NEW YORK (MarketWatch) -- Investors see room for more gains in corporate bonds through the end of the year if the economic recovery turns out tepid and with U.S. company debt still paying much higher yields than Treasurys.

In the first half of the year, the major fixed-income asset classes reversed the dramatic moves of 2008's financial crisis, giving high-yield bonds the best performance by far and leaving Treasurys the biggest loser.

An index of high-yield bonds compiled by Merrill Lynch returned 28.6% in the first half of 2009. That reverses a 25.4% loss in the second half of 2008.

The question I get most frequently from clients is, is it too late? -- Kent Wosepka, Standish

Investment-grade corporate bonds, rated BBB or better by Standard & Poor's, gained 9.24% this year. In the second half of last year, they lost 6.05%.

Treasurys, meanwhile, have lost 4.41% in 2009, after returning 11.49% in the last six months of 2008.

Steep gains in corporate bonds have caught the attention of investors.

"The question I get most frequently from clients is, is it too late?" said Kent Wosepka, chief investment officer of active fixed income at Standish, which manages about $50 billion.

To answer that question, he points to the spread in yields between high-yield or investment-grade debt and Treasurys. Narrower gaps between corporate yields and Treasurys indicate investors are more comfortable holding riskier assets. They've fallen by half since mid-December.

Still, those spreads are still near or higher than they were at the worst point in the 2001-2002 recession, when Enron and WorldCom. That means it's not too late to buy corporate bonds.

"In any other historical context, these would be amazingly wide spread levels and very high yield levels," Wosepka said.

Getting paid to wait

Wosepka expects the U.S. economy to expand in the second half but very slowly, which is a good environment for corporate bonds. Against this backdrop, he prefers higher-rated debt to minimize the risk of defaults. He also noted the firm has received new money from pension funds looking to buy investment-grade credit to better match their long-term liabilities.

"If you can avoid those default pitfalls, you're paid quite handsomely in investment-grade and high-yield to wait in an environment where we have sluggish growth," Wosepka said.

High-yield bonds yielded as much as 21.8 percentage points more than Treasurys in mid-December, as the credit crisis and economic downturn, accelerated by Lehman Brothers' sudden bankruptcy, sent investors clamoring for the relative safety of Treasurys. The spread between junk bonds and Treasurys was the highest since Merrill began calculating the data in 1996.

The spread has since declined to about 11 points.

The spread between investment-grade debt and Treasurys has fallen to 3.33 points, the lowest since September, after reaching a record 6.56 percentage points in December.

No more easy money

Buying debt with an eye on its spread above Treasurys is "approximately the right answer" during an economic downturn, said Colin Lundgren, who manages $86 billion as head of institutional fixed income for RiverSource Investments.

"If you think the economy is gradually healing, there is probably some nice value in certain sectors of the market where you can pick and choose," said Lundgren, who also co-manages RiverSource's Strategic Income Allocation Fund .

Still, a lot of the easy money has been made as worries the economy would fall into a full-fledged depression have eased and much of those funds that flocked to Treasurys have been reallocated to other assets.

"Given the gains we've seen in the first half of the year, no one is expecting a replication," said Michael Materasso, co-chair of the fixed-income policy committee at Franklin Templeton Fixed Income.

Their funds continue to be invested in financial institutions, banks and insurers, as "legislation and actions of the Federal Reserve to improve the banking system are very positive for bond investors," said Materasso, who also co-manages the Franklin Total Return Fund .

Still, others prefer high-yield debt, saying speculative-grade bonds give higher returns with a better margin for error if interest rates increase -- either pushing yields up or compressing spreads.

"If I think U.S. interest rates are going up, I might have a better opportunity to buy bonds cheaper," said Dan Janis, a bond fund manager for MFC Global Investment Management.

"We still like high yield," he said. "We're making the assumption that equity markets are ahead of the fundamentals" in terms of the economy's pace of recovery.

But buying high-yield debt requires being a lot pickier because you can't depend on spreads shrinking, he said.

