U.S. trade-human rights link tests Obama-Russia ties

MOSCOW (Reuters) - The U.S. Senate's passage of legislation to punish Russians who violate human rights is the first big test of Vladimir Putin and Barack Obama's resolve to improve relations since each won elections. Obama, who launched a "reset" in relations with Russia less than four years ago, is likely to sign the law even though Moscow sees it as "aggressively unfriendly". Damage to U.S.-Russian relations is all but inevitable. But there are signs that Putin, who won the presidency despite the biggest protests of his 13-year rule, may want to put the bad blood of a campaign in which he whipped up anti-American sentiment behind him. "I do not think that this will lead to a serious crisis in Russian-American relations," said Dmitry Trenin, director of the Carnegie Moscow Centre think tank. "(Putin) does not intend to make relations worse, and for this reason the effects of this legislation will be limited," Trenin said. The Senate approved the "Magnitsky Act" as part of a broader bill to lift a Cold War-era restriction and grant Russia "permanent normal trade relations" (PNTR), a move that in other circumstances would have been celebrated in both capitals. A month after Obama's re-election, it could have been the cap on a period during which he signed a landmark nuclear arms deal with Moscow and helped usher Russia into the World Trade Organization (WTO) after an 18-year membership bid. Instead, Moscow is furious over the human rights portion of the bill, an unmistakable message to Putin of displeasure with the treatment of Russians who dare challenge the authorities. The main targets are those allegedly involved in the abuse and death of Sergei Magnitsky, a lawyer who died in jail in 2009 - the victim, colleagues say, of retribution from the same investigators he claimed stole $230 million from the state. In a Foreign Ministry statement full of righteous anger, Russia called the Senate vote a "performance in the theatre of the absurd" and said the bill would badly cloud the prospects for cooperation between Moscow and Washington. How big the impact will be is largely up to Putin. The law injects a dose of poison into a relationship strained by the crisis in Syria and U.S. concerns about the direction Putin has taken since he revealed last year that he would return to the Kremlin after a stint as prime minister. "It will have a negative impact on the atmosphere, that's for sure," said Samuel Charap, senior fellow for Russia and Eurasia at the International Institute for Strategic Studies in Washington. The bill directs Obama to publish the names of Russians allegedly involved in the abuse and death of Magnitsky, who was jailed in 2008 on tax evasion and fraud charges colleagues say were fabricated by investigators against whom he had given evidence. Magnitsky, 37, said he was deliberately deprived of the treatment he needed as his health deteriorated painfully in jail, and the Kremlin's own human rights council has said he was probably beaten to death. The bill would also require the United States to deny visas and freeze the assets of any of those individuals, as well as other human rights violators in Russia not linked to Magnitsky, on a continuing basis. It is, at least in Russian eyes, almost a textbook example of what Putin dislikes most about the United States: it's perceived use of human rights concerns as a geopolitical instrument and the resort to sanctions for punishment. In a decree signed hours after his inauguration to a six-year third term in May, Putin said he wants "truly strategic" ties with the United States but they must be based on equality, non-interference and respect for one another's interests. MUTUAL DOUBTS Trenin said the law would reinforce Putin's wariness about U.S. intentions, but that he may also want to focus on his long-stated goal of improving economic ties with the United States. Russia has sought to reassure Americans that Moscow's response to the bill would not affect business dealings. But late on Friday, Russia imposed restrictions on meat imports from several countries, chief among them the United States, denying the move was a political retribution for the "Magnitsky Act" [ID:nL5E8N81JM]. On Saturday, the daily Kommersant reported that the passage of the legislation may freeze the work of some of the 20-plus groups that are part of the bilateral presidential commission set up between Obama and former President Dmitry Medvedev. The Magnitsky Act is the flipside of the bill to grant Russia PNTR status, which both sides hope, along with Russia's WTO membership, will bolster bilateral trade, which amounted to a paltry $43 billion last year. "There's a lot that can be done on that, and that is stuff he understands and cares about," Charap said of Putin. Russia has threatened to retaliate if Obama signs the bill into law. Foreign Minister Sergei Lavrov told U.S. Secretary of State Hillary Clinton on Thursday that Russia would bar entry for Americans "guilty of crude human rights abuses". Moscow has also warned it would respond with "asymmetrical" measures, seeming to hint the bill could have a spillover effect into broader areas in which the United States wants Russian cooperation most, such as nuclear arms control and Iran. But analysts said that is unlikely. They said the law would probably not derail Russian assistance on Afghanistan, affect diplomacy aimed to curb Iran's nuclear program or deepen disputes over U.S. missile defense and the conflict in Syria. "It will have a mostly symbolic effect," said Yevgeny Volk, a Russian political analyst.

