to "to protect cash, preserve value and fortify our balance sheet," Miller said.

"Home inventories have been expanding due to the high number of foreclosures, negotiated 'short sales,' and stretched homeowners looking to sell homes they can no longer afford," Miller said.

Earlier this month, the Federal Reserve cut a key interest rate by three-fourths of a percentage point, and the Office of Federal Housing Enterprise Oversight said changes at Fannie Mae and Freddie Mac should result in an infusion of up to $200 billion into the market for mortgage-backed securities.

The changes could mean greater demand for mortgages, and aid struggling homeowners hoping to refinance at more favorable terms.

"Dollar higher against the euro, pound"

Associated Press

Last updated: 3:52 p.m., Thursday, March 27, 2008

NEW YORK -- The dollar gained against the euro and the pound Thursday as data confirmed that the United States economy was still growing in the fourth quarter, albeit weakly.

The euro traded at $1.5780 late in New York, down from $1.5815 Wednesday, while the British pound slipped to $2.0036 from $2.0060.

The dollar was flat against the yen, trading at 100.00 yen, unchanged from Wednesday.

The dollar has suffered from worries about the fallout from the U.S. subprime lending crisis and the possibility of a recession.

While the Federal Reserve has cut its key interest rate six times since September in a bid to bolster the economy, the European Central Bank, focusing on inflation risks, has left its rates unchanged.

Lower interest rates can weigh on a nation's currency as traders transfer funds to countries where they can earn higher returns.

On Thursday, the U.S. Commerce Department reported that gross domestic product increased at a 0.6 percent annual rate in the October-to-December quarter, unchanged from a previous estimate a month ago.

While feeble compared with the previous quarter's 4.9 percent rate, the figure at least provided no new unpleasant surprises.

A separate report from the Labor Department provided some comfort by showing that jobless claims fell last week -- although it did not change the broader picture of a deteriorating jobs market.

In other trading Thursday, the dollar rose to 0.9949 Swiss francs from 0.9918 francs, but fell to 1.0165 Canadian dollars from 1.0194 Canadian dollars.

"Crude oil advances on supply concerns"

By JOHN WILEN, Associated Press

Last updated: 3:42 p.m., Thursday, March 27, 2008

NEW YORK -- Oil futures shot back above $107 a barrel Thursday after the bombing of an Iraqi oil pipeline diverted investors' attention away from a stabilizing U.S. dollar.

Retail gas prices, meanwhile, inched up overnight while diesel prices slipped.

The bombing of a key Iraqi oil pipeline Thursday morning appeared to cut oil exports from the southern oil city of Basra, despite oil officials' statements to the contrary.

Dow Jones Newswires reported that exports from southern Iraqi terminals have been reduced to about 1.2 million barrels a day from a normal rate of 1.56 million barrels a day.

"We're going to be getting less oil because of the explosion," said James Cordier, founder of OptionSellers.com, a Tampa, Fla., trading firm.

For traders, the big factor is that Iraqi oil supplies were cut by a deliberate act of terrorism, Cordier said.

That raises the prospect of more attacks, and less oil.

Light, sweet crude for May delivery rose $1.68 to settle at $107.58 a barrel on the New York Mercantile Exchange after earlier rising as high as $108.22.

Crude futures, also aided earlier in the week by a flagging U.S. dollar, are up 6.6 percent since Monday.

The news from Iraq added to supply concerns stoked Wednesday when the government reported that domestic crude oil inventories were mostly unchanged last week, while fuel supplies fell more than expected.

The supply issues temporarily drew investors' attention from the dollar, which rose slightly against the euro, reversing a trend that sent oil futures surging nearly $5 on Wednesday.

A stronger dollar makes hard assets such as energy commodities less attractive as a hedge against inflation than when the greenback is falling.

Exacerbating the impact of foreign exchange moves, oil futures are priced in dollars, making them more expensive to investors overseas when the greenback rises.

Despite Thursday's strength, analysts expect the dollar to soon resume its decline against foreign currencies.

The Federal Reserve is expected to cut interest rates several more times this year, and lower rates tend to weaken the dollar.

"I think crude oil is easily going to be testing $120 (in coming weeks)," Cordier said.

Crude futures rose to a trading record of $111.80 early last week before retreating.

At the pump, meanwhile, gas prices rose 0.6 cent Thursday to a national average of $3.267 a gallon, according to AAA and the Oil Price Information Service.

Diesel prices slid 0.5 cent to a national average of $4.022 a gallon.

Both fuels have followed oil's recent surge higher, and remain near recent records.

High gas prices are pressuring consumers already buckling under the effects of high food prices, falling home values and tight credit markets.

The Energy Department expects gas prices to peak near $3.50 this spring as suppliers stock up in advance of peak summer driving season.

Many analysts think prices will rise even higher than that.

In other Nymex trading Thursday, April heating oil futures rose by 10.45 cents to settle at $3.1483 a gallon, while April gasoline futures slid by 2.66 cents to settle at $2.7163 a gallon.

April natural gas futures rose by 0.6 cent to settle at $9.578 per 1,000 cubic feet.

The Energy Department, in its weekly inventory report, said natural gas supplies fell last week by 36 billion cubic feet, less than analysts surveyed by Dow Jones Newswires had expected.

In London, Brent crude gained $1.01 to settle at $105 a barrel on the ICE Futures exchange.

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Associated Press writers George Jahn in Vienna and Gillian Wong in Singapore contributed to this report.

"Rates on 30-year mortgages drop"

By MARTIN CRUTSINGER, Associated Press

Last updated: 12:24 p.m., Thursday, March 27, 2008

WASHINGTON -- Rates on 30-year mortgages edged down slightly this week, staying below 6 percent, although rates on other types of mortgages rose.

Freddie Mac, the mortgage company, reported Thursday that 30-year, fixed-rate mortgages averaged 5.85 percent this week.

That was down slightly from 5.87 percent last week and marked the second consecutive week that rates have been below 6 percent.

Rates on 30-year mortgages dropped below the 6 percent threshold in the second week of January and stayed there for six straight weeks as the sharp economic slowdown stirred concerns about a possible recession.

But then rates began rising as bond investors became worried about increased inflation, hitting a high for this year of 6.24 percent the week of Feb. 28.

The meltdown of Bear Stearns, the nation's fifth-largest investment bank, prompted the Federal Reserve to move aggressively to pump money into the financial system and slash a key lending rate by three-quarters point on March 18.

Analysts said all of these Fed efforts had helped to ease pressure on interest rates that had been generated by the higher inflation readings.

Also contributing were further weak readings on the economy, with the Index of Leading Economic Indicators falling for a fifth straight month and consumer confidence dropping to a five-year low.

"Long-term mortgage rates were mixed, but relatively unchanged in the past week as the latest economic indicators came in much as expected," said Frank Nothaft, chief economist at Freddie Mac.

Outside of 30-year mortgages, rates on other mortgage categories posted slight increases.

Rates on 15-year, fixed-rate mortgages, a popular choice for refinancing, rose to 5.34 percent this week, up from 5.27 percent last week.

For five-year, adjustable-rate mortgages, rates rose to 5.67 percent, up from 5.56 percent last week.

Rates on one-year, adjustable-rate mortgages increased to 5.24 percent, up from 5.15 percent last week.

The mortgage rates do not include add-on fees known as points.

For 30-year and 15-year mortgages, the nationwide average fee was 0.4 point.

Five-year mortgages carried a 0.6 point average fee while one-year mortgages had a 0.5 point average.

A year ago, rates on 30-year mortgages stood at 6.16 percent, 15-year mortgage rates averaged 5.86 percent, five-year adjustable-rate mortgages were 5.88 percent and one-year adjustable-rate mortgages were at 5.43 percent.

Housing has been suffering through a severe slump that has dragged down house prices in many parts of the country.

The fallout is hitting both homeowners and the economy at large, raising worries about a possible recession.

------

On the Net:

Freddie Mac: http://www.freddiemac.com

"Iraqi PM vows to fight militas in Basra"

By ROBERT H. REID, Associated Press

Last updated: 6:53 p.m., Thursday, March 27, 2008

BAGHDAD -- Prime Minister Nouri al-Maliki pledged "no retreat" Thursday in the fight against Shiite militias in the southern city of Basra, as thousands of protesters demanded he resign over the crackdown and extremists fired rockets into the U.S.-protected Green Zone.

Shiite militia leader Muqtada al-Sadr called Thursday for a political solution to the burgeoning crisis and an end to the "shedding of Iraqi blood."

But the statement, released by a close aide, stopped short of ordering his Mahdi Army militia to halt attacks on the Green Zone or stop fighting in Basra, Iraq's second-largest city.

In a sign of the deteriorating security, gunmen in Baghdad seized a high-profile government spokesman from his home in a Shiite neighborhood, killing three of his bodyguards and torching his house.

In a bid to curb the violence, Iraq's military ordered vehicles and pedestrians off the streets of the capital until Sunday morning.

As Americans and Iraqis scrambled to cope with a newly violent Iraq, the State Department ordered all personnel at the U.S. Embassy not to leave reinforced structures because of continued incoming rocket or mortar fire from suspected Shiite extremists angry over the Basra crackdown.

The campaign to rid Basra of lawless gangs and Shiite militias -- some believed tied to nearby Iran -- is a major test for al-Maliki, a Shiite, and for the Iraqi military.

The ability of Iraqi leaders and security forces to control situations like this one is key to U.S. hopes of withdrawing its forces from the country.

The prime minister put his credibility on the line by flying down to Basra and issuing a weekend deadline for the surrender of Mahdi Army militiamen loyal to al-Sadr.

But the militiamen were still controlling Basra's streets Thursday, and the security operation has triggered a violent response among al-Sadr's followers in Baghdad and cities throughout the Shiite heartland of southern Iraq.

In the Baghdad neighborhood of Kazimiyah, thousands of al-Sadr's followers denounced al-Maliki as a "new dictator" as they carried a coffin bearing a crossed-out picture of the U.S.-backed prime minister.

Thousands more also rallied in Sadr City, Baghdad's main Shiite district.

"We call on our brothers in the Iraqi army and the brave national police not to be tools of death in the hands of the new dictatorship," a Sadrist member of parliament, Falah Shanshal, said.

However, al-Maliki showed no sign of wavering.

"We have made up our minds to enter this battle, and we will continue until the end."

"No retreat," al-Maliki told Basra area tribal leaders in a speech broadcast nationwide on Iraqi state TV.

Al-Maliki said Iraq had become a "nation of gangs, militias and outlaws" and he was undertaking a "historic mission" in Basra to restore "the law of the land."

But the Sadrists have been angry over recent raids and detentions, saying U.S. and Iraqi forces have taken advantage of their 7-month-old cease-fire to crack down on the movement.

They have accused rival Shiite parties, which control Iraqi security forces, of engineering the arrests to prevent them from mounting an effective campaign for provincial elections expected this fall.

The Sadrists expect to make major electoral gains at the expense of rival parties, including those that maintain close ties to the United States.

American officials have acknowledged that the unilateral cease-fire declared by al-Sadr last August played a major role in reducing violence in Baghdad.

U.S. and Iraqi officials have insisted that they are not targeting al-Sadr's movement but simply going after renegades, criminals and extremists with ties to Iran.

Fighting raged for a third straight day in Basra, where Iraqis have been of control of security since the British withdrew last December.

Heavy gunfire and explosions resounded across the city while helicopters and jet fighters buzzed overhead.

The city's police chief escaped an assassination attempt late Wednesday but three of his guards were killed in the roadside bombing.

Residents contacted by telephone in Basra, the country's oil capital 340 miles southeast of Baghdad, spoke of militiamen using mortar shells, sniper fire, roadside bombs and rocket-propelled grenades to fight off security forces.

Some complained that thousands of civilians were trapped by the fighting and running short of food, medicine and clean drinking water.

At least 56 people have been killed since Wednesday in Basra, according to police and hospital reports, although a complete and accurate count was impossible to obtain because of the fighting.

In an escalation of the crisis, saboteurs bombed one of Iraq's two main oil export pipelines that carries crude oil from Basra to the country's oil terminal on the Persian Gulf.

The attack briefly sent prices rising on international petroleum markets.

In Baghdad, suspected Shiite extremists continued to hammer the U.S.-protected Green Zone on Thursday, firing several rounds of rockets or mortars that sent a huge plume of smoke above the heavily fortified area in central Baghdad.

Also Thursday, a U.S. soldier was killed by a roadside bombing in mostly Shiite eastern Baghdad, the U.S. command said.

No further details were released.

One American, a government employee, died in Thursday's attacks on the Green Zone, four days after an American financial analyst was mortally wounded there.

A memo sent to embassy staff and obtained by The Associated Press says employees are required to wear helmets and other protective gear if they must venture outside and strongly advises them to sleep in blast-resistant locations instead of trailers that most occupy.

Pentagon officials said Thursday that weapons used in recent Green Zone attacks included 107mm rockets made in Iran.

One official, speaking on condition of anonymity because of the sensitivity of the information, said some rockets were stamped with 2007 Iranian manufacture dates.

With security in Baghdad rapidly deteriorating, gunmen kidnapped the Iraqi civilian spokesman for the Baghdad security operation and killed three of his bodyguards after torching his house in a Shiite neighborhood.

The spokesman, Tahseen Sheikhly, is a Sunni who often appeared with U.S. military and embassy officials at news conferences to tout the successes of the security operation, which began last year when President Bush sent 30,000 U.S. reinforcements to Baghdad.

"Iraqi leader faces pivotal moment"

By HAMZA HENDAWI and QASSIM ABDUL-ZAHRA, Associated Press

Last updated: 4:52 p.m., Thursday, March 27, 2008

BAGHDAD -- The widening clashes between Iraqi forces and Shiite militiamen mean more than a showdown on the streets: it could be a defining moment for U.S.-backed Prime Minister Nouri al-Maliki.

Al-Maliki, in office since May 2006, is almost certain to pay a heavy political price if he fails against Shiite militias in battles that began in the southern city of Basra and then flared in Baghdad and other cities.

And he knows the stakes are high.

He has promised not to compromise and vowed to battle to the end against the Mahdi Army militia led by anti-American cleric Muqtada al-Sadr.

That's a bold position considering the fight so far.

The Iraqi campaign in Basra -- launched this week to uproot Mahdi Army's influence in the important oil center -- has been bogged down in the face of strong resistance, desertions and mutiny in government ranks, security officials said Thursday.

But al-Maliki appears unshaken and has turned the fight into a personal test.

He has traveled to Basra, 340 miles south of Baghdad, to take personal charge of the operation -- the first major battle waged by Iraqi forces alone without strong U.S. backup.

It's a gambit with clear fallout for al-Maliki if Iraqi security forces come up short.

His political standing would be seriously bruised at a time when he is attempting to play unifier between the nation's three fractious groups: majority Shiites, Sunni Arabs and Kurds.

Sunni leaders, who complain of being sidelined by al-Maliki's government, could feel emboldened and press harder for al-Maliki's ouster.

Even the prime minister's main coalition partner -- the powerful Supreme Islamic Iraqi Council -- has recently been dropping hints of disapproval of al-Maliki.

Much now rides on the outcome of the showdown against the Mahdi Army, the main rival of the Supreme Council in the Shiite heartland in southern Iraq.

"If the (Iraqi government forces) cannot gradually get some control over Basra, of course al-Maliki will lose prestige," said Phebe Marr, a historian on Iraqi affairs and senior fellow at the U.S. Institute of Peace in Washington.

But she believes his main Shiite allies will not quickly abandon him regardless of how events play out against the Mahdi Army.

A senior aide said al-Sadr is seeking a political solution.

In a statement relayed by Hazem al-Aaraji, al-Sadr said he wants "everyone to pursue political solutions and peaceful protests and a stop to the shedding of Iraqi blood."

The crisis came to a head following months of U.S. and Iraqi raids that detained hundreds of Mahdi Army fighters even as the militia maintained its self-proclaimed truce -- which Washington has credited for helping bring down violence since last August.

But the timing could also be an attempt to take a swipe at al-Sadr before the Pentagon scales back its forces in coming months, from 158,000 to about 140,000.

Al-Maliki's government, meanwhile, is looking ahead to provincial elections this year that will be a key test of its standing against al-Sadr.

"It may be a calculation that it is better to undertake this action while there are still robust (U.S. forces) in the country," said Marr.

"Iraqis clamp curfew on Baghdad"

By SAAD ABDUL-KADIR, Associated Press

Last updated: 3:34 p.m., Thursday, March 27, 2008

BAGHDAD -- The Baghdad military command has clamped a weekend curfew on the capital in a bid to stem fierce fighting between Shiite militiamen and security forces.

An official with the command says no unauthorized vehicles, motorcycles or pedestrian traffic will be allowed on the streets from 11 p.m. Thursday to 5 a.m. Sunday.

The move comes as anger mounts among followers of radical Shiite cleric Muqtada al-Sadr over a government crackdown against his Mahdi Army militia in the southern oil port of Basra.

The security operations have sparked protests and deadly clashes in Baghdad and across the Shiite southern heartland.

Al-Maliki says he's acting against criminal gangs, but the Sadrists say he's trying to deprive them of a political voice.

