Fed officials laud stimulus, quibble over future plans

NEW YORK/LITTLE ROCK, Arkansas (Reuters) - Central bankers appear satisfied with the impact of their latest monetary stimulus, though there is some disagreement over how forcefully to continue purchasing bonds, remarks by two top policymakers on Monday showed.

Boston Federal Reserve Bank President Eric Rosengren, one of the most vocal proponents of Fed asset purchases, said there was a "strong case" for the Fed to stay the course on accommodative policies next year and continue buying a total of $85 billion in bonds each month.

In September, the Fed announced an open-ended bond buying scheme that began with $40 billion per month in mortgage-backed securities.

That new effort to boost the economy comes on top of a separate program in which the Fed was buying $45 billion of longer-term Treasury securities per month with proceeds from sales of a like amount of shorter-term debt.

The latter plan, known as Operation Twist, is set to expire at the end of this month, and most analysts expect the central bank to substitute an equal amount of long-term Treasury buying.

However, James Bullard, president of the St. Louis Fed, argued the central bank should not replace its expiring 'Operation Twist' program on a dollar-for-dollar basis. He said purchases that expand the Fed's $2.8 trillion balance sheet would have a bigger effect than Twist, which does not add to the balance sheet.

"If the goal is to keep policy on its present course, the replacement rate should be less than one-for-one," Bullard told the Little Rock Chamber of Commerce, suggesting $25 billion as an adequate monthly amount.

THRESHOLDS

Whether to expand the Fed's balance sheet further will be a key topic of debate at Fed policymakers' next meeting on December 11-12. Also under consideration: tweaking Fed communications by adopting numerical thresholds for inflation and joblessness to signal when rates might rise.

Bullard on Monday said he supported the adoption of such thresholds as long as the Fed can address his concerns, especially his worry that the Fed is seen as trying to target unemployment. That approach was badly discredited in the 1970s, he said, when rates were kept low to boost jobs and inflation skyrocketed.

Bullard had previously sounded more skeptical on thresholds, saying they could rob the central bank of flexibility.

But the idea has recently gained traction, with Fed Vice Chair Janet Yellen voicing strong support for the idea, first advocated by Chicago Fed President Charles Evans a year ago.

Evans wants the Fed to keep rates low until unemployment drops to at least 6.5 percent, as long as inflation does not threaten to rise above 2.5 percent. Minneapolis Fed President Narayana Kocherlakota and Boston Fed's Rosengren have also pitched specific proposals.

GROWTH

The U.S. economy grew at a 2.7 percent annual rate in the third quarter but is expected to have slowed in the final months of the year. Unemployment remains elevated at 7.9 percent.

Bullard said he expects the expansion to pick up steam in 2013, allowing gross domestic product to rise about 3.5 percent. But he added that estimate was predicated on a successful resolution of a year-end budget crunch, still a big "if".

William Dudley, head of the New York Fed, argued the Fed's mortgage-backed securities purchases have provided much-needed support to the economy, even if their benefits in easing financial conditions have not been fully passed through from financial institutions down to customers.

"Our policy has been and continues to be effective - though it is certainly not all-powerful in current circumstances," he said at a conference on mortgage finance at the New York Fed, at which his Boston Fed counterpart Rosengren was the keynote speaker.

The conference was aimed at exploring some of the blockages in the transmission of Fed policy to American consumers, Dudley said.

"We are focusing on ... the significant widening of the spread between yields on mortgage-backed securities and primary mortgage rates," he said.

In response to the financial crisis and deep recession of 2007-2009, the Fed had already slashed official rates to zero and bought some $2.3 trillion in government and mortgage-backed bonds prior to the launch of its latest stimulus.

(Writing by Pedro Nicolaci da Costa; Editing by Chizu Nomiyama)

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Egyptian Court Postpones Ruling on Constitutional Assembly

Wissam Nassar

Egyptian police officers stood guard outside Egypt's Supreme Constitutional Court on Sunday, while supporters of President Mohamed Morsi protested near the entrance of the building.

