Stocks jump as oil plunges, Bernanke indicates Fed won't likely raise interest rates soon

NEW YORK (AP) -- Wall Street capped a volatile week with sharp gains Friday as oil prices tumbled and after Federal Reserve Chairman Ben Bernanke said inflation pressures are likely to moderate. The Dow Jones industrial average rose nearly 200 points.

Speculation that Lehman Brothers Holdings Inc. could be sold helped buoy the financial sector and the overall market. Analysts warned this week that the investment bank could book large write-downs for bad debt. But reports Friday that Korea Development Bank is considering buying the company sent investors rushing for the stock. Lehman rose 69 cents, or 5 percent, to $14.41 but finished well off its highs of the session.Investors also appeared cheered by an inflation forecast from Bernanke who said at the Kansas City Fed's annual economic symposium that inflation pressures should moderate this year amid tepid economic growth. But he also added that the inflation forecast remains "highly uncertain."John Massey, senior portfolio manager at AIG SunAmerica Asset Management, said investors are encouraged by Bernanke's comments on interest rates and by the possibility of a buyer for Lehman."We're seeing the potential for maybe another white knight," he said, referring to prospects of a deal to acquire all or part of the investment bank.The health of the financial sector and rising inflation are two of the market's greatest concerns. Although Bernanke refrained from making predictions about inflation, the market was mollified when light, sweet crude plunged $6.59 to settle at $114.59 a barrel on the New York Mercantile Exchange, after surging by more than $5 a barrel on Thursday.The Dow rose 197.85, or 1.73 percent, to 11,628.06, near its highs of the session.Broader stock indicators also rose. The Standard & Poor's 500 index rose 14.48, or 1.13 percent, to 1,292.20, and the Nasdaq composite index rose 34.33, or 1.44 percent, to 2,414.71.The run-up Friday left stocks with mostly modest losses for the week that again saw a series of triple-digit moves in the Dow. The Dow is down 0.27 percent, the S&P 500 is off 0.46 percent and the technology-heavy Nasdaq is down 1.54 percent.Bond prices pulled back as investors rushed from the safety of government debt to stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.87 percent from 3.83 percent late Wednesday.The dollar rose against other major currencies, while gold prices fell.Massey cautioned against making too much of the market's moves given the light volume this week. With traders squeezing in late-summer vacations, Wall Street has shown erratic trading. The Dow industrials lost more than 300 points over Monday and Tuesday before ending moderately higher Wednesday and finishing mixed Thursday."The light volumes are really sort of the reasons behind why you've got some outsize moves. I think the issues over all for the economy and the market are fairly well understood," he said. "The market is of this mind-set that we're going to continue to be flattish to down."He doesn't expect the stock market to more accurately reflect investor sentiment until after Labor Day, when trading volumes should pick up. Until then, he'll be looking next week at readings on consumer confidence and unemployment to determine where the economy might be headed.Remarks Friday from Bernanke and investor Warren Buffett appeared to dim Wall Street's hopes that mortgage financiers Fannie Mae and Freddie Mac might be able to get by without a government bailout. While such a move could help prop up the government-chartered companies, which together hold or back nearly half the nation's mortgage debt, it could also wipe out shareholder equity.While Bernanke didn't mention them by name he said he said one of the critical questions facing the country is how to strengthen the financial system and guard against the "moral hazard" of companies making risky choices thinking that the government will ultimately offer a safety net.Buffett said on CNBC that Fannie and Freddie are too big to fail but that shareholder equity in those companies can be lost.Fannie Mae rose 15 cents to $5, while Freddie Mac fell 35 cents, or 11 percent, to $2.81.Linda Duessel, the equity market strategist at Federated Investors, said the financial sector is key to a broader recovery on in stocks, which are down more than 10 percent this year."We need to absolutely find a bottom in financials to really believe that the bear can be behind us," she said, referring to the pullback in stocks since last fall.While most sectors gained ground Friday, some materials companies pulled back as commodity prices fell. United States Steel Corp. fell $5.44, or 3.9 percent, to $133.76, while miner Freeport-McMoRan Copper & Gold Inc. declined $3.06, or 3.3 percent, to $90.60.In corporate news, Gap Inc. rose 87 cents, or 4.6 percent, to $19.88 after reporting late Thursday that profits in the most recent quarter rose 51 percent from a year earlier, thanks to tight inventory and cost control.

