U.S. leaps ahead, Europe debt woes touch Asia

U.S. jobless claims on Thursday fell to a 3-1/2-year low and a survey showed New York factories picked up speed this month, bucking gloomy economic trends set by Europe and Asia.

Stock index futures added to gains after the Labor Department revealed initial claims for state unemployment benefits dropped by 19,000 to 366,000 last week, the lowest level since May 2008.

And a business survey of New York factories provided more evidence that the U.S. economy is weathering the festering sovereign debt crisis in Europe, which is starting to crimp growth in emerging trade partners like China.

While the pace of decline in the euro zone's business economy unexpectedly slowed in December, surveys earlier on Thursday confirmed the region is almost certainly stuck in recession.

That leaves the United States as perhaps the only major Western power currently making a significant contribution to global economic growth.

"The data is all very in line with a modestly improving overall economy here in the United States," said Peter Kenny, managing director at Knight Capital in New Jersey.

"Stability in the U.S. economy is going to be a vital part of stabilizing global GDP. This comes at a very good time."

The New York Federal Reserve's "Empire State" general business conditions index rose to 9.53 from 0.61 the previous month. Economists polled by Reuters had expected a reading of 3.00.

The Philadelphia Federal Reserve's business activity indicator, another early gauge of private sector activity, is due at 1500 GMT and economists also expect it to rise sharply.

In the euro zone, Markit's flash composite purchasing managers' index (PMI), which corresponds closely with economic growth, rose unexpectedly in December to 47.9 from 47.0 last month.

But it has now lingered below the 50 line that divides growth from contraction for four months.

"(It) reinforces the notion that the euro zone economy is slipping into a mild recession rather than falling off a cliff," said Martin van Vliet, senior economist at ING.

The survey compilers warned against viewing its latest gauge of euro zone business as a turning point, especially since there is still a strong risk the euro zone sovereign debt crisis could spiral out of control.

RESOLUTION NEEDED

EU leaders last week took a historic step towards fiscal union last week, but pressure is building on reluctant euro zone paymaster Germany to take immediate, radical steps to solve the crisis.

A resolution to the crisis is all the more important as its repercussions spread through global economy. China saw its first year-on-year drop in foreign direct investment in 28 months in November.

The HSBC flash manufacturing purchasing managers' index, the earliest indicator of China's industrial activity, rose modestly to 49.0 in December from 47.7 but pointing to a monthly contraction in activity nonetheless.

Most economists gave a cautious welcome to the euro zone PMI data, which measures changes in the activities of thousands of businesses across the euro zone.

"All in all, despite the further pick-up in December, the PMI data still suggest that euro zone real GDP saw a marked contraction in the fourth quarter," said ING's van Vliet.

The Markit Eurozone Composite PMI, which looks at both the manufacturing and services sectors,

Furthermore, only France and Germany were responsible for the upturn in the index, while the euro zone's peripheral economies continued to struggle.

Markit said its data pointed to a quarterly economic decline of 0.6 percent in the euro zone in the final quarter of this year.

That would be twice as deep as the contraction expected by economists in a Reuters poll on Wednesday, which also forecast a 0.2 percent fall in the first three months of the new year. <ECILT/EU>

An escalation of the debt crisis could cause a far steeper contraction next year -- a scenario the Swiss National Bank warned on Thursday could not be ruled out, after holding its exchange rate cap on the franc against the euro for now.

There was one bright note on Thursday. The risk premium on benchmark Spanish bonds fell following a well-received bond auction that raised more than the government had targeted. <MKTS/GLOB>

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Olympus ex-CEO attacks Japan investors as comeback bid struggles

Japan's Olympus Corp ex-CEO Michael Woodford

The whistleblower in Japan's Olympus Corp scandal, ex-CEO Michael Woodford, blasted Japanese shareholders on Thursday for failing to stand up for him, amid signs that domestic and foreign investors are split over his campaign to be reinstated.

Woodford, an Englishman who was a rare foreign CEO in Japan, went public with his concerns over crooked accounting at Olympus after his dismissal in October, leading to the uncovering of a $1.7 billion fraud that has left the company badly weakened.

He is now lobbying shareholders of the maker of cameras and medical equipment to support his reinstatement and replace the disgraced board with a new team that he is assembling.