"We're not just buying yield for yield," Janis said. "We're buy yield of a company that we think will survive and buying a slice of that we feel is the right risk/reward tradeoff."

Credit Markets: Corporate bonds have room to run in second half

Hot News: China Limits Use of Game Players’ Virtual Currency

The State Street Corporation, an asset management and servicing company, said Monday that it might face civil charges by securities regulators for exposing investors to losses on subprime mortgages.

The company said that Securities and Exchange Commission staff had issued a &S220;Wells&S221; notice to its banking unit on Thursday regarding disclosures and management by State Street Global Advisors of active fixed-income strategies in 2007 and in previous periods.

A Wells notice indicates that S.E.C. staff may bring civil charges, and gives the recipient a chance to mount a defense.

The Securities and Exchange Commission said on Monday that it had no comment on the matter.

State Street, which is based in Boston, oversees $11.3 trillion of assets in custody and has $1.4 trillion in assets under management. The company said it had been cooperating with the S.E.C. and other regulators.

In 2007, State Street established a $625 million legal reserve to cover investor claims after the company invested in mortgage-related securities that lost value when credit markets tightened in the second half of the year.

Many investors have sued State Street, accusing it of misleading them about the risks of the investments. Last month, the company said that as of March 31, it had made $418 million of payments from the legal reserve, leaving $207 million.

State Street Says Regulators May Sue on Mortgage Losses

Hot News: Nothing to Hide in Airline’s Campaign. Really.

SEOUL &S212; South Korea plans to invest 4 trillion won by 2015 to expand Incheon International Airport, the country&S217;s Land Ministry said Monday.

The $3.11 billion project reflects South Korea&S217;s eagerness to increase government and private spending on construction and other projects to help offset sluggish local consumption and exports, which have weighed on the economy.

Incheon, the main South Korean international airport, was voted the best in the world for 2009 in an annual survey conducted by the British consulting firm Skytrax. The airport competes for North Asian traffic with airports in Hong Kong, China and Japan, where expansions and upgrades are also planned.

At Incheon, the government plans to add a second passenger terminal and expand its existing cargo terminal and other infrastructure, the Land Ministry said in a statement.

Upon completion, Incheon will be able to handle 62 million passengers and 5.8 million tons of cargo a year, up from the current capacity of 44 million passengers and 4.5 million tons.

Construction will begin in 2011, with completion planned for 2015, but the schedule could change, depending on air travel demand, the ministry said.

South Korea to Spend $3 Billion on Airport

Hot News: Restoring lending crucial to U.K. recovery: OECD

NEW YORK – Repaying a student loan could soon be a little less painful.

Starting this week, anyone with a federal student loan can apply for a program that caps monthly payments based on income, and forgives remaining balances after 25 years. Those choosing to work in public service could have their loans forgiven after just 10 years.

Eligibility for income-based repayment (IBR) is determined by a person's income and loan size. A calculator at http://www.ibrinfo.org can help borrowers determine their eligibility for the plan, which becomes available Wednesday.

"It's a way to borrow for college without going to the poor house," said Lauren Asher, president of the Institute for College Access & Success, a California-based nonprofit that runs the Project on Student Debt.

Monthly payments would amount to less than 10 percent of income for most of the estimated 1 million people expected to enroll, experts say. Payments would never exceed 15 percent of any income above about $16,000 a year (or 150 percent of the poverty level).

Those who earn less than $16,000 would not have to make any monthly payments.

The new payment option is intended to provide relief for those who earn modest salaries and struggle under the weight of student loans for years on end. By stretching repayment over a longer period, monthly payments are kept at a reasonable portion of income, though most people would not see any savings on the total cost of the loan.

IBR "can lower costs and provides light at the end of the tunnel" for such borrowers, said Asher of the Institute for College Access & Success. That gives borrowers greater financial flexibility to save for retirement, buy a home or even pay for their own children's education, she said.

The program isn't for everyone, however.