King Pharmaceuticals Inc. said it is prepared to take its bid for Alpharma Inc. directly to shareholders after the company rejected King's $1.4 billion buyout overture. King disclosed the $33 a share offer publicly for the first time Friday. Alpharma surged $10.47, or 44 percent, to $34.51, while King rose 95 cents, or 8.5 percent, to $12.19.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where consolidated volume came to a light 3.62 billion shares compared with 3.94 billion shares traded Thursday.
The Russell 2000 index of smaller companies rose 12.35, or 1.70 percent, to 737.60.
Overseas, Japan's Nikkei stock average fell 0.68 percent. Britain's FTSE 100 rose 2.52 percent, Germany's DAX index rose 1.69 percent, and France's CAC-40 advanced 2.23 percent.
The Dow Jones industrial average ended the week down 31.84, 0.27 percent, at 11,628.06. The Standard & Poor's 500 index finished down 6.00, or 0.46 percent, at 1,292.20. The Nasdaq composite index ended the week down 37.81, or 1.54 percent, at 2,414.71.
The Russell 2000 index finished the week down 15.77, or 2.09 percent, at 737.60
The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 U.S. based companies -- ended Friday at 13,185.26, down 86.62 points, or 0.65 percent, for the week. A year ago, the index was at 14,896.21.

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Garment makers cash in on big foreign orders

Indonesia's garment industry has been reaping profits this year filling out orders worth US$230 million placed by 17 branded garment producers from Germany, the United States, South Korea and Taiwan.

The orders, which amount to a three-year high for the industry, were made out to 30 local garment manufacturers, said Henrietta Lake, the senior consultant of U.S. agency for international development project Senada, on Thursday.
Lake said the global producers had been attracted by the competitive prices and high quality products offered by the industry's textile and garment manufacturers.
"The quality of Indonesian garment products are better than other countries, including Bangladesh. Indonesian products are likely to be ready to take over China's market," she said.
She said Indonesia's garment prices were even more competitive than those of Vietnam, the Philippines, China and Cambodia.
The orders were place by companies including Abercrombie & Fitch, Dewhirst, HanesBrands, J.Crew, JCPenney, GAP, Jones Apparel, Li & Fung, Linmark, Liz Claiborne, Nike, PIERS, Ralph Lauren, Target, Vanity Fair and Walmart.
Executive director of national textile research institute Indotextiles Redma Gita Wirawasta said GAP had placed an order for 12 million to 14 million items worth $100 million and Walmart had ordered 11 million to 13 million items valued at $80 million.
SOT and Marks & Spencer submitted orders for 8 million items, worth $60 million.
"Orders from other global garment manufacturers like Target, Nike, Adidas, Levi's, Arrow, Van Houesen, only reach less than $50 million... However, their orders grow by an average of 10 percent annually," said Lake.
The country is the global garment market's 10th biggest provider and the U.S. market's third biggest, Lake said, citing a recent study.
The country's garment exports reached $2.1 billion in the first semester of this year, up 6 percent from last year.
Lake said demand for local garment products had increased by between 12 and 14 percent compared to last year.
The country's textile and garment industries are enjoying a revival after being devastated by the 1997 Asian financial crisis, which left companies unable to expand capacity and invest in new machines.
Last year, the Industry Ministry disbursed Rp 255 billion (US$27.87 million) in interest rate subsidies and soft loans to 92 textile and garment manufacturers for purchasing new machinery.

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Stocks jump on prospect of Lehman buyout

Stocks jumped Friday as oil retreated from this week's rally and as speculation grew that Lehman Brothers Holdings Inc. could be sold.