"Green Zone target for Shiite militias"

By BRADLEY BROOKS, Associated Press

Last updated: 5:42 p.m., Thursday, March 27, 2008

BAGHDAD -- Warning sirens wail and within seconds rockets and mortars strike -- sometimes one or two, other times 10 or more.

The Green Zone is again a prime target as American and British diplomats, Iraqi politicians, contractors and others struggle to go about their business -- always aware that any time they are outside the most fortified buildings there is a chance to be injured or killed.

The danger has temporarily reshaped life: Green Zone traffic is minimal, few people venture out on the streets and security precautions -- always high -- have been boosted.

Many diplomats and others prefer to bunk on cots in the stone and marble grandeur of the former Saddam Hussein palace that now holds U.S. Embassy offices.

On Thursday, the State Department instructed all Embassy personnel not to leave reinforced structures.

A memo sent to embassy staff and obtained by The Associated Press says employees are required to wear helmets and other protective gear if they must venture outside and strongly advises them to sleep in blast-resistant locations instead of trailers.

For the fourth day this week, suspected Shiite militiamen sent rockets and mortars into the Green Zone in central Baghdad.

The volleys on Thursday began in the morning and came in about once an hour well into nightfall.

The attacks on the Green Zone are being carried out in tandem with growing clashes between Iraqi government forces and the Mahdi Army militia led by anti-American cleric Muqtada al-Sadr.

By bombarding the Green Zone, the followers of al-Sadr are not only targeting the Iraqi government, but also the hub of the American political mission and its influence on the Iraqi government.

At least one death was reported inside the Green Zone in the latest attacks.

Embassy spokeswoman Mirembe Nantongo said a U.S. government employee was killed, but would give no further details until relatives are notified.

Another American, a financial analyst who audited contracts in Iraq, was killed Sunday in the zone, the embassy and relatives said earlier this week.

One explosion Thursday ignited a fire in the central area of the zone that sent a massive column of thick, black smoke drifting over the Tigris River.

Military and diplomatic officials would not say what had been hit inside the Green Zone.

A U.S. military statement said one civilian was killed and 14 wounded "in the vicinity" of the protected district.

U.S. military officials said Thursday that among the weapons used in recent attacks on the Green Zone were 107mm rockets made in Iran.

One official, speaking on condition of anonymity because of the sensitivity of the information, said they have included rockets stamped with 2007 Iranian manufacture dates.

Washington has accused Iran of funneling weapons to Shiite militia.

Iran denies it.

The first wave of rockets this week came on Easter Sunday.

The Green Zone -- and areas nearby -- have barely had a breather since.

On Sunday, at least 12 Iraqis were killed that day outside the Green Zone, apparently by salvos that went astray.

A U.S. official, speaking on condition of anonymity because of security concerns, said one round earlier this week hit a main helicopter landing zone used by the U.S. forces, putting it temporarily out of commission.

Housing used by some U.S. officials and contractors was also hit, the official said.

"All personnel are required to wear body armor, helmet and protective eye wear any time they are outside of building structures in the International Zone," said embassy spokeswoman Nantongo, using the official name of the area.

"Beyond that, we don't discuss our security posture."

Another U.S. official said that personnel -- who usually sleep two to a trailer on the embassy grounds -- are now sleeping inside the former Saddam palace where their offices are located.

"There are cots everywhere," the U.S. official said.

"People are scouting out free couches."

The official -- who has been through other attacks -- described the recent barrages as "qualitatively different."

"There is a sense of hunkering down for a sustained period of time," the official said, speaking on condition of anonymity because of security restrictions.

The Green Zone is normally a five-square-mile haven from the war, particularly in recent months as overall violence in Baghdad has dropped.

But it is now caught in the widening attacks by forces loyal to al-Sadr to protest a crackdown by the Iraqi government.

The last sustained attacks on the Green Zone were in July when extremists unleashed a barrage of more than a dozen mortars or rockets, killing at least three people -- including an American -- and wounding 18.

Security forces know where the firing is from: mainly Shiite districts in eastern Baghdad.

The challenge is how to stop them.

The attacks come from deep inside residential neighborhoods, making it difficult to counterattack without risking widespread civilian casualties.

Also, the rockets and mortars are fired from mobile launchers, meaning militants can speedily move away from the launch area before soldiers can respond.

Last May, an explosion from a rocket rattled windows in the U.S. Embassy while Vice President Dick Cheney was visiting.

In the same month, a blast hit the British Embassy compound when then Prime Minister Tony Blair arrived.

In March, a rocket or mortar round landed near Iraqi Prime Minister Nouri al-Maliki's office while he and U.N. Secretary-General Ban Ki-moon were holding a news conference.

Ban ducked behind a podium as small chips of debris floated down from the ceiling.

Attacks against the zone have also renewed concern about security at the new U.S. Embassy, which is due to open this year within a protected area along the Tigris.

The embassy will be Washington's largest and most expensive foreign mission.

"Iraqi leader faces pivotal moment", cont'd.

By HAMZA HENDAWI and QASSIM ABDUL-ZAHRA, Associated Press

Last updated: 4:52 p.m., Thursday, March 27, 2008

There is no doubt, however, that al-Maliki is acting with uncharacteristic daring.

His hallmark -- and perhaps means of political survival -- has been caution.

Al-Maliki has been careful not to anger his Shiite political base by pushing too hard for U.S.-backed reforms, including bringing more Sunni Arabs into the security forces.

At times, Washington's patience with al-Maliki appears to be wearing thin.

But the tone changed after Iraqi forces pushed into Basra.

White House press secretary Dana Perino said Tuesday that al-Maliki showed bravery by committing his forces to the fight.

"I would characterize it as a bold decision -- precisely what the critics have asked to see in Iraq," she said.

President Bush, speaking Thursday to a military audience in Dayton, Ohio, did not specifically cite al-Maliki, but said Iraq's leaders should be given time to reconcile differences and applauded them for showing "great courage" against their foes.

More than that may be needed against al-Sadr's militiamen.

Iraqi security officials said two special police units dispatched to Basra from Baghdad have been beset by dissent.

An army battalion also suffered desertions, with an unspecified number of soldiers taking off their uniforms and walking away.

"We did not expect the fight to be this intense," said an officer from one of the two commando units.

He spoke on condition of anonymity because the information is classified.

He recounted how he and his men were pinned down Tuesday by mortars and sniper fire outside the Basra neighborhood of Tamimiyah, one of several densely populated Mahdi Army strongholds in the city.

The officer, who spoke by telephone from Basra, said four of his men were killed and 15 wounded Tuesday.

"Some of the men told me that they did not want to go back to the fight until they have better support and more protection," said the officer, whose unit numbers up to 300 men armed with assault rifles and machine guns fixed atop pickup trucks.

The security officials said the Interior Ministry issued a stern warning to the men that they could face court martial if they refuse orders to fight.

On Thursday, a top national police commander came to Basra and was peppered by complaints from troops that they were fired upon by Basra policemen loyal to al-Sadr and that they and their families in Baghdad have received threatening text messages, according to a second officer who sat in on the meeting.

The unit's commander, a major, received a text message from a Mahdi Army commander offering him safe passage for his men out of the city, according to the officer.

Members of the second police unit got into a fist fight with their officers when they refused orders to join the battle and, in protest, did not receive food rations.

The unit suffered 15 wounded on Tuesday, said the officials.

The officials said the dissent was partially caused by reluctance of by troops to fight fellow Iraqis.

Others were deeply demoralized when they found out that the Mahdi Army militiamen had more firepower.

A video from Basra obtained Thursday by Associated Press Television News showed militiamen in possession of a Humvee captured from army troops.

They repainted it white and plastered an image of al-Sadr on it.

The footage also showed two armored vehicles destroyed and about 20 men that a man -- speaking off camera -- described as army soldiers who voluntarily surrendered to the Mahdi Army.

The men were squatting on dirt and their weapons arrayed in front of them.

"Clinton takes hit in new poll on White House race"

Wed Mar 26, 10:53 PM ET

WASHINGTON (Reuters) - Democratic presidential candidate Hillary Clinton's positive rating has dropped to a new low of 37 percent in an NBC/Wall Street Journal poll released on Wednesday.

According to the poll, the New York senator's positive rating slid 8 percentage points in two weeks and she had a negative rating of 48 percent in a week where she admitted making a mistake in claiming she had come under sniper fire during a 1996 trip to Bosnia.

Clinton's Democratic rival, Illinois Sen. Barack Obama, also saw a slight dip in his positive rating, to 49 percent from 51 percent, the poll found.

Clinton, who would be the first female U.S. president, and Obama, who would be the first black president, are in a heated battle for the Democratic nomination to face presumptive Republican nominee John McCain in November's election.

The survey was taken after Obama gave a speech last week on race in America and rejected racially charged remarks by his pastor in Chicago of two decades, Rev. Jeremiah Wright.

NBC said 32 percent of respondents said Obama "sufficiently addressed the issue" and 26 percent said he needed to say more about the Wright controversy.

More than half of those surveyed -- 55 percent -- said they were "disturbed" by the videos of Wright that were widely circulated on television and the Internet, the poll found.

In head-to-head matchups, Obama and Clinton were even at 45 percent.

In general election matchups, Obama led McCain by 44 percent to 42 percent and McCain led Clinton by 46 percent to 44 percent.

When asked which candidate could unite the country if elected, 60 percent said Obama, 58 percent said McCain and 46 percent said Clinton.

The poll of 700 registered voters was conducted on Monday and Tuesday and had a margin of error of 3.7 percentage points.

NBC said its pollsters oversampled African-Americans to get a more reliable cross tabulation on questions regarding Obama's speech on race.

(Editing by John O'Callaghan)

"Oil drops but poised to move higher"

By GEORGE JAHN, Associated Press

Last updated: 8:02 a.m., Friday, March 28, 2008

VIENNA, Austria -- Oil prices fell but were poised to move higher Friday after jumping more than $1 a barrel in the previous session when a key Iraqi oil pipeline was bombed.

Iraqi oil officials had said that Thursday's bombing would not cut oil exports from the southern oil city of Basra.

But Dow Jones Newswires reported that exports from southern Iraqi terminals have been reduced to about 1.2 million barrels a day from a normal rate of 1.56 million barrels a day.

Analysts said the full impact of the attack on Iraq's oil exports was not yet known.

"There has been limited reporting on the extent and severity of the damage ... it's still a little bit unclear exactly how much damage was done," said David Moore, a commodity strategist at the Commonwealth Bank of Australia in Sydney.

Light, sweet crude for May delivery lost 24 cents to fetch $106.90 a barrel by noon in European electronic trading on the New York Mercantile Exchange.

The contract rose $1.68 to settle at $107.58 a barrel on Thursday.

The attack was the second bombing of a pipeline in a week in Basra, where Iraqi security forces have been clashing with Shiite militia fighters.

Experts said the ongoing violence, while escalating rapidly, was not expected to result in huge disruptions to Iraqi oil exports.

"The government's and the U.S. forces' ability to keep insurgents from penetrating the actual oil fields and damaging production facilities has not been rocked, although the current level of violence appears to be the highest ever since the 2003 U.S.-led invasion," wrote Samuel Ciszuk of consulting firm Global Insight in a research note.

However, Ciszuk added, "temporary shut-ins of 100-200,000 (barrels a day) should not be ruled out in the coming week."

The news from Iraq added to supply concerns stoked Wednesday when a U.S. government agency reported that domestic crude oil inventories were mostly unchanged last week, while fuel supplies fell more than expected.

"Wednesdays DOE report and Thursdays headline out of Basra helped ignite the crude and heating oil pits," noted Stephen Schork, in his daily Schork Report.

The supply issues temporarily drew attention from the dollar, which rose slightly against the euro Thursday, reversing a trend that sent oil futures surging nearly $5 the day before.

A stronger dollar makes hard assets such as energy commodities less attractive than when the greenback is falling.

Oil futures are priced in dollars, making them more expensive to investors overseas when the greenback rises.

Also, a strengthening dollar lessens the need to use crude oil and other hard commodities as hedges against inflation.

Analysts, though, expect the dollar to resume its decline against foreign currencies because the Federal Reserve is expected to cut interest rates several more times this year.

In other Nymex trading, heating oil futures dropped by more than a penny to $3.137 a gallon (3.8 liters) while gasoline futures fell less then a cent to $2.7104 a gallon.

Natural gas futures were up by just over a cent at $9.70 per 1,000 cubic feet.

Brent crude futures rose 2 cents to $105.02 a barrel on the ICE Futures exchange in London.

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Associated Press writer Gillian Wong contributed to this report from Singapore.

"US stocks head for higher open"

By TIM PARADIS, Associated Press

Last updated: 7:12 a.m., Friday, March 28, 2008

NEW YORK -- U.S. stocks moved toward a higher open Friday as investors awaited a reading on February personal incomes and spending -- figures that could reveal whether consumers are pulling back because of concerns about the economy.

The Commerce Department is expected to release data that is weak, with spending edging up 0.1 percent, incomes rising by 0.3 percent and the core personal consumption expenditures deflator, a key measure of inflation, up 0.1 percent.

After the start of trading, investors are also expecting the latest Reuters/University of Michigan report on consumer sentiment for March.

While consumers have clearly been nervous for months, investors are interested in how that might affect spending decisions; consumer spending accounts for about 70 percent of U.S. economic activity.

Dow Jones industrial average futures rose 55, or 0.45 percent, to 12,376.

Standard & Poor's 500 index futures rose 8.30, or 0.62 percent, to 1,338.10, and the Nasdaq 100 index futures rose 11.75, or 0.66 percent, to 1,803.75.

Stocks declined for a second day Thursday, with the Dow falling 120 points, as investors found little reason to continue a big rally that started the week; a government report confirmed a big economic slowdown in the fourth quarter.

Bond prices fell.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.54 percent from 3.52 percent late Thursday.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude fell 41 cents to $107.17 in premarket electronic trading on the New York Mercantile Exchange.

Overseas, Japan's Nikkei stock average rose 1.71 percent.

In morning trading, Britain's FTSE 100 rose 0.16 percent, Germany's DAX index advanced 0.21 percent, and France's CAC-40 slipped 0.16 percent.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

"Japan inflation up, jobless rate worsens"

By dj-may-im-jpa, Associated Press

Last updated: 6:12 a.m., Friday, March 28, 2008

TOKYO -- Japan's inflation rate climbed at its fastest rate in a decade in February and the jobless rate worsened to 3.9 percent under data released Friday, raising concerns about the health of the world's second-largest economy.

The core consumer price index, which excludes volatile fresh food prices, rose 1.0 percent in February from a year ago -- the fastest reading since March 1998, the Ministry of Internal Affairs and Communications said.

Japan has long struggled with deflation, or falling prices, but Friday's data, which also marked the fifth straight month of gains, show that higher prices for imported oil and commodities are adding pressure on living costs.

Separate data released by the ministry said household spending was flat in February from a year earlier, an indication that the economy was getting less support from domestic demand, while exports that have long driven the nation's growth are also losing steam.

The result fell short of the 2.5 percent rise expected in surveys by Dow Jones Newswires and Nikkei.

Economy Minister Hiroko Ota voiced concerns that recent sharp rises in consumer prices could have a negative impact on consumption growth.

"With economic growth pausing and workers' wages not increasing, I cannot say that recent rises in consumer prices are good," Ota told a news conference.

"I'm concerned about how such price rises -- mostly stemming from rises in gasoline and food prices -- will affect consumers."

Separately, Japan's unemployment rate stood at a worse-than-expected 3.9 percent in February, the Ministry of Public Management said.

The results reflected slowing domestic and overseas growth, which has made business less willing to hire workers.

Japan's unemployment rate was 3.8 percent in January.

The ministry said the total number of jobless was down by 40,000 on year, marking the 27th consecutive month of decline.

The jobless rate registered to 4.0 percent in September and October before dropping to 3.8 percent in November and staying flat for three months.

The core CPI for the Tokyo metropolitan area for March rose a preliminary 0.6 percent on year, the data showed.

The number is considered a leading indicator for nationwide consumer prices.

"Euro slightly higher against dollar"

Associated Press

Last updated: 8:02 a.m., Friday, March 28, 2008

BERLIN -- The euro traded slightly higher against the U.S. dollar Friday, but the pound slipped as a report showed British house prices falling again.

The 15-nation euro bought $1.5798 in late-morning European trading -- up from $1.5780 in New York late Thursday, when the dollar gained as data confirmed that the U.S. economy was still growing in the fourth quarter.

The pound slipped to $1.9944 from $2.0036.

The Nationwide mortgage lender reported Friday that house prices in Britain fell 0.6 percent in March -- the fifth straight monthly decline -- and said the annual growth rate in house prices was at its lowest in 12 years.

That underlined evidence of an economic slowdown in the country.

The dollar has suffered from worries about the fallout from the U.S. subprime mortgage crisis and the possibility of a recession, and remains close to an all-time low against the euro.

While the U.S. Federal Reserve has cut its key interest rate six times since September in a bid to bolster the economy and the Bank of England has made more modest cuts, the European Central Bank, focusing on inflation risks, has left its rates unchanged.

Lower interest rates can weigh on a nation's currency as traders transfer funds to countries where they can earn higher returns.

