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Republicans bail on budget talks, blame Democrats

Joe Biden


WASHINGTON – Republicans pulled out of debt-reduction talks led by Vice President Joe Biden with a flourish on Thursday, blaming Democrats for demanding tax increases as part of a deal rather than accepting more than $1 trillion in cuts to Medicare and other government programs.
"Let me be clear: Tax hikes are off the table," said House Speaker John Boehner, R-Ohio.
Boehner spoke shortly after the House GOP second-in-command, Majority Leader Eric Cantor, announced he would not attend a planned negotiating session and said it is "time for President Obama to speak clearly and resolve the tax issue."
White House spokesman Jay Carney quickly obliged, while announcing that the talks were "in abeyance." He said Obama supports a "balanced approach" to debt reduction.
"I would point that the president supports a balanced approach," Carney said. "He does not support an approach that provides for a $200,000 tax cut for millionaires and billionaires paid for by a $6,000 a year hike in expenses and costs for seniors."
Numerous officials have said in recent days that Obama and Boehner would soon take a more public role in the negotiations, as time grows short for confronting politically vexing questions over taxes and Medicare and other benefit programs.
As a result, it appeared that the day's events marked an eruption of political maneuvering rather than a blow-up that would jeopardize the success of negotiations.
In general, the negotiations are aimed at producing legislation to cut future deficits while simultaneously lifting the $14.3 trillion limit on Treasury borrowing.
Treasury Secretary Tim Geithner has said that without an increase in the debt limit by Aug. 2, the United States faces a first-ever default, with potentially catastrophic consequences for the economy.
Carney told reporters that Boehner had met unannounced with Obama at the White House Wednesday evening. The meeting was at the president's initiative, and the first known encounter between the two men since their widely publicized round of golf last weekend.
Nor was it likely Democrats were taken by surprise by the day's events, since Cantor informed Biden of his plans before making any public announcement.
Adding to the intrigue, one GOP leadership aide said Cantor did not inform Boehner of his plan to withdraw from the talks until shortly before he did so. Nor was Cantor aware of Boehner's trip to the White House the evening before, this aide said.
For his part, Cantor said the secretive Biden-led talks had "established a blueprint" for agreement on significant cuts in spending, but had reached an impasse because of the Democratic demand for taxes.
Sen. Jon Kyl of Arizona, the other Republican participant, also said he would not attend the scheduled session, and Senate Republican leader Mitch McConnell spoke in unusually biting terms of Democratic demands for new government spending as part of a debt-reduction deal.
"What planet are they on?" McConnell wondered aloud.
While accepting a need to raise the debt limit, Boehner has said that deficit cuts must exceed the size of any increase in borrowing authority — a position that neither Obama nor any other Democrat has challenged.
The president and Biden were meeting with House Democratic leaders at the White House when Cantor made his announcement.
One of the Democratic negotiators, Rep. Chris Van Hollen of Maryland, said at a news conference that Republicans "are playing with fire and really putting the very fragile economy at greater threat by playing the games that we've been seeing."
In several weeks of talks, Biden and congressional negotiators had largely completed a review of the federal budget, focusing at first on areas where the two sides were amenable to cuts.
They quickly identified higher pension contributions for federal employees as one area of savings, and cuts in farm programs and student loan subsidies as others. Additional items include a federal auction of parts of the spectrum and the sale of surplus federal property. Discretionary programs, which bore the brunt of an earlier agreement to cut spending by $38 billion, would be ticketed for additional cuts.
Other steps had been discussed to rein in future government spending automatically if deficit targets were not reached.
But in recent days, officials said, the two sides were increasingly at an impasse, with Democrats demanding higher taxes to accompany spending cuts, while Republicans ruled out tax hikes and pushed for deeper cuts in benefit programs.
The conflicts long predate the current negotiations.
Republicans long ago branded themselves as the party of lower taxes, while Democrats, looking to the 2012 elections, are already campaigning hard against a new Republican plan to turn Medicare into a system of private insurance coverage beginning with anyone currently under 55 years of age.
Privately, Republicans bristle at the suggestion that taxes be traded off for Medicare. They argue that official reports make it clear that without significant changes, the Medicare program is financially unsustainable.
Yet polls show that while there is general support for spending cuts, there is opposition to benefit cuts in Medicare.
The imperative to cut spending has gained impetus since Republicans won control of the House last fall, benefiting hugely from tea party activists demanding a smaller and less intrusive government.
In addition, sputtering recovery from the worst recession in decades and stubbornly high unemployment have helped form a bipartisan agreement that long-avoided steps are needed to reduce federal red ink.
The Congressional Budget Office warned on Wednesday that unless steps are taken to rein in deficits, the country risks a "sudden fiscal crisis," with investors losing faith in the U.S. government's ability to manage its fiscal affairs.