CAIRO — Egypt’s constitutional court on Sunday put off its much-awaited ruling on the legitimacy of the Islamist-led legislative assembly that drafted a new charter last week, accusing a crowd of Islamists outside the courthouse of intimidating its judges.

What actually took place at the courthouse, however, is a matter of dispute.

Calling Sunday “a dark black day in the history of the Egyptian judiciary,” the Supreme Constitutional Court charged in a statement that a mob of Islamists had blocked the judges from entering the courthouse, in an “abhorrent scene of shame and disgrace.”

Approaching the court, the judges saw crowds “closing the entrances of the roads to the gates, climbing the fences, chanting slogans denouncing judges and inciting the people against them,” the statement said, adding that “the threat of harm” prevented the judges from entering. The judges said they were suspending the court’s sessions until they could resume their work without “psychological and physical pressures.”

While the judges blamed the Islamists, the Islamists accused the judges of manufacturing a melodramatic excuse for failing to show up. And the contradictory narratives captured a clash between the judges — appointed by Hosni Mubarak, the former president — and Egypt’s new Islamist leaders that has thrown the political transition into a new crisis 22 months after Mr. Mubarak’s ouster.

Egyptian courts had previously dissolved both the elected Parliament and an earlier Constitutional Assembly, and the breakup of the current one would have completely undone the transition. President Mohamed Morsi cited the pending ruling on Nov. 22 when he put his own edicts above judicial review until ratification of the constitution, saying that he intended to protect the assembly until it finished its work.

That same apprehension about the ruling drove the assembly to rush to approve a constitution just before dawn on Friday, over the objections of secular parties and the Coptic Christian Church, before the court could act.

The judges’ statement on Sunday was a counterattack, and the scene outside the courthouse was much quieter than their statement described. A line of hundreds of riot police officers backed by a fire truck and several armored personnel carriers were on hand to secure the judges’ entry to the courthouse, and several people were seen coming and going without any difficulty.

The Interior Ministry said in a statement on its Web site that it had arranged to secure the entrance and protect the judges, that the protests were “peaceful,” and that a number of judges had already arrived safely.

On the other side of the police line was a relatively staid crowd of a few hundred demonstrators from the Muslim Brotherhood, Egypt’s mainstream political group, and its political arm, Mr. Morsi’s Freedom and Justice Party. Like many of the group’s demonstrations, it was a mostly middle-aged, middle-class crowd of men in sweaters and a few neckties. By around 10 a.m., some were chanting slogans, but others were sitting on the ground reading newspapers. Many carried placards with Mr. Morsi’s picture or banners with the logo of his party, and one was reading its Web page on his iPad.

“We immunize the constituent assembly, and dissolve the constitutional court,” they chanted. “Freedom is coming, coming.” Some chants were directed at Judge Tahani el-Gebali, who is known for her political activism and opposition to the Islamists.

Magdy Hamed, 47, a businessman and member of the Brotherhood’s party, said the demonstrators had done nothing to stop the judges from entering. “We didn’t stop them,” he said. “We are asking them to come down and do their job.”

Mahmoud el-Akhas, 51, another businessman and party member, interjected, “We are here to exert pressure on the Supreme Constitutional Court to comply with the will of the people.” He reiterated the fears of many Islamists that the court might even seek to annul the presidential decree that granted Mr. Morsi power over the generals who ruled after Mr. Mubarak was ousted.

“The Egyptian people like stability,” Mr. Hamed said. “We don’t want chaos, and we don’t want to start this transition all over again.”

Mayy El Sheikh contributed reporting.

