Spain's Metrovacesa agrees sale of Gecina stake

Spanish builder Metrovacesa said it agreed to sell its 27 percent stake in French peer Gecina to a group of investors as it unwinds a costly acquisition made during Spain's housing boom in an effort to pay down debt.

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The buyers - Norges Bank, Credit Agricole Assurances, U.S. fund Blackstone and Ivanhoe Cambridge - will pay 92 euros each for the 16.8 million shares, Metrovacesa said, implying a deal value of 1.55 billion euros ($2.11 billion).

Gecina shares closed up more than 4 percent at 110.95 euros on Friday. Metrovacesa said the stake sale price represented a 10 percent discount to net asset value.

The transaction is expected to be completed by the end of September, Metrovacesa said in a statement late on Friday, provided "certain conditions" were fulfilled relating to the Spanish group's financial restructuring.

Gecina welcomed the agreement, saying in a statement that it would "make it possible to continue putting in place a new shareholding structure".

Blackstone and Canadian property manager Ivanhoe Cambridge, acting in concert, already held 23.03 percent of Gecina, while Credit Agricole Assurances had an 8.56 percent stake.

The builder's troubles go back to its ambitious acquisition of Gecina in 2005, when it took out a 3.2 billion euro syndicated loan. Metrovacesa said last year it would consider selling the stake as it looked to pay down debt.

Blackstone and Ivanhoe Cambridge acquired their stake in January after a debt-for-equity swap. They had been looking at ways to avoid being legally obliged to launch a full takeover bid, newspaper Expansion has reported. ($1 = 0.7332 Euros) (Reporting by James Regan; Editing by Fiona Ortiz and Stephen Powell)

Gates Foundation sells stake in Britain's G4S - report

class="mandelbrot_refrag">Microsoft Corp co-founder Bill Gates has sold his entire stake in G4S Plc , the British security firm trying to bounce back from a series of scandals that have hurt its reputation and profits, Bloomberg News reported.

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The Bill & Melinda Gates Foundation Trust and Cascade Investment, an asset management firm owned by Bill Gates, had last June disclosed a stake in G4S, when its holding crossed the 3 percent threshold for the first time.

A filing on May 28 showed the holding was reduced below 3 percent, and the news agency said a spokesman for the Gates family had confirmed it no longer held any interest.

"Like other large foundations, the foundation trust evaluates its holdings regularly, both for performance and fit," spokesman John Pinette was quoted saying. "As a result of this, the foundation trust no longer holds an investment in G4S."

G4S declined comment and the Gates Foundation could not immediately be reached for comment.

G4S, which runs services such as cash transportation and prison management in more than 125 countries, is in the middle of overhauling its sprawling class="mandelbrot_refrag">business, shaking up management, cutting costs, improving customer service and restructuring weak divisions to help revive its fortunes.

Having failed to provide enough security guards for the London 2012 Olympics, G4S suffered another scandal last July when, alongside rival Serco Group Plc, it was banned from new UK government work after being found to have charged for monitoring criminals who were dead, in prison or not tagged at all.

On Thursday G4S's own security guards ejected protesters from its annual shareholders' meeting, after they criticised the company's work in class="mandelbrot_refrag">Israel, where it provides security at prisons and occupied Palestinian territories.

Gates's investments range from stakes in the class="mandelbrot_refrag">Canadian National Railway Co to drinks group Diageo Plc.

The Bill and Melinda Gates Foundation works to eradicate the world's most deadly diseases and poverty. (Reporting by Neil Maidment; Editing by David Holmes)

UPDATE 1-Gates Foundation sells stake in Britain's G4S

class="mandelbrot_refrag">Microsoft Corp co-founder Bill Gates has sold his entire stake in G4S Plc , the British security firm trying to bounce back from a series of scandals that have hurt its reputation and profits.

Cascade Investment, a firm owned by Bill Gates that manages assets exclusively for the Bill & Melinda Gates Foundation Trust, had last June disclosed a stake in G4S, when its holding crossed the 3 percent threshold for the first time.

A filing on May 28 showed the holding was reduced below 3 percent, and a spokesman for the Gates Foundation told Reuters on Saturday it no longer held any interest in G4S.

G4S declined comment.

G4S, which runs services such as cash transportation and prison management in more than 125 countries, is in the middle of overhauling its sprawling class="mandelbrot_refrag">business, shaking up management, cutting costs, improving customer service and restructuring weak divisions to help revive its fortunes.

Having failed to provide enough security guards for the London 2012 Olympics, G4S suffered another scandal last July when, alongside rival Serco Group Plc, it was banned from new UK government work after being found to have charged for monitoring criminals who were dead, in prison or not tagged at all.

On Thursday G4S's own security guards ejected protesters from its annual shareholders' meeting, after they criticised the company's work in class="mandelbrot_refrag">Israel, where it provides security at prisons and occupied Palestinian territories.

Gates's investments range from stakes in the class="mandelbrot_refrag">Canadian National Railway Co to drinks group Diageo Plc.

The Bill and Melinda Gates Foundation works to eradicate the world's most deadly diseases and poverty. (Reporting by Neil Maidment in London and Doina Chiacu in Washington; Editing by David Holmes and Sonya Hepinstall)

Kraft raises Maxwell House, Yuban retail coffee prices by 10 pct

Kraft Foods Group Inc said on Saturday it raised U.S. class="mandelbrot_refrag">retail prices for its well-known Maxwell House and Yuban roast and ground coffee brands by an average of 10 percent due to rising green bean costs, effective June 6.

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The move follows J.M. Smucker Co's price increase of around 9 percent to Folgers and Dunkin' Donut roast and ground class="mandelbrot_refrag">retail brands earlier in the week.

These are the first official list price increases for both roasters since May 2011.

ICE arabica coffee class="mandelbrot_refrag">futures soared nearly 90 percent between January and April to the highest level in more than two years at $2.19 per lb, following a drought in top grower class="mandelbrot_refrag">Brazil. Arabica futures prices have since dropped around 20 percent.

 
 
 

A Kraft spokeswoman said in an email that the company's instant coffees, single-serve pods, Maxwell House filter packs, Maxwell House International, Gevalia and Tassimo brands were excluded from the price increase. (Reporting by Marcy Nicholson; Editing by Eric Walsh)

Huge Russia-China gas deal still leaves door open to Japan

For once, China looks to have done Japan a favour.

In clinching a $400 billion deal last month to buy Russian gas, China may end up helping out its old political and economic rival in a way that matters hugely for Japan - energy security.

The China-Russia agreement, the biggest gas deal ever, unlocks new gas supplies and could bring down gas prices across Asia, a development that would pay the biggest class="mandelbrot_refrag">dividends for Japan, the world's top buyer of liquefied class="mandelbrot_refrag">natural gas.

Other big Asian gas buyers such as class="mandelbrot_refrag">South Korea and Taiwan could also benefit.

The deal, signed on May 21, cemented a dramatic shift in energy flows from the West to the East. Gas will be transported to China via a new pipeline linking Siberian gas fields from 2018, building up gradually to 38 billion cubic metres a year.

China has massive gas needs, but access to more of the fuel is also vital for Japan since its utilities pay the world's highest prices. Japan buys about a third of global LNG shipments and spent a record 7.06 trillion yen ($70 billion) last year, mostly for electricity generation to replace idled nuclear reactors following the Fukushima disaster in 2011.

There are hopes that piping Russian gas to China will create a new price benchmark that could cut prices for Asian LNG buyers as well as providing new gas sources.

"This will surely put downward pressure on gas prices and some say it is the beginning of the end of the Asia premium," Masumi Kimura, a researcher at Japan Oil, Gas and Metals National Corp (JOGMEC), said in a note, referring to the higher price paid for gas in Asia compared to other parts of the world.

Russia's Gazprom declined to confirm what price the deal with China was struck, but industry sources say it translates to about $10-$10.50 per million British thermal units, an international pricing standard, well below the current level of around $13 for spot Asian cargoes LNG-AS.

A source at one of the biggest Japanese buyers of gas shipped in liquid form said that the new Russian gas should absorb some Chinese pressure on LNG demand in Asia.

Others were cautious, however, over the potential impact.

"The Russian gas will be coming into the northeast of China, into a market that was never going to be served by LNG in the first place," said Gavin Thompson, head of Asia-Pacific gas and power at consultancy Wood Mackenzie.

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RUSSIAN ENERGY

Takashi Hayasaki, general manager of the Japan Petroleum Development Association, said the China-Russia pipeline would "also spur further development of gas fields in Siberia that could be a source of LNG for Japan.".

