Aug. 18 (Bloomberg) -- AFL-CIO Secretary-Treasurer Richard Trumka delivers a slap at former Treasury Secretary Robert Rubin in a slide show exhorting union members to back Democrat Barack Obama for president.
Blaming unfettered global trade and inadequate government regulation for lost manufacturing jobs and a staggering economy, Trumka's presentation cautions that ``it will do us little good if, when the next Democrat moves into the White House, Wall Street takes command of our country's economic policy.''
Trumka leaves no doubt that the rebuke is aimed at Rubin, Wall Street's most prominent Democrat. It's ``hard to tell the difference'' between Rubin and Republican Treasury Secretary Henry Paulson, the presentation says. Trumka's critique reflects the concern among organized-labor officials that Rubin and like- minded Democrats may win the behind-the-scenes battle to shape Obama's economic thinking.
``I'm hearing Rubin's name more and more associated with the campaign's economic policy,'' says James Torrey, a top Obama fundraiser and chief executive officer of New York-based Torrey Associates LLC, a hedge-fund investor.
Rubin, who became chairman of Citigroup Inc.'s executive committee after leaving President Bill Clinton's Cabinet, represents policy priorities that would favor free trade and more emphasis on deficit-cutting budget discipline if Obama beats Republican John McCain on Nov. 4. Meanwhile, Trumka and his boss, AFL-CIO President John Sweeney, are pushing trade policies that would protect U.S. industries, universal health care, and spending on highway construction and other projects that would create union jobs.
Growth and Fairness
Rubin, in an interview, says Obama isn't favoring either faction's agenda. ``Very much as President Clinton did, he's focusing on both competitiveness and growth on the one hand, and distribution and fairness on the other,'' he says. ``It seems to me that's where he ought to be.''
Still, the Wall Street contingent's clout has grown within the Obama camp in the two months since Rubin's first-choice candidate, New York Senator Hillary Clinton, conceded the nomination.
A Rubin protege, Jason Furman, is now the economic-policy director of Obama's campaign.
Valerie Jarrett, one of Obama's closest friends and confidantes, attended a meeting hosted by Rubin, 69, several weeks ago and says they've talked by telephone several times.
Outnumbered at Forum
At an economic forum last month, Sweeney, former Labor Secretary Robert Reich, and union advocates were outnumbered by the likes of Lawrence Summers, Rubin's successor as Treasury secretary; JPMorgan Chase & Co. CEO Jamie Dimon; former Republican Treasury Secretary Paul O'Neill; and former Securities and Exchange Commission Chairman William Donaldson, like O'Neill an appointee of President George W. Bush.
``Senator Obama made it clear that he would be reaching out to members of that group in the future,'' says another participant, Laura Tyson, who worked with Rubin as the head of the White House Council of Economic Advisers.
Labor's apprehensions surfaced after the June 9 appointment of Furman, a Brookings Institution scholar and former Clinton White House aide. One reason: In 2005, Furman published a paper saying Wal-Mart Stores Inc. creates productivity gains and consumer savings that outweigh the low wages it pays workers.
`Very Strong Ideas'
Furman, who turns 38 today, disputes the notion that any faction holds sway. ``Barack Obama is somebody who has very strong ideas about economics,'' he says. ``And no one, not Bob Rubin, not Bob Reich, not Rich Trumka, is going to walk into a room and change his fundamental, underlying priorities.''
Even so, some union leaders are already girding to fight for influence in any future Obama administration. If the Rubin camp were to win out, it would boost the odds that an Obama presidency might sidestep significant trade restrictions and sacrifice spending programs for the sake of deficit reduction.
``I worry about his influence,'' says Leo Gerard, president of the United Steelworkers.
Trumka, 59, says the AFL-CIO began months ago to look for candidates for Cabinet posts, including the Treasury and Energy Departments, as well as the Federal Reserve.
``This will not be business as usual for us,'' Trumka says in an interview. ``They're not going to be able to pat us on the head and say, we'll let you give us three names for the secretary of labor, and think that we'll be happy.''
