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Quebec’s $1 billion lifeline to Bombardier a ‘gamble on the unknown’

MONTREAL/QUEBEC CITY Quebec’s $1 billion bailout for aerospace company Bombardier Inc (BBDb.TO) is meant to protect thousands of jobs in one of the province’s top industries, but risks worsening the finances of Canada’s most indebted province if it fails.

The deal would give Quebec’s Liberal-run government a 49.5 percent stake in Bombardier’s troubled CSeries jet program, according to the announcement on Thursday, easing shareholder fears about the company’s future but triggering an outcry from taxpayer advocates and opposition politicians.

“This is what we call corporate welfare,” said Aaron Wudrick, the federal director of the Canadian Taxpayers Federation, adding the deal could lead to long-term costs for Quebec taxpayers if it fails.

The province, which has practically frozen money for social services and education as it tries to balance its budget in the current fiscal year, had a deficit of C$2.35 billion for the last year ended March 31. There is also public disenchantment following a wide-ranging corruption probe into the awarding of construction contracts.

But the fortunes of Quebec’s aerospace sector are closely tied to those of Bombardier, a household name in the province. Its 18,000-strong workforce in Quebec is largely aerospace-focused and its presence in the province helps support many smaller part vendors and suppliers in the region.

The aerospace industry makes up about 10 percent of Quebec’s export revenues, about 1.5 percent of its gross domestic product, and about 40,000 jobs that pay double the provincial average – making it an economic lynchpin.

Bombardier is majority-owned by the Bombardier-Beaudoin family, which has traditionally had close connections with the political establishment in Quebec.

“The decision to do nothing, it’s something we couldn’t even consider,” Quebec Economy Minister Jacques Daoust told Reuters after announcing the deal. “The day that Bombardier is in difficulty, the entire aerospace industry is in difficulty.”

Quebec is pumping money into its financing arm Investissement Quebec to support the CSeries project, but is not making a broader investment in Bombardier which has a profitable rail unit.

It is the biggest investment to date made by Investissement Quebec, which holds stakes in several other companies deemed critical to Quebec’s economic development, such as the Stornoway diamond mine and the Alouette aluminum smelter.

Bombardier’s narrow-body CSeries line of jets, which is set to compete against Boeing Co’s BA.N 737 planes and Airbus Group’s (AIR.PA) A319 and A320 jets, has been delayed for years and is billions of dollars over budget. The struggle to get the CSeries project done and in the air has left Bombardier saddled with more than $9 billion in debt.

The gamble faces further big risks as new orders for the CSeries jet have dried up in a soft market.

Bombardier touted the fuel economy of the CSeries, which has a 20 percent fuel burn advantage over comparable planes, as a key selling point. But that advantage has been lessened by lower oil prices and competition from new generation planes built by Boeing and Airbus that have been outfitted with fuel efficient engines.

In a bid to raise cash, Bombardier has been looking at a wide range of options, including the sale of a stake in the CSeries and the sale of a minority stake in its rail arm.


Credit analysts likened the Quebec deal to the $13.7 billion federal and provincial bailout of Canada’s autos industry in Ontario during the financial crisis.

“If you look at what happened in Ontario, you would probably conclude that it did work out in that case,” said Douglas Offerman, a senior director at Fitch Ratings. “I think (the Quebec) deal speaks to the province’s desire to ensure that it remains a center for aerospace.”

“Doing something, or not doing something … both decisions in some respects are a gamble on the unknown,” he said.

DBRS Quebec debt analyst Travis Shaw said the investment was “not unmanageable” for the province but more information was required to gauge whether it could affect Quebec’s plan to balance its budget.

Daoust, who said the investment would not impact the province’s budget, said Quebec’s risk is limited to the $1 billion investment in the CSeries. He said it would generate returns if the program is a success, but lead to losses if it fails.

“It’s a risky situation, but it’s a two-way street,” he said. “We took it from the positive side.”

