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  1. #31
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    Post No consensus as Europe limps toward Greece summit

    Confusion over competing policy proposals reigned among officials and bankers on Monday as Europe struggled to put together a second bailout of Greece and prevent the region's debt crisis from spreading.

    French government spokeswoman Valerie Pecresse said she believed a summit of the euro zone's 17 national leaders scheduled for Thursday in Brussels would agree on a rescue of Greece, supplementing a 110 billion euro ($154 billion) bailout launched in May last year.

    But after three weeks of preparatory talks, it remained unclear whether government officials and commercial bankers could agree on a way for private owners of Greek government bonds -- banks, insurers and other investors -- to contribute to the bailout by taking cuts in the face value of their holdings.

    The uncertainty pushed the euro down against other currencies on Monday and the government bond yields of indebted euro zone states rose, with Italy's 10-year yield climbing more than 0.2 percentage point to a euro-era high.

    Paul de Grauwe, a professor of international economics at Leuven University in Belgium who has informally advised European Commission President Jose Manuel Barroso, said politicians had delayed taking decisive action on Greece for so long that their options were narrowing fast.

    "I'm afraid to hope. I still hope, yes, but I'm not optimistic," he said.

    "We've had solutions in the past, but we haven't grasped them. Now it's too late for some of those solutions to work anymore; the opportunity has been lost."


    Officials are wrestling with a range of schemes for Europe's bailout fund, the European Financial Stability Facility, to finance a voluntary buy-back or swap of Greek debt that would be conducted at a discount to face value, helping to reduce Greece's 340 billion euro mountain of sovereign debt.

    But all of the schemes could face major technical and legal obstacles, in some cases requiring the approval of national parliaments in the euro zone. Other proposals still appear to be on the table; Germany's Die Welt newspaper reported on Monday that governments were considering a levy on banks as a way to involve private creditors in rescuing Greece.

    An official of a major euro zone government who is familiar with the talks said he had not heard of a proposal for a bank levy, but added: "There are at the moment so many proposals that you cannot rule out anything."

    If a deal on private creditor participation is reached, it may cut Greece's debt by just 20 or 30 billion euros, not nearly enough by itself to solve the problem. Analysts have estimated the debt would have to be roughly halved, to 80 percent of gross domestic product, to make it manageable in the long run.

    German Chancellor Angela Merkel said on Sunday that while this week's summit was "urgently necessary," she would only attend if lower-ranking officials had already prepared a clear rescue plan. "I will only go there if there is a result."


    As part of the second bailout, officials have also been looking at other measures to help Greece including up to 60 billion euros of additional emergency loans from European governments and the International Monetary Fund; steps to recapitalize Greek and European banks; and ways to stimulate Greek economic growth.

    Some official sources have said interest rates on bailout loans extended to Greece, Ireland and Portugal may be cut and maturities on those loans extended drastically, perhaps to 30 years.

    There has also been talk of expanding the 750 billion euro bailout facility which the European Union and the IMF jointly created last year as the debt crisis erupted.

    But de Grauwe said financial markets were now putting so much pressure on weak euro zone states that it was unclear whether cutting interest and extending maturities on their emergency loans would help them regain access to the markets.

    "If that was to be a solution, it's a solution we should have implemented months ago, when it would have worked."

    Another source of concern is signs that the IMF and other major governments around the world, which want to prevent the European crisis from poisoning debt markets globally, may lose patience with Europe's handling of the problem.

    Die Welt quoted unnamed diplomatic sources as saying the IMF was angered by Europe's crisis management and that "influential parties" in the Fund wished not to take part in further bailouts of Greece. It did not elaborate.

    Former U.S. Treasury Secretary and White House adviser Lawrence Summers, writing in a column contributed to Reuters on Sunday, said Europe needed to act much more aggressively than it had done so far to prevent the Greek crisis from damaging both the region's single currency and the global economic recovery.

    He recommended steps including sharp cuts in interest paid on bailout loans, allowing countries to buy European Union guarantees for their issues of new debt, and a menu of options for private investors to become involved.

    "It is to be hoped that European officials can engineer a decisive change in direction but if not, the world can no longer afford the deference that the IMF and non-European G20 officials have shown toward European policymakers over the last 15 months," Summers wrote.

    Many private economists think some form of regional guarantee for countries' debt along the lines suggested by Summers -- or perhaps even the issuance of joint euro zone bonds -- may ultimately be the only way to emerge from the crisis without one or more weak states being forced out of the zone.