Getting Out the Vote
Obama, 47, can't afford to alienate organized labor. Union households account for almost one in four U.S. voters, and labor is crucial to turning out the vote. The 10.5 million-member AFL- CIO, the nation's largest labor organization, plans to use 250,000 volunteers to contact 13 million voters in 24 states; the Steelworkers plan to deploy 250 paid election workers across 27 states.
One of Obama's biggest challenges, in fact, may be winning a significant share of rank-and-file union voters, who backed Clinton by large margins in Ohio and other industrial swing states.
So far, Obama's economic promises satisfy most union goals. The Illinois senator has said he would reopen the North American Free Trade Agreement. He backs universal health-care coverage, middle-class tax cuts and spending for infrastructure and education.
``I'm very comfortable with the way Senator Obama personally has laid out his agenda,'' Gerard says.
Radio Ad
Obama's rhetoric has often veered toward protectionism. A radio commercial in Wisconsin and Pennsylvania says McCain appeared at a Sturgis, South Dakota, motorcycle rally after opposing rules that would make the government buy vehicles from U.S. manufacturers such as Milwaukee-based Harley-Davidson Inc.
``It's time to hear the roar of a strong American economy again -- and stop John McCain from shipping our jobs overseas,'' the ad says.
After criticizing Nafta while stumping for primary votes in states that have lost manufacturing jobs, Obama rarely brings up the trade deal since claiming the nomination. He told reporters on June 20 that ``there was some overheated rhetoric'' about trade during the primaries, while reiterating his opposition to Nafta.
Since Rubin began advising the campaign, Obama and his team are also talking more about deficit reduction, a Rubin priority that may threaten union-backed spending programs.
Strong Dollar
At an Aug. 5 town hall meeting in Berea, Ohio, Obama touted the benefits of a strong dollar, a cause Rubin championed at the Treasury. ``A strengthening of the dollar'' would mitigate rising gasoline prices, he said.
The statement appalled economists aligned with unions, which fear that a stronger dollar would make imported goods cheaper and hurt export sales. ``The strong-dollar policy is very harmful,'' says Dean Baker, co-director of the Center for Economic and Policy Research in Washington. ``There's some real fundamental differences between the Rubinites and the labor people, and I don't know how you get them on the same page.''
Obama seems to be trying. Last month, he told reporters that, while he planned to cut the deficit, ``it is important for us to make some critical investments right now in America's families.'' In an Aug. 9 radio speech, he mentioned the budget deficit, then pledged to close tax loopholes that he said encourage companies to move jobs overseas.
In the end, the competition for influence between laborites and Rubinites may actually prove politically helpful, says Charlie Cook, editor of the nonpartisan Cook Political Report.
``What you need is two loud voices in the room to keep Obama down the middle, which is where he needs to be to get elected,'' Cook says.
Aug. 18 (Bloomberg) -- President George W. Bush once told the world that he had looked Vladimir Putin in the eye, gotten ``a sense of his soul'' and found the Russian leader to be ``very straightforward and trustworthy.''
That moment in 2001 was the apex of a belief that a close personal relationship between the leaders of Russia and the U.S. could be a cornerstone of American foreign policy and a stabilizing influence in international affairs.
Last week, as Russian forces hammered their way into Georgia, U.S. Defense Secretary Robert Gates pronounced the epitaph for that approach, which has been central to American policy since the Soviet Union collapsed in 1991.
``I have never believed that one should make national security policy on the basis of trust,'' Gates told reporters on Aug. 15. ``I think you make national security policy based on interests and on realities.''
The Russian offensive, launched even as Bush and Putin were socializing at the Beijing Olympics, demonstrated the irrelevance of interpersonal connections when national interests collide, several Russia experts said.
``This shows that you can't overcome real policy differences by developing personal relationships,'' said Barry Blechman, a senior fellow at the Washington-based Stimson Center. ``There are bigger stakes here, and each country's interests have to be accommodated.''
Clinton and Yeltsin
Bush isn't the first president to personalize U.S.-Russian relations. His predecessor, Bill Clinton, developed a warm relationship with Russian President Boris Yeltsin and preserved it at the cost of tolerating Yeltsin's military assaults on rebellious lawmakers and Chechen separatists.