Daoust said the province has no obligation to put in additional investment if Bombardier’s expenses rise more than expected.

Bombardier’s CEO Alain Bellemaire said the issue of the company’s dual class share structure – which has been criticized by investors and analysts – did not come up in its negotiations with Quebec on the CSeries.

The Bombardier-Beaudoin family controls 85 percent of the super voting “A” shares which have 10 times the number of votes as the “B” shares. In total, the family has a roughly 54 percent voting stake in the company.


Critics of the deal said it raises broad questions about the use of public funds to support private companies.

“We tear our hair out when we see that there is no private money that is willing to back an entity like Bombardier, and the government steps in,” said Wudrick of the taxpayers federation.

In the Quebec National Assembly, Pierre Karl Péladeau, leader of the Parti Québécois opposition said the government acted as “pitiful negotiators” and was assuming “all the risks for the benefit of the shareholder.”

A spokesman for economy minister Daoust said the government hired an external firm to conduct due diligence on the CSeries before signing the deal with Bombardier.

Quebec teachers and civil servants, who are among about 541,000 public-sector employees trying to negotiate a new collective agreement, staged a one-day strike across the province on Thursday carrying banners that read: “1 billion for Bombardier, cuts for needy students.”

Before the latest announcement, Bombardier had received about C$730 million in contributions and loans from the federal government since 1984, according to data compiled by the Canadian Taxpayers Federation.

(Additional reporting by Euan Rocha, Kevin Dougherty, and Richard Valdmanis; Writing by Richard Valdmanis; Editing by Martin Howell)

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Asian shares edge down as investors nervous over Fed path

TOKYO Asian shares were down on Friday and on track for a weekly loss as investors grappled with the prospect of higher borrowing costs in the United States, as the Federal Reserve prepares to raise rates amid the backdrop of slowing global growth.

Data released overnight showed U.S. gross domestic product increased at a 1.5 percent annual rate, just shy of the consensus forecast for 1.6 percent growth and slowing from a 3.9 percent rise in the second quarter. But solid consumer spending kept alive the possibility that the Fed could deliver an interest rate increase in December.

On Thursday, the U.S. central bank held policy steady and left the door open to hike interest rates for the first time since 2006 at its Dec 15-16 meeting.

That signal comes amid growing anxiety over a slowdown in global growth, with a wobbly China in particular triggering volatility in global markets in recent months.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS edged down 0.1 percent in early trading, poised to lose 2.5 percent for the week but gain more than 7 percent for October.

On Wall Street overnight, U.S. indexes posted losses but were still on track for their best monthly performance in four years.

Japan’s Nikkei .N225 was down 0.2 percent, on track for a weekly of rise of 0.3 percent and a hefty monthly gain of 8.6 percent, as investors awaited the outcome of the Bank of Japan’s policy meeting, expected some time later in the session, as well as the central bank’s latest economic and price forecasts.

The BOJ is likely to trim its forecasts but stand pat with financial markets stable and no clear evidence yet that overseas headwinds are damaging corporate sentiment, say sources familiar with its thinking.

“We lean towards no change but can see why markets are on edge,” said Sean Callow, senior strategist at Westpac in Sydney.

“This meeting includes the semi-annual outlook report, updating forecasts which will surely include an admission that it will take longer than previously thought for inflation to reach the 2 percent target,” Callow said in a note to clients on Friday.

Data released before the Tokyo market opened underscored how far the BOJ has to go to approach its target, with Japan’s core consumer prices falling 0.1 percent in the year to September, for their second straight month of declines.

Separate data showed an unexpected drop in household spending but tighter labor conditions, suggesting wages might rise in the months ahead.

The dollar was down 0.1 percent against the yen at 120.99 yen JPY=, but up about 0.9 percent for the month against the backdrop of divergent monetary policy expectations.

The euro’s trend was similar, with the single currency adding about 0.1 percent against the dollar to $1.0986 EUR= but shedding about 1.7 percent for the month in which European Central Bank chief Mario Draghi took a surprisingly dovish stance that suggested further monetary easing steps were possible in December.

