World financial news

The WTO has found that loans from European governments to Airbus were not only unfair subsidies but in some cases violated a tougher ban on export aid, according to sources familiar with a report that also rejected some U.S. complaints.

The findings are contained in a confidential interim report distributed by the World Trade Organization to the parties in a row between the United States and European Union over aircraft subsidies that could affect planemakers worldwide.

U.S. lawmakers briefed on the report said on Friday that the WTO had ruled against European government loans for Airbus, backing claims that they harmed Boeing. European sources denied there had been a clear-cut result.

Picking apart the contrasting claims, two sources familiar with the case told Reuters the draft conclusions of a five-year WTO probe overwhelmingly backed U.S. charges that the dozen or so loans were “actionable” subsidies that harmed Boeing.

Washington won a partial victory on a second key claim: that most of the same loans further violated WTO rules by amounting to prohibited export subsidies, the sources said. The extent of the U.S. victory on this point remained unclear.

SUPERJUMBO

Under trade rules, “prohibited” subsidies must be dismantled or amended swiftly after the conclusion of a case without the complainant needing to prove its firms were harmed. “Actionable” subsidies are seen as harder to attack and remedies are slower.

At least one of four loans given by European governments to help fund the A380 superjumbo was cleared of being a banned export subsidy, but the rest were found illegal, sources said cash advance to savings account.

Washington however lost a third claim: that the overall use of European loans was an invalid program of support in its own right, several sources familiar with the matter said.

The United States had not only attacked the individual loans but claimed they were part of a concerted and open-ended system in a bid to implicate future loans for Airbus’s future A350, which fell outside the jurisdiction of the WTO complaint.

Washington is expected to protest those loans separately.

The United States broadly won its case against European Union research and development funding for Airbus, as well as infrastructure projects that Washington regards as a covert boost for the European planemaker, two of the sources said.

R&D spending and infrastructure projects in the United States are also at the center of an EU counter-claim against the United States. The process is about six months behind the U.S. case against Airbus, though the two are not officially linked.

The United States lost its case against loans by the European Investment Bank awarded to Airbus, the sources said.

None of the sources agreed to be identified because no one is authorized to speak publicly about the WTO findings ahead of their publication in several months. 

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Parents who install a leading brand of software to monitor their kids’ online activities may be unwittingly allowing the company to read their children’s chat messages — and sell the data gathered.

Software sold under the Sentry and FamilySafe brands can read private chats conducted through Yahoo, MSN, AOL and other services, and send back data on what kids are saying about such things as movies, music or video games. The information is then offered to businesses seeking ways to tailor their marketing messages to kids.

The company that sells the software, EchoMetrix, insists it is not putting kids’ information at risk, since the program does not record names or addresses. But the software knows how old they are because parents customize its features to be more or less permissive, based on age.

In June, EchoMetrix unveiled a separate data-mining service called Pulse that taps into the data gathered by Sentry software to give businesses a glimpse of youth chatter online low interest auto loans. While other services read publicly available teen chatter, Pulse also can read private chats. It gathers information from instant messages, blogs, social networking sites, forums and chat rooms.

EchoMetrix CEO Jeff Greene said the company complies with privacy laws and does not collect identifiable information.

Parents who don’t want the company to share their child’s information can check a box to opt out. But that option can be found only by visiting the company’s website, accessible through a control panel after the program is installed.

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Mohamed El-Erian, the chief executive of top bond fund PIMCO, said in an interview on Friday the risk of stalled economic growth in 2010 is increasing, given a still-weak labor market.

While there are signs that economic recovery is taking shape, a soft job market and flat incomes could hinder a sustained recovery, El-Erian told Reuters after the release of the latest U.S. unemployment figures.

The Labor Department said the pace of U.S. job losses slowed in August, with employers cutting 216,000 jobs from payrolls, fewer than forecast, after a 276,000 drop in July. But the unemployment rate jumped to 9.7 percent from 9.4 percent.

“The risk of a double dip for U.S. economic growth in 2010 is increasing,” said El-Erian, who oversees $850 billion in assets for Pacific Investment Management Co, also known as PIMCO.

“This challenges equity markets that are currently pricing a V-like recovery in corporate revenues and credit availability.”

The summer rally in equity markets and lower-quality bonds has outpaced what is warranted on the basis of forward-looking indicators for demand, revenue, profits and credit flows, El-Erian added.

The first week of September began in the red for U business cards.S. stocks as major indices dropped on Tuesday and never quite recovered. In late morning trade on Friday, the Standard & Poor’s 500 added 0.3 percent to stay above the key 1,000 level.

