"UN drug chief: Insurgents complicating drug war - AP Interview: UN's anti-narcotics chief says war on drugs up against real insurgents"

By WILLIAM J. KOLE, Associated Press

Last updated: 1:02 p.m., Thursday, June 26, 2008

VIENNA, Austria -- More than ever before, authorities waging the global war on drugs are up against real insurgents.

Worldwide, illicit cultivation of opium and coca -- the raw materials for heroin and cocaine -- is rising as militants in Afghanistan, Colombia and Myanmar consolidate their control of key drug-producing areas, the U.N. Office on Drugs and Crime warns in a new report.

"The explosion of narcotics in those areas is explained by their presence and the protection they offer," agency chief Antonio Maria Costa told The Associated Press in an interview Wednesday.

"I believe that slowly these people, although politically motivated at the beginning, are becoming a kind of organized crime," he said.

"Money tends to stick to fingers, and a big lump of money becomes very problematic."

In its World Drug Report 2008 being released Thursday, Costa's office calls the glut of opium and coca "a very recent surge" and draws a direct link to Taliban militants in Afghanistan, armed revolutionaries in Colombia and several ethnic insurgency groups in Myanmar.

Afghanistan had a record opium poppy harvest in 2007, nearly doubling worldwide illegal opium production.

U.N. experts say 80 percent of the poppy was grown in five southern provinces where Taliban fighters profit from drugs.

"In the southern areas controlled by the Taliban, counter-narcotics and counter-insurgency must be fought together," Costa said.

Officials say the expanding role of insurgents in the global narcotics trade is especially worrisome because their drug profits are used to bribe police and government authorities and to help finance terrorists.

And insurgent activity is making it increasingly difficult for the U.S., Britain and others to deliver cash incentives to farmers as an enticement to not grow lucrative opium or coca, Costa told the AP.

Wherever the security situation slows down or thwarts efforts to distribute incentives, "cultivation gets out of control," he said.

In South America, where the Revolutionary Armed Forces of Colombia, or FARC, is waging an insurgency, coca production shot up 27 percent last year, the report said.

Most of that coca came from regions under the insurgents' control, "just like in Afghanistan," Costa said.

"Recent major increases in drug supply from Afghanistan and Colombia may drive addiction rates up because of lower prices and higher purity of doses," he warned.

Colombia's government has put the FARC on the defensive, driving the rebels deeper into the jungle and killing or capturing several top commanders.

Signs that the group is in disarray have fueled hopes that officials may find it easier to control cultivation, Costa added.

But Southeast Asia poses a fresh challenge: Opium cultivation there rose in 2007, reversing six years of decline.

In Myanmar, also known as Burma, it increased 29 percent.

The U.N. said most of the gains were in southern Shan state, where rebels seeking autonomy from Myanmar's ruling junta have clashed with the military.

"Some of the world's biggest drug-producing regions are out of control of the central government," Costa said.

Afghanistan remains the drug war's biggest problem because it now accounts for more than 90 percent of global opium production, the report said.

The U.S. has a record 33,000 troops in Afghanistan, part of an international force that has grown to almost 70,000 troops.

NATO has urged alliance members to contribute up to another 10,000 forces.

Meanwhile, major smuggling routes for narcotics, especially cocaine, are shifting to West Africa, the report said, pointing to steady demand for cocaine in Europe and intensified law enforcement along traditional trafficking routes.

Despite the setbacks, the report highlights some key gains in a century of efforts to combat illicit drug production and trafficking.

It says illicit drug use worldwide has largely stabilized over the past decade.

Fewer than 5 percent of the world's people aged 15-64 have tried an illegal drug at least once in the past year, and only 0.6 percent of the world's population are addicted.

Even so, that still means a staggering 26 million people have a severe drug dependence.

"Drugs continue to destroy lives," U.N. Secretary-General Ban Ki-moon said in a message for Thursday's observance of the International Day Against Drug Abuse and Illicit Trafficking.

The Transnational Institute, an Amsterdam, Netherlands-based think tank, criticized the report as "an elaborate exercise of obscuring the failure of 10 years of international drug control policy."

"There is overwhelming evidence that the current approach to drug control has failed," said Martin Jelsma, coordinator of the group's drug program.

Ban and Costa both urged the world's nations to respect the rights of addicts and suspected traffickers alike, noting that 2008 marks the 60th anniversary of the U.N.'s 1948 Universal Declaration of Human Rights.

Ban called on the international community to ensure suspects get fair trials and addicts get treatment, and Costa condemned the use of the death penalty for drug-related crimes.

Up to 60 nations, most in Asia and the Arab world, have capital punishment for drug offenses.

"Although drugs kill, we should not kill because of drugs," Costa said.

------

On the Net:

U.N. Office on Drugs and Crime, http://www.unodc.org

"Political theater seen in Israeli drill - Israeli drill seen more as political theater than dress rehearsal for Iran attack"

By AMY TEIBEL, Associated Press

Last updated: 2:53 p.m., Thursday, June 26, 2008

JERUSALEM -- An Israeli military exercise over the Mediterranean appears to have been less a dry run for an attack on Iran than a message that Tehran must curb its nuclear ambitions, according to officials and experts.

U.S. defense officials suggested last week that the drill was a dress rehearsal for an Israeli strike.

But the Greek government, which took part in the exercise, rejected that assessment.

And some observers think the disclosure of the maneuvers was aimed at getting the international community to step up diplomatic pressure on Tehran.

"The exercise has no connection with Israeli 'preparations' for an attack on Iran, as has been inaccurately reported," said Greek government spokesman Theodoros Roussopoulos.

He said Israeli aircraft flew at high altitudes inconsistent with an attack, and the exercise did not simulate anti-aircraft fire.

News of the drill sent oil prices spiking.

U.N. nuclear watchdog Mohamed ElBaradei warned an attack could turn the Mideast into a "ball of fire."

And Iran's parliament speaker hinted a military strike could actually provoke the building of bombs.

The disclosure of the drill, conducted from May 28 to June 12, came amid growing Israeli impatience with international diplomatic efforts.

Just before the drill, Europe presented Tehran an offer of economic incentives to halt its enrichment of uranium.

Iran has not responded.

Retired Israeli military chief Lt. Gen. Moshe Yaalon said the disclosure might have been political theater meant to rattle Tehran.

"It might be a good idea," he told The Associated Press.

"I read the newspapers in the last week and I enjoyed it."

Israel considers Iran its most dangerous foe, an assessment bolstered by Iranian President Mahmoud Ahmadinejad's frequent calls for Israel's destruction.

Although Israel has said it favors a diplomatic solution to the nuclear standoff, it has not ruled out a military strike.

This month, Transportation Minister Shaul Mofaz said Israel would have no choice but to attack Iran if it didn't stop enriching uranium.

An Israeli air attack that destroyed an unfinished nuclear reactor in Iraq in 1981 and a strike on a suspected nuclear facility in Syria in September have added to the suspicions that Israel is planning action against Iran.

The Israeli military has refused to comment on the substance of the maneuvers, saying only that "the Israeli air force regularly trains for various missions in order to confront and meet the challenges posed by the threats facing Israel."

Israeli military officials have denied that the drill simulated an attack on Iran's nuclear program, though they acknowledge Israel is preparing for a possible strike.

They spoke on condition of anonymity under military rules.

According to The New York Times, which first reported on the exercise, more than 100 Israeli F-16 and F-15 fighters took part, along with helicopters and refueling tanks.

The helicopters and refuelers flew more than 900 miles, about the distance between Israel and Iran's uranium enrichment plant at Nantanz.

But Roussopoulos, the Greek government spokesman, said the range of the exercise did not indicate a link with Iran because Israeli warplanes previously have carried out exercises over Greece, Cyprus and Turkey.

The drill had no provision for dealing with anti-aircraft fire, did not include electronic warfare or surveillance aircraft and did not involve live ammunition, he said.

Although ground attacks were simulated, the Iranian and Greek terrains are different, and aircraft flew at a high altitude, "which would not have been the case had the nature of the exercise been aggressive," he said.

A Greek air force statement said the maneuvers included air combat missions and simulated attacks on land targets, air refueling and search and rescue operations.

The exercise was carried out east and south of Crete and in central Greece, the statement said.

A Greek air force official said each side carried out 120 flights.

Israel used F16 and F15 combat planes and Black Hawk and Super Stallion helicopters, he confirmed, but would not say how many Israeli combat aircraft participated.

He spoke on condition of anonymity because he was not authorized to discuss the drill.

"From what I've understood, this should primarily be seen as an exercise in psychological warfare, although the possibility that it is also related to genuine preparations for an attack on Iran should not be excluded," said Mouin Rabbani, an independent Mideast analyst.

And while the report originated at the Pentagon, "one doesn't expect the U.S. to leak these kind of things without close coordination with the Israelis," he said.

Israel-based Iran analyst Meir Javedanfar interpreted the disclosure as an Israeli attempt to influence the international diplomatic pressure on Iran.

The exercise "by no means says that Israel is going to attack," he said.

"The very fact that the Israelis leaked it showed how much they want negotiations to work."

Dore Gold, a former Israeli ambassador to the U.N., suggested the U.S. was behind the disclosure.

"It could be that some U.S. observers assume that Iran would only respond to diplomatic efforts if it was concerned that a real military option was being considered," Gold said.

Experts agree an attack on Iran's program would be much more complicated than the attacks on Iraq and Syria because the Iranian installations are scattered and some are in underground bunkers.

A powerful deterrent to an Israeli attack is the expectation Iran would retaliate, directly or through militant proxies like Hezbollah in Lebanon or Hamas in the Gaza Strip.

Yossi Melman, an Israeli military analyst, said the exercise "is not an omen" of a potential military strike.

"It doesn't show anything," he said.

"All it means is that Israel is preparing."

------

Associated Press writers Elena Becatoros and Nicholas Paphitis contributed to this report from Athens, Greece.

"Court says no deadline for EPA on global warming - Court rejects states' appeal to force EPA decision on global warming"

By DINA CAPPIELLO, Associated Press

Last updated: 7:32 p.m., Thursday, June 26, 2008

WASHINGTON -- A federal appeals court refused Thursday to make a resistant Bush administration speed up a decision on whether greenhouse gases and global warming threaten public health and welfare.

The U.S. Court of Appeals for the District of Columbia denied a petition by 17 states and several environmental groups asking it to order the Environmental Protection Agency to make that determination within 60 days.

Such a finding is a necessary first step to regulating carbon dioxide and other greenhouse gases from motor vehicle tailpipes and the smokestacks of refineries, power plants and factories.

The Supreme Court more than a year ago ruled that the EPA has the authority to regulate greenhouse gases under the Clean Air Act, a step Bush has repeatedly refused to take.

Instead, EPA is expected to issue a proposal in coming weeks that seeks public comment on a range of options the agency could take to control greenhouse gases under current law.

It will take no position on whether carbon dioxide and other greenhouse gases should be regulated, according to a draft obtained by The Associated Press.

"We are pleased the Circuit court recognized the agency's approach," said Timothy Lyons, deputy press secretary for EPA Administrator Stephen Johnson.

"The advanced notice for proposed rulemaking ... will allow for public input on the broad range of fundamental issues involved in regulating greenhouse gases."

That proposal is expected to be a step backward from a finding the agency sent via e-mail to the White House last December concluding that greenhouse gases do endanger public health and welfare, and should be controlled.

The e-mail, according to an EPA official who spoke under the condition of anonymity, was never opened by the White House.

Several agency officials have also said that the White House asked for the e-mail to be recalled.

"The final decision was that the ramifications of that finding were so profound for the nation, that this administration didn't want to have to confront the inevitable," said Jason Burnett, an EPA associate deputy administrator who resigned this month over the agency's lack of response to Supreme Court decision in April 2007.

"The decision was to let the next administration set the policy for how the Clean Air Act should be applied to greenhouse gases," Burnett said in an interview Thursday.

The latest proposal due out from EPA is undergoing more modifications from the White House, sources familiar with the negotiations said.

"The big issue now is the extent to which the administration is making last-minute wholesale changes, and that was going on over the weekend," said William Becker, executive director of the National Association of Clean Air Agencies.

A draft copy of the rule suggests that fuel economy standards more stringent than those the Bush administration is currently proposing would not only cut back on greenhouse gases but would also save consumers money.

"The White House is basically ordering EPA to do what they want them to do," said Dan Becker, a consultant to environmental groups.

"They are going to couch the langauge in a way that gives the administration an out."

"They are already not reading their e-mails."

In the appeals court's ruling Thursday, Judge David S. Tatel wrote that the court shouldn't immediately force the EPA's hand.

He said the Supreme Court didn't give the agency a deadline and that the issue is too complex and controversial to be sorted out in only a year.

But the judge also questioned the agency's delays.

"EPA has postponed -- now indefinitely -- deciding whether greenhouse gas emissions endanger public health and welfare, calling into question whether the agency's desire to promulgate regulations ... is simply an excuse to avoid complying with the statute," Tatel wrote.

Environmentalists said the court's decision definitively punts any decision on regulating greenhouse gases to the next administration.

"All this does is further underscore that the Bush administration has not done anything, will not do anything, and has stood in the way of anyone else doing anything," said David Bookbinder, chief climate counsel for the Sierra Club.

"Cheney aide denies writing interrogation memos - Cheney's chief of staff refuses to claim responsibility for harsh interrogation methods"

By LIBBY QUAID, Associated Press

Last updated: 7:32 p.m., Thursday, June 26, 2008

WASHINGTON -- Vice President Dick Cheney's top adviser on Thursday refused to claim any responsibility for the adoption of harsh interrogation methods following the Sept. 11, 2001, attacks during a combative exchange with congressional Democrats.

David Addington, chief of staff to the vice president, said he merely responded, "Good, I'm glad you're addressing these issues," to the lawyer who wrote memos providing a legal basis for harsh interrogation techniques of terror suspects.

Addington appeared along with the lawyer, former Justice Department attorney John Yoo, before a House Judiciary subcommittee investigating the role of Bush administration lawyers in approving interrogation procedures.

The tactics were far harsher than those traditionally used by the U.S. military.

The Associated Press learned in April that administration officials from Cheney on down signed off on the techniques after asking the Justice Department to endorse their legality.

Addington denied several reports that he was involved in the drafting of a key memo that the Justice Department later rescinded.

The August 2002 memo narrowly defined torture as resulting in "death, organ failure or serious impairment of bodily functions."

Addington said he attended a White House meeting during which it was discussed; he said Yoo outlined for him and the president's counsel at the time, Alberto Gonzales, the subjects he planned to address.

Addington also said he was more involved in CIA interrogation policies than those used by the Defense Department at its detention facility at Guantanamo Bay, Cuba.

Addington was forced by subpoena to testify, and he told lawmakers they would have to subpoena him again if they wished him to return.

Addington gave hostile answers to the Democrats who control the committee but remained calm and relaxed, stroking his beard or resting his head on his chin, sometimes pausing for several seconds before giving an answer.

Rep. Jerrold Nadler, the New York Democrat who heads the subcommittee, told reporters he thought Addington was being smug.

Nadler asked Addington whether it would be legal in some circumstances to torture a detainee's child.

"I don't agree or disagree with it, Mr. Chairman."

"I don't plan to address it," Addington said.

"I'm not here to render legal advice to your committee."

"You do have attorneys of your own to give you legal advice."

Yoo, a professor at the University of California-Berkeley, appeared voluntarily but repeatedly refused to answer questions, insisting the Justice Department had instructed him not to address a range of questions.

When Nadler told him he would have to give a specific reason, Yoo struggled, whispering with his lawyers before finally saying he could not violate attorney-client privilege or reveal classified information.

The panel's Democrats grew increasingly irate, with several shouting at the witnesses.

"What is the answer?" Michigan Rep. John Conyers, the House Judiciary Committee chairman, yelled at Yoo.

"You're wasting my time!"

At one point, Yoo debated the meaning of "implement" with Rep. Keith Ellison, D-Minn., who asked whether the 2002 memo had been implemented.

"What do you mean by 'implement,' sir?" Yoo asked.

"Mr. Yoo, are you denying knowledge of what the word 'implement' means?" Ellison said.

"You're asking me to define what you mean by this," Yoo said.

"I'm not going to get into semantical games with you," Ellison said.

Eventually, Yoo said he didn't know whether the memo had been followed.

"House GOP concludes they failed to sway voters - Internal review finds House Republicans failed to sway voters, over negative perceptions"

By DAVID ESPO, Associated Press

Last updated: 7:22 p.m., Thursday, June 26, 2008

WASHINGTON -- House Republicans reviewing their recent election defeats have concluded their customary campaign themes failed to sway the voters and their candidates could not overcome negative perception of the national party.

An internal review says GOP candidates must show deep empathy towards the voters in November.

The report was ordered by party leaders in the wake of losses of formerly safe seats in Illinois, Louisiana and Mississippi.

Republicans reviewed their defeats as Democrats disclosed they intend to spend heavily this fall in three competitive seats in New York, Oregon and Colorado.

Officials said the Democratic Congressional Campaign Committee had reserved a combined $4 million worth of television advertising time.

"Smoky skies threaten health in fiery California"

By DON THOMPSON, Associated Press Writer

28 JUNE 2008

SACRAMENTO, Calif. - Hundreds of lightning-sparked wildfires have turned the air of Northern California into an unhealthy stew of smoke and ash, forcing the cancellation of athletic events and other outdoor activities.

Air pollution readings in the region are two to 10 times the federal standard for clean air, Dimitri Stanich, spokesman for the California Air Resources Board, said Saturday.

Some areas are experiencing the worst air quality on record, with the smoke hanging down to the ground like a fog.

Air quality agencies are especially concerned about high readings of small-particle pollution.

The tiniest particles can penetrate past the body's immune defenses, traveling deep into the lungs and the bloodstream.

"When you have it on the scale we are seeing now, it is very dangerous to the general public health," Stanich said.

"This is a very serious problem."

Changing weather brought smoke-clearing breezes and brief relief to some areas Saturday, but it could also bring lightning storms similar to the ones that ignited fires across Northern California a week ago.

Thunderstorms could strike anywhere in the northern Sierra Nevada or the northern Central Valley on Saturday night, said National Weather Service forecaster Johnnie Powell in Sacramento.

The thunderstorms could also bring a small amount of much-needed rain, he said.

The front was expected to pass by Sunday, setting up a second week of abysmal air quality.

The renewed threat of dry lightning and stiffer breezes that could stir the wildfires led fire officials to declare a "red flag warning" — meaning the most extreme fire danger — until 5 a.m. Monday for Northern California.

On Saturday, President Bush issued an emergency declaration for California and ordered federal agencies to assist in firefighting efforts in many areas.

Gov. Arnold Schwarzenegger had made the request on Friday.

More than 15,000 firefighters, 1,000 fire engines and more than 80 helicopters and aircraft were fighting more than 1,000 fires Saturday, said Ruben Grijalva, director of the California Department of Forestry and Fire Protection.

"The summer has just begun, and fire conditions will only get tougher," Grijalva warned in a weekly radio address on behalf of the governor.

Areas hardest hit include Butte County, where 31 fires have burned 19 square miles and threatened 1,200 homes; Mendocino County, where 121 fires have burned 45 square miles and threatened 900 homes; and Shasta and Trinity counties, where about 160 fires have burned 58 square miles and threatened 230 homes.

South of the tourist town of Big Sur in the Los Padres National Forest, a wildfire that started three weeks ago had burned 92 square miles and destroyed 16 structures including two homes.

It was 80 percent contained Saturday.

Stanich, of the Air Resources Board, advised people to stay inside and keep activity to a minimum.

Children, the elderly and people with heart and lung problems are particularly vulnerable, but pollution levels are high enough to affect healthy adults.

Health officials have reported an increase in people complaining of eye and throat irritation and coughing.

The poor air can also trigger asthma attacks and bronchitis.

They said surgical masks, wet cloths and bandanas are not enough to filter the smoke.

Only N95- and P100-rated masks filter out the smallest and most dangerous particles.

Some veterinary offices said pet owners were bringing in dogs and cats with symptoms ranging from weepy eyes and irritated skin to difficulty breathing or unusual lethargy.

Vets were advising that pets remain inside until the smoke clears.

Smoky air canceled this weekend's 100-mile Western States Endurance Run for the first time in its 31-year history.

The decision disappointed 370 runners who had traveled from as far away as Africa for the annual race from Squaw Valley at Lake Tahoe to Auburn in the Sierra foothills.

In Sonoma County, the limited visibility kept the Energizer Bunny and dozens of other colorful hot air balloons from lifting off during Saturday's Hot Air Balloon Classic in Windsor.

Cities also closed public pools, canceled softball games and called off July Fourth fireworks displays.

Schwarzenegger urged residents not to buy fireworks this year and said local governments should consider an outright ban, though he would not impose one statewide.

In central New Mexico, a blaze caused by lightning that forced the evacuation of 400 people was 35 percent contained.

Thunderstorms were forecast, and firefighters welcomed the possibility of rain but feared that winds could change the fire's direction.
____

Associated Press writers Terence Chea and Amanda Fehd contributed to this report.

"Pakistani forces take control of area in Khyber"

By RIAZ KHAN, Associated Press Writer

Sun Jun 29, 3:47 AM ET

PESHAWAR, Pakistan - Paramilitary troops returned Sunday to posts they had been forced to abandon and Pakistani forces widened their offensive against militants operating in a volatile tribal area along the Afghan border, an official said.