Crude oil futures slipped after the mixed U.S. economic data exacerbated fears of oversupply and as investors took profits following a rally, but they were still on track to end a volatile week with gains.

U.S. crude CLc1 was down 0.5 percent at $45.82 a barrel, but was up nearly 3 percent for the week and 1.6 for the month, while Brent LCOc1 slipped about 0.4 percent to $48.63, up 1.3 percent for the week and 0.5 percent for October.

(Editing by Shri Navaratnam)

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Starbucks cafe sales hot, but holiday forecast disappoints

Starbucks Corp (SBUX.O) delivered a disappointing profit forecast for the holiday quarter on the heels of strong cafe sales and profit growth, sending its shares lower.

Starbucks’ Americas division and its Europe, Middle East and Africa unit last quarter turned in surprisingly strong sales at established restaurants. But its up-and-coming Asia region fell short during an economic cool-down in China that has roiled global stock markets.

The world’s biggest coffee chain said on Thursday its holiday quarter that began Sept. 28 would be dented by the effect of the strong U.S. dollar.

The company, known for starting its fiscal years with conservative estimates, also issued a 2016 forecast with little upside for investors who are grappling with concerns that shares of the Seattle-based chain are too hot after rallying more than 60 percent over the past year.

Starbucks shares fell as much as 3 percent in after-hours trading, before settling at $62, down 0.8 percent.

Global sales at cafes open at least 13 months rose 8 percent in the fiscal fourth quarter, beating the 6.9 percent rise expected by analysts polled by research firm Consensus Metrix.

China’s cooling economy has global investors on edge and already has been blamed for soft results from KFC and Pizza Hut parent Yum Brands Inc (YUM.N).

Starbucks executives said they have not seen a systemic slowdown in China, noting that comparable sales continued to accelerate into October.

The company declined to break out same-store sales for China, home to 1,800 Starbucks cafes, or about 8 percent of the company’s total. Starbucks, which expects China to one day be its largest market outside the United States, said it would have 3,400 cafes there by 2019.


Chief Executive Howard Schultz attributed the better-than-expected fourth-quarter cafe sales growth to several new initiatives at the chain, which recently improved its food and is rolling out new drinks such as the Toasted Graham Latte.

Among other things, Schultz said U.S. cafe service improved and turnover fell after Starbucks raised pay and improved benefits for cafe workers. The company added new delivery services and introduced mobile technology that allows customers to skip lines by ordering and paying for their drinks via mobile devices.

“Starbucks is playing the long game,” Schultz said on a call with analysts.

Fourth-quarter net income jumped 11 percent to $652.5 million, or 43 cents per share, matching analysts’ average target according to Thomson Reuters I/B/E/S.

Starbucks estimated first-quarter earnings of 44 cents to 45 cents, excluding items. Analysts on average had a target of 47 cents for the quarter, the company’s biggest for revenue, according to Thomson Reuters I/B/E/S.

The company forecast fiscal 2016 earnings, excluding items, of $1.87 to $1.89 per share, in line with analysts’ average call for $1.88 per share.

(Reporting by Lisa Baertlein in Los Angeles; Editing by Richard Chang)

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Target to offer free U.S. shipping, strikes global shipping deal

NEW YORK Target Corp (TGT.N) said it will drop shipping fees for all online orders during the holiday shopping season for a second year in a row, ratcheting up competition with rivals including Wal-Mart Stores Inc (WMT.N) and (AMZN.O).

The discount retailer also said it has struck a deal with Borderfree Inc to ship products to 200 countries and territories outside the United States during the holiday season.

This comes as Target expands differentiated products and stylish merchandise at affordable prices to draw in its core customer base of middle-class shoppers. Last month, the retailer said it will price-match its largest rivals in-store and online.