In other trading Friday, the dollar barely moved against the Japanese currency.

It traded at 100.01 yen, compared with 100.00 yen late Thursday.

"Japan's Nikkei rises 1.7 percent"

Associated Press

Last updated: 5:52 a.m., Friday, March 28, 2008

TOKYO -- Japan's stock market rose to its highest level in two weeks Friday as last-minute buying before the end of the fiscal year lifted a wide range of blue chips, including electronics and financial shares.

The benchmark Nikkei 225 stock index rose 1.71 percent at 12,820.47, its highest level since March 12.

Traders say the market may be entering a brief rebound period as major U.S. investment banks have finished reporting quarterly earnings and expectations grow for fresh money from the domestic buyers, including pension funds, in the new fiscal year from April 1.

"Now that the worst is over for the market, it is entering an upward trend as the tension eases," said Mitsushige Akino, chief fund manager for Ichiyoshi Investment Management.

The improved mood invited bargain-hunting in issues with relatively good earnings fundamentals such as trading houses.

Mitsubishi Corp. jumped 5 percent to 3,020 yen, and Sumitomo Corp. advanced 3.3 percent to 1,368 yen.

Matsushita Electric added 4.5 percent to 2,215 yen, and Mitsubishi Electric Industrial Corp. climbed 4.3 percent to 889 yen.

Taisho Pharmaceutical Co. shed 1.7 percent to 2,010 yen on a Nikkei report it will likely see a profit decline next fiscal year due to an expected drop in its prescription drug sales.

The Topix index of all the Tokyo Stock Exchange First Section issues gained 1.42 percent to 1243.81.

In currencies, the dollar was higher against the yen, trading around 99.76 yen late Friday afternoon.

"China to pay more for rice, wheat"

By JOE McDONALD, Associated Press

Last updated: 5:32 a.m., Friday, March 28, 2008

BEIJING -- China said Friday it will pay farmers more for rice and wheat, trying to raise output and cool surging inflation that threatens to fuel unrest ahead of the Beijing Olympics.

Beijing has frozen retail prices of rice, cooking oil and other goods in an effort to rein in food costs that jumped 23.3 percent in February over the same month last year.

But analysts warn that holding down prices paid to farmers will discourage them from raising production and easing shortages blamed for the increases.

The latest move is meant to "raise farmers' enthusiasm for growing grain and make progress in the development in grain production," the Cabinet's National Development and Reform Commission said in a statement announcing the change.

It said minimum grain prices paid to farmers would rise by up to 9 percent.

Prices started to rise sharply in mid-2007 as China ran short of grain and pork, the country's staple meat.

The jump in food costs has hit ordinary Chinese hard in a society where families spend up to half their incomes on food, prompting unease among communist leaders about unrest just as they are hoping the Olympics will showcase China as stable and prosperous.

Bouts of inflation in the 1980s and '90s led to public protests.

Premier Wen Jiabao, China's top economic official, says cooling inflation is the government's top priority.

He says Beijing hopes to hold this year's overall inflation to 4.8 percent -- equal to the 2007 rate -- but outside economists say that looks unrealistic.

They are forecasting full-year price rises of up to 6.4 percent.

Beijing has been prodding farmers to raise production by promising free vaccinations for pigs and other aid.

Authorities say China has adequate food supplies.

But devastating snowstorms that hit the south in January and February wrecked crops and disrupted shipping, adding to inflation pressures.

"China should increase policy support" and give "stronger signals to mobilize and protect the initiative of farmers to plant crops," Wen said Thursday during a nationwide video conference with government officials, according to the state Xinhua News Agency.

The snowstorms and a drought in the northeast will make it "harder to ensure grain supplies this year," Xinhua said, citing Chen Xiwen, a rural planning official.

Under the latest order, prices paid for rice will rise by 7 yuan, or $1.00, per 50 kilograms (110 pounds) to 77 to 82 yuan ($11-$11.70), depending on the type, according to the NDRC.

Wheat prices will rise by 3 to 5 yuan (43 cents to 71 cents) to 72 to 75 yuan ($10.24-$10.70) per 50 kilograms.

The Cabinet also decided to spend an additional 20.6 billion yuan ($2.9 billion) to subsidize farmers' purchases of seed, diesel, fertilizer and pesticide, Xinhua said.

It said that would raise this year's total subsidies to 75.9 billion yuan ($10.8 billion).

The communist government regards being able to meet most of China's grain needs from domestic sources as a matter of national security.

It operates a network of grain-buying offices and a grain stockpile.

It has been releasing supplies to ease shortages.

The stockpile's size is a secret but Wen said this month that it is 150 to 200 million tons.

The government also has frozen prices for gasoline, electricity, public transit and school fees.

Chinese oil companies complain the controls are causing them huge losses by blocking them from passing on record-high crude prices to consumers.

That has prompted refiners to refrain from investing in expanding production, leading to diesel shortages that have disrupted trucking in key export areas of the fast-growing southeast.

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On the Net:

National Development and Reform Commission (in Chinese): http://www.ndrc.gov.cn

"US jets drop bombs in Basra"

By RYAN LENZ, Associated Press

Last updated: 8:12 a.m., Friday, March 28, 2008

BAGHDAD -- A British military spokesman in Basra says U.S. warplanes have carried out at least two airstrikes overnight in Iraq's southern oil port.

Maj. Tom Holloway says jets have been providing air support since clashes between Shiite militias and Iraqi forces erupted in the southern oil port on Monday, but it's the first time bombs have been dropped.

Iraqis have been of control of security in Basra since the British withdrew last December, but Britain maintains troops there to provide assistance when needed.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

BAGHDAD (AP) -- Coalition jets dropped bombs overnight in Basra for the first time since clashes between Shiite militias and Iraqi security forces erupted in the southern oil port this week, British officials said Friday.

Shiite militants also clashed with government forces for a fourth day in Iraq's oil-rich south and sporadic fighting broke out in Baghdad, despite a weekend curfew in the capital.

Prime Minister Nouri al-Maliki has promised "no retreat" in the fight against militias in Basra despite growing anger among followers of radical Shiite cleric Muqtada al-Sadr and his Mahdi Army.

The crackdown has intensified Sadrist anger over recent raids and detentions.

They say U.S. and Iraqi forces have taken advantage of their seven-month-old cease-fire to target the movement.

Al-Sadr on Thursday called for a political solution to the burgeoning crisis and an end to the "shedding of Iraqi blood."

But the statement, released by a close aide, stopped short of ordering his Mahdi Army militia to halt attacks.

The situation in Basra remained tense after the Iraqis asked for airstrikes on at least two locations, a local British official said, speaking on condition of anonymity because he was not authorized to release the information.

A British defense official in London who also declined to be identified in line with department policy, however, said U.S. fighter jets dropped the bombs while British planes provided air support.

Iraqis have been of control of security since the British withdrew last December but Britain maintain troops there to provide assistance when needed.

In Baghdad, a U.S. helicopter also fired a Hellfire missile during fighting in the Baghdad's militia stronghold of Sadr City early Friday, killing four gunmen, military spokesman Lt. Col. Steve Stover said.

Ground forces called for the airstrike after coming under small-arms fire while clearing a main supply route at 4:10 a.m., he added.

Iraqi police and hospital officials in Sadr City said five civilians were killed and four others wounded in the attack.

The strikes underscore the risks that the U.S. and its allies in Iraq could be drawn into an internal Shiite conflict that has threatened to unravel al-Sadr's cease-fire and spark a new cycle of violence after months of relative calm.

In political developments, the main Shiite bloc in parliament said it would not attend an emergency session called for Friday to find ways to end fighting between government forces and militiamen in southern Iraq.

Deputy parliamentary speaker Khalid al-Attiyah, also a member of the United Iraqi Alliance, said the events in the south are a law and order issue, not legislative.

The bloc has been in contact with its Kurdish allies to boycott Friday's session too, which would prevent a quorum, he said.

It was not immediately clear whether house speaker Mahmoud al-Mashhadani, a Sunni, would still attempt to convene a session.

Amid the crisis, the prime minister has decided to skip this weekend's Arab summit, officials said.

Vice President Adel Abdul-Mahdi will attend the meeting in Syria instead, according to Laith Shobar, an adviser to the Shiite vice president.

The campaign to rid Basra, Iraq's second-largest city, 340 miles southeast of Baghdad, of lawless gangs and Shiite militias -- some believed tied to nearby Iran -- is a major test for the Shiite leader and for the Iraqi military.

The ability of Iraqi leaders and security forces to control situations like this one is key to U.S. hopes of withdrawing its forces from the country.

The prime minister put his credibility on the line by flying down to Basra on Monday and issuing a weekend deadline for the surrender of Mahdi Army militiamen loyal to al-Sadr.

But the Basra offensive has faced fierce resistance and the security operation has triggered a violent response among al-Sadr's followers in Baghdad and cities throughout the Shiite heartland of southern Iraq.

At least 12 militia fighters were killed and seven others wounded in fighting in Mahmoudiya, according to an Iraqi army official.

The local office of radical Shiite cleric Muqtada al-Sadr, meanwhile, claimed 15 Iraqi soldiers had been captured, including two officers, in the city, about 20 miles south of the capital.

Fierce fighting in the Mahdi Army stronghold of Nasiriyah also killed at least four people, including two policemen and two civilians, and wounded 14, an officer said, adding that the clashes had spread to other parts of the city.

Two Iraqi security forces also were killed and three wounded in Kut, police said.

The security officials all spoke on condition of anonymity because they weren't authorized to release the information.

Rockets or mortars also were lobbed at a U.S. facility in the southern city of Hillah, although no casualties were reported, the military said.

Al-Maliki's office also announced Friday that it has given residents in Basra until April 8 to turn over "heavy and medium-size weapons" in return for unspecified monetary compensation.

The deadline is separate from the three-day ultimatum for gunmen to surrender their arms and renounce violence or face harsher measures, which expires later Friday, government adviser Sadiq al-Rikabi said.

The move instead appeared to be aimed at noncombatants who may have weapons like machine-guns and grenade launchers either for smuggling purposes or to sell to militants or criminal gangs.

The government also announced a days-old curfew in Basra would be loosened to allow people to move around in the city from 6 a.m. to 6 p.m. to facilitate shopping and other necessary tasks.

It also called on local agencies to use the time to help residents, who have complained of food shortages and other problems amid the chaos.

Despite the order, an Associated Press staffer said he and his family were fired upon by Iraqi security forces when they tried to leave their house.

Sporadic fighting was reported in predominantly Shiite areas in eastern Baghdad despite a curfew banning unauthorized movement in the capital was imposed from 11 p.m. Thursday to 5 a.m. Sunday.

Purported Mahdi Army gunmen abducted three policemen with their weapons and vehicle in one area and clashes erupted between militiamen and U.S.-Iraqi troops in another, according to police.

The U.S. military did not immediately comment on the latest reports but said 26 militants during operations Thursday in mostly Shiite areas in Baghdad.

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Associated Press writers Ryan Lenz and Saad Abdul-Kadir contributed to this report.

"Iraq: New clashes in the south"

28 March 2008

BAGHDAD - Iraqi police say clashes between Shiite militants and government security forces have resumed in at least two cities south of Baghdad.

The fighting in Nasiriyah and Mahmoudiya on Friday comes as the situation is calm in Baghdad.

Residents are holed up at home after a weekend curfew was imposed.

Police say four people have been killed and 14 wounded in clashes in Nasiriyah.

Anger has been growing since the Iraqi government launched a crackdown against Shiite militia violence in the southern oil port of Basra earlier this week.

Shiite cleric Muqtada al-Sadr's followers say security forces are abusing a cease-fire by his Mahdi Army militia to unfairly target them in raids.

The government says it is acting against criminal gangs.

"Consumer spending weak in February"

By MARTIN CRUTSINGER, Associated Press

Last updated: 5:52 p.m., Friday, March 28, 2008

WASHINGTON -- Consumers turned in the weakest spending performance in 17 months in February, while their confidence dropped to the lowest level in 16 years, raising further fears of a recession.

The Commerce Department said Friday that consumer spending edged up by just 0.1 percent last month, the poorest showing since September 2006.

And if the effects of inflation are removed, spending was flat in February, the third consecutive month of sluggish activity.

Meanwhile, a second report showed the prolonged slump in housing, rising job layoffs, soaring energy costs and a severe credit crisis are taking their toll on consumer confidence.

The Reuters/University of Michigan consumer sentiment survey dropped to 69.5 in March.

That was down from 70.8 in February and represented the lowest reading in 16 years, which analysts said was not surprising given all the problems battering households presently.

"Food and energy prices are climbing ever higher, the labor market is slowing, credit is becoming tighter and household wealth is declining as house prices drop," said Nigel Gault, senior U.S. economist at Global Insight.

"Consumers are facing bad news on all fronts."

The concern is that all these problems will cause consumer spending -- which accounts for two-thirds of total economic activity -- to weaken even further, bringing on a full-blown recession.

"At the moment, consumers are very pessimistic," said Mark Zandi, chief economist at Moody's Economy.com.

"We are losing jobs, the stock market is down, house prices are crumbling, gasoline prices have hit new record highs and it costs a lot more to buy a loaf of bread."

"Nothing is going well."

Zandi said he believed a recession has already started, but he is still looking for it to be short, ending this summer when 130 million households start spending their rebate checks from the $168 billion economic stimulus package Congress passed last month.

Treasury Secretary Henry Paulson said Friday that the Bush administration is looking for the stimulus checks to give a boost to the economy and jobs.

"These checks should be a big part of adding 500,000 to 600,000 additional jobs this year," Paulson said in an interview with CNN.

President Bush visited a debt counseling center in Freehold, N.J., on Friday to highlight his administration's efforts to help homeowners at risk of defaulting on their mortgages.

Democrats said the administration needed to do much more to stem a tidal wave of foreclosures as home prices plunge in many parts of the country.

In its continuing effort to battle the credit squeeze, the Federal Reserve announced Friday that it would provide another $100 billion in short-term loans for commercial banks in two separate auctions in April.

However, Wall Street chose to focus on the bad economic news.

The Dow Jones industrial average suffered its third straight decline, dropping 86.06 points Friday to close at 12,216.40.

The spending report showed that incomes grew by a better-than-expected 0.5 percent in February, but the strength came from adjustments made to reflect higher payments from Medicare's prescription drug program, not from strength in wages and salaries.

A key inflation gauge that is tied to consumer spending was up 3.4 percent, compared with February a year ago, reflecting energy and food pressures.

Excluding those costs, inflation rose a more modest 2 percent during this period.

Analysts said that would give the Fed room to cut interest rates further to battle the weak economy.

"Wall Street closes week slightly lower"

By TIM PARADIS, Associated Press

Last updated: 6:23 p.m., Friday, March 28, 2008

NEW YORK -- Wall Street finished the week with a decline Friday as the financial health of the consumer came into focus following a report that showed personal spending at its weakest growth in 17 months and a profit warning from J.C. Penney Co.

The major indexes turned in a mixed performance for the week.

After weeks of concentrating on credit problems and interest rates, the market was forced to pay attention to the consumers who drive economic growth.

The Commerce Department said consumer spending ticked up a paltry 0.1 percent last month, in line with Wall Street's expectations.

But that news and the profit warning from J.C. Penney raised concerns about the well-being of consumers.

Investors felt some relief after the government said an important inflation gauge tied to consumer spending rose only 0.1 percent when excluding often-volatile energy and food costs.

The reading -- the Federal Reserve's preferred measure of inflation -- is up 2 percent over the past 12 months.

With so-called core inflation back within the Fed's target of 1 percent to 2 percent, it could be easier for the central bank to justify further interest rate cuts without fear of adding too much money to the economy and driving up prices.

Trading was fairly muted following days of volatility that sent stocks sharply higher early in the week and then plunging near the end.

Investors were able to set aside some concerns about the effects of the credit crisis on the financial sector, but that gave them more time to think about the economy.

"I'm viewing a day like today as sort of a continuation from where we were a month or two ago," said Les Satlow, portfolio manager at Cabot Money Management in Salem, Mass.

"The U.S. recession concerns have resurfaced."

"They never went away but there was the beginning of the sense that this recession was going to be shallow and maybe a bit benign."

The Dow Jones industrial average fell 86.06, or 0.70 percent, to 12,216.40, suffering its third straight decline.

Broader stock indicators slipped.

The Standard & Poor's 500 index fell 10.54, or 0.80 percent, to 1,315.22, and the Nasdaq composite index fell 19.65, or 0.86 percent, to 2,261.18.

For the week, the Dow fell 1.17 percent and the S&P 500 dropped 1.07 percent.

The Nasdaq, which had a sharp rally in recent weeks and trended above the other major indexes, finished up 0.14 percent.

"This has almost been a week of pause," said Jack Caffrey, equities strategist at JPMorgan Private Bank, saying investors are witnessing a calm before the storm of first-quarter earnings in April.

"The markets didn't move all that much."

"And more importantly, volumes were noticeably lower."

Friday's session was the next to last for what has been a dismal first quarter.

Many investors are likely eager to close the books on the losses and start fresh on Tuesday.

Investors will have plenty of economic data to pore over next week as the market tries to determine if the country is indeed in the midst of a recession.