Jobless claims data points to weak labor market


WASHINGTON (Reuters) – The number of Americans filing new claims for unemployment benefits rose last week, suggesting little improvement in the labor market this month after hiring stumbled badly in May.
Initial claims for state unemployment benefits climbed by 9,000 to 429,000, the Labor Department said on Thursday. Economists had expected claims to come in at 415,000.
The claims report, which covers the survey period for the government's closely watched data on nonfarm payrolls for June, came a day after the Federal Reserve gave a downbeat assessment of the economy.
The government's employment report for June will be released on July 8. Claims for unemployment benefits increased by 15,000 between the May and June survey periods, implying another soft month for jobs after employment rose by only 54,000 in May.
"The labor market remains in a funk, it doesn't seem like it has improved much this month and the rise in claims will keep expectations for June nonfarm payrolls in check," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania.
The Labor Department said it estimated jobless claims for six states because of technical problems. Economists said even if claims had been overstated as a result, that would not change the view that they were too high to be consistent with either stronger economic growth or hiring.
A separate report on Thursday highlighted one of the economy's weakest spots: housing. The Commerce Department said new single-family home sales fell 2.1 percent to an annual rate of 319,000 units in May. A report on Tuesday had shown sales of previously owned homes, a larger segment of the market, fell 3.8 percent to a six-month low.
"There is no sign that things are going to improve dramatically and that matches up with the economic conditions. Housing needs job growth to start to recover," said Jonathan Smoke, executive director for research at Housing IntelligencePro in Washington.
The data and economic fears sparked by an International Energy Agency decision to release emergency oil stockpiles, in a bid to drive down oil prices and spur economic growth, weighed on U.S. stocks, But equities clawed back the bulk of steep losses on news that Greece had agreed to a five-year austerity plan.
Prices for government debt rose and the dollar advanced against a basket of currencies.
SECOND HALF REVIVAL STILL EXPECTED
The jobless claims and new home sales reports were the latest in a long-running series of data to underscore the lingering weakness in the U.S. recovery.
The Federal Reserve, at the close of a two-day policy meeting on Wednesday, acknowledged the slowdown in the economy, but said it should be temporary.
The U.S. central bank cut its growth forecasts and downgraded its view of the labor market, but gave no indication of further monetary support. It confirmed it would shutter its $600 billion bond-buying program at the end of June.
Like the Fed, economists are cautiously optimistic that the recovery will regain momentum by the third quarter.
The decision to release 60 million barrels of oil from stockpiles held by industrialized oil-consuming nations, which brought oil prices down sharply, is aimed at easing the pressure on consumers and bolstering the recovery.
High gasoline prices are one of the factors that have weighed on growth. Benchmark Brent crude fell more than $8 to about $105.72 a barrel at one point on Thursday.
U.S. gasoline prices have already moved lower from their peak of $4.02 a gallon in early May, a drop analysts say should start paying a dividend for the economy in the third quarter.
Separately, the Chicago Federal Reserve's national activity index stayed in negative territory for a second straight month in May, indicating the economy continues to grow below trend.
"The soft patch has a little bit further to run, probably another month or two, then we are expecting in the second half of the year ... for there to be something of a pick-up. Not a boom, but pick-up," said Leo Abruzzese, global forecasting director at the Economist Intelligence Unit in New York.
Last week's rise in initial jobless claims left them well above the 400,000 mark for an 11th consecutive week. Analysts normally associate that level with a stable labor market.
The four-week average of new jobless claims, considered a better gauge of labor market trends, was unchanged.
The number of people still receiving benefits under regular state programs after an initial week of aid in the week ended June 11 was also little changed.