Worries about the embattled Lehman re-emerged this week as analysts lowered their estimates for the investment bank and forecast large additional write-downs. However, a Ladenburg Thalmann analyst upgrade on Lehman to "buy" helped stocks finish mixed on Thursday; he said he believed Lehman has become a hostile takeover candidate.
And on Friday, after the previous day's media reports that discussions between Lehman and a group of Korean banks had fallen through, another report emerged that Korea Development Bank is considering buying the company. Lehman rose $1.37, or 10 percent, to $15.09.
Investors appeared cheered by an inflation forecast from Federal Reserve Chairman Ben Bernanke who said at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming, that inflation pressures should moderate this year amid tepid economic growth. But he also added that the inflation forecast remains "highly uncertain."
John Massey, senior portfolio manager at AIG SunAmerica Asset Management, said investors are encouraged by Bernanke's hints that he's not likely to soon raise interest rates and by the possibility of a buyer for Lehman.
"We're seeing the potential for maybe another white knight," he said, referring to prospects of a deal to acquire all or part of the investment bank.
In midday trading, the Dow rose 138.17, or 1.21 percent, to 11,568.38 after being up more than 200 points.
Broader stock indicators also rose. The Standard & Poor's 500 index rose 9.94, or 0.78 percent, to 1,287.66, and the Nasdaq composite index rose 22.85, or 0.96 percent, to 2,403.23.
Light, sweet crude fell $2.51 to $118.67 a barrel on the New York Mercantile Exchange, after surging by more than $5 a barrel on Thursday.
Bond prices pulled back as investors rushed from the safety of government debt to stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.88 percent from 3.83 percent late Wednesday.
The dollar rose against other major currencies, while gold prices fell.
Massey cautioned against making too much of the market's moves given the light volume this week. With traders squeezing in late-summer vacations, Wall Street has shown erratic trading. The Dow industrials lost more than 300 points over Monday and Tuesday before ending moderately higher Wednesday and finishing mixed Thursday.
"The light volumes are really sort of the reasons behind why you've got some outsize moves. I think the issues over all for the economy and the market are fairly well understood," he said. "The market is of this mind-set that we're going to continue to be flattish to down."
He doesn't expect the stock market to more accurately reflect investor sentiment until after Labor Day, when trading volumes should pick up. Until then, he'll be looking next week at readings on consumer confidence and unemployment to determine where the economy might be headed.
Remarks Friday from Bernanke and investor Warren Buffett appeared to dim Wall Street's hopes that mortgage financiers Fannie Mae and Freddie Mac might be able to get by without a government bailout. While such a move could help prop up the government-chartered companies, which together hold or back nearly half the nation's mortgage debt, it could also wipe out shareholder equity.
While Bernanke didn't mention them by name he said he said one of the critical questions facing the country is how to strengthen the financial system and guard against the "moral hazard" of companies making risky choices thinking that the government will ultimately offer a safety net.
Buffett said on CNBC that Fannie and Freddie are too big to fail but that shareholder equity in those companies can be lost.
Fannie Mae fell 44 cents, or 9.1 percent, to $4.41, while Freddie Mac fell 62 cents, or 20 percent, to $2.54.
While most sectors gained ground Friday, some materials companies pulled back as commodity prices fell. United States Steel Corp. fell $5.06, or 3.6 percent, to $134.14, while miner Freeport-McMoRan Copper & Gold Inc. declined $1.54 to $92.12.
In corporate news, Gap Inc. rose 99 cents, or 5.2 percent, to $20 after reporting late Thursday that profits in the most recent quarter rose 51 percent from a year earlier, thanks to tight inventory and cost control. The results were better than expected.
King Pharmaceuticals Inc. said it is prepared to take its bid forApharma Inc. directly to shareholders after the company rejected King's $1.4 billion buyout overture. King disclosed the $33 a share offer publicly for the first time Friday. Alpharma surged $10.17, or 42 percent, to $34.21, while King rose 78 cents, or 6.9 percent, to $12.02.

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Road block lifted, Bayan unit resumes coal mining operations

PT Bayan Resources announced on Friday the mining operations of a subsidiary in East Kalimantan had returned to normal as the local authorities had lifted a blockade on roads passed by the company's trucks.

