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OECD sees U.S. growth accelerating through 2015

WASHINGTON (Reuters) – The U.S. economic recovery should accelerate in coming months as an energy boom, steadily falling unemployment and a rebound in investment push growth to its fastest pace in a decade, the Organization for Economic Cooperation and Development said on Friday.

In its latest overview of the U.S. economy, the Paris-based group said U.S. gross domestic product would expand 2.5 percent this year, a touch below a forecast it released last month.

But it maintained its 3.5 percent growth projection for next year, which would be the strongest advance since 2004.

The OECD is more optimistic on U.S. growth than most private forecasters and some other international organizations, including the World Bank, which looks for growth in 2015 of only 3.0 percent.

The OECD said it saw several positive trends converging to make the recovery faster, more entrenched and more driven by private demand.

Low energy prices and continued low borrowing costs, coupled with record corporate stores of cash, should produce a surge of 10 percent in business investment in 2015, the OECD projected, while steadily falling unemployment would mean rising consumer demand and a firm recovery in housing over the next year.

“The U.S. is the bright spot in the world’s recovery today,” said OECD head Angel Gurria. “This has been building up,” as the United States worked through the aftermath of the crisis and recession and set the stage for domestic demand and investment to take off.

“The U.S. is the one country that has its own growth built in.”

Notably, the OECD said that the steps taken to rein in federal spending and debt in recent years were succeeding. The drag on the economy from budget cuts has diminished, while federal debt as a percentage of GDP was stabilizing at around 106 percent – high by world standards but perhaps set to decline.

The OECD, an economic policy organization that includes the world’s largest developed nations, did warn that some trends in labor markets could hurt the country’s prospects.

Despite stronger growth, the group forecast the unemployment rate would decline only slowly, remaining at 6 percent at the end of 2015 – still above the level typically regarded as full employment. The jobless rate stood at 6.3 percent in May.

The continued stagnation of wages among middle- and lower-income families has stunted demand and worsened income inequality, the OECD said. It called for tax law changes and an increase in the minimum wage to address the issue.

Declining labor force participation also poses a problem which the OECD said could be addressed through reform of immigration laws, or employee tax and training programs that encourage people to work. It recommended specifically a broadening of the earned income tax credit.

The OECD said the United States should also cut its 39.1 percent corporate tax rate, the highest among OECD countries, and reform the system to broaden the base of corporations paying taxes and to give businesses less incentive to book profits abroad.

(Reporting by Howard Schneider; Editing by Jonathan Oatis)

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U.S. consumer sentiment slips in June

NEW YORK (Reuters) – U.S. consumer sentiment fell in June as views by consumers with the lowest incomes soured, a survey released on Friday showed.

The Thomson Reuters/University of Michigan’s preliminary June reading on the overall index on consumer sentiment came in at 81.2, down from 81.9 the month before.

It was below the median forecast of 83.0 among economists polled by Reuters.

“The change from May was too small to indicate a

significant loss in sentiment,” survey director Richard Curtin said in a statement.

“The small month-to-month variations aside, the main finding from the recent surveys is that consumers have maintained their expectations at reasonably favorable levels for the past six months.”

The survey’s barometer of current economic conditions rose to 95.4 from 94.5 and was below a forecast of 95.7.

The survey’s gauge of consumer expectations slipped to 72.2 from 73.7, and missed an expected 74.6.

The survey’s one-year inflation expectation was at 3.0 percent down from 3.3 percent, while the survey’s five-to-10-year inflation outlook was at 2.9 percent compared with 2.8 percent.

(Reporting by Rodrigo Campos; Editing by Chizu Nomiyama)

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U.S. futures imply weak open, S&P on track for down week

NEW YORK (Reuters) – U.S. stock index futures pointed to a slightly lower on Friday as some positive corporate news supported markets, though ongoing violence in Iraq gave investors pause.