Japan's Russian purchases have grown with oil and gas flowing from Sakhalin island to the north of Japan since 2009 and oil via the East Siberian Pacific Ocean extension from 2012.

Imports of Russian LNG rose 3.1 percent last year to 8.57 million tonnes, or 9.8 percent of total imports. The ratio is up from 4.3 percent in 2009 when Japan started Russian gas imports.

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Prime Minister Shinzo Abe met Russian President Vladimir Putin five times in the last 18 months, more than any other leader. Amid a flurry of agreements there was talk that closer energy ties could come with the resolution of an island dispute dating from the end of World War II.

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But the diplomatic efforts to take a bigger role in gas projects appear to have fizzled out since the class="mandelbrot_refrag">Ukraine crisis, which has led to sanctions on Moscow that Tokyo has supported.

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Gazprom and class="mandelbrot_refrag">Royal Dutch Shell operate Russia's only LNG plant on Sakhalin, with Japan's Mitsuibishi Corp and Mitsui & Co as junior partners.

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HOLDING OFF LONG-TERM CONTRACTS

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The Chinese deal has also revived talk of a pipeline from Russia to Japan. A group of 33 ruling party lawmakers plans to lobby Abe to sign a deal on a gas link with Putin at an estimated cost to build of about $6 billion compared with more than $40 billion for the Chinese pipeline.

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But Daiske Harada, an economist with JOGMEC focusing on Russia, said Rosneft and Gazprom were more interested in pushing exports by LNG to the Pacific market, not by pipeline.

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Gazpom plans to build a second plant in Vladivostok by 2018, with a capacity of 10 and 15 million tonnes of LNG per year, and also a spur to the Chinese pipeline to bring gas to Vladivostok.

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Rosneft and ExxonMobil also plan an LNG plant on Sakhalin to produce 5 million tonnes a year from 2018.

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Along with Russian supplies, Japan could also benefit with the United States due to start shipping shale gas from as early as 2015. Other potential sources include West Africa and Canada.

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And faced with potential new supplies, Japanese buyers are holding off from signing long-term LNG contracts starting from around 2017 until there is more clarity on class="mandelbrot_refrag">nuclear power, said a source in the class="mandelbrot_refrag">natural gas division of a Japanese trading firm.

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(Additional reporting and writing by Aaron Sheldrick in TOKYO and Jacob Gronholt-Pedersen in SINGAPORE; Editing by Ed Davies)

U.S. authorities extend deadline for Swiss banks in tax case

The U.S. Department of Justice on Thursday extended for one month the deadline for so-called category two Swiss class="mandelbrot_refrag">banks suspected of helping wealthy Americans evade taxes to turn over information by one month.

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More than 100 class="mandelbrot_refrag">banks that have a reason to believe they may have committed tax offences, defined as category two banks, have signed up to the program. They are eligible for a non-prosecution agreement if they come clean and face fines.

The banks now have until July 31 to turn over the necessary information. The Justice Department said it had extended the original June 30 deadline because some banks were having trouble verifying whether an account was undeclared or disclosed in a timely manner to the U.S. Internal Revenue Service.

The Swiss government-brokered program requires the category two banks to hand over some previously hidden information and face penalties equivalent to up to 50 percent of the assets they managed on behalf of wealthy Americans.

Last month Credit Suisse ( id="symbol_CSGN.VX_0">CSGN.VX), which was one of 14 category one banks, became the largest bank in decades to plead guilty to a U.S. criminal charge and will pay more than $2.5 billion in penalties for helping Americans evade taxes.

(Reporting by Joshua Franklin; Editing by Steve Orlofsky)

GM top executives spared in internal report on safety failure

General Motors Co on Thursday issued a report detailing how for 11 years it turned a blind eye to an ignition-switch problem linked to at least 13 deaths but largely pinned the blame on what the report described as incompetent lower-level employees, leaving top brass untouched.

The report, which will be the subject of upcoming congressional hearings, describes shortcomings of GM engineers, including a failure to understand "how the car was built." Meanwhile, according to the 325-page report, the highest levels of the company were not made aware.

Providing a rare peek into the operations of one of the world's biggest automotive companies, the internal investigation said GM had a long-running corporate culture in which nobody took responsibility for problems.

The "GM nod" was how CEO Mary Barra described that culture, "when everyone nods in agreement to a proposed plan of action, but then leaves the room and does nothing," the document said.

In February, GM finally began recalling vehicles for repairs. So far, 2.6 million vehicles have been identified. This recall, coupled with others announced by GM this year, has cost the company about $1.7 billion so far.

By 2011, three years before the recalls began, outside lawyers were warning GM's in-house counsel that they needed to act, the report said.

Barra said 15 employees found to have "acted inappropriately" have been fired. She did not name all the individuals, but said more than half of them had been in senior or executive roles.

During April congressional hearings, Barra was unable to answer many questions, saying the internal investigation would find answers.

But at Thursday's news conference, she still left some questions unanswered, including why GM redesigned the flawed ignition switch but failed to follow normal procedures of assigning a new part number. That has led some critics to believe someone was covering up the change.

Barra, who has served as CEO for about five months, said disciplinary action was taken against five others.

Democratic Senator Edward Markey of Massachusetts, who is pushing legislation to clamp down on automaker defects, said of the GM report: "We need more than an accounting of past mistakes" and "an internal investigation alone is not nearly enough to ensure that a decade-long tragedy like this never happens again."

Since early this year, the Detroit automaker has been enveloped in a scandal over why it took more than a decade to begin recalling low-cost Chevrolet Cobalts, Saturn Ions and other cars with ignition-switch problems that were causing them to stall during operation.

Because of the engine stalls, air bags failed to deploy during crashes - some of them fatal - and drivers had difficulty operating their vehicles because power steering and brake systems also malfunctioned.

"As years passed and fatalities mounted, engineers investigating the non-deployments and attempting to understand their cause were neither diligent nor incisive," the GM report said.

Also infused through the document is the notion that GM engineers misdiagnosed the safety problem by failing to connect dots that would have linked the cars' system failures.

But at the same time, GM "heard over and over from various quarters, including customers, dealers, the press and their own employees that the car's ignition switch led to moving stalls" but employees "failed to take action or acted too slowly."

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RISING CRASH COUNT

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Some new details also emerged about fatalities related to GM's cars.

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The report said GM had identified 54 frontal-impact crashes, involving the deaths of more than a dozen people, in which air bags did not deploy as a possible result of the faulty ignition switch.

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Only last week, GM raised the count to 47, from 35, and has now raised it again, leading to questions about whether the 13 deaths linked to the defect will grow, as consumer advocates have predicted.

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As expected, Barra also confirmed that GM will soon set up a fund to compensate victims of crashes linked to the faulty ignition switches.

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GM officials told reporters that the number of fatalities related to the part defect may rise but added that Kenneth Feinberg, who is looking into victim compensation, will determine that number.

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Reuters reported on Monday that at least 74 people have died in crashes similar to those GM has linked to the faulty switches, based on an analysis of government data.

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Central to the GM investigation, as well as probes by the U.S. Congress, Department of Justice and other federal and state agencies, is why the automaker did not announce vehicle recalls to fix the problem until this past February.

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GM said its investigation, conducted over 70 days, reviewed 41 million documents and more than 230 people were interviewed.

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CONSUMERS NOT PUNISHING GM

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The move to spare the highest executives from blame drew some sharp criticism.

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“How do you truly fix a culture of carelessness and cover-up without cutting the head off the snake?” said Robert Hilliard, a lawyer for a plaintiff in a lawsuit against GM related to the ignition-switch defect.

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Barra previewed the report at the company's technical center in Warren, Michigan, where she received a standing ovation from an estimated crowd of more than 1,000 employees. She emphasized that GM already has taken steps to beef up its internal safety operations.

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Her remarks were broadcast to GM's 220,000 workers globally.

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Despite all the negative publicity in recent months, GM sales have been robust.

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The Detroit automaker reported this week that U.S. sales in May were up 13 percent compared with a year ago, making for the best total sales since August 2008.

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While Barra noted a pattern of "incompetence and neglect" that she blamed on individuals who failed to "disclose critical pieces of information," she added that there was "no conspiracy by the corporation to cover up facts."

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Furthermore, Barra said the internal investigation "found no evidence that any employee made a trade-off between safety and cost" in failing to deal with the safety problem.

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The full report was made public on Thursday.