    But Germany has shown no appetite for such a sweeping solution, which in any case would require a complex and time-consuming revision of the EU treaty.

    "We are against euro bonds," German government spokesman Steffen Seibert said on Friday, repeating Berlin's concern that a common bond for the single currency area would provide no meaningful incentives for national governments to pursue prudent budget policies.
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  2. #32
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    Post Gold eases from record highs, eyes euro summit

    Gold prices eased a touch on Tuesday after earlier hitting record highs, as a rebound in assets seen as higher risk, such as shares and the euro, took some of the heat out of appetite for safe havens.

    Gold prices remained elevated, however, as investors continued to favor the metal amid heightened concerns that the debt crisis engulfing Greece may ensnare Italy and Spain, and as time grew short for raising the U.S. debt ceiling.

    Spot gold hit a peak of $1,609.51 an ounce and edged down 0.1 percent to $1,601.96 an ounce at 1125 GMT. It is up 13 percent so far this year.

    "In Europe we've seen huge demand for metal in some areas, and huge amounts of scrap coming in others, but demand seems to be winning the day," said Simon Weeks, head of precious metals at the Bank of Nova Scotia.

    "Exchange-traded funds in the last five sessions have gained just over 50 tonnes, so there is clearly money coming back in," he added. "It's not going to be one-way traffic, but the fundamental issues and concerns haven't gone away.... and people have realized that gold is important as a currency."

    The euro rose broadly on Tuesday as debt yields of some weaker euro zone countries retreated, taking a breather after sliding to record lows against the Swiss franc -- which is commonly seen as a safe store of value -- on Monday.

    German government bond prices fell as lower-rated euro zone debt stabilized slightly, prompting investors to book profits in Bunds after their rally to near 8-month highs, while European shares rose after a sharp fall in the previous session.

    But jitters remained in the financial markets given divisions among policymakers ahead of Thursday's euro zone summit, with few expecting a permanent solution to the region's debt crisis.

    U.S. President Barack Obama and top lawmakers are also facing more pressure for a debt deal amid a growing sense that a last-ditch plan taking shape in Congress may be the only way to avoid a devastating U.S. default.

    "Although the challenges facing the EU and U.S. are different, they share some common themes in that they are both based on sovereign debt issues and are seen as being political as well as economic in nature," said HSBC in a note.

    "Taken together, the combined effect on gold prices is... bullish, as investors wary of dollar and euro assets, seek a safe alternative. Based on this, we believe at least one of these dilemmas has to be resolved or at the least some tangible progress made on a solution before gold is likely to retrace."


    Holdings of precious metals-backed exchange-traded funds rose on Monday, with the amount of gold held by the largest gold ETF, New York's SPDR Gold Trust rising by 13.3 tonnes after a 10-tonne inflow the previous day.

    The largest silver-backed ETF, the iShares Silver Trust said its holdings rose 39.4 tonnes on Monday.

    The gold: silver ratio -- the amount of silver needed to buy an ounce of gold -- dipped under 40 this week for the first time since early May as silver outperformed gold in a rising market, a common phenomenon given its lower liquidity.

    "Silver is clearly benefiting from its greater affordability, attracting investors who are keen on hard assets during these uncertain times," said UBS in a note. " (Its ratio to gold) looks poised to fall further in the near term, particularly if risk aversion continues to dominate."

    Silver was bid at $40.23 an ounce against $40.51. Spot platinum was bid at $1,769.74 an ounce versus $1,769.98, while spot palladium was at $791.22 an ounce against $792.57.

    U.S. gold futures for August delivery were up 10 cents to $1,602.50. Gold also held close to the record highs it hit in euro, sterling, Canadian dollar and South African rand terms on Monday as investors sought an alternative to some paper currencies.

  3. #33
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    Post Wall Street rebounds on profits; IBM, Coke lead

    Stocks jumped about 1 percent on Tuesday on strong earnings from IBM and Coca-Cola, offsetting investor disappointment in results from big financial firms.

    The turnaround from Monday's losses over debt concerns also received a boost from unexpectedly strong housing data.

    Dow component International Business Machines Corp (IBM.N) added 3.2 percent to $180.80 a day after it said new business at its services division was up more than expected, raising hopes for the technology sector.

    The S&P information technology sector .GSPT gained 1.8 percent, the top gainer among S&P sectors. Shares of Apple (AAPL.O) hit a 52-week high ahead of its report due after the closing bell.