* While both the Dow and SP hit record highs this week, Wall Street has lately been pressured by concerns of slowing global growth and violence in Iraq, which has taken oil prices to their highest since September. The Dow and SP 500 are on track for their first weekly decline after three consecutive weeks of gains.

* The SP has fallen for three straight days, its longest streak of declines since early April. However, it has dropped just 1.1 percent over that period, and many view the market’s recent trend upward as intact.

* Intel Corp shares jumped 4.7 percent to $29.27 in heavy premarket trading a day after the Dow component raised its full-year revenue outlook, citing stronger-than-expected demand for personal computers used by businesses.

* OpenTable Inc jumped 46 percent to $103.10 in heavy premarket trading after Priceline Group Inc said it would buy the company for $2.6 billion. Priceline shares rose 0.7 percent to $1,235 before the bell. Among other Internet names, Yelp Inc jumped 11 percent to $73.01 and GrubHub Inc rose 7.7 percent to $36.25.

* SP 500 futures fell 2.5 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures fell 27 points and Nasdaq 100 futures slid 1.5 points. * For the week, the Dow is down 1.1 percent, the SP is down 1 percent, and the Nasdaq is down 0.6 percent. The Dow and SP have risen for three straight weeks; Nasdaq has risen for four.

* The CBOE Volatility index is up 10.2 percent on the week, its first weekly rise following eight weeks of declines. Despite the spike, the so-called ‘fear index’ remains well below its historical average.

* Oil rose 0.2 percent to $106.78 per barrel. While the price of oil has spiked 2.3 percent over the past three days, most analysts said it would need to be sharply above $115 per barrel for a protracted period before it becomes a major headwind to economic growth. Still, energy companies may attract more action as prices fluctuate.

* In Iraq, Islamist rebel fighters captured two more towns overnight as they moved toward Baghdad. U.S. President Barack Obama responded by threatening military strikes, adding to the market’s geopolitical concern; selling accelerated on Thursday after his comments.

* Finisar Corp plunged 22 percent to $19.74 in premarket trading a day after forecasting weaker-than-expected earnings, citing higher capital expenditure in China.

(Editing by Bernadette Baum and Nick Zieminski)

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Drug-linked payouts: complex fix for Pfizer’s next Astra bid?

LONDON (Reuters) – The world’s biggest would-be drugs merger hit a wall last month but speculation about smart ways that Pfizer could yet seal a deal with AstraZeneca remains intense.

Even as talks fell apart last month, some in Pfizer’s camp remained optimistic the transaction could be revived – and certain AstraZeneca advisers have not ruled out renewed talks. Under British takeover law, the UK firm can approach Pfizer at the end of August to discuss a sweetened bid, or Pfizer can try again in November.

While the most obvious method for Pfizer to win AstraZeneca around might seem to be more cash, some hedge funds think the U.S. firm could structure payouts by tying them to the performance of key AstraZeneca drugs.

A so-called contingent value right, or CVR, was a winning formula for Sanofi in its 2011 battle for Genzyme and the tradeable product – promising additional payouts once future benchmarks are hit – has been used in several other drug industry deals when the two sides could not agree on price.

“An enriched cash:equity mix as well as a CVR component to bridge the … valuation gap between the two management teams may see the deal agreed upon on a friendly basis,” said analysts at Jefferies this week, predicting an 80 percent probability of AstraZeneca inviting Pfizer back after an enforced cooling-off period ends in late August.


Where CVRs have worked before, they have typically been tied to one particular drug upon which buyers and sellers could not agree a price – such as Genzyme’s multiple sclerosis drug Lemtrada.

Applying a CVR to AstraZeneca, then, could be tough, given the number of new drugs in its pipeline and the time needed to prove their value: Debate about the UK company’s valuation centres on a wide range of experimental drugs in cancer, respiratory disease and other areas, for which it has made sales forecasts stretching as far as 2023.

“Who wants to own a CVR for 10 years?” said Dan Mahony, a fund manager at Polar Capital, who built up his stake in AstraZeneca last year and doubts the idea would be attractive to investors.