"We saw a shameful state of the company's finances yesterday, but not one Japanese shareholder stood up and said publicly 'Mr Woodford is right, thank you Mr Woodford', anything, a total, an utter silence," Woodford said, a day after Olympus released its restated accounts on Wednesday.

His comeback campaign has highlighted the contrasting opinions of foreign and Japanese shareholders on the future leadership of Olympus, which has been found to have carried on a $1.7 billion fraud to hide investment losses for 13 years.

At least three big foreign shareholders have backed Woodford's bid to return to the company where he spent three decades working his way up from salesman to CEO. But not one Japanese shareholder or lender has openly supported him since he blew the whistle, leaving him clearly frustrated.

Woodford also launched an emotional attack on the firm's current Japanese boss.

"Should that man be the president and custodian of one of Japan's iconic companies?" he said of Olympus President Shuichi Takayama, one of the directors who had voted unanimously to sack him after he had queried the firm's dubious book-keeping.

"How dare he!" Woodford added, calling Takayama's handling of the whole affair "Machiavellian."

Woodford also said he had discussed refinancing options for Olympus with private equity firms and investment banks, and also voiced concerns that Takayama was planning to raise money by placing new shares with a third party.

That would dilute the stakes of existing owners and weaken their hand in a proxy battle between Woodford and whoever the existing board chooses as its next CEO candidate.

"It would dilute the existing shareholders, so then I could not win a proxy fight," he said.

The existing board, led by Takayama, has said he and fellow directors will resign soon, to make way for a new board to be elected by shareholders at a meeting in March or April, and that the board wants to choose its successors before it quits.

It has set up an external panel to advise on board candidates and other management issues.

Takayama even suggested on Thursday the board would consider Woodford as a candidate for his old job, but few analysts gave the gesture any credence given the hostility between the pair.

Takayama, currently the most senior executive after several resignations since Woodford's departure, said he had no plans to meet Woodford, who some major Japanese shareholders and lenders privately oppose, according to a banking source.

"As of now, I have no plans to meet," he said.

Woodford says the board is discredited and has no right to choose its successors, and on Thursday expressed anger at signs that not all of the incumbent board would resign.

He is assembling his own team of candidates for a new board with himself at the helm.

NEED FOR FRESH CAPITAL OR TIE-UPS

Woodford also went public with a plea to meet the head of Sumitomo Mitsui Banking Corp (SMBC), the main lender to Olympus, a possible sign that he was having trouble getting access.

"My representatives have asked for a formal meeting with SMBC. I hope they at least give me the courtesy of listening to me," he said. The bank, which is the core banking unit of Sumitomo Mitsui Financial Group, said it had not received the request and declined comment.

The next CEO and board of Olympus face major challenges, starting with a need to repair the once-proud firm's balance sheet, which was revealed on Wednesday to be $1.1 billion weaker than had been previously disclosed in its fraudulent accounts.

Olympus shares slumped 20 percent on Thursday, with investors now concerned it might need to merge, sell assets or raise fresh capital.

Takayama said on Thursday the company was considering capital and operational tie-ups, among other options, to relieve the pressure on its balance sheet, which was shown to have a very thin layer of equity remaining after the restatements.

Olympus forecast its troubled camera business will make a loss in the current financial year, but said unit sales had risen 15 percent in the six months to September 30 from the same period a year earlier.

The firm, whose main income earner is its very profitable endoscope business, avoided automatic delisting from the Tokyo Stock Exchange by meeting Wednesday's deadline for producing its overdue second-quarter accounts, giving some initial relief to investors.

However, the 92-year-old firm can still be delisted if the exchange believes the accounting deceit was sufficiently grave.

Woodford said he favored private equity or a rights issue over a strategic alliance, which would rob Olympus of its independence. But rights issues, where existing shareholders can buy more shares on a pro-rata basis, are rare in Japan.

Olympus has lost more than half its market value since it sacked Woodford and the scandal erupted. Two top Olympus executives have been found to have masterminded the scheme to cook the books, and both have since resigned.

Olympus has been dogged by rumors of bid interest from rivals, such as fellow endoscope makers Fujifilm and Hoya, or from private equity since the scandal broke.

The Tokyo exchange said after the announcements that it was keeping Olympus on its watchlist for possible delisting.

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Small businesses hiring more online workers

When Casey McConnell started text messaging marketing company Qittle he took the traditional route of hiring onsite employees. But he soon realized it was more advantageous to hire workers online.