Ellen Laipson, who was vice chairwoman of the U.S. National Intelligence Council during Clinton's second term, said she saw in him a capacity to identify with other world leaders like Yeltsin and ``feel solidarity with the loneliness'' they experience.
In addition, Laipson said, Clinton genuinely liked his Russian counterpart. ``Clinton had this curiosity and this appetite for colorful characters,'' she said. ``He was taken with the larger-than-life aspects of Yeltsin.''
Bush, 62, took personality politics even further, starting with his June 2001 summit with Putin in Slovenia that generated the public proclamation of the Russian's trustworthiness.
Over the next seven years, Bush hosted Putin, 55, at his Texas ranch and his father's house in Maine and was Putin's guest at the Russian's summer home in Sochi.
`Remarkable Relationship'
``It's been a remarkable relationship,'' Bush said at a joint news conference on April 6 at the end of the Sochi visit. ``We worked very hard over the past years to find areas where we can work together, and find ways to be agreeable when we disagree.''
For all that friendliness, the two nations were drifting apart. The U.S. pulled out of a treaty banning anti-ballistic- missile defenses in 2002; Russia suspended participation in an accord limiting conventional forces in Europe last year. Russia bristled at America's support for Kosovo's independence and its plan to base a missile-defense system in Eastern Europe; the U.S. condemned what it called Russian bullying of neighboring countries such as Georgia and Ukraine.
Then came Georgia's military thrust into the breakaway region of South Ossetia on Aug. 7 and the Russian counterattack the next day. As Russian troops poured in, Bush raised the issue with Putin in Beijing, telling him that ``this violence is unacceptable'' and that Russia's response was ``disproportionate,'' as Bush later recounted in an NBC interview.
Beijing Meetings
His remonstrances had no effect on Russian behavior, and the televised images of the two leaders taking in the Olympics while Russian tanks rolled didn't go down well in some quarters.
Michael McFaul, a Russia expert at Stanford University's Hoover Institution, said he was speaking by telephone that night with a senior Georgian official in Tbilisi. The official, whom he declined to name, was ``rather appalled to see our president being so jolly with Putin at the Olympics,'' McFaul said.
That scene now seems part of another era, with little chance of repetition under Bush or his successor.
The president, since his return from China, has issued several increasingly sharp condemnations of Russia. Republican presidential candidate John McCain has long advocated a tougher approach to Russia and often quips that when he peered into Putin's eyes, he saw only the letters KGB. Democratic contender Barack Obama says he would reassess all aspects of U.S.-Russian relations in light of the recent events in the Caucasus.
Policy Over Personality
Analysts say this decoupling of policy from personality is long overdue.
``It can never be the goal of American foreign policy to have a close relationship with a president or a prime minister,'' McFaul said. ``That has to be a means to advancing the interests of the United States.''
Blechman says that, while it may in time be possible to change Russian behavior, that will only be done by persuading Russian leaders that the price for resorting to force isn't worth paying, while taking into account their legitimate interests.
``The only way to do it is to cajole them by pointing out the choice they face,'' he said. ``Their economy isn't going anywhere, they have no high-tech sector. If they want to reverse the trends they're on, they really need the West.''
Aug. 18 (Bloomberg) -- Russia began pulling its forces back from Georgia to the separatist region of South Ossetia, a senior military official said. Georgia disputed the claim, saying Russian forces aren't yet moving out.
``We're pulling out to the South Ossetian border,'' Anatoly Nogovitsyn, deputy chief of Russia's General Staff, told reporters in Moscow today. ``We're not talking about a full withdrawal.''
``They're not leaving,'' Giga Bokeria, Georgia's deputy foreign minister, said by phone, adding that the city of Gori, near South Ossetia, remains under Russian control. ``By holding on to Gori they're demonstrating their desire to destabilize Georgia's infrastructure by paralyzing road and rail movement, which also affects neighboring Armenia.''
