"Paulson considering mortgage change"

By MARCY GORDON, Associated Press

Last updated: 7:51 p.m., Wednesday, September 19, 2007

WASHINGTON -- Shifting course, Treasury Secretary Henry Paulson planned to tell Congress he would consider allowing the big mortgage companies Fannie Mae and Freddie Mac to temporarily buy, bundle and sell as securities those loans exceeding $417,000.

This change, which the Bush administration opposed in the summer, is portrayed as a way to inject liquidity into the stretched mortgage market.

Paulson said the change involving jumbo loans could occur only in tandem with tighter oversight of the two government-sponsored mortgage companies, according to a person familiar with the secretary's testimony prepared for a House hearing Thursday.

The person spoke on condition of anonymity because Paulson's testimony before the House Financial Services Committee had not been made public.

Paulson planned to tell lawmakers "there's little question" that allowing the companies to buy the large loan "would give a short-term lift" to the mortgage market.

At the same time, he was expected to urge passage of legislation to tighten federal oversight of the companies.

"It would be unreasonable and irresponsible" to expand their business "without addressing the fundamental problems of their regulatory structure," the Treasury chief planned to say.

The companies now cannot buy or guarantee mortgages exceeding $417,000.

Democrats say that letting them do so would help ease the mortgage-market turmoil because lower-cost loans guaranteed by the companies have proved relatively safe for investors during the crunch.

Federal Reserve Chairman Ben Bernanke this week told the committee's chairman, Rep. Barney Frank, that if Congress were to lift the limit for the two companies, it should act swiftly on a short-term change.

"If the Congress is inclined to move in this direction, it should consider whether such action could be taken in a way that makes the change explicitly temporary as well as promptly implemented," Bernanke wrote Frank, D-Mass., in a letter dated Monday.

"Economist predicts housing downturn"

By ALAN ZIBEL, Associated Press

Last updated: 7:18 p.m., Wednesday, September 19, 2007

WASHINGTON -- An economist who has long predicted this decade's housing market bubble would deflate said the residential real estate downturn could spiral into "the most severe since the Great Depression" and could lead to a recession.

Yale University economist Robert Shiller's written comments to lawmakers came a day after the Federal Reserve responded to credit market turmoil by slashing the target federal funds rate by a half point to 4.75 percent.

Shiller, in testimony prepared for a hearing of the Joint Economic Committee, said the loss of a boom mentality among the public may bring on a drop in consumer confidence that poses a "significant risk" of a recession within the next year.

Meanwhile, Peter Orszag, director of the Congressional Budget Office, gave a more tempered forecast, saying that financial market turmoil and weakened consumer confidence pose economic threats but are not likely to send the economy into a recession.

A hypothetical 20 percent drop in home prices over two years would reduce U.S. economic growth by one half of a percentage point annually to 1 1/2 percentage points annually after three years, the Congressional Budget Office calculates.

"The risk of recession is elevated but the most likely scenario at this point seems to be continued economic growth," Orszag said.

The hearing came as the government said Wednesday it would slightly raise the investment portfolio cap for government-sponsored mortgage companies Fannie Mae and Freddie Mac as a way to pump cash into the stretched mortgage market.

Since mortgages made to people with weak credit are concentrated among low-priced homes, Shiller said at the hearing that "low income people will be especially hard hit by the correction."

He advocated the creation of a new federal commission, modeled after the Consumer Product Safety Commission, to detect abusive lending practices that critics say were common in the market for loans made to people with weak credit.

Recent readings of the housing market suggest a rebound isn't coming anytime soon.

The Commerce Department reported Wednesday that construction of new homes fell by 2.6 percent in August to the slowest pace in 12 years.

On Tuesday, the National Association of Home Builders reported that its index of builder confidence fell in September to equal the lowest level on record.

Also, foreclosure filings in August more than doubled nationwide from the year-ago period and jumped 36 percent from July, research firm RealtyTrac Inc. said Tuesday.

"US, Iraq to probe Blackwater shooting"

By MATTHEW LEE, Associated Press Writer

September 19, 2007

WASHINGTON - The United States and Iraq will form a joint commission to look into allegations that private guards protecting American diplomats killed Iraqi civilians and to review the U.S. Embassy's security practices, the State Department said Wednesday.

The size and composition of the commission have yet to be determined but its members are charged with assessing the results of both U.S. and Iraqi investigations of Sunday's incident, reaching a common conclusion about what happened and recommending possible changes to the way in which the embassy and its contractors handle security, it said.

"The commission's goal is to make joint policy recommendations, including specific suggestions for improving U.S. and Iraqi procedures regarding government-affiliated personal security details," deputy State Department spokesman Tom Casey told reporters.

"This ... demonstrates that we and the Iraqis are committed to working together, both to address the activities or the response to the specific incident that's occurred, as well as to look at the broader issues of the operation of personal security details in Iraq." he said.

The commission will not conduct its own independent probe of the incident, in which at least 11 people were killed, but will attempt to reconcile conflicting accounts of what happened offered by the U.S. and Iraqi sides thus far.

The State Department and the company in question, Blackwater USA, have said the incident began when a diplomatic convoy came under attack in Baghdad; Iraqi witnesses and officials have said the security guards opened fire first without provocation.

Earlier Wednesday, Iraq's prime minister disputed Blackwater's version of the events and declared he would not tolerate "the killing of our citizens in cold blood."

The New York Times reported that a preliminary review by Iraq's Ministry of Interior found that Blackwater security guards fired at a car when it did not heed a policeman's call to stop, killing a couple and their infant.

Casey declined to comment on the divergence in views, but noted that witnesses often have different recollections of events, particularly when they are traumatic.

The incident has stoked popular Iraqi anger at private security contractors, who are perceived by many to operate outside the law with no accountability.

Meanwhile, the status of Blackwater, one of three private security companies that provide protection for U.S. diplomats in Iraq, remained unclear, despite Iraqi government statements that the firm's operating license had been suspended.

Casey said Washington had not been formally notified of any action against Blackwater.

"Dan Rather sues CBS, Viacom for $70M"

19 September 2007

NEW YORK - Former CBS news anchor Dan Rather filed a $70 million lawsuit Wednesday against the network, former corporate parent Viacom Inc., and three of his former bosses.

Rather's complaint stems from "CBS' intentional mishandling" of the aftermath of a discredited story about President George W. Bush's time in the Texas Air National Guard.

The lawsuit, filed in State Supreme Court in Manhattan, also names CBS President and CEO Leslie Moonves, Viacom chairman Sumner Redstone, and Andrew Heyward, former president of CBS News.

Rather is seeking $20 million in compensatory damages and $50 million in punitive damages.

"Scientists Doubt Meteorite Sickened Peruvians"

Andrea Thompson, Staff Writer, SPACE.com

Wed Sep 19, 2:00 PM ET

Scientists doubt that the supposed meteorite strike that sickened some 200 residents of Peru last weekend actually involved anything from space.

Based on reports of fumes emanating from the crater, some scientists actually suspect that the event could have been some kind of geyser-like explosion rather than a meteorite impact.

"Statistically, it's far more likely to have come from below than from above," said Don Yeomans, head of the Near Earth Object Program at NASA'S Jet Propulsion Laboratory in Pasadena, California.

The noxious fumes that have supposedly sickened curious locals who went to examine the crater would seem to indicate hydrothermal activity, such as a local gas explosion, because "meteorites don't give off odors," Yeomans told SPACE.com.

Skepticism warranted

Several times in recent history, reports of meteorite impacts have turned out to be untrue after scientific examination.

Doubt in the scientific community was as rampant today as the speculations out of Peru.

Details surrounding the incident are also increasing experts' skepticism.

"Many of the reported features of the crater ("boiling water," sulphurous fumes, etc.) point to a geological mechanism of the crater formation," wrote Benny Peiser, a social anthropologist at John Moores University, in a daily newsletter that catalogues research and media coverage of space rock impacts and other threats to humanity.

"I would not be surprised if, after careful analysis, the alleged meteorite impact reveals itself to be just another 'meteorwrong.'"

It's not impossible that the crater was left by a meteorite, Yeomans said, but if so, then the impact object most likely was small, based on the size of the crater.

It would also probably have been a metal meteorite, because those are the only kind of small meteorites that don't burn up as they plummet through Earth's atmosphere, he added.

Small stony meteorites rarely make it to the surface.

A couple features of the event reports suggest there was a space rock involved, said geophysicist Larry Grossman of the University of Chicago.

The bright streak of light and loud bangs seen and heard by locals are consistent with a meteor streaking through Earth's atmosphere, he said.

Most meteors do burn up, never becoming meteorites (which is what they're called if they reach the surface).

Because no one actually saw anything impact at the crater site, it's hard to say whether a space rock was involved because they are often deceptive as to where they will land.

Many times, people swear a meteor landed nearby when in fact it was so far away that it dipped below the local horizon but never actually struck the ground.

"Sometimes these things land hundreds of thousands of miles away from where [people] think they will land," Grossman said.

Investigation needed

Pictures of the crater show that the hole in the ground appears fresh, Grossman said, and the debris strewn around it is consistent with a meteorite impact but also could have been caused by digging.

And there are no previous reports of noxious fumes emanating from meteorite remnants or their craters, he said.

"If the noxious fumes came from the hole, it wasn't because the meteorite fell there," Grossman said, saying they would like have come from something already in the ground.

Grossman said that to determine whether the crater was made by a meteorite, the water in the hole must be pumped out and any large chunks of rock at the bottom should be examined to see if they are consistent with meteoritic composition.

Peruvian geologists are on their way to examine the crater, according to news reports.

"More delays in shift to Iraqi control"

By ROBERT BURNS, AP Military Writer

20 September 2007

WASHINGTON - In another sign of U.S. struggles in Iraq, the target date for putting Iraqi authorities in charge of security in all 18 provinces has slipped yet again, to at least July.

The delay, noted in a Pentagon report to Congress on progress and problems in Iraq, highlights the difficulties in developing Iraqi police forces and the slow pace of economic and political progress in some areas.

It is the second time this year the target date for completing what is known as "Provincial Iraqi Control" has been pushed back.

The Pentagon report submitted to Congress on Monday hinted at the possibility of further delays.

The intent is to give the provincial governments control over security in their area as a step toward lessening — and eventually ending — the U.S. security role.

Thus far seven of the 18 provinces have reverted to Iraqi control.

The process has gained relatively little attention in the broader debate in Washington about when and how to get the Iraqis ready to provide their own security so that U.S. forces can begin to leave.

That may be in part because some details of the provincial transition process are classified secret.

An independent commission that examined the issue of provincial Iraqi control this summer concluded in a report to Congress on Sept. 4 that the process is too convoluted and an impediment to the overall U.S. goals of speeding the transition to Iraqi control and supporting sovereignty.

"Our current policy of determining when a province may or may not be controlled by its own government reinforces the popular perception of the (U.S.-led) coalition as an occupation force," according to the commission, headed by retired Marine Gen. James Jones.

"This may contribute to increased violence and instability."

The commission recommended that all 18 provinces return to Iraqi control immediately.

U.S. forces would continue to operate in the areas they are now, in coordination with Iraqi authorities; Iraqi control would mean U.S. troops could transition to less combat-intense roles.

In an interview Wednesday, Jones said he and the other commissioners got the strong impression from Iraqi officials they met in Baghdad this summer that they want full provincial control without further delay.

"The whole process seems to be acting as more of a brake on progress than a help," Jones said.

"If the Iraqi government is willing, I think we should be putting as much on them as possible."

"To have a sovereign government that doesn't control all of its provinces doesn't make a lot of sense to me."

In an Associated Press interview last week, Gen. David Petraeus, the top U.S. commander in Iraq, defended the transition process.

It involves a series of detailed reviews and assessments by U.S. and Iraqi officials, culminating with input by Petraeus and the most senior Iraqi government leaders.

Though slow, it is helpful in sorting out problems that stand in the way of a smooth transition, he said.

"It forces people to come to grips with those issues," Petraeus said.

In January, President Bush announced his new strategy for stabilizing Iraq and his decision to send an additional 21,500 U.S. combat troops to Baghdad and to Anbar province.

He, said, at the time, that the Iraqi government "plans to take responsibility for security in all of Iraq's provinces by November."

In June the Pentagon informed Congress that the target had slipped to "no later than" next March.

In this month's report, the Pentagon said its "current projection" was that all 18 provinces would move to Iraqi control "as early as" July; that would be eight months later than Bush's original projection.

The Pentagon also hinted at further delays.

"If, for example, violence worsened significantly in any of the provinces yet to transition to (Iraqi control) the likely dates for transition of those provinces would be reevaluated," the report said.

It said the main reason for the delays so far is a "lack of capability in the Iraqi police services."

The Pentagon report cited a litany of problems with the police.

For example, it said as few as 40 percent of those trained by coalition troops in recent years are still on the job.

Also, due to combat loss, theft, attrition and poor maintenance, a "significant portion" of U.S.-issued equipment is now unusable.

Next in line for transition to Iraqi control is Karbala, a small south-central province, by the end of this month, according to the Pentagon report to Congress.

It gave no further breakdown of the schedule.

The U.S. commander in northern Iraq, Army Maj. Gen. Benjamin Mixon, had recommended that Ninevah province shift to Iraqi control in August, but that date was pushed back to at least November.

The province includes Mosul, the country's third largest city.

Last year, the relatively peaceful southern provinces of Muthanna, Dhi Qar and Najaf were returned to Iraqi security control.

In April, Maysan province in the southeast was the fourth to convert.

In May the Kurdish regional government assumed security responsibility for the three provinces that make up the largely peaceful Kurdish region of northern Iraq: Dahuk, Irbil and Sulaimaniyah.
___

On the Net:

Pentagon's September report: http://tinyurl.com/ysxl93

"Bush sidesteps criticizing Iraq shooting"

By TERENCE HUNT, Associated Press

Last updated: 6:34 p.m., Thursday, September 20, 2007

WASHINGTON -- President Bush on Thursday refused to criticize a U.S. security company in Iraq accused in a shooting that left 11 civilians dead, saying investigators need to determine if the guards violated rules governing their operations.

Bush said he expected Iraqi Prime Minister Nouri al-Maliki would raise the shooting by agents of Blackwater USA when they meet next week at the U.N. General Assembly.

Al-Maliki has urged the U.S. Embassy to find another security firm to protect its diplomats, saying he cannot tolerate "the killing of our citizens in cold blood."

He called the shootings a "crime" and said they had generated "widespread anger and hatred."

"Obviously, to the extent innocent life was lost, you know, I'm saddened," the president said at a wide-ranging news conference.

"Our objective is to protect innocent life."

"And we've got a lot of brave souls in the theater working hard to protect innocent life."

Officials of Blackwater, the Moyock, N.C.-based company, say its employees acted appropriately in response to an armed attack Sunday against a State Department convoy.

Blackwater is the main provider of bodyguards and armed escorts for U.S. government civilian employees in Iraq.

In a telephone conversation on Monday, Secretary of State Condoleezza Rice asked al-Maliki to delay any initial action to the shooting and that any permanent measures be held up until all the facts were known, a senior State Department official said, speaking on condition of anonymity to provide details of the private discussion.

Maliki, however, insisted on taking a stronger line and warned that continued use of the contractors would further inflame tensions, the official said.

Blackwater's operations in Iraq were suspended, prompting the U.S. embassy in Baghdad to ban all road convoys by diplomats and other civilian personnel outside the heavily fortified Green Zone.

A U.S.-Iraqi commission is looking into the shooting.

The shooting is the latest source of tension between Baghdad and Washington as Bush presses ahead with the Iraq war despite strong opposition across the United States and in the Democratic-led Congress.

A week ago, Bush announced gradual cutbacks in U.S. forces from the current peak of 168,000 soldiers.

Even so, the plan would leave 130,000 U.S. troops or more in Iraq next summer.

Bush acknowledged Baghdad would not meet the goal he set last January for Iraq to take over security in all of its 18 provinces by November.

"Achieving those goals have been slower than we thought," Bush said.

But he said the goals were still worth pursuing.

"Part of the reason why there's not this instant democracy in Iraq is because people are still recovering from Saddam Hussein's brutal rule," Bush said.

"Sort of an interesting comment, I heard somebody say, `Where's Mandela?'"

"Well, Mandela's dead because Saddam Hussein killed all the Mandelas."

It was a reference to the charismatic former leader of South Africa who helped reconcile his country after decades of racial division.

Mandela is still alive.

On another foreign policy issue, Bush said he took seriously threats by Iranian President Mahmoud Ahmadinejad.

"This is a person that consistently talks about the use of force on Israel, for example, and Israel is our very firm and strong ally," Bush said.

He was asked about a recent statement by France's foreign minister that the international community should prepare for the possibility of war in the event Iran obtains atomic weapons -- although the official later stressed the focus remains on diplomatic pressures.

"I have consistently stated that I am hopeful that we can convince the Iranian regime to give up any ambitions it has in developing a weapons program, and do so peacefully," Bush said.

"That ought to be the objective of any diplomacy."

He also defended the decision of New York officials to deny Ahmadinejad permission to lay a wreath next week at ground zero -- site of the detroyed World Trade Center.

"I can understand why they would not want somebody that's running a country that's a state sponsor of terror down there at the site," the president said.

Bush spoke out for the first time about the case in Jena, La., in which six black teenagers were initially charged with attempted murder in the beating of a white classmate.

He wouldn't comment on legal specifics.

The case has attracted nationwide attention.

"The events in Louisiana have saddened me," the president said.

"I understand the emotions."

He said the FBI is monitoring the situation, adding: "All of us in America want there to be, you know, fairness when it comes to justice."

Bush repeatedly refused to comment on reports that Israeli planes guided by ground forces attacked an installation -- believed to be the beginnings of a nuclear project -- in northern Syria on Sept. 6.

Asked about whether North Korea was providing nuclear assistance to Syria, Bush said: "We expect them not to."

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Associated Press writer Matthew Lee contributed to this report

"Stocks fall after mixed earnings"

By MADLEN READ, Associated Press

Last updated: 6:22 p.m., Thursday, September 20, 2007

Stocks retreated Thursday as Wall Street took a breather from this week's recent rally, sobered a bit by mixed earnings reports, a tumbling dollar and surging oil prices.

Wall Street had driven the Dow Jones industrials up more than 400 points in the two days following the Fed's half-point rate reduction, so it was to be expected that investors would eventually stop to cash in gains.

So when a few major companies, particularly Bear Stearns & Cos. and Circuit City, posted wider-than-expected drops in third-quarter profit Thursday, Wall Street's giddiness following the Fed's rate cut waned, and nervousness resurfaced about how long it might take for the economy and corporate America to rebound from the recent market turmoil.

"Historically, after the Fed eases, the market takes about a month to figure out whether the easing was a good thing or a bad thing," said Brian Gendreau, investment strategist for ING Investment Management.

Although the credit markets are improving, investors remain worried about the economy dipping into recession and unsure of where to put their money, Gendreau said.

"Now that the crisis is abating, the question is, what are we going to do next?"

Wall Street did get some good news Thursday.

The Labor Department said jobless claims declined by 9,000 last week, despite August's decrease in payrolls, and Goldman Sachs Group Inc. reported a surprisingly large 79 percent profit rise in the third quarter.

In August, stocks plunged and credit markets tightened up due largely to housing market troubles.

But Bear Stearns & Cos. didn't weather the market turmoil as well, and suffered a larger-than-anticipated 62 percent profit drop.

Electronics retailer Circuit City Stores Inc. also posted a big quarterly loss that troubled Wall Street, sending its shares tumbling.

Meanwhile, the dollar fell to another record low against the euro and crude oil prices surged to a new all-time high above $83 a barrel.

The Dow fell 48.86, or 0.35 percent, to 13,766.70.

Broader stock indexes also declined.

The Standard & Poor's 500 index fell 10.28, or 0.67 percent, to 1,518.75, and the technology-dominated Nasdaq composite index fell 12.19, or 0.46 percent, to 2,654.29.

The Russell 2000 index of smaller companies fell 7.64, or 0.93 percent, to 809.76.

Declining issues outnumbered advancers by about 8 to 3 on the New York Stock Exchange, where consolidated volume came to 2.96 billion shares, down from 3.82 billion on Wednesday.

Bonds plummeted, pushing the yield on the benchmark 10-year Treasury note up to 4.67 percent from 4.52 percent late Wednesday.

Prices fell due to concerns that U.S. rate cuts will spur inflation and that the falling dollar might cause Saudi Arabia to unload their Treasury holdings.

Like its earnings data, Thursday's economic reports were mixed.

The Conference Board said its August index of leading economic indicators declined, but the Philadelphia Fed reported a solid rebound in its region's manufacturing in September.

Meanwhile, Fed Chairman Ben Bernanke's testimony Thursday about the mortgage and credit markets before the House Financial Services Committee offered few hints about the central bank's next move.

Bernanke said the credit crisis has created "significant market stress" and reassured the market that regulators are willing to step in to curb the fallout.

Wall Street is split over what the Fed will do when it meets again in October.

Many predict a quarter-point rate decrease, but others expect the target fed funds rate to hold at 4.75 percent.

The main reason the central bank may be against another rate cut is the risk of inflation.

Core inflation, which strips out food and energy prices, has been stable in recent months, but could accelerate if the effects of high food and energy prices trickle down to other consumer prices.

"The one thing we're going to be susceptible to is data shocks, especially on the inflation front," said Doug Roberts, chief investment strategist for Channel Capital Research.

Crude oil prices rose further into record territory on the New York Mercantile Exchange to settle at $83.32 a barrel.

Gold also extended its recent streak.

Meanwhile, the euro surpassed $1.40 for the first time since the 13-nation currency was introduced in 1999.

A weak dollar is a double-edged sword for the U.S. economy -- it makes imports more expensive, but it makes U.S. exports cheaper, and thus more attractive, to foreign buyers.

