Fed becoming worried about stimulus side effects

WASHINGTON (Reuters) - Federal Reserve officials are increasingly concerned about the potential risks of the U.S. central bank's asset purchases on financial markets, even if they look set to continue an open-ended stimulus program for now.
In a surprise to Wall Street, minutes from the Fed's December policy meeting, published on Thursday, showed a growing reticence about further increases in the central bank's $2.9 trillion balance sheet, which it expanded sharply in response to the financial crisis and recession of 2007-2009.
"Several (officials) thought that it would probably be appropriate to slow or to stop purchases well before the end of 2013, citing concerns about financial stability or the size of the balance sheet," the minutes said, referring to the narrower group of voting Fed members.
Investors picked up on the report's hawkish tone, with stock prices drifting lower after the announcement, while the U.S. dollar extended gains against the euro. Yields on the 30-year Treasury bond hit 3.12 percent, their highest levels since May.
"The minutes of the Federal Reserve's December monetary policy meeting revealed a somewhat surprising level of concern among the ranks of central bankers regarding the long-term impact of the bank's asset purchase program, or quantitative easing," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington D.C.
Still, the Fed appeared likely to continue buying assets for the foreseeable future, having announced in December it was extending monthly purchases of $40 billion in mortgage securities and also buying $45 billion in Treasuries each month.
A few of the voting members on the central bank's policy-setting Federal Open Market Committee thought asset buying would be warranted until about the end of 2013. A few others highlighted the need for further large-scale stimulus but did not specify an amount or time frame.
Fed officials generally agreed that the labour market outlook was not likely to improve without further nudging from the monetary authorities.
QE "HEEBIE-JEEBIES"
The U.S. economy expanded a respectable 3.1 percent in the third quarter on an annualized basis, but growth is believed to have slowed sharply to barely above 1.0 percent in the last three months of the year.
Data on Thursday showed a solid gain of 215,000 new private sector jobs for December, while analysts polled by Reuters last week were looking for a rise of 150,000 new jobs in the Labor Department's official survey, due out on Friday.
Still, the minutes indicated worries about quantitative easing policies were spreading beyond the usual regional Fed hawks who, like Richmond Fed President Jeffrey Lacker, have opposed additional Fed easing.
"What's clear from these minutes is that there is little consensus among the members of the FOMC on how long asset purchases should carry on," said Jason Conibear, trading director at Cambridge Mercantile.
"Some members want more accommodation for as long as it takes, some want more but to start winding it down while others have got the heebie-jeebies about the size of the balance sheet."
In the December meeting, the Fed also launched a new framework of policy thresholds, numerical guideposts that are supposed to give markets and the public a clearer idea of how policymakers will react to incoming economic data.
Officials say they will keep interest rates near zero until the unemployment rate falls to 6.5 percent for as long as estimates of medium-run inflation do not exceed 2.5 percent.
The minutes suggested it took officials some time to build a consensus around the idea.
"A few participants expressed a preference for using a qualitative description of the economic indicators influencing the Committee's thinking," the minutes said.
U.S. unemployment has come down steadily after hitting a peak of 10 percent in late 2009, but remains elevated at 7.7 percent.
Fed officials noted worries about the looming "fiscal cliff," which was dealt with only partly in an agreement earlier this week, were hurting the confidence of businesses and households.
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Report: Israeli ex-spy chief criticizes PM on Iran

A recently retired Israeli spy chief says Prime Minister Benjamin Netanyahu acted irresponsibly regarding Iran's nuclear program and accuses him of prioritizing personal concerns over national interests.
Yuval Diskin, chief of Israel's Shin Bet intelligence agency from 2005 to 2011, has voiced similar criticisms before.
Diskin says Netanyahu tried to convince him and his colleagues to approve what he called an "illegal" decision to attack Iran. He describes attending a "bizarre" meeting with Netanyahu, Defense Minister Ehud Barak and then-foreign minister Avigdor Lieberman, in which they discussed the Iranian nuclear threat over cigars and liquor.
Diskin spoke in an interview to a filmmaker who made a documentary about Israeli spymasters. The interview appeared Friday in Israel's daily Yediot Ahronot.
Netanyahu's office in a text-messaged statement called Diskin's comments "baseless.
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Sadr visits Baghdad church, site of 2010 attack

Firebrand Shiite cleric Muqtada al-Sadr visited a Baghdad church that was the scene of a deadly 2010 attack as well as one of the Iraqi capital's main Sunni mosques on Friday, an apparent overture to other religious groups as opposition mounts against his rival, Prime Minister Nouri al-Maliki.
