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Wall Street up for third day, led by energy shares


NEW YORK (Reuters) – U.S. stocks extended gains for a third session on Friday, giving the SP 500 its best weekly performance in nearly two months as energy shares continued to rebound.

The SP energy index .SPNY jumped 3.1 percent, leading the benchmark index’s advance, and closed out the week with a 9.7 percent gain, its biggest weekly increase since December 2011.

The benchmark SP 500 has gained 5 percent over the three sessions, bouncing back quickly from recent losses sparked by a selloff in oil prices.

The key driver of this week’s rally was the U.S. Federal Reserve’s commitment on Wednesday to take a “patient” approach toward raising interest rates, which relieved investors over the policy outlook.

“Fears have been at least pushed once again to the sidelines,” said Michael James, managing director of equity trading at Wedbush Securities in Los Angeles.

The Dow Jones industrial average .DJI rose 26.65 points, or 0.15 percent, to 17,804.8, the SP 500 .SPX gained 9.42 points, or 0.46 percent, to 2,070.65 and the Nasdaq Composite .IXIC added 16.98 points, or 0.36 percent, to 4,765.38.

For the week, the Dow gained 3 percent, the SP 500 rose 3.4 percent and the Nasdaq climbed 2.4 percent.

Helping to lift energy shares, Brent crude LCOc1 rose 3.6 percent at $61.38 a barrel, while WTI crude CLc1 jumped 4.5 percent to settle at $56.52. Energy shares have recovered in the recent rally even when oil prices continued to fall.

Quadruple witching – the expiration of stock options, index options, index futures and single-stock futures – added to the day’s volatility. Volume was high. About 10.9 billion shares changed hands on U.S. exchanges, above the 7.6 billion average this month, according to BATS Global Markets.

“I would expect volatility to continue next week, given the magnitude of the moves both down and back up we’ve had this week, and because of the holiday and the likelihood there will fewer people to trade,” James said.

Shares of Red Hat (RHT.N) surged 10.6 percent to $68.04 after it raised its profit forecast for the full year and reported quarterly revenue and profit above expectations.

On the downside, shares of Nike (NKE.N) shed 2.3 percent to $94.84, a day after the company flagged slowing growth in western Europe.

NYSE advancing issues outnumbered decliners 2,004 to 1,102, for a 1.82-to-1 ratio; on the Nasdaq, 1,420 issues rose and 1,329 fell for a 1.07-to-1 ratio.

The benchmark SP 500 posted 110 new 52-week highs and 5 new lows; the Nasdaq Composite recorded 131 new highs and 52 new lows.

(Editing by Nick Zieminski)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/o0U6da2zSJs/story01.htm

Oil, stocks go their separate ways


NEW YORK (Reuters) – Investors have wrung their hands over the last several weeks over the effect of lower oil prices on the broader SP 500, but the relationship between the two is actually starting to break down.

Crude prices had dropped more than 10 percent in the trading week ended Dec. 12. That was largely responsible for a 3.5 percent drop in the SP 500, as investors fled stocks over concerns about energy-sector bonds, corporate earnings, and expectations for world economic demand.

That seemed to change Thursday. The SP 500 surged while oil fell, a potential change in sentiment among investors looking to focus on sectors that may benefit from an accelerating U.S. economy.

“The proof is that oil turned down and the market said, ‘Oh, that was yesterday’s news, today we’re moving ahead,'” said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

Bank of America Merrill Lynch credit strategist Hans Mikkelsen credited the decoupling partly to Fed Chair Janet Yellen’s Wednesday news conference.

“She explained how declining oil prices are expected to be a net positive for the U.S. economy. Furthermore, she went out of her way to dismiss any downward pressure on inflation as transitory.”

Investors may have already priced in the effect of cheaper oil on energy-sector earnings and are now starting to weigh the positives for other sectors.

In its 2015 global outlook, fund manager Pimco said the fall in energy costs, because it is largely supply-driven, should ultimately help growth in major economies, including the United States, Japan, and the euro zone.

Fourth-quarter energy-sector earnings are expected to decline 19.2 percent from a year ago; on October 1, growth of 6.6 percent was expected.

