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Big Wall Street investment companies are pulling back on their borrowing from the Federal Reserve’s emergency lending program, a sign that credit conditions may be improving a bit.

A Federal Reserve report Thursday said those firms averaged $22.6 billion in daily borrowing over the past week. That compares with $24.8 billion in the previous week. It marked the third straight week where investment firms borrowed less from the central bank.

The program, which began on March 17, is one of several extraordinary actions the Fed has taken recently to limit the damage from a trio of crises - housing, credit and financial.

After the sudden crash of Bear Stearns (BSC, Fortune 500), the nation’s fifth-largest investment bank, fears grew that others might be in jeopardy, given major stresses in credit and financial markets.

Scrambling to avert a market meltdown, Fed Chairman Ben Bernanke and his colleagues - in the broadest use of the central bank’s lending authority since the 1930s - agreed last month to temporarily let investment firms obtain emergency financing from the Fed, a privilege previously granted only to commercial banks.

The program, similar to the one the Fed has long had for commercial banks, will continue for at least six months. It gives investment firms a place to go for overnight loans. Commercial banks and investment companies pay 2.5% in interest for the loans.

Banks, meanwhile, averaged $10.7 billion in daily borrowing for the week ending April 23. That compares with $7.8 billion for the previous week. The identities of commercial banks and investment houses are not released.

As part of the effort to relieve credit strains, the Fed auctioned $59.46 billion in super-safe Treasury securities to investment firms on Thursday.

The auction - the fifth of its kind - fetched bids totaling less than the $75 billion worth of securities the Fed was making available http://savingpaydayloans.com. That could suggest that demand for Treasuries may be moderating a bit. And that might be viewed as a sign of some improvement in credit conditions, analysts said.

"Although the $59.5 billion sold is still a sizable amount, it does suggest that liquidity strains could be easing," said Lynn Reaser, chief economist at Bank of America’s Investment Strategies Group.

In exchange for the 28-day loan of Treasury securities, bidding firms can put up more risky investments as collateral, including certain shunned mortgage-backed securities.

In the five auctions held so far, the Fed has provided nearly $218.41 billion worth of the Treasury securities to investment firms. The program began March 27.

In Thursday’s auction, investment firms paid an interest rate of 0.2500% for a slice of securities.

The auction program is intended to help financial institutions and the troubled mortgage market.

The goal is to make investment houses more inclined to lend to each other. It also is aimed at providing relief to the distressed market for mortgage-linked securities. Questions about their value and dumping of these securities had driven up mortgage rates, aggravating the housing slump. 

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Federal Reserve Chairman Ben S. Bernanke may have to start talking and acting more like Paul Volcker if he wants to avoid being remembered as another Arthur Burns.

With oil and food prices surging, Volcker told the Economic Club of New York on April 9 that “there are some resemblances between the present situation and the period in the early 1970s,'' when then-Fed Chairman Burns let an inflation psychology take hold. “There was some fear of recession, the oil price went skyrocketing up, the dollar was very weak.''

It took Volcker's effort as Fed chief to push the overnight lending rate to 20 percent in 1980 and drive the economy into its deepest decline since the Depression to break the inflation he inherited. To avoid squandering the gains Volcker made, Bernanke may need to stop his all-out effort to prop up the weakening economy and start paying more attention to countering price pressures.

“You have to take the risk of the possibility of a small recession if you want to avoid ending up with a big one,'' says Allan Meltzer, a Fed historian and professor at Carnegie Mellon University in Pittsburgh.

As policy makers meet this week to decide on interest rates, Bernanke has one big thing going for him that Volcker, 80, didn't: Polls show Americans, for the most part, are still convinced the Fed will do what it takes to keep inflation down.

Self-Fulfilling Prophecy

That may become a self-fulfilling prophecy, as workers refrain from demanding big wage increases they don't think they'll get, and companies limit price increases for fear of losing sales.

Consumers expect inflation to average 3.2 percent during the next five to 10 years, according to a Reuters/University of Michigan survey this month. That compares with the 9.7 percent long-run inflation rate they expected in February 1980, seven months after Volcker took office.

“It's very different now than it was then,'' says Lyle Gramley, who served as a Fed governor under Volcker from 1980 to 1985 and is now Washington-based senior economic adviser for Stanford Group Co., a wealth-management firm. “Americans have confidence in the Fed.''