    "The market is focused once again on corporate earnings, taking over for the debt talks," said Rob McIver, co-portfolio manager of the Jensen Portfolio in Portland, Oregon.

    The market has been preoccupied with wrangling in Washington over a deal to raise the debt ceiling. There is a growing sense that a last-ditch plan taking shape in Congress may be the only way to avoid a U.S. default.

    However, all 10 S&P 500 sectors rose on Tuesday, even financials, which were hit by declines in Goldman Sachs Group Inc (GS.N) and Bank of America following their results. After advancing in the morning, Bank of America (BAC.N) fell 2.5 percent to $9.48. Goldman lost 1.2 percent, to $127.82.

    "Goldman is a bellwether of the rest of the banks, and it should set the tone for the rest of them, but I wouldn't be too pessimistic," said Robert Francello, head of equity trading for Apex in San Francisco.

    Those losses were offset by a 4 percent rise in shares of Wells Fargo (WFC.N) to $27.99 after it said profit rose 30 percent.

    The Dow Jones industrial average .DJI was up 121.40 points, or 0.98 percent, at 12,506.56. The Standard & Poor's 500 Index .SPX was up 12.80 points, or 0.98 percent, at 1,318.24. The Nasdaq Composite Index .IXIC was up 44.45 points, or 1.61 percent, at 2,809.56.

    Housing starts topped forecasts in June to touch a six-month high, and permits for future construction unexpectedly increased, the government reported. Homebuilder D.R. Horton Inc (DHI.N) climbed 3.6 percent to $11.90 and the PHLX Housing Index .HGX rose 2 percent.

    Goldman's second-quarter net income fell short of lowered expectations as fixed income trading revenue dropped sharply. Bank of America recorded a second-quarter net loss of $8.8 billion after a big settlement with mortgage bond investors.

    Coca-Cola Co (KO.N) posted slightly higher-than-expected profit on strength in emerging markets. Johnson & Johnson's (JNJ.N) earnings topped estimates on a turnaround in its prescription medicines and stabilizing sales of over-the-counter medicines.

    Coke rose 3 percent to $69.12, while J&J was 0.7 percent lower at $66.63. Both stocks are Dow components.

  4. #34
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    Post Merkel: no spectacular solution for Greece at summit

    Merkel dampens expectations ahead of key euro zone summit

    HANOVER, Germany, July 19 (Reuters) - A meeting of euro zone leaders on Thursday will not be the final step in the resolution of Greece's debt crisis, Chancellor Angela Merkel said on Tuesday, dampening expectations ahead of the summit.

    Euro zone leaders will try to agree on a second rescue package for Greece in Brussels but Merkel warned it was not politically responsible to agree a hasty solution -- comments which sent the euro lower against the dollar.

    "Further steps will be necessary and not just one spectacular event which solves everything," she told a joint news conference with Russian President Dmitry Medvedev.

    "Whoever takes political responsibility seriously knows that such a spectacular step won't happen."

    In order to solve Greece's problems once and for all, the euro zone needed to consider the options for reducing its indebtedness and raising its competitiveness, she said.

    "Europe is unthinkable without the euro and therefore it is worth making every responsible effort to really solve the problems at the very root," she said.

    Euro zone financial woes are not a fault of the euro itself but a result of it being used by countries with uneven economics, said the Russian president.

    "The euro's main problem today is that quite a strong and respectable currency serves countries with very different levels of economics," Medvedev said. "It never happened in the history of the mankind."

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    Post Apple smashes Street views, shares soar

    Blockbuster sales of the iPhone and strong Asian business again helped Apple Inc crush Wall Street's expectations, driving its shares up more than 7 percent to a record high and boosting Asian stocks.

    Sales of its iconic products far outpaced forecasts, helping drive a near-doubling of revenue in the fiscal third quarter. Its shares leapt to a high of $405 after a brief after-hours trading suspension.

    Apple sold 20.34 million iPhones during the quarter versus an expected 17 million to 18 million, which analysts say helped it vault past Nokia and Samsung Electronics to become the world's biggest smartphone maker.

    That "figure may indeed make them the largest smartphone maker by volume, which is somewhat ironic in a quarter that many thought would be about the Mac," said CCS Insight analyst John Jackson. "That they accomplished this without a new model speaks volumes about both their strength and the relative challenges facing competitors."

