Morgan under siege as other banks rally

Shares of Morgan Stanley and Goldman Sachs, the last two big investment banks, plunged again Friday as fears about the fate of the banking sector remained front and center in the ongoing global financial crisis.

The two companies have been among the hardest hit stocks during this devastating market decline. But shares of several other big bank stocks rallied during a wild, tumultuous day for the broader market.

Morgan Stanley (MS, Fortune 500) plummeted as much as 46% at one point Friday on news that the rating agency Moody's was weighing a potential downgrade of the long-term debt ratings of the company and its subsidiaries. The company's stock bounced back a bit at the end of the day but still finished 22% lower.

Earlier this week, Morgan Stanley was forced to deny rumors that its proposed $9 billion stock sale to the Japanese bank Mitsubishi UFJ was in danger of falling apart.

Still, despite several reassurances from Morgan Stanley and Mitsubishi that the deal would close as scheduled next week, investors remained jittery about Morgan's fate.

"The fundamental issue with financial stocks is that fear in the market can become self-fulfilling," said Benjamin Wallace, an analyst at the Westborough, Mass.-based wealth management firm Grimes and Company Inc.

Shares of Goldman Sachs also fell Friday after Moody's issued a similar warning about the Goldman's debt. Goldman (GS, Fortune 500) stock fell 12% on the news.

Calls to both Morgan Stanley and Goldman Sachs requesting comment about the Moody's reports were not immediately returned.

But other big banks which some analysts have deemed as relatively safer than the investment banks, such as Bank of America (BAC, Fortune 500) and JPMorgan Chase (JPM, Fortune 500), bucked the trend, gaining over 6% and 13% respectively.

San Francisco-based Wells Fargo (WFC, Fortune 500), which claimed victory in its battle with Citigroup (C, Fortune 500) to buy struggling bank Wachovia (WB, Fortune 500) on Thursday, closed up nearly 4%.

The KBW Banking Index and S&P Banking Index, two key barometers of the sector that also include many regional banks, both finished more than 7% higher Friday.

Shares of regional banks SunTrust (STI, Fortune 500), KeyCorp (KEY, Fortune 500) and US Bancorp (USB, Fortune 500) all ended about 5% higher on the day.

Many worries remain
Investors were juggling a host of other concerns about banks Friday, including an auction of credit default swaps for bankrupt Lehman Brothers.

A number of big U.S. and European banks, such as Morgan Stanley, Citigroup, HSBC, BNP Paribas, Goldman Sachs and Deutsche Bank, found themselves on the hook after the auction valued the insurance against a Lehman collapse at just 8.625 cents on the dollar, according to credit derivatives processor Creditex.

But one analyst downplayed the impact that the results of the auction were having on bank stocks.

"In the context of more than [$200 billion] of payments that will be made, it's not that significant and on the bright side, this auction gives us clarity to pricing and closure to this situation and now the players can quantify fully their exposure to this particular event," Peter Boockvar, market analyst for Miller Tabak, wrote in a note to clients.

In the end, a lack of confidence remained the key driver in Friday's selloff of many banks.

World governments have unleashed numerous initiatives in recent days in the hopes of restoring some much-needed calm to markets worldwide including a coordinated cut interest rates by a number of central banks. Still, those efforts have proved ineffective as the selloff continues and credit markets remain frozen.

Starting today, finance ministers from the Group of Seven, including U.S. Treasury Secretary Henry Paulson, are scheduled to meet to discuss other coordinated efforts to help stop the global market slide.

Still, Paulson and other top domestic officials are weighing other courses of action to help prop up the U.S. banking system.

One widely speculated move would involve injecting much-needed capital into banks through the purchase of shares in bank stocks. This option was made available to the Treasury under the recently passed $700 billion rescue plan.

President Bush's chief economic adviser, Edward Lazear, told CNN Thursday that this was being considered. Many experts believe that doing so would encourage banks to lend to one another more freely.

Libor, a key rate banks use when lending to each other, has soared to record levels in recent weeks. Even as banks showed some willingness to lend on a short-term basis on Friday, longer-term Libor rates jumped to their higher level so far this year.

There is also talk that U.S. officials may take a page from the playbook of other world governments such as the U.K., which backed billions of dollars in bank debt earlier this week.

At the same time, top U.S. officials are also considering removing the deposit insurance cap on all domestic bank deposits, The Wall Street Journal reported Friday. European countries including Greece, Ireland and Germany have already done so in recent days.

The thinking behind such bold measures is that they could provide a psychological boost to an industry which has been shaken to its core.

But John Douglas, a former general counsel at the Federal Deposit Insurance Corp., has warned that removing deposit caps altogether could have unintended consequences.

Lifting the deposit caps might make it tougher for regulators to identify banks in trouble since a run on deposits is typically a warning signal. And commercial depositors would be less likely to take their money out of banks if all the deposits are insured, Douglas said.

In addition, Douglas, who currently serves as a partner in charge of the bank and financial institutions group at the law firm Paul Hastings, warned that lifting the cap could require financial institutions to pay higher premiums to support the insurance fund that covers deposits of failed banks.

That could prove to be an expensive proposition for capital-hungry banks.

"[The money] has to come from somewhere," Douglas said.

Oil prices sink to 8-month low

Oil prices fell to an eight-month low below $90 a barrel Monday on speculation that the spreading financial crisis will exacerbate a global economic slowdown and cut demand for crude oil.

Significant gains by the U.S. dollar against the euro also contributed to slumping oil prices. By midday in Europe, light, sweet crude for November delivery was down $4.03 to $89.85 a barrel in electronic trading on the New York Mercantile Exchange.

Earlier in the session, the price fell as low as $89.07 a barrel before recovering slightly. On Friday, the November contract lost 9 cents to close at $93.88 a barrel. In London, November Brent crude fell $3.64 to $86.61 a barrel on the ICE Futures exchange.

Oil prices have tumbled nearly 40% since peaking in July. The Nymex front-month contract last traded this low in early February.