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Afghan leader says to raise attack on spy chief with Pakistan

KABUL (Reuters) - Afghan President Hamid Karzai said on Saturday a suicide bombing that wounded his intelligence chief was planned in the Pakistani city of Quetta and that the issue would be raised with Islamabad. Karzai stopped short of blaming the Pakistani government directly. But he said the attack would be raised with neighboring Pakistan, a regional power seen as critical to U.S. efforts to stabilize Afghanistan before NATO combat troops leave by the end of 2014. On Thursday, a suicide bomber posing as a peace messenger wounded Afghanistan's intelligence chief, Asadullah Khalid, dealing a blow to a nascent reconciliation process. The bomb was hidden in the attacker's underwear, said Karzai. "Of course we will be seeking clarification from Pakistan because we know this man who came in the name of a guest to meet Asadullah Khalid came from Pakistan. We know that for a fact," said Karzai. "We will be firmly and clearly seeking clarification and asking for any information that they may have." The Afghan Taliban claimed responsibility for the operation, although it often makes exaggerated claims about attacks on foreign troops or government targets. "BIGGER" HANDS BEHIND ASSASSINATION ATTEMPT Karzai said the militant Islamist group was not behind the attack in the heart of the capital, Kabul. "Apparently the Taliban claimed responsibility like many other attacks but such a complicated attack and a bomb hidden inside his body, this is not Taliban work," Karzai said. "It's a completely professional (job) ... Taliban cannot do that and there are bigger and professional hands involved in it." Karzai said the issue would be discussed next week with Pakistani officials during a meeting between the foreign ministers of Afghanistan, Pakistan and Turkey in Ankara. "This is a very important issue for us and we hope that the Pakistan government in this regard gives us accurate information and cooperates seriously, so the doubts we have end," he said. Karzai said contacts with Pakistan would continue. Ties between Kabul and Islamabad have been strained by cross-border raids by militant groups and accusations that Pakistan's intelligence agency backs Afghan insurgent groups to advance its interests in the country. Pakistan denies the accusations and says it is committed to helping bring peace to Afghanistan. The leadership of the Afghan Taliban fled to Quetta after their government was toppled by NATO-backed Afghan forces in the wake of the September 11, 2001, attacks on the United States. Pakistan denies Taliban leaders live in Quetta. The attack on Khalid was almost a carbon copy of last year's assassination of Afghanistan's chief peace negotiator, Burhanuddin Rabbani. He died at his Kabul home when an insurgent posing as a peace envoy detonated explosives concealed in a turban. Pakistan recently sent strong signals it would put its weight behind the Afghan government's efforts to draw the Taliban to negotiations after more than a decade of war. In November, Pakistan released 13 mid-level Afghan Taliban officials it had detained, meeting demands by Kabul which has repeatedly pushed for access to prominent insurgents. Then officials from both countries said Pakistan would consider freeing former Afghan Taliban second-in-command Mullah Abdul Ghani Baradar if lower-ranking figures who were released advance the peace process. Afghan officials believe he may command enough respect to persuade the Taliban to engage in formal talks with the Kabul government. "Pakistan must prove by releasing these senior Taliban leaders that Pakistan is interested in a real and genuine peace process," said Karzai. "So that release is very much demanded and I would like to repeat it again today."

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Feted in Gaza, Hamas leader to attend "victory rally"