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'DEEPLY DISTURBING' REPORT

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With the submission of GM's internal investigation, Congress is expected to announce a new round of hearings soon. Further details on a compensation fund for victims and their families are expected by early August.

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U.S. Representative Fred Upton, who chairs the House of Representatives' Energy and Commerce Committee, said the findings of GM's investigation were "deeply disturbing."

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Upton, of Michigan, added that his committee will continue its investigation with an eye on "what legislative remedies may be necessary.”

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Democratic Senator Richard Blumenthal of Connecticut said the GM report "seems like the best report money can buy. It absolves upper management, denies deliberate wrongdoing and dismisses corporate culpability."

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The internal report concluded that Barra, executives who reported directly to her, the board of directors and former CEO Dan Akerson did not know about the defective switches before December.

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It also found that GM's general counsel, Michael Millikin, was not responsible for the mishandling of defects and the recall delay. Millikin, who led the internal probe with former U.S. prosecutor Anton Valukas, is still employed by GM, Barra said.

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More than one lawyer in GM’s legal department was fired as part of the 15 employees let go, including senior safety lawyer William Kemp, according to a source familiar with the matter who asked not to be named. A company spokesman declined to identify anyone fired beyond former engineers Ray DeGiorgio, who in 2002 dubbed the flawed part "the switch from hell," and Gary Altman.

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GM's use of Valukas came under withering attack because his law firm, Jenner & Block, has had ties to the company since 2002.

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Blumenthal, a former prosecutor, said those ties "undermine the credibility of this report" and underscored the need for federal investigations to press ahead.

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On May 16, GM was slapped with a $35 million fine for its delayed response to the defect, which is the maximum that can be imposed by the U.S. Department of Transportation.

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Also, the National Highway Traffic Safety Administration has been leveling a $7,000-per-day fine on GM for missing an April 3 deadline for fully responding to the agency's request for information about the ignition switch problem.

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These fines could be dwarfed, however, by potential actions the Justice Department could take. Earlier this year, Toyota Motor Corp was fined $1.2 billion for concealing problems related to sudden acceleration of some of its vehicles.

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The NHTSA said GM's probe appeared to support the agency's findings that company practices "stood in the way of safety at a time when airbags were failing to work properly in millions of GM products."

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(Additional reporting by Paul Lienert in Detroit and Marilyn Thompson, Susan Heavey and Karey Van Hall in Washington; Writing by Richard Cowan; editing by Lisa Von Ahn and Matthew Lewis)

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Asia offers muted applause for ECB, euro firm before U.S. jobs

class="mandelbrot_refrag">Asian markets turned mixed on Friday as investors offered only polite applause for the European Central Bank's latest stimulus package, while the euro became an unlikely star following a sharp short-covering rally.

Trading was hesitant as attention quickly shifted to the U.S. payrolls report due later on Friday where the outcome is considered even more uncertain than usual.

While the median forecast is for a solid jobs gain of 218,000, estimates range from a little as 110,000 to as high as 325,000. ECONUS

The ECB action provided enough of a boost to risk sentiment to generate a 0.3 percent lift in MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS.

"From a broader perspective, the ECB's latest easing measures are important," said Frederic Neumann, co-head of Asian economics research at HSBC.

"They underline our call that global liquidity should remain highly accommodative for emerging markets and Asia in particular for the foreseeable future."

Japan's Nikkei .N225 went flat after again shying away from testing April's peak at 15,164. Speculation that more government pension funds will flow into the market helped sentiment somewhat.

Financial spreadbetters expected Britain's FTSE 100 .FTSE to open up 0.3 percent, Germany's DAX .GDAXI to gain as much as 0.4 percent and France's <CAC 40> also 0.4 percent.

Wall Street had notched up new records with the Dow .DJI up 0.59 percent and the S&P 500 .SPX 0.65 percent, while the Nasdaq .IXIC managed a 1.05 percent gain.

The gains came after the ECB cut interest rates to record lows and launched a series of measures to pump money into the sluggish class="mandelbrot_refrag">euro zone economy.

Still, ECB President Mario Draghi implied this would be the low point for rates and the bank stopped well short of quantitative easing (QE).

Draghi did emphasize that more action would be taken if needed, but markets are only too well aware that it usually takes ages for the central bank to actually move. The last time the ECB announced such a big package was in August 2012 - a gap of almost two years.

EURO DEFIES GRAVITY

Indeed, dealers noted that the new targeted liquidity offerings announced on Thursday would not be set until September and December, suggesting the ECB might be done for this year.

That could be one reason the euro recouped all its initial heavy losses to be up at $1.3660 EUR= on Friday, a huge reversal from Thursday's trough of $1.3505.

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The bounce reaffirmed the strength of support around $1.3500 and could see the single currency test major chart resistance at $1.3688/90, a break of which would be bullish technically.

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The euro's rebound in turn pushed the dollar down across a host of class="mandelbrot_refrag">currencies from sterling GBP= to the Swiss franc CHF= and Australian dollar AUD=. The dollar index sank back to 80.353 having been as high as 81.020 .DXY on Thursday.

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The dollar's losses on the yen were more limited, easing around 30 pips or so to 102.35 JPY=.

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China's yuan strengthened against the dollar after the central bank fixed its official midpoint up 0.14 percent at 6.1623, the biggest single-day gain since early January, as the dollar slid against a basket of class="mandelbrot_refrag">currencies.

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The fixing increase fanned speculation over whether China is preparing set put the yuan back on an appreciation course after guiding it downward by over 3 percent in the first half of the year, but Chinese forex traders were cautious.

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Global bond markets seemed moderately cheered that a major central bank was still having to ease policy, and yields were generally lower. The class="mandelbrot_refrag">euro zone periphery benefited most with Spanish 10-year yields down 5 basis points at 2.83 percent ES10YT=RR and close to historic lows.

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Yields on two-year U.S. Treasury notes were at 0.38 percent US2YT=RR after dipping 2 basis points on Thursday, while those on 10-year paper fell a tick to 2.58 percent US10YT=RR.

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Gold was up at $1,254.60 XAU= having enjoyed its biggest gain in three weeks overnight as buyers were encouraged by the prospect of yet lower rates for longer in the euro zone.

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Oil prices edged ahead, with class="mandelbrot_refrag">U.S. crude CLc1 up 6 cents at $102.54, while class="mandelbrot_refrag">Brent crude LCOc1 rose 12 cents to $108.91.

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(Editing by Eric Meijer)

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Economy needs to tighten up before rates can rise: Fed's Powell

Federal Reserve Governor Jerome Powell said on Friday that he wanted to see signs that the U.S. class="mandelbrot_refrag">economy was tightening up before before interest rates could be raised.

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While acknowledging that employment in the United States had rebounded, Powell highlighted "significant" slack, referring to unemployed or underutilised workers.

The Fed hopes to end its stimulus programme for the U.S. class="mandelbrot_refrag">economy by the end of the year, clearing the way for it to eventually raise interest rates.

 
 
 

"I’m looking for some sign the economy is getting tight before we can start thinking about raising rates," Powell said at an event in London.

Powell added there was a "significant amount of slack in the labour market" in the United States at present.

In brief prepared remarks, Powell said the Fed's evolving statements about the future path for rates have played an important role in shaping market expectations about U.S. monetary policy.

With the overnight federal funds rate stuck near zero for years, he said the management of expectations has been important in allowing investors to buy and sell class="mandelbrot_refrag">bonds with confidence that rates would not unexpectedly increase.

That, for example, has lowered the premium charged for longer-term loans, and helped tamp down volatility as well, Powell said.

"Forward guidance has generally been effective in providing support for the economy at a time when the federal funds rate has been pinned at its effective lower bound," said Powell, who is awaiting Senate confirmation to a new 14-year term on the Fed board.

Powell added that class="mandelbrot_refrag">markets were "well aligned" with the guidance the central bank has offered about the likelihood that its asset-buying programme will be stopped by the end of the year.

(Additional reporting by Howard Schneider in Washington; Editing by Hugh Lawson)

Strong Mercedes sales have yet to move it past Audi

Mercedes-Benz ( id="symbol_DAIGn.DE_0">DAIGn.DE) keeps delivering double-digit sales growth, but its overhauled line-up of luxury cars has yet to move it past German rival Audi ( id="symbol_VOWG_p.DEVOWG_p.DE).

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Deliveries of Daimler's flagship passenger-car brand rose 10.4 percent in May to a record 134,031 vehicles, helped by 30 percent growth in class="mandelbrot_refrag">China, the company said on Friday.