Bayan director Jenny Quantero said the subsidiary, PT Perkasa Inakakerta, could transport coal again after a road connecting parts of its mining area and Lubuk Tutung port in Bengalon had been blockaded by forest rangers for 12 days.
"The blockade has been lifted by the Forestry Police, so PT Perkasa Inakakerta's trucks can once again transport coal to the port as usual," Jenny said on Friday.
A joint team of rangers closed the roads Aug. 10, after Interim East Kutai Regent Irsan Noor ordered Perkasa to halt its operations in some of their concessions in East Kutai, claiming it had violated the Forestry Law by operating in an area without a proper license.
Irsan had also ordered PT Kaltim Prima Coal, a subsidiary of PT Bumi Resources, to halt its production for the same reason.
In a media statement, Perkasa received confirmation from the Forestry Ministry that "the disputed area falls under a so-called multiple-use concession, and therefore Perkasa had complied with all appropriate regulations".
Multiple-use concession refers to forest areas designated for commercial purposes other than wood-related industries.
Jenny said the blockade did not damage the company's coal production.
"Our distribution was disrupted slightly (because of the road block), but overall our production remained fairly normal. The blockade had no impact on Bayan's total production as Perkasa is a new mine and is not one of our major production sources."
Perkasa begun operating in April 2007 in an area covering more than 20,037 hectares, and is one of eight mining subsidiaries of Bayan.
Through its mining subsidiaries, Bayan owns the rights to a total 81,265 hectares of land in East and South Kalimantan, and is Indonesia's eighth biggest coal producer.
The company is expecting to increase its coal production to 9 million tons this year from 4.7 million tons last year.
The 2008 projected sales volume is 9.9 millions tons, up from 7.1 million tons last year.
The company estimates its revenue to almost double to US$700 million, from $376 million last year. Net profit is expected to reach $100 million this year, more than tripple last year's profit of $27.5 million.

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Probe into Taiwan ex-president leads to Singapore: report

TAIPEI (AFP) - - A Taiwanese prosecutor is due to head to Singapore to investigate alleged money-laundering by former president Chen Shui-bian and his family, a report here said Wednesday.

Prosecutor Ching Chi-jen would probe allegations that the Chen family had transferred funds to Switzerland via the Singapore bank accounts of Chen's brother-in-law Wu Ching-mao, said the United Daily News.
An official at the Taipei district prosecutor's office said Ching would attend a conference in Singapore this month but declined to comment on the investigation.
The report came after Singapore's de facto embassy in Taiwan issued a statement Monday offering to assist Taiwan in the probe.
The prosecutor recently returned from Switzerland to help officials there in their investigation into money-laundering apparently implicating Chen's son Chen Chih-chung and daughter-in-law Huang Jui-ching.
Thirty-one million US dollars were sent to Huang's Swiss bank accounts in 2007, according to copies of Swiss documents obtained by a Taiwan lawmaker.
The former president has admitted that his wife Wu Shu-chen had wired abroad 20 million US dollars from his past campaign funds, saying she had done so without his knowledge. But he has denied money-laundering.
Chen, his wife, son, daughter-in-law and brother-in-law were all named defendants in the case and barred from leaving the island.
But the ex-president's son and son's wife flew to the United States several days before the scandal broke last week.
Chen is already under investigation for allegedly embezzling 14.8 million Taiwan dollars (480,500 US) in special expenses while he was president, and his wife is on trial for corruption and document forgery in the same case.
Chen has admitted using false receipts to claim state money, but insisted those funds were for "secret diplomatic missions" and not his personal benefit.
Nevertheless, prosecutors found that at least 1.5 million Taiwan dollars had been spent on diamond rings and other luxury items for his wife.

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Oil drops to near $112 as storm threat eases

Oil prices fell to near $112 a barrel Tuesday in Asia, extending an overnight decline as Tropical Storm Fay avoided oil-producing infrastructure in the Gulf of Mexico.

Analysts also said oil pricing is likely to remain suppressed amid concerns that a global economic slowdown may further dampen world oil demand. But intermittent supply concerns due to the hurricane season and ongoing conflicts such as that between Russia and Georgia are likely to halt any sharp slide in pricing.

"Continuing worries about a U.S. economy slowdown, which may spread to the euro zone and perhaps also Asia are weighing down on oil pricing," said Victor Shum, an energy analyst with consultancy Purvin & Gertz in Singapore.

"In the near term, there will be a lot of downward pressure but I don't foresee a fast collapse of pricing to $100 dollars a barrel or below. There is still strong support at $110 a barrel level because of supply side issues," he said.

Midday in Singapore, light, sweet crude for September delivery was down 78 cents at $112.09 a barrel in electronic trading on the New York Mercantile Exchange.

The contract fell 90 cents Monday to settle at $112.87 a barrel after the threat of Tropical Storm Fay eased. That was the first time crude ended below $113 since May 1.

Fay, the sixth named storm of the 2008 Atlantic season, swept over the Florida Keys on Monday after being blamed for at least 14 deaths in Haiti and the Dominican Republic as it moved though the Caribbean. Fay was expected to become a hurricane before curling up Florida's western coast and hitting the state's mainland sometime Tuesday.