Bernanke, 54, realizes he can't take tame inflation expectations for granted and needs to keep close tabs on price pressures. Traders in federal funds futures are betting such considerations will lead the central bank to take a break from cutting the overnight rate after reducing it a quarter percentage point this week.

No Cut at All?

“It's most likely that they'll cut by a quarter point,'' says David Jones, author of four books on the central bank and chief executive officer of DMJ Advisors LLC in Denver. “But I wouldn't be shocked if they don't cut rates at all.''

Some economists say the Fed has already cut too deep, after slashing the benchmark rate by 3 percentage points since September to 2.25 percent. Meltzer says the rate should be at least 1 to 1.5 percentage points higher to keep inflation in check.

Michael Niemira, chief economist for the International Council of Shopping Centers in New York, says the Fed is setting the stage for a “severe downturn'' in the economy in 2010 because its efforts to spur growth now will fan inflation next year.

Even some policy makers are concerned. Dallas Fed President Richard Fisher, who voted against the last two rate cuts, says persistently rising food and energy costs are starting to influence consumers' inflation expectations http://us-fast-cash-now.com.

Fisher's Concern

“I'm concerned that we might be on a path of higher inflation than we would otherwise have had,'' Fisher said in a Fox Business Network interview aired April 22.

Since the start of the year, oil prices have risen 23 percent, while corn has climbed 27 percent and rice has jumped 76 percent.

Harvard University professor Jeffrey Frankel says the Fed's easing of monetary policy may be contributing to the run-up in commodity prices. The low rates make it cheaper for companies to finance and build inventories; they also encourage investors to shift money from low-yielding bonds into commodities.

“There is a speculative bubble building,'' says Frankel, who served as a White House economist under President Bill Clinton.

If so, it would be the third bubble the Fed has helped fuel since the mid 1990s: first in stocks, then in housing and now in commodities, says Tom Gallagher, senior managing director at International Strategy & Investment Group in Washington. Each bubble has had more of a direct impact on consumer prices than the previous one, he adds.

Undermining the Dollar

The Fed's rate cuts have also undermined the dollar, which has fallen 7 percent against the euro this year. That is making imports more expensive — they rose almost 15 percent in the year ending March 31, the biggest increase since the government began keeping records in 1982 — and pushing up inflation.

Edmund Phelps, winner of the 2006 Nobel Prize for economics and a professor at Columbia University, says the weak dollar makes it easier for U.S. companies to raise prices: “It's going to induce firms to push up mark-ups. That's bad for inflation.''

It was in the 1970s too. Back then, the dollar lost value after President Richard M. Nixon ended the currency's convertibility to gold in 1971. Commodity prices took off, led by a quadrupling of oil prices from 1973 to 1975 as the Organization of Petroleum Exporting Countries cut output.

Fiscal Parallels

There are also parallels on the fiscal front, Frankel notes. In the 1970s, spending on domestic programs and the Vietnam War pushed up the budget deficit and raised the risk of inflation. These days, the war in Iraq and drug benefits for the elderly are having a similar effect.

The late Fed chairman Burns, who ran the central bank from 1970 to 1978, responded to inflationary pressures by raising interest rates to more than 10 percent. The U.S. suffered a 16- month recession that started in November 1973 and almost doubled unemployment to 9 percent.

Relief on the inflation front proved to be only temporary as Burns quickly backed off those rates. After falling from a 12.3 percent rate in December 1974 to 4.9 percent in 1976, inflation shot back up, reaching 13.3 percent by December 1979, Volcker's fifth month in office.

“The economy in the '70s had a tremendous inflationary bias; the recession slowed inflation but didn't stop it,'' says Wyatt Wells, a professor at Auburn University and author of a biography of Burns.

“The lesson of the '70s is that, more than anything else, the Fed has to keep inflation expectations anchored,'' DMJ Advisors' Jones says. “Bernanke is about to get hit right between the eyes with that reality.''

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If the disconnect between the stock market’s recent strength and the economy’s weakness has left you scratching your head, you are not alone.

The headlines continue to paint a dire economic picture. The credit crunch has forced global financial institutions to take major losses and slash jobs. Meanwhile, the U.S. housing downturn and crushing oil and gasoline prices have clobbered U.S. consumers, which promises to dampen Canada’s already struggling manufacturing sector.