“You will see some pain in the short term because of fourth quarter earnings,” said James Liu, global market strategist at JPMorgan Funds in Chicago. “So the broad SP 500 will take a hit based on that, but over the next several quarters it is clearly going to be a good thing.”

As recently as Tuesday, the 10-day correlation between the SP 500 .SPX and Brent crude LCOc1 stood at 0.97, meaning each moved in almost perfect sync with the other. The correlation has been breaking down and last stood at 0.42, with Brent stumbling 3.1 percent, while the SP 500 surged 2.4 percent, on Thursday.

According to data from SP, energy .SPNY has fallen to a market share representation of 8.31 percent, from 9.7 percent at the end of the third quarter, as names such as Denbury Resources (DNR.N), Nabors Industries (NBR.N) and Halliburton (HAL.N) have each tumbled more than 35 percent.

With investors hoping oil prices have at least stabilized as Brent hovers around the $60 mark, selling pressure could resume on equities if the downward march for oil begins again, weighing on the broader SP index and tightening the correlation.

(This story changes date to Dec 19 from Dec 18)

(Additional reporting by Caroline Valetkevitch; Editing by Nick Zieminski)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/9-VQ5Z9fMvA/story01.htm

Obama vows U.S. response to North Korea over Sony cyber attack


WASHINGTON (Reuters) – President Barack Obama vowed on Friday to respond to a devastating cyber attack on Sony Pictures that he blamed on North Korea, and scolded the Hollywood studio for caving in to what he described as a foreign dictator imposing censorship in America.

Obama said the cyber attack caused a lot of damage to Sony but that the company should not have let itself be intimidated into halting the public release of “The Interview,” a lampoon portraying the assassination of North Korean leader Kim Jong Un.

“We will respond,” Obama told an end-of-year news conference. “We’ll respond proportionally, and we’ll respond in a place and time and manner that we choose.”

Earlier, the Federal Bureau of Investigation announced it had determined that North Korea was behind the hacking of Sony, saying Pyongyang’s actions fell “outside the bounds of acceptable state behavior.”

Obama said North Korea appeared to have acted alone. Washington began consultations with Japan, China, South Korea and Russia seeking their assistance in reining in North Korea.

It was the first time the United States had directly accused another country of a cyber attack of such magnitude on American soil and set up a possible new confrontation between longtime foes Washington and Pyongyang.

The destructive nature of the attack, and threats from the hackers that led the Hollywood studio to pull the movie, set it apart from previous cyber intrusions, the FBI said.

A North Korean diplomat at the United Nations in New York said Pyongyang had nothing to do with the cyber attack. “DPRK (North Korea) is not part of this,” the diplomat told Reuters.

Obama said he wished that Sony had spoken to him first before yanking the movie, suggesting it could set a bad precedent. “I think they made a mistake,” he said.

“We cannot have a society in which some dictator someplace can start imposing censorship here in the United States,” he said. “Because if somebody is able to intimidate folks out of releasing a satirical movie, imagine what they start doing when they see a documentary that they don’t like, or news reports that they don’t like.”

Sony Pictures Entertainment Chief Executive Michael Lynton insisted the company did not capitulate to hackers and said it is still looking for alternative platforms to release “The Interview.” Earlier this week, a spokeswoman for Sony had said the company did not have further release plans for the $44 million film starring Seth Rogen and James Franco.

“We have not caved, we have not given in, we have persevered and we have not backed down,” Lynton told CNN. “We have always had every desire to have the American public see this movie.”

OBAMA’S OPTIONS

Despite Obama’s stern warning to North Korea, his options for responding to the computer attack by the impoverished state appeared limited. The president declined to be specific about any actions under consideration.

North Korea has been subject to U.S. sanctions for more than 50 years, but they have had little effect on its human rights policies or its development of nuclear weapons. It has become expert in hiding its often criminal money-raising activities, largely avoiding traditional banks.

The FBI said technical analysis of malicious software used in the Sony attack found links to malware that “North Korean actors” had developed and found a “significant overlap” with “other malicious cyber activity” previously tied to Pyongyang.

But it otherwise gave scant details on how it concluded that North Korea was behind the attack.

U.S. experts say Obama’s options could include cyber retaliation, financial sanctions, criminal indictments against individuals implicated in the attack or even a boost in U.S. military support to South Korea.