Medvedev announced the planned pullback after the U.S. and other western countries pressed him to honor a European Union- brokered cease-fire. Russia's incursion began on Aug. 8 after a day of heavy fighting between Georgia and South Ossetia. Georgian President Mikheil Saakashvili said Russia launched a ``well-planned invasion'' of Georgia. Russia counters that Georgia planned its incursion into South Ossetia in advance.
`Devastating Response'
``If anyone thinks he can kill our citizens, our soldiers and officers who are serving as peacekeepers, and not be punished, we will never allow this,'' Russian President Dmitry Medvedev told veterans in the southern city of Kursk today. ``Anyone who tries this will receive a devastating response.''
Russian forces blew up military equipment before leaving the Senaki military base near Abkhazia, the regional governor said today. Georgian Deputy Interior Minister Eka Zhguladze said Russian forces ``are heading deeper into Georgian territory from the town of Khashuri,'' near Gori. A second Russian column is moving toward the town of Sachkhere, west of Gori. Nogovitsyn said Russian forces ``aren't moving any farther forward.''
The cease-fire calls for the withdrawal of Georgian and Russian troops, forswearing the use of force and making humanitarian aid freely available in the conflict areas. It allows Russian peacekeepers who were in South Ossetia and another breakaway region, Abkhazia, before the war broke out to take ``additional security measures,'' U.S. Secretary of State Condoleezza Rice said on Aug. 16.
`Limited Patrols'
Those forces -- about 3,000 in Abkhazia and 588 in South Ossetia before the fighting began, according to the Russian government -- would be allowed to ``have limited patrols in a prescribed area within the zone of conflict, not to go into Georgian urban areas,'' Rice told reporters after meeting with President George W. Bush at his Crawford, Texas, ranch.
Members of the North Atlantic Treaty Organization, whose foreign ministers meet in Brussels tomorrow to discuss the situation in South Ossetia, are likely to be satisfied in the short term with Russia's pullback because no other peacekeepers are yet deployed in the region, said Michael Denison, a lecturer in international security at Leeds University in England.
Once a final line of control is established, whether it's supervised by the Organization for Security and Cooperation in Europe or some other body, ``whatever group comes in will have to put in place a genuinely international peacekeeping mission,'' he said by phone.
`Serious Signal'
Until that happens, the West wants to see ``a serious signal of intent'' by the Russian army ``to move away from areas, especially urban areas, which have no connection with the fighting,'' Denison said. ``That will blunt international criticism.''
The U.S. ambassador to Russia, John Beyrle, met Nogovitsyn and Deputy Russian Foreign Minister Grigory Karasin in Moscow to discuss the situation in South Ossetia, the Foreign Ministry said in a statement on its Web site.
``The attention of the American side was drawn to the necessity of U.S. officials making public statements on the events in South Ossetia in accordance with the realities of the complex circumstances in the region,'' the ministry said.
BP Plc, Azerbaijan's national oil company and other exporters halted rail transport of crude through Georgia to the Black Sea after a bridge was blown up two days ago.
Russian troops attacked a railway bridge near the Georgian village of Grakali on Aug. 16, paralyzing the country's train system, according to Interior Ministry spokesman Shota Utiashvili. Nogovitsyn denied his military was involved in the incident.
`Grave Consequences'
The West sees Georgia as a key ally in the region, in part because it has a pipeline that carries Caspian Sea crude oil to western markets, bypassing Russia.
Medvedev told French President Nicolas Sarkozy by phone yesterday that Russian troops will move into South Ossetia. Sarkozy, who helped broker the truce as head of the European Union, warned Medvedev of ``grave consequences'' for EU-Russia relations if full adherence to the cease-fire wasn't ``rapid and complete,'' according to a statement from the French president's office.
South Ossetia broke away from Georgia in a war in the early 1990s, and Russian peacekeepers have been deployed there under a 1992 agreement.
In the capital, Tskhinvali, bullets pockmarked most houses, and many were gutted by shelling, the result of fighting that began on Aug. 7. Electricity and water hadn't been restored as of Aug. 16 to the few residents who remained.