JOBS KEY TO SOLID RECOVERY

El-Erian said that especially with the drying-up in credit, employment and wages are the key to a sustainable recovery. The payroll data Friday confirmed that the transition from the boost from government stimulus and replenished inventories to an increase in consumer and corporate demand is “far from assured.”

“The unemployment rate is heading to 10 percent by the end of 2009 and, unfortunately, will stay at high levels for an unusually prolonged time,” he said. “The implications of a stubbornly high unemployment rate go well beyond economics as there are also important political and social dimensions.”

With a history of very flexible and responsive labor markets, the United States does not have sufficiently broad safety nets to deal well with high unemployment, El-Erian said.

(Reporting by Jennifer Ablan; Editing by Jeffrey Benkoe)

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Markets tumbled Tuesday, as investors retreated at the start of what is typically a rough month, betting that the six-month stock advance has raced ahead of the economic recovery.

"I think we’ve had a nice run and it’s time for a bit of a pullback," said Tom Schrader, managing director at Stifel Nicolaus. "I wouldn’t be surprised if we moved back to the 880 level (on the S&P 500) before moving back up."

A drop to the 880 level would constitute a slide of about 12% from the current levels.

Investors nitpicked through the morning’s better-than-expected reports on housing and manufacturing but found little reason to jump back into the fray.

The Dow Jones industrial average (INDU) lost 186 points, or almost 2%. The S&P 500 (SPX) index fell 23 points, or 2.2%. The Nasdaq composite (COMP) fell 40 points, or 2%.

"I think the ‘whisper number’ for [the manufacturing report] was higher and once people digested that, the market swung in the other direction," said Schrader.

Schrader said that investors were also reacting to the "calendar influence," amid a variety of reports about the tendency for September to be a weak month on Wall Street. September is typically the biggest percentage loser of the month for the Dow, S&P 500 and Nasdaq composite, according to the "Stock Trader’s Almanac."

"The reports this morning were positive, but investors are basically saying that stocks have had a good run up and now it’s time to take some profits," chimed in Phil Orlando, chief equity market strategist at Federated Investors.

Stocks have essentially been on the rise since March, as investors have welcomed extraordinary fiscal and monetary stimulus and signs that corporate profits and the economy have stabilized. The major gauges ended last week at the highest levels in 9 to 10 months. Financial shares took a beating Tuesday after enjoying a nice ride through the late summer, fueled largely by speculation and momentum.

But with the S&P up 52% from the March 9 lows, market participants are now looking for concrete evidence that the economy is recovering. The morning’s reports were positive, but perhaps not as positive as the most optimistic forecasts.

Wednesday preview: Two readings on the labor market are due Wednesday in the lead up to Friday’s big August jobs report.

Payroll services firm ADP is expected to report that employers in the private-sector cut 246,000 jobs from their payrolls in August after cutting 371,000 in July.

Additionally, Challenger, Gray & Christmas, an outplacement firm, will report on the number of announced job cuts in August.

A July reading on factory orders is also due in the morning from the Commerce Department. Other reports include the minutes from the last Federal Reserve policy meeting, the weekly crude oil inventories report and the July reading on factory orders.

Manufacturing: The Institute for Supply Management’s manufacturing index for August showed growth in the sector for the first time since January 2008. The index rose to 52.9 from 48.9 previously. Economists surveyed by Briefing.com thought it would rise to 50.5.

Pending home sales rose for the sixth straight month, jumping 3.2% in July, to the highest point in nearly two years, according to a report from the National Association of Realtors released Tuesday morning. The index rose 3.6% in June. Economists surveyed by Briefing.com thought sales would rise 1.5% in July.

Construction spending fell 0.2% in July versus forecasts for an unchanged reading. Spending rose a revised 0.1% in June.

Financials: Many of the summer’s big bank sector winners led the declines Tuesday.

Dow component Bank of America (BAC, Fortune 500) slipped 6.4% in active NYSE trading. BofA was the biggest Dow gainer in the June through August period, rising 56%.

Dow component American Express (AXP, Fortune 500) lost 5.4% Tuesday. Over the last three months, AmEx has gained 36% and was the second-best Dow performer.

Dow component JPMorgan Chase (JPM, Fortune 500) lost 4.1% after rising 17% this summer.

Among other movers, Citigroup (C, Fortune 500) lost 9% after rising 34% in the summer. Regional bank Fifth Third Bancorp (FITB, Fortune 500) lost 6.2% after rising 59% this summer.

The KBW Bank (BKX) index fell 5.8% after rising 20% over the summer.

Oil prices and stocks: U.S. light crude oil for October delivery fell $1.91 to settle at $68.05 a barrel on the New York Mercantile Exchange. Oil prices have been slipping since hitting a ten-month high just below $75 a barrel late last month.