Perhaps most watched will be Friday's Labor Department report on payrolls, which economists surveyed by Thomson Financial/IFR predict fell by about 50,000 in March after a 63,000 drop in February.

Economists also predict the unemployment rate will rise back up to 5 percent from February's 4.8 percent.

The market will also be monitoring the Institute for Supply Management's national manufacturing report on Tuesday.

Economists expect a shallow contraction for March, similar to February.

Wall Street will also get a snapshot of the service sector with a second ISM report on Thursday.

It is also expected to contract in March from February.

Falling stock valuations sent bond prices higher Friday.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.45 percent from 3.52 percent late Thursday.

The yield notched down to 3.44 percent in after-hours trading.

The dollar was mixed against other major currencies, while gold prices fell.

Light, sweet crude fell $1.96 to settle at $105.62 a barrel on the New York Mercantile Exchange.

With the near implosion of Bear Stearns Cos. behind the market, investors have been watching the usual set of indicators -- such as oil and other data -- to determine the economy's health.

And, as Wall Street tries to determine the degree to which the economy is slowing, any news that consumers are less willing to reach into their wallets is unwelcome.

Consumer spending accounts for about 70 percent of U.S. economic activity.

J.C. Penney's warning gave investors a reason to be concerned.

The retailer predicted a first-quarter profit of 50 cents per share, down from an earlier target of 75 cents to 80 cents.

The stock fell $3.04, or 7.5 percent, to $37.48.

It dragged the rest of the retail sector lower.

Kohl's Corp. fell $2.19, or 4.9 percent, to $42.33.

Higher-end retailers lost ground as well.

Macy's Inc. slid $1.39, or 5.9 percent, to $21.97, while Nordstrom Inc. declined $1.97, or 5.7 percent, to $32.62.

Declining issue led advancers by a 2 to 1 basis on the New York Stock Exchange, where consolidated volume came to 3.59 billion shares compared to 3.90 billion on Thursday.

The Russell 2000 index of smaller companies fell 9.21, or 1.33 percent, to 683.18.

Overseas, Japan's Nikkei stock average rose 1.71 percent.

Britain's FTSE 100 fell 0.43 percent, Germany's DAX index fell 0.28 percent, and France's CAC-40 declined 0.50 percent.

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The Dow Jones industrial average ended the week down 144.92, or 1.17 percent, at 12,216.40.

The Standard & Poor's 500 index finished down 14.29, or 1.07 percent, at 1,315.22.

The Nasdaq composite index ended the week up 3.07, or 0.14 percent, at 2,261.18.

The Russell 2000 index finished the week up 1.76, or 0.26 percent, at 683.18.

The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 U.S. based companies -- ended Friday at 13,255.14, down 81.43 points, or 0.61 percent, for the week.

A year ago, the index was at 14,365.45.

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On the Net:

New York Stock Exchange: http://www.nyse.com

Nasdaq Stock Market: http://www.nasdaq.com

"J.C. Penney slashes 1Q profit forecast"

By DAVID KOENIG, Associated Press

Last updated: 4:52 p.m., Friday, March 28, 2008

PLANO, Texas -- J.C. Penney, whose stores help anchor hundreds of malls across the country, delivered fresh evidence Friday that the economy is faltering in the face of higher gasoline prices and lower consumer confidence.

The department store chain warned that first-quarter profits will be one-third lower than Wall Street expected, sending its shares tumbling nearly 14 percent at one point.

The stock of other retailers dropped as well.

Chief Executive Myron Ullman said higher energy costs, a drop in hiring and weak housing and credit markets were weighing consumers down.

"Consumer confidence is at a multi-year low," Ullman said in a statement.

While tax refunds might help for a while, he said, "we expect the continuation of a difficult environment over the course of 2008."

The company said it now expects first-quarter net income of about 50 cents per share, down from its earlier forecast for a profit of 75 cents to 80 cents per share.

Analysts had been expecting 75 cents per share, according to a survey by Thomson Financial.

Sales at stores open at least a year -- a key measurement in retailing -- are expected to fall at least 10 percent in March and by a "high-single digit" percentage for the entire quarter, which ends May 3.

Penney didn't say what parts of its business were suffering most, and officials declined to elaborate on the company's statement.

But analysts said they believed categories such as women's and juniors' clothing and linens were selling more slowly.

The grim news from Penney came as the Commerce Department reported that personal spending rose an anemic 0.1 percent in February -- its smallest growth in 17 months -- despite gains in personal income.

Penney's announcement raised new concern about the prospect of a recession, because consumer spending accounts for about 70 percent of the U.S. economy.

"Consumer spending is typically glacial and slow-moving, but this time a big chunk came off," said Richard Hastings, a retail analyst and economic adviser to the Federation of Credit and Financial Professionals.

The Conference Board reported this week that consumer confidence sank to a five-year low in March.

Hastings said that uneasy feeling is compounded because consumers have less money to spend after shelling out more to buy gasoline, food and other staples.

Shares of Penney fell $3.04, or 7.5 percent, to $37.48 after dropping as much as 13.6 percent earlier in the day.

Stock in other retailers also fell.

Shares of Kohl's Corp. were off $2.19, or 4.9 percent, to $42.33; Macy's Inc. shares lost $1.39, or 6 percent, to $21.97; Sears Holding Corp. shares dropped $3.28, or 3.1 percent, to $102.20; and Target Corp. shares lost $1.29, or 2.5 percent, at $49.69.

Investors had good reason to be concerned, judging from the feeling among shoppers.

Chinwe Ezennaya, a mother of three boys under age 5, said she and her husband, a government worker, have cut back to afford necessities including gasoline.

She was waiting to get her oldest son in to see a dentist at a Dallas mall.

"Before, if I saw something on sale I would buy it."

"Now I don't buy it unless I really need it," Ezennaya said.

When she does buy clothes, she goes to Big Lots or Ross instead of department stores, and treats for the boys come from Wal-Mart instead of Toys 'R' Us.

Christina Vonderhaar, shopping in downtown Cincinnati, said she and her husband were cutting back to cope with higher prices for gasoline and milk for their toddler.

They now shop mostly at discounters such as Target, and get DVDs at the library instead of buying or renting them.

"We've cut out everything extra," said Vonderhaar, a systems coordinator.

"We even cut out the Internet at home."

Another Cincinnati shopper, Shadell Barkley, toting her 2-year-old son, has cut spending since losing her job at a retirement home.

She's not optimistic about the economy improving anytime soon.

"About all you can do is wait and keep on trying to spend less," Barkley said.

"I've had to cut out the extras, like snacks at the grocery."

"I have to just get what we need."

In recent years, Penney has been one of the brightest retailers, as it lured shoppers with reasonably priced private-label brands mixed with touches of affordable luxury such as cashmere, Sephora cosmetics counters and, just this year, an expensive line of clothing and home goods from Polo Ralph Lauren Corp. called American Living.

Dana E. Cohen, an analyst with Bank of America, said American Living could be contributing to the lower profit estimates.

She said the new line is priced "well above" the competing Chaps brand at Kohl's, just when consumers are growing more worried about prices.

Deutsche Bank analyst Bill Dreher Jr. said he also had doubts about American Living because its prices were often 25 percent higher than typical Penney merchandise.

He said the company's high hopes for the launch of the new label "do not appear to have materialized."

Penney fights a two-front war, competing against Kohl's, Wal-Mart Stores Inc. and others for budget-minded shoppers, along with Macy's and other department stores for more affluent customers.

Plano-based J.C. Penney Co. operates more than 1,000 department stores with 155,000 employees.

It had sales of $19.86 billion last year.

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Associated Press writer Lisa Cornwell in Cincinnati contributed to this report.

"Bonds up after personal spending data"

By MADLEN READ, Associated Press

Last updated: 6:23 p.m., Friday, March 28, 2008

NEW YORK -- Treasurys finished a wobbly week with a gain Friday after data showing an anemic rise in personal spending compelled investors to put money into safe assets ahead of the weekend.

The market was not surprised to hear the Commerce Department report that personal spending rose by 0.1 percent last month.

Still, the rate was the weakest in nearly a year-and-a-half and confirmed fears that consumers continue to struggle with a sinking housing market and surging costs.

The fact that personal incomes rose by 0.5 percent came as a pleasant surprise, but did little to alleviate the market's broader economic concerns.

The benchmark 10-year Treasury note rose 22/32 to 100 15/32, and yielded 3.45 percent, down from 3.52 percent late Thursday, according to BGCantor Market Data.

Prices and yields move in opposite directions.

Longer-term bonds attracted buying particularly because the Commerce Department's personal spending report indicated that inflation is under control.

The year-over-year personal core expeditures deflator fell to 2 percent, back within the Federal Reserve's comfort zone of 1 percent to 2 percent.

Inflation can devalue long-term bonds over time, a worry that had been keeping some investors from placing their money into the 30-year bond.

"With a better-than-expected deflator, those fears have been lowered," said Tom di Galoma, head of Treasurys trading at Jefferies & Co.

The 30-year long bond rose 29/32 to 100 25/32, with a yield of 4.33 percent, down from 4.38 percent.

The 2-year note moved slightly higher by 2/32 to 100 6/32, and yielding 1.66 percent, down from 1.70 percent late Thursday.

In late trading, Treasurys drew more buyers.

As of 5:30 p.m. Eastern time, the 10-year yield was at 3.44 percent, the 30-year yield was at 4.32 percent, and the 2-year yield was at 1.64 percent.

The 3-month Treasury bill had a yield of 1.35 percent, up from 1.31 percent late Thursday, and a discount rate of 1.37 percent, up from 1.28 percent.

In other economic data Friday, the University of Michigan's index on March consumer sentiment posted a decline, adding to anxiety that personal spending could weaken further.

The index fell to 69.5 this month from 70.8 in February.

On Thursday, Treasurys had fallen as a better-than-expected reading on last week's jobless claims and tame demand from investment banks for the Fed's $75 billion credit auction led investors to take money out of safe government securities.

The Fed on Friday said that in April, it will auction another $100 billion to banks, which have been strapped for cash since the implosion of the mortgage market.

"Clear Channel says deal may not close"

By MICHELLE ROBERTS, Associated Press

Last updated: 5:52 p.m., Friday, March 28, 2008

SAN ANTONIO -- The lenders committed to financing the $19.5 billion private buyout of Clear Channel Communications Inc. didn't show up to a meeting of the company and buyers even after a judge issued an order barring the banks from hindering or undermining the deal, the company said in a filing Friday.

Representatives from Clear Channel and the private equity buyers, led by Bain Capital and Thomas H. Lee LLC, met Thursday -- the day after a temporary restraining order was issued to bar the banks from purposely sinking the deal.

It was also the day previously set for the closing of the buyout.

But the lenders didn't show, and Clear Channel said in a filing with the Securities and Exchange Commission that "the company continues to be ready, willing and able to consummate the merger ..."

"The company is unable, however, to estimate a closing date at this time and cautions the markets that a closing may not occur."

Clear Channel shares, which have been volatile in recent weeks, fell 40 cents, or 1.4 percent, to close at $29.20 Friday.

The company's board of directors decided at the request of the equity partners to delay any dividend decision.

Historically, the company has declared a dividend on the last day of the quarter and paid by the 15th of the month.

On Wednesday, Clear Channel and the equity buyers sued six banks -- Citigroup Inc., Morgan Stanley, Credit Suisse Group, The Royal Bank of Scotland, Deutsche Bank AG and Wachovia Corp. -- saying they were trying to renege on their financing commitment.

The financing, negotiated during the heady days of ever larger leveraged buyouts, would cost the banks an estimated $3 billion to $4 billion if the deal closes.

Bain, THL and Clear Channel argued in their lawsuits that the banks tried to undermine the deal by subsequently adding unreasonable terms to the loan.

The banks have said their credit offers were consistent with the commitment letter.

A spokeswoman for the lenders declined to comment Friday on the filing.

Bain and THL agreed to pay $39.20 per share for Clear Channel, far more than the stock's price in the last several months.

But if they back out, they'll be subject to $500 million to $600 million in breakup fees.

A court hearing in the case is scheduled for April 8.

Fred Moran, an analyst with the Stanford Group, said there's some chance the parties will reach a compromise as the court date approaches, but the financing remains difficult given the credit crunch.

The situation remains fluid, he said.

The banks' failure to show up to the meeting Thursday doesn't necessarily mean the deal is doomed.

"It doesn't necessarily mean there can't be compromise in the future."

"It just means the parties are at an impasse now," Moran said.

The lawsuits this week are just the latest scuffle in the effort to take Clear Channel private.

The buyout proposal, first announced in November 2006, earlier ran into trouble with shareholders who insisted on a higher per-share price and a chance to keep owning a part of the privatized company.

The leveraged buyout remains the largest pending in the United States.

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On the Net:

Clear Channel Communications Inc.: http://www.clearchannel.com

"KB Home posts big loss for 1Q"

By ALEX VEIGA, Associated Press

Last updated: 5:12 p.m., Friday, March 28, 2008

LOS ANGELES -- KB Home, one of the nation's biggest residential homebuilders, said Friday it posted a loss of more than $268 million in its first quarter as weak home sales amid a worsening housing market forced the company to take a large write-down related to falling home prices.

Its shares fell nearly 5 percent Friday.

Jeffrey Mezger, KB Home's president and chief executive, said a growing supply of unsold new and existing homes on the market, tight mortgage lending and industrywide discounting drove down sale prices and compressed margins during the quarter.

That forced the builder to take impairment charges and walk away from land option contracts.

"Until prices stabilize and consumer confidence returns, we believe inventory levels will remain significantly out of balance with demand," Mezger said in a statement.

"We do not anticipate meaningful improvement in these conditions in the near term, as it is likely to take some time for the market to absorb the current excess housing supply and for consumer confidence to improve."

In a conference call with analysts, Mezger did note that recent figures from the National Association of Realtors showing that the median price of a resale home declined 8.2 percent last month boded well for the company.

"Our biggest competitor is the resale market, and a drop in price of this magnitude could clear the overhang of inventory more quickly and lead to price stability earlier rather than later," Mezger said.

For the quarter ended Feb. 29, the Los Angeles-based company posted a loss of $268.2 million, or $3.47 per share, compared with a profit of $27.6 million, or 34 cents per share, a year earlier.

The latest period included a charge of $223.9 million in write-downs related to falling home prices.

Revenue tumbled 43 percent to $794.2 million from $1.39 billion last year.

Analysts surveyed by Thomson Financial were looking for a loss of $1.17 per share on revenue of $805.7 million.

The earnings estimates typically exclude one-time items.

Its shares fell $1.25, or 4.9 percent, to close at $24.54 Friday.

Its shares have traded in a 52-week range of $15.76 to $48.67.

Earlier this week, the Commerce Department reported new home sales in February hit a 13-year low.

Another big homebuilder, Lennar Corp., reported a fourth-quarter loss earlier this week.

KB Home builds homes to order and has operations in nine states.

Like other builders, it has suffered as many buyers wait for prices to drop further or struggle to qualify for mortgages that now carry tighter standards.

Rising mortgage defaults and foreclosures have also helped weaken sales, forcing KB and other builders to lower prices, squeezing their profit margins.

KB's unit deliveries fell 43 percent to 2,928.

Home deliveries were weakest in the Southeast, declining to 675 from 1,629 in the year-ago quarter.

The average selling price of KB's homes dropped 7 percent to $248,200 during the quarter, with homes in the West Coast posting the sharpest drop, falling to $392,600 from $470,400 a year earlier.

Net home orders totaled 1,449, down 75 percent from 5,744 net orders a year earlier.

The sharp decline came as KB took steps to consolidate or pull out of some markets.

The builder had about 38 percent fewer active selling communities during the quarter than in the year-ago period and has continued to scale back operations.

Earlier this month, it announced plans to cease building homes in the mid-Atlantic, Chicago and Albuquerque, N.M.

The cancellation rate was 53 percent, up from 34 percent in the year-ago quarter but down from 58 percent in the fourth quarter.

The company's backlog, or homes under contract yet to be delivered, fell during the quarter.

As of Feb. 29, the figure stood at 4,843 units, down 57 percent from 11,183 units at the close of the same quarter last year.

KB Home was the latest builder to report a loss in the first quarter.

On Thursday, Miami-based Lennar reported a loss of $88.2 million, or 56 cents per share, in the three months ended Feb. 29 compared with profit of $68.6 million, or 43 cents per share, in the year ago quarter.

The company reported declines in sales, average selling price, home deliveries and new home orders during the quarter.

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On the Net:

KB Home: http://www.kbhome.com/

"Fremont pressed to raise capital or sell"

By ALEX VEIGA, Associated Press

Last updated: 4:52 p.m., Friday, March 28, 2008

LOS ANGELES -- Federal and state banking regulators have given financial services company Fremont General Corp. 60 days to raise new capital or sell its banking subsidiary, the company said Friday.

The Federal Deposit Insurance Corp. and the California Department of Financial Institutions set a May 26 deadline for the Brea, Calif.-based company to raise capital, according to a filing with the Securities and Exchange Commission.

The FDIC considers the company's banking unit, Fremont Investment & Loan, to be undercapitalized by regulatory standards, Fremont said in the filing.