The drop came as world stock markets plunged amid growing investor anxiety that the U.S. bad debt crisis is enveloping Europe. Germany announced Sunday a bailout package totaling 50 billion euros ($69 billion) for Hypo Real Estate, the country's second-biggest commercial property lender, part of a scramble by European governments to save failing banks.

"What happened over the weekend was further evidence of the spread of this financial crisis to Europe," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "This deepens the sentiment that we're going to see a more widespread economic slowdown or even recession, and that's no good for oil demand."

Investors shrugged off Friday's approval by the U.S. House of Representatives of a $700 billion bailout package to buy bad mortgage debt, aimed at stabilizing the U.S. financial system.

Dipping demand. Oil demand in the world's richest countries had already begun to slow since May, before the worst of the financial turmoil hit the United States last month, Shum said.

"The rescue plan should keep a complete financial meltdown from occuring," Shum said. "But the demand data is not encouraging. In the developed countries it's falling, and that's why we're seeing downward pressure on prices."

In other signs the meltdown is spreading, Belgian Prime Minister Yves Leterme said Sunday that France's BNP Paribas SA had committed to taking a 75% stake in troubled European bank Fortis NV.

British treasury chief Alistair Darling said he was ready to take "pretty big steps that we wouldn't take in ordinary times" to help the country weather the credit crunch. Investors will be watching if the Organization of Petroleum Exporting Countries moves to cut output should prices fall further.

Iranian Oil Minister Gholam Hossien Nozari said Saturday that it would be "unsuitable" for both producers and consumers for oil to dip below $100 a barrel. He called on fellow OPEC members not to pump too much oil and avoid a drop in prices.

"OPEC has signaled it may defend $80," Shum said. "There's uncertainty over what OPEC may do."

Traders were also watching currency movements as investors tend to buy commodities like oil to defend against dollar weakness and a hedge against inflation, but sell crude as the U.S. currency strengthens.

The 15-nation euro fell to $1.3590 in trading Monday from 1.3774 late Friday while the dollar dropped to 103.35 yen from 105.30 on Friday.

In other Nymex trading, heating oil futures fell 12.28 cents to $2.5392 a gallon, while gasoline prices dropped 9.83 cents to $2.13 a gallon. Natural gas for November delivery fell 17.2 cents to $7.186 per 1,000 cubic feet. In London, November Brent crude fell $3.80 to $86.40 a barrel on the ICE Futures exchange.

Palin to play ball with Big Oil

Sarah Palin gets a lot of credit for standing up to Big Oil in Alaska, but if she and John McCain win the White House, don't expect some of her more populist policies to survive the move to Washington.

In her two years as Alaska's governor, Palin is credited with being tough on big oil, to the benefits of her constituents and bucking her own party.

In late 2007 Palin succeeded in raising the tax on oil companies from 22.5 to 25% of net profits. Alaska also added a clause increasing the tax for each dollar oil goes above $52 a barrel - essentially, a windfall profits tax.

Palin also killed a deal struck between Exxon Mobil, BP, and ConocoPhillips and Alaska's previous governor to build a natural gas pipeline across the state and into Canada.

Analysts said corruption tainted that deal.

Palin renegotiated a new deal with a Canadian company, TransCanada, to build the $26 billion pipeline, which analysts say - if completed - is better financially for the state.

But analysts - and the McCain campaign itself - are quick to note that Palin will toe the line on the energy policies of her potential boss, who unlike Barack Obama does not favor a windfall profits tax.

Christopher Ruppel, an energy analyst at Execution LLC, a broker and research firm for institutional investors like hedge and mutual funds is more concerned with McCain's energy policy than Palin's past spats with the oil industry. "We don't think she will represent a big change from that."

The McCain campaign, which speaks for Palin, confirmed that stance.

"'The governor supports the campaign's positions," said Doug Holtz-Eakin, a McCain senior advisor.

Palin certainly has experience in dealing with energy issues in Alaska. But despite her drill baby comments, it's hard to tell if the oil industry will see her as an ally - a la Dick Cheney who ran Haliburton, an oil services company - or whether her previous tax and pipeline decisions will label her a threat.

'It's mixed, I haven't picked up a consensus view," said Amy Myers Jaffe, a fellow in energy studies at the James A. Baker III Institute for Public Policy.

Exxon Mobil, which currently has an $800 million lawsuit filed against the state over the revoking of a gas field permit, declined to comment on Palin. Calls to Conoco and BP were not returned. The American Petroleum Institute also declined comment.

Jaffe said Palin shouldn't get too much credit for raising the oil tax, noting that everyone from Hugo Chavez to the Canadian government hiked taxes as oil prices skyrocketed.

"Even the Bush administration raised royalty fees," she said. "She didn't do anything everyone else didn't do."

Other analysts echoed that sentiment.

"When people say 'I stuck it to the oil companies,' that is misleading," said Fadel Gheit, a senior energy analyst at Oppenheimer. "She is basically doing what is popular."

The tax may have been popular with Alaska's voters, but it was not popular within Palin's own party - many Republican state senators voted against the tax.

Holtz-Eakin, the McCain campaign spokesman, also said Palin's decision to scrap the pipeline deal highlighted her ability to clean up Washington.

"She threw out the whole thing and redid it, which made sense," he said.

As to whether Palin can bring more experience in energy issues to the White House than her rival Joe Biden can, most analysts didn't see it that way.

"Biden has extensive experience in dealing with energy and geopolitical issues due to his long record in the Senate," said Execution's Ruppel.

Congress sets stage for solar boom

After months of failed attempts in Congress to extend crucial renewable energy tax credits, the end game came with lightening speed Friday afternoon: The House of Representatives passed the green incentives attached to the financial bailout package approved by the Senate Wednesday night and President Bush promptly signed the legislation into law.

There were goodies for wind, geothermal and alternative fuels, but the big winner by far was the solar industry.

“It feels like we should be popping the champagne,” said a Silicon Valley solar exec Green Wombat met for lunch minutes after Bush put pen to paper.

That it took a the biggest financial crisis since the Great Depression to save billions of dollars of renewable projects in the pipeline for the sake of political expediency does not bode well for a national alternative energy policy. But the bottom line is that the legislation passed Friday sets the stage for a potential solar boom.