Circuit City plunged $1.90, or 18 percent, to $8.67 after its weak earnings, and Goldman dipped $1.97 to $203.53 despite its strong profit.

Bear Stearns shares fell 18 cents to $115.46.

Bear Stearns' stock has been battered in recent months.

Over the summer, two of its hedge funds that bet on mortgage debt went bankrupt, and the news led to a selloff in its own stock and throughout the industry.

In deal-making news, Nasdaq Stock Market Inc. and Borse Dubai announced that Nasdaq will take over Nordic bourse operator OMX AB, while Borse Dubai will buy about 20 percent of Nasdaq and 28 percent of the London stock exchange.

Nasdaq rose 49 cents to $36.51.

In European trading, Britain's FTSE 100 fell 0.48 percent, Germany's DAX index fell 0.20 percent, and France's CAC-40 fell 0.73 percent.

In Asia, Japan's Nikkei index rose 0.20 percent and Hong Kong's Hang Seng Index rose 0.57 percent.

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On the Net:

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

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

"Goldman Sachs benefits in 3Q, Bear hurt"

By JOE BEL BRUNO, Associated Press

Last updated: 6:22 p.m., Thursday, September 20, 2007

NEW YORK -- Goldman Sachs Group Inc. on Thursday reported third-quarter results well ahead of Wall Street projections, as the world's largest investment bank took full advantage of its diversity to overcome a debt crisis.

Rival Bear Stearns Cos. wasn't as lucky.

Faced with the worst credit markets that Wall Street has seen in a decade, Goldman said betting against the mortgage market helped it report a 79 percent boost in quarterly profit.

Bear Stearns, the No. 5 U.S. investment bank, said it was on the wrong side of those bets and posted a 62 percent plunge in earnings.

Though both faced similar challenges during a period of tight credit conditions and continued erosion of the mortgage industry, analysts believe Goldman's surprise performance is linked to its diversity across both time zones and businesses.

Meanwhile, Bear Stearns -- which has pushed in recent years to broaden its scope -- is still primarily known on Wall Street as a bond house.

"This is a standout performance by Goldman which, based on these results, reinforces its leadership among U.S. investment banking players in terms of its ability to adapt and profit from changing environments," Deutsche Bank analyst Mike Mayo said in a client note after the results.

The proof is in the bottom-line numbers, even after Goldman Sachs took writedowns on loans and mortgages twice as large as those of Bear Stearns.

Goldman Sachs posted a quarterly profit of $2.85 billion, or $6.13 per share, up from $1.55 billion, or $3.26 per share, a year earlier.

Revenue rose to $12.33 billion from $10.18 billion last year.

Results topped Wall Street projections for a profit of $4.35 per share on $9.57 billion in revenue, according to analysts polled by Thomson Financial.

Despite taking a net $1.48 billion hit from credit losses -- primarily loans extended for corporate buyouts -- Goldman Sachs was still able to rely on its investment banking and trading activities to power the quarter.

The company also benefited from the $900 million sale of power company Horizon Wind Energy LLC.

On a conference call, Chief Financial Officer David Viniar said disruptions in the mortgage market are "closer to the bottom" than at the start of the quarter, creating a measure of optimism.

"We are not pessimistic, we do not have a hiring freeze, we do not have a hiring slowdown," Viniar said.

At Bear Stearns, Chief Executive James Cayne called the quarter "painful" in a memorandum to employees, as revenue from fixed-income sales and trading activities -- Bear's biggest business -- plunged 88 percent.

The company was the hardest hit by the collapse of the subprime mortgage market, which forced two of its hedge funds into bankruptcy and roiled the bond markets.

This caused third-quarter profit, after paying preferred dividends, to tumble to $166.1 million, or $1.16 per share, from a profit of $432.2 million, or $3.02 per share, in the third quarter of 2006.

Revenue declined 37 percent to $1.33 billion.

Analysts expected Bear Stearns to post a profit of $1.78 per share on $1.64 billion of revenue.

Aside from a $200 million loss from the bankrupt hedge funds, Bear said the turmoil in the credit market squeezed its portfolio by $700 million.

This stemmed from Bear's assumption that some of its mortgage debt and commitments to finance corporate takeovers have lost value.

"What's next remains the key question for Bear Stearns," said Jeff Harte, an analyst with Sandler O'Neill & Partners.

"With a difficult third quarter now in the rear view mirror, management must prove they can expand revenue despite what is likely to be a sustained slowdown in the domestic mortgage-backed securities market."

Bear Stearns' trading of bonds and other fixed-income products plunged to $118 million from $945 million, and caused some analysts to question if that business will ever fully recovery.

Meanwhile, the company reported a decline in investment banking -- an area of strength for rivals.

"We think the worst is largely behind us ... we don't see any permanent damage in our fixed income business at all," Chief Financial Officer Sam Molinaro told analysts.

Goldman Sachs and Bear Stearns joined Morgan Stanley and Lehman Brothers in reporting results this week.

Lehman's profits fell, but less than analysts had expected.

Morgan Stanley, meanwhile, did worse than expected amid loan writedowns and losses in computer-driven stock trading.

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AP Business Writer Dan Seymour in New York contributed to this report.

"Bernanke: Fresh assurances on economy"

By JEANNINE AVERSA, Associated Press

Last updated: 6:22 p.m., Thursday, September 20, 2007

WASHINGTON -- President Bush acknowledged "some unsettling times" in the country's troubled housing and credit markets, while Federal Reserve Chairman Ben Bernanke offered fresh assurances steps would be taken to curb the fallout.

The housing slump, the worst in 16 years, is likely to drag on well into 2008, when the nation will be voting for a new president.

Home foreclosures -- now at record highs -- and delinquencies are likely to get worse, Bernanke told the House Financial Services Committee on Thursday.

Against this backdrop, the Fed and other banking regulators, the Bush administration and Capitol Hill are scrambling to provide relief.

Proposals in Congress would expand federal backing of mortgages.

The House on Tuesday passed legislation that would give more leeway to the Depression-era Federal Housing Administration, which insures mortgages for low- and middle-income borrowers.

The Senate has its own bill.

The administration, meanwhile, is working with the FHA to help squeezed homeowners.

Bush said at a White House news conference Thursday "there is no question" these are "some unsettling times" in the housing and credit markets.

"That's why I look forward to working with Congress to modernize the FHA loans so that people can refinance their homes."

Treasury Secretary Henry Paulson, who also appeared at the House hearing, signaled that the administration would consider allowing the mortgage giants Fannie Mae and Freddie Mac to temporarily buy, bundle and sell as securities any loans exceeding $417,000, known as "jumbo" loans.

The idea, which represents a policy change for the administration, is portrayed as an important way to pump cash into the jumbo loan market, which has been hard hit by the credit crunch.

Paulson stressed such a change could occur only in tandem with tighter oversight of Fannie Mae and Freddie Mac.

A few years ago, the two mortgage giants suffered multibillion-dollar accounting scandals.

Bernanke also said any leeway given to buy jumbo loans should only be provided on a temporary basis.

The top executives at Freddie Mac and Fannie Mae testified that they stood ready to help cushion the shocks from a rising flood of mortgage foreclosures.

Daniel Mudd, head of Fannie Mae, said his company continued to support an increase in its mortgage portfolio of 10 percent, much bigger than the 2 percent bump-up the mortgage giants' regulatory agency approved Wednesday.

"I am confident we could provide more liquidity help to the home finance market today without taking risks we are not capable of managing," Mudd said.

"We are not the only answer to the liquidity crunch, but we can play a part in a measured, safe and sound way," he added.

Richard Syron, Freddie Mac's chief said: "We remain very dedicated to helping borrowers avoid foreclosures."

The panel's chairman, Rep. Barney Frank, D-Mass., supports giving more leeway to the FHA as well as to Fannie Mae and Freddie Mac to help ease the credit crunch.

"I think there's a general agreement that investors, having once been too reckless, are now, to some extent, too cautious, and this isn't going to go away instantly," Frank said.

The biggest fear is the ill effects of the housing slump and credit crunch will throw the economy into recession.

Hoping to prevent that from happening, the Federal Reserve on Tuesday sliced a key interest rate by a bold half-percentage point.

It was the first time in more than four years the Fed cut this rate.

Bernanke didn't offer new clues about the Fed's next move.

Some economists, however, predict another rate reduction will come at the Fed's next meeting in late October.

Bush, meanwhile, believes the country will weather the financial storm.

"I'm optimistic about our economy," he said.

Lax lending standards during the housing boom came to roost after the housing bust.

The carnage has been the most severe in the so-called "subprime" market, where mortgages are held by borrowers with spotty credit or low incomes.

Many are at risk of losing their homes.

Analysts estimate that at least 2 million adjustable-rate mortgages will jump from very low initial teaser rates to higher rates this year and next.

Steep prepayment penalties have made it difficult for some to get out of their mortgages.

Some overstretched homeowners can't afford to refinance or even sell their homes.

"Economic terrorism is what is going on in this country," said Bruce Marks, head of Neighborhood Assistance Corporation of America, a nonprofit group that promotes affordable homeownership.

"Hard working people are not losing their jobs, but they are losing their homes," he said.

The Federal Reserve is conducting a thorough review of possible actions to help consumers and would-be homeowners and prevent problems from happening again in the future.

"We are committed to preventing problems from recurring, while still preserving responsible subprime lending," Bernanke said.

For all its problems, subprime lending has been an important factor boosting home ownership in the United States.

Bernanke said the Fed is committed to providing more effective disclosures to help consumers defend against improper lending.

The Fed also is considering new rules in several areas, including restrictions on loans that don't require proof of a borrower's income and limitations on financial penalties for borrowers who make early payments.

More uniform enforcement in the fragmented market of brokers and lenders also would help protect consumers, Bernanke suggested.

Bernanke's predecessor, Alan Greenspan, has been criticized for holding short-term interest rates too low for too long, feeding the housing boom.

Asked if he thought that was the case, Bernanke said the "primary factor" was unusually low, long-term interest rates seen in the United States and in many other countries at the time.

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Associated Press reporters Marcy Gordon and Martin Crutsinger contributed to this story.

"Banks slow their borrowing from the Fed"

By MARTIN CRUTSINGER, Associated Press

Last updated: 5:33 p.m., Thursday, September 20, 2007

WASHINGTON -- Banks slowed their borrowing from the Federal Reserve this week, the first decline since the credit crisis began in early August.

However, the average weekly total was still the second highest since the 2001 terrorist attacks.

The Federal Reserve reported Thursday that the average daily borrowing for the week ending on Wednesday was $2.18 billion.

That was down from a daily average of $2.93 billion for the week ending Sept. 12.

The $2.93 billion level was the highest daily average since discount window borrowing hit an average of $11.7 billion the week ending Sept. 12, 2001, as the Fed flooded the U.S. financial system with money in an effort to make sure the 9/11 terrorist attacks did not derail the economy.

The daily average for this week, while down from last week, was still the second highest weekly total since the terrorist attacks as the Fed continues to try to limit the fallout from the current credit crisis.

On Tuesday, the Fed announced it was cutting its target for the federal funds rate, the interest that banks charge each other, by a half-point in an aggressive effort to keep the turmoil in financial markets that began in early August from derailing the economy.

In addition to reducing the funds rate from 5.25 percent down to 4.75 percent, the Fed announced it was also cutting its discount rate to 5.25 percent.

The discount rate is the interest that the Fed charges to make direct loans to banks.

It marked the second reduction in the discount rate in the past month.

The Fed on Aug. 17 also cut the discount rate by a half-point.

Fed officials have been encouraging banks to make use of the discount window in an effort to make sure that there is enough money available for credit-worthy borrowers.

The concern is that certain sections of the credit markets have frozen up as investors have grown fearful about getting repaid because of the surge in defaults on mortgage loans, especially in the subprime market, where loans are provided to borrowers with weak credit histories.

Problems in subprime mortgages have spread to other types of mortgages and also to the commercial paper market, where short-term loans are provided to businesses.

Federal Reserve Chairman Ben Bernanke told the House Banking Committee on Thursday that the Fed's action to cut interest rates this week was meant to "get out ahead" of the situation in the credit markets.

There have been some indications that the Fed's aggressive rate cuts are giving a boost to credit markets.

Investors said that the commercial paper market was showing signs of stabilizing and they were encouraged by new deals being made Thursday in the investment-grade bond market.

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On the Net:

Federal Reserve: http://www.federalreserve.gov

"Bear Stearns 3Q profit falls 62 percent"

By DAN SEYMOUR, Associated Press

Last updated: 5:03 p.m., Thursday, September 20, 2007

NEW YORK -- Bear Stearns Cos. said Thursday its profit plunged 62 percent in the third quarter as turbulence in the debt market and wrong-way bets on mortgages crunched the investment bank's credit portfolio and bond business.

The Wall Street brokerage reported third-quarter income, after paying preferred dividends, of $166.1 million, or $1.16 per share, compared with a profit of $432.2 million, or $3.02 per share, in the third quarter of 2006.

Analysts polled by Thomson Financial forecast a profit of $1.78 per share.

As the investment bank with the most exposure to mortgages, Bear Stearns was particularly vulnerable to the crisis in the U.S. credit markets this summer.

Revenue from the bank's fixed-income business, which sells products like bonds, fell 88 percent to $117.6 million.

This segment was by far Bear's biggest breadwinner last year, contributing almost 45 percent of the company's revenue in the third quarter of 2006.

In this year's third quarter, fixed income contributed less than 10 percent of total revenue.

"Bear's core strength had been in these securities that went bad, and no one wants to deal in this stuff right now," said Axel Merk, manager of the Merk Hard Currency Fund.

The company gave little insight into how a unit that booked $945 million in last year's third quarter tumbled so dramatically.

Bear said the fixed income segment collected less from its mortgage business, while the value of its portfolio declined.

This was Bear's worst quarter since 2000.

Stung by decaying credit quality, investors this summer embarked on a flight from risky debt.

Demand for many of the investment banks' best-selling products suddenly drained, and the businesses they established to sell and trade these products lost value.

Bear Stearns Chief Executive James E. Cayne in a statement cited "extremely difficult" conditions for markets where investors buy pools of loans.

Bear's Wall Street rivals -- Morgan Stanley, Lehman Brothers Holdings Inc. and Goldman Sachs -- recorded accounting charges ranging from $700 million to about $1.5 billion to account for the effect of the mortgage tumult on their business.

Bear did not disclose the size of the hit its investment portfolio took.

One of the highest-profile casualties of the mortgage fallout was a pair of hedge funds managed by Bear Stearns designed to bet on mortgage debt.

These funds went bankrupt this summer, which Bear Stearns said ate $200 million out of the company's profit for the third quarter.

Shares of Bear Stearns lost 9 cents to $115.55 Thursday.

The shares closed Wednesday down 29 percent for the year.

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AP Business Writer Jeremy Herron in New York contributed to this report.

"Tighter credit stalling economy's growth"

By CANDICE CHOI, Associated Press

Last updated: 4:43 p.m., Thursday, September 20, 2007

NEW YORK -- Strained by a tight credit market, the nation's economy should stumble along at a slower pace in coming months, but it may find help from lower interest rates and possible employment gains.

The Conference Board said Thursday its index of leading economic indicators dropped 0.6 percent in August, slightly higher than the 0.5 percent fall analysts were expecting.

The drop was offset by a revised 0.7 rise in July.

While the index has jumped up and down in recent months, the cumulative change over the past six months has been a 0.5 percent rise.

That's consistent with the modest growth of the nation's gross domestic product, which grew at around 2 percent in the second quarter, analysts said.

Also on Thursday, the Labor Department said jobless claims declined to the lowest level in seven weeks, surprising analysts who were expecting a jump in claims.

"That shows there's firm demand for labor despite the turmoil in the marketplace."

"That's good news," said Gary Bigg, associate economist with Bank of America.

Taken together, Bigg said the data indicated the economy will continue its slow but steady growth.

The Conference Board report, taken before the Fed's rate cut earlier this week, may simply reflect the immediate effects of the clampdown in credit markets in August, analysts said.

While the credit squeeze has created "significant market stress," Federal Reserve Chairman Ben Bernanke gave fresh assurances Thursday that regulators would step in to curb the fallout.

The bank cut a key interest rate by a half-point Tuesday, down to 4.75 percent.

The bigger-than-expected cut was an effort to ensure the country isn't pushed into a recession by turbulence in the financial markets.

The credit crisis started with rising defaults in subprime mortgages -- home loans made to people with weak credit histories.

Analysts believe these problems, along with declining consumer confidence, could lead to a recession.

The Conference Board report tracks 10 economic indicators.

Only one of those indicators, real money supply, advanced in August.

The negative components, starting with the largest, were consumer expectations, unemployment claims, stock prices, building permits, vendor performance, manufacturers' new orders for non-defense capital goods, interest rate spread, and manufacturers' new orders for consumer goods.

Weekly manufacturing hours held steady.

The report is designed to forecast economic activity over the next three to six months.

The index rose a revised 0.7 percent in July, after slipping 0.1 percent in June.

The erratic pattern reflects the ongoing uncertainty over the impact of the credit crisis on the overall economy.

"Economic growth is likely to continue in the near term, although at a slower pace," said Ken Goldstein, labor economist for the Conference Board.

For growth to continue, however, Goldstein said there will be two potential hurdles to overcome -- business confidence and the "wealth effect," which has been hit by falling home prices.

"This loss of household assets, if combined with weak employment growth, could have a negative impact on consumer spending going forward," Goldstein said.

Stocks dipped Thursday following weaker-than-expected earnings at Bear Stearns.

The Dow slipped 48.86, or 0.35 percent, to 13,766.70.

Broader stock indexes also declined.

The Standard & Poor's 500 index fell 0.67 percent to 1,518.75 and the Nasdaq composite index fell 0.46 percent to 2,654.29.

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On the Net:

http://www.conference-board.org

"Survivor recalls Blackwater shootings"

By BUSHRA JUHI, Associated Press Writer

20 September 2007

BAGHDAD - Lawyer Hassan Jabir was stuck in traffic when he heard Blackwater USA security contractors shout "Go, Go, Go."

Moments later bullets pierced his back, he said Thursday from his hospital bed.

Jabir was among about a dozen people wounded Sunday during the shooting in west Baghdad's Mansour neighborhood.

Iraqi police say at least 11 people were killed.

Prime Minister Nouri al-Maliki described the shooting as a "crime" by Blackwater, a N.C.-based company that guards American diplomats and civilian officials in Iraq.

"No one fired at them," Jabir said of the Blackwater guards.

"No one attacked them but they randomly fired at people."

"So many people died in the street."

Blackwater's operations have been suspended pending completion of a joint U.S.-Iraqi investigation.

In the meantime, most U.S. diplomats and civilian officials are confined to the Green Zone or U.S. military bases unless they can travel by helicopter.

As Jabir posed for photographers in Yarmouk Hospital, an Interior Ministry official came by to register his name as a victim in connection with the investigation.

Jabir's account is among several versions which the investigators hope to reconcile.

Blackwater insists that its employees came under fire from armed insurgents and shot back to protect State Department employees.

A U.S. official in Washington who's familiar with information collected by investigators said the accounts given by witnesses are widely different.

He spoke on condition of anonymity because the investigation is not over.

Jabir, whose left arm and chest were bandaged, said he was driving toward the Ministry of Justice when he found the road clogged with traffic.

He saw several armored vehicles with armed guards on the roofs parked ahead of the traffic jam.

Three black SUVs were behind them.

"After 20 minutes, the Americans told us to turn back," he said.

"They shouted 'Go' 'Go' 'Go.'"

"... When we started turning back, the Americans began shooting heavily at us."

"The traffic policeman was the first person killed."

The shooting set off a panic, Jabir said, with men, women and children diving from their vehicles, trying desperately to crawl to safety.

"But many of them were killed," he said.

"I saw a 10-year-old boy jump in fear from one of the minibuses."

"He was shot in his head."

"His mother jumped after him and was also killed."

Suddenly, Jabir felt two bullets strike his back — one pierced his left lung and the other lodged in his intestines.

"I kept on driving my car because if I left it, I would die," he said.

"Then I was hit with two other bullets, one in my right hand and the second in my right shoulder just under the neck."

"... I was rescued by Iraqi special forces" who rushed to the area.

"I swear to God that they were not exposed to any fire," Jabir said of the Blackwater guards.

"They are criminals and thirst for blood."

U.S. officials have refused to discuss details of the shooting pending completion of the investigation.

President Bush told reporters in Washington that he expects to discuss the incident with al-Maliki during a meeting in New York next week on the sidelines of the U.N. General Assembly session.

"Folks like Blackwater who provide security for the State Department are under rules of engagement," Bush said.

"They have certain rules."

"And this commission will determine whether they violated those rules."

According to the official in Washington, most of the Iraqi witnesses say Blackwater guards fired on a car which had acted suspiciously.

The car then burst into flames and exploded, according to the Iraqi witnesses.

American witnesses maintain they were taking fire before the car approached, and fired back.

Some insist the car exploded without being hit, the official said.

That version suggests it was a car bomb.

Some Iraqis didn't seem to care which version was correct.

For them, the real problem is that their country is occupied by foreigners — whether soldiers or civilians.

"Our problem is rooted in the occupation, regardless of whether it's by security firms or foreign troops," a Baghdad resident, who have his name only as Abu Ahmed, told Associated Press Television News.

"This is one of the grave consequences of the occupation."
___

Associated Press correspondent Matthew Lee in Washington contributed to this report.

"Scientists say velociraptor had feathers"

20 September 2007

WASHINGTON - Velociraptor, the terrifying predator made famous in the movie "Jurassic Park," appears to have had feathers in real life.

A close study of a velociraptor forearm found in Mongolia shows the presence of quill knobs, bumps on the bone where the feathers anchor, researchers report in Friday's edition of the journal Science.

Dinosaurs are believed to be ancestors to modern birds.