Stocks, however, are carrying on like the doom and gloom is yesterday’s news. Toronto’s S&P/TSX composite index closed yesterday at 14,103.87 – just a hop, skip and a jump from its all-time high of 14,625.76 set July 19. U.S. stocks have been surging as well.

What gives?

In past economic recessions, "equities have consistently `looked over the valley’ and bottomed four to six months prior to the end of a recession," UBS strategist George Vasic wrote in a research report yesterday.

"The improving tone on both sides of the border in recent weeks has some investors believing that this is the stage we have entered, while others are skeptical and awaiting (or hoping) for a pullback." Any near-term dips in the market, he concludes, "should be bought."

On the other hand, Bay Street bears believe Canada’s main stock index is suffering from a serious case of denial. Their advice to investors: "tread carefully" because the worst is far from over.

There were fresh signs yesterday the American economy is under increasing stress. A key measure of consumer confidence has now tumbled to a 26-year low, with rising food prices the latest worry for consumers.

This isn’t the first time the Toronto Stock Exchange has tried to power back to its record level in the face of gloomy economic forecasts. It came within a hair of matching it last Halloween when it closed at 14,625 even as economists were sounding the alarm about an American recession and a worsening global credit crunch.

Is the stock-market correction over?

David Chapman, a technical strategist with Union Securities Ltd., says we shouldn’t be fooled. The recent change in market psychology is merely a "bear market rally," fuelled by "unprecedented monetary growth" thanks to recent interventionist actions by global central banks. Inflation is brewing.

"It is amazing how quickly sentiment has shifted; the bulls are all chortling about how the bears can’t beat them," Chapman said in a recent note to clients. "They may want to pay better attention. Bear market rallies are usually accompanied by euphoria and this one fits the bill beautifully."

He later predicted in an interview that it would be a "very uneven bear market rally," because the TSX’s energy sector has greatly benefited from soaring crude oil prices, which hit $119.55 (U.S.) a barrel yesterday before slipping again and closing up $2.46 at $118.52.

Chapman, who has previously predicted the TSX could drop to 10,500 sometime this year, is well known for his bearish views $1500 payday loan. The TSX’s latest strength doesn’t mean problems have resolved themselves. Chapman said investors are turning a blind eye to glaring red flags, including the $5.1 billion loss announced by American banking behemoth Citigroup.

He also argued that recent actions by the U.S. Federal Reserve Board – including hundreds of billions in short-term loans for cash-starved commercial banks and the bailout of troubled investment house Bear Stearns Cos. – are masking the true depth of the crisis.

Adrian Mastracci, a portfolio manager with KCM Wealth Management Inc., isn’t that dire but agrees problems originating south of the border are far from over. "The recovery process may be longer and more protracted," he said. "The marketplace is fickle … Blink and things move."

Mastracci cautions that no crystal ball is perfect when it comes to forecasting economic conditions, suggesting Canada cannot solely rely on commodities as its saving grace. "We have some problems that we have to work out in Canada, so we can’t be smug about it."

That includes getting our export sector up and running again, a key challenge confronting Ontario’s manufacturing-based economy now that American consumers are tightening their purse strings.

All this means investors should fasten their seat belts and remain "defensive" with their investments by sticking to "quality" large-cap stocks, including energy issues, he said. At the same time, Mastracci warns clients to be wary of Canadian bank stocks in the near-term, even though they’ve rebounded fromlows set in March, as they still "have some rough waters to go."

Not everyone, however, is predicting more doom and gloom for Canadian stocks. Paul Taylor, chief investment officer for BMO Harris Private Banking, believes the next couple of quarters could be challenging but the outlook for equities will likely improve during the latter half of this year.

"We’re just in the process of moving a little bit more money into equities right now, sort of as we speak," Taylor told reporters on Thursday. "And then our view is to sit back over the next quarter or two and see whether it warrants another move up in our equity weight to bring us fully up to neutral."

And when it comes to U.S. equities, his American counterpart, Jack Ablin of Harris Private Bank, advocates a similar approach. "I do believe the worst is over but I just don’t expect too many fireworks," he said.

With more American residential mortgages in line for interest rate resets in the coming months, he cautioned that uncertainty continues to loom.