In some cases, accruing interest could push the cost of the loan higher. And since loans are likely to be paid off within 25 years, the loan forgiveness aspect of the program won't apply to most people. To save on interest costs, those who could afford to would be better served paying off loans faster, said Mark Kantrowitz, publisher of FinAid.org, which tracks the college financial aid industry.

If a salary jump eventually disqualifies a borrower for the capped monthly payments, they would still be responsible for the cost of the loan and the interest that accrued up to that point. Monthly payments still couldn't exceed what they would be under a standard 10-year repayment plan. Of course, borrowers could opt to pay off debts faster if they chose.

There are already some options for those who can't afford big monthly payments, such as long-term payment plans spanning up to 30 years. But eligibility requirements are stricter, and monthly payments can still be high.

The government also offers a program similar to IBR called the income-contingent repayment plan. That plan is not as lenient as the new one, however, with payments capped at 20 percent of income beyond 100 percent of the poverty level. And it's also only available for direct federal loans.

The new program will be available for direct federal loans, as well as federal loans administered through private lenders. Most of those enrolled in the income-contingent plan are expected to switch over to the new program.

Parent PLUS loans, the federal loans parents can take out to pay for their children's education, are not eligible for either payment plan.

For modest earners, relief repaying student loans

Hot News: Economic Preview: Damp conditions will limit data fireworks

BOSTON (MarketWatch) -- Every now and again, an investor can look at mutual-fund performance charts and think they see an undiscovered gem, some issue which no one has heard about that appears to have a reasonable strategy, below-average expenses and a place at the top of the charts.

More often than not, however, short-term performance leaders are no diamond in the rough -- they're cubic zirconium or fool's gold.

Investing by Islamic Law

The principles of Islam's Sharia law helped the Amana family of mutual funds avoid the worst of the market's downturn, in part by steering clear of financial-services firms and companies with high debt levels. MarketWatch's Jonathan Burton reports.

That certainly appears to be the case with the Foresight Value Fund, which looks certain to top Morningstar's midcap growth category at the year's half-way point, making it the Stupid Investment of the Week.

Stupid Investment of the Week focuses on conditions and characteristics that make a security less than ideal for the average investor. It is written in the hope that spotlighting danger in one situation will make it easier to root out elsewhere.

The column has just one ongoing tradition, specifically that a mutual fund leader at the year's midway point always gets SIOTW as a booby prize.

One-man shop

The recurring concept is based on the idea that a fund with fabulous-but-volatile short-term performance will regress quickly to the mean, so that someone buying into the hot streak actually catches a coming cold spell. Because a hot streak can often last more than six months, selecting a mid-year leader is a chance to be "early," as many leaders will continue running for months before falling back to earth.

Top-performance charts are dominated by specialty funds, sector issues and leveraged funds that magnify market moves. But when some unknown fund like Foresight Value breaks through in a mainstream asset class, things get interesting and investors get tempted.

Foresight Value is up more than 45% so far in 2009, or about four times the gain of its average midcap-growth category peer and nearly eight times better than the average stock fund, according to investment researcher Morningstar Inc. Yet investors who see this fund atop the charts and investigate will quickly find they are entering the land of the lost, looking at a throwback to a bygone era.

Foresight Value was started in 2004 by Michael Bissell, a chartered financial analyst who has a day job in engineering and runs the fund on the side. Bissell has yet to get a ticker symbol for the fund, noting that he hoped to have a decent five-year record before taking the steps -- and paying the price -- for getting a ticker.

While many small funds do not go through the process of getting a ticker, investors should approach them with caution, because it may mean that the fund does not meet certain listing criteria or does not follow all back-room procedures required for having a ticker.

With Foresight Value, Bissell not only runs the money but serves as transfer agent, accountant and administrator -- roles that typically are handled by independent third-party firms, adding an extra layer of professionalism, protection and cost. While the cost savings is a plus, a one-man shop should make investors nervous. Instead of sending your deposits to a third-party administrator, you send them directly to Foresight's office in Katy, Texas.

Bissell himself will handle those deposits, just as he returns calls to the firm's customer-service lines.