    Apple's earnings beat was spectacular even by its own lofty track record. Its quarterly EPS beat the average forecast by 33 percent, versus beats of about 20 percent in the past two quarters.

    The stellar results came as concern over iPad 2 supply constraints eased, with Chief Financial Officer Peter Oppenheimer saying more than 1 million iPads remained in stock at the end of June but demand was still overstripping supply in some markets.

    Oppenheimer hinted at an upcoming product launch, saying it would impact the September quarter, but he gave no details.

    In coming months, Apple is expected to roll out a new iPhone, which is likely to give the world's most valuable technology company another shot in the arm and offer a stiff challenge to rivals such as Google Inc and Research in Motion.

    "They never cease to amaze me, these guys," YCMNET Advisors Chief Executive Michael Yoshikami said. "The numbers are obviously very strong and they seem to be accelerating earnings on all fronts."


    The Cupertino, California company said its fiscal third-quarter revenue climbed 82 percent to $28.57 billion, trouncing the average analyst estimate of $24.99 billion, according to Thomson Reuters I/B/E/S.

    The company posted net income for the fiscal third quarter ended June 25 of $7.31 billion, or $7.79 per share, up from $3.25 billion, or $3.51 per share. Analysts on average had expected Apple to report $5.85 per share, according to Thomson Reuters I/B/E/S.

    Oppenheimer attributed the big margin boost to higher sales of the iPhone, particularly in Asia. International sales accounted for 62 percent of the quarter's revenue.

    Shares in Apple's Asian suppliers including Taiwan's Hon Hai Precision and Largan Precision jumped 2.6 percent and 3.2 percent respectively, while Japan's Foster Electric, which makes headphones for smartphones, rose 1.7 percent by 0015 GMT.

    In Korea, top chipmaker Samsung Electronics Co rose 2.9 percent, while LG Display jumped 4.1 percent, and Hynix Semiconductor were up 2.8 percent by 0015 GMT.

    "Apple is doing well, but this does not mean other tech companies are doing well. Tech shares are rising after their recent sharp falls and on expectations that their earnings may not be as bad as previously concerned," said Lee Seon-yeob, an analyst at Shinhan Investment Corp in Seoul.

    Apple Chief Executive Tim Cook told analysts they were particularly optimistic about Greater China, which includes mainland China, Hong Kong and Taiwan, where Apple's year-over-year revenue was up sixfold at $3.8 billion. Overall, Asia Pacific revenue more than tripled to $6.3 billion in the quarter.

    "I firmly believe that we are just scratching the surface right now," Cook said of China. "I think there is an incredible opportunity for Apple there."

    Cooks also remarked on Apple TV, one of the few Apple products that has not really connected with consumers, saying it still had a "hobby status" within the company.

    Apple sold 9.25 million iPads and 3.95 million Mac computers. Gross margin for the quarter came to 41.7 percent.

    Shares of Apple have emerged from the limbo they had fallen into after Chief Executive Steve Jobs took leave last January for unspecified medical reasons.

    Based on a price of $400, Apple would have a market capitalization of $369.90 billion, putting it close to Exxon Mobil, the largest company in the Standard & Poor's 500 index, which has a $411.97 billion market value.

    The stock has gained 16.8 percent so far this year and has had only two "down" years in the last 10: in 2002, when it lost 35 percent, and in 2008, when it dropped 57 percent.

    On Tuesday, Jobs' health again came to the forefront after the Wall Street Journal reported that several Apple board members had discussed a successor to the Silicon Valley icon, and talked it over with at least one head of a high-profile tech company.

    Succession planning at Apple has been a hot topic since Jobs announced his medical leave, with many not expecting him to return to lead the company he founded in 1976.

    The fate of Apple is tied to how the iPhone and iPad maker handles the eventual departure of its iconic chief. Chief Operating Officer Tim Cook is overseeing day-to-day operations.

    Shareholders representing almost a third of Apple's stock voted in February in favor of a proposal to disclose a succession plan for Jobs, underscoring worries over who will replace the visionary leader at the helm.

    Apple, notorious for its conservative forecasts, estimated earnings for the September quarter of $5.50 a share on revenue of $25 billion, below analysts' average estimate of $6.45 a share on revenue of $27.7 billion.
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    Post Yahoo revenue dips in Q2, shares fall 2 percent

    Yahoo Inc plugged some of the holes that were weakening its Internet search business in the second quarter, but revealed new challenges that hurt its display advertising business.