GAZA (Reuters) - After receiving a hero's welcome on his return from decades in exile, Hamas leader Khaled Meshaal will attend a rally in Gaza on Saturday to mark the founding of his Islamist group and celebrate "victory" over Israel. At least 200,000 Palestinians are expected to attend the outdoor event, which is likely to be used by Meshaal to promote Hamas's growing stature in the Arab world and push the case for reconciliation with its secular political rival, Fatah. Thousands of supporters, many holding aloft the green flag of the Islamist group, gathered on rain-sodden wasteland ahead of the rally. Patriotic music blasted from loudspeakers, including the recent hit 'Strike a Blow at Tel Aviv'. The song refers to rockets Hamas fired at the Israeli city in last month's eight-day conflict, and a huge model of the Gaza-made M75 missile that took aim at both Tel Aviv and Jerusalem dominated the outdoor stage set up for the speeches. "This is a day of victory," said Ahmed Shaheen, 60, sitting with his young children in front of the massive platform. "The presence of Khaled Meshaal is a sign of this victory." Meshaal, 56, is on his first visit to the Gaza Strip and was moved to tears on Friday by the ecstatic reception he received from flag-waving crowds as he toured the tiny territory, which is home to 1.7 million Palestinians. His trip comes just two weeks after the conflict with Israel that killed some 170 Palestinians and six Israelis. An Egyptian-brokered ceasefire brought an end to the fighting. Hamas claims it won the conflagration. Israel disputes this, saying it not only killed Hamas's military commander, but also caused significant damage to its arsenal of rockets. There is no denying the fighting boosted Hamas's standing in the region, winning it the support of Arab neighbors, many of whom used to treat the group as a pariah before the Arab Spring uprisings ushered in several sympathetic Islamist governments. "Israel must now be fuming as it watches this Gaza victory," said Abu Waleed, 52, as he stood in a crowd on Friday, waiting to catch a glimpse of Meshaal, who survived a 1997 assassination attempt by Israeli Mossad agents in Jordan. Delegations from Qatar, Malaysia, Turkey, Egypt and Bahrain were all expected to attend Saturday's rally, which commemorates the 25th anniversary of the founding of Hamas and the start of the first Palestinian uprising, or intifada, against Israel on December 8 1987. UNITY PLEDGE Local Fatah leaders are due to attend the event - the first time Palestinian President Mahmoud Abbas's faction has taken part since at least 2007, when it fought a brief civil war with Hamas in Gaza that was won by the Islamist movement. "Meshaal's speech will outline the priorities of the Hamas movement in the coming future, and especially the implementation of reconciliation (with Fatah)," Hamas spokesman Sami Abu Zuhri told Reuters. Clearly aware of the yearning amongst ordinary Palestinians for an end to the divisions that have weakened their cause on the world stage, Meshaal repeatedly returned to the subject during his many stops around Gaza on Friday. "With God's will ... reconciliation will be achieved. National unity is at hand," Meshaal shouted through a microphone at the ruins of one house destroyed last month by an Israeli air raid that killed 12 civilians, including four children. But reconciliation is easier said than done. While Hamas promotes armed resistance against the Jewish state, Fatah says it wants a negotiated deal with Israel. Equally problematic, both are embedded in their power bases, with their own security forces that they do not want to give up. Hamas's founding charter calls for the destruction of Israel but its leaders have at times indicated a willingness to negotiate a prolonged truce in return for a withdrawal to the lines established ahead of the 1967 war, when Israel seized East Jerusalem, Gaza and the West Bank. Nonetheless, it says it will not recognize the Jewish state officially, and is viewed as a terrorist group by Israel, the United States and most Western governments. Meshaal ran Hamas from exile in Syria from 2004 until January this year when he quit Damascus because of Iranian-backed President Bashar al-Assad's war against Sunni Muslim rebels, whose religion and politics are closer to those of the Palestinians. He now divides his time between Qatar and Cairo. His abrupt departure from Syria initially weakened his position within Hamas: ties with Damascus and Tehran had made him important, but with those links damaged or broken, rivals based within Gaza had started to assert their authority. Despite regaining the initiative during the Israeli conflict, working closely with Egypt to secure the truce, he says he plans to step down as leader shortly. Hamas has been staging a secretive leadership election for the last six months and some insiders said the huge welcome Meshaal has received on Gaza's pot-holed streets will put pressure on him to stay on as the group's overall chief.