Medvedev Backing
Tomorrow's NATO meeting of foreign ministers is being held at the request of the U.S. The Bush administration is seeking confirmation of NATO's declaration at its April summit that Ukraine and Georgia ``will become members of NATO.''
Medvedev's position on South Ossetia is fully supported by 37 percent of Russians, and 23 percent think his response should have been tougher, a poll published today by the All-Russian Center for the Study of Public Opinion, or VTsIOM, showed.
Just seven percent of Russians said the Russian reaction should have been less severe. The poll of 1,594 people in 140 places across Russia was conducted on August 10-13. It had a margin of error of 3.4 percentage points.
By Craig Torres
Aug. 18 (Bloomberg) -- Ben S. Bernanke is still trying to define which financial institutions it's safe to let fail. The longer it takes him to decide, the tougher the decision becomes.
In the year since credit markets seized up, the 54-year- old Federal Reserve chairman has repeatedly expanded the central bank's protective role, turning its balance sheet into a parking lot for Wall Street's hard-to-finance bonds and offering loans through its discount window to investment banks and mortgage firms Fannie Mae and Freddie Mac.
The lack of clearly defined limits may put the Fed's independence at risk as Congress discovers that its $900 billion portfolio can be used for emergency bailouts that might otherwise require politically sensitive appropriations and taxes.
``There is some hard thinking that needs to be done,'' Philadelphia Federal Reserve Bank President Charles Plosser said in an interview last week. ``The Fed has a terrific reputation as a credible institution. We have to be cautious not to undertake things that put that credibility at risk.''
The expanding role of central banks will be the hottest topic in the room when Bernanke addresses his counterparts from around the world at the Kansas City Fed's Jackson Hole, Wyoming, symposium Aug. 22.
Since taking on $29 billion in Bear Stearns Cos. assets to facilitate the failing firm's takeover by JPMorgan Chase & Co., Bernanke has made several moves that imply further expansion of the central bank's mission.
Student-Loan Collateral
He granted a congressional request to accept bonds backed by student loans as collateral for Fed securities loans. And he didn't object when Congress inserted a provision into the housing bill signed into law last month that makes it easier for the Fed to lend to failed banks under government control.
``They want to placate the Congress and the financial markets,'' says Fed historian Allan Meltzer; doing so sets a ``terrible precedent.''
Policy makers are aware of the concern. The Federal Open Market Committee has ordered a formal study of the implications of the Fed's broader role in fostering financial stability, drawing on research from throughout the Fed system.
Under Bernanke's predecessor Alan Greenspan, the Fed drew a clear line against using its portfolio to influence specific markets. An internal study published in 2002 warned that ``the favoring of specific entities'' might ``invite pressure from special-interest groups.''
Refusing a Request
Just three days after the Fed approved a loan against Bear Stearns securities, Pennsylvania Democratic Representative Paul Kanjorski and 31 other lawmakers sent Bernanke a letter asking him to open the discount window to nonbank education-loan companies. Bernanke refused.
The 2002 study said such pressures ``could pull the Fed into fiscal debates'' and ``compromise its objectives'' for monetary policy: keeping employment high and inflation low.
``How can you be independent on one score and dependent on another?'' asks Vincent Reinhart, former director of the Fed's Monetary Affairs Division, who advised both Bernanke and Greenspan. Officials ``are overburdening the Federal Reserve, and that sets up the potential for multiple conflicts,'' he says. ``They use up their credibility on nonmonetary issues, they lose their independence and they dilute their expertise.''
Reinhart, now a resident scholar at the American Enterprise Institute in Washington, is one of several Fed alumni who say they are concerned the central bank will next face requests to rescue hedge funds or insurance companies whose failure might damage the financial system.
Hard to Say No
``It is much harder to say no when you have the precedent,'' says J. Alfred Broaddus Jr., former president of the Richmond Fed. ``Congress needs to find a way to structure something else to take the Fed out of this.''
The Fed chairman's decisions are a decisive break with Greenspan's aversion to government interference in markets, a conviction that even permeated the central bank's day-to-day operations.