Royal Dutch Shell PLC has evacuated 425 oil workers from the Gulf of Mexico as a precaution but said it will redeploy them if the storm remains on its current track. So far during this year's hurricane season in the Atlantic Ocean, no storm has significantly damaged oil installations in the Gulf.

A bearish forecast on Friday from the Organization of the Petroleum Exporting Countries of lower global oil demand growth also helped to push down oil prices.

In its monthly report, OPEC forecast that the world's daily appetite for oil this year would grow by 1 million barrels, a reduction of 30,000 barrels a day from its previous estimate. It predicted growth for 2009 will be 900,000 barrels a day, the lowest growth in world demand since 2002.

Analysts said uncertainty over the conflict between Russia and Georgia will support oil pricing. Russia has begun withdrawing troops, but U.S. officials said Moscow has positioned missile launchers in the separatist South Ossetia province.

Oil market traders were also keeping an eye on possible tensions in Pakistan after President Pervez Musharraf announced his resignation Monday.

In other Nymex trading, heating oil futures fell 1.73 cents to $3.0675 a gallon, while gasoline prices lost 1.62 cents to $2.799 a gallon. Natural gas futures fell 5.8 cents to $7.83 per 1,000 cubic feet.

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2009 budget assumptions: Oil independence

Indonesia's independence-day this year was particularly colorful as the government reviewed their year-to-date performance and unveiled the 2009 proposed budget, which raised the eyebrows of many businessmen, analysts and the political elite alike.

The main issue of the controversy centered around the US$100 per barrel oil assumption. While this assumption might be too bullish for some, it is not surprising to us given the recent downtrend in global oil prices and the fact that campaigning for the 2009 elections will soon begin.

At the end of the day, no one knows where oil prices will be at the end of the year, much less in 2009.

We believe $100 is just as good as any forecast, allowing the government to capitalize on the current momentum of lower oil prices, which does wonders for the budget deficit on the back of a lower fuel subsidy allocation.

Besides, budgets and forecasts are meant to be altered as we get closer to 2009, in our view.

On the external front, the U.S. economic slow down is likely to continue into 2009, slowing down with it the rest of the world and particularly the EU and China.

Recent surveys in the U.S. conducted by Duke University concluded that 54 percent of chief financial officers (CFOs) believe there is a recession in 2008 and that the country will not recover until late 2009.

This is likely to bring down commodity prices, including oil. Whether it's $100 or $90 per barrel is as good as anybody's guess in our view, particularly since we have not seen any supply shortages thus far.

If anything, we see a decline in demand as oil prices recently reached nearly $150 per barrel.

Having said that, whether the proposed oil price assumption in the budget is too aggressive remains to be seen.

Nevertheless, we see the government's economic growth assumption as realistic, set at 6.2 percent, which is in line with our estimate. The 6.2 percent economic growth could be reached assuming strong stimulation from government spending.

First semester economic activity figures prove that the economic growth was mainly driven by export, supported by commodity exports.

Thus, the risk going forward will be whether other sectors, such as manufacturing and infrastructure sectors, will be able to take up the slack amid lower commodity prices.

Thus far, the government has been consistent in terms of the 2009 growth targets as capital expenditure has increased each year. Based on Finance Ministry data, capital expenditure rose 175 percent within five years to Rp 90.71 trillion in 2009 from Rp 31.89 trillion in 2005.

But, again the perennial disbursement problems remain a risk in the development of infrastructure.

Another eyebrow-raising macroeconomic assumption is the inflation rate. Similar to this year, the inflation figure in 2009 will be mostly driven by oil and commodity price fluctuations.

What makes the 2009 inflation figure relatively different is that the election campaigns will probably kick off as early as six months prior to April next year. This is likely to inject excess liquidity into the system and could apply upward pressure on inflation.

Based on our experience of the 2004 elections, household consumption contributed on average 60 percent to GDP. We estimate the inflation rate for 2009 will be 7.8 percent, higher than the government's assumption of 6.5 percent.

In summary, despite the need to create "economic performance" for political reasons, the government has in fact given more reliable assumptions compared to the previous budgets in our view.

One thing the government must learn from the recent commodity fluctuations is not to panic and to remain "independent" of short-term oil price fluctuations.

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