It could also take the largely symbolic step of restoring North Korea to its list of countries designated as sponsors of terrorism, which carries automatic restrictions.

But the effect of any response would be limited given North Korea’s isolation and the fact that it is already heavily sanctioned for its disputed nuclear program.

There is also the risk that an overly harsh U.S. response could provoke Pyongyang to escalate into cyber warfare.

“GUARDIANS OF PEACE”

The attack on Sony, more than three weeks ago, was conducted by hackers calling themselves “Guardians of Peace.”

The FBI said the hack rendered thousands of Sony’s computers inoperable, forced the company to take its entire computer network offline, stole proprietary information and confidential communications.

U.S. movie theater chains had said they would not show the film after hackers made threats against cinemas and audiences. Many in Hollywood and Washington criticized Sony’s cancellation as capitulating to the hackers.

Security experts said Sony’s decision to shelve the film could mean that more businesses will be targeted for cyber extortion. “I fully expect to see more actions like this against film studios or other soft targets,” said Jeffrey Carr, chief executive officer of Taia Global, a cyber security company.

Obama called on the new Congress to work with his administration on new cyber security legislation.

Non-conventional capabilities such as cyber warfare and nuclear technology are the weapons of choice for the impoverished North, defectors said in Seoul.

They said the Sony attack may have been a practice run for North Korea’s “cyber army” as part of its long-term goal of being able to cripple its rivals’ telecommunications and energy grids.

(Additional reporting by Roberta Rampton, Susan Heavey, David Chance, Arshad Mohammed and David Brunnstrom in Washington and Ju-min Park and Jack Kim in Seoul, Editing by David Storey, Bernard Orr)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/QBg-iRkvzig/story01.htm

Boeing on target for 787 deliveries, though costs are a concern


SEATTLE (Reuters) – Boeing Co (BA.N) has more than enough 787 Dreamliners in the production pipeline to meet its year-end delivery target of 110 aircraft, despite concerns a shortage of seats could cause the world’s biggest aircraft maker to miss its target, according to industry experts and a Reuters review of its factory.

A Reuters survey of jets in production at Boeing’s factory in Everett this week showed 14 of the high-tech planes parked outside, and at least five undergoing assembly inside.

Boeing has to deliver 14 787s in December to meet its year-end target, after delivering 96 through the end of November.

The company has delivered eight 787s this month, leaving just six for the remainder of the year, according to industry sources and plane-spotting blog All Things 787.

Concern about the target rose after French seat maker Zodiac Aerospace SA (ZODC.PA) said on Dec. 11 that production delays on seating would continue to affect its profits.

Boeing declined to comment.

The pace of 787 deliveries is important to Boeing investors as a gauge of progress in lowering the cost of building each jetliner. In theory, aircraft become cheaper to produce over time as workers learn procedures and iron out kinks on the factory floor.

Three years after the 787 entered service, Boeing continues to lose as much as $30 million on each 787 it produces, according to Richard Aboulafia, an analyst at Teal Group. He bases the figure on Boeing’s deferred production cost, which reached $25.2 billion in the third quarter, more than analysts expected.

“The continued creep up in 787 deferred production costs means that profitability ramp-up of the program may be slower than previously expected,” Ron Epstein, an analyst at Bank of America Merrill Lynch, wrote in a note to clients at the time.

Boeing has said it is incurring more deferred costs in part because it is buying parts for new variants of the 787 to ensure they are on hand when the factory needs them.

Epstein expects Boeing to beginning digging out from those costs late next year or early next year, but that depends on smooth production and the steady delivery of 787s to customers.

(Reporting by Alwyn Scott. Editing by Andre Grenon)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/kZthpeUX0Fc/story01.htm

Former Chrysler Group expands Takata driver-side air bag recall globally


DETROIT (Reuters) – FCA US (FCAU.N), the former Chrysler Group, on Friday expanded a U.S. regional recall of older cars with potentially defective driver-side Takata air bags to a global action, affecting more than 3.3 million vehicles.

FCA was one of five automakers asked by U.S. regulator National Highway Traffic Safety Administration last month to expand a recall of such vehicles beyond a limited area with high humidity.