The cleric's stops at the holy sites — a rare public appearance by Al-Sadr outside predominantly Shiite parts of Iraq — came as tens of thousands of protesters angry over perceived second-class treatment gathered in Sunni-dominated areas to maintain pressure against al-Maliki's Shiite-led government.
Al-Sadr, wearing his signature black cloak and turban, said he visited the Our Lady of Salvation church to express sorrow at the attack and send a message of peace to Iraq's Christian community.
The visit comes amid rising sectarian tensions a year after the U.S. withdrawal from Iraq. Al-Sadr grudgingly backed fellow Shiite al-Maliki following elections in 2010. But last year he joined Iraq's minority Sunni Arabs and Kurds in calling for al-Maliki to resign.
Al-Sadr, since coming to prominence following the U.S.-led 2003 invasion, has frequently made overtures to Sunnis and others. But militias loyal to him were some of the worst perpetrators of sectarian violence last decade, and he is still viewed with hostility or suspicion by many Sunnis, Kurds and others.
At the church, al-Sadr sat quietly in the front pew, listening and nodding as Father Ayssar al-Yas welcomed him. The priest then gave al-Sadr a tour of the recently renovated church, pointing out places where attackers in 2010 killed priests and worshippers during a church service ambush. Over 50 were killed in the attack, blamed on Sunni extremists.
Al-Maliki himself attended a ceremony to officially reopen the church last month.
Al-Sadr's heavily protected convoy then made its way to the al-Gailani mosque, one of Baghdad's most prominent Sunni places of worship, shortly before midday Friday prayers.
As he entered the mosque, one worshipper called out that he is "the unifier of Sunnis and Shiites." Another hailed him as "the patriot, the patriot."
Al-Sadr this week spoke up for the Sunni protesters, and echoed that sentiment again Friday.
"We support the demands of the people, but I urge them to safeguard Iraq's unity," he said in brief comments inside the mosque following the Sunni imam's speech and midday prayers.
As he left, women in the courtyard ululated and showered him with candy.
Protesters, meanwhile, massed in several Sunni areas around the country.
The demonstrations appeared to be some of the largest in a wave of rallies over the past two weeks that erupted following the arrest of bodyguards assigned to Finance Minister Rafia al-Issawi, one of the central government's most senior Sunni officials.
The detention of female prisoners has been a focus of the demonstrations, though the protests tap into deeper Sunni feelings of perceived discrimination and unfair application of laws against their sect by al-Maliki's government.
Iraqi authorities this week ordered the release of 11 women facing criminal charges and pledged to transfer other women prisoners to jails in their home provinces in a nod to protesters' demands.
But demonstrators Friday continued to press for more prisoners to be released.
Several thousand people took to the streets amid tight security outside Baghdad's Abu Hanifa mosque after the midday prayers. They demanded the release of detainees, and held banners with slogans against the politicization of the judiciary and calling for an end to corruption.
Their chants included: "Iran out!" — a reference to what many Iraqis see as their neighbor's influence over the government — and "Nouri al-Maliki is a liar."
Local TV broadcast what appeared to be tens of thousands of protesters massed along a highway near the western city of Ramadi, which has been the focus of demonstrations and sit-ins in recent weeks.
About 3,000 people gathered in the northern city of Mosul, where they called for the release of female prisoners and to end to what they say are random arrests of Sunnis. Among their chants were: "Down, down with al-Maliki" and "No to sectarianism."
In the ethnically mixed city of Kirkuk, about 1,000 protested to demand the release of Sunni detainees.
Protests were also reported in the Sunni strongholds of Fallujah and Tikrit.
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Israel ex-spy chief blasts PM ahead of election

JERUSALEM (AP) — A prominent Israeli ex-intelligence chief sought to sway Israelis against Benjamin Netanyahu in upcoming elections, saying in an interview published Friday that the prime minister has mismanaged Israel's response to Iran's nuclear program and missed opportunities to make inroads on a peace agreement with the Palestinians.
The interview by Yuval Diskin was an unusually strong and overt assault on a prime minister by a figure formerly from the security establishment, coming less than three weeks before the Jan. 22 election, in which polls predict Netanyahu will be reelected. The election campaign has hardly touched on security issues like the conflict with Iran or the stalled peace process with the Palestinians, focusing almost entirely on domestic issues.