The government launched the operation Saturday against militants in the Khyber region who had grown more brazen in their attacks in recent months.

The militants began threatening the nearby city of Peshawar and ambushing supply convoys bound for U.S.-led coalition troops in Afghanistan.

The military operation appears to be a shift in strategy by Pakistan's new government, backing its calls for peace deals in the tribal areas with the threat of forceful action against militants who get out of line.

The United States has criticized the move for peace deals, saying it gives militants the freedom to regroup for attacks on U.S. and NATO forces in Afghanistan.

Troops from the paramilitary Frontier Corps, backed by tanks and armored personnel carriers, quickly cleared militants out of the Bara region, said Muhammad Siddiq Khan, a local official.

A tribal paramilitary force that had been forced to abandon its posts in the region several months ago returned to the checkpoints Sunday, he said.

The Frontier Corps met no resistance as it moved into other areas outside Bara, destroying militant bases along the way, he said.

On Saturday, authorities shelled militant hideouts and blew up the headquarters of militant leader Menghal Bagh, who had apparently fled.

Another possible target was Haji Namdar's Vice and Virtue Movement, which is suspected of attacks against coalition soldiers in Afghanistan.

Baitullah Mehsud, the top Taliban leader in Pakistan, said he was suspending talks between his allies and the government in the wake of the offensive and implied his forces could cause trouble in Pakistan's main cities.

Maj. Gen. Alam Khattak, head of the Frontier Corps, hinted this would not be the only operation against militants and other officials said the volatile Swat region could be next.

On Sunday, a remote-controlled bomb blast killed two soldiers on a foot patrol in Swat's Matta area, a former militant stronghold, army spokesman Maj. Gen. Athar Abbas said.

Pro-Taliban fighters have battled security forces in Swat in recent months, despite a peace deal between militants and the new provincial government.

"Pakistan presses on with offensive vs. militants"

By RIAZ KHAN, Associated Press Writer

29 JUNE 2008

PESHAWAR, Pakistan - Pakistani paramilitary forces destroyed a handful of militant centers and uncovered alleged torture cells as they pressed ahead Sunday with an offensive against extremists near the Afghan border, officials said.

A spokesman for Pakistan's top Taliban commander promised Sunday that militants would retaliate against the government, and were suspending efforts to reach and implement peace deals.

The operation in the Khyber tribal area is a shift for Pakistan's new government, which has sought to reduce violence through the peace deals.

But with extremists increasingly threatening Peshawar, a major northwest city, and ambushing supply convoys bound for U.S.-led coalition troops in Afghanistan, the government turned to its troops.

The paramilitary Frontier Corps killed one attacker but encountered relatively little resistance since launching the operation Saturday, officials said.

Troops, backed by tanks and armored personnel carriers, quickly cleared militants out of Khyber's Bara region, said Muhammad Siddiq Khan, a local official.

They then moved into areas outside Bara.

The troops destroyed at least four militant centers and uncovered a privately run jail, said Habibullah Khan, additional chief secretary for the Federally Administered Tribal Areas.

"The criminals were running a parallel administration in the area," Khan said.

"They were kidnapping the people, trying them and punishing them and the government is fully determined not to allow anyone to run a parallel administration."

Khan said the jail contained what he called "torture cells" with special equipment, but offered no details.

Rehman Malik, head of the Interior Ministry, said forces destroyed a radio station used by the militants to broadcast propaganda.

Khan said the operation would continue for several more days and insisted it was not aimed at any particular militant group.

The semi-autonomous tribal areas, where the federal government has long had limited authority, are home to many militant groups, some of whom are engaged in feuds.

On Saturday, authorities blew up the headquarters of militant leader Menghal Bagh, who had apparently fled.

The operation was also expected to target Haji Namdar, whose Vice and Virtue Movement is suspected of attacks against coalition soldiers in Afghanistan.

Baitullah Mehsud, the top Taliban leader in Pakistan, said he was suspending talks between his allies and the government.

His spokesman, Maulvi Umar, said the Taliban would avenge any government use of force in the tribal areas and other border regions.

He said the government was not honoring its commitment to peace efforts.

"The government should not ruin the country just to please the Western world and should immediately halt the operation in Khyber agency," Umar told The Associated Press on Sunday.

"If it is not stopped it will bear very grave results."

American officials have complained that peace deals with militants will simply give them time to regroup and plan new attacks, including across the border in Afghanistan.

Prime Minister Yousuf Raza Gilani on Sunday defended the deals, but warned that authorities will use force "if (the groups) backtrack from their agreements and damage state property."

Gilani said the government was forced to take action because it faced an "immediate problem" from militants near Peshawar and in the Swat Valley.

Afghan officials welcomed the operation in Khyber and reiterated their suspicion that a surge in violence in Afghanistan was partly due to the lack of pressure on militants in Pakistan's tribal areas.

"We endorse this operation, we want this operation to be continued and we want this operation to be successful," Afghan Defense Ministry spokesman Gen. Mohammad Zahir Azimi said.

NATO spokesman Brig. Gen. Carlos Branco said "everything that can minimize the threat in Afghanistan is good for us."

Maj. Gen. Alam Khattak, head of the Frontier Corps, has hinted this would not be the only operation against militants and other officials said the Swat region could be next.

On Sunday, a remote-controlled bomb blast killed two soldiers on a foot patrol in Swat's Matta area, a former militant stronghold, army spokesman Maj. Gen. Athar Abbas said.

Pro-Taliban fighters have battled security forces in Swat in recent months, despite a peace deal between militants and the new provincial government.
___

Associated Press writers Sadaqat Jan and Zarar Khan in Islamabad and Stephen Graham in Kabul contributed to this report.

AND JOE LIEBERMAN CAN DEMAGOGUE WITH THE BEST OF THEM HERE ...

And so ...

"Clark hits McCain's military credentials"

Josh Kraushaar

Sun Jun 29, 1:36 PM ET

Gen. Wesley Clark, acting as a surrogate for Barack Obama’s campaign, invoked John McCain’s military service against him in one of the more personal attacks on the Republican presidential nominee this election cycle.

Clark said that McCain lacked the executive experience necessary to be president, calling him “untested and untried” on CBS’ “Face the Nation.”

And in saying so, he took a few swipes at McCain’s military service.

After saying that "I certainly honor his service as a prisoner of war."

"He was a hero to me and to hundreds of thousands and millions of others in the armed forces, as a prisoner of war."

He added that these experiences in no way qualify McCain to be president in his view:

“He has been a voice on the Senate Armed Services Committee."

"And he has traveled all over the world."

"But he hasn't held executive responsibility."

"That large squadron in the Navy that he commanded — that wasn't a wartime squadron,” Clark said.

“I don’t think getting in a fighter plane and getting shot down is a qualification to become president.”

Sen. Joseph I. Lieberman (I-Conn.), also on CBS, was equally uncharitable towards Obama’s record on foreign policy as he continued to distance himself from his former party.

“Sen. Obama, unfortunately, like a lot of the Democratic leadership, continues to take a position that we ought to withdraw ... even though the new policy is working,” said Lieberman.

“If we had done what Sen. Obama asked us to do for the last couple of years, today Iran and Al Qaeda would be in control of Iraq."

"It would be a terrible defeat for us and our allies in the Middle East and throughout the world.”

Meanwhile, the opposition narratives for the fall election campaign appeared to be in full force on ABC’s “This Week,” with Rep. Rahm Emanuel (D-Ill.) calling McCain a flip-flopper, while Republican Minnesota Gov. Tim Pawlenty accused Obama of not working in a bipartisan fashion.

Emanuel attacked McCain for changing his position on offshore oil drilling, President Bush’s tax cuts and his relationship with the evangelical community.

Quipped Emanuel: “If flip-flop was an Olympic sport, John McCain would be the first to win a gold medal.”

But Pawlenty cited McCain’s record on immigration and his support of increasing U.S. troop presence in Iraq as ample evidence that he bucks his party on account of principle — and then challenged Emanuel to name one piece of legislation where Obama has worked across party lines.

“The question really remains, when has Barack Obama stood up and taken on his party on anything of national significance?” Pawlenty asked.

“It's not leadership to jump in front of a parade."

"And I think Barack Obama's book 'The Audacity of Hope' perhaps should be retitled 'The Audacity of Hypocrisy.'”

VP watch

A pair of prospective running mates for Obama and McCain downplayed their interest in serving on the presidential tickets on “Fox News Sunday” — and one even said he wasn’t interested in an immediate Cabinet appointment.

Gov. Ed Rendell (D-Pa.), said he was committed to finishing out his four-year term as governor before accepting any Cabinet position within a potential Obama administration.

“In 2011, it's my intention to walk out the door of the [Pennsylvania] capitol ... in January of 2011."

"I know that disappoints some people in the capitol, but that's my intention,” Rendell said.

“And if there was a position open that I was interested in, like energy or transportation, I'd be honored to serve in an Obama administration, but not at the beginning, not until my time is finished.”

Rendell, one of Sen. Clinton’s leading surrogates during the Democratic primaries, said that President Clinton was “disappointed” that his wife came up short in the Democratic primary, but “is going to do every single thing that Barack Obama asks him to do ... and make a great case for Sen. Obama as our next president.”

Meanwhile, former Ohio Rep. Rob Portman also disavowed interest in serving as McCain’s running mate, saying he preferred to remain with his family in Ohio instead of returning to Washington, where he most recently served as director of the Office of Management and Budget.

“I don't expect to be asked, honestly,” said Portman.

"I'm also, as you know, Chris, home after 15 years of commuting when I was in Congress and in the administration, and I've got three teenagers."

"It's time to be home."

"I love being home.”

Portman, for his part, reiterated McCain’s unequivocal support for NAFTA despite the fact that the free trade agreement is viewed skeptically in the Rust Belt, including the electorally critical states of Ohio and Pennsylvania.

“It's created an enormous number of jobs, including to Canada, which is our biggest trading partner,” said Portman.

“And when that message gets out there, it makes it look a little silly that you have someone going around the state of Pennsylvania and Ohio blaming NAFTA for anything from high energy prices to the common cold. “

Third party

Both third-party presidential candidates appeared on the Sunday talk show circuit, with each offering an ample helping of criticism towards the major-party nominees.

Ralph Nader, who said Obama was “talking white” to appeal to voters earlier in the week, continued to attack the Democratic nominee on ABC’s “This Week,” accusing him of being too cozy with an assortment of corporate interests.

“Look at the positions he’s taken on that corporate America is very congenial to."

"If you want to cover everybody on health insurance ... go to single payer."

"He's opposed to single payer,” said Nader.

Meanwhile, former Republican Georgia Rep. Bob Barr, the Libertarian Party’s nominee, had harsh words for both McCain and his former party.

“What's wrong with John McCain is symptomatic of what's wrong with the Republican party in these first years of the 21st century."

"They talk one thing but do something different and that's become very obvious to the American people,” Barr said on Fox.

Barr said he is the only candidate offering the combination of a crackdown on excessive government spending along with concern for civil liberties.

But he had to distance himself from past congressional votes in support of the Patriot Act and for legislation authorizing the war in Iraq — positions anathema to much of the Libertarian Party base.

“I certainly was wrong, along with a lot of others in Congress, and now realize that the vote in support of military operations in Iraq was not what the administration intended."

"They intended to occupy the country even though they didn't tell us or the American people that at the time,” said Barr.

The governator

And a Sunday show wrapup wouldn’t be complete without mention of California Gov. Arnold Schwarzenegger’s appearance on “Meet the Press,” where he advocated for McCain’s candidacy but acknowledged their difference on offshore drilling, a proposal that Schwarzenegger opposes.

“I'm 100 percent behind him."

"That we don't agree on everything, that's clear; nor do I with my wife."

"I mean, it doesn't mean that we should split, it just means that we don't agree on certain things.”

He also announced his opposition to a statewide referendum that would amend the state’s constitution to ban gay marriage, while not sounding too opposed to the California Supreme Court’s recent controversial ruling that legalized same-sex marriage in the state.

“I think it's good that California is leading in this way,” said Schwarzenegger.

“I personally believe that marriage should be between a man and a woman."

"But at the same time I think that my belief, I don't want to force on anyone else, so I think we should stay with the decision of the Supreme Court and move forward.”

"Who are those oil speculators, anyway? Maybe you - Retirement funds plowing cash into oil, riding its remarkable rise - but there are risks"

By MATTHEW PERRONE, Associated Press

Last updated: 4:32 p.m., Friday, June 27, 2008

WASHINGTON -- All those speculators getting the blame for driving up the price of oil these days -- just who are they?

For part of the answer, look in the mirror.

The retirement savings of workers across the country, entrusted to pension fund managers, are being plowed into one of the few investments that has delivered phenomenal returns in recent years.

For decades, futures contracts were mostly traded by commodity producers and the people who used the actual products, such as crude oil, corn and soybeans.

Agreeing to a price today for a commodity to be delivered in, say, two months is a way to smooth out price fluctuations for those supplies.

But large investors faced with the threat of inflation have increasingly used them as protection against the falling dollar.

That includes pension funds, along with investment banks, mutual funds and private hedge funds.

Research firm Ennis Knupp and Associates says $139 billion had been funneled into energy commodites, primarily crude oil, by the end of March -- and it estimates more than half of that is from retirement money.

The investments have paid off.

The Standard & Poor's GSCI index, which tracks a basket of commodities, is up 19 percent in the past five years, compared with just 9 percent for the S&P 500 stock index.

The risk is that if the remarkable run in oil and other futures markets reverses course, billions of dollars of retirement benefits could be wiped out.

"A pension fund is supposed to be investing money in secure, stable investments for the benefit of the people whose money they are investing," said Dan Lippe, an energy analyst at Houston-based Petral Consulting Inc.

"When we hit that wall and things start falling," he said, "they will fall very fast, and the pension funds that invested in commodities will see a tremendous loss of value."

The retirement system for public employees in California, the largest in the nation, has $1.3 billion invested in commodities.

Most of it tracks the S&P commodity index.

That's still just one-half of 1 percent of the fund's total $240 billion in assets, said Michael Schlachter, who advises the California pension fund.

He said a collapse in oil or other commodity prices would have little effect on retirees.

Still, a growing chorus of experts is convinced retirement investments are enough to distort prices.

Billionaire George Soros, the airline industry and the International Monetary Fund are all pressuring Congress to curb speculation by large investors.

Democrats in Congress say they hope to vote on restrictions by August.

"Your pension fund manager may be using your retirement money to drive up the price of oil," said Rep. Bart Stupak, D-Mich., at a hearing earlier this week on speculation in commodities.

"What would happen if pension fund managers decided to increase their commodity investment by another 20-fold?" he asked.

Speculators put money into commodity markets simply to make money on their investments -- unlike commercial investors, who are actually buying or selling orders for physical goods.

Energy analysts say it's unclear what effect speculators have had on oil prices, which climbed briefly to a new record above $142 on Friday before falling back.

But Stupak and other lawmakers have already dashed off more than a dozen proposals to rein in commodity trading, including limiting how many contracts speculators can hold and closing loopholes that allow them to skirt regulations.

Sen. Joe Lieberman, I-Conn., proposed banning pension funds and other large investors from commodities altogether.

He dropped the idea after vigorous opposition by an association of public and private pension funds.

Schlachter, who is also managing director for investment consulting firm Wilshire Associates, called the idea "horrendously bad."

He said pension funds should not be compared to Wall Street speculators, who assume huge risks every day to maximize returns.

"The pension plans we work with are using commodities only as a long-term hedge against inflation," he said.

Unlike the stock market, where there are a limited number of shares for each company, futures markets have no limits on contracts available.

As long as a buyer can find a seller for each contract, investment opportunities are virtually unlimited.

Critics say retirement funds that accumulate contracts are artificially driving up commodity prices.

In the case of oil, that means higher gas prices and more expensive food and other goods.

"If they're going to be in the futures market they need to trade rather than take this buy and hold strategy," said Michael Masters, portfolio manager of hedge fund Masters Capital Management.

"That is the worst possible thing for the futures market."

Masters and other experts told members of Congress this week that eliminating excessive speculation could drive oil prices down to about $65 a barrel, less than half the current price.

Retirement funds have suffered at the hands of the market before.

In 2002, when the stock market swooned after the dot-com crash and 9/11, retirement assets dropped $7 billion, losing 8 percent of their value.

"Fed eyes making it easier to invest in banks - Fed eyes steps to make it easier for private-equity firms to invest in cash-strapped banks"

By JEANNINE AVERSA, Associated Press

Last updated: 2:22 p.m., Friday, June 27, 2008

WASHINGTON -- The Federal Reserve is looking into making it easier for private equity firms to invest in banks, a move that could usher new capital infusions to cash-hungry banks and help them cope with credit problems.

Fed Chairman Ben Bernanke and Treasury Secretary Henry Paulson have been encouraging banks to raise more money to rebuild balance sheets that have been hit by billions of dollars in losses from bad investments in mortgage-backed securities.

A global credit crisis and financial turmoil have made it increasingly difficult for banks, Wall Street firms and other financial institutions to line up capital.

The Fed is considering taking steps that would help give private equity firms a better understanding of what they can and cannot do as they weigh making an investment in a bank.

"We are looking at ways we can make those things more workable and gain from the experience we've had over the past few years," said Scott Alvarez, the Fed's general counsel.

Private equity firms, which put together massive pools of money to invest, can take stakes in banks now.

However, the Fed has gotten a lot more questions from private equity firms and others recently about how large a stake they can take without being subject to regulatory supervision.

Under federal law, an investment of 25 percent or more in a bank would trigger Fed regulations.

Over the years, the Fed has generally found -- when reviewing individual cases -- that investments of under 10 percent don't constitute a "controlling interest" in the bank and thus don't trigger regulatory oversight.

That's left a gray area -- the treatment of potential bank investments that would be between 10 percent and under 25 percent.

For several years, the Fed's legal staff has been looking into this matter.

No decision is imminent, but some clarity could be made later this year.

It's unclear how this would be done -- through guidance from the Fed, changes in current rules or some other method.

The Fed's possible action was first reported by The Wall Street Journal.

The newspaper reported that J.C. Flowers & Co., Carlyle Group, Kohlberg Kravis Roberts & Co. and Warburg Pincus were among those meeting with Fed officials on the matter.

In an opinion piece Thursday in The Wall Street Journal, Randal Quarles and Olivier Sarkozy, managing directors at the Carlyle Group, made the case for leeway.

"Private equity is ready and willing to step forward in large amounts -- restoring lending capacity, encouraging efficiency and protecting the taxpayer," they wrote.

"The Federal Reserve and other banking regulators can help remove obstacles to this important pool of capital."

AND THE "IRON CURTAIN" OF THE BERLIN WALL IS BACK UP AGAIN ....

THIS TIME, IT IS IN BAGHDAD ....

AND IT CONSISTS OF CONCRETE PRISON WALLS AROUND PEOPLE'S LIVES AND HOMES AND COMMUNITIES BUILT WITH AMERICAN TAXPAYER DOLLARS ....

AMERICA HAS BROUGHT HELL ON EARTH TO IRAQINAM ....

IN THE FALSE NAME OF LIBERATION ...

And so ...

"Baghdad's walls keep peace but feel like prison - A city of shadows: Walls wrap through Baghdad, keeping the peace but feeling like prison"

By HAMZA HENDAWI, Associated Press

Last updated: 3:12 p.m., Friday, June 27, 2008

BAGHDAD -- Baghdad hasn't been this quiet in years.

But the respite from bloodshed comes at a high price.

Up to 20 feet high in some sections.

Rows after rows of barrier walls divide the city into smaller and smaller areas that protect people from bombings, sniper fire and kidnappings.

They also lead to gridlock, rising prices for food and homes, and complaints about living in what feels like a prison.

Baghdad's walls are everywhere.

They have turned a riverside capital of leafy neighborhoods and palm-lined boulevards into a city of shadows that separate Sunnis from Shiites.

The walls block access to schools, mosques, churches, hotels, homes, markets and even entire neighborhoods -- almost anything that could be attacked.

For many Iraqis, they have become the iconic symbol of the war.

"Maybe one day they will remove it," said Kareem Mustapha, a 26-year-old Sadr City resident who lives a five-minute walk from a wall built this spring in the large Shiite district.

"I don't know when, but it is not soon."

Indeed, new walls are still going up, the latest one around the northwestern Shiite neighborhood of Hurriyah, where thousands of Sunnis were slaughtered or expelled in 2006.

They could well be around for years to come, enforcing the capital's fragile peace and enshrining its sectarian divisions.

Some walls are colorful, painted by young local artists with scenes depicting green pastures or the pomp and glory of Iraq's ancient civilizations.

Others are commercial, plastered with fliers advertising everything from the local kebab joint to seaside vacations in Iran or university degrees in Ukraine.

Still others are religious or political, with posters of popular clerics or graffiti hostile to the United States, Israel or -- most recently -- Iraq's prime minister.

Most are just bleak and gray, a reminder that danger lurks on the other side.

Dora, a one-time stronghold of Sunni insurgents in southern Baghdad, has so many walls and observation towers that some parts resemble a maze.

The district's notorious Moalimeen area, which until a year ago had been among the most dangerous places in the capital, is now accessible to pedestrians through revolving iron doors guarded by security troops.