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That compared with 152,000 deliveries, or 10.8 percent growth, at Volkswagen's Audi which has outsold Mercedes every month this year.

Having eclipsed Mercedes in 2011 as the world's No. 2 luxury carmaker behind BMW ( id="symbol_BMWG.DE_2">BMWG.DE), Audi sold 72,516 more cars than its Stuttgart-based rival in the first five months. Last year, the gap was 114,000.

But launches in March of Mercedes's new C-Class saloon and the GLA offroader may pave the way for a second-half turnaround, analysts say. Other recent overhauls include the top-of-the-line S-Class and the E-Class, both launched about a year ago.

"Mercedes will surpass Audi after the summer, that's when their refreshed lineup will take off," said Hanover-based NordLB analyst Frank Schwope.

The world's No. 3 premium automaker has a goal of pushing sales above 1.5 million this year, after 1.46 million in 2013.

By comparison, Audi is aiming to "clearly" exceed last year's record 1.58 million sales, while BMW is planning for deliveries of 2 million or more, after selling a record 1.96 million in 2013.

(Reporting by Andreas Cremer and Jonathan Gould; Editing by Jane Merriman and Mark Potter)

China to boost bank lending power, though IMF says no need

China aims to cut the proportion of cash that commercial banks must keep with the People's Bank of China, the banking regulator said on Friday, signalling further monetary loosening although the IMF and World Bank say the class="mandelbrot_refrag">economy is doing fine.

The China Banking Regulator Commission (CBRC) did not say when reductions in banks' reserve requirement ratios would be made, but it is the third time in as many months that Beijing has signalled a cut in RRRs, which would free up more cash for lending needed to shore up growth.

The CBRC did, however, qualify its comments, saying RRR reductions would be available to those banks whose lending to small firms and the farm sector warranted the reward. It did not elaborate.

The central bank also signalled on Friday that it would keep credit supply ample by letting China's main money market rate fall again this week.

Aside from prospects for reductions in banks' RRR, two bankers told Reuters on Friday that the central bank has also lent $16 billion to commercial banks so that they can issue the money to class="mandelbrot_refrag">farming projects.

Both the IMF and World Bank gave China a thumbs-up in separate reports this week that said the world's second-biggest class="mandelbrot_refrag">economy should hit the government's target of around 7.5 percent growth this year, and encouraged the more urgent pursuit of reforms.

Some economists say the IMF and the World Bank may have been unduly confident about China's near-term growth prospects.

"If the government wants to achieve its 7.5 percent growth target, I don't really agree with the IMF that it can just not do anything," said Julian Evans-Pritchard at Capital Economics in Singapore. "I think the downward pressure on the economy, especially from the property sector, is still quite significant."

Buffeted by unsteady global demand and slowing domestic investment, growth in China's stuttering economy cooled to an 18-month low of 7.4 percent between January and March.

A cool-down in a buoyant property market, which contributes more than 15 percent of China's economic expansion, has fuelled fears that the Chinese economy will face even stronger headwinds in coming months. That has fed investor speculation that China will take firmer action to boost activity, including lowering the RRR for all banks.

The economy faces relatively big downward pressures even as the growth rate, employment and inflation stayed within reasonable ranges, state radio quoted Premier Li Keqiang as saying.

VIGILANT ABOUT SHADOW BANKS

Banks's RRRs are neither uniform or transparent in China, and members of the ruling Communist Party's politburo have the final say on monetary policy, rather than the central bank or banking regulator.

In April, a week after an announcement by Li, the PBOC reduced the RRR by between 50 and 200 basis points for some banks.

It did not name the banks or detail what their RRRs were after the cut, but the central bank said only some rural banks benefited. Smaller banks tend to have lower RRRs than major banks.

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The authorities flagged another cut a week ago, but it is unclear whether that has taken place, though the latest comments from the banking regulator have hardened expectations.

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The last time China reduced the RRR for all banks was in May 2012, when a cut of 50 basis points lowered the ratio to a maximum 20 percent for the country's biggest banks.

_2">

Authorities have chosen a more nuanced approach this year, opting to selectively relax policy in areas that it believes require assistance, rather than let money seep into speculative or wasteful activities.

_3">

The CBRC also said on Friday that it will tighten supervision of the shadow banking sector to crack down on risky lending that occurs outside bank balance sheets.

_4">

The World Bank urged China to speed up fiscal and financial sector reforms to deal with the root cause of its debt problems.

_5">

President Xi Jinping said on Friday careful planning of fiscal reforms was needed, the official Xinhua news agency said.

_6">

_7">

(Additional reporting by Shen Yan; Editing by Simon Cameron-Moore and Nick Macfie)

_8">

Canada's surprise light oil boom delights oil sands producers seeking diluent

Canada is enjoying an unexpected boom in production of ultra-light crude known as condensate, defying long-held predictions of dwindling supply.

This surprising bounty from one corner of Alberta, better known as the home to Canada's vast tar-like oil sands reserves, is a boon for firms like Vermilion Energy Inc and Chevron who have built up positions in the Duvernay, now hotly tipped as one of North America's most exciting shale plays with vast reserves waiting to be tapped.

It also is fuelling hope of cost relief for traditional heavy oil sands companies such as class="mandelbrot_refrag">Cenovus Energy Inc, who in the past have paid premiums of up to $25 a barrel to buy imported condensate used to dilute their viscous oil sands production so that it can flow through pipelines.

The change in outlook has been abrupt. A year ago, the Canadian Association of Petroleum Producers expected condensate production to shrink from 139,000 barrels per day to barely 100,000 bpd by 2025, according to its annual forecast.

The group's updated forecasts, due out next week, will likely show a very different trajectory, according to Greg Stringham, vice president of oil sands and markets.

"(Condensate) had been in decline. We are now seeing relatively strong growth," he said. He declined to give exact numbers until the report is released on Monday. In April, Canada's National Energy Board said it expected output to rise 13 percent this year to 172,000 bpd.

While the growth is modest compared to the shale revolution that is upending the U.S. industry in places like North Dakota and Texas, its impact may reverberate far south of the border.

Rising domestic supply is coming at a time of lower than expected demand for imported U.S. diluent because more companies are moving to ship bitumen by rail, which doesn't necessarily need to be diluted, instead of pipeline.

As a result, the trends may further depress U.S. condensate prices and thus add to mounting political pressure to relax U.S. rules barring overseas exports.

Along with a newly reversed Cochin pipeline that will start delivering up to 95,000 barrels per day of U.S. condensate from Illinois to Alberta in July, some producers are growing hopeful that prices may finally begin to ease.

"I don't believe there's such a thing as cheap condensate. But all other things being equal, more supply coming into the basin should be a positive thing for the buyer," said Rick Dembicki, director of class="mandelbrot_refrag">crude oil class="mandelbrot_refrag">marketing at Cenovus, which sources half its condensate from outside the province.

A LONG WAY TO DUVERNAY

Condensate supply, though small, plays a critical role in the growth of Canadian oil sands, the world's third-largest crude reserves behind class="mandelbrot_refrag">Saudi Arabia and class="mandelbrot_refrag">Venezuela.

Because raw bitumen is too heavy and thick to flow easily through pipelines, it must be blended with around 30 percent of a lighter oil, known as diluent. A number of different types of hydrocarbons can do the job - including condensate, natural gasoline and synthetic class="mandelbrot_refrag">crude oil. The diluent is then stripped out by refiners or terminal operators at the destination, often to be pumped back to Canada and blended again.

With oil sands production expected to nearly double over the next decade, demand for diluent is expected to surge to around 900,000 bpd in 2025, consultancy Wood Mackenzie said. Other forecasters suspect demand will be over 1 million bpd.

_0">

Thanks to the recent boom in the Duvernay formation, a growing share of that may be met with Canadian condensate.

_1">

Last month, Canada's Encana Corp said the northern Simonette area of the Duvernay was producing up to 400 barrels of liquids per million cubic feet of gas, more than twice the 150 barrels per million it had expected.

_2">

Chevron's well performance and yields in the Duvernay had exceeded expectations with initial production rates of 1,300 barrels of condensate per day, Jeff Shellebarger, North America Exploration and Production, said last October. A Chevron spokesman said that was the latest production estimate.

_3">

Western Canada could produce 375,000 bpd of condensate by 2025, with 200,000 bpd coming from the Duvernay under the most optimistic scenario, said Wood Mackenzie analyst Mark Oberstoetter.

_4">

"That will mean less money that Alberta operators will have to pay in the United States to ship it up," Oberstoetter said.