“Traffic is very important for us during the holidays and … free shipping was very well received last year,” Chief Executive Officer Brian Cornell said on Thursday. He expects the shopping season to be driven by discounts to lure shoppers who remain cautious about making purchases.

Target will offer free shipping for orders placed online from Nov. 1 to Dec. 25, he said. Target currently requires a minimum online order of $25 to qualify for free shipping.

Wal-Mart has said it will keep its minimum online order size for free shipping at $50 this holiday season.

Best Buy Co Inc (BBY.N) will waive its $35 minimum through early January, while Amazon offers free delivery to members of its Prime shipping service.

Target expects its ship-from-store program which it has recently expanded to 460 stores to become the real differentiator and speed up delivery times.

Growing digital sales, which were less than 3 percent of Target’s business through the first half of the year, has been a priority for Cornell. Free-shipping boosted Target’s digital sales 36 percent during the fourth quarter last year.

Among other initiatives, Target said it will expand its online grocery delivery partnership with Instacart to six stores during the holidays from two currently.

It will also expand its curbside pickup service next week to 121 stores from 21 currently.

Target will hire 1,400 associates to improve product presentation in its stores. It plans offer a large selection of stylish handcrafted items, exclusive Star Wars toys and faux fur during the holidays and broadens the appeal of its stores by hanging graphics and icons like its bull terrier mascot Bullseye, Chief Marketing Officer Jeff Jones said.

It will also have a section at the front of its store which will offer merchandise for a few dollars each.

(Reporting by Nandita Bose in New York, Editing by Tiffany Wu and Cynthia Osterman)

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CVS, Express Scripts drop Valeant’s Philidor; stock dives

Valeant Pharmaceuticals Inc. sustained hits on several fronts on Thursday after CVS Health Corp and Express Scripts dropped Philidor from their networks in a sign the fallout from the drugmaker’s connection with the specialty pharmacy is spreading.

The moves by the nation’s two largest pharmacy benefit managers whacked Valeant shares before the market close, and pushed them 10 percent lower to $99 after hours.

After coming under pressure this summer, Valeant’s stock plunged last week after short-seller Citron Research said that the company was using its drug distributor, Philidor Rx, to inflate revenue numbers.

About a dozen Valeant officials held a conference call on Monday to address the accusations, which helped ease pressure on the company’s stock. Valeant said it properly accounts for sales through its pharmacy partners and only books revenue once one of its medicines reaches a patient.

Valeant’s stock recovered throughout the week than sank on the CVS and Express Scripts news. CVS, late on Thursday, said its Caremark program was dropping Philidor. CVS took the step following an audit of Philidor, citing “noncompliance” with its provider agreement, the company said.

Shortly after the market close, Express Scripts said it too was ending its ties to Philidor.

CVS did not explain the “noncompliance” further when contacted by Reuters. Bloomberg on Thursday said Philidor has altered doctors’ orders to wring more payment out of insurers, according to former employees and an internal document, which details how to proceed with a prescription for certain Valeant drugs after they have been rejected.

“Valeant’s drugs are provided to patients through many channels, including traditional retail pharmacies, specialty pharmacies, and directly from health care providers,” said Valeant Spokeswoman Laurie Little in an emailed statement.

Philidor declined to comment on Thursday.

CVS and Express Scripts Holdings manage most of the prescriptions filled under health plans run by the nation’s largest insurers. Express Scripts manages prescription benefits for 85 million people.

The move by CVS and Express Scripts will have a direct impact on Valeant, though Philidor accounts for a small portion of the Canadian company’s revenues.

In Valeant’s detailed presentation on Monday that spelled out its dealings with Philidor, the company said that the pharmacy accounted for about 5.9 percent of its total sales so far this year.

The stock was trading as high as $260 per share in August. The next month, U.S. Democratic politicians singled out Valeant for hiking drug prices on consumers, and a federal subpoena followed. With the stock under pressure, the Citron report last Wednesday sent it into a tailspin.