"The walls have stopped gunmen from coming into the neighborhood," said Salim Ahmed, a 29-year-old oil refinery worker who lives and works in Dora.

"But we also feel that we are in a prison and isolated from the rest of the city."

In some areas of Baghdad, the walls delay the movement of food and other essential supplies, raising prices.

Where successful in preventing attacks and reducing crime, the walls push up the prices of homes.

The U.S. military defends the walls, crediting them with disrupting the movement and supply routes of the Sunni militants of al-Qaida in Iraq and the Shiite militiamen of the so-called special groups.

It also disagrees with the notion that the walls are dividing the city alongside sectarian lines.

First introduced by the Americans in 2003 to protect their Green Zone headquarters, walls became much more widespread with the launch early last year of a major security campaign in Baghdad.

In some walled-off neighborhoods, access was granted only on proof of residence or special ID cards.

Nowadays there's hardly a street in Baghdad without a wall -- or a cheaper substitute like barbed wire, palm tree trunks, mounds of dirt or piles of rocks.

They're even used to control pedestrian and vehicular traffic in risky areas.

In April, the U.S. military sealed off the southern section of Sadr City to put the American Embassy and Iraqi government offices out of range of rockets and mortars fired by Shiite militiamen.

The shelling has since stopped, and quick-thinking entrepreneurs rushed to lay claim to a spot against the wall to sell fruits and vegetables.

Because of the Sadr City wall, Mustapha's journey to work every day now involves a 15-minute walk and two minibus rides -- a major inconvenience considering Baghdad's unforgiving summer heat.

"It's both annoying and useful," Mustapha said.

"It makes us feel like prisoners, but things have calmed down since they built it."

On the other side of the Tigris river, the U.S. military recently began constructing the new barrier around Hurriyah.

The new wall ties into two existing walls to prevent Shiite extremists from coming and going at will -- and presumably from smuggling in arms.

"Our intent is to create a safer Hurriyah neighborhood, with markets that people will want to use without fear and roads safe for people travel," Maj. Frank Garcia, a spokesman for U.S. forces in western Baghdad, said Wednesday.

Construction crews broke soil in Hurriyah on June 12.

Five days later, a truck bombing killed 63 people on a bustling commercial street.

The U.S. military said a renegade Shiite militiaman ordered the attack to incite retaliatory Shiite violence against Sunnis.

It said his intent was to disrupt Sunni resettlement in the district to maintain his extortion of real estate rental income.

In defending the Hurriyah walls, Garcia cited their "significant effect" in the northern Baghdad district of Azamiyah, a Sunni stronghold where al-Qaida militants and other extremists once ruled the streets.

The old part of Azamiyah was sealed early last year in the first attempt to wall off an entire neighborhood.

News of the 3-mile-long wall caused an uproar among Sunnis across the country.

Many spoke of a conspiracy by the Shiite-dominated government to suffocate Baghdad's most famous Sunni district, also home to the sect's most important shrine in Iraq, the Grand Imam mosque.

The wall has reduced violence significantly in Azamiyah, but the stringent security checks and the delays at crossing points frustrate many residents.

"The wall came to make us suffer," said Waleed Mahmoud, a 35-year-old father of four.

"It takes my children an hour to get to school."

"I am often late for work, and there is never fewer than 10 cars in the line at the two crossing points."

The local Azamiyah economy, which suffered during the worst of the bloodshed, hasn't improved since the wall was built.

The district's popular garment stores and kebab restaurants are still doing a fraction of the business they enjoyed before the war.

Potential shoppers from other neighborhoods stay away, wary of the identity checks at the wall.

There are too few Azamiyah residents to sustain local commerce.

About half of them fled the area in 2006 to escape the violence.

Many have yet to return.

------

Associated Press reporter Kim Gamel contributed to this report.

"US: Arrest made following attack in Karmah, Iraq"

By SAMEER N. YACOUB, Associated Press

Last updated: 1:42 p.m., Friday, June 27, 2008

BAGHDAD -- A member of an extremist cell believed to be behind a suicide attack that killed more than 20 people including three U.S. Marines has been arrested, the U.S. military said Friday.

U.S. spokesmen said it was unclear if the suspect, who was not identified, was directly involved in planning the attack that happened Thursday in the town of Karmah in Anbar province about 30 miles west of Baghdad.

A suicide bomber reportedly dressed in a police uniform detonated an explosive belt during a meeting of tribal sheiks opposed to al-Qaida in Iraq.

In addition to the Marines, two Iraqi interpreters, the local mayor and several key tribal figures were killed.

The attack occurred two days before U.S. officials planned to formally hand over security responsibility for Anbar to the Iraqis, marking a major milestone in the transformation of a province that had been the most violent in Iraq.

U.S. authorities announced Friday they were postponing the handover ceremony because of weather forecasts calling for high winds and sandstorms, which would ground aircraft and make it impossible for dignitaries to attend.

Lt. Col. Chris Hughes, spokesman for U.S. forces in Anbar, said the U.S. had been planning to delay the ceremony based on weather forecasts before Thursday's attack.

Anbar, which extends from the western outskirts of Baghdad to the borders of Jordan, Syria and Saudi Arabia, will be the 10th of Iraq's 18 provinces to return to Iraqi security control.

The other nine provinces are dominated by Shiites or Kurds.

Although Anbar is far quieter than in previous years, the Karmah attack shows that extremists, including al-Qaida in Iraq, remain a threat, albeit at a diminished level.

Also Friday, Iraq's Higher Judicial Council announced that a senior judge was assassinated by drive-by shooters while traveling in eastern Baghdad.

Judge Kamil al-Showaili was driving home Thursday when the attack occurred, the council said.

He was the head of one of Baghdad's two appeals courts.

To the south, Iraqi security forces said they arrested two municipal officials in Maysan province for allegedly "violating the law."

Iraqi forces have launched a crackdown in the province and its capital city of Amarah to rid the area of Shiite militias.

Followers of anti-American cleric Muqtada al-Sadr claim the operation is aimed at weakening their movement before provincial elections expected this fall.

In Baghdad, Iraqi authorities also announced they have restored the bust of Abu Jaafar Al-Mansour, the 8th-century founder of city.

Saddam Hussein had often compared himself to al-Mansour.

A blast damaged the monument in Baghdad's Mansour district in October 2005, a day before Saddam went on trial for killing Shiite Muslims in Dujail -- a charge for which he was later hanged.

Many Sunnis believed Shiite extremists were responsible for damaging the monument.

"House panel seeks Bush transcript in CIA leak case - House panel subpoenas Justice Department for Bush, aides transcripts in CIA leak case"

By LAURIE KELLMAN, Associated Press

Last updated: 7:22 p.m., Friday, June 27, 2008

WASHINGTON -- A House panel on Friday subpoenaed Attorney General Michael Mukasey for transcripts of interviews with President Bush and Vice President Cheney during the federal probe into the leak of a CIA agent's identity.

Signed by Judiciary Committee Chairman John Conyers, D-Mich., the subpoena requests all documents from the office of former Special Counsel Patrick J. Fitzgerald relating to interviews of Bush, Cheney and their aides that were conducted outside the presence of the grand jury investigating the leak.

The subpoena requests similar accounts of interviews with former presidential adviser Karl Rove; I. Lewis "Scooter" Libby, Cheney's former chief of staff; former White House spokesman Scott McClellan; former presidential counselor Dan Bartlett; and former White House Chief of Staff Andy Card.

The House Oversight and Government Reform Committee has subpoenaed some of the same documents but has been rebuffed by the Justice Department, according to a letter released Friday by the chairman of that panel, Rep. Henry Waxman, D-Calif.

Conyers also subpoenaed Justice Department documents on a broad range of other matters, including a phone jamming investigation in New Hampshire, the replacement of a U.S. attorney in Minnesota and the activities of the department's Civil Rights Division.

Justice Department spokesman Dean Boyd said the agency was reviewing the subpoena.

The action was the latest effort by congressional Democrats to shed light on the precise roles, if any, that Bush, Cheney and their aides may have played in the leak of Valerie Plame's CIA identity.

State Department official Richard Armitage first revealed Plame's CIA identity to columnist Robert Novak, who used Rove as a confirming source for a 2003 article.

Around that time Plame's husband, former Ambassador Joseph Wilson, was criticizing Bush's march to war in Iraq.

Libby, who also was involved in the leak, was convicted of perjury, obstruction and lying to the FBI.

Last July, Bush commuted Libby's 2 1/2-year sentence, sparing him from serving any prison time.

------

On the Net:

The subpoena can be viewed at: http://judiciary.house.gov/newscenter.aspx?A994

"Guard chiefs gather at posh Virgin Islands resort - While troops spend another summer in Iraq, Guard leaders bask at posh Virgin Islands resort"

By RICHARD LARDNER, Associated Press

Last updated: 6:52 p.m., Friday, June 27, 2008

WASHINGTON -- There's been no official casualty report from this week's meeting of National Guard leaders in the U.S. Virgin Islands, but the damage could be high.

Sunburns.

Hangovers.

Lost golf balls.

The heartaches.

A grateful nation weeps.

And you haven't even got the bill yet.

Bunkered in the exclusive Frenchman's Reef & Morning Star Marriott Beach Resort on St. Thomas and surrounded by spectacular views of the Caribbean, dozens of generals and several hundred other senior Guard leaders battled with Power Point presentations and fought through sessions on strategic planning and strategic imperatives.

Not for too long, though.

The conference agenda left plenty of time for the links and the beach.

Their spouses were along for the ride at taxpayer expense, too.

They maintained a rugged schedule of shopping, dining and parties.

The title of the event?

"Guarding Paradise with Culture and Spice."

Three times a year, the Adjutants General Association of the United States gathers to wrestle with the challenges facing the Army and Air National Guard.

Two of the meetings are held in Washington, D.C., and the third is held in a location that depends on which state or U.S. territory is willing to act as host.

Past venues outside the D.C. area have included Anchorage, Alaska, Williamsburg, Va., and Omaha, Neb.

Next year's is Jackson Hole, Wyo.

State and federal tax dollars pay for the travel and lodging.

No doubt National Guard officials, who've seen the force stretched to the breaking point by the wars in Iraq and Afghanistan, have plenty to discuss.

But when the Guard can barely make ends meet -- there's a $47.5 billion deficit in the equipment accounts -- maybe it's best for the brass not to hold a meeting in a tropical paradise while the troops are dodging roadside bombs in Iraq or filling sandbags along the Mississippi River.

Keith Ashdown of Taxpayers for Common Sense in Washington said the Virgin Islands meeting sends the wrong signal at the wrong time.

"This is the kind of thing that hurts morale," Ashdown said.

"These are the bosses."

"This is an exclusive club."

"When they're taking a little R&R, it sends the message that they're not taking their funding shortfalls as seriously as they should."

The Guard said it could not immediately calculate the exact cost of the event, which began Monday and ended Friday evening, because not every state sends the same number of people and airfare fees can vary.

According to information on the Adjutants General Association's Web site, government rates for rooms at Frenchman's Reef go for $240 a night.

A single round-trip ticket from Reagan National in Washington to St. Thomas costs about $800.

In an e-mail, Guard spokesman Lt. Col. Kevin McAndrews said the meeting in St. Thomas was a "very important conference" that was approved by the Defense Department.

With the Guard working in so many different places, coordination among state leaders and senior officials in Washington is critical and regular gatherings fine-tune those working relationships, he said.

Maj. Gen. Frank Vavala, the association's president and adjutant general of the Delaware National Guard, said in an e-mailed statement that spouses travel on federal dollars because "they attend meetings to discuss and learn about items such as family programs that care for our troops and their families."

----

On the Net:

Adjutants General Association of the United States: http://www.agaus.org/

Frenchman's Reef & Morning Star Marriott Beach Resort: http://tinyurl.com/2kal82

"Fighting forces get no break on fuel costs - APNewsBreak: Military faces second fuel price hike this budget year"

By ANNE FLAHERTY, Associated Press

Last updated: 6:42 p.m., Friday, June 27, 2008

WASHINGTON -- Consumers at the gas pump aren't the only ones suffering sticker shock.

Military units in Iraq and elsewhere will see another hike in fuel costs next week, the second increase this budget year because of soaring oil prices.

On July 1, the cost for refined fuel used by troops will jump from $127.68 a barrel to $170.94 -- an astounding 34 percent increase in just six months and more than double what the Pentagon was paying three years ago.

While prices charged to warfighting units have fluctuated in recent years, they have not faced such a steep spike in so few months.

The cost of jet fuel, for example, jumped from $2.31 a gallon in October, the start of the 2008 budget year, to $3.04 in December.

As of next month, units will start paying $4.07 a gallon.

Pentagon spokesman Lt. Col. Brian Maka said Friday that the latest price hike is needed to cover an anticipated $1.2 billion rise in fuel costs in the next three months.

While a $400 million a month increase in fuel costs won't affect ongoing military operations, it will require a "reprioritization of daily support activities," he said in an e-mailed statement.

It also will impact a federal budget already stretched thin by the wars in Iraq in Afghanistan.

The U.S. is spending nearly $10 billion a month in Iraq and more than $2 billion a month in Afghanistan.

Sen. Susan Collins, a member of the Armed Services Committee, said the price increase makes the case that Iraq should start paying some of the military's fuel costs because of its hefty oil reserves.

Collins, R-Maine, and Democratic Sens. Ben Nelson of Nebraska and Evan Bayh of Indiana have proposed legislation that would require President Bush to negotiate with Baghdad on fuel subsidies for troops fighting in Iraq.

The measure is included in a 2009 defense policy bill the Senate is expected to debate next month.

"The Iraqis continue to subsidize the fuel for their own citizens, but our troops, which are fighting side by side them, continue to pay top dollar," she said in a telephone interview on Friday.

Iraq owns some of the largest oil reservoirs in the world, although Baghdad has been unable to exploit much of the resource since the 2003 invasion because of high levels of violence and sectarian feuds over how to divide the revenues.

But because of a steady increase in output of crude oil in recent months and high market demand, U.S. officials estimate that Iraq revenues this year for oil will top some $70 billion -- twice what was initially anticipated when Baghdad prepared its 2008 budget.

If oil prices stay elevated as expected, the revenues would create a substantial surplus for Iraq at a time when Americans are facing an economic slump, aggravated by painfully high gas prices.

The situation has lawmakers upset that Iraq isn't covering more of the war's costs.

This week, Congress sent President Bush a war spending bill that would pay for combat operations through the end of the year but require that Iraq match dollar for dollar any money spent by the U.S. to rebuild towns or equip security forces in Iraq.

While Bush is expected to sign the bill, administration officials have countered that Baghdad is already taking control.

Earlier this month, U.S. Ambassador to Iraq Ryan Crocker declared in congressional testimony that "the era of U.S. major infrastructure projects is over."

Iraqi officials say if oil revenues do generate a surplus, they will revisit their 2008 budget to spend more of the money.

The U.S. military, through the Defense Logistics Agency's Defense Energy Support Center, buys fuel on the open market, paying from $1.99 a gallon to as much as $5.30 a gallon under contracts with private and government-owned oil companies.

The center then sets a fixed rate for troops at the beginning of each budget year.

According to the center, every $1 increase in the market price per barrel translates into a $130 million rise in costs for the military because it relies so heavily on fuel.

In Iraq alone, for example, the military consumes some 1.6 million gallons of fuel a day.

--------

On the Net:

Defense Energy Support Center: http://www.desc.dla.mil

"Program in Iraq against al-Qaida faces uncertainty - US program to sponsor fighters in Iraq against al-Qaida faces uncertain future"

By HAMZA HENDAWI, Associated Press

Last updated: 3:52 p.m., Sunday, June 29, 2008

RADWANIYAH, Iraq -- Capt. David N. Simms wanted the tribal sheiks to have no doubts -- the $500,000 his unit spends every month to pay and equip local tribesmen to keep peace here will soon run out and they had better be ready when it's gone.

Simms handed the sheiks 600 applications for a vocational school in nearby Baghdad.

It's one option, he said, to prepare the men for life after he stops giving them salaries.

The "Sons of Iraq" are the estimated 80,000 fighters -- mostly Sunni tribesmen and former insurgents -- recruited and paid by the U.S. military to help fight al-Qaida and maintain security in neighborhoods, including this Sunni farming community west of Baghdad.

The program has been a remarkable success, helping reduce violence across the country by 80 percent since early 2007 at the cost of $216 million to date.

Nearly two years into the program, however, the U.S. is gradually handing over responsibility for the Sons of Iraq to the Shiite-led government.

By January, the military hopes to turn the entire program over to the Iraqis.

But the government of Prime Minister Nouri al-Maliki has been reluctant to absorb large numbers of armed Sunnis into the Shiite-dominated security forces.

American officials fear that many of the U.S.-backed fighters may turn their guns on the government unless jobs can be found for them.

"If we don't find work for the men, it will work against us," said Asaad Nawar al-Ameen, a retired general in Saddam's army who heads the Sons of Iraq in Radwaniyah.

"Al-Qaida can get them."

The government already has accepted nearly 20 percent of Sons in Iraq members in the security forces and is pledging to find civilian jobs for most of the rest.

Meanwhile, it has introduced "support councils" made up of trusted tribal chiefs and their followers to support the security forces.

But that move is seen by leaders of the Sons of Iraq as an attempt to sideline them at a time when some of them are complaining that the Americans are abandoning them to a government they don't trust.

In Radwaniyah, the government recently named a wealthy businessman, Ayad Abdul-Jabar al-Jaborui, to head the new support council.

Al-Jabouri, wearing a smart creme suit and a tie, repeatedly told last week's meeting that he was to have a meeting with "his excellency" the prime minister soon.

His office is decorated with pictures of himself along with top army commanders and al-Maliki's aides.

But even al-Jabouri, also a Sunni tribal chief, acknowledges that the government that is courting him may be trying to drive a wedge between the Sons of Iraq and the recently created support councils.

"The government is promoting a rift between us and the Sons of Iraq," he said.

"My response was to name Gen. Asaad as the head of the council's security committee."

Kamal al-Saadi, a lawmaker from al-Maliki's Dawa party, said the leadership had worried about al-Qaida infiltration into the Sons of Iraq but now believed that "the government has become too strong for the Sons of Iraq to be a threat."

But a top al-Maliki aide, speaking on condition of anonymity because of the sensitivity of the subject, said he is still worried about the loyalty of the Sons of Iraq.

"They are like mercenaries," he said.

"Today, they are paid by the Americans."

"Tomorrow they can be paid by al-Qaida."

Some of those concerns are shared by residents in some parts of Baghdad who complain that Sons of Iraq members are branching out into extortion and protection rackets.

"They are abusing the powers given to them by the Americans," said Ahmed Abed Jassim, who runs an electronics store in the Fadhil neighborhood.

Mohammed al-Aazami, a 40-year-old schoolteacher in Azamiyah, complains that young fighters "brandish their weapons provocatively and lack discipline."

"They are too young and they need to be offered training and guidance," he said.

Earlier this month, hundreds of displaced Shiites demonstrated in central Baghdad to protest against the Sons of Iraq in the Sunni-dominated Adil district, claiming the Sunni gunmen were preventing them from returning to their homes in the west Baghdad neighborhood.

Nevertheless, in many impoverished areas of this country, the Sons of Iraq program pays dividends beyond manning checkpoints and improving security.

In Radwaniyah, a farming community where Saddam Hussein used to go hunting, the local economy depends heavily on the money that the Americans pay to the local Sons of Iraq, who chased away al-Qaida a year ago.

Each volunteer receives between $150 and $300 or more a month -- roughly the same as a police recruit.

Local sheiks earn much more to help raise and equip their followers.

But of the 900 men who have asked to join the police or army, only 45 have been accepted to the police, Simms said.

Simms, a 31-year-old native of St. Marys, Ohio, is not sure how much longer he can keep paying them and the local sheiks who administer their contracts.

Hence, he hopes to enroll as many of the fighters as possible in the vocational school, where they earn a monthly stipend of $240 paid by the government and a diploma after a year's training.

"We don't want to fire these guys and leave them on the streets without an income," Simms told the sheiks during a meeting this week.

"It is competitive to get into that school."

"We want to reduce the number of the Sons of Iraq, so I want these forms returned to me as soon as possible."

"Taliban likely to step up attacks in Afghanistan - Pentagon report: Taliban regroups, likely to up pace of attacks in Afghanistan"

By LOLITA C. BALDOR, Associated Press

Last updated: 6:33 p.m., Friday, June 27, 2008

WASHINGTON -- The Taliban has regrouped after its initial fall from power in Afghanistan and the pace of its attacks is likely to increase this year, according to a Pentagon report that offers a dim view of progress in the nearly seven-year-old war.

Noting that insurgent violence has climbed, the report said that despite U.S. and coalition efforts to capture and kill key leaders, the Taliban is likely to "maintain or even increase the scope and pace of its terrorist attacks and bombings in 2008."

The Taliban, it said, has "coalesced into a resilient insurgency."

At the same time, the Afghan Army and national police are progressing slowly and still lack the trainers they need.

The report was released Friday along with a separate plan for the development of Afghan security forces.

They are the first two comprehensive Pentagon reports to evaluate progress in Afghanistan.

Vast problems -- corruption, the illegal poppy trade, human rights abuses and slow progress in reconstruction -- were detailed, as well as the struggle to train and equip the Afghan Army and police.