_5">

_6">

DIFFS AT A DISCOUNT

_7">

At the moment Canada uses for diluent about 200,000 to 250,000 bpd of condensate, most of that imported from the United States. Much of it travels more than 4,000 kilometres (2,485 miles) from the U.S. Gulf Coast, where supply is abundant. The added transport costs mean condensate has typically commanded a premium in Alberta, though it trades at a discount in Texas.

_8">

Because supplies are tight and existing pipeline shipments can be difficult to predict, prices are often volatile. At times condensate in the Alberta trading hub of Edmonton spiked as high as $25 per barrel over U.S. benchmark futures about five years ago and in recent years premiums have touched $15 dollars.

_9">

But the growth in local production coupled with the rise of oil-by-rail and the imminent reversal of Kinder Morgan Energy Partners LP's Cochin pipeline may shave that.

_10">

The premium dropped from an average of $10.23 per barrel in 2011 to $3.72 per barrel in 2013, according to a presentation from Cenovus. On Thursday, condensate was pegged at a $3 discount because of strong supply from the 180,000 bpd Enbridge Inc Southern Lights pipeline from Chicago, Illinois, and lower blending requirements during the warm summer months.

_11">

"The price of condensate has historically been plus $5 to $10 per barrel. I think that's a thing of the past and it's dropping to par with WTI," said John Homan, senior class="mandelbrot_refrag">marketing and logistics representative at Calgary-based Laricina Energy Ltd.

_12">

_13">

RAIL DENTS DEMAND

_14">

For the moment, the growth in Canadian output looks too minimal to disrupt plans for more imports, such as the Cochin reversal and a proposal by Enbridge to boost capacity on its Southern Lights pipeline to 275,000 bpd.

_15">

But demand forecasts are in flux as producers look for innovative ways to trim their use of the costly diluent. More companies are embracing rail as an alternative to congested crude export pipelines and using heated and coiled cars to ship bitumen raw, requiring no diluent, or as "railbit," which blends just under 20 percent diluent into each barrel.

_0">

An estimated 1.1 million bpd of rail loading capacity will be available in Western Canada by year-end, if proposed terminal projects stick to class="mandelbrot_refrag">construction schedules.

_1">

Companies such MEG Energy and Gibson Energy Inc are running pilot projects to develop partial upgrading technology and diluent recovery units that would also reduce demand. Meanwhile, on the supply side CNOOC Ltd subsidiary Nexen Inc is selling light oil from its Long Lake project into the Alberta diluent market.

_2">

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(Reporting by Nia Williams in Calgary, editing by Jessica Resnick-Ault, Jonathan Leff and Cynthia Osterman)

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Sears' Lampert met Ford's Mulally for turnaround advice

Sears Holdings Corp's controlling shareholder Eddie Lampert met with Ford Motor Co ( id="symbol_F.N_0">F.N) CEO Alan Mulally earlier this year to seek advice on how to turn around the ailing retailer, two sources familiar with the matter said.

One of the sources said that Mulally, who is due to retire from Ford in July, was left with the impression that Lampert was gauging whether Mulally might be open to the possibility of becoming Sears' next CEO. The second source said Lampert, who is currently Sears' chairman and CEO, did not offer Mulally a job and there is no search process underway for a new CEO.

Lampert, who is a billionaire hedge fund manager, flew to Dearborn, Michigan, where Ford is headquartered, in either February or March to meet Mulally, the sources said.

In the meeting, Lampert asked Mulally about how he had turned around Ford and built an effective management structure at the No. 2 U.S. automaker, the sources said.

Sears ( id="symbol_SHLD.O_1">SHLD.O) spokesman Howard Riefs declined to comment. Ford spokeswoman Susan Krusel said Mulally, 68, has not decided what to do after leaving Ford.

When asked about a move to Sears, Mulally said in an interview on CNBC television on Friday, "I am glad to share the Ford story because there are a lot of lessons learned there."

He added, "When I graduate on July 1st, I'm going to really think about where I am going to serve next."

Sears operates 1,900 Sears and Kmart discount chain stores in the United States. It was once the largest U.S. retailer by revenue, but has seen sales weaken consistently over recent years in the face of stiff competition from brick-and-mortar rivals such as Target Corp ( id="symbol_TGT.N_2">TGT.N), class="mandelbrot_refrag">Wal-Mart Stores Inc ( id="symbol_WMT.N_3">WMT.N) and Home Depot Inc ( id="symbol_HD.N_4">HD.N), as well as online retailers like class="mandelbrot_refrag">Amazon.com Inc ( id="symbol_AMZN.O_5">AMZN.O).

It would be a surprise if Mulally, who is seen as one of the most successful manufacturing executives in recent American history, considered joining Sears. Ford came out of the financial crisis much better than its U.S. rivals General Motors Co ( id="symbol_GM.N_6">GM.N) and Chrysler Group LLC CHRY.UL, who both went into class="mandelbrot_refrag">bankruptcy and had to be rescued by the U.S. government. He came to Ford after running Boeing Co’s ( id="symbol_BA.N_8">BA.N) commercial plane class="mandelbrot_refrag">business.

Mulally has become one of the most sought after executives in corporate America. He has signed non disclosure agreements with several companies to talk about possible leadership roles, one of the sources said. The names of the companies could not be learned.

Reuters has previously reported that he was also considered for the top job at class="mandelbrot_refrag">Microsoft Corp ( id="symbol_MSFT.O_9">MSFT.O), who eventually appointed insider Satya Nadella to the position. It is not clear how close Mulally came to being picked as the technology giant's CEO.

Lampert's meeting with Mulally also underscores the intractable problem facing big box U.S. retailers, such as Sears. They have struggled to find chief executives who have the experience and skills essential to running a modern retailer.

Recruiters and directors said candidates either do not have e-commerce expertise or they lack experience running retail store chains. So boards are turning to executives from other industries or those with restructuring experience, such as Mulally.

"The issue isn't that there aren't some great people there," said Bobbie Lenga, global retail practice leader at Chicago-based headhunters Russell Reynolds Associates. "It is more of an issue that there aren't that many of them, and that many of them are at a point where they are deciding in their career what they want to do next - if they want to keep going in the industry or move on."

"It is a very finite talent pool, and you always hear the same names being brought up for all these roles," Lenga added.

Recruiters and directors said those names include HSN Inc ( id="symbol_HSNI.O_10">HSNI.O) CEO Mindy Grossman, Bon-Ton Stores Inc ( id="symbol_BONT.O_11">BONT.O) CEO Brendan Hoffman, Ralph Lauren Corp ( id="symbol_RL.N_12">RL.N) former president Roger Farah, and Apple Inc’s ( id="symbol_AAPL.O_13">AAPL.O) retail head Angela Ahrendts, who was formerly Burberry Group Plc's CEO.

_0">

Spokespeople for HSN, Bon-Ton, and Ralph Lauren declined to comment on behalf of Grossman, Hoffman and Farah. Apple was not available for comment.

_1">

_2">

BUILDING A BENCH

_3">

Lampert took over the CEO role early last year after Lou D'Ambrosio stepped down after just two years with Sears, citing family health matters.

_4">

While D'Ambrosio was seen as having technology experience that could help shape Sears' online class="mandelbrot_refrag">business, serving as CEO of network equipment maker Avaya and spending 16 years at IBM Corp ( id="symbol_IBM.N_14">IBM.N), he lacked previous retail experience.

_5">

Under Lampert, Sears has focused on building an internal bench of talent, its spokesman Riefs said.

_6">

Such hires include Arun Arora, who leads Sears home services business and was previously general manager of global e-commerce for Staples Inc ( id="symbol_SPLS.O_15">SPLS.O); William Hutchinson who was brought over from Dell Inc to head up Sears' supply chain business unit; and Norman Miller, who was president and COO of class="mandelbrot_refrag">Dollar Financial Corp and is now responsible for Sears' automotive business.

_7">

"The leadership of Sears Holdings is committed to the company's successful transformation and they are excited about the momentum underway," Riefs said in an emailed statement. "It's also important to know that succession planning is a critical point of focus for any company and at Sears Holdings it's a continuous discipline."

_8">

_9">

(Additional reporting by Deepa Seetharaman in San Francisco and Olivia Oran in New York; Editing by Paritosh Bansal and Martin Howell)

_10">

Chrysler recalls 10,700 SUVs for cruise control defect

Chrysler Group LLC said it was recalling about 10,700 sport utility vehicles to fix a defect that leads to unintended acceleration in cruise-control mode.