On Aug. 10, 2005, when Greenspan was chairman, 94 percent of the Fed's $24 billion in outstanding repurchase agreements with Wall Street were in U.S. Treasury notes. On Aug. 10, 2008, only 14 percent were in Treasuries, with the rest in mortgage bonds and agency securities, according to Wrightson ICAP LLC in Jersey City, New Jersey. The New York Fed says agency and mortgage-backed securities ``became more attractive.''
Abandoning Principles
``They have had to abandon all principles that guided their earlier debates,'' says Lou Crandall, chief economist at Wrightson. The objective now is ``how you get the most market impact.''
To Bernanke, the decisions of the past 12 months may well have protected the Fed's independence from far greater erosion that might have occurred if the central bank had stood aloof while financial markets melted down.
The former Princeton University scholar views the Great Depression as a fiasco that compromised the Fed's credibility, bringing an onslaught of regulation and a congressional review of the Federal Reserve Act. If the Fed had walked away from Bear Stearns, it would have led to higher unemployment, a deeper downturn and a longer recovery, all of which would have brought even greater political pressure on the Fed, the chairman's defenders argue.
``It is not an easy sell,'' Bernanke told Senator Evan Bayh, an Indiana Democrat, during an April 3 hearing on the Bear Stearns rescue. ``But the truth is that the beneficiaries of our actions were not Bear Stearns and were not even principally Wall Street. It was Main Street.''
Under Stress
Bernanke added that ``the financial system has been under a lot of stress and that has affected our ability to grow. It's affected employment. It's affected credit availability.''
Bernanke's actions have been informed by his own research with New York University's Mark Gertler showing that damaged banks accelerate economic downturns.
That threat has multiplied in a new financial system where mortgage lenders may not even be banks, and mortgages are warehoused in funds off the books of banks.
``We are in a new environment, and the Fed had to do something different,'' Gertler says. ``Moving forward, the regulatory structure has to adjust.''
Fed officials have been cautious about suggesting what new supervisory powers they would like or how their lender-of-last- resort powers should function in the future.
Expanding Authority
Bernanke said in a July 8 speech that a ``strong case can be made'' for expanding the Fed's authority over the U.S. payment system, the complex network of financial plumbing that handles the exchange of money from such transactions as options trades in Chicago and stock sales in New York. The Fed also is pushing for better settlement and trading systems for securities that aren't bought and sold on exchanges.
Beyond that, the Fed chairman has expressed wariness over the U.S. Treasury's recommendation that the Fed become the ``market-stability regulator.''
``Attention should be paid to the risk that market participants might incorrectly view the Fed as a source of unconditional support,'' he said in the July 8 speech.
Even so, the Fed has already expanded its supervisory reach. It has become a temporary consulting regulator of Fannie Mae and Freddie Mac, working with the Office of Federal Housing Enterprise Oversight. An agreement with the Securities and Exchange Commission allows the Fed to make recommendations on the capital and liquidity positions of investment banks. The Fed is also more actively using its authority to supervise nonbank consumer-finance subsidiaries of bank holding companies, such as the CitiFinancial unit of Citigroup Inc.
`A Major Regulator'
To ``a large degree,'' it appears the Fed `` is going to become a major regulator of financial institutions,'' says Ross Levine, a Brown University economist who has written a book on bank regulation.
With that comes the danger that measures the Fed has to take to enhance stability may end up restraining economic growth, Levine says. ``That can come at a very big cost to innovation and the welfare of the country,'' he says.
Plosser, the Philadelphia Fed president, says the central bank is struggling internally with such concerns.
``What has been put on the plate is the broader role of central banks in their effort to promote or ensure financial stability,'' he says. ``We have to face up to the potential risks to the conduct of sound monetary policy from acquiring these other responsibilities.''
Aug. 18 (Bloomberg) -- U.S. stocks declined for the first time in three days, led by banking and real estate shares, as the increased likelihood of a government bailout of Fannie Mae and Freddie Mac shook confidence in the financial system.