The report described a dual terror threat in Afghanistan that includes the Taliban in the south, and "a more complex, adaptive insurgency" in the east.

That fragmented insurgency is made up of groups ranging from al-Qaida and Afghan warlords such as Gulbuddin Hekmatyar's radical Hezb-i-Islami group to Pakistani militants such as Jaish-e-Mohammed.

Insurgents will continue to challenge the government in southern and eastern Afghanistan, and the may also move to increase their power in the north and west, the report predicted.

The assessment was bluntly pessimistic as it described efforts to train the Army and police.

As of March, it said, just one Army battalion and a headquarters unit could operate independently, while 26 battalions, five brigade headquarters and two corps headquarters units could plan and execute counterinsurgency operations with the support of coalition forces.

In addition, as of the spring, the U.S. had provided only 44 percent of the nearly 2,400 trainers needed for the Afghan Army, and just 39 percent of the mentors for the Afghan police.

Development of the Afghan police is taking longer and has been hindered by "corruption, insufficient U.S. military trainers and advisers, and a lack of unity of effort within the international community," the report noted.

The recent deployment of 1,200 U.S. Marines to serve as trainers for the police has beefed up the totals, but when those troops leave in the fall, the need for 1,400 police mentors will remain.

Overall there are 32,000 U.S. troops in Afghanistan, including 14,000 serving with the NATO forces and another 18,000 conducting training and counterinsurgency.

As of Friday, the Defense Department has confirmed the deaths of 527 U.S. troops in Afghanistan, along with 310 from other coalition members since the start of the war in late 2001.

Defense Secretary Robert Gates referred to the worsening problems in Afghanistan on Thursday, noting that when he traveled to the border area of Khost last year, security was better.

"It actually was not bad until a few months ago," said Gates.

"This is a fairly recent phenomenon of seeing the numbers (of insurgents) come across the border."

"After all, Khost was an example of a successful counterinsurgency."

A key to the deterioration there, he said, has been recent efforts by Pakistan to negotiate peace agreement with tribal leaders along the lawless border.

Those talks, he said, took the pressure off insurgent groups and "they've therefore been more free to be able to cross the border and create problems for us."

The report concurs, calling the insurgents' safe havens in Pakistan's tribal areas along the border "the greatest challenge to long-term security" in Afghanistan.

On a positive note, there is a nod to the economic and political gains in Afghanistan -- including successful elections and improvements within the ministries of defense, foreign affairs and finance.

It also that women are now holding government posts and teaching positions -- although it said that challenges remain in eliminating human rights abuses.

In a separate report, also required by Congress and focusing on the U.S. approach to developing Afghan security forces, the Pentagon said the goal is to build a national police force of 82,000.

The report said that once an assessment is made of recent reform efforts, there should be a decision on whether even larger numbers are needed.

"However, at this point in time, a lack of U.S. military trainers and mentors available for police mentor teams precludes the acceleration or expansion" of the training program, the report said.

The Afghan national army is scheduled to reach a strength of 70,000 by the end of this year, with an ultimate goal of 80,000 soldiers.

The Pentagon's report offered no detailed assessment of the performance of either the police or the army; rather it described the structure of U.S. and international efforts to develop the forces and their importance to the overall goal of rebuilding Afghanistan.

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AP Military Writer Robert Burns contributed to this report.

On the Net:

Reports: http://www.defenselink.mil/pubs/

Defense Department: http://www.defenselink.mil

"Stocks end difficult first half with quiet session - Stocks end mixed after oil pulls off fresh highs; investors welcome end to difficult 1st half"

By TIM PARADIS and JOE BEL BRUNO, Associated Press

Last updated: 5:22 p.m., Monday, June 30, 2008

NEW YORK -- Wall Street ended a grueling first half quietly Monday, closing mixed as investors again based their trades on what has become the dominant force in the market: the price of oil.

The major indexes closed out the first six months of 2008 with double digit declines, and are perilously close to the levels of a bear market.

This was the worst first half for the Dow Jones industrials since 1970, when the country fell into recession.

The more diverse Standard & Poor's 500 and Nasdaq composite indexes had their worst first half since 2002, when Wall Street was still suffering through the aftermath of the dot-com bust, the Sept. 11, 2001, terror attacks and a recession.

On Monday, stocks pulled back in the early going as oil reached yet another record, this time, above $143 a barrel.

The market then gathered some strength as crude lost momentum and allowed some investors to consider buying equities that have been turned into bargains by months of volatility.

There is little expectation on the Street that the chaos of the first half will soon end.

Besides the punishing effect of higher oil, which threatens the stifle consumer spending and in turn, an economy still struggling to grow, the stock market is still contending with warnings of losses at financial companies -- the continuing fallout of the housing slump and the credit crisis that began nearly a year ago.

These problems that show little sign of being resolved soon left Wall Street in tatters as the first half ended.

The Dow is down nearly 20 percent from its record high of 14,198.09, set in October, putting the blue chips on the threshold of a bear market.

The market did have a spring recovery, which began in March, but it foundered in May as the combination of credit problems and higher oil rattled investors.

Financial stocks, which were leading the market higher before the credit crisis struck, ended the half with even steeper losses than anyone expected -- just a few months ago, there were predictions that the credit crisis would soon end.

Airline stocks have been devastated by the rising price of oil.

Detroit automotive stocks, as ever battling competition from overseas makers, are also being pummeled by the sagging economy and higher energy prices.

Investors wondering how the markets will fare will likely devote unusual scrutiny to parsing reports on the economy and corporate earnings, which will arrive in force in the coming weeks.

And right now, there appears to be little optimism.

"We've seen year-over-year estimates decline," said Christopher Johnson, president of Johnson Research Group in Cincinnati.

"It'll be a critical season."

Investors made relatively small bets ahead of the coming earnings and as the quarter moved toward a close.

The Dow rose 3.50, or 0.03 percent, to 11,350.01.

The S&P 500 index rose 1.62, or 0.13 percent, to 1,280.00, and the technology-laden Nasdaq fell 22.65, or 1.21 percent, to 2,292.98.

The day's modest moves stood in contrast to the heavy losses the market has suffered:

--In just the month of June, the Dow dropped 10.19 percent; the S&P fell 8.60 percent, and the Nasdaq lost 9.10 percent.

--For the quarter, the Dow fell 7.44 percent; the S&P lost 3.23 percent, while the Nasdaq had an anemic 0.61 percent gain.

--For the first half, the Dow is down 14.44 percent; the S&P lost 12.83 percent; and the Nasdaq has fallen 13.55 percent.

--Since their high point last October, the Dow gave up 19.87 percent; the S&P dropped 18.22 percent; and the Nasdaq is down 19.80 percent.

A 20 percent drop from a market peak is considered the start of a bear market -- although many analysts say Wall Street already has a bear market mentality.

Light, sweet crude, which began the year at $96 a barrel, fell 21 cents Monday to settle at $140.00 on the New York Mercantile Exchange while retail gasoline set a new national average of $4.086 a gallon, according to a survey of stations by AAA, the Oil Price Information Service and Wright Express.

Bond prices fell.

The yield on the benchmark 10-year Treasury note, which tends to move opposite its price, rose to 3.98 percent from 3.97 percent late Friday.

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

Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc., contends that the market must first see nervous investors pull more money from the stock market before Wall Street will begin to show meaningful signs of stabilizing.

He said the coming earnings reports for the second quarter could indicate that while some parts of the economy, like the financial sector, are struggling, others might show decent earnings.

"With the Dow nearing bear market territory it's going to keep investors on edge," he said.

He's looking at economic data due this week on manufacturing and employment as possibly offering some reassurance to investors.

"I think the economic data is going to indicate an economy that is not slipping into a full-blown recession but one that is just limping along," Cardillo said.

Monday's economic news confirmed that the country is still struggling.

The Chicago Purchasing Managers' report on manufacturing, which tracks business conditions across Illinois, Michigan and Indiana, rose to 49.6 for June from 49.1 in May.

However, a reading below 50 signals economic contraction.

Other important readings are due this week.

The Labor Department is expected to release a June employment report Thursday that is expected to show the sixth straight month of jobs losses and only a modest improvement in the unemployment rate.

The Institute for Supply Management is expected to release its June readings on the manufacturing and service sector, and the Commerce Department will report on construction spending in May.

Johnson said the S&P is flirting with new lows for the year but that investors don't seem as fearful as they did when the market fell sharply in March.

He said that indicates that the market likely has more room to fall before stocks can begin to sustain sizable upward moves.

The Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," has risen in recent weeks but stands only at about 24, well below the high of nearly 38 it logged earlier this year.

Johnson said Wall Street was finally seeing the pullback that many had expected earlier this year when investors grew nervous about massive write-downs at financial companies.

"Most people did not expect the stock market to rally as well as it did from March to May," he said.

"Everybody thought that the market rally in March would be a little bit of a fake-out."

But investors fears about the financial sector remain, even if they are not as pronounced as at the start of the quarter.

Financial stocks led broader indexes lower during the second quarter, and have been especially troubled since the near collapse of Bear Stearns in March.

The investment bank was spared after the Federal Reserve orchestrated its sale to JPMorgan Chase & Co., but that did little to assuage fears about the industry.

Since last summer, banks and brokerages have written down more than $300 billion of mortgage-backed securities and other risky investments.

And later this month even more losses are expected when companies like Citigroup Inc. and Merrill Lynch & Co. report second-quarter results.

Investors have turned away from the sector, waiting to see when the hemorrhaging might stop.

The KBW Bank index, which tracks 24 financial institutions, is down 32 percent this year alone as most of its components trade near 52-week lows.

Declining issues outpaced advancers by about 8 to 7 on the New York Stock Exchange, where consolidated volume came to 4.91 billion shares, compared to 5.74 billion on Friday.

The Russell 2000 index of smaller companies fell 8.48, or 1.21 percent, to 689.66.

Overseas, Japan's Nikkei stock average fell 0.46 percent.

Britain's FTSE 100 rose 1.74 percent, Germany's DAX index fell 0.06 percent, and France's CAC-40 rose 0.85 percent.

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On the Net:

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

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

"Oil prices end down after topping $143 a barrel - Crude oil prices settle lower after passing $143 a barrel in early trading, gas hits new high"

By J.W. ELPHINSTONE, Associated Press

Last updated: 4:02 p.m., Monday, June 30, 2008

NEW YORK -- The price of crude oil hit yet another record on the last day of a tumultuous first half, spurting past $143 a barrel before ending lower on demand fears and a resilient dollar.

Crude has shot up nearly 50 percent since the start of the year, in large part on the dollar's troubles, and analysts expect that trend to remain intact as the second half of 2008 begins.

A government report lowering oil and gasoline demand estimates and a dollar hanging tough nullified investor concerns over supply, a fragile global economy and continued tensions in the Middle East.

"What this shows is that demand destruction in the U.S. is a lot larger than previously thought," said Phil Flynn, an energy analyst at Alaron Trading Corp. in Chicago.

"There are more signs that demand is deteriorating."

Light, sweet crude for August delivery lost 21 cents to settle at $140.00 a barrel on the New York Mercantile Exchange.

In early electronic trading, the contract hit a record $143.67.

The Energy Information Administration reported that oil usage in April was lower than previously estimated, falling 4.2 percent to 19.768 million barrels per day from 20.631 million.

That was 3.9 percent lower than in April 2007 and the lowest level for the month in six years.

The price of oil, which began 2008 at $96 a barrel, has risen in part on expectations of higher demand in China and other developing nations.

But its almost relentless advance has also forced consumers and businesses to cut back the amount of gas and oil they use; it is also posing a threat to U.S. economic growth that could further slice into demand.

A hardier dollar also sent oil prices lower on Monday.

Often, oil futures are used as a hedge against a weaker dollar.

"A lot of the momentum from late last week was the expectation we would continue to see a weaker U.S. dollar."

"When that didn't materialize, we had some profit-taking," said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.

The dollar rose against the 15-nation euro after the Chicago Purchasing Managers' index came in better than expected.

The index for June rose to 49.6 from 49.1 in May, topping estimates of 49.1.

The report is seen as a precursor for the national Institute for Supply Management report, to be released Tuesday.

But there was little expectation in the market that Monday's trading was the start of a turnaround in the dollar that would send oil falling much further.

The dollar has weakened on expectations the Federal Reserve Board won't soon raise interest rates as the U.S. economy struggles with low growth.

The Fed left its benchmark rate unchanged last week.

European Central Bank "President Jean-Claude Trichet's hawkish stance (on) inflation" could mean the dollar may be headed for further weakness against the euro "and that's not bearish for oil," said The Schork Report edited by U.S. analyst and trader Stephen Schork.

When other countries raise their interest rates, they are more competitive with U.S. rates, and that weakens the dollar.

"If the Federal Reserve is powerless to raise interest rates because the economy continues to be soft, then we'll see low interest rates push oil higher," Flynn said.

Meanwhile, retail gasoline, which has been tracking oil higher, reached a new national average of $4.086 a gallon, according to a survey of stations by AAA, the Oil Price Information Service and Wright Express.

The previous record of $4.08 was reached June 16; since then, oil has moved past $140 and been setting new records of its own.

Gasoline's surge higher has clearly affected consumer spending in the U.S.

The concern is that the inflationary effects of higher oil and gas will force consumers to cut back their spending on non-essentials further in the months ahead.

Geopolitical tensions, particularly surrounding Iran, also continue to boost oil prices.

Traders were digesting reported comments from the commander of Iran's Revolutionary Guards, who warned that if his country is attacked, Tehran would strike back by barraging Israel with missiles.

In a report published Saturday in the conservative Jam-e-Jam newspaper, Gen. Mohammad Ali Jafari said that if Iran were provoked, it would also move to control a key oil passageway in the Gulf.

Iran is the world's fourth-largest oil exporter and about 60 percent of the world's oil passes through the strategic Strait of Hormuz.

Global supply also remains a concern.

The Iraqi government opened six oil fields to international bidding Monday as the nation attempts to boost daily production by 60 percent.

The potential participation of big Western companies like BP PLC, Chevron Corp., Exxon Mobil Corp., Royal Dutch Shell PLC and Total SA in Iraq's oil industry has been criticized in recent weeks following published reports that several were close to signing no-bid contracts with the Iraqi government.

Those contracts were expected to be announced Monday, but Iraqi Oil Minister Hussain al-Shahristani instead named 35 companies that would be qualified to bid on service contracts for the oil fields of Rumeila, Zubair, Qurna West, Maysan, Kirkuk and Bay Hassan.

In other Nymex trading, heating oil futures slipped less than a cent to settle at $3.9029 a gallon while gasoline prices rose less than a penny to $3.5015 a gallon.

Natural gas futures increased 15.5 cents to end at $13.353 per 1,000 cubic feet.

In London, Brent crude futures lost 48 cents to settle at $139.83 a barrel on the ICE Futures exchange in London.

Earlier Monday, the price for Brent had peaked at $143.91.

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AP Business Writer Malcolm Foster in Bangkok, Thailand, and Associated Press Writer Pablo Gorondi in Budapest, Hungary, contributed to this report.

"Treasurys little changed as Wall Street ends flat - Treasury prices little changed as stocks end rocky day flat; volumes light ahead of July 4th"

By MADLEN READ, Associated Press

Last updated: 6:02 p.m., Monday, June 30, 2008

NEW YORK -- Treasury prices ended a turbulent first half of 2008 close to where they started the year, as investors hesitated to make any big moves ahead of more readings later this week on the shaky U.S. economy.

Six months into the year, the economy is still looking weak, the Federal Reserve's key interest rate has been slashed, and inflationary pressures have escalated due to surging commodities prices.

As a result, government bonds have had a volatile ride during the first half of 2008, but they are close to where they stood back in January.

"On a price basis, we're not all that far from where we started the year," said Joel Marver, a Treasury technical analyst at Thomson Financial.

"The continuing volatility of the financial sector, and unsettled conditions in all markets -- commodities, the dollar, stocks -- are making it very hard to have a lot of conviction."

When stocks fall, Treasurys typically rise.

But that relationship has been complicated by the threat of inflation, which devalues government bonds over time.

"Traditional flight-to-quality investing does favor some entries into Treasurys as the stock market remains soft."

"And that's really what has helped lift Treasurys from their recent lows," Marver said.

"But I don't think people are very enthusiastic about buying Treasurys, because of inflation."

Stocks finished flat after posting sharp declines last week.

The 10-year note also finished unchanged at 99 8/32, and its yield was at 3.97 percent, the same as late Friday, according to BGCantor Market Data.

Yields usually move in the opposite direction from prices.

The 10-year yield began the year at around 4.03 percent.

It fell below 3.40 percent in late March after Bear Stearns Cos. got bought by JPMorgan Chase & Co., then moved above 4.25 percent in mid-June on optimism about the economy.

It has since pulled back amid another batch of poor economic data and re-emerging fears about the financial sector.

On Monday, the 30-year long bond rose 4/32 to 97 22/32.

Its yield fell to 4.51 percent from 4.53 percent on Friday.

The 2-year note traded flat at 100 16/32, and yielded 2.61 percent, down from 2.63 percent.

In late trading, the 10-year yield edged up to 3.98 percent; the 30-year yield rose to 4.53 percent; and the 2-year yield rose to 2.62 percent.

The 3-month Treasury bill yielded 1.73 percent, down from 1.78 percent late Friday, and its discount rate was 1.71 percent, down from 1.76 percent.

Trading was light, with many investors already on vacation ahead of the July 4th holiday.

Later this week, some significant economic data are scheduled to be released -- notably the Institute for Supply Management's readings on the U.S. manufacturing and service sectors, and the Labor Departments report on the job market in June.

In economic data Monday, the Chicago Purchasing Managers group reported that its manufacturing index -- which tracks business conditions across Illinois, Michigan and Indiana -- rose to 49.6 in June from 49.1 in May.

Readings below 50 signal economic contraction.

On Friday, Treasury prices had risen as the stock market plummeted, and as more signs piled up that the Federal Reserve won't be raising interest rates anytime soon.

The prospect of a higher key rate tends to dampen government bond prices, because they have fixed returns.

When Treasury yields rise alongside the Fed's key rate, Treasurys that were bought before the rate increase will have lower, less attractive yields.

"Results mixed at weekly Treasury auction - Weekly auction shows mixed results with three-month bills rising while six-month bills fall"

Associated Press

Last updated: 3:42 p.m., Monday, June 30, 2008

WASHINGTON -- Interest rates on short-term Treasury bills were mixed in Monday's auction with yields on three-month bills rising while six-month bills declined.

The Treasury Department auctioned $23 billion in three-month bills at a discount rate of 1.900 percent, up from 1.855 percent last week.

Another $22 billion in six-month bills was auctioned at a discount rate of 2.135 percent, down from 2.255 percent last week.

The three-month rate was the highest since three-month bills averaged 2.050 percent on June 16.

The six-month rate was the lowest since these bills averaged 2.050 percent on June 9.

The discount rates reflect that the bills sell for less than face value.

For a $10,000 bill, the three-month price was $9,951.97 while a six-month bill sold for $9,891.47.

That would equal an annualized rate of 1.936 percent for the three-month bills and 2.188 percent for the six-month bills.

Separately, the Federal Reserve said Monday that the average yield for one-year Treasury bills, a popular index for making changes in adjustable rate mortgages, fell to 2.46 percent last week from 2.57 percent the previous week.

"Iraq opens bidding on 8 oil and natural gas fields - Iraq opens 8 oil, gas fields to international bidding to add possible 1.5 B barrels daily"

By SEBASTIAN ABBOT, Associated Press

Last updated: 4:42 p.m., Monday, June 30, 2008

BAGHDAD -- Iraq opened international bidding for eight enormous oil and gas fields Monday, paving the way for investment in a nation with some of the world's largest petroleum reserves.

If approved, contracts to update and manage those fields could involve the biggest foreign stake in Iraq since its oil industry was nationalized more than 30 years ago and help Iraq reach its goal of nearly doubling petroleum production by 2013.

That could be good news with the price for a barrel of oil breaching $143 for the first time ever on Monday.

But the contracts won't be signed for a year, and if Western firms win a dominant role it could feed perceptions that U.S.-led forces toppled Saddam Hussein to get at Iraq's natural resources.

Those concerns were heightened by expectations that Iraq would announce short-term no-bid consulting contracts with five Western oil firms on Monday.

The New York Times reported about two weeks ago that the firms included Royal Dutch Shell PLC, BP PLC, Exxon Mobil Corp., Chevron and Total.

But Oil Minister Hussain al-Shahristani told a news conference Monday that the Iraqi government was still negotiating with the companies, which he did not identify.

He said the firms were demanding a share of oil production while Iraq wants to pay in cash.

The minister said the short-term contracts were meant to boost production until the government awards longer-term deals next June.

But some believe the consulting contracts could give the winning firms an advantage in bidding for the development contracts, which al-Shahristani said Monday would include 35 foreign companies.

The firms he named included seven from the U.S., three from Britain and others from Russia, China and other countries.

Al-Shahristani said the companies would be invited to bid on the oil fields of Rumeila, Zubair, Qurna West, Maysan, Kirkuk and Bay Hassan and the natural gas fields of Akkaz and Mansouriyah.

"These fields were chosen because their production can be raised in a short time and at a low cost," said al-Shahristani.

He said even the longer-term contracts would include cash compensation and not a share of oil production.