The 30% solar investment tax credit has been extended to 2016, giving solar startups, utilities and financiers the certainty they need for the years’ long slog it takes to get large-scale power plants and other projects online. The extension is particularly important to those Big Solar projects that need to arrange project financing in the next year or so.
The $2,000 tax credit limit for residential solar systems has been lifted, meaning that homeowners can get a 30% tax credit on the solar panels they install after Dec. 31. That will save a bundle - especially for those who live in states with generous state rebates - and goose demand for solar panels makers and installers like SunPower (SPWRA) and First Solar (FSLR). (If you buy a a $24,000 3-kilowatt solar array in California - big enough to power the average home - you can claim a $7,200 federal tax credit. Add in the state solar rebate and the cost of the system is cut in half.)
Utilities like PG&E (PCG), Southern California Edison (EIX) and FPL (FPL) can now themselves claim the 30% investment tax credit for large-scale solar power projects. That should encourage those well-capitalized utilities to build their own solar power plants rather than just sign power purchase agreements with startups like Ausra and BrightSource Energy.
“The brakes are off,” says Danny Kennedy, co-founder of Sungevity, a Berkeley, Calif., solar installer that uses imaging technology to remotely size and design solar arrays. “In just six months since our launch we’ve sold about a hundred systems. With an uncapped tax credit for homeowners going solar, we expect business to boom.”

While elated sound bytes from solar executives have been flooding the inbox all afternoon - along with invites to celebratory after-work drinks - solar stocks took a drubbing (along with the rest of the still-spooked market) after initially soaring on the news.

SunPower ended the trading day down 5% while First Solar shares dropped 8%. The bright spot was China’s Suntech (STP), which on Thursday announced a joint venture with financier MMA Renewable Ventures to build solar power plants as well as the acquisition of California-based solar panel installer EI Solutions.

Congress didn’t treat the wind energy so generously. The production tax credit for generating renewable energy was extended by just one year, guaranteeing the industry’s will continue to live year by year (at least through 2009). But given that 30% of all new power generation built in the United States in 2007 was wind, and that the amount of wind power installed by the end of 2008 is expected to rise 60% over the record set last year, the wind biz should do just fine.

But Congress did give a break to those who buy small-scale wind turbines. Systems under 100 kilowatts qualify for a 30% tax credit up to $4,000. Homeowners get a $1,000 tax credit for each kilowatt of wind they install.

“This is a huge break through for small wind,” says Scott Weinbrandt, president of Helix Wind, a San Diego-based manufacturer of 2-and-4-kilowatt turbines.

Illegal immigration drops

Illegal immigration, which has sparked political and social turmoil in communities across the nation, is on the wane, according to an independent report released Thursday.

The number of illegal immigrants entering the United States has slowed significantly the past few years, falling below the number of those entering the country legally, according to the report by the Pew Hispanic Center, a Washington think tank.

The report estimates there were 11.9 million illegal immigrants in the United States as of March. That would be a decline of 500,000 from the center's estimate a year ago. However, the change was not statistically significant because of the large margins of error.

The Pew study does not address why the decrease occurred, but other researchers cite the nation's struggling economy and stepped up enforcement of immigration laws.

"The decline in job prospects in construction, service and other low-skilled jobs are communicated through extended networks of would-be movers from Mexico and Latin America," said William Frey, a demographer at the Brookings Institution, another Washington think tank. "It also may propel more return migration."

Census data released last month showed that overall immigration slowed dramatically in 2007, though the Census Bureau does not distinguish between legal and illegal immigrants.

Illegal immigrants are notoriously difficult to count. Many researchers, including the federal government, estimate there are about 12 million illegal immigrants in the United States.

That's a big increase from the start of the decade, when the Pew Hispanic Center estimated there were about 8.5 million.

From 2000 to 2004, about 800,000 illegal immigrants a year entered the United States, the Pew report estimates. Since then, the average has dropped to about 500,000 a year.

A decade ago, the number of newly arrived illegal immigrants began to outnumber those legally entering the country, said the report, written by the Pew Hispanic Center's senior demographer, Jeffrey Passel, and senior writer, D'Vera Cohn.

"The reverse now appears to be true," the report said.

Illegal immigrants make up about 30% of all immigrants, according to the report. About four in five come from Latin America, with most coming from Mexico.

Congress has passed several measures designed to increase border enforcement, and the Bush administration has stepped up raids on businesses. Some local communities have also passed ordinances to address the issue.

Congress, however, has failed to pass a comprehensive package addressing illegal immigration, despite several attempts.

Illegal immigration has not been a big issue in this year's presidential election in part because both of the major parties' nominees, Republican John McCain and Democrat Barack Obama, support comprehensive immigration packages that include increased enforcement and an eventual path to citizenship for many illegal immigrants.

Record 16% drop in July home prices

A closely watched index released Tuesday showed home prices tumbling by the sharpest annual rate ever in July, but the rate of monthly declines is slowing.

The Standard & Poor's/Case-Shiller 20-city housing index fell a record 16.3% in July from a year earlier, the largest drop since its inception in 2000. The 10-city index plunged 17.5%, the biggest decline in its 21-year history.

No price gains
Prices in the 20-city index have plummeted nearly 20% since peaking in July 2006. The 10-city index has fallen more than 21% since its peak in June 2006.

No city in the Case-Shiller 20-city index saw annual price gains in July, the fourth straight month that has happened.

However, the pace of monthly declines is slowing, a possible silver lining. Between May and July, for example, home prices fell at a cumulative rate of 2.2% - less than half the cumulative rate experienced between February and April.

But there's "no evidence of a bottom," said David M. Blitzer, chairman of the index committee at S&P.

Trouble in Vegas
Las Vegas prices plunged the most at nearly 30%, with Phoenix diving 29% and Miami 28%. Prices in the seven cities in the Sunbelt all fell between 20% and 30% from a year ago.