Diskin, who ran Israel's Shin Bet intelligence agency from 2005 to 2011, has been a vocal critic of Netanyahu. But his front-page interview to the daily Yediot Ahronot included his sharpest comments yet. He accused Netanyahu of acting illegally by ordering the security apparatus to prepare for an attack on Iran before gaining former approval by the Cabinet of ministers. He also said Netanyahu squandered the gains made by Israel's security forces by not using a period of relative quiet over the past few years to move toward peace with the Palestinians.
"I am convinced we deserve a better leadership that's braver and more moral, and that sets a better personal example," Diskin said. "If I cause the Israeli voter to think twice before choosing parties and leaders that are not worthy, because they are actually not leading us where we should be going, I've done my part."
He said he formed his opinion "based on dozens of discussions with many people more or less of my rank" who feel "a lack of security, lack of trust and lack of appreciation" for the current administration.
Netanyahu's office in a text-messaged statement called Diskin's comments "baseless" and accused him of personal frustration over not being selected to head the prestigious Mossad spy agency.
Though Diskin oversaw Israel's domestic security in his role as Shin Bet chief, he was also involved in key security decisions affecting the country including deliberations over a possible strike on Iran's nuclear facilities.
Diskin said that in 2010 Netanyahu and Defense Minister Ehud Barak tried to convince him, the army chief and the head of Israel's Mossad intelligence agency to prepare the security apparatus for an attack on Iran before gaining approval from the necessary government forums, a move Diskin called "illegal."
The army chief and Mossad chief from the time — Lt. Gen. Gabi Ashkenazi and Meir Dagan — both spoke similarly about the meeting to Israeli television in November.
Diskin also described attending a meeting with Netanyahu, Barak and then-foreign minister Avigdor Lieberman, in which they discussed the Iranian nuclear threat over cigars and liquor. He called the atmosphere "bizarre," saying leaders discussing such a serious subject with Israeli security officials should show more gravity.
Diskin said Netanyahu acted irresponsibly regarding Iran's nuclear program and accused him of prioritizing personal concerns over national interests.
"I have a very strong feeling that with the Iranian issue Netanyahu is 'haunted' by (former Israeli prime minister) Menachem Begin, who attacked the reactor in Iraq, and by (former Israeli prime minister Ehud) Olmert, who, as it is claimed in many places, attacked the reactor in Syria," Diskin said. Netanyahu "wants to go down in history as someone who did something of the same proportions."
Netanyahu and Barak have both repeatedly hinted that Israel would carry out military action to stop Iran's nuclear program if necessary. Israel says Iran's nuclear program is aimed at weapons development. Iran denies this and says its nuclear program is for peaceful purposes.
On the Palestinian issue, Diskin criticized Netanyahu's lack of movement on peace talks and said there is a chance another Palestinian uprising could break out.
"The role of the security forces is to create conditions so the political echelon will know what to do with them, and the quiet which was achieved in the last few years is an opportunity that the political echelon should not have missed," Diskin said.
Asked about the response by Netanyahu's office to his comments, Diskin replied only "Have a good Sabbath" in a text message to The Associated Press.
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Syrian warplanes bomb suburbs of the capital

BEIRUT (AP) — Syrian ground and air forces bombarded rebel strongholds on the outskirts of Damascus and other areas around the country Friday while anti-government forces targeted a military post near the capital with a car bomb, activists said.
The Britain-based Syrian Observatory for Human Rights said warplanes targeted neighborhoods around the capital including Douma, which troops have been trying to recapture for weeks. Two air raids there Thursday killed 12 people and caused heavy damage.
The Observatory added that a car bomb blew up outside a military intelligence building in the northern Damascus suburb of Nabk but had no immediate word on casualties.
An amateur video posted online showed a strong explosion with black smoke billowing from Nabk and the narrator said the blast targeted the military intelligence facility. The video appeared genuine and corresponded to other AP reporting on the events depicted.
The violence came two days after the U.N. said that more than 60,000 people have been killed since Syria's crisis began in March 2011 — a figure much higher than previous opposition estimates.
Damascus-based activist Maath al-Shami said government troops were firing rockets and mortars from the Qasioun mountains overlooking the capital down at orchards near the southern suburbs of Daraya and Kfar Sousseh. The Observatory says troops were also fighting rebels in Aqraba and Beit Saham, also south of Damascus, near the capital's international airport.