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Iran's long-range missiles said to lag U.S. intelligence fears

WASHINGTON (Reuters) - An internal report for the U.S. Congress has concluded that Iran probably is no longer on track, if it ever was, to having an ocean-crossing missile as soon as 2015. The study casts doubt on a view long held by U.S. intelligence agencies that Iran could be able to test-fly by 2015 an intercontinental ballistic missile, or ICBM, if it receives "sufficient foreign assistance." "It is increasingly uncertain whether Iran will be able to achieve an ICBM capability by 2015," said the report by the non-partisan Congressional Research Service, which works exclusively for lawmakers. Iran does not appear to be receiving as much help as would likely be necessary, notably from China or Russia, to reach that goal, according to the 66-page report dated Thursday. It is also increasingly tough for Tehran to obtain certain critical components and materials because of international sanctions related to its disputed nuclear program. In addition, Iran has not demonstrated the kind of flight test program generally deemed necessary to produce an ICBM, said the study by Steven Hildreth, a specialist in missile defense who consulted seven external expert reviewers. The study appears to be the most detailed unclassified look yet at Iran's controversial ballistic missile and space programs. It does not address Tehran's nuclear program, which has prompted international fears that it could lead to atomic weapons at short notice. An effective nuclear-weapons capability requires three things to work together - enough fissile material, a reliable weapons device and an effective delivery system, such as a ballistic missile that can grow out of a space launch program. Iran's efforts to develop, test and field ballistic missiles and build a space launch capability have helped drive billions of dollars of U.S. ballistic missile defense spending, further destabilized the Middle East and contributed to Israel's push for pre-emptive action. Iranian missile threats have also prompted a U.S. drive for an increasingly capable shield for Europe, largely built by contractors such as Lockheed Martin Corp, Boeing Co, Raytheon Co and Northrop Grumman Corp. ASSESSING THE ICBM THREAT The U.S. intelligence community since 1999 has stuck to the conditional 2015 date, provided Iran gets enough outside help, for a potential Iranian ICBM capable of reaching the United States, which is at least 10,000 kilometers away. An ICBM is generally defined as having a range greater than 5,500 km (3,400 miles). Such missiles from Iran could threaten targets throughout Europe and the Middle East. "With sufficient foreign assistance, Iran may be technically capable of flight-testing an intercontinental ballistic missile by 2015," the Defense Department told Congress in its 2012 annual report on Iranian military power. Michael Birmingham, a spokesman for the office of the Director of National Intelligence, which leads the 17 organizations which comprise the U.S. intelligence community, said views among spy agencies vary on the Iranian ICBM outlook. He added that the 2015 date cited by the Defense Department was "heavily caveated." Iran appears to have a significant space launch effort, not merely a disguised cover for ICBM development, the Congressional Research Service report said. Iran became the ninth country to demonstrate an indigenous space launch capability on February 2, 2009, when it launched an Omid satellite from a Safir 2 rocket. Iran has stated it plans to use future launchers to put intelligence-gathering satellites in orbit, a capability that is a decade or so in the future. Tom Collina, research director of the private Arms Control Association, a Washington-based advocacy group, said the report suggests the United States could respond in a more "measured" way to a potential Iranian long-range missile threat. "We do not have to deploy missile defenses on the East Coast by 2015, as some in Congress want, nor do we have to rush missile defenses into Europe, which makes Russia nervous," he said. (Reporting By Jim Wolf; Editing by Marilyn W. Thompson and Todd Eastham)

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Pakistan tribal sources say U.S. drone strike kills al Qaeda commander

PESHAWAR, Pakistan (Reuters) - Tribal sources from Pakistan's northwest said on Saturday a U.S. drone attack had killed a senior al Qaeda commander in the latest blow to the militant Islamist group that has been targeted in many similar attacks. Abu Zaid was killed in the drone strike on a hideout in Pakistan's North Waziristan, one of the tribal regions near the border with Afghanistan, early on Thursday, the sources said. Zaid had just moved to the hideout a few days ago, they said. Pakistani security officials based in North Waziristan said they were aware of the death of a senior al Qaeda commander but could not confirm his identity or rank. Zaid replaced Abu Yahya al-Libi as one of al Qaeda's most powerful figures in June after Libi was killed by a U.S. drone strike. Ten others were also killed in that attack. Unmanned aerial attacks have crushed al Qaeda's network along Pakistan's border with Afghanistan but have drawn trenchant criticism in Pakistan and Afghanistan. Al Qaeda has been weakened steadily in Afghanistan and Pakistan since the killing of Osama bin Laden in a raid by U.S. special forces on a Pakistani garrison town in May 2011.