The two banking regulators issued their directive to the company on Wednesday, ordering it to sell shares or assets to raise enough capital to meet regulatory minimums, put itself up for sale and divest the bank.

The federal agency also restricted Fremont to offering interest rates at prevailing rates paid by similar banks in California.

The company was also ordered not to increase pay for executives or make any payouts to any affiliate of the bank.

Fremont said it is trying to raise capital and also exploring selling the company or the bank.

Fremont was primarily a mortgage lender until early last year, when it was forced by regulators to cease originating mortgages.

The agency claimed Fremont was operating without proper risk management oversight.

The company proceeded to sell its mortgage assets after the lending operations were closed.

It has since been struggling to turn itself around following the collapse of the subprime mortgage industry.

Last week, the company announced it agreed to sell the servicing rights to some $1.9 billion of its securitized mortgage loans to a subsidiary of Carrington Capital Management LLC for an undisclosed amount.

The sale followed the disclosure earlier this month that it received default notices on $3.15 billion in subprime mortgages it had previously sold to investors.

Fremont shares fell 9 cents, or 14.8 percent, to 52 cents Friday.

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On the Net:

Fremont General Corp.: http://www.fremontgeneral.com

"Gold plummets on stronger dollar"

By STEVENSON JACOBS, Associated Press

Last updated: 4:52 p.m., Friday, March 28, 2008

NEW YORK -- Gold prices fell sharply Friday after the dollar ticked higher and crude oil retreated, diminishing the precious metal's appeal as a hedge against inflation.

Other futures also traded lower in a broad commodities sell-off that saw silver, copper, wheat and soybeans drop sharply.

The greenback gained against the euro even after data from the Commerce Department showing that consumer spending rose by only 0.1 percent in February -- the worst showing since September 2006.

However, a key measure of inflation rose only 0.1 percent, not including food and energy; that weakened demand for hard assets like gold to offset rising prices.

"Gold is not doing too well," said George Gero, vice president at RBC Capital Markets Global Futures in New York.

"The dollar is having a big impact and you have a retrenchment in crude prices."

Gold for April delivery fell $18.20 to settle at $930.60 an ounce on the New York Mercantile Exchange after earlier falling as low as $921.80.

Other precious metals also traded lower.

Silver for May delivery lost 61 cents to settle at $17.940 on the Nymex, while May copper fell 4.15 cents to settle at $3.8315 a pound.

The steep losses were reminiscent of last week's huge futures sell-off in everything from copper to corn, prompted in part by a massive liquidation by hedge funds.

The drop raised concerns of a slowdown in the white-hot commodity market, although analysts say such volatility is to be expected in an era of rocketing demand for raw materials, a weak U.S. dollar and economic uncertainty.

"Commodities are now so highly priced that the volatility is larger," Gero said.

In energy markets, crude oil retreated Friday on a stronger dollar and word that a bombing of a major oil pipeline in southern Iraq won't significantly slow exports.

Prices shot up Thursday on fears that the attack in Basra would cause a major export disruption.

Light, sweet crude for May delivery lost $1.96 to settle at $105.62 a barrel on the Nymex.

Prices have gained $6.72, or 6.6 percent, in the last three days.

Other energy futures also fell Friday.

April heating oil futures lost 4.33 cents to settle at $3.105 a gallon while April gasoline futures rose 0.07 cent to settle at $2.717 a gallon.

In agriculture futures, wheat prices briefly fell to the lowest level in almost two months Friday and ended down for the third straight session.

Wheat for May delivery dropped 24 cents to settle at $9.90 a bushel on the Chicago Board of Trade.

Prices earlier dropped as low as $9.68, the lowest level since Feb. 4.

Other agriculture futures traded mixed.

Soybeans for May delivery also dropped sharply, plunging 57.25 cents to settle at $12.70 a bushel on the CBOT.

May corn, meanwhile, rose 5.5 cents to settle at $5.61 a bushel.

"Fed offers $100 billion more to banks"

By MARTIN CRUTSINGER, Associated Press

Last updated: 4:52 p.m., Friday, March 28, 2008

WASHINGTON -- The Federal Reserve announced Friday it will auction an additional $100 billion in April to cash-strapped banks as it continues to combat the effects of a credit crisis.

The central bank said it would make $50 billion available at each of two auctions, on April 7 and April 21.

Through the end of March, the Fed has provided $260 billion in short-term loans to commercial banks through the innovative auction process.

It also has employed Depression-era provisions to provide money to investment banks.

All the moves have been designed to cope with a serious financial crisis that has roiled U.S. and global markets and caused the near-collapse of Bear Stearns Cos., the nation's fifth largest investment bank.

The Fed has been holding auctions every two weeks since December to provide short-term loans to commercial banks.

It started with auctions of $20 billion, then pushed the level to $30 billion, and in early March raised the auction amount to $50 billion as the credit shortage grew more severe.

In announcing the move to $50 billion last month, the Fed said it would continue the auctions for at least the next six months, unless credit conditions show they are no longer needed.

The auctions are just one of a series of unorthodox steps the Fed has taken to battle the current crisis.

The biggest of those moves was an announcement that it was allowing investment banks to borrow directly from the Fed.

Previously, only commercial banks, which face tighter regulations, had that privilege.

The Fed also said it would make available $30 billion in financing to support the sale of troubled Bear Stearns to JP Morgan Chase & Co., hoping to prevent a bankruptcy that could have rocked Wall Street.

Private economists said the auctions were having a positive impact but that troubles still exist in many sectors of the credit markets because of multibillion-dollar losses many financial institutions have suffered as the result of soaring defaults on mortgage loans.

"The Fed has worked some positive magic," said Mark Zandi, chief economist at Moody's Economy.com.

"At least the panic has subsided as the risk of another major failure has receded given that financial institutions now have access to a lot of cash through the various lending facilities the Fed has established."

The Fed's auctions have drawn criticism from some that the central bank, and ultimately U.S. taxpayers, could be financing a bailout for big Wall Street firms that had engaged in risky lending practices.

Fed Chairman Ben Bernanke will face questions about the Fed's recent moves when he testifies on Wednesday before the congressional Joint Economic Committee.

"Oil drops as Iraq supply fears ebb"

By JOHN WILEN, Associated Press

Last updated: 4:42 p.m., Friday, March 28, 2008

NEW YORK -- Oil futures pulled back sharply Friday after fears of a major disruption of Iraqi crude exports dissipated.

A stronger dollar also lessened investors' appetite for crude.

At the pump, meanwhile, retail gas prices rose closer to record levels, while diesel prices extended their slide.

In Iraq, a key oil export pipeline that was bombed Thursday was repaired Friday, Dow Jones Newswires reported.

Word of the explosion had raised concerns that Iraqi exports would fall sharply and sent oil prices surging higher.

Meanwhile, the dollar strengthened against the euro, making oil and other commodities less appealing as a hedge against inflation.

A stronger dollar also makes oil more expensive to overseas investors.

Light, sweet crude for May delivery fell $1.96 to settle at $105.62 a barrel Friday on the New York Mercantile Exchange.

Over the previous three days, oil prices rose $6.72, or 6.6 percent.

"We've had a big price increase, and I think traders (were) looking for excuses to take profits," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

Concerns about the economy also weighed on futures.

The Commerce Department said consumer spending edged up by just 0.1 percent last month, the poorest showing since September 2006.

Energy investors worry that a cooling economy will use less fuel.

Analysts are split on oil's direction.

Many think prices will rise to new records in coming months as the dollar resumes its decline.

The Federal Reserve is expected to cut interest rates several more times this year, and lower interest rates tend to weaken the dollar.

Many analysts say the weaker dollar has been largely responsible for oil's run to a record near $112 last week.

Other analysts argue that such high prices can't be justified in an environment in which supplies are rising and demand is falling.

Several forecasters have cut oil demand growth predictions for this year, and demand for gasoline has fallen for nine straight weeks.

Domestic supplies, meanwhile, have mostly risen in recent weeks.

"The price of oil still is out of whack with normal supply and demand fundamentals," said Phil Flynn, an analyst at Alaron Trading Corp. in Chicago, in a research note.

At the pump, gas prices rose 0.8 cent overnight to a national average of $3.275 a gallon, according to AAA and the Oil Price Information Service.

That's just a cent shy of a record set less than two weeks ago.

Retail gas prices, which tend to lag the futures market, have followed oil higher in recent days.

Diesel, on the other hand, slipped 0.4 cent overnight to a national average of $4.018 a gallon.

Diesel prices have ebbed slightly in recent days; some analysts think prices have peaked for the year since demand is declining in Europe, which is particularly dependent on the fuel.

The high prices of both fuels are weighing on consumers already feeling the effects of falling home values, tight credit and high food prices.

In fact, diesel, which is used to transport most of the world's consumer products, industrial materials and food, is a large part of the reason food prices are rising and that retail sales are struggling.

Other energy futures on the Nymex were mixed Friday.

April heating oil futures fell 4.33 cents to settle at $3.105 a gallon while April gasoline futures edged 0.07 cent higher to settle at $2.717 a gallon.

May natural gas futures rose 11.3 cents to settle at $9.80 per 1,000 cubic feet.

Brent crude futures slipped $1.23 to settle at $103.77 a barrel on the ICE Futures exchange in London.

"US forces launch airstrikes in Iraq"

By ROBERT H. REID, Associated Press

Last updated: 7:23 p.m., Friday, March 28, 2008

BAGHDAD -- U.S. forces stepped deeper Friday into the Iraqi government's fight to cripple Shiite militias, launching airstrikes in the southern city of Basra and firing a missile into the main Shiite stronghold in Baghdad.

The American support occurred as Iraqi troops struggled against strong resistance in Basra and retaliation elsewhere in Shiite areas -- including more salvos of rockets or mortars into the U.S.-protected Green Zone in Baghdad.

It was the first time American jets have been called to attack militia positions since Iraqi ground forces launched an operation Tuesday to clear Basra of the armed groups that have effectively ruled the streets of the country's second-largest city for nearly three years.

One militia barrage slammed into the headquarters of the Basra police command late Friday, triggering a huge fire and explosions when one of the rounds struck a gasoline tanker, police officials said.

Earlier Friday, U.S. jets struck a building housing militia fighters and blasted a mortar team that was firing on Iraqi forces, British military spokesman Maj. Tim Holloway said without further details.

Many of those groups are believed to receive weapons, money and training from nearby Iran, the world's most populous Shiite nation.

The crackdown in Basra has provoked a violent reaction -- especially from the Mahdi Army of anti-American Shiite cleric Muqtada al-Sadr.

His followers accuse rival Shiite parties in the government of trying to crush their movement before provincial elections this fall.

Their anger has led to a sharp increase in attacks against American troops in Shiite areas following months of relative calm after al-Sadr declared a unilateral cease-fire last August.

Before dawn Friday, a U.S. aircraft fired a Hellfire missile in the Sadr City district -- the Baghdad stronghold of the Mahdi Army -- after gunmen there opened fire on an American patrol.

The U.S. military said the missile strike killed four militants, but Iraqi officials said nine civilians were killed and nine others wounded.

Another U.S. airstrike targeted a rocket-propelled grenade mounted vehicle in the mostly Sunni neighborhood of Azamiyah, killing two militants, the military said separately.

U.S. military officials, speaking on condition of anonymity because they were not authorized to discuss Pentagon assessments, said commanders are wary of bringing major firepower into Shiite areas such as Sadr City, fearing large-scale civilian casualties could bring more backlash through Baghdad.

But, the officials said, American forces are more willing to offer air support in Basra, which is the centerpiece of the current showdown.

Defying a curfew in Baghdad, Shiite extremists lobbed more rockets or mortars against the U.S.-protected Green Zone, which has come under steady barrages this week.

The attacks prompted the State Department to order embassy personnel to stay inside.

At least two rounds Friday struck the Green Zone offices of Sunni Vice President Tariq al-Hashemi, killing two guards and wounding four, his daughter and executive secretary Lubna al-Hashemi said.

In all, the U.S. military said 13 suspected militants were killed Friday and 26 on Thursday in Baghdad operations.

"As you know, we've been getting attacked and going after the enemy all day," said Maj. Mark Cheadle, a spokesman for the Baghdad area command.

An American soldier was fatally injured Friday in a roadside bombing south of Baghdad, the military reported without elaboration.

The area is religiously mixed, and it was unclear whether he was killed in a Shiite district.

At least 26 people were killed Friday in fierce fighting in the southern cities of Mahmoudiya, Nasiriyah and Kut, according to police and army officials who spoke on condition of anonymity because they weren't authorized to release the information.

Prime Minister Nouri al-Maliki, a Shiite who once maintained close ties to al-Sadr, has put his personal prestige on the line in the Basra crackdown, flying to the city five days ago to assume personal command of the operation there.

Al-Maliki has vowed there would be "no retreat" in Basra, the nation's commercial center and headquarters of the vital oil industry.

In Washington, President Bush said the battle against Shiite extremists presents "a defining moment in the history of Iraq" and a "necessary part of the development of a free society."

The United States has called the Basra campaign an important test of Iraq's ability to handle its own security affairs.

But setbacks in the battle could increasingly draw in American forces, worried that a sustained fight -- and the backlash in Baghdad and elsewhere -- could wipe away many of the security gains of recent months.

The situation in Basra remained tense as a Friday deadline for gunmen to surrender their weapons and renounce violence expired, although a few complied.

Al-Maliki's office announced a new deal, offering Basra residents unspecified monetary compensation if they turn over "heavy and medium-size weapons" by April 8.

Masked militia fighters, meanwhile, moved around freely in a southwestern neighborhood and there was little traffic, according to Associated Press Television News footage.

Residents complained of rising food prices and power shortages.

The government relaxed a days-old curfew in Basra to allow people to move around in the city from 6 a.m. to 6 p.m. to facilitate shopping and other necessary tasks.

"The situation was better this morning so I went to a small market near my house."

"I was surprised that the price of vegetables and meat had gone up fivefold," said Ziyad Khalid, 27.

Hamid Saaid, 47, said he saw dozens of people lined up for bread and to fill canisters with clean water from a tanker truck.

In Baghdad, the Sunni speaker of Iraq's parliament called a special legislative session Friday in hopes of launching an initiative to negotiate a peaceful end to the Basra fighting.

But the main Shiite political bloc, the United Iraqi Alliance, and its Kurdish allies refused to attend.

The alliance includes al-Maliki's party and the Supreme Islamic Iraqi Council, the main political rival to al-Sadr's movement.

With so few lawmakers attending, parliament could approve no binding resolutions but instead established a committee to explore ways to mediate a settlement.

The initiative was spearheaded by former prime minister Ibrahim al-Jaafari, who brought al-Sadr's followers into the government under his administration.

Al-Maliki has insisted the fight is targeting criminal gangs in Basra, not al-Sadr's movement.

However, al-Sadr's followers sharply condemned the prime minister during sermons Friday in mosques across the country.

"He imprisoned and displaced thousands of Iraqi people under the name of democracy."

"He is killing the citizens in the south of Iraq," Sheik Jalil al-Sarghi said, referring to al-Maliki as U.S. helicopters buzzed over the office where the prayer service was held.

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Associated Press writers Qassim Abdul-Zahra and Saad Abdul-Kadir in Baghdad and Lolita C. Baldor in Washington contributed to this report.

"Bush sees Iraq violence as defining"

By TERENCE HUNT, AP White House Correspondent

28 March 2008

WASHINGTON - President Bush said Friday that the flare-up in violence in oil-rich southern Iraq and parts of Baghdad presents "a defining moment in the history of a free Iraq" as the government there seeks to root out Shiite militias.

Bush made clear that the United States stands firmly behind Iraqi security forces and Prime Minister Nouri al-Maliki.

"He made the decision to move and we'll help him," the president said.

"It's going to take awhile, but it's a necessary part of the development of a free society," Bush said at a White House news conference with visiting Australian Prime Minister Kevin Rudd.

At the same time, the president said the situation in Iraq remains "dangerous and fragile."

His comments followed U.S. airstrikes in both the southern city of Basra and in a Shiite militia stronghold in Baghdad.

The renewed violence came as tensions rose among followers of radical Shiite cleric Muqtada al-Sadr angry over a crackdown that has threatened to unravel a militia cease-fire.

"Basra has been a place where criminality has thrived," Bush said.

"They are fighting some pretty tough characters ... and yes, there's going to be violence, and that's sad."

He said the resurgent violence would not alter his determination to continue his administration's mission there.

"Any government that presumes to represent the majority of people must confront criminal elements or people who think they can live outside the law."

"That's what's taking place in Basra and other parts of Iraq," Bush said.

"I would say this is a defining moment in the history of a free Iraq."

"There have been other defining moments up to now, but this is a defining moment, as well," Bush said.

He said the decision to move troops into Basra was testimony to Prime Minister Nouri al-Maliki's leadership capabilities.

"This is a good test for them," the president said.

"I'm confident we can succeed unless we lose our nerve," he added.

"It's going to take a while for them to deal with these elements. "

Bush also suggested that his Iraq policy was working because "troops are coming out."

The new Australian prime minister campaigned on a theme of withdrawing Australian troops from Iraq.

Bush brought up Rudd's Iraq stance himself in his opening remarks.