The FCA total for Takata Corp (7312.T)-related recalls is now 3,672,770, including affected passenger-side airbags.

The number of vehicles recalled globally, for all automakers, since 2008 for Takata air bag problems tops 24 million.

Takata has said that extended exposure to high humidity could damage the propellant in the inflators, causing them to spray vehicle occupants with metal shrapnel when the air bags inflate.

Ford Motor Co (F.N) expanded its recall to a national U.S. action on Thursday, joining Honda Motor Co (7267.T) and Mazda Motor Corp (7261.T). Only BMW (BMWG.DE) has not expanded its regional recall and officials with the German automaker could not be reached to comment.

Driver-side air bag inflator incidents have been linked to at least five deaths, none in FCA vehicles.

FCA said neither it nor Takata has identified a defect in the affected population of inflators, which the automaker said are different from the ones linked to the five deaths. FCA said it continues to study the suspect inflators.

Outside of Florida, one of the regions covered by the initial regional recall, no FCA vehicles have been linked to an air bag that has deployed with too much force, the company said. It is aware of one injury related to the issue in an older-model sedan in Florida.

FCA said the expanded recall includes 2,890,785 vehicles in the United States, 258,586 in Canada, 66,436 in Mexico and 99,030 outside of North America.

Covered are certain 2004-2007 model-year vehicles, including Dodge Ram 1500, 2500 and 3500 pickups, Dodge Durango and Chrysler Aspen SUVs, Chrysler 300 and Dodge Charger sedans, Dodge Magnum station wagons and Mitsubishi Raider and Dodge Dakota small pickups, the company said.

Last week, FCA expanded its U.S. recall of vehicles with Takata passenger-side air bags, adding more affected regions.

(Reporting by Ben Klayman in Detroit; Editing by Richard Chang)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/UyzWZ19GJKQ/story01.htm

Exclusive: GM develops contingency plans in case Takata recalls widen


DETROIT (Reuters) – General Motors Co (GM.N) has developed contingency plans in case recalls of potentially lethal Takata-made air bag inflators widens, forcing the U.S. automaker to repair millions of vehicles, the company said on Friday.

More than 21 million vehicles have been recalled globally by numerous automakers since 2008 because of defective Takata Corp (7312.T) inflators that could rupture and shoot metal shards into the vehicle and have been linked to at least five deaths.

GM’s plans include directing Takata to share with rivals TRW (TRW.N) and Autoliv (ALV.N) the No. 1 U.S. automaker’s air bag specifications and data so any replacement parts made by others would work in GM vehicles, GM spokesman James Cain told Reuters in response to questions about the company’s plans. This approach secures future capacity if it is necessary, he said.

“Basically, we bought an insurance policy so that the capacity is there if we need it,” Cain said. “We don’t want to be caught short-handed.

“There is only so much inflator capacity in the industry and we need to be prepared, so what we’ve done is prudent,” he added.

While Takata has not determined what is causing the problems in its air bags involved in recalls in U.S. regions of high humidity, the company has said one factor is the aging of the inflators. That has many automakers concerned that inflators of similar design in their vehicles could face recall at a later date.

Takata said in a statement: “Takata cannot confirm or comment on discussions with particular customers. As our chairman has stated, Takata is increasing its production of replacement units and is committed to working with its customers and other air bag manufacturers to increase production capacity even further.”

Officials with Autoliv and TRW could not immediately be reached to comment.

Takata said this month it would boost capacity to build replacement inflators at its Monclova, Mexico, plant by almost a third in January to 450,000 a month, but some automakers do not want to wait for that to come through.

Takata’s largest customer, Honda Motor Co (7267.T), said this month that it had signed a deal to have Autoliv begin making replacement parts in about six months and the Japanese automaker also said it had opened talks with inflator maker Daicel Corp. (4202.T)

Analysts who follow the air bag industry have said the Japanese safety equipment maker has seen some shift of future contracts to rivals and any such move by GM, Takata’s third-largest customer, would hurt the supplier. Cain, however, declined to discuss the automaker’s future business.

BMW (BMWG.DE) last month disclosed that Takata would shift inflator production for the German automaker’s vehicles to the Japanese firm’s plant in Germany.