Past performer

That's not something your typical fund manager does. In fact, it's reminiscent of the 1970s and 1980s, when the number of new funds exploded and small money managers would sprout a new fund from their dining table and run it there until they either gave up or attracted attention and money.

Alas, when some of those funds had the short-term performance that drew money - just as Foresight has done in 2009 -- the pressure of moving from tiny shop to something much bigger typically killed future results. He's also the fund's biggest investor, with his cash representing about 90% of the fund's assets.

"I could just invest my family's money on my own, without the fund, but I'm trying to establish a record," Bissell said. "If you do it on your own, nobody is going to know anything about it. If I can establish a record, the next step -- getting the ticker and hiring an administrator and becoming a much bigger fund -- becomes much easier."

Data-tracking firms like Morningstar and Lipper Inc. may have basic performance information on funds without a ticker, but they're not likely to be doing significant analysis or research. That means an investor is left to their own devices. If reading prospectuses is not a specialty -- and average fund investors barely look at the documents at all -- then buying a fund with no ticker is just asking for trouble.

Foresight Value's documents -- which you can see at www.foresightfunds.com -- show a fund that buys-and-holds undervalued stocks until they reach the manager's estimate of their intrinsic business value. As an extra measure of safety, management purchases only companies that are debt-free, or that have sufficient resources to easily repay debt.

With 15 to 30 stocks in the portfolio, Foresight Value's holdings are concentrated; the top 10 holdings, as of March 31, amounted to two-thirds of the nearly $400,000 left in the fund.

I say "left" because Foresight Value's hot streak is actually a bounce-back from a particularly miserable 2008. Where the average stock fund lost about 40% last year, Foresight Value dropped about 60%. The top holdings list shows several big-name, volatile stocks, including financials, energy and basic materials issues that have lived through a wild ride over the last 18 months.

(Note: One of Foresight Value's largest holdings is News Corp , parent of MarketWatch, the publisher of this report.)

Bissell not only wants to keep costs down, but he passes that savings on to his small band of shareholders, waiving costs to keep the fund's expense ratio at 1.25%, slightly below the industry average, and well below the typical tiny fund.

Still, the fund's performance -- even with the current run -- does not exactly inspire confidence. Foresight Value's annualized losses since opening in 2004 are about three times bigger than the shortfall registered by the Standard & Poor's 500- stock index .

That should make most investors wary that the current success is nothing more than a buy-and-hold bounce-back, a simple ride of the market's tide rather than any slick managerial maneuvering. In the end, Foresight Value is likely to prove the adage that any fund can top the charts once, but that staying on top for the long haul is a much tougher task.

Chuck Jaffe: Buyers of Foresight Fund must be blind

Hot News: Hummer buyer to open talks with China regulators: report

UNITED NATIONS, June 26 (Xinhua) -- The United Nations adopted on Friday an outcome document at a high-level meeting on world financial and economic crisis, calling for increased aid and financial reform.

The 16-page document was adopted on the third day of the UN Conference on the World Financial and Economic Crisis and Its Impact on Development. Delegates disscuss the outcome document adopted during the UN Conference on the World Financial and Economic Crisis and Its Impact on Development at the UN headquarters in New York, June 26, 2009. The United Nations adopted on Friday an outcome document at the high-level meeting on world financial and economic crisis, calling for increased aid and financial reform. (Xinhua/Shen Hong)
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The document, the product of intensive negotiations between developing and developed countries prior to the meeting, acknowledged that "the world is confronted with the worst financial and economic crisis since the Great Depression."

The crisis "has spread throughout the global economy, causing severe social, political and economic impacts," it said.

It pointed out that most developing countries do not possess fiscal resources to tackle the crisis and need further assistance by the international community while fulfilling existing commitments.

Taking note of the April G20 summit held in London, which committed 1.1 trillion U.S. dollars to revitalize the world economy, the text called on the G20 to "further consider addressing the financial needs of developing countries, especially low-income countries."

"The current crisis has revealed many deficiencies in national and international financial regulation and supervision," it said, urging tougher regulation and supervision of "all major financial centers," including hedge funds, as well as financial products like derivatives.