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Here’s How to Turn Nicki Minaj into Jay-Z

We realize there’s only so much time one can spend in a day watching new trailers, viral video clips, and shaky cell phone footage of people arguing on live television. This is why every day The Atlantic Wire highlights the videos that truly earn your five minutes (or less) of attention. Today:

RELATED: It’s Sort of Fun Watching Pippa Middleton Squirm

This is silly, but it’s Friday and a unicorn lair has been found in North Korea, rendering all other silliness moot. But the folks over at Reddit seem to dig the idea of slowing down Nicki Minaj’s songs so much that they sound like an over-enunciating Jay-Z. And well, it’s oddly relaxing: 

RELATED: ‘Roseanne’ Predicted Internet Addiction; A Weather Alert from Hell

RELATED: The Honey Boo Boo Nature Special; Everyone’s Favorite Sleepwalking Mom

Another week has passed by and we still haven’t figured out the Fiscal Cliff situation. Let’s fix it—and not just because we want to avoid getting downgraded (again). Because honestly, we just don’t think CNBC’s Rick Santelli can make it another two weeks: 

RELATED: Cookie Monster Takes a Bite Out of ‘Call Me Maybe’

RELATED: Paul Ryan Was In a Band Called Steak Baby

James Lipton, let’s hang out: 

Finally, it’s Friday. What are you still doing here?  Go enjoy the weekend or something or … watch this video of a husky which sort of sounds like Dame Edna at time imitating a baby until 6 p.m. rolls around: 

Wireless News Headlines – Yahoo! News

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Kellan Lutz, Hugh Jackman Take Bites and Swipes & More Casting News

By Julia Haskins

12/02/2012 at 07:00 PM EST

Kellan Lutz (left) and Hugh Jackman

Christopher Polk/Getty, Han Myung-Gu/WireImage

It's comeback time. Whether seeking revenge or reprising beloved roles, a fresh crop of movies shows that the best characters always come back for more.

Twilight's Kellan Lutz feasts on others as a vampire, but this time, he's utilizing his own body for powers, Zimbio reports.

The actor will star in Tatua as a tattooed assassin whose weapons are extracted from the ink on his body. The process is a strain on the hit man, but he must put that aside when his son is kidnapped by a dangerous foe.

Hugh Jackman is set to reprise his role as Wolverine in
X-Men: Days of Future Past, the Hollywood Reporter. Ian McKellen (Professor Xavier) and Patrick Stewart (Magneto, will also be joining Jennifer Lawrence, James McAvoy, Michael Fassbender and Nicholas Hoult.

Charlize Theron will star in an adaptation of the final installment of a South Korean revenge trilogy, the Hollywood Reporter also says. The original movie revolves around a woman wrongfully imprisoned for 13 years who then sets out to seek her long-awaited revenge. Writer William Monahan says the English-language remake will be "very American – and very unexpected."

The made-for-TV Disney channel movie Life-Size is getting a sequel, Variety reports. Tyra Banks will reprise her role as Eve, the doll who comes to life, and also executive produce the movie. No word yet on whether Lindsay Lohan, who played Eve's owner, will be making a return.

Also coming soon:

Beyoncé won't be slowing down after her Super Bowl performance in February. Just a couple weeks later, she'll introduce her still untitled, feature-length documentary on HBO, Deadline reports. The documentary airs Feb. 16.

Bridesmaids' Rose Byrne will be going through the motions as a newlywed in I Give it a Year, Zimbio reports. As if being newly married wasn't tough enough, the "too perfect" ex Anna Faris will be shaking up an already teetering balance.

Cate Blanchett will be stirring up her wicked ways as the evil stepmother in a live-action adaptation of Disney's Cinderella, also according to Zimbio.

And George Clooney is sticking to his winning formula by joining forces with his Argo team to produce an untitled crime drama, Variety reports.

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Asperger's dropped from revised diagnosis manual

CHICAGO (AP) — The now familiar term "Asperger's disorder" is being dropped. And abnormally bad and frequent temper tantrums will be given a scientific-sounding diagnosis called DMDD. But "dyslexia" and other learning disorders remain.

The revisions come in the first major rewrite in nearly 20 years of the diagnostic guide used by the nation's psychiatrists. Changes were approved Saturday.