    The Internet company reported a slight decline in net revenue in the second quarter, as efforts to restructure its sales force caused disruptions that crimped revenue.

    Shares of Yahoo, which are down more than 20 percent since their 52-week high of $18.84 in mid-May, were down 2.3 percent at $14.26 in after hours trading.

    "They're trying to fix a lot of problems that do need to be fixed, but unfortunately as they're fixing those problems, new ones are popping up," said Macquarie Research analyst Ben Schachter.

    "At the end of the day it's another disappointment," he said of the company's second quarter results.

    Chief Executive Officer Carol Bartz, who is halfway through a four-year contract, is confronting a number of challenges in her quest to revitalize the Internet pioneer, including setbacks in a search partnership with Microsoft and tensions with Chinese partner Alibaba Group.

    Meanwhile, the company is facing tough competition from social networking giant Facebook. A recent report by research firm eMarketer predicted that Facebook will displace Yahoo this year and collect the biggest slice of online display advertising dollars in the United States.

    In a conference call with analysts on Thursday, Bartz said the shortfall in its display advertising business was not due to changes in the competitive landscape or to worsening business conditions.

    A restructuring of the sales force - aimed at positioning Yahoo for more robust growth in the future - led to greater than anticipated employee turnover and left Yahoo under-equipped to meet demand, she said.

    "The issue was we did not have enough sales people in front of the big clients," said Bartz.

    The company forecast third-quarter net revenue, which excludes the fees that Yahoo pays to partner websites, of between $1.05 billion and $1.1 billion.

    Yahoo executives said the company continued to make progress in efforts to unlock value from its Asian assets, which include a roughly 40 percent stake in China's Alibaba Group.

    Yahoo's rocky relationship with Alibaba has raised questions about the extent to which it could profit from those assets. In May it was revealed that Alibaba had abruptly handed Alipay -- one of Alibaba's crown jewels -- to a company controlled by Alibaba founder Jack Ma.

    Alibaba has said the transfer was necessary to comply with new Chinese regulations that restrict foreign ownership in e-payment companies.

    "We've been working on this negotiation continuously, in fact daily," said Bartz.

    But, she added, "until every word is finalized and every document is signed we're simply not done."


    Yahoo reported net income of $237 million, or 18 cents a share, compared with $213 million, or 15 cents a share, in the year-earlier quarter. Analysts polled by Thomson Reuters I/B/E/S, on average, were looking for 18 cents.

    Yahoo's results come a few days after Google, the world's No.1 Internet search engine, reported better-than-expected profit and revenue.

    Yahoo Chief Financial Officer Tim Morse told Reuters that the company was making progress in rectifying some of the problems in its search partnership with Microsoft, which had hurt Yahoo's revenue per search.

    Last quarter, Yahoo said its search partnership with Microsoft was taking longer than expected to pay off due to technical imperfections in the search advertising system. As a result, Yahoo said its revenue per search won't rise to levels it experienced pre-Microsoft until the end of the year.

    "Of the gap that we identified as of the April call, we closed about 20 percent of it in this quarter," said Morse.

    Search revenue declined 45 percent year-over-year to $467 million.

    Yahoo said net revenue in the second quarter was roughly $1.1 billion, compared with $1.13 billion in the year-earlier period and in line with Wall Street expectations.

    ThinkEquity analyst Aaron Kessler said the signs of progress on search were encouraging, but said the market would be watching what happens with the company's display business in the months ahead.

    "It makes for a little more caution on the core business," he said.

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    Post Euro climbs on Greece hope; contagion fears linger

    The euro rose against the dollar on Wednesday on hopes euro-zone leaders would reach a deal to ease Greece's debt burden, though concerns about contagion to other European economies should keep the single currency vulnerable.

    French ministers said European leaders were less divided than the media was reporting and were likely to reach an accord at Thursday's summit to help Greece avert a potential default that could roil financial markets.

    Analysts cautioned, however, that fears remained Greece's crisis will spread to bigger economies in the region such as Italy and Spain. Yields on the two countries' bonds jumped above 6 percent earlier this week before easing back.

    "We expect a new framework for Greece to be agreed, involving the first real efforts to reduce Greece's debt burden. But we expect little concrete in terms of measures to reduce contagion more broadly," said Jens Nordvig, global head of G10 FX strategy at Nomura in New York.