"We don't see a need to allow anyone to share our oil," al-Shahristani said.

Iraqi government spokesman Ali al-Dabbagh said Monday that there is no American influence on the Iraqi government's oil decisions.

"Politics does not come into this," al-Dabbagh said.

"There is no preferential treatment for anyone, no matter who."

All the oil fields the minister mentioned Monday are currently producing crude, and al-Shahristani said the new contracts would raise Iraq's production by 1.5 million barrels per day.

Iraq currently produces 2.5 million barrels per day and hopes to raise that to 4.5 million by 2013.

Adding 1.5 million barrels of oil each day to the world's supply probably would move the price downward.

But some analysts were not convinced it will happen, given the deterioration of the Iraq's infrastructure and potential instability.

"I'm pretty skeptical of that figure," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates.

"Amount is one thing, timing is another."

"They still need to upgrade their infrastructure and while things have stabilized, I think you're assuming a best-case scenario on security and other issues."

Iraq has been able to boost production to its highest level since the U.S.-led invasion in 2003 because of a reduction in violence.

Al-Shahristani said the country needs help from foreign firms to boost production further because some of its oil fields "suffer from old age and need modern technology to check their deterioration."

Iraq nationalized its oil industry in the 1960s, and participation by foreign firms since then in the development of the country's natural resources has been limited.

With fuel prices at record levels, foreign firms have been anxious to tap Iraq's estimated 115 billion barrels of oil reserves and 112 trillion cubic feet of natural gas.

And the Iraqi government could use the revenue to rebuild infrastructure and deliver services.

The deadline for the oil and gas bids announced Monday is the end of March, and preliminary contracts will be signed next June.

Every company bidding must have an Iraqi partner and pass along at least 25 percent of the value of the contract to Iraqi companies, said al-Shahristani.

The process of awarding contracts to help develop Iraq's oil industry has been delayed by the inability to finalize a law dividing the country's oil resources.

Negotiations have been stalled by disagreement between the central government and the Kurdish regional administration in northern Iraq.

The Kurds have signed more than 20 oil deals with foreign firms to work in Kurdish-controlled fields since drafting their own oil and gas law in August 2007.

The Shiite-led Iraqi central government says the deals are invalid with no national oil law in place.

Several Democratic senators in the U.S. recently asked the Bush administration to block the Iraqi government's reported no-bid deals with Western firms until the country finalized the oil law, but the White House refused.

On Monday, Senator Chuck Schumer, a Democrat from New York, called for an independent audit of the risks those contracts could pose to political progress in Iraq if they are signed without an agreement on how to divide the nation's oil revenues.

"Signing these deals without a revenue-sharing law is like putting the cart before the horse," Schumer said.

But Iraqi government spokesman al-Dabbagh said the country had never considered a no-bid process, saying "there was never any intention to award the contracts without a tender."

Major oil companies distanced themselves from talk of no-bid deals.

"We have been providing services to Iraq from outside the country for a number of years," said Robert Wine, a spokesman for BP.

"We submitted a study of the Rumeila fields several years ago and if the discussions do lead to deal, they will focus on the technical services in that report."

"We need to clarify -- this is not about access to the country's oil resources, or exploration."

"It's a management contract, to provide technical resources."

On Monday, the Times reported that a small U.S. State Department team helped draw up contracts between the Iraqi Oil Ministry and the five major oil companies reportedly getting no-bid contracts.

State Department spokesman Tom Casey confirmed a small number of U.S. advisers were providing "technical support" to the Iraqi Oil Ministry.

But he said "they are not there to try and give the Iraqis any kind of specific requests or to make decisions or to even push in an individual direction."

Casey said the decision by the Iraqis not to announce contracts for several Western firms Monday was their own and not influenced by Washington.

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Associated Press writers Meera Selva in London, Sameer N. Yacoub in Baghdad and AP Diplomatic Writer Anne Gearan in Washington contributed to this report.

"Afghan militants attack troops, kill 3 - Unit of U.S.-led coalition came under fire while patrolling near capital"

By STEPHEN GRAHAM, Associated Press

First published: Friday, June 27, 2008

KABUL, Afghanistan -- Militants attacked troops from the U.S.-led coalition patrolling south of the Afghan capital on Thursday, killing three of them and an Afghan interpreter.

The nationality of the troops was not released, though the coalition is dominated by American forces.

International and Afghan forces were searching for the attackers, a coalition statement said.

The convoy was attacked as it passed through Saydabad, a district of Wardak province, which borders the capital of Kabul.

A freelance television cameraman filmed what he said was the aftermath of the Thursday attack, about 40 miles from Kabul.

The footage showed the burning wreckage of a vehicle on a bend in a mountain road.

Militants held up what looked like an M-16 rifle and dragged away a belt of ammunition.

It was not possible to independently verify whether the footage was from the same incident reported by the coalition.

The cameraman's name was withheld for his own security.

Fighting between Taliban-led insurgents and security forces continues unabated, despite a nearly seven-year international effort to stabilize the Western-backed government of President Hamid Karzai.

More than 2,000 people have died in insurgency-related violence this year, according to an Associated Press tally, including at least 114 foreign soldiers.

The comparable total for Iraq stands at 211.

Afghan leaders accuse Pakistan of secretly supporting the insurgents and harboring their leaders -- a charge Pakistan civilian and military leaders deny.

An Afghan official on Wednesday blamed Pakistan's Inter Services Intelligence agency for an attempt to assassinate Karzai during a military parade in April.

Saeed Ansari, spokesman for the Afghan intelligence service, said the confessions and cellphone records of detained suspects and other unspecified evidence proved the ISI was the "main organizer" of the assassination attempt.

Pakistan's Foreign Ministry on Thursday rejected the allegation as "baseless and irresponsible."

In Washington, Defense Secretary Robert Gates said Thursday he has "real concern" about a sharp rise in attacks in eastern Afghanistan, and he blamed the spike on Pakistan's failure to put pressure on insurgents there.

Gates said he welcomed recent vows by Pakistani officials to prevent militants from launching attacks across the border into Afghanistan.

And he said he hopes the comments indicate a willingness by Pakistan to assert more pressure on those tribal areas.

The U.S. has committed to sending more troops to Afghanistan next year, but any buildup would depend on the Pentagon's ability to reduce troop levels in Iraq.

"Afghanistan war reality hits home - Soldier with local ties among 5 state Guard troops killed recently"

By DENNIS YUSKO, Staff writer, Albany, New York Times Union

First published: Tuesday, July 1, 2008

In an e-mail from Afghanistan, National Guard Spc. Mark C. Palmateer confided to his daughter, Stephanie, that he was about to embark on a dangerous convoy mission to Kabul.

"He just kept telling her things were getting real bad over there," Palmateer's ex-wife, Kimberly Smith, said Monday from North Creek, Warren County.

As Smith spoke, Stephanie Palmateer, who turns 20 today, was driving from North Creek to the Poughkeepsie area to grieve her father's death with relatives.

Mark Palmateer, 38, of Wappingers Falls, Dutchess County, was one of three National Guardsmen killed Thursday by an improvised explosive device, small arms fire and rocket-propelled grenades in eastern Afghanistan.

The killings are part of an escalation of violence in Afghanistan, where at least 45 coalition troops were killed in June, including the first five New York Army National Guard soldiers to die in the 7-year conflict.

June also marked the second consecutive month in which militants killed more U.S. and coalition troops in Afghanistan than in Iraq, a grim milestone that analysts say underscores the Taliban's growing strength.

Also killed in last week's attack near Forward Operating Base Shank in Logar Province was Sgt. 1st Class Joseph A. McKay, 51, of Queens, and Sgt. 1st Class Matthew Hilton, 37, of Michigan, who served in that state's National Guard.

The state Division of Military and Naval Affairs announced the casualties Sunday.

The three deaths followed an enemy ambush on June 21 outside Kandahar that killed three New York Army National Guard soldiers, including Spc. Anthony Mangano, who trained the last two years in Leeds, Greene County.

Services for Mangano were held Monday in Suffolk County, where he grew up.

"Once again the members of the New York Army National Guard are mourning the loss of brave soldiers who died defending their country and trying to help the people of Afghanistan," said Maj. Gen. Joseph Taluto, state adjutant general and commander of the New York National Guard.

More than 1,700 New York National Guard members, including about 200 Capital Region soldiers, have been training the Afghan army and police since April.

There are 32,000 U.S. troops in the country, including 14,000 serving with NATO forces and another 18,000 conducting training and counterinsurgency.

Since the beginning of the year, 62 American troops have been killed in Afghanistan, more than the number killed in each of the first four years of the war.

The figure is on target to top last year's toll of 117 U.S. service members killed.

In Iraq, at least 31 international soldiers died in June: 29 U.S. troops and one each from the former Soviet republics of Georgia and Azerbaijan.

There are 144,000 U.S. troops in Iraq and 4,000 British forces and small contingents from other nations, according to The Associated Press.

United Nations figures indicate that civilian deaths in Afghanistan have surged more than 60 percent this year, with 698 deaths in the first six months, compared to 430 in the same time period in 2007, The Associated Press reported Monday.

And a Pentagon report released Friday said Taliban forces have regrouped since being forced from power in Afghanistan, and attacks are likely to increase this year.

The report stated that the training of the Afghan army and police was progressing slowly.

The recent increase in coalition deaths could be the result of progress in a country that has been home to the Taliban, al-Qaida and other Muslim extremist groups, coalition spokesman Lt. Col. Paul Fanning said by phone from Kabul.

Newly trained Afghan army and national police units are increasingly rooting out enemy strongholds with American forces, and they sometimes encounter resistance, he said.

"It's dangerous over here," Fanning said.

"That's really the bottom line."

According to the Pentagon, Palmateer and McKay were members of B Troop, 2nd Squadron, 101st Cavalry based in Chautauqua County.

McKay was born on the Fourth of July and is survived by a wife, a daughter and two sons.

He had also served in Iraq.

Palmateer was posthumously promoted to sergeant.

He moved back to Wappingers Falls from North Creek around 1994 and joined the National Guard in 2003.

He will be buried next Friday in Wappingers Falls.

"He was just an amazing person, really funny, a jokester," Stephanie Palmateer said in a phone interview.

"He made the absolute best out of every situation."

She recalled that her father made videos of himself dancing with local Afghans.

"If I could give any advice to kids, I would say that if you have a parent over there, keep in the best touch you can."

"Because I'm really thankful I was able to keep in touch with him every day."

Yusko can be reached at 454-5353 or by e-mail at dyusko@timesunion.com.

"Blast in Anbar kills 3 Marines, 20 Iraqis - Suicide bomber targets key meeting with forces allied against militants"

By HANNAH ALLAM and JAMAL NAJI, McClatchy

First published: Friday, June 27, 2008

BAGHDAD -- An explosion ripped through a gathering of U.S military officials and allied Sunni Muslim tribesmen Thursday, killing three Marines, two interpreters and 20 Iraqis in the rural western town of Karmah, U.S. and Iraqi authorities said.

The blast, which Iraqi police blamed on a suicide bomber, killed some of the U.S. military's most dedicated proxies in the fight against the militant group al-Qaida in Iraq: the mayor, two prominent sheiks and their sons, and another sheik and his brother.

All supported or belonged to the local "awakening council," one of the U.S.-backed militias that have taken up arms against al-Qaida in Iraq.

Surviving tribesmen said the attack only made them more defiant in the effort to drive Sunni extremists from Anbar province, the longtime militant fiefdom that had become a showpiece for U.S. success against the insurgency.

"The awakening council is strong and its presence will not be erased," said Abdul Rahman al-Jumeili, a senior awakening leader in Karmah.

"If one sheik is killed, his son will take over."

"If the son is killed, the cousin will take over."

"The security process is moving forward and it will not be stopped."

"And we will not be stopped."

The timing of the bombing was a harsh blow for Anbar, where the U.S. military had been just days away from handing over security responsibility to Iraqis.

That ceremony now has been postponed indefinitely, Iraqi officials said after talks with the Marines.

The military didn't identify the Marine casualties; witnesses said senior American commanders in Anbar had been at the meeting.

"Wall Street zigzags on first day of 3rd quarter - Stocks zigzag amid concerns about oil prices, downbeat manufacturing data, mixed auto sales"

By JOE BEL BRUNO, Associated Press

Last updated: 5:42 p.m., Tuesday, July 1, 2008

NEW YORK -- Wall Street began the third quarter with an erratic session and modest gain Tuesday after a mix of news made it clear the country is still deep in economic problems but may have some positive trends -- including some better than expected sales for General Motors Corp.

Prices rose early in the session, then turned sharply lower for much of the day and then recovered in late afternoon.

The uneven performance wasn't surprising -- some bargain hunting was to be expected after a dismal first half, and in particular, a dismal June.

The session brought more discouraging news for investors: Oil rose again toward record high levels, a report showed that U.S. manufacturers are still under duress and Ford Motor Co. said its June sales tumbled.

This all raised the market's fears that the economy -- still reeling from soaring commodities prices and the lingering credit crisis -- is not any closer to turning around.

Yet GM's sales, while falling 18.2 percent during June, came in above analysts' forecasts, retaining Detroit's lead over Toyota Motor Corp. and sending the automaker's shares higher.

GM's news was in sharp contrast to the dismal results reported earlier by Ford Motor Co., where a 27.9 percent plunge in sales for the month sent the company's stock to its lowest point in decades.

And while the Institute for Supply Management had an overall disappointing report on manufacturing in June, it also reported strong exports for U.S. factories.

"This market is craving anything positive," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.

He said because the market has sold off so much in recent days, traders took GM's weak but better-than-expected sales as a buying opportunity

The Dow Jones industrial average, down more than 150 points earlier, rose 32.25, or 0.28 percent, to 11,382.26, while the Standard & Poor's 500 index rose 4.91, or 0.38 percent, to 1,284.91.

The Nasdaq composite gained 11.99, or 0.52 percent, to 2,304.97.

"A bounce like this wasn't unexpected," said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co.

He said GM's sales beating Toyota gave the Dow a lift, as did a late-day partial pullback in oil prices.

Oil settled at a new record of $140.97 a barrel on the New York Mercantile Exchange after rising above $143 a barrel earlier as worries about tight supply and mounting tensions in the Middle East continued.

"We've been dancing to the tune to oil prices," Battipaglia said.

Bonds also bounced up and down as investors pulled money out of stocks, seeking the safety of government debt, and then changed their minds.

The yield on the benchmark 10-year Treasury note rose to 4.01 percent from late Monday's 3.98 percent.

Sam Stovall, chief investment strategist for Standard & Poor's Equity Research, said investors may be wondering if the market has sold off too much even in the face of a litany of bad economic news.

"Maybe it's just at this kind of a juncture that everything looks so bad, who's left to sell?"

The market may also have gotten a technical kick upward, when the S&P 500 fell to 1,260.68, its lowest point since July 2006.

When the index, the one most closely followed by market professionals, falls to a target level set by traders, buyers tend to come back to stocks.

The toll higher energy prices is taking on the economy was evident in the ISM report.

The purchasing managers' trade group said manufacturing unexpectedly grew in June, but a closer look at the report showed that the prices companies paid for fuel and materials continued to grow as demand shrank.

The overall gain came on higher exports, and, taken as a whole, the ISM report turned out to be a disappointment.

Investors were also disappointed by another drop in construction spending due to the continuing slump in housing.

The Commerce Department said construction spending fell 0.4 percent, slightly less than economists' forecasts.

But GM's sound beating of Toyota to retain its traditional U.S. sales lead was reassuring to a market starved for good news, and that lifted stocks off their lows and gave them a modest gain.

Still, the market is nervous about what's to come when companies start issuing earnings and outlooks in the coming weeks.

It is widely expected that those results will reflect the impact of higher oil, and the fact that crude continues to climb is pointing to even more economic troubles in the coming months.

During the spring, the market had hopes for a better second half.

But oil and the continuing stream of credit-related problems at financial companies erased those hopes during June, a month that wiped out more than 10 percent of the Dow's value.

"It feels like we continue to stretch and stretch until something snaps, and that will continue to happen until we do something about oil," said Jack Ablin, chief investment officer at Harris Private Bank.

"This is a test of wills between oil and stocks, and hopefully we're not on some kind of collision course."

Investors might get some more direction in upcoming economic reports like Thursday's June employment numbers.

Ford fell 10 cents to $4.71, and hit a miltiyear low of $4.41 during the session, after the automaker reported that sales declined by a weaker-than-expected 28 percent in June.

However, GM rose 25 cents to $11.75 after it reported sales rose well above expectations.

Lehman Brothers Holdings Inc. shares rose $1.15, or 5.8 percent, to $20.96 after a steep decline on Monday.

The nation's fourth-largest investment bank had been the target of rumors that it might sell itself to Britain's Barclays PLC at a discount price.

Declining issues led advancers by just under a 2 to 1 margin on the New York Stock Exchange, where consolidated volume came to 5.75 billion shares, up from Monday's 4.91 billion.

The Russell 2000 index of smaller companies added 1.93, or 0.28 percent, to 691.59.

------

On the Net:

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

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

"Starbucks closing 600 US stores, most opened since 2006"

By JESSICA MINTZ, Associated Press

Last updated: 6:02 p.m., Tuesday, July 1, 2008

SEATTLE -- Starbucks Corp. said Tuesday it will close 600 company-operated stores in the next year, up dramatically from its previous plan for 100 closures, a sign the coffee shop operator is still feeling the pain from the faltering U.S. economy.

Starbucks said in a statement that 70 percent of the stores to be closed were opened after the start of 2006.

The locations set to close include ones that "were not profitable and not projected to provide acceptable returns in the foreseeable future," it said.

About 12,000 workers will be affected by the closings, which are expected to take place over the next year, according to Valerie O'Neill, a spokeswoman for the company.

O'Neill said most of the employees will be moved to nearby stores, but she did not know exactly how many jobs will be lost.

The company predicted related charges will add up to $328 million to $348 million, but said that after income tax benefits and other changes, it expects to pay about $100 million.

Starbucks also cut the number of company-operated stores it will open in fiscal 2009 in half, to fewer than 200.

The company did not adjust its plan to open fewer than 400 stores in 2010 and 2011.

In May, Starbucks said its second-quarter profit sank 28 percent as U.S. consumers cut back on visits in light of rising food and gas prices.

As of the end in March, there were 16,226 Starbucks stores around the world, including 7,257 company-operated stores in the U.S.

Shares of Seattle-based Starbucks jumped $1.02, or 6.5 percent, to $16.64 in after-hours trading after losing 12 cents to close at $15.62.

------

On the Net:

http://www.starbucks.com

"Manufacturers struggle to overcome rising prices - Survey: Manufacturers' June price hikes hit 1979 levels; commodity, energy increases continue"

By ELLEN SIMON, Associated Press

Last updated: 5:12 p.m., Tuesday, July 1, 2008

NEW YORK -- Each week, Ira Cooper opens a letter from another supplier with the same message as the last: We're raising our prices, effective immediately.

We can't tell you how long the new prices will last.

"We used to get quotes good for six months," said Cooper, president of QED Inc., a lighting company based in Lexington, Ky.

"Now you're lucky if you can get a quote good for 15 days."

Manufacturers of everything from wallpaper to cereal are feeling the same hit.

The Institute for Supply Management said Tuesday that its index of prices manufacturers pay for raw materials hit 91.5 in June, up from 87 in May and the highest reading since 1979.

Its overall index of manufacturing activity was 50.2, barely breaking a four month contraction streak.

Any reading above 50 signals growth.

Manufacturers are "experiencing higher prices for their inputs while demand for their products is slowing," Norbert J. Ore, chairman of ISM's manufacturing business survey committee, said in a statement accompanying the report.

Some of the price increases are a game of catch-up.

Cooper and other manufacturers say they had been honoring the six-month price guarantees they gave customers before oil prices spiked 50 percent higher, hitting an intraday record of $143.67 a barrel earlier this week.

When those price guarantees expired, manufacturers raced to recoup their increased costs.

Some manufacturers are struggling to keep pace.

Myers Container, a Portland, Ore. manufacturer of steel drums, increased prices by almost 20 percent in March, did the same in May and announced a third increase at the end of that month.

Other manufacturers say they're unable to pass along all their higher costs, so they're trying to save money wherever they can.

FFC Paladin Light Construction Group, which makes plows, pallet forks and bale movers in Lee, Ill. is planning a lighting study to trim its electricity use, said Bob Steder, operations manager.

Similar inflation worries are playing out everywhere from convenience stores to the Federal Reserve.

Last week the Fed talked about increased risk of inflation as it ended one of its most aggressive rate-cutting campaigns, leaving its key rate unchanged at 2 percent as fears about inflation have mounted.

The Fed is caught between two risky crosscurrents: plodding economic growth on the one hand and galloping energy and food prices that threaten to spread inflation on the other.

Stocks recovered in afternoon trading after an earlier slide.

The Dow Jones industrial average rose 32.25 to close New York trading at 11,382.26.

The Standard & Poor's 500 gained 4.91 to close at 1,284.91, while the Nasdaq Composite rose 11.99 to 2,304.97.

The stock market's June tumble resulted in paper losses of $1.4 trillion for the month and revived recession fears.

Construction spending underlined the weakness, falling in May for the 11th time in the past year, dropping 0.4 percent, according to the Commerce Department.