Only seven cities showed positive or flat returns from June to July, down from nine that showed month-over-month gains in June. Atlanta, Boston, Dallas, Denver and Minneapolis all posted positive returns for three months or more

Bush: Congress must act

President Bush said Tuesday he was "disappointed" by the House's rejection of the $700 billion bailout plan and urged Congress to take action to save the economy.

"Unfortunately, the measure was defeated by a narrow margin," Bush said in a brief televised address at the White House. "I'm disappointed by the outcome, but I assure our citizens, and citizens around the world, that this is not the end of the legislative process."

Bush said he expects lawmakers to move forward with legislation. The House is adjourned for the Jewish holiday Rosh Hashanah and is not scheduled to return to session until Thursday at noon. The Senate is in session on Tuesday.

Senate Majority Leader Harry Reid, D-Nev., said that he would meet with some key Democratic senators - including Senate Banking Committee Chairman Christopher Dodd, D-Conn. - working on a bailout plan.

For his part, Bush said the nation is facing "the real prospect of economic hardship."

"Our economy is depending on decisive action from the government," Bush said. "The sooner we address the problem, the sooner we can get back on the path of growth and job creation. This is what elected leaders owe the American people, and I am confident that we'll deliver."

Bush is meeting with his team Tuesday morning to review options, a senior Bush administration official told CNN. On Monday night, White House staffers were in contact with Republican congressional leaders and Democratic staffers, the official said.

The official said that even Republicans who oppose the plan understand the seriousness of the situation and "want to get this done."

The Senate's lead Republican, Sen. Mitch McConnell, R-Ky., said Tuesday that lawmakers will pass a bill. "I want to reassure the American people that we intend to pass this legislation this week," he said.

On Tuesday, Bush spoke to Sens. Barack Obama and John McCain about the financial crisis, according White House spokesman Tony Fratto. The presidential candidates "offered ideas and reaffirmed what they have said publicly - that this is a critical issue that needs to be addressed," Fratto said.

Stock market reaction
The bailout package, a collaboration of Treasury Secretary Henry Paulson and leaders from both parties, was rejected by the House in a 228-205 vote Monday. Two-thirds of Republicans and about one-third of Democrats voted against the bill.

Following the defeat, the Dow Jones industrial average dropped 777 points, its biggest one-day point decline ever. The decline of nearly 7% was the largest percentage decline since the Black Monday crash of 1987.

The bill, if approved, would have allowed the federal government to buy troubled mortgage-related investments from finance companies, freeing them up for lending, to pull the economy out of its credit freeze. Proponents of the bill believe it would prevent the United States from sliding into a serious financial crisis, but opponents saw it as an unbearable burden to taxpayers and a rescue for Wall Street.

"That, no question, is a large amount of money," said Bush, referring to the $700 billion. "We're also dealing with a large problem. But to put that in perspective, the drop in the stock market yesterday represented more than a trillion dollars in losses."

Oil slips amid growing global woes

Oil prices fell to near $103 a barrel Monday on concern that economic growth will slow across the globe despite a tentative agreement in Washington on a $700 billion bailout package to stabilize the U.S. financial system.

By midday in Europe, light, sweet crude for November delivery was down $3.50 to $103.39 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.13 Friday to settle at $106.89.

In London, November Brent crude fell $3.39 to $100.15 a barrel on the ICE Futures exchange.

Bailout plan goes to House
Congressional leaders and the White House agreed Sunday to a rescue of the ailing financial industry after lawmakers insisted on sharing spending controls with the Bush administration. The biggest U.S. bailout in history won the tentative support of both presidential candidates and goes to the House of Representatives for a vote Monday.

"The bailout package reduces the chance of a complete meltdown," said Victor Shum, an energy analyst with Purvin & Gertz in Singapore. "But worries on the demand side will continue to weigh on oil prices."

The plan would give the administration broad power to use hundreds of billions of taxpayer dollars to purchase devalued mortgage-related assets held by cash-starved financial firms.

Congress insisted on a stronger hand in controlling the money than the White House had wanted. The government would take over huge amounts of devalued assets from beleaguered financial companies in hopes of unlocking frozen credit.

"It's still a crisis situation," Shum said. "The market is concerned about the depth and breadth of this global downturn."

JBC Energy in Vienna, Austria, also was cautious about the effects the rescue package could have on U.S. economic growth.

"The latest government reports show sales of new homes at a 17-year low in August and orders for durable goods falling stronger than expected," JBC said in a research note. "It is far from certain that (the bailout) will prevent an economic downturn."

Dollar stronger
Prices were also pushed down by a stronger dollar. Investors often buy crude futures as a hedge against a weakening dollar and inflation, and sell when the dollar strengthens.

While the dollar gained as details of the bailout package become known, analysts said the euro was weaker also because of growing economic problems in Europe.

"It is also a question of the euro losing ground due to a continued deterioration in the euro zone," said Olivier Jakob of Petromatrix in Switzerland. "With the rate of bank failures increasing in Europe and the economy slowing more rapidly than expected, pressure will continue to mount on the (European Central Bank) to lower (interest) rates."

The 15-nation euro fell Monday to $1.4361 from $1.4614 on Friday while the dollar rose to 106.23 yen from 106.01.

"The bailout should inject confidence in the markets in the short-term," Shum said. "Longer term, it increases money supply, inflation and likely weakens the dollar - all of which supports oil prices."

Gas prices fall for 10th straight day

Gas prices fell for their 10th straight day, dropping almost 19 cents during the period, according to a nationwide survey of credit card swipes at gas stations.

The average price of unleaded regular fell by 1.6 cents to $3.667 a gallon on Saturday, from $3.683 a gallon, according to survey results from the motorist group AAA.

Gone are the high prices that followed Hurricanes Ike and Gustav weeks ago. But prices are slightly higher than a month ago, when the national average for a gallon of unleaded was $3.660. They are 30% higher than a year ago, when the average was $2.805.

The record high was on July 17, when the nationwide average for gas prices was $4.114 a gallon.

For now, Hawaii and Alaska are the only two states where gas costs more than $4 a gallon. In Alaska on Friday, the statewide average for unleaded was $4.284 a gallon, according to AAA, and the average was $4.262 in Hawaii.