Freddie Mac fell to the lowest since 1991 and Fannie Mae slumped more than 10 percent, after Barron's said shareholders of the biggest sources of U.S. mortgage financing would be wiped out by a Treasury rescue. Lennar Corp. and Centex Corp. led a 3.8 percent drop by homebuilders. Hershey Co. retreated the most since 2002 after the chocolate maker said price increases will curb growth.
The Standard & Poor's 500 Index lost 5.42 points, or 0.4 percent, to 1,292.78 at 10:29 a.m. in New York. The Dow Jones Industrial Average retreated 57.08, or 0.5 percent, to 11,602.82, and the Nasdaq Composite Index slumped 11.32, or 0.5 percent, to 2,441.20. About three stocks fell for every two that advanced on the New York Stock Exchange.
``Every day, there's the possibility there could be some type of disaster in the financials,'' said Eric Green, the Cherry Hill, New Jersey-based director of research at Penn Capital Management, which manages $4.5 billion. Fannie Mae and Freddie Mac are the ``major lenders for the housing market in the United States, so bad news there usually affects the homebuilders and all of the financials.''
The S&P 500 has dropped 12 percent this year as the biggest U.S. housing slump since the Great Depression slowed consumer spending and spurred turmoil in mortgage markets that saddled banks with more than $500 billion of losses. The benchmark index for U.S. equities has rallied 6.9 percent from an almost three- year low on July 15.
MBIA, Ambac
Stocks advanced on Aug. 15, sending the S&P 500 to a third weekly gain. MBIA Inc. and Ambac Financial Group Inc. climbed after the largest bond insurers had their credit ratings affirmed and a report showed unexpected growth in New York manufacturing.
Fannie Mae lost 84 cents to $7.07, the lowest price since July 15, and Freddie Mac dropped 63 cents to $5.22. The S&P Supercomposite Homebuilding Index slumped as much as 4 percent. Lennar fell 65 cents, or 5.5 percent, to $11.17. Centex retreated 78 cents, or 4.9 percent, to $15.13. Financial shares in the S&P 500 slumped 1.9 percent, the most among 10 industries.
Hershey dropped $3.51, or 8.4 percent, to $38.11. The nation's largest chocolate maker boosted U.S. prices by an average 10 percent to help counter rising cocoa, packaging, energy and shipping expenses. Commodity costs will probably climb twice as fast in 2009 as in 2008, and hedging and marketing expenses will also advance, Hershey said.
Oil Gains
Energy stocks in the S&P 500 gained 0.8 percent, the most among 10 industries. Oil rose as the dollar dropped against the euro, boosting the appeal of commodities as a hedge against inflation. Crude for September delivery added 0.8 percent $114.73 a barrel in New York.
Exxon Mobil Corp. rose 0.9 percent to $77.74, for the steepest rally in the Dow average. Chevron Corp. had the second- biggest advance, climbing 0.4 percent to $84.57.
Raw-materials companies also advanced. Gold rebounded on speculation investors and jewelers will purchase cheaper supplies of the metal after an 8.4 percent decline last week that erased all of this year's gains. Silver also rose.
Freeport-McMoRan Copper & Gold Inc., the Phoenix-based producer of gold and copper, added $1.59 to $85.98. Newmont Mining Corp., the biggest U.S. bullion producer, rose 88 cents to $42.39.
Mitsubishi UFJ
UnionBanCal gained $7.76 to $73.25. Mitsubishi UFJ increased its bid to $3.5 billion to gain full control of the California bank that dodged the subprime lending crisis. Mitsubishi UFJ offered $73.50 a share for the 35 percent of UnionBanCal it doesn't already own.
Broadcom Corp. gained 47 cents to $27.93. The maker of chips for Nintendo Co.'s Wii video-game console may gain as much as 40 percent as it benefits from demand for products used in smart phones such as Apple Inc.'s iPhone, Barron's reported, citing Cowen & Co. analyst Daniel Berenbaum.
Take-Two Interactive Software Inc. retreated 99 cents to $23.85. Electronic Arts Inc. will let its offer to buy Take-Two Interactive expire tonight because the companies won't be able to merge in time for the holidays.
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