Higher energy prices are "going to end up pretty much destroying a lot of demand," said Steder at FFC Paladin.

A stark example of that: Ford Motor Co. on Tuesday said its U.S. sales tumbled 27.9 percent in June.

The company blamed the decline on high gas prices and low consumer confidence.

Even Toyota, which was expected to fare better because it offers more high-mileage vehicles, stumbled last month.

Toyota said its car sales dropped 9.4 percent for the month, while its truck sales slipped 38.9 percent.

For the first half of the year, Toyota sales were down 6.8 percent.

Auto companies weren't alone in dealing with rising inventories.

Manufacturers' stockpiles grew for the first time in two years and suppliers' inventories also rose in June, according to the institute's survey.

New orders, however, were essentially flat.

The combination of rising inventories and stagnant orders could lead to manufacturers filling stockrooms with goods they can't sell and laying off more of the workers who produce them.

"That may already be underway," said Princeton, N.J.-based economist Bernard Baumohl.

The unemployment rate rose to 5.5 percent in May, up from 5 percent in April.

The increase was the largest in two decades.

Economists surveyed by Thomson Financial/IFR expect the same rate when June's number is released Thursday.

Economists continue to worry that higher prices will stifle growth.

Lehman Brothers economist Michele Meyer said she expects higher prices to push the manufacturing reading below its break-even level next month.

"Energy experts puzzled over oil prices"

By GEORGE JAHN, Associated Press Writer

Wed Jul 2, 2:53 AM ET

MADRID, Spain - As crude soared to a new record, the head of the International Energy Agency declared that the world was in the grip of an "oil shock," and the president of OPEC acknowledged he could not say whether prices would flatten out or continue to soar.

The comments by IEA chief Nobuko Tanaka, OPEC chief and Algerian Energy minister Chakib Khelil and other industry leaders at the 19th World Petroleum conference reflected the concern surrounding record oil prices that seem ready to spike higher.

An IEA report released at the conference confirmed what most consumers fear: that supplies of oil will remain tight, whether for cooking fires in the poorest countries or powering cars and cooling or heating homes in the richest.

And that's despite record prices and reduced demand as costly crude dampens the world's oil hunger.

Reflecting the world's oil price doldrums, light, sweet crude for August delivery rose 97 cents to settle at a new high of $140.97 a barrel on the New York Mercantile Exchange.

Prices at one point rose as high as $143.33, just 34 cents shy of Monday's trading record.

"We are clearly in the third oil price shock," declared Tanaka, comparing the effects to periods of soaring prices in the 1970s and 1980s.

But he suggested there is less of a likelihood of a quick fix this time.

"Those price peaks forced consumers into saving oil" and oil companies to look for new wells, said Tanaka, but now "the biggest energy savings have been made (and) ... the easy oil outside (of) a few countries has been found."

His agency's report said the world's estimated daily oil needs would rise from 86.87 million barrels this year to 94.14 million barrels in 2013 — less than anticipated in its 2007 report because of skyrocketing prices.

The energy agency predicted producers would be able to meet world needs — but noted that supply will exceed projected demand only by a daily 2 million barrels, a relatively thin cushion.

Tanaka said that tight supplies despite a price surge that would normally lead to increased availability came as a "shock."

His comments reflected the high-level bedevilment at the meeting about what is causing prices to sizzle.

In Jeddah, Saudi Arabia, earlier this month, the kingdom said it would add 200,000 barrels per day in July to a 300,000 barrel per day production increase it first announced in May, raising total daily output to 9.7 million barrels.

Production increases normally check prices, but the market has shrugged off the Saudi gesture and set several new records since.

Khelil, the OPEC president, offered no solace to consumers.

"We are very uncertain about the oil prices since it's highly volatile and we don't really know whether it is going to be stabilizing or going to lower levels," he told delegates.

"But everybody agrees that oil prices are too high."

"There is a lot of uncertainty about demand," Khelil said.

"Consequently there is a lot of uncertainty about the decision of investing" the tens of billions of dollars needed to make additional crude and refined supplies available.

He identified the main driver of prices as the weak U.S. dollar and the linked subprime crisis in America; geopolitical tensions, and increased emphasis on U.S. bioethanol production which he suggested diverted production of diesel and led to shortages.

Urging the world to brace for a "really big reshuffle" in energy expectations, Christophe de Margerie, CEO of French energy giant Total SA, said he expected oil production to plateau in just 12 years at 94 million barrels a day — less then 10 million barrels more than available now.

And he warned the forecast was optimistic.

"We will have to fight against the natural decline of (present) oil fields," he told the same forum Khelil attended.

"It will not go smoothly."

Producers and refiners in the Spanish capital are also looking to find answers not only on how to ensure stable supply, but also on doing it in a way that minimizes emissions of the greenhouse gases believed to cause global warming.

Still the primary concern at the meeting was over availability and prices that have been bouncing from record to record over the past few months — a worry echoed by de Margerie.

Consumers worldwide "expect a better environment," he said.

"But they expect first access to energy."

Ignorant America: Just How Stupid Are We?

By Rick Shenkman, Tomdispatch.com

Democracy and Elections: Millions of Americans are embarrassingly ill-informed and they do not care that they are.

• July 2, 2008
• More »

When Oil Men Rule the World

BOY!

There is a picture of Life in America, alright ....

That's a CLASSIC, Snuf ...

"Wood density holds key to Stradivarius sweet sound"

By Ben Hirschler

Tue Jul 1, 9:02 PM ET

LONDON (Reuters) - Researchers using a medical scanner have worked out why a Stradivarius violin sounds so good -- it is because of the remarkably even density of the wood.

For the past 300 years, musicians and scientists have puzzled over the unparalleled quality of classical Cremonese violins made by Italian masters like Antonio Stradivari and Giuseppe Guarneri del Gesu.

Now a Dutch doctor and a violin maker from Arkansas think they have cracked the mystery after comparing five classical and eight modern violins in a computed tomography (CT) scanner normally used to examine patients.

Using an adaptation of a computer program developed to calculate lung densities in people with emphysema, they were able to analyze the physical properties of violins without risking damage to instruments worth millions of dollars.

They found no significant differences between the median densities of the modern and the antique violins but did discover far less variation between wood grains of early and late growth in the old ones.

Since differentials in wood density affect vibration and therefore sound quality, the discovery may well explain the superiority of the Cremonese violins, they reported in the online journal PLoS ONE on Wednesday.

So why is the maple and spruce wood in a Stradivarius so different?

Part of the reason may be that trees grow slightly differently today than in the past.

"Climate difference could explain part of it but treatment of the wood could be another explanation."

"A third answer could simply be the ageing of the wood over the past 300 years," Dr Berend Stoel of the Leiden University Medical Center told Reuters.

"There is no way of knowing from this data; we've just shown there are density differences."

Still, Stoel and U.S. violin maker Terry Borman think the research may help modern instrument makers seeking to replicate the work of the Italian masters.

Their paper is available at http://www.plosone.org/doi/pone.0002554

"Iraqi guards kill female suicide bomber - Iraqi military: Guards foil yet another would-be suicide attack carried out by woman"

By SEBASTIAN ABBOT, Associated Press

Last updated: 5:32 p.m., Sunday, June 29, 2008

BAGHDAD -- Iraqi guards opened fire on a female suicide bomber on Sunday and triggered her explosives belt before she reached their headquarters, foiling the latest of more than 20 suicide missions by women this year, military officials said.

The bomber was targeting the headquarters of an awakening council -- Sunni volunteers who have turned against insurgents -- about 60 miles northeast of Baghdad.

One of the guards was wounded in the blast, the Iraqi military said.

The number of female suicide attackers has risen from eight in 2007 to more than 20 so far this year, according to U.S. military figures.

Including Sunday's attack, at least nine have occurred in Diyala province, a former al-Qaida stronghold where the extremist group is trying to regroup after setbacks last year.

A female suicide bomber struck outside a government complex a week ago in Baqouba, the capital of Diyala province, killing at least 15 people and wounding more than 40, according to U.S. and Iraqi officials.

The attacks are part of an uptick in violence against Iraqi security forces and local administrations.

A truck bomb detonated by remote control Sunday killed six policemen and an awakening council member in Duluiyah, some 45 miles north of Baghdad, said police Col. Mohammed Khalid.

In other violence, gunmen killed the head of Basra's intelligence department Saturday in a drive-by shooting in eastern Baghdad, local police said, speaking on condition of anonymity because they were not authorized to talk to the media.

Brig. Gen. Jabar Musaid, who played a leading role in the recent government crackdown against Shiite militias in Basra, was visiting relatives in a neighborhood controlled by militiamen loyal to radical Shiite cleric Muqtada al-Sadr.

Asked about the uptick in violence, U.S. Ambassador Ryan Crocker said that Iraqi militants remain "resilient and determined" despite an overall improvement in the security situation.

"They have a capacity to hit back and that's what we're seeing, both from al-Qaida and its allies and from extremist Shia militias," Crocker told CNN on Sunday.

Iraqi Prime Minister Nouri al-Maliki has been stepping up pressure on extremists in recent months, launching operations against Sunni militants in Mosul and Shiite militiamen in Baghdad, Basra and Amarah.

Those operations are aimed at restoring government control to strategic areas of the country where armed groups have held sway for years.

But the ongoing crackdown backfired when a relative of the prime minister was killed early Friday in a raid on Hindiyah, about 12 miles east of Karbala, local officials said.

Ali Abdul-Hussein, said to be a cousin of al-Maliki, was shot dead in a raid conducted by 60 U.S. soldiers supported by four helicopters and a fighter jet, provincial police chief, Raed Shakir, said.

Officials close to the prime minister said the killing enraged al-Maliki, who has been locked in negotiations in recent months over a long-term security agreement with the United States.

Al-Maliki demanded an explanation from the Americans, who promised an investigation into the incident, said the officials Sunday, speaking on condition of anonymity because they were not authorized to talk to the media.

Asked to comment on the death, a U.S. military spokesman said troops were going after Shiite extremist groups in the Karbala area when a security guard left a building "while brandishing an AK-47 rifle" held against his shoulder "as if to fire."

"Perceiving hostile intent and acting in self defense, coalition forces shot and killed the armed man," Lt. David Russell wrote in an e-mail.

"It was later determined the man killed was a local security guard."

Russell made no mention of any relationship to al-Maliki but added that "coalition forces deeply regret the loss of life" and have begun an investigation.

Meanwhile, Karbala Gov. Aqil al-Khuzaie said in a statement Saturday that the raid was a violation of an agreement signed with the U.S. last year that transferred Karbala to the control of Iraqi security forces.

"We are shocked to hear about the operation that has led to the killing of an innocent person," said al-Khuzaie.

----

Associated Press writers Sameer N. Yacoub and Qassim Abdul-Zahra contributed to this report.

"War replica recalls 1758 sunken fleet"

Albany, New York Times Union

First published: Wednesday, July 2, 2008

LAKE GEORGE -- A full-size replica of a 1758 bateau "shipwreck" built over the past six months by Saratoga Springs middle school students was sunk in Lake George on June 20.

Bateaux Below Inc., a not-for-profit corporation that studies wrecks in Lake George, sank the 30-foot long replica, put together under the direction of technology class teachers at Maple Avenue Middle School -- Jeff Sova, Preston Sweeney and Karen Cavotta -- with advisory support from Bateaux Below.

The project was an after-school enrichment class that helped teach students about colonial history, underwater archaeology and museum exhibits.

The replica was placed in shallow water, about four feet deep, off the southwest corner of the lake near the Lake George Visitor Center.

It will be in the lake for up to three years and helps commemorate the upcoming 250th anniversary of the Sunken Fleet of 1758, when British and provincial soldiers at Lake George deliberately sank more than 260 bateaux and other war vessels to place them in "cold storage."

Sunk in 15 to 40 feet of water, the unusual 18th-century military strategy protected the British vessels from French raiders over the winter of 1758-59, when the British forces retired from the lake area.

Many of the submerged vessels were retrieved by the British in 1759, possibly as many as 75 to 80 percent, and were used in the 1759 General Amherst campaign.

Most of the bateaux sunk in Lake George in the autumn of 1758 were built in Schenectady and Albany.

They were then transported by water to Fort Edward and brought by wagon over a 14-mile-long wilderness road to Lake George.

The replica lies in water about 10 feet off the walkway off the Lake George Visitor Center and can best be viewed by pedestrians when the lake is calm.

"Three Hawaii-based Marines die in Iraq"

Associated Press

Last updated: 1:12 p.m., Saturday, June 28, 2008

HONOLULU -- Three U.S. Marines based in Hawaii were among more than 20 people killed in an Iraq suicide attack, according to the U.S. Marine Corps.

The three were killed Thursday in the town of Karmah in the Anbar province of Iraq, about 30 miles west of Baghdad.

They were identified as Lt. Col. Max A. Galeai, the commanding officer of the 2nd Battalion, 3rd Marine Regiment.

Galeai, 42, was from Pago Pago, American Samoa.

Capt. Philip J. Dykeman, 38, of Brockport, N.Y., was the commanding officer of Fox Company.

Cpl. Marcus W. Preudhomme, 23, of North Miami Beach, Fla., was an administrative clerk.

They were assigned to 2d Battalion, 3d Marines, 3rd Marine Division, Marine Corps Base Hawaii, Kaneohe Bay.

They deployed to Iraq in February.

A suicide bomber reportedly dressed in a police uniform detonated an explosive belt during a meeting of tribal sheiks opposed to al-Qaida in Iraq.

A suspect has been arrested, although a U.S. spokesman said it was unclear whether he was directly involved in planning the attack.

The attack occurred two days before U.S. officials planned to formally hand over security responsibility for Anbar to the Iraqis.

U.S. authorities announced Friday they were postponing the handover ceremony because of weather forecasts calling for high winds and sandstorms, which would ground aircraft and make it impossible for dignitaries to attend.

Anbar will be the 10th of Iraq's 18 provinces to return to Iraqi security control.

"Stocks drop after new record for oil prices - Stocks post sharp decline after oil price surge; GM falls 15 percent on bearish report"

By TIM PARADIS, Associated Press

Last updated: 6:03 p.m., Wednesday, July 2, 2008

NEW YORK -- Wall Street resumed its sell-off Wednesday after oil hit a new record and a bearish analyst report renewed concerns that General Motors Corp. could run out of cash.

The stock market's pullback, which accelerated in the final hours of the week's last full trading session, left the Dow Jones industrial average officially in bear market territory, with the blue chips having fallen more than 20 percent from their October highs.

Oil surged to new records above $144 a barrel as the government reported a bigger-than-expected drop in U.S. supplies and as investors worried about tensions in the Middle East.

Fears that GM could go so far as to declare bankruptcy only added to investors' unease.

The stock closed below the $10 mark for the first time since September 1954 when Dwight Eisenhower was president.

Investors shrugged off better-than-expected sales figures from June and fretted about the company's cash needs.

The Dow fell 166.75, or 1.46 percent, to 11,215.51, the lowest close since August 2006.

It now stands 20.82 percent below its Oct. 9, 2007 record of 14,164.53.

The last bear market ended in October 2002.

Broader stock indicators also posted big losses after showing gains for much of the morning.

The Standard & Poor's 500 index fell 23.39, or 1.82 percent, to 1,261.52, while the technology-laden Nasdaq composite index fell 53.51, or 2.32 percent, to 2,251.46.

The S&P is just shy of the 20 percent pullback that signals a bear market.

While the Nasdaq is also in bear territory, it hit that mark in March, moved higher and has now returned to a bear level.

Bond prices rose as investors exited stocks.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.96 percent from 4.01 percent late Tuesday.

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

Wall Street is worried that rising energy prices are causing consumers to pare their spending in other areas.

Gasoline prices hit a fresh high ahead of the July 4th holiday weekend, increasing half a penny to a new national record of $4.092 a gallon on average, according to AAA, the Oil Price Information Service and Wright Express.

Crude oil hit a record $144.32 a barrel in after-hours trading after reaching a record settlement of $143.57, an advance of $2.60 on the New York Mercantile Exchange.

The Energy Department reported Wednesday that U.S. crude oil supplies fell more than expected last week.

Businesses are also struggling with elevated energy costs, and demand is weakening for autos, heavy machinery and steel.

The Commerce Department said Wednesday that factory orders rose by 0.6 percent in May.

The result was in line with a consensus of Wall Street economists surveyed by Thomson Financial, but was much smaller than the gain of 1.3 percent for April.

Traders were cautious ahead of the three-day weekend.

The stock market closes three hours early, at 1 p.m. EDT, on Thursday before the Fourth of July holiday on Friday.

"It's your typical holiday week for the summer time," said Stephen Carl, principal and head of equity trading at The Williams Capital Group in New York.

"I think we're all familiar with the economic problems out there," he said, and given how weak stocks have been, the market is "staying the course."

Lately, that course has been a downward one.

Though stocks mostly posted modest gains in the first two sessions of the week, Wall Street saw a steep sell-off last week.

The Dow lost 4.2 percent by Friday while the S&P and Nasdaq fell more than 3 percent amid concerns about the ability of the economy to move ahead with energy prices racing higher.

While Thursday's session is a shortened one, it could bring added insights into the well-being of consumers and the overall economy.

The government's June employment report is due and is expected to show the sixth month of jobs losses but a slight improvement in the unemployment rate.

Employment is crucial because consumer spending accounts for more than two-thirds of U.S. economic activity.

With concerns about rising energy prices, falling home values and a jittery Wall Street, Harry Clark, president of Clark Capital Management in Philadelphia, contends that many average investors have already pulled their money from the markets.

"I don't think this is an investors' market right now," he said.

"I think there is a lot of money on the sidelines and once you get some kind of good catalyst -- anything to make the market look better -- they'll come rushing into the market."

Clark said Thursday's employment report could show that the economy is holding up better than some investors have predicted.

"I still think it's going to be negative but not as negative as people are expecting," he said.

"Things aren't as bad as people think they are."

"We're talking ourselves into a market decline and a recession."

In corporate news, GM fell in part after a Citi Investment Research analyst cited liquidity concerns in slashing his price target on GM stock to $14 from $21.

While he said the company isn't likely facing an immediate cash shortage, the concerns from 2008-09 have grown in recent months.

The stock fell $1.77, or 15 percent, to $9.98 a day after jumping 12 percent on a better-than-expected sales report.

Microsoft Corp. has approached other media companies about a bid to acquire Yahoo Inc., according to a report in The Wall Street Journal.

Yahoo rose 68 cents, or 3.4 percent, to $20.88, while Microsoft fell 99 cents, or 3.7 percent, to $25.88.

Blockbuster Inc. said it is withdrawing its proposal to buy Circuit City Stores Inc.

Blockbuster said the proposed deal, at a price of more than $1 billion, didn't make sense because of market conditions.

Blockbuster jumped 14 cents, or 5.6 percent, to $2.65, while Circuit City fell 23 cents, or 9 percent, to $2.32.

The Russell 2000 index of smaller companies fell 19.25, or 2.78 percent, to 672.34.

Declining issues outpaced advancers by nearly 3 to 1 on the New York Stock Exchange, where consolidated volume came to 5.15 billion shares, compared with 5.75 billion shares traded Tuesday.

Overseas, Japan's Nikkei stock average fell 1.31 percent.

Britain's FTSE 100 fell 0.98 percent, Germany's DAX index slipped 0.17 percent, and France's CAC-40 fell 1.03 percent.

--------

On the Net:

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

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

"GM shares fall below $10 for first time since 1954 - GM shares give up gains posted on better-than-expected US sales, hit new low below $10 mark"

By BREE FOWLER, Associated Press

Last updated: 6:22 p.m., Wednesday, July 2, 2008

NEW YORK -- Shares of General Motors Corp. plunged Wednesday to close below $10 for the first time in more than half a century, on worries about the company's cash needs and speculation about a possible bankruptcy protection filing down the road.

GM shares fell $1.77, or 15.1 percent, to close at $9.98.

Their session low of $9.96 marked their lowest point since Sept. 13, 1954, when they hit $9.92, according to the Center for Research in Security Prices at the University of Chicago.

The price is adjusted for splits and other changes.

The drop came after a Merrill Lynch analyst cut his rating for GM to "Underperform" from "Buy" and slashed his price target for the company to $7 from $28, saying that the decline in automotive sales has been more severe than anyone expected and will likely continue through next year.

"We believe there is potential downside in the stock below $7 and that bankruptcy is not impossible if the market continues to deteriorate and significant incremental capital is not raised," John Murphy wrote in a note to investors.

David Healy, an auto analyst with Burnham Securities, said the $10 mark is a purely psychological one but highlights the automaker's dramatic share price plunge since the beginning of the year, along with worries that the company may have to file for bankruptcy protection.

GM shares are down about 60 percent this year.

"My own opinion is that they're unlikely to file," Healy said.

"But the conditions in the auto industry are so tough for everybody right now, especially for GM, and that's why people see this as plausible."

Healy said he thinks GM has enough cash to get it through the year, along with the ability to obtain additional financing if needed and raise cash through the sale of assets such as overseas operations.

Automakers' shares have taken a beating in recent months, hurt by rising oil prices and a weak U.S. economy, along with a shift in consumer demand away from gas guzzling sport utility vehicles and pickup trucks and toward smaller, more fuel-efficient cars and crossovers.