Evidence of feathered dinosaurs has been found in recent years, and now velociraptor can be added to that list.

"Finding quill knobs on velociraptor ... means that it definitely had feathers."

"This is something we'd long suspected, but no one had been able to prove," Alan Turner, lead author on the study and a graduate student of paleontology at the American Museum of Natural History and at Columbia University in New York, said in a statement.

The velociraptor the researchers studied was about three feet tall and weighed about 30 pounds.

The size of these animals was exaggerated in the movie.

It had short forelimbs, compared to a modern bird, the researchers said, indicating it would not have been able to fly, even though it had feathers.

The feathers may have been useful for display, to shield nests, for temperature control or to help it maneuver while running, they said.
___

On the Net:

Science: http://www.sciencemag.org

American Museum of Natural History: http://www.amnh.org

"Stocks end higher after Oracle earnings"

By TIM PARADIS, Associated Press

Last updated: 6:12 p.m., Friday, September 21, 2007

NEW YORK -- Stocks rose soundly Friday, capping a strong week for Wall Street, as investors drew confidence from strong results at Oracle Corp. and a continued sense that lower interest rates should help bolster the economy.

Oracle's report that quarterly profits rose 25 percent as sales grew at their fastest pace in seven years offered fresh evidence that some sectors of the economy continue to hum along even as areas such as housing cause consternation for many investors.

Wall Street found renewed optimism this week after the Federal Reserve lowered interest rates a larger-than-expected one-half percentage point Tuesday.

The central bank also lowered the rate it charges to lend directly to banks by the same amount.

"As much as we often underestimate the depth of our problems it's also natural for us to underestimate the depth and robustness of our economy."

"There are many industry segments that are very healthy," said Robert Brown, chief investment officer at Genworth Financial Asset Management, pointing to stronger-than-expected earnings reports.

He contended while Wall Street's exuberance over the Fed's rate cuts is understandable, investors are blithely looking past some of the concerns the economy faces.

The Dow Jones industrial average rose 53.49, or 0.39 percent, to 13,820.19.

Broader stock indicators also rose.

The Standard & Poor's 500 index advanced 7.00, or 0.46 percent, to 1,525.75, while the Nasdaq composite index rose 16.93, or 0.64 percent, to 2,671.22.

For the week, the Dow was up 2.9 percent, while the S&P 500 index added 2.8 percent.

It was the best weekly showing for the indexes since March.

Nasdaq rose 2.7 percent, its best weekly gain since last month.

Friday's session brought "triple-witching," a once-a-quarter occurrence when investors face simultaneous expiration of contracts for stock index futures, index options and stock options.

Such days often bring higher-than-normal volume as investors jockey for new positions, although analysts noted Friday's volume wasn't heavy considering the expirations.

Advancing issues outnumbered decliners about 2 to 1 on the New York Stock Exchange, where volume came to 2.08 billion shares, compared with 1.27 billion shares traded Thursday.

Bonds rose, with the yield on the benchmark 10-year Treasury note falling to 4.63 percent from Thursday's close of 4.69 percent.

Treasurys have sold off for three straight sessions amid concerns about the possibility of increasing inflation and the prospect of Saudi Arabia lightening its U.S. government holdings.

The gains on Wall Street have also drained some money out of the bond market.

Brown contends the stock and bond markets have diverged; the equity market is regarding the Fed's rate cut as providing adequate liquidity to propel stocks to new highs.

"These rates cuts are not turning bad debt into good debt."

"And this rate cut is not changing the housing debacle's impact on slowing economic growth."

"There is no question that the effect is potent, that we will incur significantly slower economic growth and the probability of a recession is now great."

"Their actions are honestly not having any impact on that probability," he said of the Fed.

Stocks pulled off their highs Friday afternoon after Fed Governor Kevin Warsh warned the central bank wouldn't bail out Wall Street simply to protect profits but that the Fed was focused on protecting the economy.

Noman Ali, portfolio manager with MFC Global Investment Management, contends Friday's advance in part reflected a renewed sense of enthusiasm from the Fed's rate cuts.

He said Wall Street was relieved, too, that some of the major brokerages reporting results this week turned in better results than many investors expected given the recent upheaval in the credit markets.

Ali also said inflation readings during the week, such as the consumer price index, didn't show unnerving increases in prices.

"We expect another rate cut in October because inflation is still not an issue," he said, noting the economy seemed to be absorbing higher food prices and oil prices at record levels.

Crude oil futures for November delivery fell 16 cents to settle at $81.61 per barrel on the New York Mercantile Exchange.

On Thursday, the October contract, now expired, closed at an all-time high above $83 a barrel.

Ali noted investors next week will be looking for profit forecasts as it is the final week of the quarter.

Gold prices rose, while the dollar bounced back after hitting another record low against the euro, which surpassed $1.41 for the first time.

The dollar slumped against other major currencies.

With no major economic reports, Wall Street looked to corporate news.

Oracle rose 93 cents, or 4.4 percent, to $21.98 following its earnings report.

Harman International Industries Inc. closed down $27.25, or 24 percent, at $85 after the maker of upscale audio equipment confirmed reports that two private equity firms backed out of an $8 billion buyout deal to acquire the company.

Meanwhile, cosmetics maker Estee Lauder Cos. advanced $1.95, or 4.8 percent, to $42.58 amid takeover rumors.

And Joy Global Inc. rose 91 cents to $49.59 after the mining equipment company affirmed its full-year earnings and revenue forecasts.

The Russell 2000 index of smaller companies rose 3.35, or 0.41 percent, to 813.11.

In trading abroad, Britain's FTSE 100 finished up 0.43 percent, Germany's DAX index rose 0.77 percent, and France's CAC-40 rose 0.21 percent.

In Asia, Japan's Nikkei index closed down 0.62 percent and Hong Kong's Hang Seng Index rose 0.56 percent.

------

On the Net:

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

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

"Mattel apologizes to China over recalls"

By ALEX VEIGA, Associated Press

Last updated: 5:12 p.m., Friday, September 21, 2007

LOS ANGELES -- Mattel Inc. tried to save face Friday with Chinese officials, taking the blame for the recent recalls of millions of Chinese-made toys as it strives to mend a strained relationship with the nation that makes most of its toys and fattens its profit.

The world's largest toy maker sent a top executive to personally apologize to China's product safety chief, Li Changjang, as reporters and company lawyers looked on.

"Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people, and all of our customers who received the toys," Thomas A. Debrowski, Mattel's executive vice president for worldwide operations, told Li.

The unusual move reflects how invested El Segundo-based Mattel has become in China.

"Mattel certainly must have been facing some pressure to do that, because you can't imagine why they would be trying to push this story along any further," said Eric Johnson, a professor of operations management at Tuck School of Business at Dartmouth College.

He suggested Mattel may want to prevent China from imposing more taxes or regulations.

"China's embarrassment in all this could lead to that, and I think they were trying to head that off with this apology," Johnson said.

Peter Navarro, a business professor at the University of California, Irvine, and the author of "The Coming China Wars," also suggested Mattel was trying to avoid punitive measures.

"Mattel is worried that the Chinese government is going to make it difficult for them to produce, put their costs up and hurt their stock price," Navarro said.

Mattel did not immediately respond to a call seeking further comment.

Company stock has fallen from the mid-$23 level following the first recall in early August to a low of $20.97 on Sept. 10.

Shares have since rebounded, increasing 38 cents, or 1.6 percent, to $23.94 on Friday.

The apology came ahead of an expected visit to China by Mattel's Chairman and Chief Executive Robert A. Eckert.

The timing of the trip has not been announced.

Mattel ordered three high-profile recalls this summer involving more than 21 million Chinese-made toys, including Barbie doll accessories and toy cars because of concerns about lead paint or tiny magnets that could be swallowed.

Mattel previously said many of the toys were recalled because of design problems.

It also said certain vendors in China or their subcontractors violated Mattel's rules by failing to use safe paint or to run tests on paint.

On Friday, Debrowski acknowledged that the "vast majority of those products that were recalled were the result of a design flaw in Mattel's design, not through a manufacturing flaw in China's manufacturers."

Lead-tainted toys accounted for only a small percentage of all toys recalled, he added.

In a statement issued later, Mattel said its lead-related recalls were "overly inclusive, including toys that may not have had lead in paint in excess of the U.S. standards."

"The follow-up inspections also confirmed that part of the recalled toys complied with the U.S. standards," the statement said, without giving specific figures.

In Beijing, Debrowski said, "we understand and appreciate deeply the issues that this has caused for the reputation of Chinese manufacturers."

Li upbraided Mattel for maintaining weak safety controls and reminded Debrowski that "a large part of your annual profit ... comes from your factories in China."

"I really hope that Mattel can learn lessons and gain experience from these incidents," Li said, adding that Mattel should "improve their control measures."

Since the recalls, Mattel has announced plans to upgrade its safety system by certifying suppliers and increasing the frequency of random, unannounced inspections.

It has fired several manufacturers.

Chinese food, drugs and other products ranging from toothpaste to seafood are also under intense scrutiny because they have been found to contain potentially deadly substances.

On Friday, the Consumer Product Safety Commission said about 1 million Simplicity and Graco cribs were being recalled after three children became entrapped in their cribs and died of suffocation.

The products were made in China.

China has bristled at what it claims is a campaign to discredit its reputation as an exporter.

It accuses foreign media and others of playing up its product safety issues as a form of protectionism and has stepped up inspections of food, drugs and other products in response to the concerns.

Manufacturing toys in China has helped Mattel and other U.S. companies lower manufacturing and labor costs, helping boost profits.

Mattel established a presence in China 25 years ago and now makes about 65 percent of its products there.

More than 80 percent of all toys sold in the U.S. are made in the Asian nation.

Mattel's apology garnered praise from some parents, including Arianna McRoberts, 41, of Los Angeles, the mother of two boys, 7 and 14.

"It's unfortunate China got the bad rap, but I also think China needs to pay attention a little more carefully to their standards so they comply with American standards," McRoberts said.

Johnson said the staging of Mattel's apology as a public event was telling.

"This was all about saving face, which is very important in the Chinese culture," he said.

The mea culpa could help reshape the debate surrounding Chinese-made toys.

New research from two business professors shows that recalls due to problems with the designs of U.S.-based companies accounted for about 76 percent of the 550 U.S. toy recalls since 1988.

The report was released earlier this month by Paul R. Beamish, an international business professor at Canada's University of Western Ontario, and Hari Bapuji, business professor at University of Manitoba's I.H. Asper School of Business in Winnipeg, Canada.

It found that recalls blamed on design problems and manufacturing defects, such as lead paint or poor craftmanship, both rose in the past two years as U.S. makers have shifted more of their production to China.

But they noted that, "if shifting manufacturing to China resulted in poorer quality goods, then the number of toys recalled due to manufacturing should be greater than the number recalled due to design."

The report said that was not the case.

"Nobody gets a free ride on this," said Beamish, arguing that toy makers' obsession to quickly get new products to market before they are widely copied has resulted in a lot of cost-cutting and inadequate testing.

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AP Business Writer Anne D'Innocenzio in New York and Associated Press Writers Alexa Olesen in Beijing and Solvej Schou in Los Angeles, contributed to this report.

"Dollar tumbles to new low vs. the euro"

By JACKIE FARWELL, Associated Press

Last updated: 4:22 p.m., Friday, September 21, 2007

NEW YORK -- The dollar hit a new low against the seemingly unstoppable euro Friday as the 13-nation currency broke through $1.41.

The euro's ascension renewed calls from French President Nicolas Sarkozy for the European Central Bank to follow the Federal Reserve and cut interest rates, which would help keep French exports competitive.

Despite the worries of some exporters -- European aircraft maker Airbus said if the euro keeps rising it may have to seek new cost savings -- ECB President Jean-Claude Trichet and German Chancellor Angela Merkel stood firm that the ECB must remain independent.

The currency of the 13 euro nations, which have more than 317 million residents and account for more than 15 percent of global gross domestic product, surged as high as $1.4119 before falling back to $1.4083 by late afternoon, above the $1.4076 it bought in New York on Thursday.

The U.S. dollar fell further against the Canadian dollar after reaching parity for the first time since 1976 on Thursday.

One Canadian dollar bought $1.0068 in U.S. currency at its highest point Friday before edging down to 99.95 U.S. cents in late New York trading, barely beating 99.93 U.S. cents late Thursday.

The Canadian dollar has experienced a summer of record highs on soaring crude prices and a strong economy.

Retail prices, however, have yet to adjust, according to an economist at one of Canada's large banks.

Doug Porter, deputy chief economist at the Bank of Montreal, released a study Friday that indicates Canadians are paying roughly 24 percent more than Americans on identical goods despite parity in the U.S and Canadian dollars.

Porter compared 17 goods sold in Canada and the U.S., finding that retail prices in Canada have not yet responded because most are set a year in advance.

In other trading, the dollar slid to $2.0200 against the British pound from $2.0099 late Thursday.

It rose against the Japanese currency to 115.39 yen from 114.44 yen.

The dollar bought 1.1726 Swiss francs, up from 1.1717.

The American currency weakened sharply this week on the back of a decision by the U.S. Federal Reserve to cut its benchmark rate by a bigger-than-expected half point to 4.75 percent.

The central bank was responding to market turbulence in the U.S. and elsewhere in the fallout from the subprime mortgage crisis.

"Furthermore, there are widespread expectations that the Fed will trim interest rates further over the coming months," said Howard Archer, the chief U.K. and European economist for Global Insight.

"In contrast, the European Central Bank still retains a clear bias toward raising interest rates further, despite shelving its original plans to act at its September meeting due to the current uncertainty and turmoil in global credit and financial markets."

Lower interest rates, used to jump-start the economy, can also weaken a currency.

Investors can get greater returns from countries with higher interest rates, so money flows to investments in those countries' currencies.

Also, foreign investors in a currency that is losing value get relatively lower returns when they cash in their stocks and bonds.

The ECB kept its benchmark rate unchanged at 4 percent at its Sept. 6 meeting and the Bank of England is expected to keep its rate steady at 5.75 percent when it meets next month.

As the dollar weakens against the euro, it could dampen European exports to the United States, making European-made products from automobiles to consumer appliances more expensive for American buyers.

It also makes European vacations more expensive for visitors from the U.S.

The strength of the currency is becoming a political issue, particularly in France, which has repeatedly demanded that the ECB ends its nearly two-year rate hike campaign.

"I don't criticize Trichet," Sarkozy told French television on Thursday.

"But I'm saying: look at what's going on," adding "in the current economic situation, the Fed cuts rates, the ECB doesn't cut them."

Trichet said in a speech Thursday night that independence is the cornerstone of the bank's monetary policy because it "allows the central bank to pursue its primary objective and to take full responsibility for its action."

Merkel reiterated her stance, saying "even the slightest hint" that the ECB was not independent could put the euro's stability in jeopardy.

But others want to see the bank move, quickly.

"Such a strong euro cannot do good to Europe's economy and not even to the feeble signals of recovery of Italy," Eni CEO Paulo Scaroni was quoted as saying by the ANSA news agency.

Airbus Chief Operating Officer Fabrice Bregier, the company's No. 2 executive, said in an interview Friday with BFM radio that the company's cost-savings and restructuring program was based on a euro-dollar rate of $1.35 and aimed at generating $2.8 billion in savings.

If the euro rises to $1.45, he said Airbus would have to seek another $1.4 billion in savings.

Analysts say fears of more U.S. interest rate cuts could drive the euro higher.

Fed Chairman Ben Bernanke's remarks to Congress on Thursday did not assuage fears about the U.S. economy, said David Jones, chief market analyst at CMC Markets in London, but rather "reignited fears that there may be further bad news to come with regard to the U.S. subprime mortgage market."

Both Archer and Jones said that those fears are putting more pressure on the dollar and causing buyers to look to safer havens, namely the euro and the British pound.

Archer reiterated that "$1.45 is a serious possibility before the end of the year."

While it's not quite a crisis for the dollar, Jones said, "it's fair to say that confidence in the greenback has been truly shaken."

AP Business Writer Matt Moore in Frankfurt, Germany, contributed to this report.

"Home Depot CEO says no job cuts planned"

By HARRY R. WEBER, Associated Press

Last updated: 12:43 p.m., Friday, September 21, 2007

ATLANTA -- The Home Depot Inc. doesn't plan to make any broad-based job cuts or reduce the number of its core retail stores in the face of a persistent housing slump that isn't expected to improve anytime soon, Chief Executive Frank Blake said Friday.

Blake told The Associated Press in an exclusive interview that the Atlanta-based company's focus on customer service means more employees, not fewer, will be needed.

"We're making investments, notwithstanding the downturn," Blake said.

"I think that's absolutely the right thing to do for the business."

"It's going to lead to long-term success."

While Home Depot said earlier this week it was closing its 11 Landscape Supply stores and in the past it has shut a number of its Expo design centers, Blake said there are no plans to close any of the company's more than 2,000 core retail stores.

"We're not going to shut stores to save costs," Blake said.

"We don't need to."

Blake said he recognizes that with profits and sales down and the company's stock price down more than 12 percent on an adjusted basis since he replaced Bob Nardelli as CEO in January, investors may be uneasy.

That's especially an issue because Home Depot has taken aggressive moves to boost its stock price, including selling its wholesale distribution business and launching a major stock buyback program.

"What keeps me up at night is getting the company running in a way the company needs to run," Blake said.

Despite the stock performance, Blake insisted that Home Depot's strategy to focus more attention on its core business is the right strategy for the world's largest home improvement store chain.

"I think it's entirely fair and appropriate that I'm assessed in terms of the stock price," Blake said.

"It's a right metric for folks to use."

Asked if he is concerned about the company's stock price, something his predecessor was graded on during his six years at Home Depot, Blake said he believes that eventually the investment community "will say this is a great stock to own."

"I recognize that we're in a very tough market," Blake said.

"It's an obvious statement."

"We've been very transparent with the investor and analyst community."

Blake also said that the company has been candid with investors about its future.

"Don't expect our new store footprint to be a great growth engine going forward," Blake said.

"Don't expect acquisitions to be a growth engine, we sold that business."

"What you should expect as an investor, we're going to invest in our core business."

Blake said he has been pleased with the strength of Home Depot's culture, though he knows there are always areas in the company that can be improved.

"Every day you recognize you have 325,000 people and lots of transactions and lots of stores," Blake said.

"So, kind of getting the alignment in our organization, getting everybody to have confidence in the direction we're moving is an enormous undertaking."

On other issues, Blake said Home Depot will look at opportunities in the future for more expansion overseas, though it doesn't have any current plans.

He indicated Home Depot wasn't looking at Europe for expansion.

Blake also talked about his management style, his future with the company and why he took the job in the first place amid the turmoil Home Depot had faced over Nardelli's hefty pay and the company's lagging stock price.

Blake, perhaps more hands-off than Nardelli, said he believes the best way to manage is to focus on a fairly small number of things, rely on his team to handle the rest and to communicate only on an as-needed basis.

Asked why he took the job, Blake said he spent a fair amount of time thinking about it, but ultimately decided that it was an opportunity he couldn't pass up.

He said he hasn't given much thought to how long he would like to stay as CEO.

He's been the company's chief for 8 1/2 months.

"I'm 58 years old, so I'm not thinking I'm going to have this job for years and years and years," Blake said.

He added, "I think I understand what the job entails."

"I think I understand the kinds of things we need to do."

"I hope I get the time to do it."

------

On the Net:

The Home Depot Inc.: http://www.homedepot.com

"10,000 protest against Myanmar gov't"

22 September 2007

YANGON, Myanmar - Myanmar police allowed a group of more than 500 Buddhist monks to march Saturday past the house where opposition leader Aung San Suu Kyi is detained, witnesses said, on a day that saw some of the largest protests since 1988.

The monks stopped briefly in front of Nobel Peace Prize laureate Suu Kyi's house in Yangon and said prayers before leaving, said a resident, who asked not to be named for fear of being harassed by authorities.

After the monks had passed the road was closed again.

Suu Kyi has been in detention for more than 11 of the past 18 years.

In the central city of Mandalay, a crowd of 10,000 people, including some 4,000 Buddhist monks, marched, witnesses said, in one of the largest demonstrations against the country's repressive military regime since a democratic uprising in 1988.

Monks from various monasteries started their march in Mandalay — a hotbed for activist monks — while about 1,000 Buddhist monks began marching from Yangon's Shwedagon Pagoda, the country's most revered shrine and a historic center for protest movements.

From there, witnesses said, they planned to march to downtown Yangon, which is the nation's largest city.

It was the fifth straight day the monks have marched in Yangon and the numbers showed the anti-government protest were growing in size.

Emboldened by the monks, some 800 civilians walked along with them in the drizzling rain through the heart of the commercial district to support the most dramatic anti-government protests the isolated Southeast Asian nation has seen in years.

The monk's activities have given new life to a protest movement that began a month ago after the government raised fuel prices, sparking demonstrations against policies that are causing economic hardship.

Meanwhile, Buddhist monks in the country urged the public for the first time to join in protesting the "evil military despotism," stepping up their campaign against the junta after days of peaceful marches.

"In order to banish the common enemy evil regime from Burmese soil forever, united masses of people need to join hands with the united clergy forces," The All Burma Monks Alliance said the statement, received by The Associated Press Saturday.

Little is known of the group or its membership, but its communiques have spread widely by word of mouth and through opposition media in exile.

Some monks have started a religious boycott of the junta, symbolized by their holding their black begging bowls upside down as they march.

In the Myanmar language, the word for boycott comes from the words for holding the bowl upside down.

"We pronounce the evil military despotism, which is impoverishing and pauperizing our people of all walks including the clergy, as the common enemy of all our citizens," the statement read, which was translated from Burmese by Burma Net, a news site that covers Myanmar.