On financial reform, the document said that there is "consensus on the need for continued reform and modernization of the international financial institutions."

"These reforms must reflect current realities and should enhance the perspective and voice and participation of dynamic emerging markets and developing countries, including the poorest," it said.

Speaking after the document's adoption, UN General Assembly President D'Escoto Brockman said "the world has had the opportunity to hear the voices of the G192."

"Our efforts have culminated in the adoption by consensus of an outcome document, that represents the first step in a long process of putting the world on a new path towards solidarity, stability and stainability," he said.

"The United Nations General Assembly, the G192, has now been established as a central forum for the discussion of world financial and economic issues," the president said. "This itself is a major achievement."

The meeting marked the first time for the world body to host a high-level meeting to discuss world financial crisis.

The aim of the high-level gathering is to identify emergency and long-term responses to mitigate the impact of the crisis, especially on vulnerable populations, and initiate a needed dialogue on the transformation of the international financial architecture, taking into account the needs and concerns of all member states.

As of Friday, some 100 out of about 150 delegates from member states and international organizations have taken the floor and shared their views on the crisis.

The meeting was originally scheduled for June 24-26 but member states agreed to extend it until Monday to ensure all the delegates have the chance to speak.

UN adopts outcome document at crisis meeting

Hot News: Off the Charts: A Recession Measured By New-Home Sales

LONDON (MarketWatch) -- Bank shares advanced in Europe on Friday as news that money-losing UBS would be raising fresh capital didn't scare traders into dumping its peers, although weakness in the pharmaceutical sector kept gains for the broader equities market in check.

The pan-European Dow Jones Stoxx 600 index climbed 0.2% to 205.04, led by banks.

On a regional level, the German DAX index rose 0.3% to 4,813.22 and the U.K.'s FTSE 100 index advanced 0.1% to 4,254.66, while the French CAC-40 index dipped 0.1% to 3,160.05.

Consumer and industrial stocks led a broad Thursday rally in the U.S., as investors welcomed favorable earnings and merger news for consumer companies while industrials bounced back from heavy selling earlier in the week. Stock futures were mildly lower Friday on Wall Street. See Indications.

Asia shares also had a positive session to close out the trading week. See Asia Markets.

Among European banks, shares of Credit Suisse advanced 3.8%, outpacing gains in Deutsche Bank , up 2.4%, and Societe Generale , up 1.2%.

"There's a feeling out there in the market that that the worst is behind us and the problems that have hit the banks specifically are beginning to fade," said Peter Dixon, strategist at Commerzbank.

"As markets generally recover, banks are able to generate more business," he said. "The hope is that we will start to see banks posting better results."

Still, some banks will take longer than others to recover, analysts believe.

Shares of UBS traded down 3.4% after the company said that it expects a loss in the second quarter as well as outflows. The bank will raise 3.8 billion Swiss francs of fresh capital.

"The [loss] preannouncement and, in particular, the continuing net money outflows prove, in our view, that it will take a longer time to bring UBS back on track," said analysts at UniCredit.

They prefer Credit Suisse and Deutsche Bank among European investment bankers.

Also Friday, oil producers were on the move, as light sweet crude oil futures traded up 85 cents at $71.08 a barrel.

Shares of Eni advanced 1.1% in Milan and Total rose 0.9% in Paris.

On the downside in Paris, pharmaceutical giant Sanofi-Aventis saw its shares fall 6.4%.

"Commentary is circulating in the market that a safety issue may soon emerge for Lantus (long-acting insulin for diabetes), a major driver of revenue growth and profits at Sanofi-Aventis," said analysts at Credit Suisse.

"However, given the lack of any details, Credit Suisse Research prefers not to make any change yet to forecasts or valuation and retains an outperform rating," they added.

A spokesman for Sanofi-Aventis said: "Data from clinical studies involving over 70,000 patients as well as data from post-marketing surveillance covering 24 million patient years of experience confirms the safely profile of Lantus."