Since July 2, 2007, GM shares have tumbled about 74 percent and the company's market capitalization has dropped to $5.65 billion from $21.5 billion.

Investors on Wednesday shrugged off better-than-expected June sales that sent GM shares surging as much as 12 percent the previous day.

The automaker reported an 18.2 percent drop in U.S. vehicle sales from a year ago but retained its traditional U.S. sales lead over Toyota Motor Corp., which posted a 21.4 percent decline.

Analysts, who had expected a much steeper drop, said GM's sales were able to outpace those of most other automakers because of late-month incentives and double-digit jumps in demand for certain small and midsize cars.

Deutsche Bank's Rod Lache said that while previous incentive programs have resulted in temporary boosts to GM's market share, they have generally been followed by drops in later months.

"If history is any guide, we would expect GM's sales to experience 'payback' for the pulled forward sales in the months ahead," Lache wrote in a note to investors.

The analyst said GM's market share could drop back to the 19 percent to 20 percent range, down from its June level of 22.1 percent.

Meanwhile, Citi Investment Research analyst Itay Michaeli slashed his price target on GM shares to $14 from $21, citing liquidity fears.

"While we do not believe GM is facing an immediate cash crunch, the urgency to shore up liquidity to navigate through a difficult 2008-09 has risen significantly in recent months," Michaeli said in a note to clients.

He kept a "Hold" rating.

Ford Motor Co. didn't fare as well as its crosstown rival.

The Dearborn, Mich.-based automaker said its June sales plunged 27.9 percent, blaming surging gas prices for knocking its light truck sales down 35.4 percent.

Ford shares fell 35 cents, or 7.4 percent, Wednesday to close at $4.36, passing a multidecade low of $4.41 set the day before.

Despite the sales drop, Lache said Ford remains the best positioned among the U.S.-based automakers and has the required cash to ride out a drawn out industrywide slump.

"In addition, we continue to believe that Ford is the most 'fixable' of the three U.S. automakers -- it has effectively consolidated itself to two brands, and we still see considerable cost savings opportunities within the enterprise," Lache said.

June was a dismal month for the industry overall, which posted a 18.3 percent sales drop, according to Autodata Corp.

Only Honda, whose lineup is tilted toward smaller and more fuel-efficient cars, managed to report a sales increase for June -- slightly over 1 percent.

"Factory orders see 0.6 percent gain in May - Factory orders post weakest performance in 3 months as demand falls for autos and machinery"

By MARTIN CRUTSINGER, Associated Press

Last updated: 6:32 p.m., Wednesday, July 2, 2008

WASHINGTON -- Orders to U.S. factories turned in the slowest performance in three months in May as a surge in demand for commercial aircraft was not enough to offset weakness in autos, heavy machinery and steel.

Factory orders rose by 0.6 percent in May, less than half the gains turned in during April and March, the Commerce Department reported Wednesday.

It was the poorest showing since factory orders had fallen by 0.4 percent in February.

Analysts said the figures for the past three months have been inflated by big increases in the cost of refined petroleum and related products such as chemicals, which have been soaring because of the rising cost of global oil prices.

Oil hit a new record on Wednesday, climbing to above $144 per barrel.

Global Insight, a major economic forecasting firm, said it was boosting its forecast for how high oil will go this year, predicting that West Texas intermediate crude will hit $160 a barrel in December, up from its previous forecast that oil would close out this year at $124 per barrel.

Nariman Behravesh, Global Insight's chief economist, said that his firm had decided to revise its oil forecast higher in light of the sustained run-up in prices that has already occurred and a belief that global demand and speculation would keep prices at elevated levels for some time to come.

The expectation of a more prolonged and costly jump in oil plus continued weakness in housing will mean greater downward pressure on the overall economy, Behravesh said.

The economy so far has managed to stay in positive territory for growth, thanks in part to $106.7 billion in economic stimulus checks that are now being mailed out.

The gross domestic product grew at an annual rate of 1 percent in the first quarter.

Behravesh predicted the just-completed April-June quarter would show an even stronger growth rate of 1.8 percent followed by GDP growth of 1.6 percent in the July-September quarter, when the economy will still be feeling the positive effects of increased spending from the stimulus payments.

But Behravesh said growth was likely to decline at a 1.7 percent rate in the final three months of this year and decline at a 0.7 percent rate in the first three months of next year.

A standard definition of a recession is two consecutive quarters of negative GDP.

"This slowdown has got a ways to go because we haven't hit bottom yet on housing and this oil shock is going to get worse before it gets better," Behravesh said.

On Wall Street, the Dow Jones industrial average fell 166.75 points to close at 11,215.51, its lowest close since August 2006.

It now stands 20.82 percent below its Oct. 9, 2007, record close of 14,164.53.

Economists are watching to see how big an impact the overall economic slowdown will have on manufacturing, which has been hurt by troubles in the auto industry and housing-related industries.

That weakness has been offset to some extent by strength in exports, which have continued to rise as American manufacturers have benefited from a weak dollar, which makes their products more competitive overseas.

The Institute for Supply Management's closely watched gauge of manufacturing activity released on Tuesday showed a rise to 50.2 in June, just above the 50-point level that signals expansion in the manufacturing sector.

The index had declined for four consecutive months.

The orders report showed that demand for durable goods, items expected to last at least three years, were flat in May while demand for nondurable goods, products such as food and petroleum, rose by 1.2 percent.

Transportation orders rose by 2.5 percent, reflecting a big 10.3 percent surge in demand for commercial aircraft.

That helped to offset a 1.6 percent drop in demand for motor vehicles.

Automakers have been battered by soaring gasoline prices, which have cut into demand for once-popular trucks and sport utility vehicles.

Ford, General Motors and Chrysler all reported big declines in June sales.

The factory orders report showed that demand for machinery was down by 5 percent in May, reflecting big decreases in orders for construction machinery, mining equipment and industrial machinery.

Orders for primary metals including steel were off by 2 percent, but orders for computers and electronic products rose by 2.9 percent.

"Treasurys rise ahead of employment report - Treasury prices rise as investors seek safety ahead of jobs report"

By MADLEN READ, Associated Press

Last updated: 5:52 p.m., Wednesday, July 2, 2008

NEW YORK -- Treasury prices rose Wednesday as investors prepared for another downbeat reading on the U.S. job market.

On Thursday, ahead of the July 4th holiday, the Labor Department is scheduled to report on job creation and the unemployment rate in June.

The bond market has long been anticipating the report to show the sixth straight month of job losses -- and a reading on the private sector bolstered that prediction on Wednesday.

The ADP National Employment Report said private sector employment fell by 79,000 jobs last month.

The dim job market outlook added to worries about the financial health of consumers, who account for about two-thirds of the economy.

Americans have been slammed by record oil prices, which continued to trek higher on Wednesday.

"If you're buying gas, and that's all you can afford to do, you're not contributing to the economy," said Kevin Giddis, managing director of fixed income at Morgan Keegan.

He also pointed to signs that consumer credit has been worsening.

The American Bankers Association said Wednesday the delinquency rate for home equity loans in the first quarter rose to 1.1 percent, the highest rate since the group began collecting data in 1987.

The 10-year note rose 8/32 to 99 7/32. Its yield fell to 3.97 percent from 4.01 percent late Tuesday, according to BGCantor Market Data.

Yields usually move in the opposite direction from prices.

The 30-year long bond rose 18/32 to 97 21/32. Its yield fell to 4.52 percent from 4.55 percent late Tuesday.

The 2-year note rose 4/32 to 100 18/32, and yielded 2.59 percent, down from 2.65 percent late Tuesday.

In late trading, the 10-year yield slipped further to 3.96 percent; the 30-year yield fell to 4.50 percent; and the 2-year yield fell to 2.58 percent.

The 3-month Treasury bill's yield fell to 1.70 percent from 1.85 percent late Tuesday, and the discount rate fell to 1.67 percent from 1.83 percent.

In another sign that the economy remains weak, the Commerce Department said Wednesday that orders to U.S. factories rose by 0.6 percent in May -- in line with expectations, but less than half the gains logged in April and March.

Treasurys finished mostly flat on Tuesday, reversing gains as stocks made a late-day comeback.

Data showing a surprising rebound in June manufacturing also put a damper on Treasury buying Tuesday.

"Conservative evangelicals discuss backing McCain - Conservative evangelical leaders discuss supporting McCain in spite of disagreements with him"

By ERIC GORSKI, Associated Press

Last updated: 6:52 p.m., Wednesday, July 2, 2008

Conservative evangelical leaders, who have been slow to warm to John McCain, met privately this week to discuss coalescing around the Republican's presidential bid.

Mathew Staver, a conservative Christian activist, convened a meeting of about 90 conservative evangelical leaders Tuesday night in Denver.

Many evangelicals have been wary of McCain's commitment to their causes and his previous criticisms of movement leaders, among other things.

"Our shared core values compel us to unite and choose the presidential candidate that best advances those values," said Staver, who heads the Florida-based legal advocacy group Liberty Counsel and originally backed the candidacy of former Arkansas Gov. Mike Huckabee.

"That obvious choice is Sen. John McCain."

"I think people left the meeting in unity the likes of which have not been evident through the primaries."

Staver said the result will be more leaders "energizing their base" and targeted efforts in battleground states and states with anti-gay marriage ballot initiatives this fall such as Florida and California.

According to Staver, those in attendance included Phyllis Schlafly, head of the Eagle Forum; pastor and "Left Behind" co-author Tim LaHaye and his wife, Beverly, founder of Concerned Women for America; David Barton, founder of WallBuilders; Rick Scarborough of Vision America; and Don Hodel, a former interior secretary and former president of Colorado Springs-based Focus on the Family.

James Dobson, the founder of Focus on the Family and a fan of neither McCain nor Democratic candidate Barack Obama, did not attend.

Dobson has been in California working on a new book, aides have said.

Obama has been courting religious voters.

On Tuesday, he called for expanding White House efforts to steer social service dollars to religious groups.

Staver said enthusiasm is building for McCain, in part because of the Republican senator's recent meetings with movement leaders like Phil Burress, who also attended the Denver summit.

Burress helped pass an anti-gay marriage measure in Ohio that was credited with helping President Bush win the state in 2004.

Asked whether it was opposition to Obama or enthusiasm for McCain that motivated the group, Staver said:

"Obama is a considerable threat to our values."

"At the same time, Sen. McCain recently has been reaching out to evangelicals and conservative voters that we represent."

Time magazine first reported on the meeting on its Web site Wednesday.

"CNY Marine instructor charged with sexual assault"

Associated Press

Last updated: 8:22 a.m., Wednesday, July 2, 2008

PULASKI, N.Y. -- Police are charging a longtime Marine ROTC instructor at an upstate high school with sexually assaulting a woman.

The woman told police that 53-year-old Daniel Aguilar of Pulaski punched her, threatened to kill her and forced her to perform a sex act after an argument last month.

Aguilar is charged with felony counts of assault, criminal sex act and attempted rape, and a misdemeanor charge of unlawful imprisonment.

Aguilar is a member of the Pulaski school board and the former deputy mayor of the Oswego County town.

He has been the Marine Corps Junior ROTC instructor at Mexico High School for about 10 years.

Aguilar is free on $5,000 cash bail.

He is due back in court July 22.

Mexico school officials have placed him on paid leave.

"Bush may send more troops to Afghanistan"

By DEB RIECHMANN, Associated Press Writer

2 JULY 2008

WASHINGTON - President Bush said Wednesday he is weighing whether to send more troops to Afghanistan.

Bush said it has been a "tough month" in Afghanistan, where more U.S. and NATO troops died during the past two months than in Iraq.

The president told a Rose Garden news conference that one reason for the rising deaths "is that our troops are taking the fight to a tough enemy ... of course there is going to be resistance."

It has also been a "tough month for the Taliban," he said.

Bush also urged Americans to pressure Congress to allow more oil exploration in the United States.

"We can help alleviate shortages by drilling for oil and gas in our own country, something I've been advocating ever since I've been the president."

"I've been reminding our people that we can do so in environmentally friendly ways," he said.

"And yet the Congress, the Democratically controlled Congress now has refused to budge."

"It makes no sense."

Bush spoke ahead of a trip to Japan this weekend to participate in the annual Group of Eight economic summit.

The president sought to tamp down speculation that Israel will launch a military strike against Iran before he leaves office.

He said all options are on the table but said military action would not be his first choice.

"I have made it very clear to all parties that the first option ought to be solve this problem diplomatically," Bush said.

"And the best way to solve it diplomatically is for the United States to work with other nations to send a focused message — and that is, you will be isolated, and you will have economic hardship, if you continue to enrich."

Iran says its nuclear program is aimed only at generating electricity and cites its right under the Nuclear Non-Proliferation Treaty to pursue uranium enrichment, a process that can produce either fuel for a nuclear reactor or material for a warhead.

The United Nations has demanded that Iran suspend enrichment and has imposed three rounds of similar financial sanctions on Iranian companies and individuals.

The United States and European allies have been pushing Tehran to halt enrichment and offering incentives, to no avail.

In June, militants killed more U.S. and NATO troops in Afghanistan than in Iraq for the second straight month.

It was the deadliest month for U.S. troops in Afghanistan since the war began.

Bush and Defense Secretary Robert Gates earlier this year told NATO allies that they would increase troop levels in Afghanistan in 2009 in response to the growing violence.

The United States now has about 31,000 troops there — the most since the war began in October 2001 — and has been pressing allies to contribute more.

As the holiday weekend began, Bush said Congress was in part to blame for rising gas prices that have stung American consumers.

He said lawmakers continue to block his proposals, including lifting prohibitions on offshore oil drilling.

The president has also called for allowing oil drilling in a portion of the Arctic National Wildlife Refuge for drilling, easing the regulatory process to expand oil refining capacity, and lifting restrictions on oil shale leasing in the Green River Basin of Colorado, Utah and Wyoming.

Bush even appealed to Americans to lobby their congressional representatives on the matter.

"We have got the opportunity to find more crude oil here at home in environmentally friendly ways and they ought to be writing their Congress people about it," Bush said.

Bush outlined his goals for his last G-8 summit of nations, which are the United States, Britain, Canada, France, Germany, Italy, Japan and Russia.

The debate about what to do about global warming will be front and center in Hokkaido too, although the discussion will be on the sidelines of the actual summit.

Bush is hosting a meeting of major economies to urge nations to embrace long-term commitments to reduce green house gas emissions, but he appeared to be lowering expectations.

"The first step is to agree to a long-term goal," Bush said, adding that his advisers think other nations are "now coming to that clear understanding that we're going to have to come to a long-term goal."

"Hopefully, we can do it at this meeting."

"If not, we'll continue to press forward to get it done."

Bush said that at the summit in Japan he will urge other nations to make good on earlier pledges to help alleviate malaria, HIV-AIDS and other deadly diseases.

He said he would make a push to train more health care workers in areas of the world where people lack access to medical care

Bush also said that he would call on nations to increase their shipments of food, fertilizer and seed to ease global food shortages.

He said developed nations need to share advanced agricultural technology and work to lower tariffs and agricultural subsidies that impede trade.

The president said he'll also use the summit to remind the world that the threat of terrorist attacks has not gone away.

"The temptation is to kinda say, 'Maybe this isn't really a war.'"

"'Maybe this is just a bunch of disgruntled folks that occasionally come and hurt us.'"

"That's not the way I feel about it."

"Iran says any attack would provoke fierce reaction - Iranian minister says any attack on country would provoke unimaginably fierce reaction"

By GEORGE JAHN, Associated Press

Last updated: 9:52 a.m., Wednesday, July 2, 2008

MADRID, Spain -- With Middle East tensions building, Iran's oil minister warned Wednesday that an attack on his country would provoke an unimaginably fierce response.

Minister Gholam Hossein Nozari said, however, that Tehran would not cut oil deliveries and would continue supplying the market even if struck by Israel or the United States.

Tehran "is not going to be quiet," if attacked, Nozari told reporters.

It's "going to react fiercely, and nobody can imagine what would be the reaction of Iran," he added.

Over the weekend, the commander of Iran's Revolutionary Guards warned that Tehran would respond to an attack by barraging Israel with missiles and could seize control of a key oil passageway in the Persian Gulf, the Strait of Hormuz.

But a senior U.S. military commander said Wednesday that Washington would not allow that to happen.

Vice Adm. Kevin Cosgriff, commander of the 5th Fleet spoke to reporters after talks with naval commanders of Gulf countries in the United Arab Emirates capital of Abu Dhabi.

The one-day meeting was to focus on the security of the region's maritime and trade routes and the threat of terrorism.

The 5th Fleet is based in Bahrain, across the Gulf from Iran.

Cosgriff said that if Iran choked off the Strait of Hormuz, it would be "saying to the world that 40 percent of oil is now held hostage by a single country."

"We will not allow Iran to close it," he told reporters.

Minister Nozari addressed rising tensions outside the 19th World Petroleum Congress after a presentation on Iran's oil and gas industry to a packed audience, including representatives of European and U.S. energy companies.

Tehran is under U.N., U.S. and European sanctions because it has defied U.N. Security Council demands to suspend its uranium enrichment program.

But with oil supplies tight and prices at unprecedented levels, the energy industry remains tempted by the possibilities of investing in Iran, OPEC's second largest oil producer and No. 2 in terms of the world's natural gas reserves.

President Bush has repeatedly said that a military strike on Tehran is possible as a last-resort if Iran continues to pursues uranium enrichment and fails to heed other Security Council demands.

Last month, Israel sent warplanes on a major exercise in the eastern Mediterranean that U.S. officials said was a message to Iran -- a show of force as well as practice in the operations needed for a long-range strike mission.

ABC News quoted an unnamed senior Pentagon official warning of an "increasing likelihood" that Israel will strike Iran's nuclear facilities before the end of the year.

Nozari said such any attack would send oil prices further into uncharted territory.

"We don't think the wise people in the world even think about any action like that," he said.

"Can you imagine ... what would be the result in the oil market?"

Oil prices hit a record high above $143 this week.

But Nozari indicated Iran would not withhold its crude from the market even if attacked.

"Iran has always been a reliable source of supply to the market, and Iran remains a (reliable) source of supply," he said.

He dismissed suggestions that the standoff over Iran's nuclear program has diminished Iran's oil and gas exports, despite U.S. sanctions that prohibit American companies from doing business with Tehran and growing pressure from Washington on other countries to follow suit.

"We have increased our production in the past two years by 250,000 barrels a day and we have added to the production of our gas," he told the AP.

June 29, 2008

"Occupation Plan for Iraq Faulted in Army History"

By MICHAEL R. GORDON

http://www.nytimes.com/2008/06/29/washingt...agewanted=print

WASHINGTON — Soon after American forces toppled Saddam Hussein in 2003, Gen. Tommy R. Franks surprised senior Army officers by revamping the Baghdad-based military command.

The decision reflected the assumption by General Franks, the top American commander for the Iraq invasion, that the major fighting was over.

But according to a new Army history, the move put the military effort in the hands of a short-staffed headquarters led by a newly promoted three-star general, and was made over the objections of the Army’s vice chief of staff.

“The move was sudden and caught most of the senior commanders in Iraq unaware,” states the history, which adds that the staff for the new headquarters was not initially “configured for the types of responsibilities it received.”

The story of the American occupation of Iraq has been the subject of numerous books, studies and memoirs.

But now the Army has waded into the highly charged debate with its own nearly 700-page account: “On Point II: Transition to the New Campaign.”

The unclassified study, the second volume in a continuing history of the Iraq conflict, is as noteworthy for who prepared it as for what it says.

In essence, the study is an attempt by the Army to tell the story of one of the most contentious periods in its history to military experts — and to itself.

It adds to a growing body of literature about the problems the United States encountered in Iraq, not all of which has been embraced by Army leaders.

Lt. Col. Paul Yingling of the Army ignited a debate when he wrote a magazine article that criticized American generals for failing to prepare a coherent plan to stabilize postwar Iraq.

In 2005, the RAND Corporation submitted a report to the Army, called “Rebuilding Iraq,” that identified problems with virtually every government agency that played a role in planning the postwar phase.

After a long delay, the report is scheduled to be made public on Monday.

But the “On Point” report carries the imprimatur of the Army’s Combined Arms Center at Fort Leavenworth.

The study is based on 200 interviews conducted by military historians and includes long quotations from active or recently retired officers.

Publication was delayed six months so that Gen. George W. Casey Jr., the current Army chief of staff and former top commander in Iraq, could be interviewed and senior Army leaders could review a draft.

The study’s authors were instructed not to shy away from controversy while withholding a final verdict on whether senior officials had made mistakes that decisively altered the course of the war, said Col. Timothy R. Reese, the director of the Combat Studies Institute at Fort Leavenworth, Kan., who, along with Donald Wright, a civilian historian at the institute, oversaw the volume’s preparation.

Even so, the study documents a number of problems that hampered the Army’s ability to stabilize the country during Phase IV, as the postwar stage was called.

“The Army, as the service primarily responsible for ground operations, should have insisted on better Phase IV planning and preparations through its voice on the Joint Chiefs of Staff,” the study noted.

“The military means employed were sufficient to destroy the Saddam regime; they were not sufficient to replace it with the type of nation-state the United States wished to see in its place.”

For his part, General Franks said through an aide that he had covered Iraq decisions in his book and had not seen the forthcoming report.

The report focuses on the 18 months after President Bush’s May 2003 announcement that major combat operations in Iraq were over.