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White House on jobless dip: Economy healing but much work remains

WASHINGTON (Reuters) - The White House's chief economist said on Friday that a drop in the November U.S. jobless rate to 7.7 percent was proof that the economy is healing from recession but that much work remains to be done. The Labor Department reported that the jobless rate dipped from 7.9 percent with 146,000 jobs created. Many analysts had forecast an uptick in the jobless rate as a result of superstorm Sandy's impact. "While more work remains to be done, today's employment report provides further evidence that the U.S. economy is continuing to heal from the wounds inflicted by the worst downturn since the Great Depression," said Alan Krueger, chairman of the White House Council of Economic Advisers. In a statement, Krueger argued the Labor report showed the need for Congress to approve President Barack Obama's proposal to extend Bush-era tax cuts for those making less than $250,000 a year and raise them on the wealthy.

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ECB rate cut possible following "serious" debate

BRATISLAVA/FRANKFURT (Reuters) - A European Central Bank policymaker said on Friday the bank had had a "very serious" debate about cutting interest rates this week and that a cut was possible next year if the euro zone economy does not pick up. The German and Austrian central banks separately suggested such a pick up is unlikely, forecasting scant growth in their economies in 2013. The ECB kept interest rates on hold on Thursday, but Governing Council members held "a wide discussion" about cutting interest rates from their current record low of 0.75 percent. Jozef Makuch, one of the Council members, used the term "very serious" on Friday to describe the debate. "If the situation does not improve, and there is relatively a small chance there will be a significant improvement, it is possible to expect a move in interest rates next year," said Makuch, who is also the governor of Slovakia's central bank. The latest growth forecasts paint a gloomy picture. The Bundesbank expects Germany's economy to grow just 0.4 percent next year, down from a June forecast of 1.6 percent. The new projection is marked by "a high degree of uncertainty", it added, and "the balance of risks is on the downside". Austria's central bank cut its 2013 growth forecast for the country's export-dependent economy to 0.5 percent from the 1.7 percent it had expected in June, due to the global downturn, weak investment and sluggish consumer spending. The downward revisions come a day after the ECB lowered its forecasts for next year, pointing to weaker growth prospects for the bloc's core countries such as Germany, France and the Netherlands. "Given the difficult economic situation in some euro-area countries and widespread uncertainty, economic growth will be lower than previously assumed," the Bundesbank said. "The cyclical outlook for the German economy has dimmed. Enterprises are cutting back their investment and hiring fewer new staff," the German central bank added. Germany has been a key growth driver of the euro zone, now in its second recession since 2009, but the country's resilience to the crisis is wearing thin and the central bank's new projections reflect this. Germany could even enter a recession -- defined as two consecutive quarters of negative growth -- the Bundesbank said: "There are even indications that economic activity may fall in the final quarter of 2012 and the first quarter of 2013." The euro, which had dropped earlier in the day against the dollar after the growth forecasts were published, extended its fall after Makuch's comments. Economists expect the German economy to contract in the fourth quarter but to improve as soon as in the first quarter. "The Bundesbank is quite negative about next year," said ABN Amro economist Aline Schuiling. "What we are currently seeing is more and more evidence that the global industrial cycle is bottoming out." INDUSTRY SUFFERS Industrial orders and output have dropped in recent months, with exports falling at their fastest pace since late last year. German industrial production fell by a much steeper-than-expected 2.6 percent in October, weighed down by weaker output in the construction sector and in investment goods, Economy Ministry data showed on Friday. Auto industry association VDA said on Tuesday German new car sales could fall to the second-lowest level in more than two decades next year, as demand is hit by the euro zone crisis. But some German economic data over recent weeks has been encouraging, with business morale rising for the first time in seven months and unemployment growing less than expected. In Berlin, the German government was cautiously optimistic the economy will continue to grow. "We have no doubt that we are still growing," Chancellor Angela Merkel's spokesman Steffen Seibert told reporters. "There are many indicators and they don't all point to a recession. The government is cautiously optimistic that we'll keep growing." The Bundesbank said the slowing of the global economy, as well as recessions in other euro zone countries, were dragging on the German economy. But "the Bundesbank does not see a protracted slowdown but instead anticipates a return to growth path soon", it added, forecasting 2014 growth of 1.9 percent. Austria's central bank forecast its economy would grow by 1.7 percent in 2014. Austrian central bank chief Ewald Nowotny said his bank assumed the euro zone economy would reach its nadir in the fourth quarter, but past experience had shown expectations were not always met on time. "I hope this is not the case but I cannot rule it out," Nowotny said.