The cheapest gas was in New Jersey, where the average was $3.394 for a gallon, and in Oklahoma, at $3.370 a gallon.

Oil prices slip on fresh demand worries

Oil prices retreated Friday as the largest bank failure in the nation's history and uncertainty about the fate of the $700 billion bailout raised fresh concerns about the economy.

As Wall Street buckles, without clarity as to when relief should arrive from Washington, and the economy continues to sag, demand for oil will remain weak, sending oil prices lower.

Oil eased $2.46 to $105.56 a barrel. On Thursday, crude futures for November delivery settled up $2.29 to $108.02 a barrel on the New York Mercantile Exchange as the oil market focused on the way that the bailout plan would work to devalue the dollar.

Crude oil is traded in U.S. currency around the world, and so a devalued dollar means that crude oil becomes more expensive in dollar terms.

But as oil prices resumed their slide Friday, inflationary concerns took a back seat to the continued collapse of the economy, which was initially weakened by the meltdown of the housing industry.

Federal regulators seized Washington Mutual (WM, Fortune 500) and announced Thursday night that JP Morgan Chase (JPM, Fortune 500) had acquired the bank's $307 billion in assets and $188 billion in deposits. The acquisition marks another sting in a biting chain of failures on Wall Street in the past couple weeks, pulling into focus just how weak the U.S. economy has become.

There were hopes that the $700 billion bailout plan that President Bush announced Saturday in an attempt to loosen credit on Wall Street would be passed quickly. However, a proposed settlement fell through Thursday when Congressional Republicans raised objections.

The heated disagreements across party lines and the inability of key lawmakers to reach an agreement was one more sign that the already beleaguered economy may have to weather through a prolonged period of distress. On Friday, President Bush made a brief televised statement promising a rescue plan will pass..

The longer the economy remains under high stress and credit markets stay frozen, the weaker demand for oil becomes.

Oil hit a record high of $147.27 a barrel on July 11, but has fallen more than $40 since as weak demand has overpowered otherwise significant supply concerns.

Hurricanes Gustav and Ike both smashed through the Gulf of Mexico, shutting down the production and refinery rich region for a period. Recovery in the region has been slow.

And violence in Nigeria has continued, threatening pipelines and limiting oil production from the region.

Oil prices slip on economic uncertainty

Oil prices slipped Thursday as investors weighed supply delays in the Gulf of Mexico against concerns that the U.S. credit crisis will slow global economic growth and hurt crude demand.

Light, sweet crude for November delivery was down 24 cents at $105.49 a barrel in electronic trading on the New York Mercantile Exchange by afternoon in Europe. The contract fell 88 cents to settle at $105.73 on Wednesday.

About 66% of oil production and 61% of natural gas output in the Gulf of Mexico remains shut-in after the passage of Hurricanes Gustav and Ike, according to the U.S. Minerals Management Service. The Gulf area is home to a quarter of U.S. oil production and 40% of refining capacity.

Mexico's state oil company said Tuesday it temporarily reduced oil production because U.S. refineries damaged by Ike have canceled shipment orders.

Petroleos Mexicanos, or Pemex, lowered its daily output by 250,000 barrels a day. The company said it expects production to be back to normal by the end of the week. Pemex produced an average of 2.75 million barrels a day in August, the latest available output figure.

OPEC's decision earlier this month to cut production by 520,000 barrels a day and militant threats to Nigerian oil operations have added to the supply shortage.

In addition, Royal Dutch Shell PLC was forced to close one of its gasoline-making units at Pernis, Europe's largest oil refinery, on Wednesday night after a mechanical fault. The closed unit has a daily processing capacity representing 10 % of the total 400,000 barrel daily capacity of the refinery, which is located in the Netherlands.

"We don't know when it will reopen," said spokesman Wim van de Wiel.

Crisis may impact crude demand
Traders are also concerned about the turmoil in the U.S. financial system will impact economic growth and crude demand from the world's biggest economy.

President Bush strongly urged Congress to act quickly to pass a $700 billion financial industry bailout, warning Americans in Wednesday speech that failing to act fast risked dire economic consequences such as disappearing retirement savings, rising foreclosures, lost jobs and closed businesses.

"Markets hate uncertainty, and this thing is hanging over everybody's head," said Gavin Wendt, head of mining and resources research at consultancy Fat Prophets in Sydney. "I don't think anyone is too keen to take a position in oil either way right now."

With the administration's original proposal facing significant changes in Congress, top House leaders issued an upbeat statement late Wednesday saying there was progress toward revised legislation that could pass. Bush summoned presidential candidates Barack Obama, John McCain and legislative leaders to an extraordinary White House summit in hopes of hashing out a deal.

Oil investors are also eyeing the impact the bailout plan may have on the value of the dollar. Investors often buy crude futures as a hedge against a weakening dollar and inflation.

The price of oil "depends on the dollar, it has nothing to do with oil demand and supply," Chakib Khelil, the president of the Organization of the Petroleum Exporting Countries, told journalists at a press conference in Algiers on Wednesday.

He said that oil prices would rise if the dollar weakens, as investors would use oil to hedge against the depreciating currency.

The dollar fell slightly in morning trading on Thursday against both the 15-nation euro and the Japanese yen. The euro bought $1.4708, up from $1.4658 late Wednesday in New York. The dollar slipped to 105.89 Japanese yen from 105.93.

In other Nymex trading, heating oil futures for October delivery fell 3.33 cents to $2.9800 a gallon, while gasoline prices rose 0.5 cents to $2.5997 a gallon. Natural gas declined 8.5 cents to $7.594 per 1,000 cubic feet.

In London, November Brent crude fell $1.71 to $100.74 a barrel on the ICE Futures exchange.

Oil rises as market waits

Oil prices rallied Wednesday as the market waits to hear from Congress about the proposed $700 bailout plan and for weekly supply data from the government.

Oil climbed $1.24 at $107.85 a barrel. On Tuesday, oil slipped $2.76 to settle at $106.61 a barrel as the market refocused on how the dour economic situation has crimped demand.

Bailout plan: The oil market has been waiting to hear from Congress about a $700 billion proposed bailout plan for beleaguered financial services companies. The debate over the rescue was very heated Tuesday.