It was a period when the Army took on unanticipated occupation duties and was forced to develop new intelligence-gathering techniques, armor its Humvees, revise its tactics and, after the Abu Ghraib prison scandal, review its detention practices.

A big problem, the study says, was the lack of detailed plans before the war for the postwar phase, a deficiency that reflected the general optimism in the White House and in the Pentagon, led by then-Secretary of Defense Donald H. Rumsfeld, about Iraq’s future, and an assumption that civilian agencies would assume much of the burden.

“I can remember asking the question during our war gaming and the development of our plan, ‘O.K., we are in Baghdad, what next?’"

"No real good answers came forth,” Col. Thomas G. Torrance, the commander of the Third Infantry Division’s artillery, told Army historians.

The allied land war command, which was led by Lt. Gen. David D. McKiernan and which reported to General Franks, did additional work on the postwar phase, but its plan was not formally distributed to the troops until April 2003, when the ground invasion was under way.

Inadequate training was also a factor.

Lt. Col. Troy Perry, the operations officer of the First Battalion, 68th Armor Regiment, told Army historians that his unit trained extensively, but not for the sort of problems that it would encounter in setting up “stability operations” for securing Iraq once Mr. Hussein’s government fell.

A fundamental assumption that hobbled the military’s planning was that Iraq’s ministries and institutions would continue to function after Mr. Hussein’s government was toppled.

“We had the wrong assumptions and therefore we had the wrong plan to put into play,” said Gen. William S. Wallace, who led the V Corps during the invasion and currently leads the Army’s Training and Doctrine Command.

Faced with a brewing insurgency and occupation duties that they had not anticipated, Army units were forced to adapt.

But organizational decisions made in May and June 2003 complicated that task.

L. Paul Bremer III, who replaced Jay Garner, the retired lieutenant general, as the chief civilian administrator in Iraq, issued decrees to disband the Iraqi Army and ban thousands of former Baath Party members from working for the government, orders that the study asserts caught American field commanders “off guard” and, in their view, “created a pool of disaffected and unemployed Sunni Arabs” that the insurgency could draw on.

Some of General Franks’s moves also appeared divorced from the growing problems in Iraq.

Before the fall of Baghdad, Col. Kevin Benson, a planner at the land war command, developed a plan that called for using about 300,000 soldiers to secure postwar Iraq, about twice as many as were deployed.

But that was not what General Franks and the Bush administration had in mind.

In an April 16 visit to Baghdad, General Franks instructed his officers to be prepared to reduce forces rapidly during an “an abbreviated period of stability operations,” the study notes.

“In line with the prewar planning and general euphoria at the rapid crumbling of the Saddam regime, Franks continued to plan for a very limited role for U.S. ground forces in Iraq,” the report says.

The next month, General Franks directed General McKiernan, then the senior officer in Baghdad, to leave Iraq, along with the staff of his land war command, which had helped plan the invasion and had overseen the push to Baghdad.

A new headquarters would be established to command the military forces in Iraq and was to be led by Lt. Gen. Ricardo S. Sanchez.

He had led the First Armored Division into Iraq before being promoted and picked to succeed General Wallace as the head of the Army’s V Corps, which was to serve as the nucleus of the newly established command.

When Gen. Jack Keane, the vice chief of staff of the Army, learned of the move, he was upset.

General Keane had helped General McKiernan assemble his headquarters, which had long been focused on Iraq and had more high-ranking officers than V Corps, which had been deployed from Europe.

General Keane assumed that General McKiernan’s headquarters would oversee what was fast becoming a troubled occupation.

“I think we did not put the best experienced headquarters that we had in charge of that operation,” General Keane said in an interview with Army historians.

“It took us months, six or seven or eight months, to get some semblance of a headquarters together so Sanchez could at least begin to function effectively.”

General Keane told the historians that he raised his concerns at the time with Lt. Gen. John P. Abizaid, who had been picked to succeed General Franks as the head of Central Command.

“I said, ‘Jesus Christ, John, this is a recipe for disaster,’ ” General Keane told Army historians.

“I was upset about it to say the least, but the decision had been made and it was a done deal.”

Asked about the decision to establish a new headquarters, General Franks told Army historians that he had told the Pentagon what was needed and that it was the Defense Department’s responsibility to ensure that the headquarters was rapidly installed.

He said he told the Pentagon leadership that a new headquarters was needed and that it was up to them to “figure it out.”

General Sanchez, who has retired from the Army and recently published a book about his time in Iraq, told historians that his new command was hampered by staff shortages and by the failure to coordinate the transfer of responsibilities to his new headquarters.

“There was not a single session that was held at the command level to hand off or transition anything,” he said.

Summing up the episode, General Wallace told historians that the shift to a new headquarters involved a complicated transfer of responsibilities at a critical time.

“You can’t take a tactical headquarters and change it into an operational headquarters at the snap of your fingers,” he said.

“It just doesn’t happen.”

Posted on Tue, Jul. 1, 2008

"A not-so-glorious Fourth - U.S. atrocities are unworthy of our heritage."

By Chris Satullo, Philadelphia Inquirer Columnist

Put the fireworks in storage.

Cancel the parade.

Tuck the soaring speeches in a drawer for another time.

This year, America doesn't deserve to celebrate its birthday.

This Fourth of July should be a day of quiet and atonement.

For we have sinned.

We have failed to pay attention.

We've settled for lame excuses.

We've spit on the memory of those who did that brave, brave thing in Philadelphia 232 years ago.

The America those men founded should never torture a prisoner.

The America they founded should never imprison people for years without charge or hearing.

The America they founded should never ship prisoners to foreign lands, knowing their new jailers might torture them.

Such abuses once were committed by the arrogant crowns of Europe, spawning rebellion.

Today, our nation does such things in the name of our safety.

Petrified, unwilling to take the risks that love of liberty demands, we close our eyes.

We have done such things, on orders from the Oval Office.

We have done them, without general outrage or shame.

Abu Ghraib.

Guantanamo.

CIA secret prisons.

"Rendition" of prisoners to foreign torture chambers.

It's not enough that we had good reason to be scared.

The men huddled long ago in Philadelphia had better reason.

A British fleet floated off the Jersey coast, full of hands eager to hang them from the nearest lampposts.

Yet they pledged their lives and sacred honor - no idle vow - to defend the "inalienable rights" of men.

Inalienable - what does that signify?

It means rights that belong to each person, simply by virtue of being human.

Rights that can never be taken away, no matter what evil a person might do or might intend.

Surely one of those is the right not to be tortured.

Surely that is a piece of "life, liberty and the pursuit of happiness."

This is the creed of July 4: No matter what it costs us, no matter how it scares us, no matter how foolish it seems to a cynical world, America should stand up for human rights.

No, not even the brave men who picked up a quill, dipped it in ink and signed the parchment that summer day in Philadelphia lived up perfectly to the creed.

But they did something extraordinary, founding a new nation upon a vow to oppose all the evil habits of tyranny.

That is why history still honors them.

But what will history think of us, of how we responded to our great challenge?

Sept. 11 was a hideous evil, a grievous wound.

Yet, truth told, it has not summoned our better angels as often as our worst.

We have betrayed the July 4 creed.

We trample the vows we make, hand to heart.

Don't imagine that only the torturer's hand bears the guilt.

The guilt reaches deep inside our Capitol, and beyond that - to us.

Our silence is complicit.

In our name, innocents were jailed, humans tortured, our Constitution mangled.

And we said so little.

We can't claim not to have known.

The best among us raised the alarm.

Heroes in uniform, judges in robes, they opposed the perverse logic of an administration drenched in fear, drunk on power.

But did we heed them?

Hardly.

Barely . . .

We were so busy.

Soccer practice at 6.

A credit card balance to fret.

The final vote on Idol.

We left it to those in power to keep our precious selves from harm.

Whatever it took.

We took the coward's way.

The world sees this, even if we are too dim to grasp it.

We've lost respect.

We've shamed the memory of Jefferson, Adams and Franklin.

And all for a scam.

The waterboarding, the snarling dogs, the theft of sleep - all the diabolical tricks haven't made us safer.

They may have averted this plot or that.

But they've spawned new enemies by the thousands, made the jihadist rants ring true to so many ears.

So put out no flags.

Sing no patriotic hymns.

We deserve no Fourth this year.

Let us atone, in quiet and humility.

Let us spend the day truly studying the example of our Founders.

May we earn a new birth of courage before our nation's birthday next rolls around.

http://www.philly.com/inquirer/columnists/...ous_Fourth.html

GEORGE W. BUSH HAS DESTROYED THE AMERICAN ECONOMY ...

HE IS DESTROYING OUR NATION ....

WHICH WAS NEVER HIS TO DESTROY ....

BUT HE DID IT ANYWAY ....

AND WHO THE HELL CAN AFFORD A BARBECUE?

And so ...

"62,000 jobs lost, off nearly half-million for year - Employers cut 62,000 jobs, sixth straight month of losses with even more layoffs looming"

By JEANNINE AVERSA, Associated Press

Last updated: 4:22 p.m., Thursday, July 3, 2008

WASHINGTON -- The nation lost jobs for a sixth month in a row in June, a storm of pink slips drenching this year's July Fourth holiday for more than 60,000 Americans and leaving thousands more worried about the future.

Weighed down by energy prices and the housing crisis, employers laid off workers in stores, factories and forsaken building sites.

With more job cuts expected in coming months, there's growing concern that many people will pull back on their spending later this year when the bracing effect of the tax rebates fades, dealing a dangerous setback to the shaky economy.

These worries are rekindling recession fears.

"The deteriorating jobs climate will dampen many a barbecue this weekend."

"It's hard to celebrate when you are out of a job," said Richard Yamarone, economist at Argus Research.

In June alone, employers got rid of 62,000 jobs, bringing total losses so far this year close to a staggering half-million -- 438,000, according to the Labor Department's report released Thursday.

The economy needs to generate more than 100,000 new jobs a month for employment to remain stable.

The jobless rate held steady at 5.5 percent after jumping in May by the most in two decades.

Still, June's jobless rate was considerably higher than the 4.6 percent of a year ago.

The unemployment rate is expected to climb through the rest of this year and top 6 percent early next year.

Just in the past few days, Chrysler LLC said it would close a plant and Starbucks Corp. said it would shut some 600 stores in the next year, meaning more lost jobs ahead.

American Airlines recently said it may cut flight attendant jobs.

When companies do have openings, job hunters are in for more competition.

"I get resumes upon resumes upon resumes when I put up job postings," said Jeff Posner, president and owner of e-ventsreg.com, a small New Jersey firm that handles registration and check-ins for trade shows.

There were 8.5 million unemployed people as of June, up from 7 million a year earlier.

Heavy job losses were reported in construction, manufacturing and financial services -- the worst casualties of the housing, credit and financial debacles.

Cutbacks also came in retailing, temporary help, trucking, publishing and elsewhere.

That more than swamped job gains in other places including health care, education, hotels, bars and restaurants and the government.

The economy is the top concern of voters and will figure prominently in their choices for president and other elected officials come November.

The faltering labor market is a source of anxiety not only for those looking for work but also for those worried about keeping their jobs during uncertain times.

When it comes to handling the economy, 32 percent prefer Democratic contender Barack Obama, while 28 percent want GOP rival John McCain, according to a recent AP-Yahoo News poll.

"Far too many Americans will spend this holiday out of work and struggling to provide for their families because of the failed policies of the last eight years," Obama said Thursday.

"Americans across this country are hurting and today's jobs numbers are just the latest indication," McCain said.

"Washington can no longer abdicate its responsibility to act."

"Our focus must be clear: enact policies to create jobs today."

Other economic news revealed more weak spots.

--The number of newly laid off people signing up for unemployment insurance rose sharply last week.

New applications jumped by 16,000 to 404,000, the highest level since late March.

-- The nation's service sector -- generally an engine for the economy -- contracted in June.

The Institute for Supply Management's index of the service sector fell to 48.2 in June from 51.7 in May.

A reading below 50 signals activity is shrinking, while a reading above that suggests activity is expanding.

"The economy will get worse before it gets better," said Sung Won Sohn, an economics professor at California State University.

On Wall Street, investors took the latest batch of economic reports in stride.

The Dow Jones industrials closed up 73.03 at 11,288.54.

In political circles, though, the latest news spurred calls from Democrats to take more steps to aid the economy.

The Bush administration thinks the government's $168 billion stimulus effort, including the rebates, should be sufficient but hasn't ruled out further action.

With inflation concerns growing, the Federal Reserve last week ended an aggressive interest rate-cutting campaign, started last September to shore up economic growth.

Fed Chairman Ben Bernanke and his colleagues are caught between risky crosscurrents of plodding economic growth and spiraling energy and food prices.

Lowering interest rates further could worsen inflation.

But boosting rates to fend off inflation could hurt the fragile economy.

Given the state of the job market and continued damage from the housing slump, the Fed probably will leave rates alone when policymakers meet on Aug. 5, some economists suggest.

On the other side of the Atlantic, the European Central Bank boosted its key interest rate Thursday in an effort to rein in escalating inflation.

In the U.S. wage growth for workers is slowing.

Average hourly earnings grew by just 3.4 percent over the past 12 months, the smallest annual increase since January 2006.

Paychecks aren't stretching as far because prices for gasoline, groceries and other things are rising more quickly.

Oil prices on Thursday briefly touched a new high of $146 a barrel, while gasoline prices hit a new record of $4.10 a gallon, according to AAA, the Oil Prices Information Service and Wright Express.

Some economists fear that when the energizing force of the tax rebates fades, the economy could be in for another rough patch especially if job and wage growth continue to falter.

There's been a lot of talk about whether the economy is on the brink of, or has fallen into, its first recession since 2001.

The unofficial determination, made by a panel of academics, usually comes well after the fact.

The panel takes into account economic activity, as well as employment, income and other things.

Brian Bethune, economist at Global Insight likened the current situation to "a slow-motion recession."

"It's kind of like a recession by a thousand cuts."

--------

AP Business Writer Ellen Simon contributed to this report from New York.

"Stocks end mixed following jobs, services data - Stocks end mixed after report shows contraction in service sector; GM lifts Dow industrials"

By TIM PARADIS, Associated Press

Last updated: 5:32 p.m., Thursday, July 3, 2008

NEW YORK -- Wall Street capped a shortened trading week with a mixed finish Thursday after some uneven economic data: news of a contraction in the nation's services sector and a tame reading on employment.

But stocks still had their third dismal week in a row, with the major indexes again posting losses as worries about rising oil prices and the fallout from the credit crisis dogged the market.

Investors hoping for some guidance from two key economic reports got very little.

The Institute for Supply Management said its index of service sector activity fell to 48.2 from 51.7 in May; the reading touched off more misgivings about the well-being of the economy.

The look at the service sector followed a largely as-expected report from the Labor Department, which said the nation's unemployment rate held steady at 5.5 percent last month.

The government also reported that 62,000 jobs were lost in June, but that number was close to economists' forecasts.

The jobs report did appear to assuage some worries that the snapshot of the labor market would be more grim.

Employment numbers are critical because consumers who are out of work or are nervous about losing their job are likely to cut their spending.

They've already become cautious because of higher food and energy prices.

Christopher Molumphy, chief investment officer at Franklin Templeton fixed income group, said the employment figures don't point to a labor market in distress.

"We are not seeing data that would be consistent with recessionary conditions," he said.

Molumphy also said the session's somewhat skewed trading was typical of a shortened session ahead of a holiday.

Trading ended three hours early at 1 p.m. Eastern time, and the market was closing Friday for the Fourth of July.

"We try not to overanalyze some of the moves because I think you can easily do that," he said.

The Dow rose 73.03, or 0.65 percent, to 11,288.54.

Broader stock indicators ended mixed.

The Standard & Poor's 500 index rose 1.38, or 0.11 percent, to 1,262.90, and the Nasdaq composite index fell 6.08, or 0.27 percent, to 2,245.38.

Declining issues outnumbered advancers by about 2 to 1 on the New York Stock Exchange, where consolidated volume came to 3.19 billion shares.

Bond prices fell.

The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.98 percent from 3.96 percent late Wednesday.

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

Oil prices dominated trading during the week as they have for months.

Light, sweet crude settled up $1.72 at a record $145.29 per barrel on the New York Mercantile Exchange after trading as high as $145.85 -- also a new record.

Nearly a month ago, on June 6, oil prices logged their biggest-ever one-day advance with a gain of nearly $11 a barrel.

The rise that day to more than $138 a barrel and a nearly 400-point drop in the Dow at the time owed in part to comments from a Morgan Stanley analyst that oil would hit $150 a barrel by the Fourth of July.

While oil hasn't yet touched that level, rising prices have continued to weigh on stocks.

Oil's rise Wednesday after two uneventful days of trading helped send the Dow down by more than 150 points and left the blue chips and the Nasdaq in bear market territory, where they remained by Thursday's close.

The Standard & Poor's 500 index remains just shy of the 20 percent decline from its high that signals a bear market.

For the week, the Dow lost 0.51 percent, the S&P 500 fell 1.21 percent and the technology-laden Nasdaq declined 3.03 percent.

The moves were milder than in the prior week, when stocks showed steep losses largely because of concerns about the surge in energy prices.

Dan Laufenberg, chief economist at Ameriprise Financial, said the modest growth the economy is managing to show will likely fade by next year.

"Unless you get some kind of relief on energy prices it looks the third quarter is going to be fairly weak as well," he said.

Thursday's employment report, while greeted with some relief, also brought some troubling insights.

The nation's job losses in April and May turned out to be steeper than had been thought after revisions.

A separate report showed that the number of newly laid off people seeking unemployment benefits jumped last week.

Investors are nervous about the strength of the job market in part because consumer spending accounts for more than two-thirds of U.S. economic activity.

Consumers who are out of work or are nervous about losing their job are likely to trim their spending.

Investors will be looking for fresh insights next week with the arrival of corporate quarterly numbers.

Aluminum producer Alcoa Inc., a component of the Dow industrials, is expected to unofficially start earnings season with a report due Tuesday.

Monthly sales reports are also due from retailers.

The Russell 2000 index of smaller companies fell 6.56, or 0.98 percent, to 665.78.

Overseas, Japan's Nikkei stock average fell 0.16 percent.

Britain's FTSE 100 rose 0.95 percent, Germany's DAX index rose 0.77 percent, and France's CAC-40 rose 1.11 percent.

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The Dow Jones industrial average ended the week down 57.97, or 0.51 percent, at 11,288.54.

The Standard & Poor's 500 index finished down 15.48, or 1.21 percent, at 1,262.90.

The Nasdaq composite index ended the week down 70.25, or 3.03 percent, at 2,245.38.

The Russell 2000 index finished the week down 32.36, or 4.64 percent, at 665.78.

The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 U.S. based companies -- ended Friday at 12,815.47, down 265.55 points, or 2.03 percent, for the week.

A year ago, the index was at 15,449.03.

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On the Net:

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

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

"NY judge orders prison for former Refco CEO - NY judge slams former Refco CEO with 16-year prison term; deeds led to brokerage collapse"

By LARRY NEUMEISTER, Associated Press

Last updated: 5:12 p.m., Thursday, July 3, 2008

NEW YORK -- The former head of Refco Inc., blamed for the collapse of one of the world's largest commodities brokerages, was sentenced to 16 years in prison Thursday by a judge who decried the "staggeringly arrogant" greed of white collar criminals.

Phillip Bennett, 59, a British citizen living in Gladstone, N.J., had previously pleaded guilty to conspiracy to commit securities fraud and other charges for the eight-year fraud.

Bennett said he didn't mean to hurt anyone.

His voice cracked when he apologized to his family for their "unimaginable agony."

U.S. District Judge Naomi Reice Buchwald said the 20 separate crimes Bennett admitted he had committed and the $1.5 billion in losses he had caused were enough to explain her ruling.

"To sentence you, I don't have to paint you as a monster and I have no intention of doing so," Buchwald said.

But she said Bennett and others like him who break the law in their zeal to be among the world's richest people are "staggeringly arrogant."

"You and others like you play a truly high stakes poker game," Buchwald said.

The judge told Bennett to remain at his New Jersey home until he reports to prison Sept. 4.

She rejected a request by prosecutors that he be sent to prison immediately.

Assistant U.S. Attorney Reed Brodsky urged the judge to impose a sentence of 16 1/2 to 22 years in prison, saying Bennett had misled bankers and investors for eight years.

"This was stealing money plain and simple," he said.

Brodsky said Bennett was driven by greed, eager to become one of the richest men in the world.

Defense lawyer Gary Naftalis said his client was contrite and had helped three sets of lawyers who are trying to find assets for investors.

"Did he do wrong things?"

"Absolutely."

"Has he stood tall and admitted them?"

"Yes he has," Naftalis said.

Refco went public in August 2005.

It filed for bankruptcy just weeks later -- after disclosing that a $430 million debt owed to Refco by a firm controlled by Bennett had been concealed.

The disclosure caused Refco's stock value to plummet.

Before he was sentenced, Bennett said he had the best of intentions when he made an "unacceptable and appalling error" in handling Refco's finances.

"In doing so, I not only broke the law, I put in harm's way the very people I intended to help," he said.

Buchwald said restitution will be worked out at a later date.

The judge said that after he serves his sentence, Bennett will be deported to England, "a highly civilized, cultured and familiar country."