On Friday, Nissan Motor Co (7201.T) Chief Executive Carlos Ghosn told reporters at the company’s Yokohama, Japan, headquarters it was too soon to talk about future sourcing of air bags. He declined to comment on Takata’s response to the recall crisis.

GM has had no incidents related to the latest recalls in U.S. regions of high humidity nor any indication that any vehicles are affected other than the small number of Pontiac and Saab vehicles already recalled, Cain said.

Any widening of the Takata recalls could potentially affect millions of GM vehicles with Takata air bags, including the GMT 900 full-size pickup trucks – the Chevrolet Silverado and GMC Sierra – and related SUVs, the automaker said.

The GMT 900 trucks were launched in 2006 and GM built more than 6.5 million. GM switched over to redesigned versions of the pickup starting in May 2013 and the SUV early this year.

(Additional reporting by Mari Saito in Yokohama, Japan)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/RK1PobkfiJM/story01.htm

U.S. labor agency files complaints against McDonald’s


(Reuters) – McDonald’s Corp (MCD.N) and some of its franchisees were named jointly in complaints filed on Friday by the U.S. National Labor Relations Board’s Office of the General Counsel, accusing them of labor violations in a widely anticipated move that could have wide-reaching implications for businesses.

Complaints were filed in 78 cases claiming that McDonald’s workers across the country were fired or intimidated for participating in union organizing and in a national protest movement calling for higher wages.

The complaints strike new ground in treating McDonald’s, the world’s largest restaurant chain, as a “joint employer,” meaning that it could be held liable along with its franchisees for any violations, the NLRB’s general counsel, Richard Griffin, said in a release.

Until now, McDonald’s and other companies that make wide use of franchises and contract employers have been insulated from such liability under the NLRB’s previous definition of what constituted a joint employer.

A McDonald’s spokeswoman said the company and franchisees would fight the claims.

“These allegations are driven in large part by a two-year, union-financed campaign that has targeted the McDonald’s brand and impacted McDonald’s restaurants,” said Lisa McComb, a company spokeswoman.

The complaints will be considered by administrative law judges beginning in March 2015; the decisions can be appealed to the five-member NLRB and ultimately to federal courts.

While Friday’s move was the first step in a long process, it has the potential to rewrite long-held rules governing labor relations between parent companies and franchises that are run as independent businesses.

For the last three decades, the NLRB has held that franchisers may only be considered joint employers if they are involved in setting wages and hiring workers.

Mary Joyce Carlson, counsel for the Fast Food Workers Organizing Committee, the union-backed group behind the protest movement, said Griffin was right to treat McDonald’s as a joint employer because of the control it exerts over franchises, including the way food is prepared and served.

Trade groups said the decision to treat McDonald’s as a joint employer would lead to uncertainty about how employment agreements are enforced and when companies can be sued for labor violations.

“This is chaos,” said Michael Lotito, a lawyer with law firm Littler Mendelson who represents companies in labor disputes.

The real losers could be the franchisees if companies decide to abandon the franchise model, said Robert Cresanti, vice president of the International Franchise Association, whose membership includes McDonald’s.

The franchise association says 8.5 million U.S. workers are employed by franchises.

Griffin, in a separate case in June, asked the NLRB to adopt a broader standard on joint employers that reflects the influence companies like McDonald’s have over working conditions, such as requiring the use of scheduling software.

The board is set to decide in that case whether it will begin to apply the broader standard, which would impact industries far beyond fast food.

(Editing by Alexia Garamfalvi and Leslie Adler)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/GRA5FwgXV0s/story01.htm

Oil surges 5 percent as bears take profits, seeing $60 floor


NEW YORK (Reuters) – Oil closed up as much as 5 percent on Friday, its biggest gain in over two years, as some traders took profits on short positions after prices this week hit their lowest since 2009.

A sharp bout of short-covering prior to expiry of the U.S. January crude oil contract alleviated pressure in a market dominated by sellers the past six months and lighter-than-usual pre-holiday volume exaggerated the rise on a day that otherwise lacked much in the way of headline news.

While some traders may be betting that $60 a barrel Brent represents a likely floor for the market, others remain unconvinced. With uncertainty high, demand for options has surged this week, with the CBOE crude oil volatility index soaring to its highest since 2011.