Full details of all the revisions will come next May when the American Psychiatric Association's new diagnostic manual is published, but the impact will be huge, affecting millions of children and adults worldwide. The manual also is important for the insurance industry in deciding what treatment to pay for, and it helps schools decide how to allot special education.

This diagnostic guide "defines what constellations of symptoms" doctors recognize as mental disorders, said Dr. Mark Olfson, a Columbia University psychiatry professor. More important, he said, it "shapes who will receive what treatment. Even seemingly subtle changes to the criteria can have substantial effects on patterns of care."

Olfson was not involved in the revision process. The changes were approved Saturday in suburban Washington, D.C., by the psychiatric association's board of trustees.

The aim is not to expand the number of people diagnosed with mental illness, but to ensure that affected children and adults are more accurately diagnosed so they can get the most appropriate treatment, said Dr. David Kupfer. He chaired the task force in charge of revising the manual and is a psychiatry professor at the University of Pittsburgh.

One of the most hotly argued changes was how to define the various ranges of autism. Some advocates opposed the idea of dropping the specific diagnosis for Asperger's disorder. People with that disorder often have high intelligence and vast knowledge on narrow subjects but lack social skills. Some who have the condition embrace their quirkiness and vow to continue to use the label.

And some Asperger's families opposed any change, fearing their kids would lose a diagnosis and no longer be eligible for special services.

But the revision will not affect their education services, experts say.

The new manual adds the term "autism spectrum disorder," which already is used by many experts in the field. Asperger's disorder will be dropped and incorporated under that umbrella diagnosis. The new category will include kids with severe autism, who often don't talk or interact, as well as those with milder forms.

Kelli Gibson of Battle Creek, Mich., who has four sons with various forms of autism, said Saturday she welcomes the change. Her boys all had different labels in the old diagnostic manual, including a 14-year-old with Asperger's.

"To give it separate names never made sense to me," Gibson said. "To me, my children all had autism."

Three of her boys receive special education services in public school; the fourth is enrolled in a school for disabled children. The new autism diagnosis won't affect those services, Gibson said. She also has a 3-year-old daughter without autism.

People with dyslexia also were closely watching for the new updated doctors' guide. Many with the reading disorder did not want their diagnosis to be dropped. And it won't be. Instead, the new manual will have a broader learning disorder category to cover several conditions including dyslexia, which causes difficulty understanding letters and recognizing written words.

The trustees on Saturday made the final decision on what proposals made the cut; recommendations came from experts in several work groups assigned to evaluate different mental illnesses.

The revised guidebook "represents a significant step forward for the field. It will improve our ability to accurately diagnose psychiatric disorders," Dr. David Fassler, the group's treasurer and a University of Vermont psychiatry professor, said after the vote.

The shorthand name for the new edition, the organization's fifth revision of the Diagnostic and Statistical Manual, is DSM-5. Group leaders said specifics won't be disclosed until the manual is published but they confirmed some changes. A 2000 edition of the manual made minor changes but the last major edition was published in 1994.

Olfson said the manual "seeks to capture the current state of knowledge of psychiatric disorders. Since 2000 ... there have been important advances in our understanding of the nature of psychiatric disorders."

Catherine Lord, an autism expert at Weill Cornell Medical College in New York who was on the psychiatric group's autism task force, said anyone who met criteria for Asperger's in the old manual would be included in the new diagnosis.

One reason for the change is that some states and school systems don't provide services for children and adults with Asperger's, or provide fewer services than those given an autism diagnosis, she said.

Autism researcher Geraldine Dawson, chief science officer for the advocacy group Autism Speaks, said small studies have suggested the new criteria will be effective. But she said it will be crucial to monitor so that children don't lose services.

Other changes include:

—A new diagnosis for severe recurrent temper tantrums — disruptive mood dysregulation disorder. Critics say it will medicalize kids' who have normal tantrums. Supporters say it will address concerns about too many kids being misdiagnosed with bipolar disorder and treated with powerful psychiatric drugs. Bipolar disorder involves sharp mood swings and affected children are sometimes very irritable or have explosive tantrums.