The decline in oil prices dragged on heavily-weighted energy stocks including Dow components Chevron (CVX, Fortune 500) and Exxon Mobil (XOM, Fortune 500).

Auto sales: The government’s popular Cash for Clunkers program gave a boost to sales in August, major automakers said. Although a plunge in sales in the last week of the month, following the program’s end, suggests the impact will not be far reaching.

In August, Ford Motor (F, Fortune 500) reported that sales jumped 17% versus a year ago, its best monthly gain in 4 years. However, the advance was short of expectations for a rise of 22%, according to analysts surveyed by Edmunds.com.

Toyota, which had the most Clunker sales of any automaker, said August sales rose 6%, its first year-over-year gain in 16 months.

General Motors (GM, Fortune 500) and Chrysler Group both reported year-over-year declines in August on sales that improved from July.

Company news: Online auctioneer eBay (EBAY, Fortune 500) said it will sell a large stake in its Skype Internet phone business to a group of investors for $2.75 billion.

World markets: European markets tumbled, while Asian markets ended higher. On Monday, a selloff in Chinese markets sparked a broader global selloff.

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 3.37% from 3.40% late Monday. Treasury prices and yields move in opposite directions.

Other markets: COMEX gold for December delivery rose $3.50 to settle at $957 an ounce.

In currency trading, the dollar gained versus the euro and the Japanese yen.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by five to one on volume of 1.63 billion shares. On the Nasdaq, decliners topped advancers by almost four to one on volume of 2.81 billion shares.

How does your portfolio look nearly one year after the collapse of Lehman Brothers? What investment choices hurt you or helped you the most? What strategy changes are you making for the future? Tell us your story. E-mail realstories@cnnmoney.com and your thoughts could be part of an upcoming story. For the CNNMoney.com Comment Policy, click here. 

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Yahoo Inc. board member Carl Icahn has cut back his stake in Yahoo, selling nearly 13 million shares since last Thursday, according to a regulatory filing Monday.

Icahn Capital reported that the overall Yahoo (YHOO, Fortune 500) stake held by various Icahn-related funds was 4.48%, down from 5.38% as of June 30, according to Reuters data.

Icahn’s stock sales come one month after Yahoo struck a deal to outsource its search technology to Microsoft Corp. (MSFT, Fortune 500), a partnership Icahn advocated.

Since the deal was announced, Yahoo’s stock price has declined nearly 16%, closing Monday at $14.49.

According to Monday’s filing, Icahn remained optimistic about Yahoo’s long-term prospects.

Icahn sold his Yahoo shares to better "balance" his portfolio of tech stocks and because the window for Yahoo directors and offices to sell stock would be closing after August 31, according to the filing.

"The reporting persons continue to believe in the wisdom of the Microsoft-Yahoo search transaction and fully support the performance of the Issuer’s CEO Carol Bartz," Icahn Capital said in its filing. 

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You might be surprised to know that Coinstar, the company that operates those coin counting machines in your local grocery store, is one of the better performing stocks this year. Shares are up more than 70%.

Sure, it makes sense that the company would thrive as more penny-pinching consumers turn coins sitting in an old coffee cans into actual dollars they can use to buy stuff.

But the real reason behind Coinstar’s success has little to do with people hoarding nickels and dimes. Coinstar has another business that is exciting investors — and making big media companies nervous.

Meet Redbox. If you haven’t heard of the $1 DVD rental service, here’s a quick description. Redbox kiosks, like the Coinstar (CSTR) machines, are found in many retailers, from McDonald’s (MCD, Fortune 500) — which was an initial investor — to Wal-Mart (WMT, Fortune 500), supermarket chain Kroger (KR, Fortune 500) and drug store chain Walgreen (WAG, Fortune 500), to name a few.

People interested in renting a movie can reserve one online at Redbox’s web site. They can then go pick up the DVD at a kiosk and use their credit card to pay for it. The cost is a $1 per night. The company says there are no late fees, but if you don’t return the DVD the day after you rent it, you are charged an extra $1 per night that you keep it.

Needless to say, this has proven to become popular with consumers, particularly in this economic downturn. Assuming you do actually return the DVD in one day, it could be cheaper to use Redbox than a DVD rental service like Netflix (NFLX) or Blockbuster (BBI, Fortune 500).

Redbox, which was founded in 2002, had kiosks at just under 18,000 locations as of June 30. (That includes locations for another kiosk service owned by Coinstar called DVDExpress.) Redbox also recently announced the rental of its 500 millionth DVD.

This has all served as a big boost to Coinstar, which estimates that Redbox had a 13.8% market share of the DVD rental market in the first six months of the year, up from 9% last year and just 2.3% in 2007.