    "Hence, bond markets in Spain and Italy will largely remain 'on their own' in coming weeks. We continue to trade the euro from the short side in the current environment."

    The euro was last up 0.4 percent at $1.4217. Initial resistance is seen around $1.4282, the euro's high on July 14, according to Commerzbank technical analyst Karen Jones. Support lies around $1.3915, the 200-day moving average.

    Euro-zone sources said a summit of euro-zone leaders would be delayed slightly to allow time for a deal to be reached on private-sector involvement in shouldering the costs of a Greek debt resolution.

    While an agreement on Greece would be welcomed by investors, the success of the summit would be better judged by the performance of Italian and Spanish bonds, analysts said.

    Spain will auction 10- and 15-year bonds on Thursday ahead of the EU leaders' meeting. Investors will closely watch the costs of funding to gauge the stress level on peripheral debt markets.


    Signs of progress on a U.S. budget deal also prompted a rise in risk tolerance. A group of Democratic and Republican senators, dubbed the "Gang of Six," presented a new plan late on Tuesday that could revive stalled U.S. debt talks and avert a default by the world's biggest economy.

    Alan Ruskin, global head of G10 currency strategy at Deutsche Bank in New York, in a note said a striking feature of the more favorable news on U.S. fiscal development was how short-lived the U.S. dollar gains were.

    "It is worth considering, whether the U.S. dollar can benefit from the budget," he said. Negative debt ceiling news is a clear dollar negative, but while positive news on U.S. debt discussions is good for the dollar, it's also likely to boost risk appetite, which would largely negate any positive dollar reaction, he said.

    The dollar fell 0.4 percent to 78.76 yen, while against a basket of major currencies, the dollar index slipped 0.5 percent to 74.828 .DXY.

    Brian Dolan, chief strategist at in Bedminster, New Jersey, said the dollar's only real chance at a rally would probably come if the EU meeting fails to ease euro-zone debt fears and the euro sells off.

    The New Zealand dollar gained 0.1 percent to $0.8562, near Tuesday's post-float high of $0.8573. The Canadian dollar reached its highest since early May, helped by Chinese oil producer CNOOC Ltd's (0883.HK) saying it would buy Canada's Opti Canada Inc. (OPC.TO).

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    Post Morgan Stanley stuns market with second-quarter beat

    Morgan Stanley stunned investors with better-than-expected second-quarter results, outperforming Goldman Sachs and other rivals as it gained market share in tough trading conditions.

    The bottom line was helped by strong equity and sales trading, surprisingly resilient fixed income, currency and commodities (FICC) trading, and a lead underwriting position on several big technology IPOs. Morgan Stanley shares rose as much as 7 percent in premarket trading to $23.17.

    Asked about the market's reaction to the bank's results, Chief Financial Officer Ruth Porat told Reuters, "I like that phrase 'knock-the-socks-off results.' We're pleased in particular because it's the breadth across the businesses."

    The bank reported a quarterly loss of 38 cents per share, weighed down by a big one-time charge and a weak trading environment that swept across Wall Street.

    But the loss was much smaller than analysts expected. The average Wall Street forecast was a loss of 62 cents a share, according to Thomson Reuters I/B/E/S.

    The loss included a charge of $1.02 per share and a dilution of the bank's share base from the conversion of a $7.8 billion preferred stock investment by Japan's Mitsubishi UFJ Financial Group. The conversion allows Morgan Stanley to avoid expensive dividends to the Japanese bank in the future.

    In FICC, a traditionally lucrative area that has come under pressure in recent quarters, Morgan Stanley's revenue dropped just 9 percent to $2.1 billion. Chief rival Goldman Sachs Group Inc reported a stunning 53 percent decline in that area on Tuesday.

    "Morgan Stanley is the new Goldman Sachs," said Richard Bove, a bank analyst at the brokerage Rochdale Securities. "Every one of their divisions shows an improvement, and the improvement in trading operations is especially impressive."

    Chief Executive James Gorman has been on an aggressive campaign to increase market share in FICC trading, trying to woo clients away from competitors and getting existing customers to trade more on Morgan Stanley's platform. He reinstalled Ken deRegt, a former head of FICC trading, back into that position in January to revitalize the business.

    Porat said the bank's management is not yet thrilled with its FICC performance, since it is still coming from a small base. "It's progress against a level that we thought was too low for this franchise," she said.