Asking and answering his own question, Bush said he expected a journalist to ask him, "Aren't you mad at the prime minister for fulfilling his campaign pledge?"

"The answer is no."

"I always like to be in the presence of somebody who does what he says he's going to do."

"... This is a guy who meant it."

"... He consulted closely with his friends."

"His military commanders consulted closely with our military commanders," Bush said.

The president noted, however, that Australia continues to have troops in Afghanistan and is helping to train Iraqi farmers in dry-land farming.

For his part, Rudd said, "We're in Afghanistan for the long haul."

The two leaders were asked about civil unrest in Tibet and China's crackdown there and both urged China's leaders to meet with representatives of the Dalai Lama to discuss the violence.

"It is absolutely clear that there are human rights abuses in Tibet," Rudd said.

"It's clear-cut; we need to be upfront and absolutely straight about what's going on."

Bush said he told Chinese President Hu Jintao this week that "it's in his country's interest" that top Chinese leaders meet with representatives of the Dalai Lama, Tibet's exiled spiritual leader.

"We urge restraint," Bush said.

On relations with Australia, said he expects them to "strengthen and endure" under Rudd.

"I don't see differences when it comes to foreign policy," Bush said.

Even so, both worked to smooth over Australia's decision on Iraq.

Bush called Rudd a "straightforward fellow"and Rudd called the president "George" and joked with Bush about being from Queensland in northeast Australia, which has similar terrain as Texas.

Rudd said that after he asked Iraqi Prime Minister Nouri al-Maliki how Australia could help in nonmilitary ways, his country decided to send $165 million to Iraq, the bulk of which will go to help train Iraqis on dry-land farming.

"Bush aide resigns for alleged wrongdoing"

By TERENCE HUNT, AP White House Correspondent

28 March 2008

WASHINGTON - An aide to President Bush has resigned because of his alleged misuse of grant money from the U.S. Agency for International Development when he worked for a Cuban democracy organization.

Felipe Sixto was promoted on March 1 as a special assistant to the president for intergovernmental affairs and stepped forward on March 20 to reveal his alleged wrongdoing and to resign, White House spokesman Scott Stanzel said Friday.

He said Sixto took that step after learning that his former employer, the Center for a Free Cuba, was prepared to bring legal action against him.

Stanzel said the alleged wrongdoing involved the misuse of money when Sixto was an official at the center.

The matter has been turned over to the Justice Department for investigation, Stanzel said.

He said Bush was briefed on the case and felt that the appropriate action was being taken.

The Center for a Free Cuba describes itself as an independent, nonpartisan institution dedicated to promoting human rights and a transition to democracy and the rule of law in Cuba.

Sixto joined the Office of Intergovernmental Affairs in July 2007 and was assigned to deal with state legislators, Native American groups and Hispanic officials on issues such as Cuba, Puerto Rico, health, labor, transportation, the environment and energy, Stanzel said.

"Mr. Sixto allegedly had a conflict of interest with the use of USAID funds by his former employer," Stanzel said.

He said he did not know how much money was involved or the particulars of the allegations.

Sixto is the second White House aide to resign under a cloud in less than a month.

Timothy Goeglein, who served as Bush's middleman with conservatives and Christian groups, resigned on Feb. 29 after admitting to plagiarism.

Twenty columns he wrote for an Indiana newspaper were determined to have material copied from other sources without attribution.

Goeglein was a special assistant to Bush and deputy director of the Office of Public Liaison.

"Bush seeks financial regulation overhaul"

By MARTIN CRUTSINGER, AP Economics Writer

28 March 2008

WASHINGTON - The Bush administration is proposing a sweeping overhaul of the way the government regulates the nation's financial services industry from banks and securities firms to mortgage brokers and insurance companies.

The plan would give major new powers to the Federal Reserve, according to a 22-page executive summary obtained by The Associated Press.

The Fed would be given broad authority to oversee financial market stability.

That would include new powers to examine the books of any institution deemed to represent a potential threat to the proper functioning of the overall financial system.

The proposal, which will be outlined Monday in a speech by Treasury Secretary Henry Paulson, is certain to set off heated debates within different sectors of the financial services industry and in Congress, where some Democrats are likely to complain that the proposal does not go far enough to crack down on abuses.

The administration divided its recommendations into short-term goals that could be adopted quickly, intermediate recommendations and an "optimal" regulatory framework, which contains a radical restructuring of how the government supervises banks and other financial institutions.

The recommendations are the product of a yearlong review that was begun in an effort to modernize the government's regulatory structure so that the country's financial services industries could better compete in a fast-changing global economy.

The plan also seeks to address problems that have been brought to light in recent months since a severe credit crisis began roiling financial markets last August.

That crisis has already claimed as its biggest victim Bear Stearns, the nation's fifth-largest investment bank, which came to the brink of collapse before a government-arranged purchase by JP Morgan Chase & Co.

"I am not suggesting that more regulation is the answer, or even that more effective regulation can prevent the periods of financial market stress that seem to occur every five to 10 years," Paulson will say in the remarks he will deliver on Monday.

But the plan does seek to address problems highlighted by the current crisis in which the Fed in an unprecedented move has begun making direct loans to securities firms in an effort to shore up a system badly shaken by billions of dollars of losses stemming from sour mortgage loans.

The proposal would allow the Fed, in its new role as "market stability regulator," to dispatch examiners to check the books not just of commercial banks but of all segments of the financial services industry.

The administration proposal would also consolidate the current scheme of bank regulation by shutting down the Office of Thrift Supervision and transferring its functions to the Office of the Comptroller of the Currency, which regulates nationally chartered banks.

The plan recommends that the Securities and Exchange Commission, which regulates stock trading, be merged with the Commodity Futures Trading Commission, which regulates futures trades for oil, grains and various other commodities.

The plan would create a national regulator for the insurance industry, which is now largely governed by the states, and would create a Mortgage Origination Commission to try to address the abuses exposed in the current tidal wave of mortgage defaults.

The role Federal Reserve Chairman Ben Bernanke and his colleagues have been playing to shore up the financial system would be formalized in the administration plan by giving Fed officials greater power to detect where threats might be lurking in the system.

The proposal is certain to generate intense scrutiny in Congress and within the financial services industry, where past efforts to change how regulation is handled have met with fierce resistance.

Many Democrats in Congress are already pushing tougher proposals that would impose much stricter regulation in an effort to crack down on abuses exposed by the current credit crisis.

Sen. Charles Schumer, D-N.Y., said he believed Paulson's plan offered some valid suggestions.

"In broad outlines, we agree with large parts of Secretary Paulson's plan," Schumer, chairman of the Joint Economic Committee, said in a statement.

"He is on the money when he calls for a more unified regulatory structure, although we would prefer a single regulator to the three he proposes."

Under Paulson's approach, the long-term goal would be to designate the Fed as market stability regulator and to have a financial regulator who would focus on financial institutions that operate with government guarantees such as providing deposit insurance.

The administration plan, which was first reported by The New York Times on its Web site Friday night, also proposes a business conduct regulator who would be in charge of overseeing consumer protection issues.

The initial reaction from the securities industry was also positive.

"Treasury has delivered a thoughtful and sweeping plan which should provoke intense discussion, debate and potential legislative changes," said Tim Ryan, president of the Securities Industry and Financial Markets Association.

"Our present regulatory framework was born of Depression-era events and is not well suited for today's environment where billions of dollars race across the globe with the click of a mouse," Ryan said in a statement.

"Administration pushes regulatory changes"

By MARTIN CRUTSINGER, Associated Press

Last updated: 5:22 p.m., Saturday, March 29, 2008

WASHINGTON -- The Bush administration is trying to confront the credit crisis that has rattled nerves from Wall Street to Main Street by proposing wholesale changes in how Washington oversees the financial system.

A plan set for release Monday would give new powers to the Federal Reserve so that the central bank serves as the system's overarching protector of stability.

The proposal would abolish agencies such as the Office of Thrift Supervision and the Commodity Futures Trading Commission, shifting their responsibilities to other federal institutions.

When Treasury Secretary Henry Paulson outlines the ideas in a speech, the changes will represent the most sweeping overhaul of financial regulation since the Great Depression of the 1930s.

The Associated Press obtained a 22-page executive summary of the proposal.

It seeks to make sense of the mishmash of overlapping oversight in which an alphabet-soup roster of agencies regulates banks, thrifts and credit unions.

Under the current hodgepodge, institutions that take deposits and are federally insured face multiple regulatory bodies.

By contrast, hedge funds, private equity firms and investment banks endure substantially less regulation.

The credit crisis that has rocked Wall Street and made credit hard to get on Main Street has highlighted that discrepancy in regulation.

Many financial institutions have declared billions of dollars in losses stemming from soaring mortgage defaults caused by prolonged housing troubles.

In an unprecedented move designed to get credit flowing again, the Fed is allowing investment banks to borrow directly from the Fed, something only commercial banks had the power to do before.

That decision came as part of a rescue effort for Bear Stearns Cos., the nation's fifth largest investment bank.

It nearly failed earlier this month before the Fed rushed in with a $30 billion line of credit to facilitate the sale of Bear Stearns to JP Morgan Chase & Co.

The Fed's moves have put public money potentially at risk and increased calls for greater regulation of investment banks and other institutions.

The Paulson plan is expected to generate intense debate in Congress, which would have to approve the changes.

Some top Democrats, including Rep. Barney Frank, the chairman of the House Financial Services Committee, are pushing competing ideas that would streamline oversight but also impose new controls beyond those in Paulson's plan.

Sen. Charles Schumer, a leading voice in the debate, said he did not think Paulson had gone far enough in dealing with some of the new complex types of investments heavily featured in the current financial crisis.

"Very complex financial instruments have evolved in recent years," said Schumer, D-N.Y.

"The Treasury Department should address these issues as well."

David Nason, Treasury's assistant secretary for domestic finance, said the administration's primary goal is to get through the current credit crisis with officials understanding that the debate over an overhaul plan this far-reaching could last for years.

"These are very complex issues that require a serious amount of debate," he said in an AP interview Saturday.

"It is going to take time to play out."

Business groups on Saturday generally voiced support for Paulson's approach and said there would be significant debate over the details.

"The current crisis just shows in a very stark way that ... you need a regulatory structure that is simple, nimble and modern and ours does not meet that test," said David Hirschmann, president of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness.

Tim Ryan, president of the Securities Industry and Financial Markets Association, a big lobbying group for Wall Street, said there was "universal agreement that it is time to modernize and revitalize the current system."

The Paulson plan would:

--designate the Fed as the primary regulator for market stability, greatly expanding its ability to examine any financial institution deemed to pose a risk to the stability of the system.

--shift the functions of the Office of Thrift Supervision to the Office of the Comptroller of the Currency, although ultimately the plan envisions just one banking regulator.

--merge the Securities and Exchange Commission with the Commodity Futures Trading Commission.

--create a national regulator for insurance companies, which now are largely regulated by the states.

--establish a commission to address the abuses exposed in the current tidal wave of mortgage defaults.

"Washington, Wall St. tangle on oversight"

By JOE BEL BRUNO, Associated Press

Last updated: 1:32 p.m., Saturday, March 29, 2008

NEW YORK -- One of the casualties of the ongoing credit crisis is a long-held notion on Wall Street -- that the investment banking community can take care of its own problems.

Everyone from Barack Obama to the Bush administration is floating ideas about how to strengthen oversight of financial institutions after decades of deregulation.

And the government is expected to weigh in Monday with a plan to overhaul regulation of entire financial services industry, from banks and securities firms to mortgage brokers and insurance companies.

The administration's plan, detailed in an executive summary obtained by The Associated Press, would give the Federal Reserve broad power to oversee the stability of the financial markets.

While the proposal is the result of a year-long review, and therefore predates the beginning of the credit crisis, it does come as debate was already under way about the government's role in the markets -- particularly after the Fed intervened two weeks ago to save Bear Stearns Cos. from collapse by engineering its sale to JPMorgan Chase & Co.

Many on Wall Street have viewed increased government regulation of investment houses, including an expanded role for the Fed as a regulator, as a tricky balancing act.

The fear among analysts is that too much regulation could hamper the companies' ability to drive profits, and in turn shift an increasing amount of business to financial centers overseas.

But the trade group representing the securities industry did react positively to news of the administration's plan, which is expected to be detailed Monday in a speech by Treasury Secretary Henry Paulson, a former Goldman Sachs Group Inc. chief executive.

"Treasury has delivered a thoughtful and sweeping plan which should provoke intense discussion, debate and potential legislative changes," said Tim Ryan, president of the Securities Industry and Financial Markets Association.

"Our present regulatory framework was born of Depression-era events and is not well suited for today's environment where billions of dollars race across the globe with the click of a mouse," Ryan said in a statement.

But regulation is a painful subject for investment houses, particularly as they try to recover from billions of dollars in losses over the past year from bad investments in risky mortgage-backed securities.

"We're in perilous times, and that's why we have to tread very carefully," Mark Bloomfield, president of the Washington-based American Council for Capital Formation, said before news of the administration's plan.

"There are some that are skeptical of the free market, and others who say don't touch the free market because you don't know the unintended consequences."

Typically, Wall Street's big players have taken the lead in fixing their own problems in a financial survival of the fittest -- historically, when one company has been in trouble, a competitor or competitors have taken it over.

It has been rare for the government to take a hands-on approach to bailing out the financial sector -- though that clearly is changing, and will affect how investment banks operate.

The proposal to be outlined Monday, among other things, would allow the Fed, in its new role as "market stability regulator," to dispatch examiners to check the books not just of commercial banks but of all segments of the financial services industry.

Some lawmakers and government officials contend the problems at Bear Stearns might have been prevented with more oversight.

Once the nation's fifth-largest investment bank, Bear Stearns used massive amounts of leverage to buy mortgage-backed securities -- a tactic that proved disastrous when the market collapsed amid a wave of foreclosures.

Paulson already this past week endorsed giving the central bank greater regulatory scrutiny.

He has called the current system an "alphabet soup" of federal and state regulators, and wants to see the Fed take the lead.

Meanwhile, Obama, in a campaign speech, called for a "21st-century regulatory framework" that includes direct Fed oversight of all institutions, minimum liquidity and capital requirements, and enhanced rules for "complex financial instruments" used by investment banks.

Indeed, Wall Street has had its own alphabet soup to wade through in the past year.

Investment banks have been managing speculative off-balance sheet products like structured investment vehicles, or SIVs; they've been relying on portfolios packed with asset-backed securities, or ABS, and collateralized debt obligations, or CDOs.

"The financial wizards who created this new market did not themselves understand precisely how leveraged they allowed themselves to become and, as a result, did not adequately protect against the risks," said Harvey Pitt, who served as chairman of the Securities and Exchange Commission between 2001 and 2003.

"We need a single regulatory body like the UK's Financial Services Authority," Pitt said in an interview with The Associated Press.

"One that practices prudential regulation and tries to help people get it right, rather than the current philosophy of punishing people after the fact."

There are fears that over-regulation could damage the big Wall Street firms, thereby hurting the U.S. financial system and pushing more financial transactions overseas to cities like London, Frankfurt and Hong Kong.

Still, those markets are suffering along with Wall Street as a result of the credit crisis.

The government's plan will be the subject of much debate -- especially on Tuesday, when the Senate Banking, Housing and Urban Affairs Committee holds a hearing on the financial markets.

Witnesses will include Paulson, Fed Chairman Ben Bernanke, Treasury Secretary Henry Paulson, Securities and Exchange Commission Chairman Christopher Cox -- and the CEOS of Bear Stearns and JPMorgan Chase.

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AP Economics Writer Martin Crutsinger contributed to this story from Washington.

"Filing: Countrywide CEO to get $10M"

Associated Press

Last updated: 6:12 p.m., Saturday, March 29, 2008

LOS ANGELES -- Countrywide Financial Corp.'s chief executive and president will receive a combined $19 million in stock next week as part of the company's pending takeover by Bank of America Corp., according to a regulatory filing.

The payments of stock valued at $10 million for chief executive Angelo Mozilo and $9 million for President David Sambol were disclosed in a regulatory filing late Thursday by Bank of America.

The payments, described as "performance-based" stock rights and grants, are required by agreements the executives struck with Countrywide less than a year before the sub-prime meltdown forced the mortgage lender to sell itself, according to the filing.

Some lawmakers were incensed by the payouts.

"It's perverse for Bank of America to reward the principal architects of the bad business practices that caused this housing crisis," Sen. Charles Schumer, D-N.Y, said in a statement.

Mozilo, who is expected to retire after the takeover, previously agreed to give up $36.4 million in cash severance benefits.

But after his departure he will receive company-paid life and health benefits worth $21,084 and medical benefits worth an estimated $85,000.

Bank of America also disclosed in the filing that it would pay Sambol $28 million to stay with the company.

The bank wants Sambol to lead its consumer mortgage business when the deal is complete.

Bank of America is in the process of acquiring California-based Countrywide for about $4 billion in stock.

Bank of America agreed to the acquisition in January, and the transaction is expected to close in the third quarter.