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The vehicles being recalled are certain 2014 Dodge Durangos and Jeep Cherokees, Grand Cherokees and high-performance Grand Cherokee SRTs assembled between Jan. 16 and April 17.

More than half of the recalled vehicles are with dealers or in transit to dealers, Chrysler, a unit of Fiat Chrysler Automobiles FIA.MI, said on its website on Thursday. (r.reuters.com/ven89v)

About 6,100 vehicles are in the United States, 950 in Canada, 425 in class="mandelbrot_refrag">Mexico and 3,200 outside the North American Free Trade Agreement (NAFTA) region, the company said.

The company said it was unaware of any injuries, accidents or complaints related to the issue.

Chrysler said it was found that when cruise control is engaged, and the driver overrides the system by pressing and then releasing the accelerator pedal, the vehicle may accelerate for about a second.

"In high-performance vehicles subject to the recall, the event may last up to two seconds before deceleration begins," the company said.

Chrysler in April recalled nearly 870,000 vehicles to fix a defect in the brake systems.

The company is under investigation by the National Highway Traffic Safety Administration over a recall of 744,822 SUVs in the United States in 2012.

The safety regulators are probing the recall after six consumers complained of inadvertent airbag deployments even after fixes were made.

(Clarifies to show that defect occurs after cruise control is set and driver presses and releases pedal in 6th paragraph; restores dropped word "in" in penultimate paragraph)

(Reporting by Rohit T. K. in Bangalore; Editing by Maju Samuel)

SEC charges Liquidnet, Wedbush with regulatory violations

U.S. securities regulators filed civil lawsuits on Friday against a "dark pool" trading venue and a major brokerage firm as part of a crackdown on market structure rule violations.

In the first case, the Securities and Exchange Commission charged the New York-based dark pool operator Liquidnet with improperly using its subscribers' confidential trading information to market its services. The company is paying a $2 million penalty to settle the charges without admitting or denying them.

In the second case, the SEC charged brokerage firm Wedbush Securities Inc and two individuals with a slew of violations, including failing to follow "market access" rules that require trading firms to have risk controls in place before giving their customers access to the market.

The cases came just one day after SEC Chair Mary Jo White unveiled a sweeping series of proposed equity market reforms targeting high-speed traders, less transparent trading venues, traditional stock exchanges and other brokerage firms.

Critics in recent years have raised concerns about high-speed trading, unlit class="mandelbrot_refrag">markets like dark pools and the havoc that technological errors can wreak on the marketplace due to technological glitches by exchanges and major brokerages.

Dark pools are a type of alternative trading system, a venue that competes with exchanges for class="mandelbrot_refrag">business.

Unlike exchanges, they let investors trade anonymously and do not publicly display quotes until after trades are completed.

SEC rules require alternative trading systems to have certain safeguards to protect users' confidential information.

The SEC said that over a three-year period, Liquidnet improperly let a class="mandelbrot_refrag">business unit outside of its dark pool operation access that private data.

Seth Merrin, the chief executive at Liquidnet, said he agreed with the SEC that there was a "lack of oversight" in the firm's procedures but the firm has taken steps to fix that.

"We are very happy about resolving this case," he said, noting that customers were not harmed.

Liquidnet’s U.S. trading volume is about 40 million shares a day.

In the second case filed Friday, the SEC laid out a laundry list of alleged violations against Wedbush, a Los Angeles-based firm that owns a stake in the BATS class="mandelbrot_refrag">Global Markets exchange and is consistently ranked as one of the five largest firms by trading volume on the class="mandelbrot_refrag">Nasdaq exchange.

The SEC said the company violated its market access rule between 2011 and 2013, when it allowed most of its customers to send orders directly onto trading venues over which the firm did not have "direct and exclusive control."

The SEC said that Jeffrey Bell, the firm's former vice president who oversaw the market access business, and senior vice president Christina Fillhart both caused the violations.

Attorneys for the company and the two individuals could not be immediately reached.

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_1">

(Reporting by Sarah N. Lynch in Washington, D.C.; additional reporting by Emily Flitter, Suzanne Barlyn, Jonathan Stempel and John McCrank in New York; Editing by Doina Chiacu)

_2">

Exclusive: As bank fines soar, U.S. threatened $16 billion BNP penalty

U.S. authorities negotiating with BNP Paribas over alleged sanctions violations at one point suggested that France's biggest bank pay a penalty as high as $16 billion, according to people familiar with the matter.

While the sources said that number was only proposed as a negotiating tactic in response to an offer from BNP of about $1 billion, the dollar figures being thrown around demonstrate what bankers and their allies say is an alarming trend of ever-increasing record penalties.

A $16 billion settlement would have pushed BNP's penalty above the biggest ever for a bank -- class="mandelbrot_refrag">JPMorgan Chase & Co, which paid $13 billion last year to resolve a number of civil mortgage-related allegations.

More recently, authorities have been discussing a settlement with BNP in the range of $10 billion, sources have said. U.S. authorities are probing whether BNP evaded U.S. sanctions relating primarily to Sudan between 2002 and 2009, and whether it stripped out identifying information from wire transfers so they could pass through the U.S. financial system without raising red flags.

The New York State Department of Financial Services, one of the five offices negotiating the settlement with BNP, could receive at least $2 billion of an eventual $10 billion deal, according to a source familiar with the matter. That would be more than three times that office's $552 million annual budget this year.

A $10 billion fine would almost wipe out BNP's entire 2013 pretax income of about 8.2 billion euros ($11.2 billion). BNP reserved $1.1 billion against a potential fine.

Representatives of the Justice Department and BNP declined to comment on the negotiations.

In the past two years the U.S. Justice Department has said it's broken records on penalties for corporate misconduct at least seven times, including three times this year alone. The most recent was Credit Suisse in May, which paid $2.6 billion over charges that it helped American evade U.S. taxes, the largest penalty ever levied in a criminal tax case.

Total corporate criminal penalties in the United States overall increased about 647 percent between 2001 and 2012 to about $4.3 billion, according to figures compiled by University of Virginia law school professor Brandon Garrett.

The robust growth in corporate penalties, especially for class="mandelbrot_refrag">banks, has defense lawyers questioning how authorities calculate each landmark settlement and how institutions can prepare for such fines they might face.

class="mandelbrot_refrag">Banks are also deploying strategies to try to keep the numbers from growing, including enlisting top executives in settlement negotiations and taking their chances going to trial.

    "I think everyone realizes that it's an exuberant market," said one defense lawyer who has negotiated recent settlements with the Justice Department and declined to be named.

There are multiple explanations for the rising fines. For one, cases related to the 2007-2009 financial crisis have produced big settlements connected to trillions of dollars in subprime mortgage financial products. U.S. authorities have also turned their attention to other crimes involving big dollar amounts, including money laundering, sanctions violations and the rigging of benchmark interest rates.

The Justice Department may also be responding to political pressure, especially because no high-profile bankers have gone to jail for the role they played in fueling the financial crisis.

Critics say recent penalties have not been nearly stiff enough, and amount to the cost of doing class="mandelbrot_refrag">business.

_0">

Regardless, the upward push of the settlements is stark.

_1">

    In cases over banks' money laundering controls, for example, criminal penalties have skyrocketed since 2010, when Wachovia forfeited $110 million to resolve charges that it willfully failed to establish a compliance program.

_2">

    By comparison, JPMorgan paid $1.7 billion earlier this year to resolve criminal charges over its failure to maintain an effective anti-money laundering program in connection with its class="mandelbrot_refrag">business with convicted Ponzi schemer Bernard Madoff.

_3">

    A BNP settlement of $10 billion would be more than 14 times higher than the $667 million Standard Chartered paid to resolve sanctions violations in 2012, the highest fine for such violations to date.

_4">

    A former DOJ official said: "It's almost like more is law now."

_5">

   

_6">

    RATIONALE

_7">

Sources familiar with the BNP settlement talks say there are clear justifications for a fine of as much as $10 billion, as well as other severe potential penalties, such as suspending BNP's ability to process dollar payments.

_8">

They point to the sheer volume of the suspect transactions by BNP that allegedly violated U.S. sanctions: about 10 times larger than other banks which have resolved similar cases, according to a person familiar with the matter. A second source said the high level of senior management knowledge of the conduct is another contributing factor.

_9">

    A third consideration was the bank's poor cooperation with the government’s investigation, an element that also figured in Credit Suisse's guilty plea and record fine.

_10">

    Cases involving violations of U.S. sanctions also give prosecutors wide latitude to assess criminal penalties, prosecutors and defense lawyers said, since they are done as forfeitures rather than as fines calculated under sentencing guidelines.