The army command said in a statement Thursday night that troops carried out operations in suburbs of the capital including Douma and Daraya.
"Regime forces are facing very strong resistance in Daraya," said al-Shami via Skype, but said that government forces had been able to advance down the main street in the suburb.
The government capture of Daraya would provide a boost to the regime's defense of Damascus. It is close to a military air base as well as the government's headquarters and one of President Bashar Assad's palaces.
In the north, rebels resumed a week-old offensive against regime-held airbases. The government's air power poses the biggest obstacle to advances by opposition fighters.
Activists said there were battles around the military air base of Taftanaz in the northern province of Idlib close to the Turkish border and near the international airport of Aleppo, Syria's largest city and commercial center.
Fadi al-Yassin, an activist based in Idlib, said the rebels killed on Thursday the commander of Taftanaz air base, a brigadier general.
"The battles now are at the gates of the airport," al-Yassin said via Skype. He added that it has become very difficult for the regime helicopters to take off and land at the base.
He said warplanes taking off from airfields in the central province of Hama and the coastal region of Latakia are participating in attacking rebels around Taftanaz.
The Syrian Army General Command said troops directed "painful strikes" against the "armed terrorist groups" of Jabhat al-Nusra, a group the U.S. claims is linked to al-Qaida-linked organization. The Syrian military says the extremist group is carrying out the Taftanaz attack, and that dozens of fighters were killed.
Aleppo airport has been closed since Monday. A government official in Damascus said the situation is relatively quiet around the facility, adding that it is up to civil aviation authorities to resume flights.
A man who answered the telephone at the information office at the Damascus International Airport said, "God willing, flights will resume to Aleppo very soon."
Syrian rebels are fighting a 21-month-old revolt against the Assad regime. The crisis began with pro-democracy protests but has morphed into a civil war.
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Fatah party stages first rally in Gaza since 2007

 Leaders of the Palestinian Fatah party led tens of thousands of supporters Friday in a mass rally in the Gaza Strip, the first such gathering for the largely secular party in the territory since the rival Islamist Hamas seized power there in 2007.
The demonstration, which was condoned by Hamas, showed how the long-bitter relations between the rival Palestinian factions have improved since an Israeli assault on the Gaza Strip in November.
While Friday's rally pointed to the improving ties between Hamas and Fatah, it also served as a reminder of the conflicts within Fatah that continue to dog the movement: Officials cancelled the event halfway through after 20 people were injured due to overcrowding, and shoving matches erupted between separate Fatah factions.
Yahiya Rabah, a top Fatah official in Gaza, said the rally was cancelled "due to the huge number of participants and logistical failures."
But witnesses said one pushing match was between supporters of Palestinian President Mahmoud Abbas and partisans of former Fatah's former Gaza security commander Mohammed Dahlan, who was expelled from the party because of conflicts with Abbas.
Another Fatah official, who spoke anonymously because he did not want to embarrass the party, said the rally was cancelled because hundreds of Dahlan supporters jumped up on the stage and clashed with Abbas supporters.
Fatah spokesman Fayez Abu Etta attributed the injuries to overcrowding and the excitement of the rally.
Overnight, throngs had camped out in a downtown Gaza square to ensure themselves a spot for the anniversary commemoration of Fatah's 1965 founding, and tens of thousands marched early Friday carrying Fatah banners. When the rally began, people stampeded to the stage to try to shake leaders' hands.
Hamas was not directly involved in the event but allowed it to take place. Top Fatah officials arrived in Gaza for the first time since they were ousted from Gaza by Hamas in 2007.
Abbas, who rules in the West Bank, did not attend the event, but spoke to the crowd via a televised address, telling them that "there is no substitute for national unity."
Organizers then ended the rally, cancelling the other planned speeches and musical performances.
Hamas has gained new support among Palestinians following eight days of fighting with Israel in November, during which Israel pounded the seaside strip from the air and sea, while Palestinians militants lobbed rockets toward the Israeli cities of Jerusalem and Tel Aviv for the first time.
Following the fighting, relations have thawed somewhat between Hamas and Fatah. Hamas was allowed to hold its first West Bank rallies since the 2007 split in which Hamas seized Gaza and Fatah was left in control of the West Bank. Hamas returned the favor Friday by allowing the Fatah rally.
Senior Fatah official Nabil Shaath said the party received a congratulatory message from Hamas Prime Minister Ismail Haniyeh, who expressed hope that the two factions could reconcile their differences and work together as joint representatives of the Palestinian people.