“We found it was easy to find these specialists or people that we could hire for a certain amount,” said McConnell, the CEO of Qittle. “We didn’t have the extra overhead and we just got the project done. It’s really easy for us to ramp up our needs or pull back using contractors. If we had an internal staff it’s pretty hard to fluctuate like that.”

Qittle’s preference to hire workers in the cloud is reflected in Elance’s recent survey that shows 83 percent of small businesses plan to hire half their workers online within the next 12 months. Only 10 percent of those surveyed plan to hire predominantly onsite workers (90 percent).

Elance, a marketplace for online workers, has posted more than 600,000 jobs ranging from programers to virtual assistants. Small businesses prefer to hire online because of flexibility, speed and economy of the process cost, according to Fabio Rosati, the CEO of Elance.

“So if you’re a small business owner, you can think of a hybrid model of hiring (online and onsite workers),” said Rosati. “You can think about what skills and what talent you need onsite. You can also decide what skill set you need to be in the cloud which is much more cost-effective and much more flexible.”

Elance’s Online Employment Report shows the number of businesses hiring online has increased 107 percent since last year. Elancers earned 51 percent more last year and earned a record $38 million in Q3 2011.

Rosati said more and more companies will decide to hire in the cloud. “I predict that at some point 99 percent of businesses will have between 5-10 percent of their hiring done online because it makes so much sense.”

But for McConnell, hiring online is the only way to go. Qittle plans to only hire workers from the cloud. “As a business we’d rather stay small and nimble and we’d rather contract out through individuals or businesses.”

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Sony eyes Vita push, feels Fitch heat

Sony Corp, set to report a $1 billion loss this year, is banking on a big slate of new software to drive sales of its new PlayStation Vita handheld games device, even as Fitch downgraded the Japanese electronics giant to a notch above junk.

Welshman Andrew House, who took the top job at Sony Computer Entertainment in September, must plot a much-needed success story for the Vita, negotiating a minefield of consumer gloom and competition from smartphones and tablet PCs such as Apple Inc's iPhone and iPad.

Sony, which has forecast a fourth straight annual loss this year, launches the Vita in Japan this weekend.

It hopes a package of 24 software titles at launch will help the gadget avoid the fate of rival Nintendo's 3DS, which flopped shortly after launch, forcing a hefty price cut.

"It's unprecedented for us to achieve that degree of publisher and development support ... we adopted a different approach to the lead-up to the platform in terms of our relationships with publishers and developers," House told reporters at Sony's Tokyo head office on Thursday.

He said he hoped the Vita would outsell its predecessor, the PlayStation Portable (PSP), which has shipped 73 million units since launching in late-2004.

The videogames unit made a first profit in 5 years in the year to March, as it squeezed production costs for the Playstation 3, boosting profits for the whole company. The unit's sales accounted for more than a tenth of Sony's 7 trillion yen in total revenue.

But costs involved in driving Vita sales may push the unit back into the red this year, adding to Sony's struggle with huge losses in televisions.

Sony needs the Vita to be a hit to ease the pain from its TV business, which is set for an annual loss of $2.2 billion, an eighth straight year of losses. Sony is looking to halve that loss next year, but has given few details on how it plans to get the business back into profit.

FITCH MOVE

The Fitch ratings agency turned up the heat by downgrading Sony to BBB- - a notch above non-investment, or junk, grade - from BBB, citing the group's weakened financial performance and the challenges it faces in recapturing its former strong position in key markets.

"A likely overall FY12 EBIT loss, excluding financial services, and an increase in debt driven by acquisitions will significantly weaken Sony's credit profile," said Nitin Soni, Associate Director in Fitch's Asia-Pacific Telecommunications, Media and Technology team.

Sony said in October it was taking over its mobile phone joint venture with Ericsson for $1.5 billion, and is also leading a group to buy EMI's music publishing operations in a deal valued at $2.2 billion.

"Of course, if the rating is downgraded it makes it more expensive for them to raise money, so it's not good," said Keita Wakabayashi, an analyst at Mito Securities.

"(Sony has) slashed its profit outlook for the current year and even if the North American market has improved slightly, European and Japanese markets and emerging markets are in a severe state. So downgrades are something we'll have to keep in mind."