A day earlier, some 1,500 barefoot Buddhist monks marched through the rain-flooded streets of Myanmar's biggest city, drawing even more public sympathy to ongoing anti-government protests that have put the ruling military on the defensive.

The protest movement began Aug. 19 after the government raised fuel prices, but has its basis in long pent-up dissatisfaction with the repressive military regime.

Using arrests and intimidation, the government had managed to keep demonstrations limited in size and impact, but they gained new life when the monks joined.

The government has been handling the situation gingerly, aware that forcibly breaking up the monks' protest in predominantly Buddhist Myanmar would likely cause public outrage.

The protests at the Shwedagon pagoda resonate with many people, as it is best remembered as the site of a vast Aug. 26, 1988, rally where independence hero Gen. Aung San's daughter Suu Kyi, took up leadership of a pro-democracy movement.

The 1988 pro-democracy demonstrations were crushed by the military, and Suu Kyi has spent nearly 12 of the past 18 years in detention.

"Feds target Blackwater in weapons probe"

By MATTHEW LEE, Associated Press Writer

22 September 2007

WASHINGTON - Federal prosecutors are investigating whether employees of the private security firm Blackwater USA illegally smuggled into Iraq weapons that may have been sold on the black market and ended up in the hands of a U.S.-designated terrorist organization, officials said Friday.

The U.S. Attorney's Office in Raleigh, N.C., is handling the investigation with help from Pentagon and State Department auditors, who have concluded there is enough evidence to file charges, the officials told The Associated Press.

Blackwater is based in Moyock, N.C.

A spokeswoman for Blackwater did not return calls seeking comment Friday.

The U.S. attorney for the eastern district of North Carolina, George Holding, declined to comment, as did Pentagon and State Department spokesmen.

Officials with knowledge of the case said it is active, although at an early stage.

They spoke on condition of anonymity due to the sensitivity of the matter, which has heightened since 11 Iraqis were killed Sunday in a shooting involving Blackwater contractors protecting a U.S. diplomatic convoy in Baghdad.

The officials could not say whether the investigation would result in indictments, how many Blackwater employees are involved or if the company itself, which has won hundreds of millions of dollars in government security contracts since the 2003 invasion of Iraq, is under scrutiny.

In Saturday's editions, The News & Observer of Raleigh reported that two former Blackwater employees — Kenneth Wayne Cashwell of Virginia Beach, Va., and William Ellsworth "Max" Grumiaux of Clemmons, N.C. — are cooperating with federal investigators.

Cashwell and Grumiaux pleaded guilty in early 2007 to possession of stolen firearms that had been shipped in interstate or foreign commerce, and aided and abetted another in doing so, according to court papers viewed by The Associated Press.

In their plea agreements, which call for a maximum sentence of 10 years in prison and a $250,000 fine, the men agreed to testify in any future proceedings.

Calls to defense attorneys were not immediately returned Friday evening, and calls to the telephone listings for both men also were not returned.

The News & Observer, citing unidentified sources, reported that the probe was looking at whether Blackwater had shipped unlicensed automatic weapons and military goods to Iraq without a license.

The paper's report that the company itself was under investigation could not be confirmed by the AP.

Meanwhile, Secretary of State Condoleezza Rice ordered a review of security practices for U.S. diplomats in Iraq following a deadly incident involving Blackwater USA guards protecting an embassy convoy.

Rice's announcement came as the U.S. Embassy in Baghdad resumed limited diplomatic convoys under the protection of Blackwater outside the heavily fortified Green Zone after a suspension because of the weekend incident in that city.

In the United States, officials in Washington said the smuggling investigation grew from internal Pentagon and State Department inquiries into U.S. weapons that had gone missing in Iraq.

It gained steam after Turkish authorities protested to the U.S. in July that they had seized American arms from the outlawed Kurdistan Workers Party, or PKK, rebels.

The Turks provided serial numbers of the weapons to U.S. investigators, said a Turkish official.

The Pentagon said in late July it was looking into the Turkish complaints and a U.S. official said FBI agents had traveled to Turkey in recent months to look into cases of missing U.S. weapons in Iraq.

Investigators are determining whether the alleged Blackwater weapons match those taken from the PKK.

It was not clear if Blackwater employees suspected of selling to the black market knew the weapons they allegedly sold to middlemen might wind up with the PKK.

If they did, possible charges against them could be more serious than theft or illegal weapons sales, officials said.

The PKK, which is fighting for an independent Kurdistan, is banned in Turkey, which has a restive Kurdish population and is considered a "foreign terrorist organization" by the State Department.

That designation bars U.S. citizens or those in U.S. jurisdictions from supporting the group in any way.

The North Carolina investigation was first brought to light by State Department Inspector General Howard Krongard, who mentioned it, perhaps inadvertently, this week while denying he had improperly blocked fraud and corruption probes in Iraq and Afghanistan.

Krongard was accused in a letter by Rep. Henry Waxman, D-Calif., chairman of the House Oversight and Government Reform Committee, of politically motivated malfeasance, including refusing to cooperate with an investigation into alleged weapons smuggling by a large, unidentified State Department contractor.

In response, Krongard said in a written statement that he "made one of my best investigators available to help Assistant U.S. Attorneys in North Carolina in their investigation into alleged smuggling of weapons into Iraq by a contractor."

His statement went further than Waxman's letter because it identified the state in which the investigation was taking place.

Blackwater is the biggest of the State Department's three private security contractors.

The other two, Dyncorp and Triple Canopy, are based in Washington's northern Virginias suburbs, outside the jurisdiction of the North Carolina's attorneys.
___

Associated Press writers Mike Baker in Raleigh and Desmond Butler and Lara Jakes Jordan in Washington contributed to this report.

"U.S. arrests 25 in sheik slaying probe"

By BUSHRA JUHI, Associated Press Writer

22 Sptember 2007

BAGHDAD - The U.S. military on Saturday confirmed the arrests of 25 people linked to the assassination of the leader of the U.S.-backed revolt by Sunni Arab tribesmen in the western Anbar province against al-Qaida in Iraq.

The suspects, who include the head of the security detail that was supposed to protect Sheik Abdul-Sattar Abu Risha, killed in a bombing Sept. 13, were detained by Iraqi police, Lt. Col. Jubeir Rashid said, an Iraqi police officer in Anbar.

Abu Risha's killing — just 10 days after his meeting with President Bush — dealt a blow to one of the few success stories in U.S. efforts to stabilize Iraq.

The tribal leader was credited with bringing together Anbar sheiks into an alliance against the extremists, after years of American failure to tame flashpoints such as Ramadi and Fallujah.

Rashid said Friday that Abu Risha's security chief, Capt. Karim al-Barghothi, confessed al-Qaida in Iraq had offered him $1.5 million for the slaying but that he was arrested before he could collect the money.

Two other bodyguards as well as some of Abu Risha's neighbors were also detained, Iraqi police said.

The arrests took place two days after the bombing.

Al-Qaida front group the Islamic State of Iraq claimed responsibility for the assassination.

Abu Risha, who organized 25 Sunni Arab clans into an alliance against al-Qaida, died along with two bodyguards and a driver when a bomb exploded near his walled compound just west of Ramadi, 70 miles west of Baghdad.

Maj. Jeff Pool, a U.S. military spokesman for western Iraq, praised the Iraqi investigation into the attack.

The U.S. military earlier said an al-Qaida-linked militant, identified as Fallah Khalifa Hiyas Fayyas al-Jumayli, an Iraqi also known as Abu Khamis and connected to Abu Risha's death and a plot to kill other tribal leaders, had been arrested during a raid north of Baghdad.

Pool said Abu Khamis was arrested with two others.

Abu Risha's death raised concerns that without his powerful presence in the Sunni alliance, Anbar could slide back into violence, but tribesmen in Anbar province have vowed not to be deterred in fighting the terror movement.

There are also fears that the slayings this week of two associates of Grand Ayatollah Ali al-Sistani, Iraq's top Shiite cleric, could worsen a Shiite power struggle in the country's oil-rich south.

The killings of the two cleric aides late Thursday in separate shootings within 30 minutes in the southern cities of Basra and Diwaniyah, prompted some clerics to go into hiding or abandon their robes and turbans for their own safety.

At least four other associates of al-Sistani have been assassinated in the holy city of Najaf since June, including one stabbed to death about 30 yards from the house where the Iranian-born al-Sistani lives.

The attacks reflected the precarious security across much of Iraq and suggested that the Shiite-Shiite competition for domination in the south is growing deeper and bloodier.

Additionally, the recent withdrawal of British troops from central Basra to the nearby airport has threatened to allow Iraq's second-largest city become a free-for-all for rival Shiite factions.

In violence Saturday, gunmen ambushed an Iraqi police checkpoint in Baqouba, 35 miles northeast of Baghdad, killing one officer and wounding five others, according to authorities.

A civilian also was killed in Khalis, a Shiite enclave near Baqouba in the volatile Diyala province, when gunmen opened fire on his car.

"Blackwater denies making illegal weapon exports"

By James Vicini and Will Dunham

22 September 2007

WASHINGTON (Reuters) - Private security contractor Blackwater USA denied on Saturday it was involved in illegally shipping automatic weapons and military goods to Iraq.

The statement by the company, whose contractors were accused by the Iraqi government of killing 11 people in Baghdad this week, came after a newspaper report that federal prosecutors are investigating whether Blackwater exported unlicensed military hardware into Iraq.

"Allegations that Blackwater was in any way associated or complicit in unlawful arms activities are baseless."

"The company has no knowledge of any employee improperly exporting weapons," the company said in a statement.

"This issue is completely unrelated" to Blackwater's U.S. government programs in Iraq, said the company, based in Moyock, North Carolina.

It employs around 1,000 contractors to protect the U.S. mission in Iraq and its diplomats from attack.

The News & Observer of Raleigh, North Carolina reported that two former Blackwater employees have pleaded guilty in Greenville, North Carolina, to weapons charges and are cooperating with the federal investigation.

The newspaper quoted two unnamed sources as saying federal officials are probing whether Blackwater was shipping weapons, night-vision scopes, armor, gun kits and other military goods to Iraq without the required permits.

A U.S. Justice Department spokesman declined comment on the investigation.

Iraqi Prime Minister Nuri al-Maliki has suggested the U.S. Embassy stop using Blackwater after what Iraq called a flagrant assault by the firm's contractors in which 11 people were killed on Sunday while the firm was escorting an embassy convoy through Baghdad.

The Washington Post reported in Saturday's edition that the Iraqi government's investigation into the shootings has expanded to include allegations about Blackwater's involvement in six other violent incidents this year that left at least 10 Iraqis dead.

The issue of alleged weapons smuggling by a U.S. contractor in Iraq surfaced earlier in the week in a letter from a congressional committee chairman, Democratic Rep. Henry Waxman of California, to Howard Krongard, the State Department's inspector general.

"You impeded efforts by your investigators to cooperate with a Justice Department probe into allegations that a large private security contractor was smuggling weapons into Iraq," Waxman told Krongard in a letter dated September 18.

Waxman's letter did not name Blackwater.

Waxman has asked the head of Blackwater USA, Erik Prince, to testify before his committee on October 2 on its work in Iraq.

The hearing will focus on whether the U.S. government's heavy reliance on private security contractors is serving its interests in Iraq.

The State Department said on Friday that it would thoroughly examine the use of private security contractors to protect American diplomats in Iraq.

In its statement, Blackwater gave its version about how the federal investigation began.

It said that when it was uncovered internally that two employees were stealing from the company, Blackwater immediately fired them and invited the federal Bureau of Alcohol, Tobacco, Firearms and Explosives to conduct a thorough investigation.

"The employees, who were former Marines and law enforcement, have been convicted and are currently negotiating sentencing in Raleigh with federal prosecutors," the company said.

The News & Observer reported that two former employees -- Kenneth Wayne Cashwell and William Ellsworth "Max" Grumiaux -- have pleaded guilty to possessing stolen firearms shipped in interstate or foreign commerce and are cooperating with the investigation.

"Sea level rise could flood many cities"

By SETH BORENSTEIN, AP Science Writer

22 September 2007

Ultimately, rising seas will likely swamp the first American settlement in Jamestown, Va., as well as the Florida launch pad that sent the first American into orbit, many climate scientists are predicting.

In about a century, some of the places that make America what it is may be slowly erased.

Global warming — through a combination of melting glaciers, disappearing ice sheets and warmer waters expanding — is expected to cause oceans to rise by one meter, or about 39 inches.

It will happen regardless of any future actions to curb greenhouse gases, several leading scientists say.

And it will reshape the nation.

Rising waters will lap at the foundations of old money Wall Street and the new money towers of Silicon Valley.

They will swamp the locations of big city airports and major interstate highways.

Storm surges worsened by sea level rise will flood the waterfront getaways of rich politicians — the Bushes' Kennebunkport and John Edwards' place on the Outer Banks.

And gone will be many of the beaches in Texas and Florida favored by budget-conscious students on Spring Break.

That's the troubling outlook projected by coastal maps reviewed by The Associated Press.

The maps, created by scientists at the University of Arizona, are based on data from the U.S. Geological Survey.

Few of the more than two dozen climate experts interviewed disagree with the one-meter projection.

Some believe it could happen in 50 years, others say 100, and still others say 150.

Sea level rise is "the thing that I'm most concerned about as a scientist," says Benjamin Santer, a climate physicist at the Lawrence Livermore National Laboratory in California.

"We're going to get a meter and there's nothing we can do about it," said University of Victoria climatologist Andrew Weaver, a lead author of the February report from the Intergovernmental Panel on Climate Change in Paris.

"It's going to happen no matter what — the question is when."

Sea level rise "has consequences about where people live and what they care about," said Donald Boesch, a University of Maryland scientist who has studied the issue.

"We're going to be into this big national debate about what we protect and at what cost."

This week, beginning with a meeting at the United Nations on Monday, world leaders will convene to talk about fighting global warming.

At week's end, leaders will gather in Washington with President Bush.

Experts say that protecting America's coastlines would run well into the billions and not all spots could be saved.

And it's not just a rising ocean that is the problem.

With it comes an even greater danger of storm surge, from hurricanes, winter storms and regular coastal storms, Boesch said.

Sea level rise means higher and more frequent flooding from these extreme events, he said.

All told, one meter of sea level rise in just the lower 48 states would put about 25,000 square miles under water, according to Jonathan Overpeck, director of the Institute for the Study of Planet Earth at the University of Arizona.

That's an area the size of West Virginia.

The amount of lost land is even greater when Hawaii and Alaska are included, Overpeck said.

The Environmental Protection Agency's calculation projects a land loss of about 22,000 square miles.

The EPA, which studied only the Eastern and Gulf coasts, found that Louisiana, Florida, North Carolina, Texas and South Carolina would lose the most land.

But even inland areas like Pennsylvania and the District of Columbia also have slivers of at-risk land, according to the EPA.

This past summer's flooding of subways in New York could become far more regular, even an everyday occurrence, with the projected sea rise, other scientists said.

And New Orleans' Katrina experience and the daily loss of Louisiana wetlands — which serve as a barrier that weakens hurricanes — are previews of what's to come there.

Florida faces a serious public health risk from rising salt water tainting drinking water wells, said Joel Scheraga, the EPA's director of global change research.

And the farm-rich San Joaquin Delta in California faces serious salt water flooding problems, other experts said.

"Sea level rise is going to have more general impact to the population and the infrastructure than almost anything else that I can think of," said S. Jeffress Williams, a U.S. Geological Survey coastal geologist in Woods Hole, Mass.

Even John Christy at the University of Alabama in Huntsville, a scientist often quoted by global warming skeptics, said he figures the seas will rise at least 16 inches by the end of the century.

But he tells people to prepare for a rise of about three feet just in case.

Williams says it's "not unreasonable at all" to expect that much in 100 years.

"We've had a third of a meter in the last century."

The change will be a gradual process, one that is so slow it will be easy to ignore for a while.

"It's like sticking your finger in a pot of water on a burner and you turn the heat on, Williams said.

"You kind of get used to it."
___

On the Net:

The U.S. Environmental Protection Agency on sea level:

http://tinyurl.com/2df72n

The U.S. Geological Survey on sea level rise and global warming:

http://woodshole.er.usgs.gov/project-pages/cvi/

University of Arizona's interactive maps on sea level rise:

http://tinyurl.com/ca73h

Architecture 2030 study on one-meter sea level rise and cities:

http://www.architecture2030.org/current_si...tal_impact.html

"Iraq: Blackwater guards fired unprovoked"

By ROBERT H. REID, Associated Press Writer

23 September 2007

BAGHDAD - Iraqi investigators have a videotape that shows Blackwater USA guards opened fire against civilians without provocation in a shooting last week that left 11 people dead, a senior Iraqi official said Saturday.

He said the case was referred to the Iraqi judiciary.

Iraq's president, meanwhile, demanded that the Americans release an Iranian arrested this week on suspicion of smuggling weapons to Shiite militias.

The demand adds new strains to U.S.-Iraqi relations only days before a meeting between President Bush and Iraq's Prime Minister Nouri al-Maliki.

Interior Ministry spokesman Maj. Gen. Abdul-Karim Khalaf said Iraqi authorities had completed an investigation into the Sept. 16 shooting in Nisoor Square in western Baghdad and concluded that Blackwater guards were responsible for the deaths.

He told The Associated Press that the conclusion was based on witness statements as well as videotape shot by cameras at the nearby headquarters of the national police command.

He said eight people were killed at the scene and three of the 15 wounded died in hospitals.

Blackwater, which provides most of the security for U.S. diplomats and civilian officials in Iraq, has insisted that its guards came under fire from armed insurgents and shot back only to defend themselves.

Blackwater spokeswoman Anne Tyrrell said Saturday that she knew nothing about the videotape and was contractually prohibited from discussing details of the shooting.

Khalaf also said the ministry was looking into six other fatal shootings involving the Moyock, N.C.-based company in which 10 Iraqis were killed and 15 wounded.

Among the shootings was one Feb. 7 outside Iraqi state television in Baghdad that killed three building guards.

"These six cases will support the case against Blackwater, because they show that it has a criminal record," Khalaf said.

Khalaf said the report was "sent to the judiciary" although he would not specify whether that amounted to filing of criminal charges.

Under Iraqi law, an investigating judge reviews criminal complaints and decides whether there is enough evidence for a trial.

Government spokesman Ali al-Dabbagh denied that authorities had decided to file charges against the Blackwater guards and said Saturday that no decision had been taken whether to seek punishment.

"The necessary measures will be taken that will preserve the honor of the Iraqi people," he said in New York, where al-Maliki arrived Friday for the U.N. General Assembly session.

"We have ongoing high-level meetings with the U.S. side about this issue."

Al-Maliki is expected to raise the issue with Bush during a meeting Monday in New York.

It is doubtful that foreign security contractors could be prosecuted under Iraqi law.

A directive issued by U.S. occupation authorities in 2004 granted contractors, U.S. troops and many other foreign officials immunity from prosecution under Iraqi law.

Security contractors are also not subject to U.S. military law under which U.S. troopers face prosecution for killing or abusing Iraqis.

Iraqi officials have said in the wake of the Nisoor Square shooting that they will press for amendments to the 2004 directive.

A senior aide to al-Maliki said Friday that three of the Blackwater guards were Iraqis and could be subject to prosecution.

The aide spoke on condition of anonymity because of the sensitivity of the case.

Shortly after the Sept. 16 shooting, U.S. officials said they "understood" that there was videotape, but refused to give more details.

They spoke on condition of anonymity because they were not supposed to release information to the media.

Following the Nisoor Square shooting, the Interior Ministry banned Blackwater from operating in Iraq but rolled back after the U.S. agreed to a joint investigation.

The company resumed guarding a reduced number of U.S. convoys on Friday.

The al-Maliki aide said Friday that the Iraqis were pushing for an apology, compensation for victims or their families and for the guards involved in the shooting to be held "accountable."

Hadi al-Amri, a prominent Shiite lawmaker and al-Maliki ally, also said an admission of wrongdoing, an apology and compensation offered a way out of the dilemma.

"They are always frightened and that's why they shoot at civilians," al-Amri said.

"If Blackwater gets to stay in Iraq, it will have to give guarantees about its conduct."

Allegations against Blackwater have clouded relations between Iraq and the Americans at a time when the Bush administration is seeking to contain calls in Congress for sharp reductions in the 160,000-strong U.S. military force.

Adding to those strains, President Jalal Talabani demanded the immediate release of an Iranian official detained Thursday by U.S. forces in the Kurdish city of Sulaimaniyah.

The U.S. military said the unidentified Iranian was a member of the Quds force — an elite unit of Iran's Revolutionary Guards accused of arming and training Shiite militias in Iraq.

A statement issued Saturday by Talabani's office said the arrest was carried out without the prior knowledge or the cooperation of the Kurdish regional government.

"This amounts to an insult and a violation of its rights and authority," said the statement, quoting a letter Talabani sent to Gen. David Petraeus and U.S. Ambassador Ryan Crocker.

Talabani, a Kurd, is one of Washington's most reliable partners in Iraq.

Talabani said Iran had threatened to close the border with the Kurdish region if the official were not freed — a serious blow to the economy in the president's political stronghold.

"I want to express to you our dismay over the arrest by American forces of this official civilian Iranian guest," Talabani wrote to Petraeus and Crocker.

Five Iranians said to be linked to the Quds force were arrested in the Kurdish city of Irbil and remain in U.S. custody.

Also Saturday, the U.S. military announced the death of two more American soldiers — one of an unspecified non-combat related injury and another in a vehicle accident in Diyala province.
____

Associated Press reporters Bushra Juhi and Qassim Abdul-Zahra in Baghdad and Tom Foreman Jr. in Raleigh, N.C. contributed to this report.