—Eliminating the term "gender identity disorder." It has been used for children or adults who strongly believe that they were born the wrong gender. But many activists believe the condition isn't a disorder and say calling it one is stigmatizing. The term would be replaced with "gender dysphoria," which means emotional distress over one's gender. Supporters equated the change with removing homosexuality as a mental illness in the diagnostic manual, which happened decades ago.

___

AP Medical Writer Lindsey Tanner can be reached at http://www.twitter.com/LindseyTanner .

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Cliff fight may knock out December rally

NEW YORK (Reuters) - In normal times, next week's slew of U.S. economic data could be a springboard for a December rally in the stock market.

December is historically a strong month for markets. The S&P 500 has risen 16 times in the past 20 years during the month.

But the market hasn't been operating under normal circumstances since November 7 when a day after the U.S. election, investors' focus shifted squarely to the looming "fiscal cliff."

Investors are increasingly nervous about the ability of lawmakers to undo the $600 billion in tax increases and spending cuts that are set to begin in January; those changes, if they go into effect, could send the U.S. economy into a recession.

A string of economic indicators next week, which includes a key reading of the manufacturing sector on Monday, culminates with the November jobs report on Friday.

But the impact of those economic reports could be muted. Distortions in the data caused by Superstorm Sandy are discounted.

The spotlight will be more firmly on signs from Washington that politicians can settle their differences on how to avoid the fiscal cliff.

"We have a week with a lot of economic data, and obviously most of the economic data is going to reflect the effects of Sandy, and that might be a little bit negative for the market next week, but most of that is already expected - the main focus remains the fiscal cliff," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

Concerns about the cliff sent the S&P 500 <.spx> into a two-week decline after the elections, dropping as much as 5.3 percent, only to rally back nearly 4 percent as the initial tone of talks offered hope that a compromise could be reached and investors snapped up stocks that were viewed as undervalued.

On Wednesday, the S&P 500 gained more than 20 points from its intraday low after House Speaker John Boehner said he was optimistic that a budget deal to avoid big spending cuts and tax hikes could be worked out. The next day, more pessimistic comments from Boehner, an Ohio Republican, briefly wiped out the day's gains in stocks.

On Friday, the sharp divide between the Democrats and the Republicans on taxes and spending was evident in comments from President Barack Obama, who favors raising taxes on the wealthy, and Boehner, the top Republican in Congress, who said Obama's plan was the wrong approach and declared that the talks had reached a stalemate.

"It's unusual to end up with one variable in this industry, it's unusual to have a single bullet that is the causal factor effect, and you are sitting here for the next maybe two weeks or more, on that kind of condition," said Sandy Lincoln, chief market strategist at BMO Asset Management U.S. in Chicago.

"And that is what is grabbing the markets."

BE CONTRARY AND MAKE MERRY

But investor attitudes and seasonality could also help spur a rally for the final month of the year.

The most recent survey by the American Association of Individual Investors reflected investor caution about the cliff. Although bullish sentiment rose above 40 percent for the first time since August 23, bearish sentiment remained above its historical average of 30.5 percent for the 14th straight week.

December is a critical month for retailers such as Target Corp and Macy's Inc . They saw monthly retail sales results dented by Sandy, although the start of the holiday shopping season fared better.

With consumer spending making up roughly 70 percent of the U.S. economy, a solid showing for retailers during the holiday season could help fuel any gains.

Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, believes the recent drop after the election could be a market bottom, with sentiment leaving stocks poised for a December rally.

"The concerns on the fiscal cliff - as valid as they might be - could be overblown. When you look at a lot of the overriding sentiment, that has gotten extremely negative," said Detrick.

"From that contrarian point of view with the historically bullish time frame of December, we once again could be setting ourselves up for a pretty nice end-of-year rally, based on lowered expectations."

SOME FEEL THE BIG CHILL

Others view the fiscal cliff as such an unusual event that any historical comparisons should be thrown out the window, with a rally unlikely because of a lack of confidence in Washington to reach an agreement and the economic hit caused by Sandy.