"That said, I would rather continue to play equities cautiously. I don’t expect them to drop a lot but I just don’t expect them to rally any time soon."

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Coca-Cola Enterprises Inc., a bottler of Coca-Cola beverages, said Thursday its first-quarter profit dropped 47% due to higher commodity costs and soft performance in North America.

For the quarter ended March 29, net income fell to $8 million, or 2 cents per share, from $15 million, or 3 cents per share, in the prior-year quarter.

Excluding restructuring charges and other items, the company earned 8 cents per share.

Analysts polled by Thomson Financial expected earnings of 10 cents per share.

Revenue grew 7% to $4.89 billion from $4.57 billion in the first quarter of 2007. Analysts anticipated revenue of $4.91 billion.

The revenue growth came mainly from the company’s European operations. Revenue in that division rose 16% while revenue in the company’s North America unit grew just 4%.

Higher prices only partly offset commodity cost increases in both divisions payday loans in 1 hour. In North America, cost of sales per case grew 9% while prices per case rose 4.5%.

Volume - the number of cases sold either directly or indirectly to consumers - was flat in North America, excluding the impact of a calendar change. In Europe, volume rose 7%, excluding the calendar shift, the company said.

Coca-Cola Enterprises (CCE, Fortune 500) said its North America performance was impacted by soft economic conditions. Consumers have increasingly been cutting their discretionary spending to better handle high gas and food prices and the weak housing market. 

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3M Co., maker of Scotch tape and Post-It notes, said Thursday its first-quarter earnings dropped compared to a year ago when it had a big gain on the sale of one of its businesses. But the results topped analyst expectations.

3M said its profit fell 28% to $988 million, or $1.38 per share, from $1.37 billion, or $1.85 per share, during the same period a year ago. Prior-year results included a one-time gain of $422 million, or 57 cents per share, from the sale of 3M’s branded pharmaceutical business in Europe.

Sales rose 9% to $6.46 billion from $5.94 billion a year earlier.

Analysts surveyed by Thomson Financial, who generally exclude one-time items, forecast earnings of $1.35 per share on revenue of $6.34 billion.

3M said international sales were solid and that profits increased in four of its units. Profit declined in its consumer and office and display and graphics businesses.

The Maplewood-based company affirmed its full-year guidance of about $5.48 per share.

Two-thirds of 3M sales came from international subsidiaries, "and growth in many developing economies enabled us to overcome economic challenges in the U.S.," Chairman and Chief Executive George Buckley said.

Operating profits in 3M’s largest division, Industrial and Transportation, rose 15% to $472 million. Profits dropped 37% in Display and Graphics, to $187 million. Price competition has become more intense for 3M’s coatings for LCD screens.

3M (MMM, Fortune 500) shares rose 62 cents to $81.25 in premarket trading.

Correction: An earlier version of this story erroneously reported that 3M missed profit estimates. CNNMoney.com regrets the error.  

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In a move that pits two of the Internet’s most popular sites against each other, EBay Inc. sued Craigslist on Tuesday, alleging the classifieds company unfairly tried to dilute the online auctioneer’s stake in it.

EBay (EBAY, Fortune 500) purchased a 28% stake in privately-held Craigslist in 2004.

But in January, eBay says, Craigslist’s board, consisting of founder Craig Newmark and Chief Executive Jim Buckmaster, unilaterally acted to dilute eBay’s economic interest in Craigslist by more than 10%.

Craigslist spokeswoman Susan MacTavish Best said the company would likely comment on the lawsuit late Tuesday on its blog.

EBay, the world’s largest online auctioneer, was an unsolicited suitor to quirky Craigslist in 2004. An unnamed former Craigslist shareholder sought out eBay and sealed a deal whose financial terms were never disclosed.

At the time, Newmark said the companies had similar philosophies, but Best said, "Craigslist has never sought any outside money, and that’s not going to change."

EBay said at the time of the deal that it was interested in learning about the classifieds business, a portion of its own site that’s been growing rapidly in recent years.

San Jose-based eBay made $7.7 billion in revenue in 2007 and has 279 million registered users. It is the 17th most popular English-language site, according to traffic ranking site Alexa, while Craigslist ranks 45th.

Craigslist, based in San Francisco, has never disclosed revenue figures, and charges for job ads and apartment listings only in select cities.