"Iraqi PM: Shootings threaten sovereignty"

By JOHN DANISZEWSKI and TAREK EL-TABLAWY, Associated Press Writers

23 September 2007

NEW YORK - Iraqi Prime Minister Nouri al-Maliki said Sunday the shooting deaths of civilians — allegedly at the hands of Blackwater USA guards — and other violence involving the company pose "serious challenges to the sovereignty of Iraq" and cannot be accepted.

"The Iraqi government is responsible for its citizens and it cannot be accepted for a security company to carry out a killing," he told The Associated Press, speaking in his New York hotel suite ahead of his appearance at the U.N. General Assembly.

Noting that Blackwater has been linked to at least seven incidents involving gunfire on Iraqi civilians, he added:

"There are serious challenges to the sovereignty of Iraq."

In Arabic, he used the word "tajawiz" which can be translated either as "affronts" or "challenges."

However, Maliki left open the possibility that Iraq and the United States would work toward a solution to the problem of Blackwater.

"We have coordinated with the American side to establish a joint committee to ascertain the facts and hold accountable" those responsible, he said.

In the interview, Maliki defended his government and spoke up for the rights of Iraqis to manage their own affairs.

He said that his country is making progress toward political reconciliation and that 2008 would be a year of political and economic progress and reconstruction for Iraq.

Speaking in a calm voice, al-Maliki was dismissive of some of the criticism directed at him by Washington politicians in recent months.

Some members of Congress have said al-Maliki is not forceful enough in pressing for political reconciliation and achieving benchmarks meant to measure progress in the four-year U.S. intervention in Iraq.

Maliki said it is normal for any government to be criticized, but he feels certain that he has the backing in Washington he needs.

"What is important is that it did not come from the American administration or President Bush," he said of his critics.

"That it comes from other areas ... for other reasons, is not a concern of mine."

"... It means nothing for me," he said.

The Sept. 16 killing of at least 11 civilians near a square in central Baghdad has highlighted the practices of foreign security contractors whose aggressive protection of Western diplomats and other dignitaries has long angered Iraqis.

U.S.-Iraqi relations have been further strained by the U.S. detention of an Iranian Thursday in northern Iraq who was accused by the military of smuggling weapons to Shiite militias for use against American troops.

Al-Maliki condemned the detention and said it was his understanding that the man had been invited to Iraq.

"The government of Iraq is an elected one and sovereign."

"When it gives a visa, it is responsible for the visa," he said.

"We consider the arrest ... of this individual who holds an Iraqi visa and a (valid) passport to be unacceptable."

Iraqi President Jalal Talabani, a Kurd, demanded the Iranian's release on Saturday, saying he was a member of an official delegation that was in the autonomous Kurdish city of Sulaimaniyah with the full knowledge of the Iraqi government and local authorities.

Military spokesman Rear Adm. Mark Fox, however, said the Iranian was posing as a businessman but was actually a member of the elite Quds force of the Iranian Revolutionary Guards who was smuggling armor-piercing explosively formed penetrators known as EFPs into Iraq.

Underscoring the dangers, the military said an American soldier was killed Saturday and another wounded when an EFP hit their patrol in eastern Baghdad.

The U.S. administration is scrambling to quell Iraqi anger over the Sept. 16 shooting in Nisoor Square, in which Blackwater guards protecting a State Department convoy allegedly opened fire on Iraqis.

The Moyock, N.C.-based company says its contractors were responding to an armed attack.

Iraqi officials and witnesses say the shooting was unprovoked, although they have offered conflicting details.

The Interior Ministry banned Blackwater from operating in Iraq, but rolled back after the U.S. agreed to the joint investigation.

The company resumed guarding a reduced number of American convoys on Friday.

But Iraqi officials said new rules have to be put in place to govern the behavior of the security companies.

"If we expel this company immediately there will be a security vacuum that will demand pulling some troops off the battlefield," Tahseen Sheikhly, a civilian spokesman for the seven-month-old offensive against militants in Baghdad and surrounding areas.

"This will create a security imbalance in securing Baghdad."

The Iraqi Interior Ministry complained that U.S. authorities ignored repeated complaints about past Blackwater behavior as the company was implicated in six other fatal shootings, including one on Feb. 7 outside Iraqi state television in Baghdad that killed three building guards.

"Our complaints went nowhere," deputy Interior Minister Hussein Kamal said.

U.S. Embassy spokeswoman Mirembe Nantongo said the Americans asked the Iraqis to share any reports on Blackwater's behavior.

"We have no official documentation on file from our Iraqi partners requesting clarification of any incident, but we're open to sharing relevant findings from our past investigations," she said.

It is doubtful that foreign security contractors could be prosecuted under Iraqi law.

A directive issued by U.S. occupation authorities in 2004 granted contractors, American troops and many other foreign officials immunity from prosecution under Iraqi law.

Security contractors also are not subject to U.S. military law under which U.S. troopers face prosecution for killing or abusing Iraqis.
___

Associated Press writers Sameer N. Yacoub, Sinan Salaheddin and Katarina Kratovac in Baghdad and Qassim Abdul-Zahra in New York contributed to this report.

"Greenspan faults Democrats on trade"

By Mark Felsenthal

23 September 2007

WASHINGTON (Reuters) - Former Federal Reserve Chairman Alan Greenspan on Sunday faulted Democrats, including presidential candidate Sen. Hillary Clinton, for moving away from former President Bill Clinton's embrace of globalization.

"They're taking positions, which he as president veered away from," Greenspan said on NBC's "Meet the Press," speaking about Democrats and a possible White House under Hillary Clinton, who polls show as the Democrats' front-runner.

Asked how Democrats today were different from the party Bill Clinton led, Greenspan responded; "The whole area of trade ... is a very critical issue, because it's not only the issue of trade."

"It refers to the globalization, and how one views what is the driving force in this world, which creates prosperity."

Greenspan has been making extensive public appearances to promote his memoir, "The Age of Turbulence," which was published last week.

The book has drawn attention for its criticism of the fiscal policies of President George W. Bush.

Speaking about the U.S. economy, Greenspan renewed his assessment that there is a somewhat less than 50 percent chance of a recession.

"We're heading towards a slowdown," he said.

"Whether that actually leads to a recession is dependent on things we can't forecast at this moment ..."

"But there is no question that we've got significant pressure on home prices."

The National Association of Realtors estimated earlier this month that the national median sales price for preowned homes should drop 1.7 percent this year, while the median new-home price should fall 2.2 percent.

In a separate interview, he said further declines in U.S. house prices are likely to pare back consumer spending, a significant driver of economic growth.

"This will inevitably leave its traces in consumption because a big part of private spending is financed not from income but from assets bought on credit," Greenspan said in Germany's Frankfurter Allgemeine Sonntagszeitung newspaper.

In his memoir, Greenspan praises former President Clinton for erasing the federal budget deficit and for pursuing trade liberalization.

In an interview last week, Greenspan called Clinton "the best Republican president we've had in a while."

Greenspan said on "Meet the Press" on Sunday that he is uncertain whether an administration headed by Hillary Clinton would bear the same centrist stamp as the former president.

The former Fed chair, who describes himself as a "libertarian Republican," has said he believes the Democratic Party's recent skepticism about trade is a move in the wrong direction.

Democratic-elected officials have this year said they detect a souring of many Americans on globalization.

Fast-track trade authority legislation that would have smoothed the way for international trade agreements died in Congress earlier this year.

"The globalization issue is one that is menacing to many," House of Representatives Speaker Nancy Pelosi, a California Democrat, has said.

"Analysis: Bush unwelcome on the trail"

By LIZ SIDOTI, Associated Press

Last updated: 1:12 p.m., Sunday, September 23, 2007

MACKINAC ISLAND, Mich. -- Republican presidential candidates can't be any more clear: President Bush isn't welcome on the campaign trail.

Competing to succeed him, top GOP candidates Rudy Giuliani, Mitt Romney, Fred Thompson and John McCain barely utter Bush's name.

They essentially ignore the lame-duck president, or give him only passing credit, as they rail against the status quo and promise to fix problems he hasn't solved.[

"We all know Americans want change," said McCain, an Arizona senator, explaining the aversion to aligning with Bush.

"I give him credit for a number of things but I think the fact is Americans are turning the page, including our Republican primary voters."

The candidates are walking a fine line.

They are trying to tap into the deep discontent those voters feel about the state of the country without alienating any who hold Bush in high regard.

At the same time, they have to counter the Democrats' powerful arguments for a new direction.

How candidates handle the 800-pound elephant in the room now could have implications beyond the primary.

Privately, Republican strategists agree their nominee will lose next fall if the general election is a referendum on Bush.

They say GOP candidates are wise to distance themselves from the president now, given his unpopularity among the public at large.

Bush holds the opposite view.

Asked last week whether he is an asset or a liability for Republican candidates, Bush replied: "Strong asset."

To be sure, none of the candidates want to be attached to Bush's legacy, afraid that doing so will make them sitting ducks for Democrats.

Who can blame them?

The unpopular Iraq war has bogged down his presidency.

His party is in an uproar over out-of-control spending on his watch and embarrassing scandals among GOP officeholders.

His job performance rating is at a low 33 percent, according to a recent Associated Press-Ipsos poll.

Only 28 percent think the country is moving in the right direction.

Half of Republicans and GOP-leaning independents think the country is on the wrong track.

Take Dan Wilson, 55, and Janet Frederick-Wilson, 47, of Westland, Mich.

The Republicans voted for Bush in 2000 and 2004, but they've lost confidence in him over the past few years for what Frederick-Wilson said were a million different reasons.

"Overall, he's lost touch," she said.

"He's kind of lost his way, unfortunately," Wilson said.

"He started strong and then his office affected him."

Neither has settled on a candidate for 2008; both say they are looking for someone who can make them proud to be Americans again.

Another two-time Bush backer, Margaret Schaefer, 69, of Dearborn, Mich., calls the president resolute and honest but acknowledges woes in the GOP.

"We need to get back to our roots, and I think George Bush thought that's where he was going, but he was led astray," she said.

"His legacy's not going to be terrific."

Despite such deep frustration, Republicans on the whole still like Bush -- and don't like those who beat up on him.

That's prompted GOP hopefuls to tread delicately.

They rattle off problems and propose solutions, seeking to make the case for change without going as far as to bash Bush, at least not openly.

The straddle -- and the absence of Bush in the race -- was apparent over the weekend as the four leading Republicans spoke to 1,500 GOP activists on an island in Lake Huron.

In separate speeches spanning two days, they repeatedly invoked beloved conservative Ronald Reagan; Bush was hardly mentioned.

All laid out challenges facing the country, from national security to immigration reform to health care, and argued they were the elixirs for what ails the GOP and the country.

What little praise there was for Bush was muted by somber assessments of the challenges ahead.

"Republicans for change," declared Romney, the former Massachusetts governor who offered a blistering critique of the GOP.

He argued that Republicans bore just as much of the blame as Democrats for failures in Washington, such as runaway spending and ethical lapses in his own party.

He claimed he was best suited to lead a dispirited GOP in a new direction.

He gave Bush some praise for keeping the United States safe and restoring integrity to the Oval Office.

When pressed, Romney refused to lump Bush in with the very Republicans he was criticizing.

"I'm not pointing fingers," Romney told reporters in one breath, only to say in the next: "We have strayed a little far from our principles and vision, and I think that's happened over the last several years."

McCain used his speech to channel Reagan, comparing the conservative behemoth who faced down the Soviet Union in the 1980s to his own calls for resolve in Iraq and against terrorists.

Never once did McCain mention Bush, though he generally panned the president's leadership, saying "the war in Iraq has not gone well."

Rudy Giuliani skirted Bush entirely.

He set up an us-against-them scenario with Democrats on just about every issue and argued the country would go backward, not forward, under their leadership.

He received perhaps the most hearty applause with his lone direct reference to the president for enacting tax cuts in 2001 and 2003.

Giuliani said they helped put more money back into the private sector.

As for Thompson, the former Tennessee senator painted a bleak picture of future if changes aren't made, particularly on the economic front, saying "we're on an unsustainable path" and bemoaning the irresponsibility of leaders who haven't solved looming issues though they've had years to do so.

"We've got to send a message to politicians in Washington that we are better than that," Thompson said.

With statements like those, there's little doubt the president hasn't gotten the message.

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EDITOR'S NOTE -- Liz Sidoti covers presidential politics for The Associated Press.

"U.S. snipers allegedly 'baited' Iraqis"

By PAULINE JELINEK and ROBERT BURNS, Associated Press

Last updated: 7:42 p.m., Monday, September 24, 2007

WASHINGTON -- Army snipers hunting insurgents in Iraq were under orders to "bait" their targets with suspicious materials, such as detonation cords, and then kill whoever picked up the items, according to the defense attorney for a soldier accused of planting evidence on an Iraqi he killed.

Gary Myers, an attorney for Sgt. Evan Vela, said Monday his client had acted "pursuant to orders."

"We believe that our client has done nothing more than he was instructed to do by superiors," Myers said in a telephone interview.

Myers and Vela's father, Curtis Carnahan of Idaho Falls, Idaho, said in separate interviews that sworn statements and testimony in the cases of two other accused Ranger snipers indicate that the Army has a classified program that encourages snipers to "bait" potential targets and then kill whoever takes the bait.

The Army on Monday declined to confirm such a program exists.

"To prevent the enemy from learning about our tactics, techniques and training procedures, we don't discuss specific methods targeting enemy combatants," said Paul Boyce, an Army spokesman.

Boyce also said there are no classified programs that authorize the murder of Iraqi civilians or the use of "drop weapons" to make killings appeared to be legally justified, which is what Vela and the two other snipers are accused of doing.

The transcript of a court hearing for two of the three accused snipers makes several references to the existence of a classified "baiting" program but provides few details of how it works.

A copy of the transcript was provided to The Associated Press by Vela's father.

The Washington Post, which first reported the existence of the "baiting" program, cited the sworn statement of Capt. Matthew P. Didier, the leader of a Ranger sniper scout platoon.

"Baiting is putting an object out there that we know they will use, with the intention of destroying the enemy," Didier said in the statement.

"Basically, we would put an item out there and watch it."

"If someone found the item, picked it up and attempted to leave with the item, we would engage the individual as I saw this as a sign they would use the item against U.S. forces."

The Post said the program was devised by the Army's Asymmetric Warfare Group, which advises commanders on more effective methods in today's unconventional conflicts, including ways to combat roadside bombs.

Within months of the "baiting" program's introduction, three snipers in Didier's platoon were charged with murder for allegedly using those items and others to make shootings seem legitimate, according to the Post.

The Post said that although it doesn't appear that the three alleged shootings were specifically part of the classified program, defense attorneys argue that the program may have encouraged them by blurring the legal lines in a complex war zone.

The court martial of one of the accused soldiers, Spec. Jorge Sandoval Jr., is scheduled to begin in Baghdad on Wednesday.

Also facing premeditated murder charges are Vela and Staff Sgt. Michael Hensley.

They are part of the Headquarters and Headquarters Company, 1st Battalion, 501st Infantry Regiment, 4th Brigade (Airborne), 25th Infantry Division, based at Fort Richardson, Alaska.

"Stocks give up early gains to end lower"

By JOE BEL BRUNO, Associated Press

Last updated: 6:33 p.m., Monday, September 24, 2007

NEW YORK -- Wall Street retreated Monday, taking a break from last week's big advances, as financial stocks fell amid fresh concerns about tightness in the credit markets.

With little fresh data to go on Monday, investor enthusiasm weakened by midsession.

Sectors from banks to homebuilders showed declines, while technology stocks fared better.

Investors worried that the credit markets might not loosen up despite last week's half-point rate cut by the Federal Reserve.

Stocks began to give up their gains after the International Monetary Fund warned the credit upheaval hurting international financial markets would likely be "protracted" and dampen growth of the global economy.

The financial sector also weakened after Reuters reported that Deutsche Bank might have to write down a portion of its loan portfolio.

While its stock didn't fall sharply, General Motors Corp. shares lost ground after the United Auto Workers began its first nationwide strike during auto contract negotiations since 1976.

In addition, the stock market's pullback might have been expected following gains last week of more than 2.5 percent in the major stock market averages.

"I think you're seeing some profit taking after last week's rally," said Scott Fullman, director of investment strategy at Israel A. Englander & Co.

"You have consumer confidence that is something being closely watched, and you're seeing a general end of quarter nervousness."

The Dow Jones industrials fell 61.13, or 0.44 percent, to 13,759.06.

Broader indicators fell, with the Standard & Poor's 500 index declining 8.02, or 0.53 percent, to 1,517.73, while the Nasdaq composite index lost 3.27, or 0.12 percent, to 2,667.95.

Bonds edged higher, with the yield on the benchmark 10-year Treasury note falling to 4.62 percent from 4.63 percent late Friday.

Treasury prices have fallen since last week's rate cut as investors moved back into stocks.

The dollar fell against major currencies, hitting a fresh low against the euro, and gold prices rose.

Oil prices fell as a tropical depression in the Gulf of Mexico dissipated without causing damage to key oil and gas infrastructure.

A barrel of light, sweet crude settled down 67 cents at $80.95 on the New York Mercantile Exchange.

There were no major economic reports Monday.

However, Dallas Fed President Richard Fisher said a downturn in inflation gives policy makers "some wiggle room" to further cut interest rates.

Fed Chairman Ben Bernanke gave a speech on education but did not touch upon economic issues.

Economic data expected to roll out this week could give investors a better sense of whether to expect more of the interest rate cuts that touched off last week's rally.

Findings due Tuesday include reports on existing home sales for August and the Richmond Fed's regional survey.

Many investors hope readings on durable goods and consumer spending later this week will give the Fed room to cut rates still further when it meets next month.

Among financial stocks, Citigroup Inc. fell 92 cents to $46.59 while JPMorgan Chase & Co. declined 79 cents to $46.34 following the IMF concerns about prolonged tightness in the credit markets and its contention that regulators should tighten their oversight of financial institutions to reign in some of the newer debt products that have in part allowed easy access to credit in recent years.

Housing stocks fell sharply ahead of the data on existing home sales and a report on quarterly results from Lennar Corp.

Lennar fell $1.14, or 4.5 percent, to $24.18, while Pulte Homes Inc. ended down $1.06, or 6.6 percent, to $15.10, and D.R. Horton Inc. fell 54 cents, or 3.8 percent, to $13.56.

In corporate news, GM fell 20 cents to $34.74 after thousands of UAW workers walked off the job as negotiations between the union and the automaker remained stymied -- mainly over the issue of job security.

Ford Motor Co. shares rose 25 cents, or 3 percent, to $8.48 after Chief Executive Alan Mullaly said the automaker is in talks with potential buyers of the company's Jaguar and Land Rover brands.

The company also began operations of its newest joint-venture factory in China, where it will produce both the Ford and Mazda brands.

Dell Inc. rose 11 cents to $27.87 after it announced it would set up a retail presence in China by selling computers through the country's biggest chain of electronics stores.

The deal extends Dell's strategy of expanding beyond its traditional Internet-and-phone sales model into retail to better compete with rivals.

The Russell 2000 index of smaller companies fell 7.31, or 0.90 percent, 805.80.

Declining issues beat out advancers 5-to-3 on the New York Stock Exchange.

Consolidated volume came to 3.12 billion shares, down from 3.67 billion shares Friday.

In European trading, Britain's FTSE 100 rose 0.14 percent, Germany's DAX index fell 0.08 percent, and France's CAC-40 shed 0.14 percent.

In Asia, Hong Kong's Hang Seng Index rose 2.74 percent.

Japan's market was closed for a holiday.

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On the Net:

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

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

"American Home Mortgage faces inquiry"

By STEPHEN BERNARD, Associated Press

Last updated: 6:33 p.m., Monday, September 24, 2007

NEW YORK -- American Home Mortgage Investment Corp. bounced property tax checks for some Maryland homeowners, local and state officials said Monday, and they have demanded an explanation from the bankrupt mortgage lender and servicer.

The Maryland Commissioner of Financial Regulation filed an inquiry with American Home Mortgage on Friday.

Melville, N.Y.-based American Home Mortgage has five days to respond to the letter, said Joseph Rooney, the deputy commissioner for Maryland's financial regulator.

Officials in New York and Washington state are also looking into bounced checks there.

Mortgage servicers typically collect property tax payments each month with a borrower's mortgage payment.

The property taxes are then placed in an escrow account and held until property tax bills are due.

Because they are placed in an escrow account, funds should always be available to make the payments.

The Maryland regulator asked American Home Mortgage to explain why the initial checks failed to clear and to clarify the scope of the incident, Rooney told The Associated Press.

One possible explanation, he said, was that the tax payments were caught up in bankruptcy court and frozen.

When a company is in bankruptcy court, its assets are frozen to protect creditors.

But experts say escrow accounts are protected from creditors, and thus should not be frozen in a bankruptcy proceeding.

Whether American Home Mortgage broke the law by bouncing checks from escrow accounts depends on how the account trusts were set up, said Ira Kharasch, a bankruptcy lawyer in the Los Angeles office of Pachulski Stang Ziehl Young Jones & Weintraub.

American Home Mortgage did not immediately return calls seeking comment.

In Frederick County, Maryland alone, American Home Mortgage bounced two checks totaling nearly $59,000 for property taxes on 12 loans serviced by the company.

Frederick County received new, certified checks Friday to cover the payments.

In New York, where American Home Mortgage is based, at least one complaint has been filed with the state banking department related to a bounced check, a spokeswoman said.

American Home Mortgage bounced one check in Whatcom County, Washington related to a special tax assessment.

Those funds were tied up in litigation as mortgage financier Freddie Mac, which owned the loans, wanted to change the company servicing them.

Freddie Mac fired American Home Mortgage as its servicer in August.

Freddie Mac then seized the escrow accounts, but American Home Mortgage would not release the associated files needed to properly make the payments out of the accounts.

The two companies settled the suit last week, and those payments are expected to be disbursed by a new servicer hired by Freddie Mac.