The plan could pull oil prices higher, depending on the specific terms of the plan and depending on the economy's reaction to whatever plan is adopted.

If the bailout were passed and served to jumpstart the lethargic economy, the oil market hopes that demand for energy would recover to healthy levels. If the economy recovers and demand for oil recovers, then oil prices jump.

Dollar: At the same time, the plan involves a unprecedented shot of liquidity to the market and the sheer quantity of dollars being pumped into the market would devalue the greenback. Crude oil is traded in U.S. currency across the globe, and so when the dollar loses value, crude prices increase.

In the past couple sessions, oil prices have zig-zagged, and the dollar's volatility has contributed to the movement in the price of oil.

On Wednesday, "the dollar is down just a bit again and that is always positive" for oil prices, said Neal Dingmann, senior energy analyst for Dahlman Rose.

Demand: However, the fact that the economy is in desperate need of a lifeline highlights just how weak the economy is, and raises fresh concerns about demand. A limping economy does not have a healthy, growing appetite for oil.

The market continues to swing off the perceived level of demand for energy and the level of demand for energy swings off the strength of the economy. Therefore, the oil market watches the broader economy for clues on a daily basis.

Goldman Sachs Group (GS, Fortune 500) announced Tuesday that it will receive a $5 billion investment from Berkshire Hathaway. Goldman will sell $5 billion of preferred stock to Warren Buffett's company, which was a much-needed vote of confidence for the investment bank in a time of unprecedented uncertainty on Wall Street.

"When you have support either from Buffett or the Treasury Secretary," said Dingmann, "any support for the underlying financial markets boosts the overall market, or thus overall demand, which is positive for oil prices."

Supply report: The government's weekly supply oil data was due out later Wednesday from the Energy Information Administration. The market watches the report very closely in order to gauge demand for energy. The report should also give some indication of the stage of recovery of the Gulf region after Hurricanes Gustav and Ike.

"This will definitely give us another glimpse on the aftereffects of how the storm has played out," said Dingmann.

Crude oil stockpiles were expected to increase by 1.6 million barrels, according to a consensus estimate of industry analysts surveyed by Platts, a global energy information provider.

Gasoline stocks were expected to drop 5.1 million barrels and the Platts survey forecast that distillate stocks - used for heating oil and diesel fuel - would be 1.8 million barrels lower than the previous week. The Platts survey forecast that refinery utilization or run rate would fall 3.5 percentage points to 73.9%.

Gustav, Ike: Hurricane Gustav slammed the Gulf of Mexico on Labor Day and Hurricane Ike hit the Coast of Texas nearly a week later. The storms shook the production and refinery-rich region.

The Minerals Management Service reports that 23 manned oil platforms have been destroyed by Hurricane Ike. Of the 694 remaining platforms, 203 production platforms, equivalent to 29.3%, were still evacuated.

According to the most recent situation report from the Department of Energy, 76.6% of production in the region remained shut in and 65.5% of natural gas production was still shuttered. With 6 refineries in Texas still shut down, nearly 1.7 million barrels per day less oil have been processed in the region, according to the DOE.

Gas prices: Down 10 cents in 4 days

Gas prices fell another 2 cents, marking the fourth straight decline after rising more than 18 cents in 8 days following Hurricane Ike, according to a nationwide survey of credit card swipes at gasoline stations.
The average price of unleaded regular dropped 2 cents to $3.757 a gallon, from $3.777 a gallon, according to the survey released by motorist group AAA.
While prices have remained under $4 for some time, they are still much higher from a year ago, when gas was selling for less than $3 a gallon.
Current prices are about 34% higher from a year earlier at this time. Still, prices are 54 cents, or 13%, down from the record high price of $4.114 a gallon set on July 17
Gas prices had been moving higher following the devastation left behind by hurricanes Ike and Gustav.
More than 30 refineries, which convert crude oil into usable gasoline, had shut down or were operating with reduced capacity in the Gulf region after the storms hit. The number has since fallen by more than half, restoring gasoline supply to retailers and easing consumer prices.
Many crude pipelines in Texas and Louisiana had also shuttered ahead of the hurricanes. Those are slowly coming back on line.
Lower oil prices have also helped lower the cost of retail gas. Crude has been moving lower since mid-July amid weakening demand, losing more than a third of its value since it reached a record of near $150 just two months ago.
But oil prices rallied back above $104 a barrel Friday amid growing optimism that the government's various rescue plans will help ease the credit crisis currently stifling the U.S. economy.
Meanwhile, only three states now continue to report gas prices above $4 a gallon: Alaska, Hawaii and Illinois. Alaska continues to be the state with the most expensive gas prices, at $4.339 a gallon. The cheapest gas can be found in New Jersey, where gas cost $3.468 a gallon, according to AAA's Web site.

Countrywide e-mail snafu angers borrowers

The chairman of beleaguered Countrywide Financial Corp. raised eyebrows and tempers with his snippy reply to an e-mail plea from a man who said he was in danger of losing his home.

"Disgusting," Angelo Mozilo wrote in his inadvertent reply to an e-mail from Daniel Bailey Jr. who had asked the company to modify terms of his adjustable-rate mortgage.

Bailey said he didn't fully understand the terms, was wrongly told he could refinance after a year and was on the verge of losing his home of 16 years because of unaffordable payments.

Bailey's e-mail went to 20 Countrywide addresses. He used language from a form letter on the Web site LoanSafe.org, which offers advice to borrowers in trouble.

Countrywide said mass e-mails have flooded its inboxes and disrupted operations.

"This is unbelievable," Mozilo wrote Tuesday. "Most of these letters now have the same wording. Obviously they are being counseled by some other person or by the Internet. Disgusting."

Mozilo apparently clicked "reply" instead of "forward," sending his comments back to Bailey.

Flame war: Bailey posted the response on a LoanSafe forum, touching off a furor on housing Web sites.

A comment posted on loanworkout.org said Mozilo's e-mail was "a perfect example of the 'help' they can expect to receive when contacting their lenders."