Newmark, a former IBM (IBM, Fortune 500) programmer, founded Craigslist in 1995 as a roundup of local events in San Francisco, but the bare-bones site fast became a popular online destination and has branched out to 450 cities worldwide easy payday loans. Although it started with a ".org" domain name usually reserved for nonprofits, Craigslist incorporated as a for-profit company in 1999.

With 25 employees working out of Victorian houses in San Francisco’s Inner Sunset neighborhood, the site has grown from 1 billion page views per month in 2004 to 9 billion per month now, according to Craigslist. It hosts 30 million new classifieds a month, most posted for free.

EBay spokeswoman Kim Rubey declined to quantify eBay’s current stake in Craigslist.

Much larger eBay, which has 15,000 employees, is asking Delaware’s Court of Chancery to negate Craigslist’s board’s actions.

The complaint is under seal because of confidentiality restrictions, according to a company statement. Craigslist may ask the court to make the complaint publicly available, eBay said.

The lawsuit was announced 45 minutes before the close of trading Tuesday. EBay’s stock closed at $30.89, up 26 cents, or less than 1%. The stock slipped 6 cents to $30.83 after hours. 

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AT&T Inc. says it will fire about 4,650 workers, trimming the managerial ranks in its fading home phone business after more than $100 billion in acquisitions.

The decision covers about 1.5 percent of the work force, San Antonio-based AT&T said Friday in a regulatory filing.

The dismissals at the largest U.S. phone company are in addition to the 10,000 announced with the $86 billion purchase of BellSouth Corp. in December 2006, spokesman Walt Sharp said.

Most of the reductions apply to the local phone business, Sharp said. That unit lost 1.6 million residential lines last year as customers switched to cable and wireless phone service.

AT&T has sought to reduce overlap in its operations since buying BellSouth and the former AT&T Corp., with plans to slash annual costs by about $7 billion by 2009.

"They’re going to have to continuously downsize that business," said Craig Moffett, an analyst at Sanford C. Bernstein in New York. "This isn’t the first and won’t be the last time." He expects the shares to perform in line with the rest of the market.

It’s unclear how many of the layoffs will be in St. Louis, where AT&T is one of the region’s biggest employers with about 10,000 people.

Sharp said the company would not break down cuts by location but did say that most of the layoffs are in its land-line division, which is focused in the 22 states formerly served by Southwestern Bell and Bell South, including Missouri and Illinois.

Workers at AT&T’s complex of office buildings downtown said they had been told of the layoffs but not told how many would be here creditreport. The company did not file a notice with state officials that is required when more than 50 people are laid off at once, said Mike Waltman, a spokesman for the Missouri Division of Workforce Development. But smaller layoffs over time may not require such a notice.

Many of the people who work at AT&T’s downtown headquarters work in either its Yellow Pages division, which is headquartered here, or an information technology unit. Neither were expected to see big cuts, Sharp said.

Nationwide, AT&T plans to book a pretax cost of about $374 million for the job cuts in the first quarter. Before the announcement, analysts on average predicted AT&T would report net income of $3.95 billion for the period. The phone company had about 310,000 employees as of Jan. 31.

The company is scheduled to report first-quarter earnings Tuesday. In the previous quarter, sales fell short of analysts’ estimates after some customers failed to pay their bills, hurt by slowing economic growth.

In trading Friday, shares of AT&T fell 6 cents to close at $37.51. The shares have dropped 9.7 percent this year, compared with a 16 percent decline in the Standard & Poor’s 500 telecommunication services index.

To slow phone customer losses, the company is spending $7 billion in five years to rewire parts of its network to offer faster Internet speeds and television service over its lines.

TIM LOGAN OF THE POST-DISPATCH CONTRIBUTED TO THIS REPORT.

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The number of newly laid off workers filing claims for unemployment benefits increased last week after a big decline in the previous week.

The Labor Department said Thursday that applications for unemployment benefits rose to 372,000, an increase of 17,000 from the previous week.

The four-week average for claims was 376,000, down only slightly from 376,750, the previous week. Aside from the period in the fall of 2005 after Hurricane Katrina hit, the four-week average for claims has risen to levels last seen in 2003 when the country was mired in a long jobless recovery after the 2001 recession.