_11">

    When Dutch lender ING Bank NV agreed to forfeit a then-record $619 million in 2012 over illegal transactions with Cuban and Iranian entities, court documents said the bank moved more than $2 billion on behalf of sanctioned entities. A deferred prosecution agreement that explained the fine said only that ING acknowledged that "at least" $619 million was involved in the transactions described.

_12">

In general, sentencing guidelines provide a range of things to consider when calculating a corporate penalty, including the pervasiveness of the conduct and whether senior management participated in it, with the ability to discount a fine for companies who cooperate in an investigation and fix their problems.

_13">

But even the guidelines offer wide ranges to determine penalties, leaving prosecutors with the discretion to charge the case in a way that gets them to a penalty they seek.

_14">

    "The numbers are going up because they can," one former prosecutor said.

_15">

    Sources also attributed some of the growth to the large number of agencies and offices involved in some investigations into financial institutions, each run by aggressive officials seeking their own stamp on a case. BNP is negotiating with at least five offices, including the U.S. Justice Department, the U.S. Attorney's Office in the Southern District of New York, the Treasury Department, the Manhattan District Attorney's office and the New York Department of Financial Services.  

_0">

    

_1">

    EXTORTION

_2">

    Some lawyers representing major banks said they viewed the escalating penalties as essentially exploiting defendants who usually don't fight back in court.

_3">

    "Lots of sophisticated observers view these as extortion at this point," said one bank lawyer who declined to be named.

_4">

In an attempt to exert downward pressure on the penalties, some banks, including Bank of America, have tried to fight more, with mixed results. A federal jury in New York last October found the bank liable for fraud at its Countrywide unit, but a magistrate judge in North Carolina in March recommended dismissal of another Justice Department lawsuit against the bank over allegedly fraudulent mortgage securities.

_5">

    Observers said the steep sums at stake have also forced top bank executives and bank allies to get more involved in settlement talks. JPMorgan's Chief Executive Officer Jamie Dimon traveled to Washington to visit U.S. Attorney General Eric Holder while the bank negotiated its $13 billion deal last year.

_6">

In the case of BNP, numerous top French officials have intervened, including French President Francois Hollande, who appealed directly to the White House, asking whether the potential penalties will be fair and proportionate to any crime.

_7">

In early May, BNP CEO Jean-Laurent Bonnafe and the bank's lawyers met with the New York Department of Financial Services and made a plea for leniency, one source said earlier this month.

_8">

   

_9">

    BEYOND FINES

_10">

Prosecutors and regulators have also looked to more tailored punishments beyond fines to try to improve conduct, including installing monitors and demanding terminations at a company.

_11">

One of the major sticking points in settlement discussions with BNP has been the New York bank regulator's threat to temporarily suspend BNP Paribas's ability to clear U.S. dollar transactions.

_12">

A suspension could be a significant blow for BNP Paribas, which clears hundreds of billions of dollars through New York every day.

_13">

    The efforts to deter future misconduct have also pushed prosecutors to explore more prosecutions of individuals, with more of a focus on what executives' role at high levels of a company might have been in enabling misconduct, lawyers said.

_14">

    "It's clear to me from the cases I'm handling that they are looking hard and long for cases to bring against individuals," another former prosecutor turned defense lawyer said.

_15">

In general, prosecutors are looking to craft penalties that harm, but don't kill financial firms, especially those that are critical to the smooth functioning of larger class="mandelbrot_refrag">markets.

_0">

    "It's always supposed to be, the monetary penalty has to have some ability to hurt," said one former prosecutor who now counsels banks in criminal inquiries. "They need to come up with a number that hurts but allows them to keep doing business."

_1">

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(Reporting by Aruna Viswanatha and Karen Freifeld, with additional reporting by Howard Schneider; Editing by Karey Van Hall and John Pickering)

_6">

New UPS CEO plans expansion in emerging markets, services

The incoming head of class="mandelbrot_refrag">United Parcel Service Inc UPS.N said on Friday the world's largest parcel delivery company will continue investing to build capacity in emerging class="mandelbrot_refrag">markets and to expand its services, especially in healthcare, its fastest-growing segment after e-commerce.

_0">

Chief Operating Officer David Abney, 58, named on Friday to succeed Chief Executive Scott Davis on Sept. 1, also said the company would make acquisitions to build its capabilities overseas, and didn't rule out large deals.

Expansion in emerging class="mandelbrot_refrag">markets is "our number one priority," Abney said in a telephone interview.

Trade among emerging markets is growing rapidly and UPS expects that eventually 95 percent of consumers will be outside the United States.

"We're going to continue to focus on making those (emerging market) investments," Abney said. "Growing internationally and diversifying our customer base are extremely important to us."

Davis and Abney said Davis's retirement and succession planning had been in the works for several years, signaling no abrupt strategy changes for the Atlanta-based company, which reported $55.4 billion in revenue last year.

Even as it builds international capacity, especially in Asia and Latin America, the company's international package revenue has remained steady at just over $12 billion since 2011. Capital expenditures were about $2 billion last year.

Rising demand for drugs and medical devices will create a large revenue opportunity for UPS, the executives said, as aging populations and rising income fuel demand for home delivery of healthcare products. Pharmacists at UPS's hub in Louisville, Kentucky, for example, fill orders for pharmaceutical companies, medical device makers and wholesalers.

"We're in the early innings on healthcare," said Davis.

Among other initiatives, UPS is investing in non-diesel trucks and is working to reduce driving. All new tractor-trailers purchased this year, for example, will run on liquefied class="mandelbrot_refrag">natural gas. UPS also has invested in propane-fueled vehicles. (Full Story)

The company is not shopping for aircraft, having renewed its fleet over the past few years, Abney said. As COO, Abney has been running the company's global transportation network and has led its investment in alternative fuel fleets. (Full Story)

Davis, who has been CEO and chairman since 2008, will retire after about 28 years with UPS.

UPS shares were trading at $103.61 on the New York Stock Exchange at midday on Friday, down a penny from Thursday's close. They have gained about 22 percent in the past year, compared with a 20 percent rise in the class="mandelbrot_refrag">S&P 500 index .SPX.

(Reporting by Ankit Ajmera and Sagarika Jaisinghani in Bangalore and Alwyn Scott in New York; Editing by Joyjeet Das and Nick Zieminski)

Big risks seen in Putin's idea to beef up Gazprom

President Vladimir Putin's idea of a massive boost to Gazprom's share capital has taken bankers and the energy industry by surprise, with some fearing it could further strain Russia's sanctions-hit class="mandelbrot_refrag">economy and undermine the rouble.

Putin floated the unexpected suggestion on Wednesday, hinting that a recapitalization of the state gas giant could be funded from Russia's gold and foreign currency reserves. Since then, sources have suggested the money could come from a 'rainy day' fund meant to cover the state pension deficit.

On Friday he elaborated on the idea, saying the state could buy into a possible Gazprom share issue with the reserves, but adding that it was just one of several options.

 
 
 

The Kremlin has declined to give details of the plan, and analysts are questioning not only how it would be implemented, but whether Gazprom actually needs the extra funds at all.

"The Gazprom story is rouble-negative. The use of forex reserves to recapitalise Gazprom will decrease the safety cushion held by the central bank," said Tatiana Orlova, strategist at RBS in London.

Russia's gold and forex reserves, the world's fourth largest, have shrunk by $42 billion since last year to $466.9 billion, mostly due to central bank intervention to curb the rouble's fall since the crisis over class="mandelbrot_refrag">Ukraine erupted.

"Reserves are needed to support the rouble. We should not forget about 2008 when oil prices more than halved... I think this is a very tricky path," said Sergei Zhavoronkov of the Moscow-based Gaidar Institute for Economic Policy.

During the 2008 global financial crisis, Russia hemorrhaged about $200 billion, or a third of its reserves, to prop up the currency.

Following a landmark $400 billion agreement last month to sell class="mandelbrot_refrag">natural gas to China, Russian officials estimate Gazprom now needs some $55 billion to build up pipelines and bring two giant fields - Kovykta and Chayanda - on stream.

It was against that background that Putin told an energy industry conference that a recapitalization could help Gazprom pay for the required infrastructure.

"It came as a total surprise to us," said an aide to one of the participants at the meeting.

"VERY HARD YEAR"

Hit by Ukraine-related sanctions that have triggered nearly $70 billion in capital outflows so far this year, the Russian class="mandelbrot_refrag">economy is expected to grow only by around 0.5 percent in 2014, compared to an initial government forecast of 2.5 percent.