"Weak economy slows cargo, idles railcars"

By SUSAN GALLAGHER, Associated Press

Last updated: 2:52 a.m., Saturday, March 29, 2008

CRAIG, Mont. -- BNSF Railway Co., the nation's top hauler of container rail freight, is parking miles of railcars in Montana and elsewhere because there isn't enough freight to keep them rolling.

Cars that often carry 40-foot containers of goods shipped from Asia stand like an iron fence between the Missouri River and this Montana burg known for world-class fly fishing.

They stretch as far as Sandee Cardinal can see when she stands outside her home on the river's west bank between Helena and Great Falls.

"What is that but a symbol of how America is down in the dumps right now?" Cardinal asked as she gazed at the cars that haven't moved for about three months.

The cars parked are the type that haul cargo from ships on the coast to points inland, mainly imported goods -- an area that's starting to slow down due to the weak economy.

Analysts say transportation usually is among the first sectors to show signs of a downturn in the economy and with Americans feeling pinched -- employers eliminated 63,000 jobs last month amid declining consumer confidence -- it could be a while before the idle cars move.

"If you take a look at transportation, both trucking and rail, you will see that things started softening last summer," said Arnold Maltz, associate professor of supply-chain management at Arizona State University.

"The reason you are seeing all those cars parked is that the consumer economy translates into slower imports."

Texas-based BNSF Railway, a division of Burlington Northern Santa Fe Corp., has parked upward of 1,000 cars in Montana alone, spokesman Gus Melonas said.

More are parked in other parts of the company's 32,000-mile system, which operates in 28 states and two Canadian provinces.

"There's been a downturn in international business and therefore this equipment is not necessary at this point," Melonas said.

The cars standing between Helena and Great Falls constitute 5 percent of the BNSF fleet, Melonas said.

He declined to say what percentage of the fleet is parked elsewhere, citing confidentiality issues.

Seasonal car storage is common, he said, but the number of cars now idle is exceptional.

Most of the parked cars are designed for intermodal transportation, when containers filled with imported goods are taken off vessels at U.S. ports and then transported by train, truck or both to distribution centers around the country.

For the first two months of 2008, the volume of intermodal rail freight in the United States was down 3.4 percent compared to the same period last year, according to the Association of American Railroads, an industry group based in Washington, D.C.

Last year, intermodal traffic was flat as railroads began to feel the effects of slowing retail orders and the dollar's decline.

While shipments of store-ready consumer goods such as clothing have dipped, movement of coal, grain and ore have risen, according to the association.

The latter are less sensitive to swings in the economy and help balance out the bottom line.

Excluding intermodal traffic, rail freight rose 1.7 percent for the first two months of 2008 compared to the same period a year earlier.

Coal was out in front last month with 576,012 carloads, or an increase of 5.7 percent.

"The railroads have actually performed relatively well when you look at their entire portfolio," said transportation analyst Todd Fowler of KeyBanc Capital Markets in Cleveland.

For 2007, BNSF Railway's parent company, Burlington Northern Santa Fe Corp., reported about $15.4 billion in total freight revenues, compared to about $14.6 billion the previous year.

That growth was carried largely by coal and agricultural segments.

The annual revenue generated from hauling domestic freight was down about 1 percent from 2006, while international traffic was up 2 percent.

Meanwhile, coal and agricultural revenue each grew about 12 percent.

Union Pacific Railroad spokesman James Barnes said the Nebraska-based company's intermodal business is "just a little down, but that's not unusual for this time of year."

The company's total commodity revenue was $15.5 billion in 2007, compared to about $14.9 billion in 2006.

The agricultural segment posted an 8 percent increase over 2006.

Another major rail company, CSX Corp. in Florida, said its car storage is not out of the ordinary.

The company's total revenue from surface transportation was up 5 percent, from about $9.6 billion to $10 billion in 2007.

One of the nation's leading trucking companies, Schneider National in Green Bay, Wis., says it believes a freight recession began about 20 months ago, well before signs of a downturn closed in on consumers.

"We have been in a freight recession longer than people have been expressing deep concern about the economy," said Bill Matheson, Schneider's president for intermodal transportation.

Trucking companies are in a unique position.

They often compete with railroads for long haul contracts, while also carrying rail freight from the nearest railhead to its final destination.

Schneider is not parking trucks, but neither is it buying new ones to the usual extent, Matheson said.

In Long Beach, Calif., home of the nation's busiest port complex with Los Angeles, the movement of goods has been somewhat stagnant.

About 7.3 million containers passed through the Port of Long Beach in 2007, the same as in 2006, port spokesman John Pope said.

"That was a big decline from the growth we'd seen in the past decade or so," Pope said.

"Typically, there had been double-digit growth from year to year."

In January, Long Beach posted a decrease of about 12 percent in overall volume compared to January 2007.

The situation was less extreme last month, with a 2 percent drop in overall volume compared to a year earlier.

While retailers have imported less goods to be hauled by rail or truck nationwide, exports leaving Long Beach rose as the weak dollar strengthened overseas purchases of U.S. goods, Pope said.

Rising export volume -- including grain and wheat shipped by rail -- helped balance falling container imports for most of last year.

"It's a barometer of the economy," Pope said.

"We're going to see the ebb and flow that mirrors what happens in the rest of the nation."

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On the Net:

BNSF Railway: http://www.bnsf.com

Association of American Railroads: http://www.aar.org

"'Standing up' Iraq army looks open-ended"

By CHARLES J. HANLEY, Associated Press

Last updated: 2:52 p.m., Saturday, March 29, 2008

Iraq's new army is "developing steadily," with "strong Iraqi leaders out front," the chief U.S. trainer assured the American people.

That was three-plus years ago, the U.S. Army general was David H. Petraeus, and some of those Iraqi officials at the time were busy embezzling more than $1 billion allotted for the new army's weapons, according to investigators.

The 2004-05 Defense Ministry scandal was just one in an unending series of setbacks in the five-year struggle to "stand up" an Iraqi military and allow hard-pressed U.S. forces to "stand down" from Iraq.

The latest discouraging episode was unfolding this weekend in bloody Basra, the southern city where Iraqi government forces -- in their toughest test yet -- were still struggling to gain the upper hand in a five-day-old battle with Shiite Muslim militias.

Year by year, the goal of deploying a capable, freestanding Iraqi army has seemed always to slip further into the future.

In the latest shift, with Petraeus now U.S. commander in Iraq, the Pentagon's new quarterly status report quietly drops any prediction of when homegrown units will take over security responsibility nationwide, after last year's reports had forecast a transition in 2008.

Earlier, in January last year, President Bush said Iraqi forces would take charge in all 18 Iraqi provinces by November 2007.

Four months past that deadline, they control only half the 18.

Responsibility for these ever-unfulfilled goals lies in Washington, contends retired Maj. Gen. Paul D. Eaton, who preceded Petraeus as chief trainer in Iraq.

"We continue to fail to properly resource and build the very force that will enable a responsible drawdown of our forces," Eaton told The Associated Press.

Retired Gen. Barry R. McCaffrey, a West Point professor and frequent Iraq visitor, also sees insufficient "energy" in the U.S. effort.

"Even now, there is no Iraqi air force; there's no national military medical system; there's no maintenance system," he told a New York audience on March 13.

The current chief trainer counters that his Multi-National Security Transition Command-Iraq, known as MNSTC-I, has made "huge progress in many areas, quality and quantity."

"But we're not free of difficulties," Lt. Gen. James Dubik told reporters on March 4.

A look back by the AP, as the Iraq conflict enters its sixth year, finds the $22 billion training effort has been a story of uncertain steps and policy reversals, corruption, questionable numbers and distrust, ending with an Iraqi military with narrow capabilities and years more "standing up" ahead.

The first reversal came even before the 2003 U.S. invasion, when the Pentagon discarded prewar plans that called for restructuring the 400,000-man Saddam Hussein-era army into a postwar force of 150,000 to 200,000.

Instead, U.S. occupation chief L. Paul Bremer ordered the old army disbanded, and the Bush administration opted for a token military force to guard Iraq's borders -- an "afterthought," said Eaton.

"President Bush declared 'mission accomplished' on 1 May, and on 9 May I get a phone call, 'Get thee to Iraq and rebuild the Iraqi army.'"

"I looked at my wife and she said, 'A little late for that.'"

"You would have expected this to be an ongoing program," Eaton recalled.

The makeshift plan envisioned putting one 700-man battalion at a time through a nine-week training course -- a rate that would have produced a mere 8,000 troops over two years.

Eaton persuaded Defense Department officials to raise that target to 40,000 troops by late 2004, but even that was a "patently inadequate force," says Ali Allawi, later Iraq's defense minister.

"Deep suspicions began to be harbored as to the true intentions" of the Americans, Allawi writes in his memoir, "The Occupation of Iraq."

Abdulwahab al-Qassab, a retired Iraqi major general who observed developments from a post at Baghdad University, contends the Americans never wanted to rebuild a solid Iraqi army.

"It wasn't welcomed by the Israelis, the Kurdish factions that used to fight the Iraqi army, and some of the Shiites," al-Qassab said in an interview.

Walter B. Slocombe, who was Bremer's chief defense aide, denied to the AP that Israel's interests influenced U.S. actions, but he and other U.S. officials have acknowledged that the animosity of Iraq's Kurds and Shiites to the old Iraqi army helped shape those early decisions.

As 2003 wore on, Vinnell Corp., the U.S. military contractor hired to do the training, proved unequal to the task.

The first Iraqi battalion, graduating in October, quickly fell apart because of desertions, and the second battalion refused to fight against insurgents in Fallujah in April 2004.

The Jordanian army, meanwhile, was asked to take over training Iraqi officers.

As of June 2004, when Bremer's occupation authority gave way to a sovereign Iraqi government, the military still numbered only 7,000 men, as the focus shifted to fielding Iraqi police.

Paul Wolfowitz, deputy defense secretary, predicted -- incorrectly -- the Iraqis could soon "take local control of the cities."

The evolving training program, now a mixed U.S.-Iraqi effort, was plagued with problems.

Petraeus' new MNSTC-I was slow to be staffed.

Meanwhile, top Defense Ministry officials, including the minister, Hazem Shaalan, were methodically looting the procurement budget of at least $1.3 billion, Iraqi investigators allege.

Shaalan, who denies the accusations, and most of the others left the country by mid-2005.

By then the Pentagon was reporting 60,000 "trained and equipped" Iraqi troops available, a number achieved only by integrating lightly armed national guard units into the army.

American commanders "do not report reliable data" on training and equipping Iraqi forces, U.S. government auditors complained.

By late 2005, the U.S. command had to acknowledge that only one of 86 Iraqi army battalions was ready to fight on its own.

The Iraqis still were not given artillery, big mortars or other heavy weapons.

Iraq's political unpredictability and dangerous sectarian-political divides clearly made the Americans wary that heavy weapons might be turned against them, concludes Arab military analyst Nizar Adul Kader.

"This could have been one of the fears that Americans had to take into consideration," said Kader, a retired Lebanese major general.

Auditors also found that the training command kept such poor records on distribution of personal weapons to Iraqi soldiers that some may have been passed on to insurgents or anti-American militias.

When Sunni-Shiite hostilities exploded into a bloodbath in 2006 -- up to 60 civilian killings a day in Baghdad alone -- it exposed the unreliability of the Iraqi military, some of whose units, paralyzed by desertions and reluctant officers and troops, failed to back up U.S. operations.

The U.S. command's goals for a homegrown takeover of most Iraqi security slipped -- from spring 2006, to late summer, and then beyond.

In November 2006, the Pentagon forecast that all 18 provinces would come under Iraqi security control "in 2007."

Reviews in 2007, by a congressionally mandated commission, by Government Accountability Office analysts, by the Pentagon itself, found that Iraq's sectarian animosities had permeated and weakened army units, heavily Shiite and Kurdish.

A civil war among Kurdish, Shiite and Sunni factions could shatter the military.

Last November, GAO auditors again sharply questioned Pentagon claims on the number of Iraqi battalions able to operate "independently," since such units often depend on U.S. fuel, ammunition and other supplies, American advisers and intelligence, and U.S. air support.

Desertions persisted.

In its latest quarterly report, in early March, the Pentagon says some 197,000 military personnel have now been trained, but that number includes the equivalent of two divisions -- 27,000 men -- estimated to have gone AWOL in 2007.

Some 224,000 police are listed as trained, including an unknown number who left their posts.

The Iraqi military's list of unmet needs remains long: artillery and modern armor; advanced communications and intelligence systems; a logistics network able to supply everything from food and fuel to transport and ammunition; combat hospitals; airpower.

"This is not a balanced fighting force," said al-Qassab, the retired Iraqi general.

"It's only people armed with assault rifles and pickup trucks and they go and raid like a militia."

The Iraqis and Americans are working to make Iraqi logistics self-sufficient by mid-2009.

But as for "fire support," training command spokesman Lt. Col. Dan Williams said, "heavier artillery is still a ways down the road."

Regarding Iraq's tiny air force, a handful of helicopters, old transports and light planes, "in my opinion, we were late to start on this," Air Force Maj. Gen. Robert R. Allardice told the AP last June, as he took over aviation training in Baghdad.

Today, as he leaves the command, Allardice confirms there are still no plans for modern jet fighters for the Iraqis, only small, propeller-driven attack planes.

Chief trainer Dubik, meanwhile, is troubled by a shortage of midlevel Iraqi officers.

The Pentagon's March report says this shortage "will take years to close."

It looks like years, not months, will be the measure of progress.

After a half-decade of war, Dubik says Iraqi defense officials don't expect to take over internal security until as late as 2012, and won't be able to defend Iraq's borders until 2018.

"Al-Sadr: I am in control of militia"

By HAMZA HENDAWI, Associated Press

Last updated: 6:02 p.m., Saturday, March 29, 2008

BAGHDAD -- A feisty Muqtada al-Sadr, making his first public appearance since May, said in a TV interview aired Saturday that he was in almost total control of the Mahdi Army and that the "liberation" of Iraq was his militia's chief goal.

The radical Shiite cleric also said the impact of the U.S. presence on Iraq was more negative than that of Saddam Hussein's Baath party, ousted in the 2003 U.S.-led invasion.

Al-Sadr alleged that the government of Prime Minister Nouri al-Maliki, a fellow Shiite, was as "distant" from the people of Iraq as Saddam's Sunni-led regime.

The government, he said, was "looking after its own interests, not those of the people."

Al-Sadr's interview with Al-Jazeera, conducted in an undisclosed location, came as violence was on the rise as part of a nationwide backlash by the Mahdi Army to the government's attempt to crush Shiite militias and criminal gangs in the southern port of Basra.

In the interview, the 34-year-old al-Sadr appeared to have lost a great deal of weight but none of his hallmark confrontational style, frequently interrupting or correcting the interviewer.

Al-Sadr is widely thought to be spending his time between Iran's holy city of Qom and Najaf, another holy Shiite city south of Baghdad.

But nothing in the room where the interview took place offered a hint of his location.

He and the interviewer, well known Al-Jazeera reporter Ghassan Bin Jidou, sat on bamboo armed chairs with a coffee table between them.

Behind al-Sadr was a brown cabinet with several volumes of Nahj al-Balagha, a work of philosophy by Imam Ali, the seventh century cousin of the Prophet Muhammad and the founder of the Shiite faith.

Al-Sadr said his withdrawal from public view was motivated in part by his desire to focus on his studies to become a mujtahid, or a religious authority.

But he made clear that he remained in charge of his political movement -- his loyalists have 30 of parliament's 275 seats -- by personally overseeing the work of a ruling committee.

"Who among you doesn't want me to be a mujtahid?" he said.

"I have given the community five years (of my life), now I want a few years to study."

He warned against interpreting his seclusion to be a sign of weakness and said the overwhelming majority of the Mahdi Army was "under control."

Those who broke away from the militia, he added, "always came back to the fold and repented."

Differences between the government and al-Sadr's supporters came to a head after hundreds of arrests by U.S. and Iraqi forces of al-Sadr supporters that U.S. commanders say are members of Iran-linked cells attacking American soldiers.

In the interview, al-Sadr said the militia's "strategic objective" was "the liberation of Iraq from the occupier," meaning the Americans.

He outlined the aims of his political movement, saying he wants to rid Iraq of sectarian politics, prevent its breakup and create an Islamic society.

Mahdi Army commanders say their militia has been taking delivery of arms and cash from Iran, but al-Sadr sought to distance himself from the Iranians, saying he has recently told Iran's supreme leader, Ayatollah Ali Khameini, that he did not approve of the "political and military interests" that Tehran pursued in Iraq.

"Shiite leader al-Sadr defies Iraq gov't"

By ROBERT H. REID, Associated Press Writer

29 March 2008

BAGHDAD - Anti-American Shiite militia leader Muqtada al-Sadr ordered his followers Saturday to defy government orders to surrender their weapons, as U.S. jets struck Shiite extremists near Basra to bolster a faltering Iraqi offensive against gunmen in the city.

Prime Minister Nouri al-Maliki acknowledged he may have miscalculated by failing to foresee the strong backlash that his offensive, which began Tuesday, provoked in areas of Baghdad and other cities where Shiite militias wield power.

Al-Maliki, himself a Shiite, nonetheless vowed to remain in Basra until government forces wrest control from militias, including al-Sadr's Mahdi Army.