"This festival will be like a wedding celebration for Palestine, Jerusalem, the prisoners, the refugees and all the Palestinians," Shaath said.
Reconciliation between the two factions, however, is still far from a done deal. Hamas chief Khaled Mashaal, considered more pragmatic than Hamas' Gaza-based hardline leaders, forged a reconciliation agreement with Abbas in 2011.
But the Gaza-based leadership, unsupportive of the deal, has held up implementing it. Fatah enjoys Western support and has been pressured not to forge a unity agreement with the militant Hamas - facing a potential cutback in foreign aid if it does. Hamas has carried out hundreds of deadly attacks against Israeli citizens and is regarded by the U.S. and Israel as a terrorist organization.
Fadwa Taleb, 46, who worked as a police officer during the previous rule of Fatah, gathered at the rally with her family. "We feel like birds freed from our cage today," Taleb said. "We are happy and feel powerful again."
A Gaza security official said a Fatah-linked former aide to the late Palestinian leader Yasser Arafat died of a heart attack in the square overnight, saying he was shocked by the large crowd that was allowed to gather.
In the West Bank, Palestinian President Abbas signed a presidential decree changing the name of the Palestinian Authority to the "State of Palestine," following the Palestinians' upgraded status at the United Nations as a non-member observer state.
According to the decree, reported by the official Palestinian news agency Wafa Thursday night, all stamps, signs, and official letterhead will be changed to bear the new name.
It is the first concrete, albeit symbolic, step the Palestinians have taken following the November decision by the United Nations. Abbas has hesitated to take more dramatic steps, like filing war crimes indictments against Israel at the International Criminal Court, a tactic that only a recognized state can carry out.
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Shares steady after rally, dollar jumps

 World stocks stalled on Thursday as traders were cautious after equities hit an 18-month high, while the U.S. dollar climbed to a three-week high against a basket of currencies on concerns about more budget wrangling in Washington.
Data suggesting some momentum in the U.S. economy as the year ended showed private-sector employers stepped up hiring in December, allowing for the upward tick in stocks and further supporting the greenback.
President Barack Obama and congressional Republicans face two more months of tough talks on spending cuts and an increase in the nation's debt limit as the hard-fought deal to avert the "fiscal cliff" of automatic tax hikes and spending cuts covered only taxes and delayed decisions on expenditures until March 1.
"There's still some clouds over the horizon, with the fiscal issue of the government," said Jeff Meyerson, head of trading at Sunrise Securities in New York. "We don't know how they're going to pan out, but in all likelihood there's not going to be a calamity."
The MSCI world equity index <.miwd00000pus> advanced less than 0.1 percent, reversing a dip through most of the session after hitting an 18-month high on Wednesday.
A European equity benchmark <.fteu3> ended up 0.45 percent after hitting its highest intraday level since March 2011, boosted by a belated reaction in Swiss stocks due to a holiday.
The Dow Jones industrial average <.dji> was up 7.03 points, or 0.05 percent, at 13,419.58. The Standard & Poor's 500 Index <.spx> was up 1.57 points, or 0.11 percent, at 1,463.99. The Nasdaq Composite Index <.ixic> was up 2.49 points, or 0.08 percent, at 3,114.75.
The euro tumbled against the dollar as investors grew worried about more budget fights ahead. Analysts say the market could be set up for volatility as Obama and congressional Republicans tussle over the next two months.
The dollar was up 0.4 percent against a basket of major currencies <.dxy> at a three-week high of 80.13, although it slipped 0.4 percent against the yen to 86.97.
"We really just kicked the can down the line and we're set up for another fight on the hill in the next month and a half or so," said John Doyle, currency strategist at Tempus Consulting in Washington.
The euro, which had touched an 8-1/2 month high against the dollar on Wednesday, was down 0.6 percent at $1.3110.
Investors will now turn their attention to Friday's December U.S. employment report. It is expected to show modest job growth of around 150,000, compared with 146,000 in November.
The ADP National Employment Report showed Thursday the U.S. private sector added 215,000 jobs in December, comfortably above economists' expectation of a 133,000 gain. Following the recent rally in equities, any disappointment in Friday's payrolls number could trigger a profit-taking sell-off.
DOLLAR JUMP HITS COMMODITIES
The dollar's strength and rising oil supplies pushed crude prices lower, with Brent down 0.1 percent to $112.31 a barrel. U.S. crude futures were down 0.1 percent at $93.15.