Another comment on the Web site read: "If borrowers want the freedom to take out credit for hundreds of thousands of dollars, they are equally responsible to not sign something they don't understand."

Late Tuesday, Countrywide issued a statement saying the company and Mozilo "regret any misunderstanding caused by his inadvertent response to an e-mail by Mr. Bailey. Countrywide is actively working to help borrowers like Mr. Bailey keep their homes."

Last week, a federal judge ruled that a shareholder lawsuit against Mozilo and other Countrywide (CFC, Fortune 500) executives and directors should go to trial. The plaintiffs claim the top officials failed to provide enough oversight of the lender and misled shareholders about the company's true financial state.

According to congressional figures, Countrywide lost $1.2 billion in the third quarter of 2007 and another $422 million in the fourth quarter as the subprime mortgage crisis hit. The company's stock fell 80% between February and the end of the year.

During the same period, Mozilo received a $1.9 million salary. He also received $20 million in performance-based stock awards and sold $121 million in stock.

Stocks slump on oil surge, day 2

Stocks tumbled Wednesday, falling for a second session, after oil prices topped $133 a barrel and the Federal Reserve gave a gloomy economic outlook.

The Dow Jones industrial average (INDU) lost 227 points, or 1.8%. The broader Standard & Poor's 500 (SPX) index fell 1.6%, while the tech-heavy Nasdaq composite (COMP) lost 1.8%.

Stocks fell in the morning as oil prices spiked on a weaker-than-expected weekly supply report. But the selloff accelerated in the afternoon following the 2 p.m. ET release of the minutes from the last Fed meeting.

Included with the minutes was the Fed's 2008 forecast, which spooked investors.

"Most of the selling is about oil," said Timothy Ghriskey, chief investment strategist at Solaris Asset Management. "We've all been surprised that the steady march up in crude hasn't impact the stock market more before now."

Ghriskey said that there were also technical factors stemming from the recent rally that made it likely stocks would see a correction. "And the Fed minutes and forecast didn't help," he added. "They basically indicated that the Fed is on hold right now."

Thursday morning brings the weekly jobless claims report and a speech from Federal Reserve Governor Randall S. Kroszner on the outlook for the mortgage markets.

Oil hits new record: U.S. light crude oil for July delivery set a closing record of $133.17 in New York Mercantile Exchange trading, up more than $4 a barrel - and then proceeded to march to another record intraday high of $134.10 in electronic trading after the settlement.

Oil prices spiked after the weekly inventories report showed a surprise drop in crude and gasoline supplies and a weaker-than-expected buildup in distillates, used in heating oil.

Oil has been climbing lately amid ongoing supply concerns and the weakness in the dollar, which makes dollar-traded commodities such as oil less expensive.

Gas hits 14th straight record: The national average price for a gallon of regular unleaded gas rose to a record $3.807 from the previous day's high of $3.80, according to AAA.

Company news: Time Warner (TWX, Fortune 500), the parent company of CNNMoney, will receive a $9.25 billion dividend as part of its legal and structural separation from Time Warner Cable.

After the close Tuesday, Hewlett-Packard (HPQ, Fortune 500) reported a small rise in quarterly profit that matched preliminary figures it announced last week. Shares fell 3.6% Wednesday.

In addition to HP (HP), AIG (AIG, Fortune 500), Alcoa (AA, Fortune 500), American Express (AXP, Fortune 500), Boeing (BA, Fortune 500), Citigroup (C, Fortune 500) and JP Morgan Chase (JPM, Fortune 500) were among the other big Dow losers.

The only Dow gainers were the oil components, Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500).

AMR (AMR, Fortune 500) shares slumped 24% after its American Airlines unit said it was cutting capacity by 11% to 12% in the fourth quarter due to record-high oil prices. Other airline stocks slipped as well, with the Amex Airline index losing almost 12%.

Intuit (INTU), the maker of tax preparation software, reported higher quarterly sales and earnings late Tuesday that topped estimates. The company also forecast full year sales and earnings that are above current expectations. Shares advanced 3.4% Wednesday.

Market breadth was negative. On the New York Stock Exchange, losers topped winners seven to three on volume of 1.39 billion shares. On the Nasdaq, decliners beat advancers by over two to one on volume of 2.22 billion shares.

Other markets: The dollar fell versus the euro and yen.

Treasury prices slumped, raising the yield on the 10-year note to 3.81% from 3.77% late Monday. Bond prices and yields move in opposite directions.

U.S. to suspend oil reserve shipments

The government said Friday that it would halt deliveries to the strategic oil reserves in July, a move many lawmakers have been calling for in an attempt to boost oil supplies and bring down gas prices.

Oil prices eased a bit from pervious highs, but still settled at a new closing record of $126.29 a barrel as Saudi Arabia rejected a plea from President Bush to boost production and Goldman Sachs revised their price outlook sharply higher.

The U.S. Energy Department announcement comes several days after Congress voted to direct the Bush administration to stop the shipment of oil to the emergency reserves.

The Energy Department decided not to purchase oil for the reserve from July to December in case the bill becomes law, said Megan Barnett, a spokeswoman for the department.

The Strategic Petroleum Reserve, located underground at four sites in the salt caverns bordering the Gulf of Mexico, was built in the 1970s after the first oil embargo to protect the country against a sudden drop in oil supplies.

The Bush administration has been filling the reserve since 2001, boosting the reserve from about 540 million barrels to 702.7 million, enough to protect against a disruption in imports for about 58 days, said Barnett.

Barnett remained skeptical of the halt's effect, saying deliveries to the strategic reserve accounts for "less than one tenth of one percent" of the oil on the market.

"The amount of oil put in the SPR last week... we trade that in less than one minute," said Tom Kloza, the Oil Price Information Service's chief oil analyst.

But supporters say halting shipment to the reserve could bring down gas prices by as much as 24 cents a gallon.

Saudi Arabia rebuffs Bush: Earlier on Friday, oil had risen more than $3 a barrel as Saudi Arabia rejected President Bush's call to increase production, saying there wasn't enough demand from its customers.