The CVS announcement came after mutual fund manager Ruane, Cunniff Goldfarb Inc., sent a letter to its own investors about the Valeant saga. The Sequoia Fund, which the mutual fund manages, owns 9.93 percent of Valeant and is the company’s largest shareholder.

While the letter is largely a defense of Valeant’s practices, it says that the company needs to move faster with paying down its debt. It also points out that Valeant’s aggressive business practices have “pushed boundaries,” and that the company needs to better manage its image.

“We would stress the importance of taking a more systemic approach to managing business practices with an eye on the company’s long-term corporate reputation,” said the letter dated Oct. 28 and signed by Ruane, Cunniff Goldfarb President Robert Goldfarb and Executive Vice President David Poppe.

Separately, two of the five independent directors of the Sequoia Fund resigned over the weekend, the Wall Street Journal reported on Thursday, citing the board’s chairman. A person who answered the phone at Ruane, Cunniff Goldfarb said the chairman, Roger Lowenstein, could not be reached.


Valeant’s abrupt slide from a hedge fund darling to a drug company under fire has weighed heavily on two of the best known U.S. activist funds: ValueAct Partners and Pershing Square.

ValueAct has been an investor in Valeant since 2006, and played a significant role in instituting the company’s strategy and its current CEO, Michael Pearson. Pearson took over in 2008 and built Valeant into a more than $40 billion company with over 100 transactions. ValueAct, with $19 billion under management, now has two directors on the company’s board, and was the fourth largest shareholder as of June 30.

William Ackman’s Pershing Square, Valeant’s third-largest shareholder, has scheduled a call on Friday at 9 am EDT to address the drug company’s issues. Pershing owned 5.7 percent of Valeant as of June 30, and faced a paper loss of more than $800 million at one point last week.

(Additional reporting by Vidya L Nathan; Editing by Cynthia Osterman, Nick Zieminski and Andrew Hay)

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VW has small U.S. sales gain in first post-scandal month: sources

BERLIN Volkswagen’s (VOWG_p.DE) sales of VW-brand vehicles in the United States have grown “slightly” in October, the first full month since the emissions scandal broke, two people familiar with the matter said.

The German carmaker is offering discounts on new models and other incentives in the world’s second-largest auto market, which have helped to offset a sales ban on all 2.0-litre four-cylinder diesel models enacted last month when VW’s rigging of emissions tests became public, said the people with knowledge of the sales data.

U.S. sales of the VW brand, due to be published on Nov. 3, could show an increase between about 1 and 5 percent, one of the people said.

He cautioned this “trend figure” could still change as dealers often don’t report sales until the last day of the month, which still has two selling days to come. VW’s deliveries were up only 0.6 percent in September to 26,141 cars.

A spokeswoman for VW of America declined comment.

Almost six weeks after it admitted using illegal software to falsify U.S. diesel emissions tests, VW is under pressure to identify those responsible, fix up to 11 million affected vehicles and convince regulators, investors and customers it can be trusted again.

The biggest business crisis in its 78-year history has wiped more than a quarter off VW’s stock market value, forced out its long-time chief executive and tarnished a business held up for generations as a model of German engineering prowess.

Many owners of VW cars in the United States have switched from diesel to petrol-driven models this month with demand for the Passat and Jetta particularly strong, the people said. VW brand’s diesel models accounted for 22 percent of last year’s 366,970 U.S. deliveries.

(Reporting by Andreas Cremer; Editing by Leslie Adler)

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Pfizer, Allergan drug merger talks raise tax hackles in U.S.

Pfizer Inc, the No. 1 U.S. drugmaker, and Botox maker Allergan Plc said they were in friendly talks to create a pharmaceutical colossus but the prospect that the company would seek to avoid U.S. taxes sounded political alarm bells.

Both New York-based Pfizer and Dublin-based Allergan said no agreement has been reached and declined to discuss any terms of the deal, which would potentially set up Pfizer to take advantage of Ireland’s lower tax rates.