"History doesn't matter. You're dealing with an extraordinary set of circumstances that could very well end up in the U.S. economy going into a recession," said Phil Orlando, chief equity market strategist at Federated Investors in New York.

"And the likelihood of that is exclusively in the hands of our elected officials in Washington. They could absolutely drag us into a completely voluntary recession."

(Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: charles.mikolajczak(at)thomsonreuters.com )

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)

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Alarm as China Issues Rules for Disputed Area

Kham/Reuters

Fishing boats off Vietnam’s coast in the South China Sea. One Chinese official said the new rules applied to disputed islands, too.

HAIKOU, China — New rules announced by a Chinese province last week to allow interceptions of ships in the South China Sea are raising concerns in the region, and in Washington, that simmering disputes with Southeast Asian countries over the waters will escalate.

The move by Hainan Province, which administers China’s South China Sea claims, is being seen by some outside analysts as another step in the country’s bid to solidify its claims to much of the sea, which includes crucial international shipping lanes through which more than a third of global trade is carried.

As foreign governments scrambled for clarification of the rules, which appeared vague and open to interpretation, a top Chinese policy maker on matters related to the South China Sea tried to calm worries inspired by the announcement.

Wu Shicun, the director general of the foreign affairs office of Hainan Province, said Saturday that Chinese ships would be allowed to search and repel foreign ships only if they were engaged in illegal activities (though these were not defined) and only if the ships were within the 12-nautical-mile zone surrounding islands that China claims.

The laws, passed by the provincial legislature, come less than a month after China named its new leader, Xi Jinping, and as the country remains embroiled in a serious dispute with Japan in the East China Sea over islands known in China as the Diaoyu and as the Senkaku in Japan.

The laws appear to have little to do with Mr. Xi directly, but they reinforce fears that China, now the owner of an aircraft carrier and a growing navy, is plowing ahead with plans to enforce its claims that it has sovereign rights over much of the sea, which includes dozens of islands that other countries say are theirs. And top Chinese officials have not yet clarified their intent, leaving room for speculation.

If China were to enforce these new rules fully beyond the 12-nautical-mile zones, naval experts say, at stake would be freedom of navigation, a principle that benefits not only the United States and other Western powers but also China, a big importer of Middle East oil.

An incomplete list of the laws passed in Hainan was announced by the state-run news agency, Xinhua, last week.

In an interview here Saturday, Mr. Wu said the new regulations applied to all of the hundreds of islands scattered across the sea, and their surrounding waters. That includes islands claimed by several other countries, including Vietnam and the Philippines.

“It covers all the land features inside the nine-dash line and adjacent waters,” Mr. Wu said. The nine-dash line refers to a map that China drew up in the late 1940s that demarcates its territorial claims — about 80 percent of the South China Sea, whose seabed is believed to be rich in oil and natural gas.

That map forms the basis for China’s current claims. Some neighboring countries were outraged when China recently placed the nine-dash map on its new passports. Vietnam has refused to place its visa stamps in the passports as they are, insisting a separate piece of paper be added for the stamp.

Mr. Wu, who also heads a government-sponsored institute devoted to the study of the South China Sea, said the immediate intention of the new laws was to deal with what he called illegal Vietnamese fishing vessels that operate in the waters around Yongxing Island, where China recently established an expanded army garrison.

The island, which has a long airstrip, is part of a group known internationally as the Paracels that is also claimed by Vietnam. China is using Yongxing Island as a kind of forward presence in a bid for more control of the South China Sea, neighboring countries say.

The Chinese Foreign Ministry said last week that China was within its rights to allow the coast guard to board vessels in the South China Sea.

The new rules go into effect on Jan. 1. According to a report in an English-language state-run newspaper, China Daily, the police and coast guard will be allowed to board and seize control of foreign ships that “illegally enter” Chinese waters and order them to change course.

Mr. Wu acknowledged that the new rules had aroused alarm in Asia, and the United States, because they could be interpreted as a power grab by China.