"We were assured the money was handed over to a third party" in order to make the payment, Whatcom County tax supervisor Judy Reed said.

Regular property taxes, like those recently paid in Maryland, are due in Whatcom County Oct. 31, Reed said.

Property taxes are collected at varying levels of government at different times of year across the country.

American Home Mortgage filed for bankruptcy in August amid the tightening credit market and demands for more collateral from its lenders.

Despite closing down its origination business, it continues to operate its servicing unit.

American Home Mortgage was the 27th largest servicer in the country, as of June 30, with $43.49 billion in volume, according to Inside Mortgage Finance.

American Home Mortgage is scheduled to sell its servicing unit in a bankruptcy auction this week.

Billionaire investor Wilbur Ross, known for purchasing bankrupt companies and turning them around, is expected to be among the bidders for the servicing unit.

Ross already has a connection to American Home Mortgage, having provided the lender a $50 million loan to help it finance its operations and pay legal fees during the bankruptcy process.

"New week, new low for dollar"

By MATT MOORE, Associated Press

Last updated: 4:33 p.m., Monday, September 24, 2007

NEW YORK -- The dollar failed to rally Monday, dropping to a new record low against the euro and a 15-year low against five other major currencies as investors continued to act on last week's larger-than-expected interest rate cut and economic data on August consumer spending and home sales expected this week.

The 13-nation euro rose as high as $1.4130 Monday, its highest level since its debut in 1999, before drifting back to $1.4087 in late New York trading.

That compared with a previous peak of $1.4119 on Friday, and the $1.4083 it bought in New York late that day.

In other trading Monday, the British pound edged higher to $2.0214 from $2.0200.

The Federal Reserve's half-point interest rate cut last week to 4.75 percent came in response to market turbulence in the U.S. and elsewhere amid the subprime mortgage crisis.

Investors this week will be looking for signs that U.S. inflation is under control.

The market is also hoping that readings this week on demand for U.S. durable goods, the housing market and consumer spending power will show that the U.S. economy isn't heading for recession.

"The Fed is not going to respond once with interest rates and call it a day," said David Gilmore, a partner at Foreign Exchange Analytics in Essex, Conn.

"It's very likely that there'll be a series of rate cuts."

Future rate cuts could further weaken the dollar, as dollar-denominated investments become less attractive.

The dollar's decline diminishes the spending power of American tourists in Europe, while it does the opposite for many visitors to the U.S.

It also makes U.S. exports more competitive, which is good news for American manufacturers.

Comments expected Wednesday by the president of the European Central Bank, Jean-Claude Trichet, "will be closely watched and assuming the theme here remains bullish, scope for further euro gains cannot be overlooked, and the next big target of $1.4200 is already well within sight," said James Hughes, a market analyst at CMC Markets.

In other trading, the dollar slid to 114.88 yen from 115.39 yen even as Japan was poised to install a new prime minister on Tuesday after moderate Yasuo Fukuda was picked Sunday to succeed Shinzo Abe, who resigned earlier this month.

The dollar rose to 1.1726 Swiss francs from 1.1730 late Friday, and it rose against the Canadian dollar to 1.0011 from 1.0005.

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Associated Press Writer Geir Moulson in Berlin contributed to this report.

"US: mortgage default rate stabilizing"

By GILLIAN WONG, Associated Press

Last updated: 10:13 a.m., Monday, September 24, 2007

SINGAPORE -- The default rate on U.S. mortgages is stabilizing, an American housing official said Monday, adding she didn't expect last week's cut in U.S. interest rates to significantly affect the number of defaults.

Speaking on the sidelines of a forum in Singapore, U.S. Housing and Urban Development Assistant Secretary Darlene Williams said the U.S. Federal Reserve's bigger-than-expected half-point cut of its key rate last week signaled that authorities were taking action to support the economy.

The concern has been that certain sections of the credit markets have frozen up as banks and investors have grown fearful about getting repaid because of the surge in defaults on mortgage loans, especially subprime loans made to borrowers with poor credit.

Worries over the tightening credit roiled global stock markets most of August and carried into September.

The Dow Jones industrial average, which closed at a record 14,000.41 July 19, tumbled 8.2 percent by mid-August.

Since last Tuesday's rate cut, the index has bounced back 3.1 percent.

"The hope is that the Fed rate cut would send the signal that government is concerned and willing to continue to analyze the situation so that the market can relax," Williams said.

"We believe we still have a market that is correcting, but we don't expect any drastic changes" on the rate of defaults.

"Our economic fundamentals are strong."

"Loan defaults are half of what they were in the 1980s and interest rates are low compared to the double-digit rates of 20 years ago," she said.

Subprime mortgages must stay despite the current crisis as they play an important role in increasing U.S. home ownership, Williams also said.

"Subprime mortgages democratize credit, and so we don't want to throw that option away," she said.

"Not all of these loans result in foreclosures."

About 5 percent of all U.S. mortgages are subprime, and only a fifth of those subprime mortgages are in risk of default, she noted.

Williams said she hoped the U.S. Congress will pass Federal Housing Administration, or FHA, reforms to expand federal backing of mortgages.

The reform would allow the FHA, which insures mortgages for low- and middle-income borrowers, to back refinanced loans for tens of thousands of borrowers delinquent on payments because their mortgages have reset to sharply higher rates from low initial "teaser" levels.

Williams said the government would increase efforts to promote financial literacy, and that it "must take every step" to stop predatory loans that target low-income or minority borrowers -- often those who have little education or poor English language skills.

"We found that most of the people with unaffordable subprime loans did not use a counselor."

"Many did not even read their contracts," Williams said.

"That is why we are promoting financial literacy and housing counseling programs."

"China media says Mattel apology overdue"

By AUDRA ANG, Associated Press

Last updated: 10:13 a.m., Monday, September 24, 2007

BEIJING -- China's state media on Monday welcomed U.S. toy maker Mattel's apology over its recalls of Chinese-made toys, saying that although overdue it should help restore the country's sullied export reputation.

Mattel apologized in Beijing on Friday for recalling 21 million toys this summer, the majority of which had small magnets that could fall out and be harmful to children if swallowed.

Mattel acknowledged the problem was a design flaw -- not the fault of Chinese manufacturers.

However, the recalls also included hundreds of thousands of toys found to be decorated with hazardous lead-tainted paint.

Mattel said the company pulled more of those toys off shelves than necessary and made Chinese manufacturers look bad.

Mattel, the world's largest toy maker, said it understood and appreciated the "issues that this has caused for the reputation of Chinese manufacturers."

"The apology, though delayed, should help dispel the suspicion American customers harbor against Chinese-made products and clean up the stain the recalls left on the innocent Chinese workers who make a living doing honest labor," the official English-language China Daily newspaper reported.

The state-run Guangzhou Daily said in an editorial Monday that Mattel's apology was a little late "but at least it redressed injustice against toys made in China."

But the paper added: "It is still too early to say we are happy."

Thomas A. Debrowski, Mattel's executive vice president for worldwide operations, made the apology Friday during talks with Li Changjiang, who heads one of China's major product safety watchdogs.

Chinese food, drugs and other products ranging from toothpaste to seafood are under intense scrutiny because they have been found to contain potentially deadly substances.

But China has bristled at what it claims is a campaign to discredit its reputation as an exporter.

It accuses foreign media and others of playing up its product safety issues as a form of protectionism.

The International Herald Leader, a subsidiary publication of China's official Xinhua News Agency, said in an editorial that the "American media should also apologize" for the way it handled the Mattel recalls.

Beijing insists that the vast majority of its exports are safe but has stepped up inspections of food, drugs and other products in response to the concerns.

China said Monday it had increased checks on agriculture products nationwide to cut the use of banned pesticides and the overuse of animal feed additives and fertilizers.

The move was part of a four-month campaign spearheaded by the State Council -- the country's Cabinet -- to improve the overall quality of Chinese goods.

Ten people have been arrested and almost 100 offending companies shut down since August, Vice Minister of Agriculture Gao Hongbin said.

Gao said the ministry was targeting 100 percent surveillance of wholesale agricultural product markets in large and medium-sized cities in the hunt for illegal pesticides and feed additives.

"It is precisely because of the existence of loopholes that we have gone all out to correct the problem," he said at a news conference.

"This four-month campaign ... is indeed a special battle we have to fight."

"If we are fighting a battle, we have to have an enemy."

"And this enemy is the loopholes."

China's food chain is tainted at many levels by the overuse of pesticides and additives.

While the problem has been common in China for years, it aroused international concern this year because of complaints about contaminated Chinese exports, such as farmed fish in which U.S. and European authorities have found high doses of a carcinogenic antibiotic.

Gao said authorities were also targeting the illegal production, sale and application of five types of pesticides.

"'Cowboy' aggression works for Blackwater"

By MIKE BAKER, Associated Press Writer

24 September 2007

RALEIGH, N.C. - For all its high-profile failings and its reputation for "cowboy" aggression, the secretive security company Blackwater USA has never failed at its primary mission in Iraq: Protecting State Department diplomats.

Not one diplomat has died while being guarded by employees of the politically connected company based in the swamplands of northeastern North Carolina.

Experts say that success — combined with the murky legal world in which Blackwater operates and its strong ties to Republicans — has allowed the company to operate with impunity.

"You can argue about the methodology and say it's negatively impacting relationships between the Iraqi government and citizens and the U.S."

"But if you get right down to the terms of the contract, they're tasked with protecting U.S. diplomatic personnel."

"They've done that," said Scott Traudt, operations manager for Cohort International, a Lebanon, N.H.-based competitor.

For years, North Carolina Democratic Rep. David Price has urged colleagues to regulate the private security industry and increase congressional oversight of companies such as Blackwater.

But as the GOP controlled Congress, he said, his efforts went nowhere.

"I was getting silence," Price said.

"My impression is that many Republicans see any attempt to tighten up the contracting practice as an implicit criticism of the Bush administration."

Blackwater's ties to the GOP run deep.

Company founder and former Navy Seal Erik Prince has given more than $200,000 to Republican causes, a pattern of donation followed by other top Blackwater executives.

The company's vice chairman is Cofer Black, a former CIA counterterrorism official who is serving as a senior adviser to Republican presidential candidate Mitt Romney.

Members of Blackwater's legal team have included former Whitewater prosecutor Kenneth Starr and current White House Counsel Fred Fielding.

The company tapped a GOP-connected public relations firm after the grisly 2004 deaths of four Blackwater employees who were ambushed by insurgents in Fallujah.

Their remains were strung from a bridge.

"I'm disappointed it became a matter of politics," said Peter W. Singer, a senior fellow in foreign policy at The Brookings Institution in Washington, D.C.

"At the end of the day, it's really about fundamental choices that the nation needs to make: What aspects of your national security do you keep within the control of your government?"

It's a question that Navy Adm. William Fallon, the senior U.S. military commander for the Middle East, planned to address in weekend meetings with U.S. Ambassador Ryan Crocker and Gen. David Petraeus, the top U.S. commander in Iraq.

Fallon said security contractors shouldn't be seen as a "surrogate army" of the State Department or any other agency whose workers they protect.

"My instinct is that it's easier and better if they were in uniform and were working for me," Fallon told The Associated Press in Kabul, Afghanistan.

"There's a rule set out there, and these guys should adhere to it as far as action, training and accountability."

But it is largely accepted that the Pentagon doesn't have enough troops to fight both the war in Iraq and perform all the tasks contracted out to firms such as Blackwater, including protecting diplomats and other civilians in one of the world's most dangerous places.

The latest controversy swirling around Blackwater is the Sept. 16 shooting of 11 Iraqis by contractors protecting a U.S. diplomatic convoy in Baghdad, an incident that prompted the Iraqi Interior Ministry to order the company out of the country.

But less than a week later, Blackwater was back on duty, and an Iraqi official admitted that without the company's contractors there would be a "security imbalance in securing Baghdad" that would force troops off the battlefield to take their place.

Blackwater, the biggest of the State Department's three private security contractors, has remained largely silent about the slayings since issuing a short statement the next day defending its actions.

Contractors, U.S. troops and many other foreign officials have immunity from prosecution under Iraqi law, thanks to a directive issued by U.S. occupation authorities in 2004.

Blackwater's contractors are also not subject to U.S. military law.

For example, a Blackwater employee accused of shooting the bodyguard of Iraq's Shiite vice president, Adel Abdul-Mahdi, during an off-duty incident in December was flown home and fired.

Blackwater has said it is cooperating with a Justice Department investigation, but no charges have been filed.

The company has also succeeded so far at keeping a civil case tied to the Fallujah deaths away from a jury.

The Blackwater contractors were mutilated and strung from a bridge in an incident that's widely viewed as a turning point in the war.

In addition, Blackwater has denied any involvement in illegal weapons smuggling, responding to news reports that federal prosecutors in North Carolina are investigating whether the company shipped unlicensed automatic weapons and military goods to Iraq.
___

Associated Press writer Brian Murphy in Kabul, Afghanistan, and National Writer Allen G. Breed in Raleigh contributed to this report.

AND TUNING INTO A STREAM OF BUSH-WAH FROM PRESIDENT OF THE WORLD FOR LIFE AND TEXAS PECKERWOOD GEORGE W. BUSH'S FAVORITE MILITARY DICTATORSHIP OF PAKISTAN, WHERE HIS BEST BUDDY MUSHARAFF IS ALL THE LAW THEY GOT OVER THERE, WE HAVE ....

"US raps Pakistan crackdown on opposition"

By STEPHEN GRAHAM, Associated Press Writer

Mon Sep 24, 2:11 PM ET

ISLAMABAD, Pakistan - The United States strongly criticized Pakistan's government Monday, saying it was "extremely disturbed" by a roundup of opposition leaders ahead of key court rulings on the re-election bid by President Gen. Pervez Musharraf.

It was an unusual scolding from the country that has counted Musharraf as a key ally against al-Qaida since the Sept. 11 attacks, but his administration brushed off the comments, saying the crackdown is needed to prevent the opposition from fomenting trouble and trying to intimidate the Supreme Court.

"As a very close ally of Pakistan with a keen eye on Pakistan affairs, I am sure the U.S. does realize that in any democratic society there can only be a rule of law and not a rule by the mob," government spokesman Tariq Azim said.

Opposition leaders have warned of street protests if Musharraf presses ahead with his effort to be elected to a new five-year term by lawmakers next month.

They also are challenging his plan before the Supreme Court, which rejected three petitions Monday but is considering others.

Police arrested some opposition leaders over the weekend and more on Monday as others went into hiding.

The opposition said more than 200 political figures had been detained, while Prime Minister Shaukat Aziz said about 40 were in custody as of Sunday.

The U.S. government, which has given billions of dollars to Pakistan for its help against terrorist groups, had been reluctant to voice open criticism of Musharraf as he has struggled with worsening unpopularity this year.

But on Monday, the U.S. Embassy said the arrests of opposition leaders were "extremely disturbing and confusing for the friends of Pakistan" and called for those detained to be freed quickly.

A statement from the embassy said it did not endorse any candidate or party as Pakistan prepares for the presidential ballot Oct. 6 by federal and provincial legislators and for parliamentary elections by January.

"We hope to see a democratic process that is inclusive and the election of a leader who represents the choice of the Pakistani people through a free, fair, and transparent process," the embassy said.

In Washington, State Department spokesman Tom Casey also was critical.

He said the U.S. was concerned "any time there are steps taken that would inhibit people's ability to participate in the political process or freedom of expression."

Kamran Bokhari, South Asia analyst for the Washington-based Strategic Forecasting Inc., said the Bush administration is wary of being seen to prop up a repressive military ruler when its own troops are in tough fights in Iraq and Afghanistan.

He said the U.S. government's message is: "We're watching, don't make a mess of the situation."

"We're not about to abandon you, but a lot depends on how you handle things."

Washington appears to support Musharraf's talks with former prime minister Benazir Bhutto over forming a power-sharing coalition that could unite Pakistani moderates in the fight against extremist groups that oppose allying with the U.S.

The talks have stalled amid opposition from right-wingers in Musharraf's camp.

Musharraf, who seized power in a bloodless coup in 1999, has seen his popularity and power erode since his failed effort to fire the Supreme Court's chief justice earlier this year.

His administration is also struggling to contain a surge in violence by Islamic militants.

He has said he will give up his post as army chief once he is elected president, restoring civilian rule to a country long dominated by its military.

But opposition parties are arguing before the Supreme Court that Musharraf is ineligible to run for president, principally because he is still army chief.

They are threatening to quit Parliament to undermine his legitimacy and warn they will stage demonstrations against his rule.

Seeking to head off protests, the government issued an order over the weekend prohibiting gatherings of more than five people in the capital.

Police also detained several opposition leaders and on Monday intensified the crackdown.

"The government is bent on picking up every opposition man."

"All fascist tactics are being used and all the state machinery is being exploited for the illegitimate rule of one man," said Ahsan Iqbal, spokesman for the party led by Nawaz Sharif, the prime minister who was ousted by Musharraf and was prevented from returning to Pakistan earlier this month.

As the Supreme Court held hearings on Musharraf's eligibility to compete in the presidential vote, police blocked roads with barbed wire and stymied protesters' efforts to congregate, arresting some 30 members of a pro-Taliban party a few hundred yards from the court building.

"The U.S. government hired a dog in uniform," the fist-pumping protesters shouted.

Officials said police were ensuring the judges were not intimidated by crowds massing outside the courthouse.

On Monday, the Supreme Court dismissed three of 10 petitions arguing that Musharraf's dual role as army chief and president makes him ineligible for another term.

Presiding Judge Rana Bhagwandas rejected one because it reached too far back into Musharraf's rule, another because the lawyer who filed it didn't show up and a third without explanation.

Rulings on the other petitions are expected later this week, but opposition politicians have said more legal challenges will be filed following the general's formal nomination as a candidate, expected Thursday.
___

Associated Press writers Sadaqat Jan and Zarar Khan in Islamabad and Foster Klug in Washington contributed to this report.

"Economy sends off warning flares"

By PHILANA PATTERSON, Associated Press

Last updated: 6:14 p.m., Tuesday, September 25, 2007

NEW YORK -- Crumbling consumer confidence and slumping home sales could prove to be a bad combination for retailers, and for the broader economy going into the holiday shopping season, if the labor market contracts further and chokes off spending, economic data showed Tuesday.

But markets took some heart from the warning signs, hoping that they would goad the Federal Reserve to lower interest rates more.

Worries about jobs and the economy flared in September, driving a key barometer of consumer sentiment to its lowest level in nearly two years, a private research group said.

The bad news was compounded by a report from the National Association of Realtors that sales of existing homes declined for a sixth straight month in August, pushing activity to the lowest point in five years.

The Realtors showed a rise in median home prices, but a separate report done by S&P/Case-Shiller said home prices fell 3.9 percent in July in its 20-city index.

Economists said that decline was probably a better reflection of where the market stands now.

The New York-based Conference Board said its Consumer Confidence Index fell to 99.8, an almost 6-point drop from the revised 105.6 in August.

The reading was below the 104.5 that analysts had expected.

It marked its lowest level since a 98.3 reading in November 2005, when gas and oil prices soared after hurricanes Katrina and Rita devastated the Gulf Coast.

"Weaker business conditions combined with a less favorable job market continue to cast a cloud over consumers and heighten their sense of uncertainty and concern," said Lynn Franco, director of The Conference Board Consumer Research Center, in a statement.

"Looking ahead, little economic improvement is expected, and with the holiday season around the corner, this is not welcome news."

The Present Situation Index, which measures how shoppers feel now about the economy, declined to 121.7 from 130.1 in August.

The Expectations Index, which measures shoppers' outlook over the next six months, declined to 85.2 from 89.2.

Economists closely monitor confidence since consumer spending accounts for two-thirds of U.S. economic activity.

The National Association of Realtors reported Tuesday that sales of existing single-family homes dropped 4.3 percent in August, compared to July.

Sales at a seasonally adjusted annual rate dropped to 5.5 million units, the slowest pace since August 2002.

The S&P/Case-Shiller report, also released Tuesday, showed that the decline in U.S. home prices accelerated nationwide in July, posting the steepest drop in 16 years.

The index of 10 U.S. cities fell 4.5 percent in July from a year ago.

That was the biggest drop since July 1991.

Tuesday's reports showing eroding consumer confidence and a further weakening of housing do not bode well for retailers, who are already bracing for a challenging holiday season.

Merchants have seen spending slow all year amid falling home prices and higher gas and food bills.

Financial turmoil in August and escalating problems in the credit market have made economists and retailers more nervous about the prospects for a decent holiday shopping season.

Such anxiety is further heightened by a weakened outlook for September sales.

Based on a weak weekly sales report, The International Council of Shopping Centers on Tuesday trimmed its September same-store sales growth estimates to between 2.0 percent to 2.5 percent, from the previous 2.5 percent.

Same-store sales are sales at stores open at least a year and are considered a key indicator of a retailer's health.

And two of the nation's leading retailers -- discounter Target Corp. and home improvement merchant Lowe's Cos. -- both tempered their sales forecasts on Monday.

The Washington-based National Retail Federation last week predicted total holiday sales will be up 4.0 percent for the combined November and December period, the slowest growth since a 1.3 percent rise in 2002.

Holiday sales rose 4.6 percent in 2006 and growth has averaged 4.8 percent over the last decade.

"Our forecast has built in weak consumer confidence and the tough housing market," said NRF spokesman Scott Krugman,

"If anything, this tells us that our forecast is in the right direction in terms of being so cautious."

While the Fed's decision last week to cut its interest rate by half a point was meant to soften the impact of the housing woes on the overall economy, economists say it won't do much to help spending this holiday.

Wall Street chose to interpret Tuesday's data as possible evidence the Fed could use to support a case for more rate cuts.

The Dow Jones industrial average rose 19.59, or 0.14 percent, to close at 13,778.65, clawing back from a more than 60 point decline after the opening.

Broader stock indicators were mixed.