Allergan shares rose 6 percent to $304.38 in U.S. trading, while Pfizer closed off 1.9 percent at $34.77.

Pfizer is already facing political pushback at home that is only likely to intensify with the U.S. presidential campaign underway, as candidates take aim at high prescription drug prices and companies looking to avoid paying U.S. taxes.

A spokesman for Democratic front-runner Hillary Clinton said the candidate had not seen details of the proposed merger, but is against tax inversion maneuvers, in which U.S. companies relocate overseas to take advantage of lower tax rates.

“Clinton is committed to cracking down on so-called ‘inversions,’ where a company chooses to leave the U.S. on paper to game the tax system, and believes we should reform our tax code to encourage investment in the U.S., rather than shipping earnings and jobs overseas,” Clinton spokesman Ian Sams said.

Democratic U.S. Senator Charles Schumer of New York said in a statement: “The continued pursuit of inversions, mergers and foreign acquisitions of major U.S. companies for purely tax purposes shows there is a lot more work to be done to stop them.”

From the right, developer and Republican presidential candidate Donald Trump said the deal was a reminder that the U.S. tax code needed an overhaul.


“These corporate inversions take capital and, more importantly, jobs offshore,” he said in a statement. “We need leadership in Washington to get the tax code changed so companies will be coming to America, not looking for ways to leave.”

Billionaire investor Carl Icahn, who has endorsed Trump and launched a $150 million political action committee advocating tax reform to eliminate inversions, said a Pfizer-Allergan deal would result in the loss of the country’s 10th largest company to Ireland.

Analysts speculated a deal could be all or primarily done with stock because under new U.S. rules aimed at curtailing tax inversions, shareholders of the overseas company must own at least 40 percent of the combined entity.

Credit Suisse analyst Vamil Divan suggested a price of $390 per Allergan share, funded by equity and debt. Allergan’s U.S.-traded shares soared as high as $316.80 on Thursday.

Earlier Thursday before the companies confirmed the talks, Pfizer Chief Executive Officer Ian Read reiterated his criticism of U.S. corporate taxes.

“Our tax rate highly disadvantages American multinational high-tech businesses,” Read said at a Wall Street Journal event. “I am fighting with one hand tied behind my back.”

Pfizer’s effective tax rate is 25 percent, while Allergan’s is 15 percent.

Given that both sides characterized the talks as “friendly,” Pfizer is likely to have a much smoother path outside of the United States after running into intense political opposition in Britain and from AstraZeneca Plc’s board in its failed, unsolicited bid last year.

“It’s definitely a far easier target for Pfizer than AstraZeneca,” said Christophe Eggmann, investment director at GAM, who holds shares in both companies. “The hurdle will really be the price.”

Moody’s Investor Service said the deal would have “credit positive implications for both companies.”

A tax inversion is being discussed in the current talks, a person familiar with the matter told Reuters. In its pursuit of AstraZeneca, Pfizer had hoped to employ such a strategy.

Read said Thursday he was open to any moves that produce the best long-term value for the company and shareholders. He said he was looking at various growth strategies, including a deal.

Pfizer is expected to decide by late next year whether to sell or spin off its older, off-patent products unit to pare the business and focus on innovative, patent-protected medicines.

Allergan, the product of a recent merger with generic drugmaker Actavis, is selling a large portfolio of generic medicines to Teva Pharmaceutical Industries Ltd for $40.5 billion.


A purchase of Allergan, with a market value of more than $113 billion, would be the biggest in Pfizer’s long history of huge deals, eclipsing the $90 billion Warner-Lambert acquisition through which it gained control of Lipitor, once the world’s top-selling medicine.

It would also restore the Viagra maker as the world’s largest pharmaceutical company, worth about $330 billion, a position it relinquished after Lipitor went off-patent.

Allergan expects revenue of more than $8 billion in the second half of 2015, not including generic drugs it is selling to Teva.