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Earnings from McDonald's, Microsoft sink stocks

NEW YORK (AP) -- Poor earnings reports from three companies in the Dow Jones industrial average — Microsoft, General Electric and McDonalds — sent indexes down sharply Friday, marking a sour end to an otherwise strong week in the stock market. McDonald's led a broad drop in the Dow, falling 3 percent. The Dow was down 151 points at 13,397 shortly after noon. "I'm concerned about corporate earnings, but I'm not alarmed yet," said Doug Cote, chief market strategist at ING Investment Management in New York. Cote cautions that it's still early in reporting season, but what's worrying is that companies have reported an overall drop in earnings so far. "And once you get one quarter of negative earnings, it's a precursor," he said. "It's the cockroach theory: if you find one, there's probably many more." The Standard & Poor's 500 sank 17 points to 1,440 and the Nasdaq composite dropped 52 points to 3,020. All 10 industry groups in the S&P 500 fell, led by materials and technology stocks. McDonald's profit sank as a strong dollar hurt international results, which account for two-thirds of its business. The fast-food giant's stock lost $3.51 to $89.35. Microsoft's income fell 22 percent as PC sales took a dive and as troubles in Europe took their toll. Its stock lost 67 cents to $28.82. General Electric, another economic bellwether, fell 3 percent. The company reported stronger profits early Friday but its revenue missed Wall Street's expectations. Orders for new equipment and services sank, mainly because wind turbine orders have fallen because a key U.S. federal subsidy for wind power expires at the end of the year. GE's stock lost 60 cents to $22.21. Analysts currently expect companies in the S&P 500 to post their worst earnings results since the third quarter of 2009, according to S&P Capital IQ. Banks and consumer discretionary companies are projected to report the best growth. Analysts expect companies dealing in metals and other materials to report the worst results, followed by energy companies. But it's technology companies like IBM, Intel and Google whose weak results have grabbed the most attention so far. Weak earnings from Google and a rise in claims for unemployment benefits helped pull the stock market lower Thursday. That snapped a four-day run of gains for the Dow. Google fell again Friday, giving up $14.14 to $680.86. The Dow is still up 0.6 percent for the week. The S&P 500 up is up 0.8 percent. In other Friday trading, the yield on the 10-year Treasury note slipped to 1.77 percent from 1.83 percent late Thursday. Among other stocks making big moves, Chipotle Mexican Grill plunged 14 percent after the burrito chain forecast that revenue growth would slow sharply next year. The stock had been a favorite among investors thanks to super-fast growth in recent years. The stock fell $41.32 to $244.61.

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Who Owns America’s Debt?

As the U.S. continues to rack up more than $1 trillion of new debt every year, Americans are beginning to worry about who we owe this money to and how much power our creditors have over us. According to Barry P. Bosworth, a senior fellow at the Brookings Institution, our two biggest foreign creditors are Japan and China. Although it may seem as though our debt to these countries renders us a puppet on strings, Bosworth says this fear is overblown. The U.S. market is very important to China's economy, so China would be loathe to do anything that might exacerbate tensions or disrupt trade between the two countries. And the same can be said for Japan. China owns $1.15 trillion of U.S. government debt -- more than any other country -- but U.S. taxpayers actually owe less money to China compared to recent years. China holds 10% of U.S. Treasuries, down from 12% two years ago. Related: China's Slow Growth 'Marks An End of an Era' But No Hard Landing And what about all the anti-China rhetoric that we hear about on the campaign trail? Republican Presidential Nominee Mitt Romney has been promising the country that he will declare China a "currency manipulator" on the first day of his presidency--and then enact tariffs as necessary until he forces China to level the trading playing field. Is that something that Romney is actually likely to do if he gets elected? No, says Bosworth. Tough talk with respect to China has become standard rhetoric for any presidential challenger. If and when Romney becomes president, his position will likely mellow. Bosworth also says that the problem with the U.S.-China trade relationship is not, as is commonly believed, that China doesn't play fair. China has actually addressed lots of its unfair practices over the past decade, Bosworth says, while the U.S. is still pursuing the same old self-destructive habits. Until we stop consuming so much and start producing more, Bosworth says, we're in no position to demand anything.

