Finance Blog number 1

Stocks dipped Thursday as investors locked in profits at the end of the year.

While U.S. markets fell slightly, stocks are set to end the year on an upbeat note: The S&P 500 index and the Dow Jones industrial average are both up 14 percent after dividends thanks to big corporate profits. The Dow is back to levels last seen in August 2008, prior to the heat of the financial crisis, while the S&P might just eke out the best December in 20 years.

In afternoon trading, the Dow Jones industrial average was off 18 points, or 0.2 percent, to 11,567. The S&P 500 edged down 2, or 0.2 percent, to 1,257. The technology-focused Nasdaq composite index fell 2, or 0.1 percent, to 2,664.

Losses came across the market. All 10 company groups in the S&P index fell.

Intel Corp. rose 0.5 percent to $21.04 to lead the 30 stocks that make up the Dow. American Express had the largest loss, falling 0.9 percent to $42.48.

The week has been thinly traded, and Thursday is being considered the last trading day of note because even fewer traders are expected to show up on Friday, the last day of the year.

Thursday offered the last economic reports for the year. The Labor Department said that the number of Americans applying for unemployment benefits for the first time fell to its lowest point in nearly two and a half years, a sign that the job market is slowly improving paperless payday loans. Applications dropped by 34,000 to 388,000, the fewest since July 2008.

In further positive news, the Chicago Purchasing Managers Index for December showed that companies in the Midwest were faring better than analysts anticipated. The index, which surveys business conditions in the states of Illinois, Indiana and Michigan, came in with a reading of 68.6, up from 62.5 in the previous month. Economists had been expecting the index to drop to 61.

Home sales also fared well. The National Association of Realtors said the number of people who signed contracts to buy homes rose in November, the fourth increase since contract signings hit a low in June. Its index of sales agreements for previously occupied homes increased 3.5 percent.

However, with mortgage rates creeping up, investors worried over its effect on home sales. The average rate on 30-year fixed mortgages rose this week to 4.86 percent, the highest level in seven months.

U.S. Treasurys are also down slightly, which has led to a slight bump up in yields. The benchmark 10-year bond is yielding 3.39 percent, up from 3.35 at Wednesday’s close.

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In an effort to drum up more interest in the state’s small-business loan program, businesses can now borrow $50,000, double the amount previously available. Larger businesses also are now eligible no fax pay day loan.

The Missouri Development Finance Board approved the changes to the state’s Small Business Loan Program on Tuesday. The loans

Michelle Cormier

Goldman Sachs Group Inc. will tie the bonuses of top executives more closely to the company’s financial performance.

The investment bank, based in New York, said in a regulatory filing this week that bonuses will be linked to financial benchmarks that might include return on equity, earnings, or the market price of shares or other Goldman securities.

The plan applies to unspecified “key employees” starting this year. It gives Goldman the ability to take back bonuses from employees who violate company rules.

Goldman says the plan aims to “align compensation with long-term performance in a manner that does not encourage imprudent risk-taking.”

The financial overhaul law passed this summer prohibits pay that would encourage excessive risk.

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Islamic bonds are outperforming emerging-market debt for a second month as new note sales rebound, Malaysia boosts spending on roads and power plants and confidence returns to the Persian Gulf.

Global Shariah-compliant notes returned 1.2 percent in December, the HSBC/NASDAQ Dubai US Dollar Sukuk Index shows, while bonds in developing regions fell 0.7 percent, according to JPMorgan Chase & Co.’s EMBI Global Diversified Index. Emerging- market returns have dropped as rising yields on U.S. Treasuries gave dollar-based investors less incentive to buy riskier fixed- income assets.

Islamic debt sales increased 34 percent in the second half compared with the first six months as investor confidence was boosted by Dubai World’s September agreement with most of its creditors to restructure $24.9 billion of debt. Developing nation bond funds suffered net outflows for three consecutive weeks until Dec. 8, the longest stretch since the first quarter of 2009, according to Cambridge, Massachusetts-based research firm EPFR Global.