Pfizer has annual sales of about $48 billion, with about $27 billion from patent-protected drugs, consumer products and vaccines, and about $21 billion from the business it is considering selling.

Since the Warner-Lambert purchase, Pfizer has acquired Pharmacia and Wyeth, each deal under a different CEO.

The deals have led to many thousands of job cuts. It is not known how many cuts would result from a tie-up with Allergan.

Apart from the tax considerations, the deal would give Pfizer access to Allergan’s wrinkle treatment Botox, with $2.4 billion in annual sales, and its $1.3 billion Restasis dry eye treatment.

By Sept. 10, deal-making in all sectors of healthcare this year had reached a record $447.5 billion, according to Thomson Reuters data.

Other large pending tie-ups include pharmacy chain Walgreens Boots Alliance Inc’s planned purchase of smaller rival Rite Aid Corp announced this week, and pending mergers of health insurers Aetna Inc with Humana Inc, and Anthem Inc with Cigna Corp.

(Additional reporting by Gregory Roumeliotis and Caroline Humer in New York, Vidya L Nathan in Bengaluru, Ben Hirschler in London and Amanda Becker in Littleton, N.H.; Editing by Jeffrey Benkoe and Christian Plumb)

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Wall Street stock pickers get hints from Fed, strong dollar

NEW YORK Shares in U.S. industrial companies and exporters may come under pressure through year end as the prospect of an interest rate hike from the Federal Reserve strengthens the dollar and weighs on Corporate America, analysts said.

Consumer stocks, the best performers on the SP 500 .SPX so far this year, could continue to lead.

With Fed officials making it clear that the central bank is looking to raise rates by year end, the already strong dollar could rise even more as investors shift funds to the United States, taking advantage of rates that are higher than in the euro zone or Japan, where central banks are loosening policy.

The greenback is on track to close October at its highest in more than 12 years against the currencies of the major U.S. trading partners, according to the St. Louis Fed’s trade-weighted dollar index. That raises the possibility that companies exposed overseas will see a pinch if exports become pricier.

“You’re going to see a very competitive environment, one which some countries may use currency devaluation as a way to try to enhance their position,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

“For that reason, we don’t see any near-term letup in the pressure that the dollar is likely going to exert on U.S. exporters.”

During the first quarter, while the greenback kept rising sharply, stocks in the industrial, financial, energy and utilities sectors posted negative returns. The best SP 500 sector performers were healthcare and consumer discretionary names.

Wall Street’s recent rebound, however, has been led by these internationally exposed names, in part because they represented a better value for investors. As foreign markets rebounded in October, companies in the top 10 percent in terms of international revenue in the SP 500 gained 15 percent, according to Bespoke Investment Group, a research firm in Harrison, New York.

That may change if the dollar ventures into territory not seen in years.

Should the dollar keep pushing higher, it will pressure large manufacturers who operate overseas. Some, including General Motors (GM.N) and IBM (IBM.N), have already reported hits to the bottom line due to currency translation.

In March, the last time the dollar was this strong, United Technologies’ (UTX.N) Chief Executive Officer Greg Hayes said the company assumed “that we’re going to see the euro at parity with the dollar before the year” and so “we have to make sure the business is as lean as possible to offset these headwinds that we can’t control.”

He pointed to the benefit, weighted heavily to the largest companies, that an eventual parity would sharply stimulate consumption in Europe and could help offset the currency headwind.

A stronger dollar is a headwind “more on the Caterpillar side of things, where demand for heavy industry that goes with mining has had the rug pulled out from it,” said David Gilmore, partner at FX Analytics. “If you attach weak global demand to a higher dollar it is troubling for a lot of manufacturers.”

If the dollar rises more, U.S. consumers and consumer-oriented companies should benefit because some imports will be cheaper and the strong dollar should keep a lid on energy prices. The SP 500 consumer discretionary sector .SPLRCD hit a record high Thursday.

Exporters will get a two-fold hit to balance sheets in a strong dollar environment. Their costs, which are in dollars, will be comparatively higher while their overseas sales will be weaker when they convert from local currencies.