Bush met with Saudi Arabia's King Abdullah on Friday as part of his Middle East tour to appeal for greater production to help quell crippling fuel prices.

According to the Associated Press, Saudi oil minister, Ali al-Naimi, said the kingdom decided on May 10 to raise production by 300,000 barrels, at the request of customers, and that increase was sufficient.

"Supply and demand are in balance today," he told a news conference. "How much does Saudi Arabia need to do to satisfy people who are questioning our oil practices and policies?"

Some analysts have attributed the recent surge in oil prices to fears about future oil supplies, not a current supply shortage. They say there won't be enough oil in a few years to satisfy soaring worldwide demand.

Crude began to rise early Friday after traders foresaw a jump in diesel fuel use following the earthquake in China and Goldman Sachs revised its price outlook sharply higher.

Oil prices: U.S. crude for June delivery rose $2.17 a barrel to settle at $126.29 a barrel on the New York Mercantile Exchange, a new closing record. That topped the previous closing record of $125.96, set May 9.

Crude also hit a new intraday record of $127.82, topping the previous intraday record of $126.98 set May 14.

"Everything the market looks at is bullish," Peter Beutel, an oil analyst at Cameron Hanover, wrote in a research note Friday.

Also pushing up prices Friday were fears of higher demand from China. Traders fear that the rebuilding after the 7.9 magnitude earthquake that rocked southwest China Monday - and killed more than 20,000 people with tens of thousands of others still missing - will lead to a sharp increase in diesel fuel use, the Associated Press reported.

Rocketing fuel: Diesel fuel has been in tight supply for the past several months following a cold winter in the Northern Hemisphere, and as the popularity of diesel cars grows in Europe and the developing world.

With diesel prices outpacing gasoline, refiners in the United States have been ramping up production of diesel and sending it abroad. That has displaced some domestic gasoline production, helping push gas prices higher.

The price of diesel fuel hit a new record high Friday of $4.482 a gallon, according to a daily survey from AAA. Regular unleaded gasoline also reached a new record of $3.787 a gallon.

Goldman Sachs weighs in: Also contributing to Friday's oil price spike: analysts at the investment bank Goldman Sachs boosted their oil price predictions for the second half of the year from $107 to $141 a barrel.

"Supply constraints continue to push crude prices higher," Goldman analysts wrote in a research note Friday.

But the bank noted that despite the high prices, the global economy - and by implication, the demand for oil - continues to grow.

"The dire macroeconomic impact from the current oil shock has yet to materialize," the note said.

Stocks recover poise after slipping

Stocks were mixed Friday, with the S&P 500 managing to eke out a multi-month high, despite record oil and gas prices and a weak consumer sentiment index.

The Dow Jones industrial average (INDU) lost a few points. The broader Standard & Poor's 500 (SPX) index inched higher, ending at its highest point since Jan. 3. The Nasdaq composite (COMP) slipped 0.2%.

Stocks rose through most of the week, with the S&P 500 ending Thursday's session at a more than 4-month high.

But after such a run, stocks retreated a bit Friday, as record commodity prices revived fears about how inflation will hit an already weakened consumer and U.S. economy. That runup overshadowed any relief about a better-than-expected housing market report.

"We had some decent news this morning on the housing front, and the economic and earnings news all week hasn't been bad," said Ron Kiddoo, chief investment officer at Cozad Asset Management. "But you've got oil up a couple of dollars today and it's also a Friday, so you're seeing a little selling."

Economic news: April new-home construction rose to a seasonally adjusted annual rate of 1,032,000, the government said. That topped economists' forecasts, thanks to apartment construction. But the single-family housing start measure, considered to be key, fell to another 17-year low.

Building permits rose to a seasonally adjusted annual rate of 978,000, also topping forecasts. (Full story).

The University of Michigan's consumer sentiment index for May fell to 59.5 from 62.6 in the previous month, versus forecasts for a drop to 62.

Treasury Secretary Henry Paulson, speaking Friday afternoon, said he expects to see the pace of U.S. economic growth pick up by the end of the year.

Meanwhile, the United Nations warned the world economy could see a severe downturn, with growth of just 1.8% expected this year, as a result of the U.S. housing and financial market bust. (Full story).

Company news: General Electric (GE, Fortune 500) said it is looking to get out of the appliance business, confirming reports Thursday that speculated a sale price in the $6 billion range. (Full story).

Yahoo responded late Thursday to activist shareholder Carl Icahn's plan to unseat the Internet firm's board and push through a deal with Microsoft (MSFT, Fortune 500), essentially holding its ground. Yahoo (YHOO, Fortune 500) shares were barely changed Friday. (Full story).

A number of retailers reported better-than-expected earnings, including Abercrombie & Fitch (ANF), Nordstrom (JWN, Fortune 500) and Kohl's (KSS, Fortune 500). Abercrombie shares were flat, Nordstrom shares rose and Kohl's shares fell.

On the upside, the spike in oil prices boosted oil services stocks, including Exxon Mobil (XOM, Fortune 500), Chevron (CVX, Fortune 500) and Marathon Oil (MRO, Fortune 500).

The Amex Oil index jumped 2.7%.

Market breadth was mixed. On the New York Stock Exchange, winners beat losers on volume of 1.31 billion shares. On the Nasdaq, decliners beat advancers 4-to-3 as 2.29 billion shares changed hands.

Commodity prices: U.S. light crude oil for June delivery rallied $2.17 to close at a record $126.29 a barrel on the NYMEX, after hitting an all-time electronic trading high of $127.82 earlier. Prices briefly came off the highs after the United States said it will suspend shipments to the Strategic Oil Reserves, starting in July. However, analysts say the move will have little impact on oil and gas prices.

The national average price for a gallon of regular unleaded gas rose to a record $3.787 from $3.776 the previous day, according to AAA. It was the 9th record in a row.

COMEX gold for August delivery rose $20 to settle at $904.10 an ounce.

Other markets: The dollar fell versus the euro and yen.

Treasury prices were little changed, with the yield on the 10-year note at 3.84%, roughly where it stood late Thursday after having fluctuated through the session. Bond prices and yields move in opposite directions.