“I’m not sure a CVR would necessarily work in this situation. You’d end up with something that is a really long-dated option – and anything that is illiquid and doesn’t really trade is always a bit of a pain in the neck.”

In order to cover itself against the risk of a new drug not working out, Pfizer would have to construct any CVR around a number of very different assets ranging from new cancer drugs like MEDI4736 and AZD9291 to benralizumab for asthma to diabetes and heart drugs, suggested Mark Clark, an analyst at Deutsche Bank – a nice idea, but “probably too unwieldy.”

“If Pfizer was cash-strapped then it might be a sensible way to work through the difficulties – but it’s not cash-strapped and it seems overly complex,” Clark said.


It would be far simpler for Pfizer instead to bump up the cash element in its 55 pounds-a-share offer – rejected as inadequate – and meet the 58.85 pounds that AstraZeneca has indicated is the minimum at which it might recommend a deal.

Many healthcare bankers not involved in the bid predict Pfizer will be back – not least because no other target both complements the U.S. company’s product range and offers the same potential for tax and cost benefits.

Pfizer Chief Financial Officer Frank D’Amelio suggested as much this week – and pushed AstraZeneca shares higher – when he told a Goldman Sachs healthcare conference that talks about a deal had fallen down simply over price.

“In a word it was price,” D’Amelio said. “Any other issues that were raised during the negotiations, during the conversations, I think we were able to adequately, effectively address those.”

Since AstraZeneca also raised deep-seated concerns about execution risks and British politicians whipped up a storm over job cuts, D’Amelio’s comments were taken as a sign that Pfizer sees such problems as manageable. D’Amelio stressed that he could not speculate on whether Pfizer would return or not.

UK takeover rules prohibit any re-engagement for three months from May 26 – and what happens after that will depend on how AstraZeneca’s drug research fares in the meantime and what happens to its shares – a strong run on the stock could push it out of Pfizer’s reach.

So far, the newsflow for AstraZeneca has been good, with promising data on new cancer drugs and no competition yet to its blockbuster heartburn medicine Nexium in the U.S. market due to problems at generic supplier Ranbaxy – a factor that could allow it to beat its current targets for 2014 earnings.

(Editing by Sophie Walker)

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Japan’s Abe unveils plan to cut corporate tax rate to spur growth

TOKYO (Reuters) – Japanese Prime Minister Shinzo Abe unveiled a plan on Friday to cut the corporate tax rate below 30 percent in stages to help pull the economy out of two decades of sluggish growth and deflation.

Investors have been scrutinising whether Japan can substantially lower the corporate tax rate – among the highest in the world – to spur growth in the world’s third-largest economy. Abe also needs to strike a delicate balance between stimulating growth and reining in snowballing public debt, twice the size of its $5 trillion economy.

The corporate tax cut is a major issue to be included in the government’s key fiscal and economic policy outline, which will be finalised around June 27 along with a detailed “growth strategy” of structural reforms.

“Japan’s corporate tax rate will change into one that promotes growth,” Abe told reporters, adding that he hoped the lower burden on companies would lead to job creation and an improvement also for private citizens.

He also said the government would make sure that alternative revenue sources were secured to offset a decline in corporate tax revenue. He did not elaborate.

The government said in its draft economic and fiscal policy outline it would decide on a concrete plan by year’s end to secure a “permanent revenue source” needed for corporate tax cuts, such as by broadening the tax base.

An alternative revenue source must be secured permanently so that Japan can achieve its aim of bringing its primary budget balance – excluding new bond sales and debt servicing – into the black in the fiscal year to March 2021, it said in the draft.

The government reiterated it would decide by year-end whether to go ahead with its plan to raise the sales tax to 10 percent in October 2015. The national sales tax rose to 8 percent from 5 percent on April 1 in a bid to fix the public debt.

Japan’s corporate tax rate is nearly 36 percent for large companies operating in Tokyo, among the highest in the industrialised world.