“A big worry for neighboring countries and countries outside the region is that China is growing so rapidly, and they see it is possible China taking over the islands by force,” he said. “I think China needs to convince neighboring countries that this is not the case.”  Essentially, he said, countries had to trust that China would not use force in the sea.

The Philippines, an ally of the United States and one of the most vociferous critics of China’s claims in the South China Sea, reacted strongly to the new rules.

Bree Feng contributed reporting from Haikou, and Elisabeth Bumiller from Washington.

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Ashley Hebert and J.P. Rosenbaum Are Married

People Exclusive

By Monica Rizzo

12/01/2012 at 06:15 PM EST

J.P. Rosenbaum and Ashley Hebert

Victor Chavez/Getty

It’s official: Bachelorette star Ashley Hebert and her fiancé J.P. Rosenbaum tied the knot Saturday afternoon in Pasadena, Calif.

Surrounded by family, friends and fellow Bachelor and Bachelorette alumni like Ali Fedotowsky, Emily Maynard, and Jason and Molly Mesnick, the couple said "I do" in an outdoor ceremony officiated by franchise host Chris Harrison.

"Today is all about our friends and family," Hebert, whose nuptials will air Dec. 16 on a two-hour special on ABC, tells PEOPLE. "It's about standing with J.P., looking around at all the people we love in the same room there to celebrate our love."

The 28-year-old dentist from Madawaska, Maine, met New York construction manager Rosenbaum, 35, on season 7 of The Bachelorette. The couple became engaged on the season finale.

Hebert and Rosenbaum are the second couple in the franchise's 24 seasons to make it from their show finale to the altar, following in the footsteps of Bachelorette Trista Rehn, who married Vail, Colo., firefighter Ryan Sutter in 2003.

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Cliff fight may knock out December rally

NEW YORK (Reuters) - In normal times, next week's slew of U.S. economic data could be a springboard for a December rally in the stock market.

December is historically a strong month for markets. The S&P 500 has risen 16 times in the past 20 years during the month.

But the market hasn't been operating under normal circumstances since November 7 when a day after the U.S. election, investors' focus shifted squarely to the looming "fiscal cliff."

Investors are increasingly nervous about the ability of lawmakers to undo the $600 billion in tax increases and spending cuts that are set to begin in January; those changes, if they go into effect, could send the U.S. economy into a recession.

A string of economic indicators next week, which includes a key reading of the manufacturing sector on Monday, culminates with the November jobs report on Friday.

But the impact of those economic reports could be muted. Distortions in the data caused by Superstorm Sandy are discounted.

The spotlight will be more firmly on signs from Washington that politicians can settle their differences on how to avoid the fiscal cliff.

"We have a week with a lot of economic data, and obviously most of the economic data is going to reflect the effects of Sandy, and that might be a little bit negative for the market next week, but most of that is already expected - the main focus remains the fiscal cliff," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York.

Concerns about the cliff sent the S&P 500 <.spx> into a two-week decline after the elections, dropping as much as 5.3 percent, only to rally back nearly 4 percent as the initial tone of talks offered hope that a compromise could be reached and investors snapped up stocks that were viewed as undervalued.

On Wednesday, the S&P 500 gained more than 20 points from its intraday low after House Speaker John Boehner said he was optimistic that a budget deal to avoid big spending cuts and tax hikes could be worked out. The next day, more pessimistic comments from Boehner, an Ohio Republican, briefly wiped out the day's gains in stocks.

On Friday, the sharp divide between the Democrats and the Republicans on taxes and spending was evident in comments from President Barack Obama, who favors raising taxes on the wealthy, and Boehner, the top Republican in Congress, who said Obama's plan was the wrong approach and declared that the talks had reached a stalemate.

"It's unusual to end up with one variable in this industry, it's unusual to have a single bullet that is the causal factor effect, and you are sitting here for the next maybe two weeks or more, on that kind of condition," said Sandy Lincoln, chief market strategist at BMO Asset Management U.S. in Chicago.