“This is a surprisingly forceful run up as fundamentally nothing’s changed in this market in terms of supply-demand,” said Gene McGillian, senior analyst at Tradition Energy in Stamford, Connecticut.

“I think the switch in WTI’s front-month and the second short-covering act for the week kind of got overblown.”

Brent’s front-month settled up $2.11, or 3.4 percent, at $61.38 a barrel, after closing twice this week below the psychologically key level of $60, and continued to rise as high as $62.66 in post-settlement trade.

WTI’s front-month crude settled up $2.41 at $56.52 a barrel, ending the day on an unusually strong note at just 39 cents off the intra-day peak. On average this month, the U.S. crude contract has settled at nearly $1.80 below the day’s peak, according to data analyzed by Reuters.

The closing gain of 4.5 percent was the largest since August 2012, and came after a similar intraday surge in WTI two days ago. But WTI still ended the week 2 percent lower, extending a rout that has nearly halved prices since June.

This week’s earlier slide was fueled by more comments from powerful Gulf OPEC members, including Saudi Arabia Oil Minister Ali al-Naimi, who said they were still unwilling to cut output, preferring to wait for other suppliers to slow down.

And while Friday’s rally was the strongest since the selloff began, traders were not convinced the market, which hit 5-year lows this week, had bottomed.

“If the market keeps going higher, it’ll be a sign for me to sell into the strength,” said Tariq Zahir, managing member at Tyche Capital Advisors in Laurel Hollow, New York. He said lower volume over the holidays is likely to exaggerate moves.

(Additional reporting by Christopher Johnson in London; Editing by Dale Hudson, David Evans, Meredith Mazzilli and Gunna Dickson)

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EU widens trade row with new Boeing subsidy claim


GENEVA (Reuters) – The European Union opened a new front in a decade-old dispute over aircraft subsidies on Friday, launching a complaint at the World Trade Organization alleging illegal tax breaks in Boeing’s (BA.N) home state of Washington.

The EU said the Pacific coast state, historically the base for nearly all Boeing’s plane manufacturing, broke global trade rules by offering tax incentives to persuade the company to manufacture its latest model, the 777X, there.

The EU and United States have yet to resolve two parallel clashes involving mutual accusations of illegal subsidies for Boeing and its European rival Airbus (AIR.PA), collectively the biggest and longest-running dispute in the WTO’s history.

The U.S. Trade Representative’s office (USTR) said the claims “lack any foundation” and showed the EU did not really want a constructive solution, while a Boeing spokesman said they were a diversion from “massive amounts of illegal launch aid” paid to Airbus.

Earlier this year, Reuters exclusively reported that the EU was considering challenging the tax breaks.

The latest manoeuvres could deepen the bitter industrial contest as the 406-seat Boeing 777X, an expanded version of its profitable 777, competes with Europe’s upcoming A350-1000.

In its new complaint, the EU said the WTO had ruled in 2012 that Washington state’s support for Boeing and other aerospace firms until 2024 was illegal, and it was now challenging the extension of these alleged subsidies until 2040.

“The subsidies scheme extension is estimated to be worth $8.7 billion and will be the largest subsidy for the civil aerospace industry in U.S. history,” the EU said in a statement.

Washington state lawmakers extended the tax breaks during a brief special session in November 2013 after Boeing said the credits were necessary for the company to produce the 777X in the state.

State officials say the credits are available to all commercial aerospace producers and that in 2013, 460 firms claimed incentives including “more than 20 European-owned aerospace suppliers”.

Under WTO rules, the United States has 60 days to try to deal with the EU’s concerns in bilateral talks. After that, the EU could ask the WTO to set up an adjudication panel.

That could take until 2016, although the WTO’s dispute system is already congested. Any judgment could be appealed.

A spokesman for Washington state Governor Jay Inslee said he was aware of the request and would continue to work with USTR.

(Additional reporting by Tim Hepher in Paris, Alwyn Scott in Seattle and Krista Hughes in Washington; Editing by Andrew Roche and Christian Plumb)

Article source: http://feeds.reuters.com/~r/reuters/businessNews/~3/eie4zglBdjY/story01.htm