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Google filing error shocks investors, exposes process

SAN FRANCISCO/NEW YORK (Reuters) - R.R. Donnelley & Sons Co handles thousands of securities filings a year for corporate clients in a routine process that is invisible to most investors. On Thursday Google and its shareholders found out just what happens when that process goes wrong. Google issued a statement blaming Donnelley, its filing agent, after the Internet search company's quarterly results were released by the U.S. Securities and Exchange Commission hours ahead of schedule. Earnings were far less than analysts expected and Google shares immediately plunged as much as 10.5 percent, knocking $26 billion off its market capitalization - the equivalent, as it happens, of about 13 R.R. Donnelleys. It was quickly obvious that a mistake had been made -- the second paragraph of the filing said "PENDING LARRY QUOTE" instead of an actual quote from Google CEO Larry Page -- but it was not clear why. Within minutes, though, an unknown prankster set up a "PendingLarry" Twitter feed to hypothesize what the missing quote might be. Among the highlights: "Man, our privacy was WAY violated today." Donnelley shares lost more than 5 percent after Google started pointing the finger, though they recovered later in the day. The company did not respond to a call for comment, but issued a statement to CNBC in which it said it was investigating the circumstances of the release. Best known as a provider of printing services, Donnelley is also the top SEC filing agent in the country, handling more than 75,000 submissions this year as of mid-October, according to SECInfo.com. Filing agents like Donnelley take paper documents and convert them for submission to the SEC in the appropriate format. The company also owns the filing portal EDGAR Online. WHO GOOFED? It is far from the first time a company's earnings have somehow gotten out early. In late 2010 and early 2011, inadvertent releases - usually by a misplaced release on a website - plagued companies like Walt Disney Co (NYS:DIS) and Microsoft Corp (NSQ:MSFT). The common thread in all of those cases is that investors who are not in the right place at the right time to see the news may suffer for it. "Some who didn't get a chance to sell will try to, and others will be looking for bargains. I'm sure a lot of Google owners were caught off guard," said Randy Frederick, managing director of active trading and derivatives for Charles Schwab in Austin, Texas. After the first question of "who goofed?" was sorted out Thursday afternoon, the second one being asked by investors was "can we sue?" "Everyone is trying to figure out if there's any legal issue with respect to R.R. Donnelley. Google is halted, Donnelley is down big-time on the news since they're allegedly not supposed to have released the information," said Michael Matousek, senior trader at U.S. Global Investors in San Antonio. But one plaintiffs lawyer who sues companies on behalf of investors said shareholders would not have a claim against either Google or R.R. Donnelley because the earnings disclosure was likely a mistake. "There's no fraudulent intent here," said Reed Kathrein with Hagens Berman. R.R. Donnelley may not be entirely off the hook with Google, however. The company could have a negligence claim to recover any additional costs it incurred in responding to the incident, Kathrein said. Any potential damages against R.R. Donnelley could be limited, though, by the contract between the two companies. Late Thursday, Google filed an amended press release with the missing quote and a confirmation that the figures in the original were accurate. R.R. Donnelley shares were up 2 cents at $10.87 in late trading. Google was down 8.1 percent to $693.94 after trading resumed.

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US housing construction up 15 percent in September

WASHINGTON (AP) -- U.S. builders started construction on single-family homes and apartments in September at the fastest rate since July 2008, a further indication that the housing recovery is strengthening. The Commerce Department said Wednesday that builders broke ground on homes at a seasonally adjusted annual rate of 872,000 in September. That's an increase of 15 percent from the August level. Applications for building permits, a good sign of future construction, jumped nearly 12 percent to an annual rate of 894,000, also the highest since July 2008. [Click here to see home loan rates in your area.] The strength in September came from both single-family construction, which rose 11 percent, and apartments, which increased 25.1 percent. Construction activity is now 82.5 percent higher than the recession low hit in April 2009. Activity is still well below the roughly 1.5 million rate that is consistent with healthier markets. Still, the surge in construction suggests builders believe the housing rebound is durable. Builder confidence reached at a six-year high this month, according to a survey by the National Association of Home Builders. The group's index of builder sentiment rose to a reading of 41. While that's still below the level of 50 that signals a healthy market, it has steadily climbed over the past year from a reading of 17. Sales of new and previously owned homes have been slowly improving this year, and home prices are starting to show consistent gains. Record-low mortgage have encouraged more people to buy. And the Federal Reserve's aggressive policies could push long-term interest rates even lower, making home-buying affordable for the foreseeable future. Housing is expected to keep improving next year. But many economists say economic growth will stay muted until companies step up hiring and consumers start spending more. Though new homes represent less than 20 percent of the housing sales market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to data from the home builders group.