VITA

The Vita, featuring a 5-inch OLED display and 3G connectivity, sold out in advance bookings in Japan, where buyers have rushed to upgrade from the PSP. Sony has not provided a unit sales target for the Vita.

The United States and Europe may pose a tougher challenge as a February 22 launch date for the Vita comes well after the crucial year-end holiday sales season.

"We've been told the PS Vita sold out on pre-bookings. How it sells next year depends on the software. If they can come up with something like Monster Hunter they will be able to sell a lot, but if they don't, prospects don't look so bright," said Mito's Wakabayashi, referring to a game title that drove sales of the PSP in Japan.

The challenge from smartphones and tablets comes on top of competition from long-standing domestic rival Nintendo, which aims to sell 16 million of its cheaper 3DS handheld games devices by March. Sony on Thursday said it was keeping to its target of selling 15 million PS3 game machines in the year through March.

Another rival, Microsoft, doesn't offer a portable device.

After a slump in sales, Nintendo slashed the price of its handheld gadget in August by about 40 percent to $170, compared with $249 for the PS Vita, or $299 for the 3G version.

The games industry has shrugged off the broader economic gloom and is forecast to top $81 billion by 2016, according to research firm DFC Intelligence, up 23 percent from this year and more than three times the size of the recorded music industry.

Much of that growth is likely to be in online, social and casual games, rather than the traditional hardware model that has been Sony's staple.

Japan's software houses are pouring resources into mobile social gaming, and industry executives have expressed some concern over the future for dedicated handheld gaming devices.

Sony was criticized in June, when it announced the pricing of the Vita, for making the gadget too expensive, and has teamed up with U.S. telecoms firm AT&T as Vita's exclusive carrier. Many U.S. iPhone users have complained that AT&T provided poor connectivity.

Sony shares closed down 1.5 percent on Thursday, their lowest in two weeks.

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Daewoo signs deal to develop Israel's Tamar gas field

Daewoo International

 South Korea's Daewoo Shipbuilding & Marine Engineering Co Ltd said on Tuesday that it has agreed to develop Israel's Tamar natural gas field with Noble Energy Inc, Delek Group Ltd and Isramco Inc, and was eyeing vessel orders for the project.

Under the deal, Daewoo will soon conduct an LNG-FPSO feasibility study, aiming to sign a final agreement by the end of next year, a statement from the shipbuilder said, without specifying the size of its stake in the development deal or the value.

The statement said it aimed to produce liquefied natural gas (LNG) from the field, which has estimated reserves of 240 billion cubic meters of natural gas, from the end of 2016 if all the processes for the final deal remained on track.

The volume was equivalent to five times South Korea's annual consumption, Daewoo added.

"(Daewoo) hopes to win multiple orders for LNG floating production and storage and offloading (FPSO) vessels," the Daewoo statement said, adding that the field's owners were considering gas production in the largest offshore find of 2009 through FPSO vessels, not onshore plants, for geopolitical reasons.

The Tamar field is located in a sea area about 80 kilometres west of the port of Haifa, according to the Daewoo statement.

Isramco said last week that it had made a preliminary deal with Daewoo to build and operate a floating LNG facility for exports to South Korea and elsewhere, adding that the companies would hold talks to secure a contract for 15-20 years at a price likely to be between $7 and $9 per MMBTU.

South Korea, the world's second-largest LNG importer after Japan, imported nearly 30 million tonnes of LNG in the first ten months of this year.

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European shares gain strenght

European shares rose on Tuesday, bouncing from a steep sell-off in the previous session and after Wall Street finished off its lows, though gains were set to be capped by worries over high euro zone and U.S. debt levels.

At 0936 GMT, the FTSEurofirst 300 index of top European shares was up 0.4 percent at 923.33 points, after falling 3.3 percent in the previous session to its lowest close in nearly seven weeks, on worries about high debt levels on both sides of the Atlantic and with Moody's warning on France.

Stocks rose almost across the board, with those that suffered most in the previous session bouncing more. The STOXX Europe 600 Banking Index rose 0.6 percent. France's BNP Paribas rose 1.2 percent.

But the banking sector has lost more than 38 percent in 2011, with many banks having to take severe writedowns on exposure to euro zone sovereign debt.

"This (the overall market) does not look like any weakness that one could buy into with a high degree of confidence," Jeremy Batstone-Carr, strategist at Charles Stanley, said.