“Demand for sukuk is outstripping supply,” Mohd Noor Hj A Rahman, the head of the Islamic fund management unit at Kuala Lumpur-based OSK-UOB Unit Trust Management Bhd. that manages about 250 million ringgit ($81 million) of assets, said in an interview yesterday. “The better outlook and the debt restructuring in the Gulf has given comfort to investors.”

‘Scrambling’ For Sukuk

Global sales of sukuk, which pay returns based on asset flows to comply with Islam’s ban on receiving and paying interest, fell 24 percent this year to $15.3 billion. There were $6.52 billion of offerings in the first half and $8.75 billion in the second. Issuance reached a record $31 billion in 2007.

“Everyone is scrambling to buy sukuk and the supply is limited,” Noripah Kamso, chief executive officer at CIMB- Principal Islamic Asset Management Bhd. in Kuala Lumpur, said in a telephone interview yesterday. “Pension houses are coming to us and saying I want this money to be invested in sukuk. For the first quarter, we still expect very good pricing for sukuk.”

A Malaysian government 10-year private-led project initiative, including a nuclear power plant and an underground rail network, will spur sales of Shariah-compliant debt next year, Prime Minister Najib Razak said in an Oct. 25 speech in Kuala Lumpur.

Saudi Stimulus

Saudi Arabia’s 1.44 trillion-riyal ($384 billion) stimulus plan may see the kingdom’s borrowers overtake Malaysia as the largest issuer of Islamic debt next year, Tariq Al-Rifai, director of Islamic Market Indexes in Dubai for Dow Jones Indexes, said Dec. 17. The world’s largest oil exporter announced in August a five-year development plan to spur growth, create jobs and diversify its economy away from hydrocarbons.

Malaysian and Persian Gulf infrastructure spending will boost sukuk issuance in 2011, said Badlisyah Abdul Ghani, Kuala Lumpur-based chief executive officer at CIMB Islamic Bank Bhd., a unit of CIMB Group Holdings Bhd., this year’s top sukuk arranger. Islamic bond sales may match 2007 levels next year, he said in an interview on Dec. 22.

Average yields on Shariah-compliant bonds from the Gulf Cooperation Council countries fell for a third consecutive week, down 13 basis points, or 0.13 percentage point, this week to 5.5 percent yesterday, according to the HSBC/NASDAQ Dubai GCC Dollar Sukuk Index.

Spread Narrows

The yield on Dubai Department of Finance’s 6.396 percent sukuk due November 2014 fell 33 basis points this month to 6.48 percent, according to data compiled by Bloomberg. The extra yield investors demand to hold Dubai’s government sukuk rather than Malaysia’s narrowed 62 basis points to 336, Bloomberg data show.

The difference between the average yield for emerging- market sukuk and the London interbank offered rate narrowed 172 basis points this year to 297 yesterday, according to the HSBC/NASDAQ Dubai US Dollar Sukuk Index. In the GCC, the gap shrank 185 basis points to 359.

“We see that the sukuk spread over Libor has narrowed, reflecting that demand for sukuk is stronger,” Zamri Shariff, head of asset management at Asian Finance Bank Bhd., the Kuala Lumpur-based unit of Qatar Islamic Bank SAQ, said in an interview yesterday. “We should start seeing other issuers coming into the fray, the non-traditional sukuk issuing countries like Thailand, Korea and the Philippines.”

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China’s benchmark money-market rate surged to a three-year high, on speculation a shortage of funds will worsen as banks hoard cash before the New Year holiday.

The seven-day repurchase rate rallied even after the central bank pumped a total of 26 billion yuan ($3.9 billion) of capital into the financial market this week, a sixth net weekly injection, according to data compiled by Bloomberg. Policy makers on Dec. 10 ordered lenders to park more money with the central bank for the third time in five weeks to limit inflation.