Private-sector members of the government’s top economic and fiscal council have proposed cutting the rate to 25 percent eventually to put it in line with international standards.

Japan’s corporate tax rate ranks second after the United States among the 34-member OECD economies, with countries such as Britain, Italy, Canada below 30 percent.

In Asia, China and South Korea impose a corporate tax around 25 percent and Singapore puts it at 17 percent.

The government is hoping to see lower corporate tax rates lure foreign direct investment (FDI) and spur capital spending at home, rather than boosting cash reserves at firms.

“But it would take time for such an effect to emerge in the economy,” said Hiroshi Watanabe, senior economist at SMBC Nikko Securities.

“Corporate tax cuts alone would not be a panacea. Japan needs to break other barriers such as language and higher business costs, including electricity, to spur FDI.”

The finance ministry and ruling party tax panel say that any revenue lost in a tax rate cut should be offset by bringing in alternative fixed revenues, rather than counting on any increase in tax revenue brought by higher economic growth. Each percentage point of tax cuts would reduce government revenue by about 470 billion yen ($4.61 billion) a year, according to the finance ministry. At the same time, only 30 percent of all Japanese firms pay corporate income tax, so fiscal hawks want many more brought onto the tax rolls to offset a cut in the tax rate.

Most loss-making firms in Japan are exempted from paying corporate tax and companies can defer losses over several years, making it easier for them to avoid paying taxes.

(Additional reporting by Yuko Yoshikawa; Editing by Chang-Ran Kim and Nick Macfie)

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BNP got high-level 2006 warnings on sanctions busting: report

PARIS (Reuters) – French bank BNP Paribas was warned in 2006 by a high-ranking U.S. Treasury official and in three reports by legal experts that it risked being penalized for breaking U.S. sanctions, according to Le Monde newspaper.

Since France’s biggest bank flagged the risk of a big fine in February this year, sources close to the affair have said it ignored early warnings of the risks it faced. They pointed out that the alleged offending transactions being investigated by U.S. authorities continued until 2009.

The French newspaper’s report, written as talks accelerate towards a possible $10 billion fine and other penalties, said Stuart Levey, then the U.S. Treasury Under Secretary for Terrorism and Financial Intelligence, made a visit to Paris in September 2006.

The paper, drawing on the findings of its own investigation, said Levey met the bank’s top officials, including Baudoin Prot, who has since become chairman, in its boardroom.

Levey was there not to talk about the legal risks, but to warn the bank to be vigilant, citing the names of a number of blacklisted Iranian banks, the Le Monde report said.

U.S. President George Bush had called Iran part of an “Axis of Evil” and wanted European banks to stop working there. Levey took the same “clear” message to other European banks, Le Monde reported.

A second set of warnings also came in 2006, the report said, this time from legal experts, after ABN Amro was fined $40 million for breaking sanctions against Iran and Libya in January of that year.

Until that point, lawyers Cleary Gottlieb had assured BNP Paribas it was not at risk as long as it operated outside U.S. territory, Le Monde said. However the ABN Amro fine was a first – covering transactions done outside the United States. After it, Cleary Gottlieb changed its advice to say there was a risk in certain cases. Two other expert reports commissioned by the bank came to a similar conclusion.

BNP Paribas was not immediately available to comment on the Le Monde report.

The bank has said publicly only that it is in discussions with U.S. authorities about “certain U.S. dollar payments involving countries, persons and entities that could have been subject to economic sanctions”.

It has set aside $1.1 billion for the fine but told shareholders it could be far higher than that. Last month it also said it had improved control processes to ensure such mistakes did not occur again.

The suggestion that Prot had a personal warning from the U.S. Treasury puts a new focus of attention on him after the bank announced the departure of chief operating officer Georges Chodron de Courcel on Thursday.