The Standard & Poor's 500 slipped 0.52, or 0.03 percent, to 1,517.21, while the Nasdaq composite rose 15.50, or 0.58 percent, to 2,683.45.

There might be some relief for homeowners with adjustable rate mortgages tied to the prime rate that are poised to reset soon, but it could take six to 12 months for consumers to feel the cumulative effect of the rate cut, said Diane Swonk, chief economist at Mesirow Financial in Chicago.

How well spending holds up hinges on the job market, economists said.

"The question is, do we add jobs?" said Scott Hoyt, director of consumer economics at Moody's Economy.com.

"If we do we should see modest growth in consumer spending."

Economists say they'll monitor the labor market, which saw its first drop in job creation in four years in August, for signs of weakness.

Economists expect the job market to add 100,000 jobs in September when the Labor department reports its data on Oct. 5.

Meanwhile, the unemployment rate is expected to inch up to 4.7 percent from 4.6 percent in July.

"Stocks end mixed amid economic concerns"

By JOE BEL BRUNO, Associated Press

Last updated: 6:14 p.m., Tuesday, September 25, 2007

NEW YORK -- Stocks ended mixed Tuesday as investors grappled with concerns about consumer spending in some parts of the economy while technology stocks showed broad gains.

Stocks pared losses from early in the session to trade largely flat when investors tried to balance concerns about weakness in the economy with hopes that lackluster indications about the health of the consumer and the housing market could bolster the case for lower interest rates.

Meanwhile, falling energy prices appeared to lend some support to stocks.

Traders weighed a series of negative reports from companies whose fortunes are tied to the health of the consumer.

Retailers Target Corp. and Lowe's Cos. trimmed their expectations for the year because of slowing sales, while homebuilder Lennar Corp. posted a fiscal third-quarter loss and sharply lower revenues.

The latest economic reports offered fresh evidence that consumer sentiment is taking a hit amid the worst housing slump in more than a decade.

In the reports, the Conference Board said its Consumer Confidence Index for September fell to its lowest level in almost two years and the National Association of Realtors reported sales of existing homes fell for a sixth straight month in August to the lowest point in five years.

"There are still some mental factors at play."

"The market has leaped substantially off the recent lows," said Steven Goldman, chief market strategist for Weeden & Co.

"We're consolidating ahead of a seasonally strong time, and there are still lingering concerns about the economy."

The Dow Jones industrial average rose 19.59, or 0.14 percent, to 13,778.65.

Broader stock indicators were mixed.

The Standard & Poor's 500 slipped 0.52, or 0.03 percent, to 1,517.21, while the Nasdaq composite rose 15.50, or 0.58 percent, to 2,683.45.

The Russell 2000 index of smaller companies fell 2.80, or 0.35 percent, to 803.00.

Bonds prices rose, with the yield on the benchmark 10-year note falling to 4.61 percent from 4.62 percent late Monday.

The dollar resumed its decline against the euro -- the fourth session in which it hit record lows.

Meanwhile, gold edged lower after a recent run-up.

A barrel of light, sweet crude fell $1.42 to $79.53 on the New York Mercantile Exchange.

It was the first time in more than a week that oil closed below $80 per barrel; last week oil neared $84 a barrel.

The markets moves followed mostly negative economic news.

Not all findings were bad, however.

The Federal Reserve Bank of Richmond, which serves the District of Columbia, Maryland, Virginia, North Carolina, South Carolina and most of West Virginia, said economic growth picked up in September.

Its manufacturing index for the month came in at 14, double the August reading of 7.

A positive figure indicates growth, while negative figures denote a shrinking economy.

These reports take on even more significance as Wall Street speculates about what the Federal Reserve's next move will be after last week's half-point interest rate cut.

Data that show the economy is continuing to slow could bolster the case for further cuts.

Lennar shares fell 96 cents, or 4 percent, to $23.22 after it posted a loss of $513.9 million for its fiscal third quarter as the company saw sharply lower revenue from falling home prices and booked hefty charges to write down land values.

Target and Lowe's cut their sales forecasts for the year because of uncertainty about the upcoming holiday shopping season.

Target fell $2.95, or 4.6 percent, to $61.35, while Lowe's declined $2.04, or 6.7 percent, to $28.51.

Some investors appeared to regard technology stocks as less at risk of seeing demand for their products slump should the economy falter.

Apple Inc. rose to another record, while Research in Motion Ltd. hit a 52-week high.

Apple traded as high as $153.22, topping its earlier trading high of $149.85, and finished up $4.90, or 3.3 percent, to $153.18.

Research in Motion, meanwhile, rose to $96.85 in trading -- above its previous 52-week high of $96.35 -- and closed at $96.82, a gain of $2.32, or 2.5 percent.

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where consolidated volume came to 3.14 billion shares compared with 3.12 billion shares traded Monday.

In European trading, Britain's FTSE 100 closed down 1.07 percent, Germany's DAX index fell 0.24 percent, and France's CAC-40 finished down 0.89 percent.

In Asia, Japan's Nikkei index rose 0.55 percent and Hong Kong's Hang Seng Index fell 0.46 percent.

------

On the Net:

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

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

"Lennar posts record $513.9M 3Q loss"

By ADRIAN SAINZ, Associated Press

Last updated: 6:22 p.m., Tuesday, September 25, 2007

MIAMI -- Tough times in the national housing market led to a company record loss of $513.9 million for Lennar Corp. in the third quarter, with drops in sales prices and home deliveries compounded by heavy charges to write down land values.

Its shares fell almost 4 percent.

One of the nation's largest home builders said Tuesday it had cut its work force by 35 percent this year and that it expects to pare more employees soon.

"These continue to be very difficult times for the homebuilding industry," Lennar Chief Executive Stuart Miller said in a conference call.

It was the biggest quarterly loss in the 53-year history of Lennar.

Miller said consumer confidence in the housing market is low.

Losses for the third quarter ended Aug. 31 amounted to $3.25 per share compared with a profit of $206.7 million, or $1.30 per share, in the 2006 period.

The results included a charge of $3.33 per share related to valuation adjustments and writing off land option deposits, among other items.

Revenue fell 44 percent to $2.34 billion from $4.18 billion a year ago, primarily due to a 41 percent drop in the number of home deliveries and a 6 percent decrease in the average sales price of homes delivered in 2007.

Analysts surveyed by Thomson Financial had expected Lennar to post a loss of 55 cents per share on revenue of $2.39 billion.

Wall Street estimates typically exclude one-time charges and gains, and predictions for homebuilders have varied wildly recently.

Without the impairments and all other charges, Lennar would have posted earnings of 8 cents per share in the quarter.

Some analysts, however, said they were surprised by the size of the impairment charges and the dismal housing orders from Lennar.

Lennar shares lost 96 cents to close at $23.22.

Banc of America Securities analyst Daniel Oppenheim said the $848 million in total adjustments and charges were likely a function of price declines seen throughout the housing market.

"We expect significant impairments across the industry in 3Q," Oppenheim wrote in an analyst's note.

National housing statistics also released Tuesday revealed just how dire the situation has become in the housing sector for giants like Lennar.

U.S. home price declines accelerated nationwide in July, posting the steepest drop in 16 years, according to the S&P/Case-Shiller home price index.

An hour after the S&P report was released, the National Association of Realtors reported that sales of existing homes declined for a sixth straight month in August, pushing activity to the lowest point in five years.

In June, Lennar warned that it would likely post a loss through at least the third quarter but did not offer specific guidance.

The homebuilder has been lowering prices and offering higher incentives to cut inventory, but that has led to slimmer profit margins.

Lennar also was cutting back on land purchases, while construction starts were down 62 percent year-over-year, Miller said.

And turmoil in credit markets has reflected new worries about rising defaults in subprime mortgages.

"Overall, the supply of homes to sell continues to climb in many of our markets, and we're not yet able to get a good reading on how quickly this inventory will be absorbed or whether it will continue to increase as foreclosures increase and add to inventory," Miller said.

Homebuilders have been absorbing charges to write down the value of homes they cannot sell, or to forfeit deposits on land they no longer want to buy.

For the market to begin a recovery, inventories of both new and existing homes will have to stabilize and begin to be absorbed, the mortgage market has to settle down, and consumer confidence has to improve to increase demand, Miller said.

"There are customers out there, but they're simply not motivated," Miller said.

The average sales price of Lennar homes delivered sank to $296,000 from $316,000 in the same period last year, mainly due to higher sales incentives.

New home deliveries decreased to 7,266 homes in the third quarter of 2007 from 12,337 homes last year.

New home orders were down 48 percent to orders of 5,804 homes, with a cancellation rate of 32 percent.

Cancellations were "likely due to mortgage issues and cold feet from falling home prices," Oppenheim wrote.

Loss on land sales totaled $344.7 million in the third quarter, including $114.6 million of valuation adjustments and $242.5 million of write-offs of deposits and pre-acquisition costs related to 15,000 home sites under option that Lennar does not intend to buy.

For the first nine months, Lennar reported a loss of $689.4 million, or $4.37 per share, compared to earnings of $789.5 million, or $4.88 share, over the same period in 2006.

"Existing home sales down"

By MARTIN CRUTSINGER, Associated Press

Last updated: 2:43 p.m., Tuesday, September 25, 2007

WASHINGTON -- Sales of existing homes, depressed by turmoil in credit markets, fell for a sixth straight month in August, pushing activity to the lowest point in five years.

The National Association of Realtors said that sales of existing single-family homes dropped by 4.3 percent in August, compared to July.

Sales at a seasonally adjusted annual rate dropped to 5.5 million units, the slowest pace since August 2002.

The housing market has been battered by the steepest downturn in 16 years.

Those problems were exacerbated in August by turmoil in credit markets, reflecting new worries about rising defaults in subprime mortgages.

The median price of an existing home -- the point where half sold for more and half for less -- edged up slightly in August to $224,500, an increase of 0.2 percent from August 2006.

It marked the first year-over-year price increase after a record 12 straight months of declining prices.

However, many analysts believe that sales and prices will fall further as the housing market receives additional blows from rising default rates that are dumping more homes on an already glutted market and causing lenders to tighten standards.

These factors have made it harder for potential borrowers to qualify for loans.

A separate report on housing prices in 20 large cities done by Case-Shiller showed show prices dropping a sharp 3.9 percent in July compared to July 2006.

Economists said that report was probably a better reflection of the downward pressure on prices that is being exerted by record high inventory levels.

"Another month of falling sales and rising inventories tells us the housing market is still a basket case," said Joel Naroff, chief economist at Naroff Economic Advisors Inc.

"It is going to take a long time to work off that imbalance and undoubtedly prices will have to fall a whole lot further."

Some economists warned that even worse news could be ahead because of the financial market turbulence in August.

"August's sales do not reflect the full impact of the credit crunch, which hit financial markets in mid-month, since most sales were financed with loans approved weeks beforehand," said Patrick Newport, an economist at Global Insight.

Sen. Charles Schumer, D-N.Y., said the latest news on housing showed that the government needs a more vigorous response to the threat that as many as 2 million homeowners could lose their homes in the coming 18 months as low introductory rates on subprime mortgages, loans offered to people with weak credit histories, reset at sharply higher levels.

"The spillover of the subprime mortgage mess into the larger housing market deserves a strong, decisive response from the administration to protect homeowners, consumer spending and the overall economy before things get worse," Schumer said in a statement.

The Federal Reserve responded last week to fears that all the problems in housing and credit markets could cause a recession by cutting a key interest rate by a bigger-than-expected half point.

Many economists believe that if the Fed continues to cut rates for the rest of the year that should be enough to keep the country out of a recession.

Sales were down in all parts of the country in August.

The West saw the biggest drop, a decline of 9.8 percent, followed by declines of 5.2 percent in the Midwest, 2.7 percent in the South and 2 percent in the Northeast.

The fall in sales pushed the inventory of unsold homes to a record 4.58 million in August.

That means it would take 10 months to exhaust the inventory of homes on the market at the August sales pace, also a record figure.

Analysts said that the credit crunch in August, which sent stock prices plunging around the globe, had a significant impact on the availability and interest rate levels for so-called jumbo mortgages, loans above $417,000.

"The unusual disruptions in the mortgage market, including a significant rise in jumbo loan rates, resulted in a fairly high number of postponed or cancelled sales, with many buyers having to search for other financing when loan commitments fell through," said Lawrence Yun, senior economist for the Realtors.

"Once we get through these disruptions, we'll get a better sense of where the actual market is in late fall as conditions begin to normalize," Yun said.

However, other private economists are forecasting that sales of both existing and new homes will not stabilize until mid-2008 because they believe it will take that long for prices to fall far enough to reduce the large number of unsold homes.

------

On the Net:

National Association of Realtors existing home sales: http://www.realtor.org

"S&P: US home price decline accelerates"

By VINNEE TONG, Associated Press

Last updated: 9:53 a.m., Tuesday, September 25, 2007

NEW YORK -- The decline in U.S. home prices accelerated nationwide in July, posting the steepest drop in 16 years, according to the S&P/Case-Shiller home price index released Tuesday.

Home prices have fallen by more every month since the beginning of the year.

An index of 10 U.S. cities fell 4.5 percent in July from a year ago.

That was the biggest drop since July 1991.

"The further deceleration in prices is still apparent across the majority of regions," MacroMarkets LLC Chief Economist Robert Shiller said in a statement.

A broader index of 20 cities fell 3.9 percent in July over last year, with 15 of 20 cities reporting that prices fell.

The five cities where prices are still rising -- Atlanta, Charlotte, N.C., Dallas, Portland and Seattle -- have reported growth is slowing in the past year.

Atlanta and Dallas are close to moving into negative territory, S&P said.

Shiller, an economist at Yale University, told lawmakers in written comments last week that the loss of a boom mentality among consumers poses a "significant risk" of a recession within the next year.

His comments came a day after home buyers and other borrowers got some welcome news when the Federal Reserve cut a key interest rate by half a point to 4.75 percent.

It was the Fed's first cut in four years.

The housing slowdown and decline in credit availability have triggered worries that the economy could go into a recession, spurring the Fed to act.

Economists differ on whether the Fed will again cut rates during two meetings before year's end.

"Treasury prices rise on housing news"

By LESLIE WINES, Associated Press

Last updated: 11:43 a.m., Tuesday, September 25, 2007

NEW YORK -- Treasury prices rose sharply Tuesday, after homebuilder Lennar Corp. reported a big loss and a national report showed existing home sales at a five-year low in August.

Signs of economic weakness stir demand for government-backed Treasurys.

On Tuesday prospects for economic growth looked poor after Lennar reported an unexpectedly large loss and prominent retailers Target Corp and Lowe's Cos. cut their sales forecasts.

In addition, the National Association of Relators said existing home sales dropped 4.3 percent to 5.50 million units in August, marking the weakest sales since August, 2002.

Inventories of unsold homes were 4.58 million, the highest level since May, 1989.

The sense that the economy remains fragile was reinforced by a Conference Board report that consumer confidence slipped to a reading of 99.8 this month, the lowest level in almost two years.

The benchmark 10-year Treasury note rose 10/32 to 101 8/32 with a yield of 4.59 percent, down from 4.62 percent late Monday.

Prices and yields move in opposite directions.

The 30-year bond climbed 13/32 to 102 7/32 with a 4.86 percent yield, down from 4.87 percent late Monday.

The 2-year note gained 4/32 to 100 1/32 with a 3.96 percent yield, down from 4.05 percent at Monday's close.

In recent weeks, Treasurys have tended to trade in the reverse direction of stocks, as investors switch back and forth between low- and high-risk assets in response to shifting views about the economy and the rates outlook.

The Federal Reserve cut the Fed funds rate by a half percentage point a week ago, and issued a statement that highlighted worries about the housing market and contraction in the credit markets.

"With the dour news, we will be reminded why the Federal Reserve lowered the Fed funds rate as much as it did and all of those who complained about the size of the cut will be quiet today," said Tony Crescenzi, chief bond market strategist at Miller Tabak.

Since the rate cut, fixed-income investors have been devising purchasing and selling strategies around the so-called yield curve, which measures the distance between the yields on short- and long-term instruments.

Treasury market plays that stretch out the distance between the yields of the short-term 2-year note and those of the longer-term 10-year note and 30-year bond are known as "curve steepeners."

They amount to bets that the Fed will cut interest rates further in coming weeks.

The curve steepening plays were back in the market on Tuesday, as the concerns about global weakness and further contraction for the housing sector reinforced the view that there are more rate reductions to come.

"Cubans walk out during Bush U.N. speech"

25 September 2007

UNITED NATIONS - Cuba's foreign minister walked out of the U.N. General Assembly on Tuesday in protest of President Bush's speech in which he said the "long rule of a cruel dictator is nearing its end" on the communist island.

The Cuban delegation issued a statement saying the decision by Foreign Minister Felipe Perez Roque to leave was a "sign of profound rejection of the arrogant and mediocre statement by President Bush."

In his speech, Bush looked ahead to a Cuba no longer ruled by Fidel Castro, the ailing 81-year-old leader who has not appeared in public in more than a year, since ceding power to a provisional government headed by his brother Raul.

"In Cuba, the long rule of a cruel dictator is nearing its end," Bush said.

"The Cuban people are ready for their freedom."

"And as that nation enters a period of transition, the United Nations must insist on free speech, free assembly and, ultimately, free and competitive elections."

Cuba's U.N. Mission said the American president had no moral standing to criticize anyone.

It accused Bush of responsibility "for the murder of over 600,000 civilians in Iraq" and for "the torture of prisoners" at the U.S. Navy base at Guantanamo Bay, Cuba, where more than 300 men are being held on suspicion of terrorism or links to al-Qaida or the Taliban.

"He is a criminal and has no moral authority or credibility to judge any other country," the mission's statement said.

"Cuba condemns and rejects every letter of his infamous tirade."

"Iraq ministry finishes draft law on contractors"

By Mussab al-Khairalla and Aseel Kami

Tue Sep 25, 8:40 AM ET

BAGHDAD (Reuters) - Iraq's Interior Ministry has finished draft legislation that would end the legal immunity enjoyed by private security contractors after a deadly shooting involving U.S. firm Blackwater, an official said on Tuesday.

In fresh violence, a suicide car bomb killed three people near a police station in the southern Shi'ite city of Basra.

Car bombings are rare in Basra, the hub for Iraq's oil industry.

Two car bombs also killed six people and wounded 20 in the Zayouna district of eastern Baghdad, police and a hospital official said.

Interior Ministry spokesman Major-General Abdul-Kareem Khalaf told a news conference the draft law had been submitted to the State Shura Council, a body which vets legal language in drafts before they can be passed to parliament for debate.

Iraq has said it would review the status of all security firms after what it called a flagrant assault by Blackwater contractors.

Eleven people were killed while the firm was escorting a U.S. embassy convoy through Baghdad on September 16.

"This legislation will cover everything to do with these companies."

"The companies will come under the grip of Iraqi law, will be monitored by the Interior Ministry and will work under its guidelines," Khalaf said.

"They will be strictly punished for any (violations) on the street."

The shooting has incensed Iraqis who regard the tens of thousands of security contractors working in the country as private armies that act with impunity.

At issue for many Iraqis is sovereignty, given that security firms have immunity from Iraqi law under a 2004 regulation written while Iraq was under U.S. administration following the toppling of Saddam Hussein the year before.

Stripping away their immunity could become a charged political issue with Washington, given that Blackwater and other major foreign security firms provide protection to numerous U.S. government bodies and reconstruction agencies.

SOFTENING STANCE

Prime Minister Nuri al-Maliki had vowed to freeze the work of Blackwater, which guards the U.S. embassy in Baghdad, and prosecute its staff over the shooting he called a crime.

Iraq has since appeared to soften its stand.

The government said this week no action would be taken against Blackwater until after a joint investigation with U.S. officials.

Blackwater guards are accused of opening fire without provocation during the incident.

Blackwater says its guards reacted lawfully to an attack on a U.S. convoy.

Khalaf has previously said the draft law would give the ministry powers to prosecute the companies and to refuse or revoke contracts.

A number of security firms do not have the proper registration to operate in Iraq, which they blame on bureaucratic delays and obstacles.

In Basra, the city's police chief Major-General Abdul Jalil Khalaf blamed Sunni Islamist al Qaeda for the car bombing there.

A health official said 20 people had been hurt.

Most violence in Basra has either been directed against British forces in the region or been fighting among Shi'ite factions vying for influence.

Seeking to defuse tension between Tehran and Washington, President Jalal Talabani urged the U.S. military to release an Iranian man who was detained last week in Iraqi Kurdistan.

The U.S. military accused the man of smuggling roadside bombs into Iraq and training foreign fighters.

Iranian and Iraqi officials said the man was part of a trade delegation.

"The arrest of the Iranian citizen ... is illegal," Talabani, a Kurd, told a press conference in the Kurdish city of Sulaimaniya before leaving on a trip to the United States.

Kurdish officials say Iran has since closed its border with the autonomous region to protest against the detention.

(Additional reporting by Aref Mohammed in Basra)

"Bush seeking progress on Afghan security"

By BEN FELLER, Associated Press Writer

26 September 2007

NEW YORK - President Bush wants fresh assurances that Afghan President Hamid Karzai is dealing with his country's soaring drug trade and pervasive security struggles.

Bush on Wednesday was to meet with Karzai, a reliable ally, for the first time since hosting him in August at the Camp David presidential retreat in Maryland.

The two are to review the familiar challenges that undermine Afghanistan's stability despite progress there.

Afghan opium poppy cultivation has hit a record high this year, fueled by Taliban militants and corrupt officials in Karzai's government, a U.N. report found last month.

The country produces nearly all the world's opium, and Taliban insurgents are profiting.

Also, Afghanistan remains in a fight for basic security, a constant threat to its growth as a new democracy.

Karzai is pledging to work hard on peace talks with the Taliban to draw the insurgents and their supporters "back to the fold," as he put it this week.