He called the fight for control of Basra "a decisive and final battle."

British ground troops, who controlled the city until handing it over to the Iraqis last December, also joined the battle for Basra, firing artillery Saturday for the first time in support of Iraqi forces.

Iraqi authorities have given Basra extremists until April 8 to surrender heavy and medium weapons after an initial 72-hour ultimatum to hand them over was widely ignored.

But a defiant al-Sadr called on his followers Saturday to ignore the order, saying that his Mahdi Army would turn in its weapons only to a government that can "get the occupier out of Iraq," referring to the Americans.

The order was made public by Haidar al-Jabiri, a member of the influential political commission of the Sadrist movement.

Residents of Basra contacted by telephone said Mahdi militiamen were manning checkpoints Saturday in their neighborhood strongholds.

The sound of intermittent mortar and machine gun fire rang out across the city, as the military headquarters at a downtown hotel came under repeated fire.

The fight for Basra is crucial for al-Maliki, who flew to Basra earlier this week and is staking his credibility on gaining control of Iraq's second-largest city, which has essentially been held by armed groups for nearly three years.

In a speech Saturday to tribal leaders in Basra, al-Maliki promised to "stand up to these gangs" not only in the south but throughout Iraq.

Iraqi officials and their American partners have long insisted that the crackdown was not directed at al-Sadr's movement but against criminals and renegade factions — some of whom are allegedly tied to Iran.

Al-Maliki told tribal leaders that the offensive in Basra "was only to deal with these gangs" — some of which he said "are worse than al-Qaida."

Without mentioning the Sadrists by name, al-Maliki said he was "surprised to see that party emerge with all the weapons available to it and strike at everything — institutions, people, departments, police stations and the army."

Al-Sadr's followers have accused rival Shiite parties in the national government of trying to crush their movement before provincial elections this fall.

The young cleric's lieutenants had warned repeatedly that any move to dislodge them from Basra would provoke bloodshed.

But al-Maliki's comments appeared to reinforce suspicions that his government failed to foresee the backlash, including a sharp upsurge in violence throughout the Shiite south and shelling of the U.S.-controlled Green Zone, the nerve center of the Iraqi leadership and the U.S. mission.

Two American soldiers were killed Saturday when their vehicle was struck by a roadside bomb in mostly Shiite east Baghdad, the U.S. military said.

The upsurge in violence prompted Iraqi authorities to impose a round-the-clock curfew on the capital, which expires at sunrise Sunday.

All that threatens to undermine White House efforts to convince a skeptical Congress and the American public that the Iraqis are making progress toward managing their own security without the presence of U.S. troops.

With the Shiite militiamen defiant, a group of police in the Mahdi Army's Baghdad stronghold of Sadr City abandoned their posts and handed over their weapons to al-Sadr's local office.

Police forces in Baghdad are believed heavily influenced or infiltrated by Mahdi militiamen.

"We can't fight our brothers in the Mahdi Army, so we came here to submit our weapons," one policeman said on condition of anonymity for security reasons.

He said about 40 policemen had defected to the Mahdi Army.

The figure could not be confirmed, but AP Television News footage showed about a dozen uniformed police, their faces covered with masks to shield their identity, being met by Sheik Salman al-Feraiji, al-Sadr's chief representative in Sadr City.

Al-Feraiji greeted each policeman and gave them a copy of the Quran and an olive branch as they handed over their guns and ammunition.

On Saturday, Iraqi officials said they had received a phone call from Tahseen Sheikhly, the high-profile civilian spokesman for the Baghdad security operation, who was seized by gunmen two days earlier from at his home in a Shiite area of the capital.

An Iraqi-owned satellite television station, Sharqiya, broadcast what it said was a tape of the conversation, in which a man identifying himself as Sheikhly said he was being held "with a group of officers" at an unknown location.

"Our release depends on the withdrawal of al-Maliki from Basra and the easing of the military operations against the Sadrists in all provinces," he said.

"We appeal to the prime minister and the Iraqi government to work with the Sadrist movement, which represents the popular base of society."

In Basra, U.S. jets dropped two precision-guided bombs at midday Saturday on a suspected militia stronghold at Qarmat Ali north of the city, British military spokesman Maj. Tom Holloway said.

"My understanding was that this was a building that had people who were shooting back at Iraqi ground forces," Holloway said.

Iraqi police said that earlier in the day a U.S. warplane strafed a house and killed eight civilians, including two women and one child.

They spoke on condition of anonymity as they were not authorized to release the information.

The U.S. military had no immediate comment on the report and it was not possible to independently verify it.

American forces launched their first airstrikes in Basra late Thursday as Iraqi troops struggled against strong resistance.

In Baghdad, Iraqi police said U.S. helicopters carried out airstrikes on the Shiite neighborhood of Sadr City Friday night.

Television footage showed destroyed buildings and the smoking wreckage of at least one car.

But the U.S. military said in an e-mail that the only air assault it carried out last night was in the Kazamiyah neighborhood, west of Sadr City, killing 10 militants.

Iraq's Health Ministry, which is close to the Sadrist movement, on Saturday reported at least 75 civilians have been killed and at least 500 others injured in a week of clashes and airstrikes in Sadr City and other eastern Baghdad neighborhoods.

The U.S. military sharply disputes the claims, having said that most of those killed were militia members.

"Study shows life was tough for ancient Egyptians"

By Alaa Shahine

Fri Mar 28, 10:12 AM ET

CAIRO (Reuters) - New evidence of a sick, deprived population working under harsh conditions contradicts earlier images of wealth and abundance from the art records of the ancient Egyptian city of Tell el-Amarna, a study has found.

Tell el-Amarna was briefly the capital of ancient Egypt during the reign of the pharaoh Akhenaten, who abandoned most of Egypt's old gods in favor of the Aten sun disk and brought in a new and more expressive style of art.

Akhenaten, who ruled Egypt between 1379 and 1362 BC, built and lived in Tell el-Amarna in central Egypt for 15 years.

The city was largely abandoned shortly after his death and the ascendance of the famous boy king Tutankhamen to the throne.

Studies on the remains of ordinary ancient Egyptians in a cemetery in Tell el-Amarna showed that many of them suffered from anemia, fractured bones, stunted growth and high juvenile mortality rates, according to professors Barry Kemp and Gerome Rose, who led the research.

Rose, a professor of anthropology in the University of Arkansas in the United States, said adults buried in the cemetery were probably brought there from other parts of Egypt.

"This means that we have a period of deprivation in Egypt prior to the Amarna phase," he told an audience of archaeologists and Egyptologists in Cairo on Thursday evening.

"So maybe things were not so good for the average Egyptian and maybe Akhenaten said we have to change to make things better," he said.

Kemp, director of the Amarna Project which seeks in part to increase public knowledge of Tell el-Amarna and surrounding region, said little attention has been given to the cemeteries of ordinary ancient Egyptians.

"A very large number of ordinary cemeteries have been excavated but just for the objects and very little attention has been paid for the human remain," he told Reuters.

"The idea of treating the human remains ... to study the overall health of the population is relatively new."

Paintings in the tombs of the nobles show an abundance of offerings, but the remains of ordinary people tell a different story.

Rose displayed pictures showing spinal injuries among teenagers, probably because of accidents during construction work to build the city.

The study showed that anemia ran at 74 percent among children and teenagers, and at 44 percent among adults, Rose said.

The average height of men was 159 cm (5 feet 2 inches) and 153 cm among women.

"Adult heights are used as a proxy for overall standard of living," he said.

"Short statures reflect a diet deficient in protein."

"... People were not growing to their full potential."

Kemp said he believed further excavations in Tell el-Amarna would "firm-up" the conclusions of his team.

"We are seeing a more realistic picture of what life was like," he told Reuters.

"It has nothing to do with the intentions of Akhenaten, which may have been good and paternal toward his people."

(Writing by Alaa Shahine, editing by Mary Gabriel)

"Wall Street awaits government plan"

By JOE BEL BRUNO, Associated Press

Last updated: 5:22 p.m., Sunday, March 30, 2008

NEW YORK -- While Wall Street faces the biggest overhaul of its regulatory structure since the Great Depression, analysts are already wondering if the plan to be announced by Treasury Secretary Henry Paulson on Monday would help prevent the kind of risky investments that led to the near-collapse of Bear Stearns Cos.

The plan maps out a course for broader oversight of the nation's financial markets by consolidating power into the Federal Reserve.

It will eliminate overlapping state and federal regulators and give the central bank an expanded role in looking at the books of investment banks and brokerages.

What remains unclear is exactly how much the Fed would be able to control Wall Street's freewheeling investment banks -- the banks including Bear Stearns that have lost billions of dollars over the past six months from buying risky mortgage-backed securities.

While the proposal will for the first time impose regulation of hedge funds and private equity firms, some say it is lacking the kind of muscle to curb the Street's appetite for risk.

"This is a good start for the basis of discussion," said Peter Morici, a business professor at the University of Maryland and former chief economist of the U.S. Trade Commission.

"But, this is bank reform written by an investment banker."

"... There's nothing so far to improve the conduct of business on Wall Street to avoid another crisis."

Paulson, the former chairman of the investment bank Goldman Sachs Group Inc., wants to streamline the regulatory system through steps such as merging the Securities and Exchange Commission and the Commodity Futures Trading Commission and incorporating the functions of the Office of Thrift Supervision into the office of the Comptroller of the Currency.

But while the regulatory structure would be overhauled, there is little detail about how much actual power the Fed would have to force investment banks out of risky positions and prevent financial companies from failing.

The investment banks have been criticized not only for investing in risky mortgage-backed assets -- including loans to people with poor credit -- they've also been reproached for dealing in complex and often speculative products like structured investment vehicles and collateralized debt obligations.

"I think it is important to look at the Paulson plan as the beginning of the discussion, not necessarily its end," said Harvey Pitt, a former chairman of the Securities and Exchange Commission.

"The critical ingredient in any plan, however, is total transparency, something that was sorely lacking in our markets and caused the current crisis."

The plan, already backed by several financial industry trade organizations, would give the Fed some say over how much liquidity and capital that investment banks have on their books.

But, as currently presented, action would be limited to instances "where overall financial market stability was threatened," according to a 22-page executive summary of the proposal obtained by The Associated Press.

While Paulson's proposal looks to shore up the nation's financial industry, it will also try to avoid putting investment banks at a competitive disadvantage with overseas investment firms.

Still, analysts noted, this is an election year, and therefore Wall Street can expect to see regulation it hasn't had to comply with in the past.

Richard X. Bove, a bank analyst at Punk Ziegler & Co., questioned whether investment banks being forced to maintain more capital and higher reserves would limit their attempts to achieve high returns.

Wall Street firms, unlike more regulated commercial banks, tend to use large amounts of leverage, or borrowed money, to magnify profit margins; while higher capital requirements would stem losses during economic downturns, they would also prevent investment banks from making the kind of profits they did during the recent bull run.

But ultimately, Bove said, Wall Street put itself in the position it now finds itself in.

"The financial industry blew it, did not exercise any restraint, and now the financial system is at risk," he said.

"It is evident that there must be some kind of re-regulation."

"Fierce financial oversight debate on tap"

By MARTIN CRUTSINGER, Associated Press

Last updated: 2:04 p.m., Sunday, March 30, 2008

WASHINGTON -- In proposing the broadest overhaul of financial oversight since the Great Depression, the Bush administration has kicked off a fierce debate.

It pits those eager to revamp an antiquated system against an industry opposed to excessive regulation.

The administration is aware of the hardening lines.

The 200-page plan set for release Monday comes with the financial system in the midst of the most severe credit crisis in two generations.

That crunch has meant billions of dollars of losses for big banks and investment houses.

It has caused the near-collapse of the country's fifth largest investment bank, made it harder for consumers and businesses to get loans and pushed the country to the brink of a recession.

The market turmoil has presented an opening for critics to make the case for strong federal rules to crack down on abuses that they believe were at the heart of the current crisis.

But Treasury Secretary Paulson, who has led the effort to rewrite regulations, rejects that criticism.

"I do not believe it is fair or accurate to blame our regulatory structure for the current turmoil," according to a draft of a speech he planned to give Monday when he outlines the administration's proposals.

In interviews over the weekend, administration officials sought to frame the proposals as an effort to devise a system that would help keep U.S. companies competitive in an increasingly connected global economy.

"Despite the fact that there will be a temptation to view this through a lens of what is happening now in credit markets, this has been a process that has been going on for a year," said David Nason, Treasury's assistant secretary for domestic finance.

"These are very complex issues that require a serious amount of debate."

Treasury began work on the review in early 2007.

It came in response to complaints from the financial services industry that U.S. businesses were losing their edge in global competition because of over-regulation by Washington.

The yearlong review produced a plan calling for the greatest changes in financial regulation since many of the current oversight institutions were created in the 1930s.

The Federal Reserve would be a big winner, gaining new powers to serve as the protector of stability for the entire financial system.

The plan would abolish some institutions such as the Office of Thrift Supervision and the Commodity Futures Trading Commission; their responsibilities would shift to other agencies.

According to a 22-page executive summary obtained by The Associated Press, the Paulson plan envisions a three-stage process that would lead to establishing three main regulatory agencies.

The Fed would sit at the top with expanded responsibilities as the "market stability regulator."

But the Fed would lose its current powers over bank holding companies.

The proposal would combine the five agencies now responsible for regulating banks, thrifts and credit unions into a single regulatory agency.

The powers of the Securities and Exchange Commission would go into a super agency responsible for business conduct and consumer protection.

Some in the financial industry are concerned that Congress could rush to legislate.

They make the comparison to the Sarbanes-Oxley law, passed in 2002 four months after it was introduced in response to the accounting scandals at Enron and other large companies.

That effort produced some unintended consequences that, the industry believes, has hurt the global competitiveness of American companies.

"These are phenomenally complex issues and a thoughtful and deliberative approach is what is needed," Rob Nichols, president of the Financial Services Forum, said in an interview Sunday.

The administration's proposals got a mixed reaction on Capitol Hill.

The chairman of the Senate Banking, Housing and Urban Affairs Committee, Sen. Christopher Dodd, said in a statement the recommendations deserved careful consideration.

But the Connecticut Democrat said he believed they "would do little if anything to alleviate the current crisis."

House Financial Services Committee Chairman Barney Frank, D-Mass., said Paulson's plan was a "very constructive step forward."

"By rejecting the argument for the status quo ... he has narrowed, albeit by no means removed, the differences between his position and that of many Democrats," Frank said.

He has led the effort to look at regulatory changes needed to prevent a repeat of the current mortgage and credit problems.

"Another jobs loss may sink stocks again"

By MADLEN READ, Associated Press

Last updated: 3:22 p.m., Sunday, March 30, 2008

NEW YORK -- Stocks may already be pricing in a recession, but they haven't priced in a very deep one.

If this week's data on the job market and manufacturing are worse than Wall Street is anticipating, investors should not be surprised to see another tumble.

To be sure, the stock market is usually pretty adept at sizing up the economy.

And many market experts are saying stocks may have already hit bottom.

But considering how much mystery still surrounds the mortgage crisis -- not to mention the fact that many analysts are starting to pare back their estimates for 2008 corporate profits -- calling the stock market's decline over is a bit premature.

Last week began with a rally and ended with a sell-off after a batch of economic readings gave investors little to cheer about.

The Dow Jones industrial average finished the week down 1.17 percent, the Standard & Poor's 500 index ended up 0.14 percent, and the Nasdaq composite index ended down 1.07 percent.

This Friday, the market expects the Labor Department to report that payrolls fell by about 50,000 in March after a 63,000 drop in February, according to the median estimate of economists surveyed by Thomson Financial/IFR.

Economists also predict the unemployment rate will rise back up to 5 percent from February's 4.8 percent.

"If you start seeing deterioration in employment, it's very, very hard not to have a recession," said Jay Mueller, economist at Strong Capital Management.

Historically, recessions have brought several back-to-back drops in payrolls, an unemployment rate persistently above 5 percent and initial unemployment claims that top about 400,000 a week, Mueller said.

Right now, the job market is not quite near recession-level trends, but it's close: Unemployment briefly hit 5 percent late last year, jobless claims have recently been in the 350,000 to 375,000 range, and payrolls have decreased for two months in a row.

The uncertainty surrounding the U.S. employment picture in turn means that consumer spending and consumer credit trends are largely indeterminable.

So even in a best-case scenario -- a strong jobs report alongside other strong data -- the stock market might see a brief pop but then remain in a holding pattern for the next few months until it is sure that the economy's weak period is a short one.

"It seems more likely that things are going to be range dominated until we get a bit more clarity," said Jack Caffrey, equities strategist at JPMorgan Private Bank.

So for now, investors can expect more big swings, but little sense of direction until first-quarter earnings reports -- along with their outlooks for the rest of the year -- are released next month.

This week starts with the Chicago Purchasing Managers' manufacturing report on Monday, which is expected to show a smaller contraction for March than it did in February.

On Tuesday, the Institute for Supply Management releases its national manufacturing report, and the market anticipates a shallow contraction for March, similar to February's.

Then on Thursday, the ISM reports on the service sector, which is expected to post a minor contraction for March, as it did the previous month.