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Battery maker A123 files for bankruptcy protection

ETROIT (AP) -- After years of struggling in the nascent market for electric cars, battery maker A123 Systems Inc. filed for bankruptcy protection Tuesday. The filing drew criticism from Republicans who claim the Obama administration has wasted millions of taxpayer dollars on alternative energy companies like A123. The company received a $249 million Department of Energy grant three years ago with high hopes that it would help foster a U.S. battery industry. At the time, the country was far behind the world leaders, Korea and China. But the technology offered by the Waltham, Mass.-based A123 Systems turned out to be ahead of its time. Americans continue to shun costly electric cars in favor of gas-powered ones. "Sometimes when you push the edge of technology, you fall over that edge," said Aaron Bragman, an automotive industry analyst at IHS Automotive near Detroit. The filing doesn't necessarily mean the end for A123 System's operations. The company sold its automotive unit to parts maker Johnson Controls Inc., which plans to keep A123 plants open and sell the company's lithium-ion battery technology. But the bankruptcy filing stoked Republican criticism of Obama's support for "green" energy companies, which have received millions in grants and loans. Almost instantly, A123 became an issue in the presidential campaign. The bankruptcy is "yet another failure for the president's disastrous strategy of gambling away billions of taxpayer dollars on a strategy of government-led growth that simply does not work," Andrea Saul, spokeswoman for Republican challenger Mitt Romney, wrote in an e-mail. Obama's campaign countered, saying the investments have more than doubled renewable energy production from wind and solar sources, creating jobs and bringing manufacturing back to the country. The administration has said the "vast majority" of companies that received loans are still expected to pay them back in full, with interest. A123 joins solar panel maker Solyndra LLC as another example of companies that got government money but failed. The politically connected and now bankrupt Solyndra left taxpayers on the hook for $528 million after it failed to repay a government loan. The government also made millions in loans to electric car makers Tesla Motors and Fisker Automotive, both of which are struggling. Tesla has never made a profit but is starting to repay its loans, while Fisker is trying to raise money so it can build a car that's less expensive than its $100,000 Karma. Bragman said that although the government will lose cash, its seed money was needed to foster the electric car and battery industries. Other governments such as Japan and China, he said, play similar roles in growing new industries. "You run the risk of losing some, but you run an even bigger risk of falling behind globally if you're not ready when the technology suddenly blossoms, which it will," he said. A123's demise as an independent business reflects the problems of the electric-car industry. Americans have been slow to buy the vehicles because they're expensive, and many models have limited range and can run out of power on longer trips. Lackluster sales of EVs and batteries left A123 with huge losses and a plunging market value. Martin Zimmerman, a former Ford executive and now a professor at the University of Michigan, said electrics still cost too much and don't make financial sense when compared with efficient gas-powered cars. "This is one in a series of news stories recently that says the commercialization of this technology is not as imminent as might have been thought," he said. After the news hit, A123's already depressed stock price fell even further. The shares closed at 6 cents Tuesday. They traded for more than $20 on the day of its initial public offering in 2009. Unlike a loan, A123's government grant was never supposed to be repaid. The company had to match the money as it was used. It received $132 million of the grant. The government stimulus grant was used to help build plants in the Detroit suburbs of Livonia and Romulus. The company also got a $6 million research grant in 2007 under the Bush administration, the Energy Department said. Under Tuesday's deal, Johnson Controls will pay $125 million for A123's lithium-ion battery technology, other products and customer contacts. It will also take over A123's two Michigan factories, cathode ray factories in China and an equity interest in a Chinese battery company. Johnson Controls planned to keep the factories running but said it was too early to give details about A123 employees or customers. A123 said it expects to continue operations as it moves toward the sale to Johnson Controls. The company said it is in talks to sell its grid, commercial, government and other operations that weren't purchased by Johnson Controls. The company was to supply batteries for the new all-electric Chevrolet Spark subcompact from General Motors Co. It also has a contract with BMW AG. A123 has struggled for several years, and ran into serious trouble this spring after a costly recall of its batteries. Bragman said it wasn't able to recover from the expense. The company warned that it might not be able to stay in business unless it got more financing, and just two months ago, it announced a $450 million lifeline from Chinese auto parts maker Wanxiang Group Corp. But A123 said Tuesday that the deal has been scrapped. A123 subsidiaries outside the U.S. were not included in the bankruptcy filing.

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