“Many of the big firms have manufacturing in Europe and the hit is (only in currency) translation,” said Scott Lawson, who follows industrials as vice president of Dallas-based investment management firm Westwood Holdings Group.

“But for those that manufacture in the U.S., it’s not just that their sales and profits are translated back into the U.S. dollar at lower rates, but they face price competition within foreign markets that is difficult to offset versus the locals.”

(Additional reporting by Lewis Krauskopf and Dion Rabouin; Editing by David Gregorio)

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Wall St. slips on tech results, chances of Fed hike

U.S. stocks ended slightly lower on Thursday as the market digested disappointing tech earnings reports and the potential for an interest rate hike in December.

The Federal Reserve, which kept rates unchanged at its policy meeting that ended Wednesday, downplayed concerns about global growth and indicated confidence in the U.S. job market’s recovery.

Stocks had jumped on Wednesday following the Fed statement and, after a strong run from the end of September, were due for a “reprieve,” said Jason Ware, chief investment officer at Albion Financial, in Salt Lake City.

“I would just say that we had a big move and this is a bit of a cooling pause the next day,” Ware said.

The three indexes are on track for their best month in four years.

SP utilities .SPLRCU, which tend to do worse when interest rates are rising, were the worst-performing SP sector, off 0.6 percent.

The Dow Jones industrial average .DJI fell 23.72 points, or 0.13 percent, to 17,755.8, the SP 500 .SPX lost 0.94 points, or 0.04 percent, to 2,089.41 and the Nasdaq Composite .IXIC dropped 21.42 points, or 0.42 percent, to 5,074.27.

The three indexes recovered much of the day’s losses late in the session.

After the bell, U.S.-listed shares of Valeant Pharmaceuticals (VRX.N) (VRX.TO) fell 11.5 percent to $98.63, extending losses from the regular session, when it dropped 4.7 percent to end at $111.50.

Express Scripts Holding Co (ESRX.O) and CVS Health Corp (CVS.N) said they had dropped Philidor Rx, a specialty pharmacy used by Valeant, from their networks in a sign the fall-out from the drugmaker’s connection with the specialty pharmacy is spreading.

Also after the close, shares of LinkedIn (LNKD.N) jumped 12.4 percent to $244 as it reported earnings and revenue that beat analysts’ expectations.

The SP healthcare sector ended the session up 0.4 percent, making it the top-performing sector, as Allergan’s shares (AGN.N) shot up 6 percent to $304.38. The Botox maker confirmed it was in buyout talks with Pfizer (PFE.N). Pfizer dropped 1.9 percent.

Sixty percent of the SP 500 companies have reported quarterly results so far. Analysts now expect overall third-quarter profit to decline a modest 1.7 percent, compared with the 4.2 percent drop forecast on Oct. 1, according to Thomson Reuters data.

NXP Semiconductors (NXPI.O) sank 19.7 percent to $73 after its bleak forecast. The slide took down other chipmakers, with the broader semiconductor index .SOX down 3 percent.

F5 Networks Inc (FFIV.O) shares fell 9.3 percent to $110.08 after a disappointing outlook, making it the biggest percentage loser in the SP 500 technology index .SPLRCT.

Declining issues outnumbered advancing ones on the NYSE by 1,852 to 1,185, for a 1.56-to-1 ratio on the downside; on the Nasdaq, 1,820 issues fell and 959 advanced for a 1.90-to-1 ratio favoring decliners.

The SP 500 posted 28 new 52-week highs and 6 lows; the Nasdaq recorded 102 new highs and 76 new lows.

About 7 billion shares changed hands on U.S. exchanges, about even with the 7.1 billion daily average for the past 20 trading days, according to Thomson Reuters data.

(Additional reporting by Caroline Valetkevitch, and Abhiram Nandakumar in Bengaluru; Editing by Nick Zieminski and Andrew Hay)

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