“Banks are collecting money to prepare for cash-withdrawal demand during the holiday and to meet the loan-to-deposit ratio requirement at the end of each month,” said Liu Junyu, a Shenzhen-based bond analyst at China Merchants Bank Co., the nation’s sixth largest lender. “Every one is badly short of money after making the payments for the reserve ratio hike on Monday.”

The seven-day repo rate, which measures lending costs between banks, jumped 150 basis points to 5.67 percent, the highest level since October 2007, according to a daily fixing published at 11 a.m. by the National Interbank Funding Center. That was the biggest daily gain since June 2008 faxless cash advances.

The People’s Bank of China sold 1 billion yuan of three- month bills at a yield of 1.8131 percent in open-market operations, unchanged for a sixth straight week, according to a statement on its website.

The yield on the 3.28 percent government bond due October 2020 rose 3.5 basis points to 3.80 percent, Interbank Funding Center data show. One-year interest-rate swaps, or the fixed cost needed to receive the floating seven-day repurchase rate, climbed eight basis points to 3.15 percent.

The yuan was little changed at 6.6431 per dollar as of 4:30 p.m. in Shanghai, according to the China Foreign Exchange Trade System.

Twelve-month non-deliverable forwards climbed 0.1 percent to 6.5043 per dollar, reflecting bets the currency will strengthen 2.2 percent in one year, according to data compiled by Bloomberg.

–Judy Chen. Editors: Sandy Hendry, Dirk Beveridge

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at +86-21-6104-3043 or xchen45@bloomberg.net.

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Walgreen Co. said Wednesday that its net income jumped 19 percent in the fiscal first quarter as thousands of newly renovated stores and more successful promotions boosted sales at the largest drugstore operator in the U.S.

Over the past few years, Walgreen has spent hundreds of millions of dollars remodeling its stores in order to improve sales and reduce inventory costs. After months of uneven results, Wednesday’s results indicated the company’s plans may be paying off. Walgreen shares soared as high as $40.20 Wednesday, the stock’s highest price since October 2009.

The Deerfield, Ill., company said net income rose to $580 million, or 62 cents per share, from $489 million, or 49 cents per share. Revenue rose 6 percent to $17.34 billion from $16.36 billion.

Analysts surveyed by Thomson Reuters expected a profit of 54 cents per share on revenue of $17.31 billion, on average.

Write-downs decreased sharply. Walgreen reported $1 million in write-downs related to the Customer Centric Retailing plans in its latest quarter, a fraction of the $28 million recorded a year ago. Besides renovating stores, the company is also simplifying product assortments and adding new products such as wine and beer.

The company also boosted its results by buying back $510 million in stock during the quarter. That helped reduce its shares outstanding by 6 percent year over year and increase its per-share profit.

“We think the latest results offer some confirmation that Walgreen’s merchandising and cost-reduction initiatives are having the intended impact,” said analyst Ajay Jain of Hapoalim Securities cash advance today.

Revenue at stores open at least a year rose 0.8 percent during the quarter, Walgreen said. Sales of front-end items like cosmetics were up 0.4 percent and pharmacy revenue grew 0.9 percent. Revenue at stores open at least a year is considered a key measurement of retailer health because it excludes results from stores that have been acquired, opened or closed over the last year from the comparison. The revenue figure excludes sales from the Duane Reade chain, which was acquired in April.

The company said front-end sales benefited from better promotions and pricing of products, while generic drug sales gave the pharmacy a boost. Gross profit margins improved by 80 basis points to 28.5 percent.

The company also administered about 5.6 million flu shots through Nov. 30, a slight increase from last year’s first quarter. Walgreen said it is the largest provider of flu shots in the U.S. except for the federal government.

Walgreen ran 7,651 stores as of Nov. 30. It has expanded by about 500 stores over the past year, with about half that growth from the Duane Reade purchase.

In midday trading, Walgreen shares rose $2.55, or 6.9 percent, to $39.38. The stock had traded between $26.26 and $37.95 over the last year.

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Canada

Sen. Christopher “Kit” Bond R-Mo., who gave his farewell speech on the Senate floor Tuesday, hasn’t quite packed his pens and papers away just yet.