Coinstar had previously been a minority stakeholder in the company, but it acquired the remainder of Redbox from an affiliate of McDonald’s and other investors in February.

In the first half of this year, Coinstar said that revenue from its DVD business totaled $344 million, nearly 60% of its total sales. Coinstar said its expects sales from Redbox and DVDExpress to nearly double this year.

By way of comparison, Coinstar’s traditional coin transaction business has started to slow as more banks allow people to turn coins into paper money free of charge (such as TD Bank). Coinstar charges consumers a processing fee of 8.9 cents a dollar.

In the first six months of 2009, the company’s coin business accounted for a little over 20% of total revenue; it is predicting that sales will essentially be unchanged from last year.

It makes you wonder if Coinstar won’t eventually pull a page from the retailer formerly known as Dayton Hudson, which changed its corporate name to Target (TGT, Fortune 500), and someday be known as Redbox.

But will Redbox continue to do well? All that depends on whether or not the company can make nice with media companies, which are the main suppliers of DVDs for all those kiosks.

Hollywood smackdown

Right now, battle lines are being drawn as movie companies try and figure out if Redbox is friend or foe. Already they’re concerned whether traditional rentals from the likes of Netflix and Blockbuster are hurting their profits quick payday loans.

Some movie studios, such as Sony’s (SNE) home entertainment unit and Lionsgate (LGF), have signed multi-year agreements to supply Redbox with new releases of DVDs.

Viacom’s (VIAB, Fortune 500) Paramount announced a trial program earlier this week that will last until the end of the year. Paramount has the option to extend the deal until 2014 after the trial expires.

But other studios have balked at allowing Redbox access to new releases on the first day they are released for sale due to worries that fewer people would be wiling to buy DVDs if they can easily get them for a $1 on Redbox.

Redbox has sued three of the companies that are holding back on DVDs — GE (GE, Fortune 500)-owned Universal, News Corp.’s (NWS, Fortune 500) Fox and Warner Bros., which like CNNMoney.com is owned by Time Warner (TWX, Fortune 500). Redbox alleges that the studios’ actions violate antitrust laws.

Redbox has maintained that it will continue to offer customers new releases from those studios, even if the company has to go buy the DVDs themselves at retail prices.

That would be good news for Redbox customers since they won’t suffer from a lack of choice. But it could decimate Redbox’s profits in the process and make the company’s business model far less viable.

Redbox generated $54 million in operating income in the first half this year. That gives the unit a decent 17% operating margin. But that pales in comparison to the nearly 37% profit margins that Coinstar’s coin business put up.

So it may not be good news for Coinstar if there is more pressure on its slow-growth, albeit extremely profitable, coin business to subsidize any potential profit hits from Redbox.

Robert Evans, an analyst with Craig-Hallum Capital, said Coinstar investors are already discounting the delay by studios and the potential impact from the lawsuits into the stock price. He adds there is a good chance Redbox could settle with those studios and eventually become partners with them.

Some big shareholders in Coinstar are sticking by the company as well.

Bradley Hinton, a portfolio manager with mutual fund firm Wallace R. Weitz & Co., wrote in a second quarter letter to shareholders of the Weitz Balanced fund that Coinstar is one of the fund’s "more predictable businesses and cheaper holdings." The fund owned about 50,000 shares as of June 30 while Weitz overall owned approximately 894,000 shares.

Coinstar trades at about 22 times 2010 earnings estimates and profits are expected to grow 28.5% a year on average for the next five years, according to analysts’ estimates.

And Jamie Cuellar, a portfolio manager with Brazos Mutual Funds, wrote in a second quarter report to shareholders that "Coinstar has the upper hand with the studios on DVD rental given legal precedent." Brazos owned more than 128,000 shares of Coinstar according to FactSet.

Cuellar added that "the company is dramatically ahead of competition on building a DVD kiosk brand, and the placement numbers and location agreements bear this out."

Talkback: Have you tried Redbox? If so, are you a fan? Or do you use other services to rent or watch movies at home? Share your comments below. 

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Walt Disney Co said on Monday it plans to buy Marvel Entertainment Inc for $4 billion in a deal that would add characters like Iron Man, Spider-Man, and the Fantastic Four to its entertainment empire.

The cash and stock deal values Marvel at $50 per share, or a premium of 29 percent to Marvel’s closing stock price of $38.65 on Friday. The deal has been approved by the boards of both companies.

Marvel’s shares shot up to $48.70 in premarket trade. Shares of Disney, which will acquire ownership more than 5,000 Marvel characters, dropped about 3 percent in premarket trade.

Marvel shareholders would receive a total of $30 per share in cash plus approximately 0.745 Disney shares for each Marvel share they own.

(Reporting by Paul Thomasch; Editing by Derek Caney)

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