"And that is what is grabbing the markets."

BE CONTRARY AND MAKE MERRY

But investor attitudes and seasonality could also help spur a rally for the final month of the year.

The most recent survey by the American Association of Individual Investors reflected investor caution about the cliff. Although bullish sentiment rose above 40 percent for the first time since August 23, bearish sentiment remained above its historical average of 30.5 percent for the 14th straight week.

December is a critical month for retailers such as Target Corp and Macy's Inc . They saw monthly retail sales results dented by Sandy, although the start of the holiday shopping season fared better.

With consumer spending making up roughly 70 percent of the U.S. economy, a solid showing for retailers during the holiday season could help fuel any gains.

Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, believes the recent drop after the election could be a market bottom, with sentiment leaving stocks poised for a December rally.

"The concerns on the fiscal cliff - as valid as they might be - could be overblown. When you look at a lot of the overriding sentiment, that has gotten extremely negative," said Detrick.

"From that contrarian point of view with the historically bullish time frame of December, we once again could be setting ourselves up for a pretty nice end-of-year rally, based on lowered expectations."

SOME FEEL THE BIG CHILL

Others view the fiscal cliff as such an unusual event that any historical comparisons should be thrown out the window, with a rally unlikely because of a lack of confidence in Washington to reach an agreement and the economic hit caused by Sandy.

"History doesn't matter. You're dealing with an extraordinary set of circumstances that could very well end up in the U.S. economy going into a recession," said Phil Orlando, chief equity market strategist at Federated Investors in New York.

"And the likelihood of that is exclusively in the hands of our elected officials in Washington. They could absolutely drag us into a completely voluntary recession."

(Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: charles.mikolajczak(at)thomsonreuters.com )

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)

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Brazil Registers Anemic Growth in 3rd Quarter, Surprising Economists

SÃO PAULO, Brazil — Brazil’s economy registered anemic growth in the third quarter as investment levels remained disappointingly low, according to figures released on Friday. The results cast doubt on policies meant to prevent Brazil from turning into a laggard among Latin America’s economies.

Gross domestic product grew just 0.6 percent from the previous quarter, stunning economists who had forecast double that rate. Brazil’s economy is now expected to grow only about 1 percent in 2012, delivering a challenge to President Dilma Rousseff, who has tried to increase growth through an array of huge stimulus projects.

Even economists with favorable views of Ms. Rousseff’s policies of assertively directing large government banks and other state-controlled enterprises to promote growth expressed surprise. The figures reflect a sharp departure from 2010, the last year of Luiz Inácio Lula da Silva’s presidency, when Brazil’s economy grew 7.5 percent.

Antônio Delfim Netto, an influential former economic policy chief, called the G.D.P. figures “a tragedy” in comments to reporters here on Friday. Under Ms. Rousseff, who has been president since 2011, Brazil is on track to deliver its weakest two-year period of growth since the early 1990s, before a stabilization program that radically restructured the economy. Finance Minister Guido Mantega contends that Brazil is on the cusp of a recovery, forecasting 4 percent growth next year.

While growth has declined considerably from the boom years, the slowdown has been blunted by state-supported projects aimed at creating jobs, like a shipbuilding sector conceived to support the oil industry. Brazil’s unemployment rate, 5.3 percent, is still hovering near historical lows.

Authorities are also financing broadly popular antipoverty programs. Federal spending surged 9 percent in October compared with October 2011, partly a result of outlays for an moderate-income housing program called Minha Casa Minha Vida (My House My Life). As millions of poor Brazilians are shielded from the slowdown, Ms. Rousseff’s approval ratings remain high.

Still, critics are growing more vocal about the need for Brazil to become more energetic in addressing complex structural dilemmas weighing the economy down, including its byzantine bureaucracy and woeful public schools. Ms. Rousseff is moving to address these issues; she changed an oil royalties bill on Friday, shifting 100 percent of future proceeds to an education fund.

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