The United States has more than 20,000 troops in Afghanistan.

Aides say it is natural for Bush to meet Karzai to review progress, but no single issue prompted their sit-down.

Bush, in New York for the annual gathering of the U.N. General Assembly, made only brief mention of the war in Afghanistan during his speech to world leaders Tuesday.

He said the people of Afghanistan — and Iraq and Lebanon — were in a deadly fight for survival.

"Every civilized nation has a responsibility to stand with them," Bush said.

Bush also was to pivot to his domestic agenda Wednesday before wrapping up three days in New York.

He planned to tout new national test scores as evidence that the No Child Left Behind Act, his signature education law, is working and deserving of renewal by Congress.

Those new national test results, released Tuesday, show elementary and middle schoolers posted solid gains in math.

The students made more modest improvements in reading, however.

Bush scheduled a meeting with Joel Klein, chancellor of New York City's school system, which has won the nation's top prize for urban districts.

The district garnered the honor chiefly for reducing achievements gaps among poor and minority kids, a key educational goal for Bush.

The president intends to miss no chance to talk up the No Child Left Behind law, which is up for renewal in Congress.

Many lawmakers say it is too narrow and punitive.

Before leaving town, Bush was to speak at a private fundraiser for the Republican National Committee.

Back in Washington, more international diplomacy awaited.

The president was hosting a two-day climate meeting, starting Thursday, of major industrialized nations, the United Nations and a few developing countries.

Bush tried to emphasize throughout his meetings in New York that his efforts on climate change were in support of — not in competition with — a U.N. conference in December in Indonesia.

That later session will be a time of negotiations on a new international climate agreement.

On the sidelines of the U.N. meeting, Bush pressed Iraqi Prime Minister Nouri al-Maliki on Tuesday to move on stalled measures deemed critical to political reconciliation.

Much-delayed action, such as a national oil law, have bogged down in the Iraqi parliament amid factional bickering, which, in turn, has only deepened frustration among U.S. lawmakers.

"Myanmar forces open fire on protesters"

Associated Press

Last updated: 7:03 p.m., Wednesday, September 26, 2007

YANGON, Myanmar -- Myanmar security forces opened fire on Buddhist monks and other pro-democracy demonstrators Wednesday for the first time in a month of anti-government protests, killing at least one man and wounding others in chaotic confrontations across Yangon.

Dramatic images of the protests, many transmitted from the secretive Southeast Asian nation by dissidents using cell phones and the Internet, riveted world attention on the escalating faceoff between the military regime and its opponents.

Clouds of tear gas and smoke from fires hung over streets, and defiant protesters and even bystanders pelted police with bottles and rocks in some places.

Onlookers helped monks escape arrest by bundling them into taxis and other vehicles and shouting "Go, go, go, run!"

The government said one man was killed when police opened fire during the ninth consecutive day of demonstrations, but dissidents outside Myanmar reported receiving news of up to eight deaths.

Some reports said the dead included monks, who are widely revered in Myanmar, and the emergence of such martyr figures could stoke public anger against the regime and escalate the violence.

As the stiffest challenge to the generals in two decades, the crisis that began Aug. 19 with protests over a fuel price hike has drawn increasing international pressure on the isolated regime, especially from its chief economic and diplomatic ally, China.

The United States and the European Union issued a joint statement decrying the assault on peaceful demonstrators and calling on the junta to open talks with democracy activists, including detained opposition leader Aung San Suu Kyi, a Nobel Peace laureate.

"What's going on in Burma is outrageous," Secretary of State Condoleezza Rice said.

The U.N. Security Council met in private to be briefed on developments, and issued a brief statement expressing concern about the violent response to demonstrations.

U.N. Secretary-General Ban Ki-moon, who was sending a special envoy to the region, urged the junta "to exercise utmost restraint toward the peaceful demonstrations taking place, as such action can only undermine the prospects for peace, prosperity and stability in Myanmar."

There was no sign the government had any intention of backing down, and monks said the violence would not deter them from pressing on with what has become the most sustained anti-junta protest since a failed 1988 democracy uprising.

In that crisis, soldiers shot into crowds of peaceful demonstrators, killing thousands.

John Dale, an associate faculty member of George Mason University's Institute for Conflict Analysis and Resolution, said the involvement of monks had made it clear the demonstrations would not peter out and it was surprising the military held back this long.

"Now that it's turned violent, there's high risk activity," Dale said.

"The regime signaled they are sincerely prepared to use violence."

The junta issued an edict late Tuesday banning gatherings of more than five people, but the order was ignored by democracy activists and the public alike Wednesday.

The number of protesters seemed a bit less than on Tuesday, but thousands massed at the golden Shwedagon Pagoda, including monks in cinnamon robes, students, members of Suu Kyi's democracy movement and activists waving flags emblazoned with the fighting peacock -- a symbol of Myanmar's democracy movement.

Large crowds of bystanders also gathered to watch.

Police fired tear gas and made some arrests trying unsuccessfully to scatter the demonstrators.

Protesters marched off toward the Sule Pagoda in the heart of Yangon, but were later blocked by military trucks and security officers with riot shields, clubs and guns.

Groups of marchers then fanned out into other streets, chased by security forces.

Officers fired warning shots and tear gas trying to disperse the main group and began dragging monks into army trucks -- the first mass arrests since protests against the military dictatorship erupted Aug. 19.

Reporters saw some monks beaten, and an exile dissident group said about 300 monks and other protesters had been arrested in small clashes across Myanmar's biggest city.

There were reports of destruction of property but it was unclear whether it was done by demonstrators or pro-junta thugs who were seen among the soldiers and police.

Witnesses said a mob burned two police motorcycles.

Myanmar's government said security forces fired when a crowd that included what it called "so-called monks" refused to disperse at the Sule Pagoda and tried to grab weapons from officers.

It said police used "minimum force."

The junta statement, read on state radio and television Wednesday night, said a 30-year-old man was killed by a police bullet.

It said two men aged 25 and 27 and a 47-year-old woman also were hurt when police fired, but did not specify their injuries.

Witnesses known to The Associated Press reported seeing two women and one young man with gunshot wounds.

Exiled Myanmar journalists and democracy activists released reports of higher death tolls, but the accounts could not be independently confirmed.

Khim Maung Win, deputy editor of the Democratic Voice of Burma, an opposition-run shortwave radio service based in Norway, said five monks and three civilians were reported killed and at least four seriously injured.

Zin Linn, information minister for the Washington-based National Coalition Government of the Union of Burma, which is Myanmar's self-styled government-in-exile, said at least five monks were killed.

An organization of exiled political activists in Thailand, the National League for Democracy-Liberated Area, said three monks had been confirmed dead and about 17 wounded.

Such reports, as well as photos and video taken covertly and then sent over the Internet and by other means, have helped keep the momentum of the protests going.

Transmitted back into the country, the dissident views counter reports from state-controlled media ridiculing demonstrators.

Voice of Burma's chief editor, Aye Chan Naing, said activists were using the Internet and cell phones to funnel news out of Myanmar.

He declined to discuss details because that could help the military disrupt the messages, saying the junta already had cut some cell phone service.

Naing said activists sometimes transmitted video one frame at a time over the Web and also hid information within seemingly innocous e-mails.

During the marches in Yangon, bystanders joined with protesters to stand up to security forces, driving them back with a barrage of bricks and bottles that scattered debris and broken glass on the street.

Demonstrators tried to shame one group of soldiers by chanting: "You are the army of the people, we are feeding you!"

"Be just to us!"

When words failed to move the 70 soldiers and the crews of two fire trucks being used for crowd control, people began hurling stones and the line gave way to allow protesters through, many of them monks headed back to their monasteries.

"They will kill us, monks and nuns."

"Maybe we should go back to normal life as before," said a young nun, her back pressed against the back of a building near the scenes of chaos.

But a student watching the arrival of the demonstrators said, "If they are brave, we must be brave."

"They risk their lives for us."

The two asked that their names not be used for fear of reprisals.

------

Associated Press writers Grant Peck in Bangkok, Thailand, and Edith M. Lederer and Carley Petesch in New York contributed to this report.

"Stocks rise after GM-UAW pact"

By TIM PARADIS, Associated Press

Last updated: 6:53 p.m., Wednesday, September 26, 2007

NEW YORK -- Stocks rose soundly Wednesday following word that some of the problems dogging big companies like General Motors Corp. and Bear Stearns Cos. could be on the mend.

GM, one of the 30 stocks that makes up the Dow Jones industrial average, led the market higher from the outset with news it had struck a tentative contract agreement with the United Auto Workers that could allow the company to shed some of its burdensome health care costs.

While stocks held onto gains throughout the session, rumors that Bear Stearns Cos. would sell a stake in the company took on new urgency in the final hour of trading with a report that billionaire investor Warren Buffett was a potential suitor.

"Certainly it's good to have problems that have been overhanging Bear Stearns off the table, if that can be done."

"That should help the financials," said William Rutherford, president of Rutherford Investment Management in Portland, Ore., referring to the recent failure of two Bear Stearns hedge funds.

"It takes a lot of risk out of Bear Stearns stock."

"It doesn't mean that the fears that investors had yesterday were misplaced."

"It just means there is a new piece of information to be considered," he said of any interest Buffett might show.

The GM and Bear Stearns news lifted investor sentiment, sending the Dow up 99.50, or 0.72 percent, to 13,878.15.

Broader stock indicators also rose.

The Standard & Poor's 500 index advanced 8.21, or 0.54 percent, to 1,525.42, and the Nasdaq composite index increased 15.58, or 0.58 percent, to 2,699.03.

The Russell 2000 index of smaller companies rose 6.12, or 0.76 percent, to 809.12.

Treasury prices turned higher Wednesday after there was surprisingly strong investor demand in a government sale of $18 billion in new 2-year Treasurys.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 4.62 percent from 4.64 percent late Tuesday.

The dollar recovered slightly against major currencies Wednesday despite lackluster economic data, but not before hitting another record low against the euro.

Gold prices fell.

Oil futures ended higher Wednesday, closing above $80 a barrel as a turbulent day ended with a late rally led by investors who saw an early price dip as a buying opportunity.

Light, sweet crude settled at $80.30 per barrel on the New York Mercantile Exchange.

Focusing on developments at companies like GM, Wall Street shrugged off broader economic news from the Commerce Department, which said demand for durable goods fell in August by the largest amount in seven months.

The findings could indicate that recent upheavals on Wall Street and in the housing sector dented the economy.

The report followed data released Tuesday showing that existing home sales stalled in August and consumer confidence fell in September.

While on their face troubling, Wall Street often regards such reports as good news because they can be regarded as fresh reason for the Federal Reserve to lower interest rates again when it meets next month.

The central bank last week surprised Wall Street with a larger-than-expected half-point cut in rates -- its first in four years -- that sent stocks surging.

In addition to corporate and economic news, some of the session's gains could owe to the approaching end of the quarter.

"As you get closer to the end in the next couple of days, you could get some window dressing," said Marc Pado, U.S. market strategist at Cantor Fitzgerald, referring to some investors' plans to buy and sell stocks to shore up their end-of-the-quarter holdings.

He said the Fed's rate cut caught many investors off guard and so they might move in as buyers.

"A lot of these funds were kind of left holding a lot of cash."

"Even though they can't do anything about their (quarterly) performance they can at least show they hold the winners," he said.

In corporate news, GM jumped $3.22, or 9.4 percent, to $37.64 after workers agreed to return to their jobs after a two-day nationwide strike.

The deal would allow GM, which was by far the biggest advancer among the Dow stocks, to have the union oversee management of retiree health care.

Bear Stearns had been higher throughout the session amid rumors it would sell off a piece of the company.

The nation's fifth-largest investment bank then doubled its gains after The New York Times reported Buffett, among others, had shown interest in a minority stake in the company.

The stock finished up $8.76, or 7.7 percent, at $123.

Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange.

Consolidated volume came to 3.16 billion shares, compared with 3.14 billion shares traded Tuesday.

Overseas, Britain's FTSE 100 rose 0.56 percent, Germany's DAX index rose 0.45 percent, and France's CAC-40 rose 0.87 percent.

In Asia, Japan's Nikkei index closed up 0.21 percent and Hong Kong's Hang Seng Index fell 0.46 percent.

------

On the Net:

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

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

"Sallie Mae sale thrown in turmoil"

By MARCY GORDON, Associated Press

Last updated: 6:23 p.m., Wednesday, September 26, 2007

WASHINGTON -- The planned $25 billion buyout of student lender Sallie Mae was thrown into jeopardy Wednesday after the investors said terms of the deal were no longer acceptable.

Sallie Mae, officially SLM Corp., vowed to pursue legal remedies against the investor group led by private-equity firm J.C. Flowers & Co.

The group told Sallie Mae it does not plan to complete the $60-a-share deal negotiated earlier this year, though it is open to discussing new terms.

The investor group has insisted in recent months that new student loan legislation, expected to be signed Thursday by President Bush, could kill the deal.

The measure will cut about $20 billion in government subsidies to companies like Sallie Mae that make student loans while halving the interest rate on government-backed student loans.

Sallie Mae responded in a statement that it "firmly believes that the buyer group has no contractual basis to repudiate its obligations under the merger agreement and intends to pursue all remedies available to it to the fullest extent permitted by law."

The company's stock fell nearly 3 percent Wednesday to just above $45 a share.

The blowup of one of the largest private-equity takeover deals ever capped several months of rancorous back-and-forth and disputed claims between Sallie Mae and the investor group comprised of the Flowers firm, Bank of America Corp. and JPMorgan Chase & Co.

It comes against a backdrop of weakness in the once-booming private-equity industry, which has stumbled in recent months as an acute squeeze in credit markets has caused investors to balk at financing big deals.

Buyout firms like Flowers had been riding a wave of easy credit but recently have found it harder to persuade their bankers to finance takeovers.

Cerberus Capital Management in July had to inject more equity into its takeover of Chrysler Group from Germany's automaker Daimler.

More recently, Home Depot lowered the sale price on its wholesale supply unit by 17 percent to complete its sale to private-equity firms.

And last Friday, two private-equity firms backed out of their $8 billion buyout of upscale audio equipment maker Harman International Industries Inc.

The Flowers firm, in a statement, said the investor partners believe "that the conditions to closing under the merger agreement, if the closing were to occur today, would not be satisfied as a result of changes in the legislative and economic environment."

"We have told representatives of the Sallie Mae board that we are open to discussing a revision of the transaction that reflects this new environment."

A review by Sallie Mae said the new student loan legislation will reduce its "core earnings" net income between 1.8 percent and 2.1 percent each year over the next five years.

The two sides in the deal have differing interpretations of their acquisition agreement, signed in April, under which significant negative developments can nullify the deal.

The company does not believe that the anticipated reduction in earnings rises to that level of significance.

If the deal were to fall through, the agreement provides for a $900 million breakup fee payable by either side under certain conditions.

Shares of Sallie Mae fell $1.24, or 2.7 percent, to $45.01 in late trading Wednesday.

----

On the Net:

SLM Corp.: http://www.salliemae.com

"Durable goods orders plummet"

By MARTIN CRUTSINGER, Associated Press

Last updated: 6:54 p.m., Wednesday, September 26, 2007

WASHINGTON -- Demand for big-ticket manufactured goods plunged in August by the largest amount in seven months, with widespread weakness signaling a slowdown in the nation's industrial sector.

The Commerce Department reported Wednesday that orders for durable goods, everything from commercial jetliners to home appliances, fell by 4.9 percent in August, the biggest decline since a 6.1 percent fall in January.

It was far larger than the 3.5 percent drop that economists had been expecting and resulted from across-the-board decreases in a number of categories.

The concern is that the steep downturn in housing and turbulence in financial markets could start to affect the economy more broadly, raising the risks of a full-blown recession.

"The relatively broadbased decline in big-ticket item demand is another sign of the softening economy," said Joel Naroff, chief economist at Naroff Economic Advisors.

Of particular concern, orders in the category considered a proxy for business investment plans edged down by 0.7 percent in August, the second decline in the past three months.

Business equipment spending has been one of the bright spots for the economy this year.

"Housing and financial market concerns present considerable downside risks to the short-term outlook for the factory sector," said Ciff Waldman, an economist for the Manufacturers Alliance/MAPI.

The Federal Reserve last week cut a key interest rate by a bigger-than-expected half-point, hoping to avert a slump.

Analysts believe further rate cuts are likely at the Fed's final two meetings of the year in October and December.

On Wall Street, stocks were up in midday trading as investors expressed relief that the economy had been spared a protracted auto strike that could have dragged down business activity even more.

The United Auto Workers and General Motors Corp., agreed early Wednesday to a tentative contract that ends a two-day national strike.

Many analysts believe the overall economy, after racing ahead at a 4 percent annual rate in the spring, slowed in the summer to growth in the gross domestic product of around 2.5 percent with the continued troubles in housing and the spreading credit crunch lowering growth estimates to 2 percent or less in the final three months of the year.

Some economists are putting the chances of a recession as high as 50-50.

The 4.9 percent fall in orders for durable goods, items expected to last three or more years, followed a big gain of 6.1 percent in July.

That increase reflected in part a jump in demand for autos as dealers tried to stockpile inventory in advance of a threatened strike.

For August, orders for transportation equipment fell 11.2 percent, the biggest setback since January.

The weakness was led by a 41 percent drop in demand for commercial aircraft.

Boeing Co. reported fewer orders in August after a big surge in both June and July.

Orders for motor vehicles and parts dropped 6.2 percent after having jumped by 10.5 percent in July.

Offsetting the weakness somewhat, demand for military aircraft shot up by 43.2 percent.

Excluding the volatile transportation category, orders would have still been down by 1.8 percent after a 3.4 percent rise in orders outside of transportation in July.

Orders fell in a large number of categories including primary metals such as steel, machinery and communications equipment.

Demand was up for computers and electrical equipment.

------

On the Net:

Durable goods orders: http://www.census.gov/m3

"Iraq leader says flow of arms must stop"

By JUSTIN BERGMAN, Associated Press Writer

26 September 2007

UNITED NATIONS - Iraqi Prime Minister Nouri al-Maliki warned the U.N. General Assembly Wednesday that the continued flow of weapons, suicide bombers and terrorism funding into his country would result in "disastrous consequences" for the region and the world.

Al-Maliki, who met with President Bush Tuesday, urged the international community and countries in the region to support Iraq's national reconciliation process to rid terrorism from the country and bring peace to the region.

"National reconciliation is stronger than the weapons of terrorism," he said.

"Today we feel optimistic that countries of the region realize the danger of the terrorist attacks against Iraq, that it is not in their interest for Iraq to be weak."

Al-Maliki said his country had reduced sectarian killings and brought stability to some regions, such as Anbar province in the west.

He said thousands of displaced families have been able to return to their homes.

He said Iraq also has hundreds of political parties active within 20 political alliances; more than 6,000 civil organizations; hundreds of newspapers and magazines and 40 local and satellite TV stations.

But terrorists are targeting this "new Iraq," he said.

"Terrorism kills civilians, journalists, actors, thinkers and professionals."

"It attacks universities, marketplaces and libraries."

"It blows up mosques and churches and destroys the infrastructure of state institutions," al-Maliki said.

Al-Maliki said he has warned the countries in the region that "the continued overflow of weapons, money, suicide bombers and the spreading of 'fatwas' inciting hatred and murder will only result in disastrous consequences for peoples of the region and the world."

Washington has long accused Iran of aiding Shiite Muslim militias in Iraq that it says have killed hundreds of American troops with powerful bombs known as explosively formed penetrators, or EFPs.

The U.S. has also accused Iran of training fighters and sending them into Iraq to attack American and Iraqi troops.

Iran disputes those allegations, saying it does not meddle inside Iraq.

Iranian President Mahmoud Ahmadinejad told world leaders Tuesday that the U.S. government's policy on Iraq was destabilizing the occupied country.

"They even oppose the constitution, National Assembly and the government established by the vote of the people, while they do not even have the courage to declare their defeat and exit Iraq," he said.

The U.S. delegation walked out of the General Assembly chamber when Ahmadinejad went to the podium, leaving only a low-ranking note-taker to listen to his speech, which also indirectly accused the U.S. and Israel of human rights violations.

Gonzalo Gallegos, a State Department spokesman, said the U.S. wanted "to send him a powerful message."

In his meeting with al-Maliki on Tuesday, Bush pressed the Iraqi leader to make progress on measures deemed critical to the reconciliation process.

Much-delayed action on such initiatives as a national oil law have stalled in the Iraqi parliament amid factional bickering and, in some cases, defections.

"Some politicians may be trying to block the law to gain special advantage," Bush said.

"And these parties have got to understand that it's in the interests of Iraq to get good law passed."

In his speech to the General Assembly, al-Maliki only briefly noted the proposed oil law, saying his government has completed the work on it and was awaiting its approval by the Iraqi parliament.

He said national reconciliation was not the responsibility of his government alone.

"We look at national reconciliation as a life boat, a perpetual peace project and a safe harbor for the political process and the democratic experience," he said.

"It is a group responsibility held by political powers, intellectual leaders, religious leaders, the educated, civil organizations and all the active powers in the Iraqi arena."

Following al-Maliki's speech, Cuba's foreign minister launched a blistering attack against Bush, saying the president "came into office through fraud and deceit" and has "no moral authority or credibility to judge anyone."

Foreign Minister Felipe Perez Roque also accused Bush of authorizing torture of prisoners at the U.S. military prison at Guantanamo Bay.

Roque's comments were in response to Bush's speech Tuesday in which he envisioned a Cuba without ailing leader Fidel Castro.

"In Cuba, the long rule of a cruel dictator is nearing its end," Bush said.

"The Cuban people are ready for their freedom."

"And as that nation enters a period of transition, the United Nations must insist on free speech, free assembly and, ultimately, free and competitive elections."