LSE bid on knife edge as TMX battle heats up



TORONTO/LONDON (Reuters) – A brace of sweetened offers has failed to sway shareholders in the race to buy the operator of Canada's biggest stock exchange, and time is running out ahead of a June 30 shareholder vote.
Shareholders said the London Stock Exchange must raise its friendly bid for TMX Group significantly before they will back the proposal, which now includes a welcome cash element in the shape of a special dividend.
But anti-trust concerns could derail the second offer too, a now-sweetened proposal from a consortium of Canadian banks, pension funds and financial services firms.
"From a game perspective or a strategy perspective, they're now basically where they were before," said Alison Crosthwait, director of global trading strategy at Instinet, which runs Canada's second biggest alternative trading system.
She added: "What surprises me is that increasingly I'm hearing a little bit of 'Perhaps, neither of the bids will happen...' So there's still risk in this."
The battle for TMX Group is part of a global wave of consolidation of exchanges seeking to expand geographically and in terms of the products they offer.
LSE Chief Executive Xavier Rolet wants to beef up the London bourse to fight off rivals, nimble new market entrants and predators. He says his "merger-of-equals" will create a transatlantic powerhouse in mining and energy equities.
NET BENEFIT
The offer, if approved by shareholders from both companies at separate June 30 meetings, must still be approved by Canadian Industry Minister Christian Paradis, who has to decided if the deal is of net benefit to Canada.
The 13-member Canadian Maple Group consortium says the LSE proposal will leave a key Canadian asset in foreign hands.
In back-to-back sweeteners on Wednesday, the LSE added a cash component to its all-stock bid in the shape of dividends to shareholders of both exchanges, bringing the bid's value to just under C$49 a share.
Maple responded hours later by raising its cash-and-stock offer to C$50 a share, from C$48.
"I told (the LSE) they'd better bump the price or get off the deck," said Richard Fogler, a large TMX shareholder who said he met with the LSE on Wednesday.
Fogler, president of Kingwest & Company investment firm in Toronto, added: "If the LSE wants to win, they have to change their price."
ISS, a proxy advisory firm with influential shareholder clients, recommended the LSE proposal and said it would yield cost savings, new issuer listings and beef up the group's global position.
TMX stock was up 2.4 percent in Toronto at C$45.30 a share. LSE shares were broadly flat at 953.5 pence, bucking a weaker FTSE 250 index.
Nevertheless, market experts believe LSE Chief Executive Xavier Rolet has played his last card. Given he has to win two thirds of the Canadian investor vote next week, one banker said the prospects of a successful TMX deal "did not look good".
TMX investors quizzed by Reuters over the last week have tended to prefer Maple's offer, although they said the below-bid TMX share price reflects market uncertainty.
"These things are always decided on the basis of price," said Thomas Caldwell, chairman of Caldwell Securities. "Most traders will take one in the hand versus two in the bush."
ANTI-TRUST CONCERNS
Maple wants to wrap Alpha, Canada's largest alternative trading platform, and clearing house CDS, both of them largely owned by its members, into the new exchange.
That will give Maple more than 80 percent of Canadian stock trading and make the offer subject to anti-trust review.
Analysts said the LSE's special dividend -- 84.1 pence per LSE share and C$4.0 per TMX share -- added a welcome cash element to the bid. But it did not raise the offer and also meant the company would have to borrow to pay for it.
"The LSE dividend has nothing to do with the value of the deal, rather the dividend means only cash for shareholders and a more leveraged business. The tax benefit is the only way the dividend makes the offer more attractive," said Numis Securities analyst James Hamilton.
Michael Smedley, a TMX shareholder and chief executive of Morgan Meighen & AssociatesOne shareholder, said LSE's best strategy might be a bid for time while it regroups.
"It would seem incongruous that there would be a positive vote for the merging on the 30th, because if it were, it would end the process," said Smedley.
A spokeswoman for the LSE declined to comment on the latest developments. Analysts have long said the robust LSE share price reflects market hopes that the Canadian bid will fail, turning the LSE into a takeover target.

Oracle hardware sales drop, shares fall


BOSTON (Reuters) – Oracle Corp shares dropped 6.3 percent as investors were disappointed that its profit beat estimates by a narrower margin than in recent quarters.
It released the disappointing results as Micron Technology reported quarterly revenue below expectations. The reports from the two companies don't bode well for other tech companies, which face shaky economies, especially in Europe. Most tech companies don't report until next month.
"IT spend has slowed down. Any company that is in technology is going to get impacted," said Trip Chowdhry, an analyst with Global Equities Research.
Oracle reported profit, excluding items, of 75 cents per share for the quarter ended May 31. That beat Wall Street estimates of 71 cents per share by 5.6 percent, according to Thomson Reuters I/B/E/S. On average it has exceeded profit estimates by 10 percent over the past six quarters.
"Traditionally in the fourth quarter they usually beat by a huge margin. This time they just managed just to beat," Chowdhry added.
Quarterly revenue rose 13 percent from a year earlier to $10.8 billion, in line with the average analyst forecast of $10.75 billion.
The world's No. 3 software maker reported that fourth-quarter new software sales rose 19 percent from a year earlier to $3.7 billion. That beat its own forecasts of 4 percent to 14 percent growth.
Yet sales in its hardware division, which it acquired with its purchase of Sun Microsystems, dropped 6 percent to $1.2 billion.
Oracle shares fell 6.3 percent to $30.40 in extended trade, down from their Nasdaq close of $32.46.
(Additional reporting by Bill Rigby, David Gaffen, Jennifer Saba and Liana B. Baker; Editing by Bernard Orr)