Bond, who is leaving office on Jan. 2 after four terms in the U.S. Senate, co-sponsored a bill Wednesday that would support funding for domestic rare earth element production. Sen. Evan Bayh D-Ind., sponsored the bill. Bayh also is leaving office in January.

Bond said in October that he would introduce legislation to provide federal support of domestic production of rare earth elements while visiting the Pea Ridge mine near Sullivan.

St. Louis County-based Wings Enterprises owns the Pea Ridge mine and is in the process of reopening it to produce iron ore and rare earth elements. Rare earth elements are currently produced almost entirely in China .

“It is critical that we have a domestic source of rare earth minerals, a necessary component for a number of technologies that Americans are increasingly dependent on - from cell phones to MRI machines to smart bombs to hybrid care engines,” Bond wrote on his website.

Senate Bill 4031 would fund a feasibility study for building a cooperative refinery for rare earth elements somewhere in the U.S., and provide $50 million in funding to boost the rare earth supply chain. When Bond visited Pea Ridge in October, he said the site could be a good location for a co-op. On Wednesday, the bill was referred to the Committee on Energy and Natural Resources.

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Wall Street is opening quietly a day after major indexes hit two-year highs.

No major corporate earnings announcements are on the day’s schedule.

The Conference Board will release its November index of leading economic indicators Friday morning. Economists expect it to rise 1.1 percent, signaling that the economy is growing.

The House passed an $850 billion tax cut package late Thursday.

European stocks are down 0.5 percent after Moody’s cut Ireland’s bond rating by five notches.

In early trading, the Dow Jones industrial average fell 15 points, or 0.1 percent, to 11,484. The S&P 500 fell 1 point, or less than 0.1 percent, to 1,242. The Nasdaq composite index rose 5, or 0.2 percent, to 2,643.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

NEW YORK (AP) _ Wall Street appeared set for a quiet open Friday, a day after stocks hit two-year highs.

No major corporate earnings annoucements are on the day’s schedule. Many investors will be waiting for the Conference Board to release its November index of leading economic indicators after the market opens.

Economists expect the index _ which tracks data such as orders for new goods and materials _ to rise 1.1 percent. It rose 0.5 percent in October.

Before the opening bell, the Dow Jones industrial average futures rose 3 points, or less than 0.1 percent, to 11,493. Standard and Poor’s 500 futures fell 1.1, or 0.1 percent, to 1,237.40. Nasdaq 100 futures fell 0.8, or less than 0.1 percent, to 2,218.50.

The Dow and S&P 500 index closed Thursday at their highest levels since September 2008 payday advance lenders.

Stocks overseas were mixed. Asian markets closed slightly higher. European markets fell after Moody’s Investors Service downgraded Ireland’s government bond rating by five notches and said that the country had a weak economic outlook. The Euro Stoxx 50, which tracks blue chip companies in countries that use the euro, fell 0.6 percent.

The House passed an $850 billion tax cut package late Thursday night. The bill will extend Bush-era tax cuts for another two years. House Democrats had complained that the tax package is overly generous to the nation’s wealthiest taxpayers.

In a sign that companies are spending more money on technology, software giant Oracle Corp. said after the market closed Thursday that its net income jumped 28 percent last quarter. That beat analyst expectations. The company’s stock gained 4 percent to $31.61 in pre-market trading.

Research in Motion Ltd., the maker of the Blackberry, also said late Thursday that its third quarter earnings beat analyst expectations. The company’s stock jumped 7.2 percent to $64 in pre-market trading.

Before the market opened, Canadian bank BMO Financial Group said that it will buy Marshall & Ilsley Corp. for $4.1 billion in stock. BMO, which is based in Toronto, said it will repay the preferred shares that Marshall & Isley issued as part of the Troubled Asset Relief Program before the deal closes in July.

The yield on the 10-year Treasury fell slightly to 3.37. It traded at 3.42 late Thursday.

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