Analysts expect oil prices to drop in 2013 as supply outweighs demand, especially after U.S. crude production hit a 19-year high in 2012.
Gold futures followed commodities lower and were down about 0.6 percent at $1,676.41 an ounce.
Thursday's retreat across riskier asset markets might have been sharper but for data showing activity in China's services sector and at U.S. factories expanded in December, brightening the outlook for global growth.
China's official purchasing managers' index for the non-manufacturing sector rose to a four-month high in December, adding to signs of a revival in the world's second-largest economy.
U.S. Treasury debt prices eased, pushing yields to three-month highs after the U.S. private jobs data cut into the appeal of safe U.S. government issues. Treasuries had already sold off sharply on Wednesday following the U.S. government deal to avoid the so-called "fiscal cliff."
The benchmark 10-year U.S. Treasury note was down 7/32, the yield at 1.8618 percent, a 15-week high.
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Stocks edge lower as next fiscal showdown looms

Stock indexes turned lower Thursday afternoon after the Federal Reserve said its policymakers are split over how long to continue a bond-purchasing program intended to stimulate the economy.
The Dow Jones industrial average and the Standard & Poor's 500 index treaded water for much of the day, then dipped into the red after 2 p.m. Eastern, when the Fed released minutes from its December policy meeting.
As of 2:33 p.m. the Dow was off 27 points at 13,396. The Dow is coming off its biggest gain in more than a year and is still up 450 points this week.
The S&P 500 was down three points at 1,459 and the Nasdaq composite fell eight to 3,104.
At last month's meeting of the Federal Reserve's policymaking committee, the central bank said it would buy $85 billion of Treasury securities and mortgage-backed bonds on an open-ended basis, and also keep a benchmark interest rate near zero until the unemployment rates drops below 6.5 percent. The unemployment rate was 7.7 percent in November. The government reports the rate for December on Friday.
On Thursday, the Fed revealed a split among its members over how long to continue the bond purchases. Some of its 12 voting members thought they would continue through this year, while others thought they should be slowed or stopped before the end of 2013. Those governors were concerned that the continued bond purchases would destabilize the economy.
Prices of U.S. government bonds fell, sending their yields higher, after the minutes of the Fed's meeting were released. The yield on the benchmark 10-year Treasury note rose to 1.90 percent from 1.84 percent late Wednesday. That means investors are anticipating the Fed will slow its purchases of bonds.
The stock market opened on a weak note after retailers reported mixed holiday sales and as the prospect of a new budget battle in Congress loomed. UnitedHealth Group led the Dow lower. The stock fell $1.65 to $52.88 after analysts at Deutsche Bank and other firms cut their ratings on the stock.
"It's natural to relax a bit after such a huge day as yesterday," said Lawrence Creatura, who manages a small-company fund at Federated Investors.
The Dow soared 308 points Wednesday, its largest point gain since December 2011. The rally was ignited after lawmakers passed a bill to avoid a combination of government spending cuts and tax increases called the "fiscal cliff."
That deal gave the market a jump start into the new year. The Dow and the S&P 500 are already up more than 2 percent.
"We're off to a very strong start," Creatura said. "The dominant reason is the resolution of the fiscal cliff. But January is usually a strong month, as investors all shift money into the market at the same time. When the calendar flips, it's as if you're allowed to begin the race anew."
Economists had warned that the full force of the fiscal cliff could drag the country into a recession. The law passed late Tuesday night averted that outcome for now, but other fiscal squabbles are likely in the months ahead. Congress must raise the government's borrowing limit soon or be forced to choose between slashing spending or paying its debts.
Ross Stores surged 6 percent in early trading. The retailer said sales at stores open at least a year increased 11 percent during the holiday shopping season. Ross Stores rose $3.65 to $58.09.
Nordstom Inc. surged 2 percent after the department-store chain also reported strong holiday sales, especially in the South and Midwest. Nordstrom's stock was up $1.21 to $54.84.
Other retailers struggled during the holidays as shoppers held out for deep discounts.
Family Dollar Stores sank 12 percent after reporting earnings that fell short of analysts' projections. The company also forecast a weaker outlook for the current period and full year. Family Dollar's stock lost $7.25 to $56.75.