The rouble is 5 percent down since the start of the year against the dollar. Even after rebounding from a steep fall when Russia annexed Ukraine's Crimean peninsula in March, it is still underperforming other class="mandelbrot_refrag">currencies in the BRICS group of developing nations.

The leaders of Russia and class="mandelbrot_refrag">Ukraine met on Friday for the first time since Moscow annexed Crimea, even as fighting continued in eastern Ukraine between government forces and pro-Russian separatists.

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"This crisis is much worse than in 2008. At that time, everyone was in the same boat. Now it's only Russia, and everyone wants to sink it in addition to dealing with their own problems," said a senior banker from a Russian state-owned bank. "It will be a very hard year."

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Ukraine-related volatility has brought a spike in borrowing costs for Russian companies, leaving the domestic market or the government to serve all the needs of Russia's $2 trillion economy unless Moscow can raise funds in Asia.

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Analysts, class="mandelbrot_refrag">business and government sources asked by Reuters about the Gazprom idea said a recapitalization could be carried out via loans from state entities or by government purchases of new shares.

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Putin mentioned a possible share issue on Friday.

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"If the class="mandelbrot_refrag">construction costs roughly $55 billion, maybe more, this is a fail-safe option for investing money," he told journalists when asked about the possible recapitalization during a visit to France for D-Day commemorations.

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But he added: "This is just one of the possible options. There are others."

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Under current law, the central bank cannot invest its reserves in equity.

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Several sources told Reuters the cash could come from one of Russia's 'rainy day funds' that have amassed windfall oil revenue.

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"There is an understanding that either the Reserve Fund or the National Wealth Fund" will be used, said a government source. Both are managed by the Finance Ministry and their foreign currency holdings are part of the central bank's reserves.

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But by law, the Reserve Fund can only be used to cover budget deficit or repay national debt - so unless there is a change in legislature, the Wealth Fund seems the more likely option. As of June 1, the fund stood at $87 billion, or 4 percent of Russia's gross domestic product.

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The fund, which would have little left if Gazprom received all $55 billion, is essential to finance the Pension Fund deficit, which came to $27 billion last year. The need for state support is expected only to grow as Russia's 143-million population is ageing, and 40 million are pensioners already.

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LACK OF DETAIL

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Ksenia Yudayeva, first deputy governor at the central bank, declined to comment on the recapitalization plan when approached at a conference in London on Thursday. Gazprom and the Energy Ministry also declined to comment, while the Finance Ministry would not return calls.

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Kremlin spokesman Dmitry Peskov, asked to explain Putin's remarks, told Reuters the issue needed to be discussed further.

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Rosneft boss Igor Sechin, viewed as the most powerful Russian energy executive, told reporters on Thursday that Gazprom's recapitalization is "a rational and very right idea", and that Rosneft might take part in the process.

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"There was a talk of possible pension money, reserves," he said. "We will look into it if we are asked to. But I think it is better to use those sources."

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The idea also won support from Evgeny Gavrilenkov, economist at state-run Sberbank, who said the Gazprom money was a political price Russia needed to pay.

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"Looking at geopolitics, sanctions, the supportive message is needed that there is this money, and in reality, it is there," he said.

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FINANCIAL STRENGTH

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Other analysts, however, pointed to the relative low debt of Gazprom, a company often referred to as Russia's "national heritage", and the lack of apparent obstacles to raise new debt.

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Putin suggested this was an option. "There's no doubt that with such a long-term ... contract, Gazprom can easily raise money on the market," he said on Friday.

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Furthermore, Russia and China have agreed in principle that Beijing will make a $25 billion pre-payment under their gas deal, according to Alexander Medvedev, chief executive of Gazprom Export, which could be used for new infrastructure.

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Putin mentioned this as well, saying that it would "in essence make the project substantially less costly."

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"Gazprom could manage without recapitalization," said Ivan Mazalov, a director at Prosperity Capital Management, a Gazprom shareholder. "There are no grounds for share issue. They have good cash flow and debt is at adequate level."

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A banking source told Reuters that Gazprom may do a "small" borrowing operation in Chinese yuan this autumn to test Asian appetite for possible bigger deals.

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"It has $20 billion of cash and cash equivalents on its balance sheet, generates $55 billion in operating cash flow and has a 0.9 debt/EBITDA ratio. So the company has enough cash to finance its Eastern program, we believe," VTB Capital said in a note.

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Amid the doubts, confusion and lack of further detail from the government, class="mandelbrot_refrag">Merrill Lynch analysts suggested the whole idea may be quietly buried.

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In a note, they said: "We spoke to Gazprom, who said they are confident this initiative gets forgotten about quickly."

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(Reporting by Katya Golubkova, Lidia Kelly and Denis Pinchuk; additional reporting by Oksana Kobzeva, Vladimir Soldatkin, Olesya Astakhova, Alexei Anishchuk, Elizabeth Piper, Vladimir Abramov in Moscow, Sujata Rao in London and Aleei Anishchuk in Deauville, France; writing by Katya Golubkova; Editing by Mark Trevelyan and Philippa Fletcher)

U.S. consumer credit surges on increased credit card use

U.S. consumer credit surged in April as Americans ramped up their use of credit cards, a potentially positive sign for consumer spending.

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Total consumer credit increased by $26.85 billion to $3.18 trillion, the Federal Reserve said on Friday. That meant consumer debt was growing at a 10.2 percent annual rate, the fastest pace of growth since July 2011.

Analysts polled by Reuters expected a more modest increase during the month of $15.5 billion.

Revolving credit, which mostly measures credit-card use, jumped by $8.8 billion. Americans had not added that much revolving debt in any one month since November 2007.

Non-revolving credit, which includes auto loans as well as student loans made by the government, rose $18.0 billion in April.

(Reporting by Jason Lange; Editing by Andrea Ricci)

Jobs report takes Dow, S&P to fresh record highs

U.S. stocks rose on Friday, with the Dow and the class="mandelbrot_refrag">S&P 500 closing at records, after the May payrolls report provided the latest confirmation of improving economic conditions.

The CBOE Volatility index, Wall Street's so-called fear gauge, ended down 8.1 percent at 10.73, its lowest level since February 2007.

The VIX, which tends to rise when volatility increases or the market drops, has been on the decline for months and is well below its historical average of 20, which some see as a sign that investors are ignoring concerns that could derail the rally.

The day's gains were broad and led by cyclical sectors, which outperform in times of economic expansion. Industrial shares jumped 1 percent while energy shares rose 0.8 percent. The only class="mandelbrot_refrag">S&P 500 sector that fell was healthcare, a defensive group, down 0.1 percent.

About 217,000 jobs were added in May, slightly fewer than expected, while the unemployment rate held steady at 6.3 percent. This was the first time job growth has topped 200,000 for four consecutive months since January 2000.

While the report did not point to spectacular growth, "the main thing is that the world's biggest economy is moving in the right direction and slowly gathering momentum," said Marcus Bullus, trading director of MB Capital.

The Dow Jones industrial average rose 88.17 points or 0.52 percent, to 16,924.28, the S&P 500 gained 8.98 points or 0.46 percent, to 1,949.44 and the class="mandelbrot_refrag">Nasdaq Composite added 25.17 points or 0.59 percent, to 4,321.40.

With the day's gains, the S&P 500 marked its sixth record close in the past seven sessions.

For the week, the Dow rose 1.2 percent, the S&P 500 rose 1.3 percent and the Nasdaq rose 1.9 percent.

Mining equipment maker class="mandelbrot_refrag">Joy Global Inc jumped 3.9 percent to $64.11, building on its 6.7 percent rally on Thursday on the back on strong results, for its biggest weekly gain since August 2012.

class="mandelbrot_refrag">Peabody Energy Corp was the biggest percentage decliner on the S&P 500, dropping 1.4 percent at $16.34 after Goldman Sachs downgraded the stock to "neutral."

class="mandelbrot_refrag">Hertz Global Holdings Inc tumbled 9.1 percent to $27.73. The car rental company said it would restate financial results for the past three years to correct accounting errors.

class="mandelbrot_refrag">Novavax Inc was the Nasdaq's most active stock, down 7.9 percent to $4.17 in heavy volume a day after a public offering of 25 million common shares was priced at a discount to its Thursday close.

Trading volume was around 5.27 billion shares on U.S. exchanges, below last month's average of 5.75 billion, according to data from BATS class="mandelbrot_refrag">Global Markets.

(Editing by Bernadette Baum)