Claims have been unusually volatile in recent weeks, falling by 51,000 two weeks ago after having risen by 35,000 the week before that. Analysts said that claims have been difficult to read because of trouble the government is having adjusting the figures for seasonal changes to reflect this year’s unusually early Easter and also because of the impact of a strike at a key parts supplier for General Motors.

The unemployment rate jumped to 5.1% in March as businesses cut 80,000 jobs, the biggest drop in payrolls in five years. Many economists believe that was the most dramatic indication to date that the country has fallen into a recession.

Economists believe that the downturn should be short and mild, ending this summer with the help of the economic stimulus package that will send rebate checks to 130 million households. Still, they are looking for the unemployment rate to rise to 6% before stronger economic growth starts generating renewed hiring.

Ian Shepherdson, chief economist at High Frequency Economics, said the claims average for the past two months has now risen to a level similar to where it was at the start of the 2001 recession absolutely free credit report. He said he expected claims to keep rising in the months ahead and be above 400,000 on a weekly basis by this summer.

"We can think of no good reason why claims should now level off and plenty of reasons why they should be expected to rise further," Shepherdson said.

In another sign of labor market weakness, the total number of people receiving unemployment benefits rose to 2.98 million for the week ending April 5, up 26,000 from the previous week and the largest amount in nearly four years.

For the week of April 5, 31 states and territories reported increases in claims while 22 states had declines.

The state with the biggest increase was Georgia, where claims rose by 4,306, reflecting higher layoffs in textile plants, carpet and rug factories and in service industries. Michigan was next with an increase of 3,483 claims applications, reflecting higher layoffs in the auto industry, followed by Texas with an increase of 2,377.

The states with the biggest declines in claims applications were New Jersey, down 2,737; New York, down 2,465; and Wisconsin, down 2,075. 

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Democrats in Congress and President Bush will agree on a bill to help half a million or more strapped homeowners get into lower cost mortgages, but it won’t be through the bankruptcy courts, the chairman of the House Financial Services Committee said Tuesday.

Efforts to let bankruptcy judges rewrite mortgages for strapped borrowers won’t make it through Congress this year, Rep. Barney Frank, D-Mass., told The Associated Press in an interview.

But if the mortgage industry refuses to participate in his plan to let struggling borrowers refinance into government-backed loans, Frank said, they can expect tougher regulation in the future.

"If they’re an obstacle to this, there’s going to be a serious effort legislatively to reduce their role," said Frank, who plans to meet with mortgage servicers Wednesday.

Servicers will have to take losses on distressed loans "whether they like it or not," he said.

The darkening economic picture and the political calendar are giving lawmakers and the White House a powerful incentive to come together on a housing package.

"People are very afraid of being accused of not having done something to avoid (a) longer and deeper recession," Frank said.

His package, scheduled for a committee vote next week, would allow the Federal Housing Administration to back as much as $300 billion in mortgages for struggling homeowners. Servicers would have to agree to take a loss on the existing loans, while borrowers would have to show they could afford to make new payments on their refinanced mortgages.

The final bill could include long-awaited revamps of the FHA, the Depression-era mortgage insurer, and Fannie Mae (FNM) and Freddie Mac (FRE, Fortune 500), the government-sponsored loan financiers and guarantors.

"This is an unusual situation in which a big package that has a lot of things that some people like will get them to support it, even if there are one or two things that they don’t like," Frank said.

A broader effort to impose stricter financial regulation on investment banks and other institutions will wait until next year, Frank said.

Liberal groups and consumer advocates argue the bankruptcy change — supported by both Democratic presidential candidates, Hillary Rodham Clinton and Barack Obama — is needed to help hundreds of thousands of homeowners avoid foreclosure cash advance usa. Critics argue it would hurt borrowers in the long term by prompting lenders to raise interest rates.

The Senate rejected the measure before passing a housing bill last week, and Frank said it had little chance of being resurrected in the House.

"If we do do it, I think it’s not going anywhere," Frank said.

The turmoil in the housing sector proves that the market doesn’t always function better without government intervention, the 14-term Democrat said.

"The smart people really screwed this one up," said Frank, who faulted Alan Greenspan, the former Federal Reserve chairman, with a "grave mistake," in refusing to impose tougher regulations.