Among other stocks making big moves:
— Transocean jumped $3.33, or 7 percent, to $49.57. The owner of the oil rig that sank in the Gulf of Mexico in 2010 after an explosion killed 11 workers reached a $1.4 billion settlement with the Justice Department.
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Fed split on stimulus plans nudges stocks lower

NEW YORK (AP) — Stocks are fading into the close of trading on Wall Street after the Federal Reserve revealed a split among its policymakers over how long to continue an economic stimulus program.
The market started on a weak note Thursday following mixed holiday sales reports from retailers and the prospect of another fiscal fight looming in Congress over the nation's borrowing limit.
The Dow Jones industrial average finished down 21 points at 13,391. The Dow surged 308 points the day before, its biggest gain in more than a year.
The Standard & Poor's 500 index lost three points to end at 1,459. The Nasdaq composite lost 11 to end at 3,100.
Rising stocks outnumbered falling ones on the New York Stock Exchange. Volume was 3.8 billion shares, above the recent average.
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Private sector job gains offer hope for labor market

WASHINGTON (Reuters) - Private-sector employers shrugged off a looming budget crisis and stepped up hiring in December, offering further evidence of underlying strength in the economy as 2012 ended.
While other data on Thursday showed an increase in the number of Americans filing new claims for unemployment benefits, the trend remained consistent with steady job growth.
"The underlying economy has momentum, and the employment data confirms that. The hope and prayer of the market is that our political leaders don't screw it up," said John Brady, managing director at R.J. O'Brien & Associates in Chicago.
Although Congress this week approved a deal to avoid the so-called fiscal cliff, a combination of sharp government spending cuts and higher taxes that would have sucked about $600 billion from the economy, the budget problems are far from resolved.
The ADP National Employment Report showed the private sector added 215,000 jobs last month after increasing payrolls by 148,000 in November. The report is jointly developed with Moody's Analytics.
The job gains came even as companies worried the economy might fall off the fiscal cliff.
However, the ADP data tends to overstate job gains in December because of a year-end accounting quirk.
"While we are encouraged by the better tone in the ADP employment report, we are cautious about reading too much into it, particularly given its tendency to exaggerate the performance of the labor market in December," said Millan Mulraine, a senior economist at TD Securities in New York.
Still, the report added to other data ranging from consumer spending to manufacturing that have suggested the economy was in a much better shape than previously thought.
It was released ahead of the government's more comprehensive employment report on Friday, which is expected to show employers added 150,000 jobs to their payrolls in December, according to a Reuters survey of economists, up from 146,000 in November.
STEADY JOB GAINS
A separate report from the Labor Department showed initial claims for state unemployment benefits increased 10,000 to a seasonally adjusted 372,000 last week. However, claims data for nine states, including California and Virginia, was estimated because of the Christmas and New Year holidays.
The four-week moving average for new claims, a better measure of job market trends, was little changed at 360,000, a sign labor conditions continue to improve at a steady pace.
"The claims data are not always reliable labor market indicators around the holiday season because of issues seasonally adjusting the data, but it is still a somewhat encouraging sign to see the trend in the data remain relatively low," said Daniel Silver, an economist at JPMorgan in New York.
Job gains in the first 11 months of last year averaged about 151,000 per month, not enough to significantly lower unemployment. The jobless rate dropped by 0.2 percentage point to 7.7 percent in November and is expected to have held at that level last month.
Labor market concerns prompted the Federal Reserve to aggressively ease monetary policy, but consensus is diminishing.
Minutes of the U.S. central bank's December 11-12 meeting released on Thursday showed some policymakers thought it would be prudent to slow or stop asset purchases well before the end of this year because of concerns about financial stability.
Stocks on Wall Street ended lower on the prospect of the Fed adopting a less accommodative stance. Prices for U.S. government debt fell, with the yield on the longer-dated 30-year bond touching its highest level since May.
The U.S. dollar rose against a basket of currencies.
The improving labor market tone was also captured by a third report showing planned layoffs at U.S. firms fell in December for the first time in four months, while the overall job-cut total in 2012 was the lowest since 1997.
"The key to job creation is the pace at which companies are willing to hire new workers since it appears they are already retaining existing employees at a high rate," said John Ryding, chief economist at RDQ Economics in New York.
Better job security is helping to support domestic demand. Auto sales rose 9.0 percent last month to a 1.36 million-unit annual rate last month.
Several major retailers reported better-than-expected sales in December. Sales at stores open at least a year rose 4.5 percent, beating analysts' estimates for 3.3 percent growth.
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