Wall Street reverses sharp sell-off on Greek deal

Traders work on the floor of the New York Stock Exchange  
 
 
NEW YORK (Reuters) – Stocks closed way off session lows on Thursday on news Greece agreed to a five-year austerity plan, but lingering economic uncertainty ultimately drove indexes mostly lower, keeping a downward trend in place.
The Nasdaq wiped out all its losses, ending the session higher and back in the black for the year.
The news out of Greece set the stage for a resolution to Athens' credit problems, which have hurt investor sentiment around the globe.
"Shorts will unwind some positions, but this isn't the whole story," said Rich Ilczyszyn, market strategist with Lind Waldock in Chicago.
The question now remains whether the late-day surge is a precursor to renewed buying interest or if it was just an interruption before selling returns in coming days.
The S&P 500 came within less than a half point of its 200-day moving average -- a line the bulls have been able to hold since last September. Technical analysts monitor that level as an indication of the long-term trend, and a consistent close below it could trigger more selling.
"We're at key support levels for everything, including the S&P," Ilczyszyn said.
Sources with knowledge of the talks told Reuters that Greece has won the consent of a team of European Union and International Monetary Fund inspectors for its new five-year austerity plan after committing to an additional round of tax increases and spending cuts.
The Dow Jones industrial average (.DJI) dropped 59.67 points, or 0.49 percent, to 12,050.00 at the close. The Standard & Poor's 500 Index (.SPX) lost 3.64 points, or 0.28 percent, to 1,283.50. But the Nasdaq Composite Index (.IXIC) gained 17.56 points, or 0.66 percent, to 2,686.75.
Earlier in the day, markets had sold off as oil's slide to a four-month low triggered declines in a fragile market after Federal Reserve Chairman Ben Bernanke's comments about a slowing economic recovery a day earlier.
Skepticism remained despite the Greek deal as details were not yet known and any agreement would still have to win a vote in Parliament.
"When it's 3 o'clock on a Thursday afternoon and short-sellers see that (Greece deal) headline, they cover first and ask questions later," said Peter Boockvar, equity strategist at Miller Tabak & Co in New York.
He said since there is already a plan awaiting a vote, the difference could be a change in terms that could make it easier to pass in the Athens Parliament next week.
U.S. August crude oil futures settled at $91.02 a barrel, down $4.39, after the International Energy Agency said it will release 60 million barrels of oil from strategic stockpiles.
The slide in the price of oil was exacerbated by a 0.7 percent climb in the U.S. Dollar Index (.DXY), which tracks the greenback's performance against a basket of major currencies. In times of stress, the flight to safety that pushes the dollar higher makes oil more expensive, further sapping demand for crude and other commodities priced in dollars.
Giving some support to the market, tumbling oil prices lifted an index of airlines' stocks (.XAL) by 2.4 percent.
Bets that lower prices at the pump will open consumer's wallets boosted the S&P retail sector index (.RLX) by 1.4 percent.
The S&P 500's bounce off its 200-day moving average was the second in a week. Last Thursday, a brush with that level enticed buyers and the benchmark index closed in the black for the day. The 200-day moving average now coincides with the 2010 intraday high of 1,262.60, giving it extra technical support.
"What it means is that if you do momentum trading, you can place bets, and a lot of big money is doing momentum trading," said George Feiger, CEO of Contango Capital Advisors in San Francisco.
"But the big picture story remains the same. We are looking at small growth and very small return in equities for the coming years."
His view differs from the median of 46 equity strategists surveyed in the last week, which showed an expectation of an 11 percent gain in the S&P 500 for the year, which would take it to 1,400.
On the economic front, U.S. claims for unemployment benefits rose more than expected last week, suggesting little improvement in the labor market. Other data showed sales of new homes fell in May.
About 8.2 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, above the average so far this year of 7.57 billion. Volume got a late boost after the Greece headlines.
Declining stocks outnumbered advancing ones on the NYSE by a ratio of more than 4 to 3. On the Nasdaq, the opposite trend prevailed: About seven stocks rose for every six that fell.
(Reporting by Rodrigo Campos; Additional reporting by Ryan Vlastelica and Edward Krudy; Editing by Jan Paschal)

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