U.S. authorities – five of them in all including the New York financial regulator – are investigating whether BNP evaded U.S. sanctions between 2002 and 2009. Sources familiar with the matter say they are trying to establish whether the bank stripped out identifying information from wire transfers so they could pass through the U.S. financial system without raising red flags.

(Reporting by Andrew Callus and Matthieu Protard; editing by Tom Pfeiffer)

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Asia stocks down, oil up as Iraq conflict sours mood

TOKYO (Reuters) – Asian stocks slid and crude oil scaled nine-month highs on Friday as escalating civil war in Iraq dulled risk appetite which had been buoyant just days before.

Spreadbetters expected the sour mood to linger on in Europe, forecasting Britain’s FTSE .FTSE to open as much as 0.4 percent lower, Germany’s DAX .GDAXI down 0.25 percent and France’s CAC .FCHI 0.26 percent lower.

The yen, however, benefited from its safe-haven status and a decline in U.S. Treasury yields following soft U.S. data that dented economic optimism.

Sunni Islamist militants have extended their advance south towards Baghdad and prompted President Barack Obama to warn of possible U.S. military intervention, while Iraqi Kurdish forces took control of the Kirkuk oil hub amid the chaos.

Weaker-than-expected U.S. retail sales and jobless claims data published on Thursday further tempered economic optimism felt earlier in the week that had propelled Wall Street to record highs.

Taking its cue from an overnight slide in U.S. stocks, MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS shed 0.3 percent. The index, which hit a three-year high on Monday, was still poised to rise about 0.4 percent this week.

Tokyo’s Nikkei .N225 swam against the tide to rise 0.9 percent, on course to end the week on a 0.2 percent gain.

Reaction was muted towards China’s industrial output and retail sales data, which rose in line with forecasts but were not solid enough to show that the world’s second largest economy was on a solid, broad recovery.

Brent crude futures LCOc1 rose towards $114 a barrel on Friday and hit a nine-month high.

“Oil is now in a new price territory and is likely to climb more as investors rework their positions, supported by the uncertainty and technicals,” said Ken Hasegawa, a Tokyo-based commodity sales manager at Newedge Japan.

The dollar edged up 0.3 percent to 101.97 yen JPY= but was still stuck in the vicinity of a two-week low of 101.60 hit on Thursday. On the week, the dollar was on course to lose about 0.5 percent against the yen.

After the Bank of Japan stood pat on monetary policy on Friday as widely expected, currency market focus turned to whether Governor Haruhiko Kuroda will maintain his confident stance on the economy when he briefs the media at 0630 GMT.

The euro was little changed at $1.3556 EUR=, poised to end the week down about 0.6 percent, hobbled by a widening yield gap between euro zone bonds and their peers following easing by the European Central Bank earlier this month.

The pound gained over a cent overnight to five-week highs after Bank of England Governor Mark Carney said on Thursday that British interest rates could rise sooner than financial markets expect. The pound was last up 0.2 percent at $1.6959 GBP=.

In commodities, copper was up on the day but still set for its third straight weekly loss as seasonally strong demand from China passes its peak. Three-month copper on the London Metal Exchange CMCU3 inched up 0.8 percent to $6,671.50 a tonne.

Palladium and sister metal platinum bounced back from the previous session’s slide as South African producers struck a deal with a miners’ union to end a crippling five-month strike.

(Additional reporting by Lisa Twaronite and Ayai Tomisawa in Tokyo; Manash Goswami in Singapore; Editing by Eric Meijer)

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Nextdoor CEO pleads no contest to hit and run charge

SAN FRANCISCO (Reuters) – Nextdoor CEO Nirav Tolia, whose social networking website espouses neighborhood safety and community, pleaded no contest Thursday in a San Mateo court to a misdemeanor for leaving the scene of a highway accident that a driver says Tolia caused.

Tolia will pay a $239 fine, spend 30 weekend days in a county program in lieu of 30 days’ jail time, serve two years’ probation, and will be responsible for restitution to the victim, said San Mateo County District Attorney Steve Wagstaffe.