    In a rare symmetry, both net revenue and total noninterest expenses at the company grew 17 percent from a year earlier, signaling that Morgan Stanley is keeping its cost growth in check.

    Compensation, traditionally the biggest part of an investment bank's expenses, totaled $4.7 billion, or 50 percent of Morgan Stanley's net revenue. That compares with 57 percent in the first quarter and 49 percent a year earlier.

    Second-quarter results were boosted by a strong increase in equity sales and trading revenue, up by more than a third from a year ago at $1.9 billion. Investment banking revenue surged 57 percent to $1.7 billion.

    Revenues in another key division, wealth management, rose 13 percent, and earnings in that segment rose by almost two-thirds. Morgan Stanley is in the process of acquiring the giant Smith Barney wealth management franchise from Citigroup Inc, and the business now contributes about one-third of its revenue.

    Gorman has targeted a pretax operating margin of 20 percent for the business, but high costs have kept profits in check. The wealth management business posted a 9 percent margin in the second quarter.

    Porat said management is pleased with the integration of the wealth management business so far but is cutting lower-performing financial advisers in an effort to trim costs and boost profits. At the end of June, the bank's brokerage force stood at 17,638, down from 18,087 at the end of the first quarter.
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    Post Euro soars after Europe eyes solutions for Greece

    The euro rallied to a two-week high against the dollar on Thursday after a draft plan by European officials to provide cheap loans to Greece and other heavily indebted euro zone countries eased fears of contagion.

    They were considering a sweeping expansion of the role of the European Financial Stability Facility rescue fund to help states sooner, recapitalize banks and intervene in the secondary bond market, a draft summit statement obtained by Reuters showed.

    "The fact that the EU has thrown everything including the kitchen sink into this is very comforting for investors and unless the rating agencies say this is not enough for Greece to avoid a default, the euro should hold onto its gains," said Kathy Lien, director of currency research at GFT in New York.

    The euro climbed as high as $1.4402 on trading platform EBS, the highest level since July 6, before easing slightly to $1.4371, up 1.1 percent on the day. It also rose about 0.8 percent to 1.1744 Swiss francs.

    According to the draft, the EFSF will provide loans to Greece, Ireland and Portugal at a lower interest rate and for longer maturities.

    In a policy reversal, the European Central Bank signaled that it is willing to let Greece default temporarily under the crisis response that would also involve a bond buyback and a debt swap, but no new tax on banks.

    Slow progress on resolving Greece's debt crisis has been a major headwind for the euro. Investors fear Europe's debt crisis, which has also engulfed Portugal and Ireland, could spread to the much bigger economies of Spain and Italy.

    "If the ECB was not able to accept Greek bonds as a collateral, the financing for Greek banks would stop and that would pull down the whole European banking system," said Vassili Serebriakov, currency strategist at Wells Fargo in New York. "That's where the biggest worry was before the meeting."

    Peripheral debt rallied after news of the draft documents. Yields tumbled on short-dated Greek debt, down more than 4.5 percent in the two-year segment, while the more liquid Italian and Spanish debt markets also showed substantial relief.


    Some key questions remained, analysts said, such as the total cost of the program, whether it can win the backing of member nations, and how weaker economies can reduce their debt burdens to sustainable levels over the long term.

    "The ultimate success of the new EU crisis management program will be determined not by its ability to halt the market contagion of recent weeks but by its ability to halt the fundamental deterioration of EU sovereign credits. The total cost of stabilizing the EU's weakest link has yet to become clear," said Lena Komileva, global head of G10 strategy at Brown Brothers Harriman in London.

    In contrast to the optimism on Europe, investors remained wary ahead of an August 2 deadline for raising the U.S. public debt ceiling to avoid a default, and the threat of a downgrade to the United States' triple-A credit rating.

    Ratings agency Standard & Poor's said on Thursday there was a 50-50 chance it would lower the long-term U.S. credit rating within the next three months.

    The White House said there was growing momentum toward a significant deficit reduction plan that would include both spending cuts and tax increases. Congressional aides, however, said the parameters of any potential agreement remained fluid.

    The dollar hit a four-month low against the yen of 78.31, according to Reuters data, the lowest since joint G7 intervention in mid-March to stem a rise in the Japanese currency. The dollar was last down 0.3 percent at 78.55 yen.

    "The pendulum is clearly swinging ... toward Europe right now, whereas the U.S. is a little bit trailing behind in terms of waiting for positive news," Wells Fargo's Serebriakov said.

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