On monetary policy, Greenspan was "very good, but on regulation he was awful," Frank said.

In contrast, he praised current Fed chairman Ben Bernanke and Treasury Secretary Henry Paulson for their handling of recent economic challenges, and credited them with persuading Bush to support a stronger short-term stimulus package than he initially wanted to.

Of Paulson, Frank said, "He’s part of an administration that I think is more ideologically conservative than he is in some areas, and he’s working this, trying to move the administration." 

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Federal regulators on Thursday fined Wal-Mart Stores Inc., Best Buy Co. Inc., and other retailers $3.9 million combined for failing to properly label that analog-only televisions will need to be retrofitted after the switch to digital TV next year.

The Federal Communications Commission also handed down $2.7 million in fines to other companies for violating other digital TV rules that involve shipping analog equipment and blocking technologies such as the V-chip.

An FCC rule, adopted last May, requires retailers to display or affix "consumer alert" labels to analog-only TV equipment - including TVs, DVDs, videocassette recorders and digital video recorders - that says it will not receive signals after the nationwide digital transition - without a special converter box.

The rule is to keep consumers from buying TV equipment that will not work after the digital switch by Feb. 17, 2009. After that, if the TV doesn’t get cable or satellite service or isn’t hooked up to the converter box that translates over-the-air digital broadcasts, it won’t work.

Inspections took place last year. The FCC, which conducted numerous inspections last June, said it initially issued warnings to companies, whose stores and Web sites across the country were in violation of the rule. The agency said it gave each company "a reasonable opportunity" to respond.

Sears Holding Corp. (SHLD, Fortune 500), which operates Sears and Kmart retail stores, was fined nearly $1.1 million for the labeling violation, while Wal-Mart (WMT, Fortune 500) was given a $992,000 fine and Circuit City Stores Inc. (CC, Fortune 500) was handed a $712,000 fine. Target (TGT, Fortune 500), Best Buy (BBY, Fortune 500), Fry’s Electronics Inc. and CompUSA Inc., which has since been acquired by Systemax Inc. (SYX), were assessed fines between $168,000 to $384,000.

Sears - fined for 15 of its stores, its Web site and 20 Kmart stores - said in an e-mail statement that it was "surprised" by the FCC’s action and had eliminated analog inventory from its stores last fall and will soon offer converter boxes.

The company said it hasn’t decided whether to appeal or pay the fine.

Best Buy, which was fined for 18 stores selling various models of analog-only equipment, said it was "extremely disappointed" by the FCC’s action to what it called a "relatively small number of instances."

"Best Buy voluntarily pulled all analog-only tuner products from our stores on Oct savings account payday advance. 1, 2007, in a proactive effort to prevent confusion and to help jump start consumer awareness," the company said in an e-mailed statement.

The company said it did not believe it violated the FCC rule "in any willful or repeated manner."

Wal-Mart spokeswoman E.R. Anderson said in a statement that all the products sold by the company comply with FCC regulations. Wal-Mart has "voluntarily invested millions of dollars in new technology, training, new product and consumer education" for the transition, she said.

The FCC says that after inspecting 2,272 retail stores and 36 Web sites, it issued 349 citations, or warnings, to retailers for failing to comply with the labeling requirement.

Manufacturers also fined. The FCC also fined two companies - Syntax-Brillian Corp. and Precor Inc. - a combined $1.6 million for violating another digital TV rule for manufacturing, importing or shipping any device that only contains an analog tuner. The agency mandated that all new TVs must include digital tuners as of March 1, 2007.

Additionally, the agency fined Polaroid Corp. and Proview Technology Inc. nearly $1.1 million combined for failing to ensure their equipment with a V-chip technology can "respond to changes in the content advisory rating system."

All the companies have 30 days to appeal the fines.

The Consumer Electronics Association, a trade group whose members include Circuit City and Best Buy, said late last year that more than 50% U.S. households now own a digital TV and expect nearly 32 million digital TVs will be shipped this year.

The federal government this year launched a $1.5 billion coupon program to help defray cost of converter boxes for viewers of analog sets that rely on antennas to watch TV. Each U.S. household is entitled to get two $40 coupons.

As of April 7, the government has accepted more than 5.2 million household requests for nearly 9.9 million coupons. So far, more than 280,000 coupons have been used to purchase converter boxes. 

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