Tolia originally faced felony criminal charges, but Wagstaffe said he reduced them to a misdemeanor “hit and run causing injury” because of Tolia’s forthrightness in admitting his role in the accident.

“I’m glad he accepted responsibility right up front and never tried to lie about what happened or avoid responsibility,” he told Reuters.

The work program includes activities such as picking up litter or trimming weeds along public roads and at schools, Wagstaffe said.

“I am relieved that after further examination of the facts, the DA reduced the charge to a misdemeanor and that Thursday’s hearing brought the matter to a close,” Tolia said in a statement.

The incident occurred in August when executive recruiter Patrice Motley lost control of her car after Tolia swerved into her lane. Her Honda del Sol spun across two lanes and crashed into the median on Highway 101 near Candlestick Park, south of San Francisco, she stated in court documents in a separate civil case.

Tolia drove his wife and child home in their black BMW X5 SUV without stopping or calling 911, the lawsuit stated. Witnesses wrote down his license plate number and gave it to authorities.

Tolia told police in an interview he was shaken and did not call 911 because he was in shock. Last month, he said he was saddened by Motley’s injuries and was troubled by the incident.

Ten years ago, Tolia resigned as chief operating officer of after the company learned he had lied about the status of his Stanford University degree and previous work experience.

Nextdoor has raised just over $100 million from backers including Benchmark, Kleiner Perkins Caufield Byers and Tiger Global. Its last funding, a $60 million round in October, valued the company at more than $500 million.

(Editing by Matt Driskill)

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Ex-BP engineer wins new trial in Gulf of Mexico spill case

(Reuters) – An engineer convicted of obstructing justice in connection with the 2010 BP oil well blowout in the Gulf of Mexico won a new trial on Thursday.

U.S. District Judge Stanwood Duval of New Orleans tossed out his December conviction of Kurt Mix, a former BP Plc (BP.L) employee, and concluded that conduct by one of the 12 jurors meant he did not have an impartial jury.

“These extreme circumstances place the very sanctity of the impartial nature of Mix’s jury at issue,” Duval said.

Joan McPhee, a lawyer for Mix, said she was “deeply gratified” by the ruling.

A spokesman for the U.S. Justice Department did not respond to a request for comment.

Mix was convicted on one of two counts of obstruction for deleting hundreds of messages he exchanged with his supervisor and a contractor in the weeks after the spill.

He was part of a team that scrambled to plug the Macondo well and figure out how much oil was leaking in what became the worst offshore environmental disaster in U.S. history.

The Macondo well explosion on April 20, 2010, killed 11 workers on the Deepwater Horizon drilling rig and triggered an 87-day oil spill in which millions of gallons of crude flowed into the Gulf of Mexico.

Mix was the first of four current or former BP employees charged with crimes connected with the well incident to be tried.

After the trial, Mix’s lawyers had interviewed several jurors without first notifying him, according to Duval. Some jurors told them that a juror had told them she heard something outside of the jury room that would allow her to not “lose any sleep” in finding Mix guilty.

In his decision on Thursday, Duval noted the jurors were under strict instructions not to disclose information about jury deliberations, and said the interviews were “inappropriate and contrary to the law of this district and circuit”.

But in light of the interviews, Duval called the jurors to testify about what happened. Five members of the panel said the juror in question said she had heard information outside of the courtroom that gave her “comfort” in finding Mix guilty.

Duval said the juror’s actions were in “contravention of the court’s instructions” and came at a “critical time in the deliberations”.

“The jury further failed to head the court’s instructions in that after this information was imparted to the jury, the jury failed to inform the court of its occurrence,” according to Duval.

Duval said based on the jurors’ testimony alone, Mix “was not tried by an impartial jury” and deserved a new trial.

The case is U.S. v. Mix, U.S. District Court, Eastern District of Louisiana, No. 12-cr-00171.

(Reporting by Nate Raymond in New York; Editing by Muralikumar Anantharaman)

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