"Uncertainty over the positioning of the rating agencies is almost certainly going to mean that any bounce in the market is likely to be limited."

Borrowing costs in the euro zone periphery remained major focus in the market. Spanish six-month bill average yields rose to 5.227 percent in an auction, compared with 3.302 percent at the previous sale.

HIGH PROFILE

U.S. lawmakers abandoned their high-profile effort to rein in the country's ballooning debt on Monday in a sign that Washington likely will not be able to resolve a dispute over taxes and spending until 2013.

The debt issues will continue to drive market sentiment, said strategists, and equities were unlikely to see much of a rally in the short term.

"You always get some kind of bounce after a fall-off, but the debt, the uncertainty hasn't really changed," said Andy Lynch, fund manager at Schroders, which manages 197 billion pounds ($311 billion).

"Absent some deus ex machina, time is the biggest healer. We need to see debt being paid down, so banks have capacity to fund economic growth. But that's a six-month story, rather than a six-day story.

"We favour companies with decent balance sheets and good cash flow."

Goldman Sachs cut its three-month target for the STOXX Europe 600 to 195 points, 13 percent below Monday's close of 224.76, citing worries about the failure of euro zone policymakers to come up with comprehensive measures to avoid contagion in the sovereign debt crisis.

"The lack of initiative means weak fundamentals are likely to be a key driver," Goldman strategists said in a note.

Batstone-Carr said there was support for equities from valuation measures such dividend yield.

Equity valuations on Thomson Reuters Datastream showed the STOXX Europe 600 carrying a one-year forward price-to-earnings of 9.4 against a 10-year average of more than 13.

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Obama college loan plan aims at an old voting bloc

Seeking to shore up support among cash-strapped college graduates and students struggling with rising tuition costs, President Barack Obama is outlining a plan to allow millions of student loan recipients to lower their payments and consolidate their loans.

Outside of mortgages, student loans are the No. 1 source of household debt. Young voters were an important bloc in Obama's 2008 campaign, and student loan debt is a common concern among Occupy Wall Street protesters.

Obama's announcement, to take place Wednesday in Denver, comes the same day a new report is being released by the College Board. It shows average in-state tuition and fees at four-year public colleges rose $631 this fall, or 8.3 percent, compared with a year ago. Nationally, the cost of a full credit load has passed $8,000, an all-time high.

The White House said Obama will use his executive authority to provide student loan relief in two ways.

First, he will accelerate a measure passed by Congress that reduces the maximum repayment on student loans from 15 percent of discretionary income annually to 10 percent. The White House wants it to go into effect in 2012, instead of 2014. In addition, the White House says the remaining debt would be forgiven after 20 years, instead of 25. About 1.6 million borrowers could be affected.

Second, he will allow borrowers who have a loan from the Federal Family Education Loan Program and a direct loan from the government to consolidate them into one loan. The consolidated loan would carry an interest rate of up to a half percentage point less than before. This could affect 5.8 million more borrowers.

Education Secretary Arne Duncan told reporters on a conference call that the changes could save some borrowers hundreds of dollars a month.

"These are real savings that will help these graduates get started in their careers and help them make ends meet," Duncan said.

The White House said the changes will carry no additional costs to taxpayers.

Last year, Congress passed a law that lowered the repayment cap and moved all student loans to direct lending by eliminating banks as the middlemen. Before that, borrowers could get loans directly from the government or from the Federal Family Education Loan Program; the latter were issued by private lenders but basically insured by the government. The law was passed along with the health care overhaul with the anticipation that it could save about $60 billion over a decade.

Today, there are 23 million borrowers with $490 billion in loans under the Federal Family Education Loan Program. Last year, the Education Department made $102.2 billion in direct loans to 11.5 million recipients.

Meanwhile, the Education Department and the Consumer Financial Protection Bureau announced a project Tuesday to simplify the financial aid award letters that colleges mail to students each spring. A common complaint is that colleges obscure the inclusion of student loans in financial aid packages to make their school appear more affordable, and the agencies hope families will more easily be able to compare the costs of colleges.

Separately, James Runcie, the Education Department's federal student aid chief operating officer, told a congressional panel Tuesday that the personal financial details of as many 5,000 college students were temporarily viewable on the department's direct loan website earlier this month.

Runcie said site was shut down while the matter was resolved, and the affected students have been notified and offered credit monitoring.

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