Also lower, shares of Danish drugmaker H. Lundbeck fell 3.2%. In the U.S., the Food and Drug Administration requested more data on Serdolect, Lundbech's schizophrenia drug.

In the auto sector, shares of Peugeot fell 2.9%.

Standard & Poor's placed Peugeot's credit ratings under review for possible downgrade. The move "reflects the risk we perceive that PSA's financial profile relative to our current rating could deteriorate further in 2009 and that it might not recover in 2010," said S&P analyst Barbara Castellano.

However, the rest of the sector was broadly higher. In Frankfurt, shares of Volkswagen added 3.8% and Daimler traded up 2.3%.

Europe Markets: Banks offset drugmakers in mildly higher Europe

Hot News: UBS shares edge lower after loss forecast

NEW YORK (MarketWatch) -- The U.S. dollar lost much of its steam on Thursday against the euro and other currencies, as investors turned to commodities and U.S. stocks.

"Equity and commodity markets advanced, encouraging rotation out of the greenback," noted analysts at Action Economics.

On Wall Street, stocks posted strong gains, led by consumer discretionary, industrials and energy shares. See more.

Gold futures rose for a third day, with the contract for August delivery finishing at $939.50 on the New York Mercantile Exchange. Read Metals Stocks.

Oil prices also advanced, with crude futures ending at $70.23 a barrel. See full report.

Earlier on, the U.S. currency continued the prior day's gains that came after the Federal Reserve decided not to take additional steps to aid credit markets. Read The Fed.

But the dollar then trimmed its advance against the yen and fell against the euro in the wake of Thursday's $27 billion auction of seven-year note, which drew healthy demand, lifting Treasury prices. See The Bond Report.

"The dollar has been driven over the last two days by central bank activity. One is the Swiss National Bank, which appears to be continuing its buying of dollars," said Meg Browne, a currency analyst at Brown Brothers Harriman & Co.

The Swiss National Bank has vowed to halt the appreciation of the franc. See full story.

The dollar fell 0.3% against the Swiss franc to trade at 1.0942 francs.

The dollar index , a measure of the greenback against a trade-weighted basket of major currencies, traded at 80.394, up from 80.530 in North American trade late Wednesday afternoon.

Wednesday's statement issued by the rate-setting Federal Open Market Committee said deflation no longer remains a major threat and that inflation was likely to remain subdued. The FOMC announced no changes to its current plans to buy Treasurys and mortgage-backed assets, nor did it offer any indication it was eager to begin boosting its official interest rate from near zero. Read about the Fed decision.

The statement "did not reveal any significant changes, but the statement language was carefully adjusted in various areas and should be modestly positive for the U.S. dollar," said Tomoko Fujii, a rates and currency strategist at Bank of America Securities-Merrill Lynch Japan.

A dollar bought 95.85 yen, up from 95.63 yen in late North American trading on Wednesday. The British pound fell 0.2% to $1.6376 versus the dollar.

Currencies: Dollar's gains vanish as commodities win the day

Hot News: China Expands Clampdown on Internet

Aozora Bank, a Japanese lender controlled by Cerberus Capital Management, and Shinsei Bank, backed by J. Christopher Flowers, confirmed on Thursday that they were in talks to merge.

Shinsei and Aozora are discussing the creation of Japan&S217;s sixth-largest bank, with about 18 trillion yen ($188 billion) of assets. The lenders, both rescued by Japan&S217;s government in the 1990s, have pledged to focus on domestic lending after losses on mortgage investments contributed to combined annual deficits of $4 billion in the year ended March 31.

Aozora said Thursday it had made no decision that needed to be disclosed, and Shinsei said it had no additional comment.

Japanese Banks Discuss a Merger

Hot News: Japans Shinsei and Aozora rise on merger reports

WASHINGTON (MarketWatch) -- Consumers need a new financial product safety agency with broad oversight, supporters are telling U.S. House lawmakers Wednesday, while critics say such an agency could hurt banks and their customers.

In the wake of widespread failures of regulatory oversight, consumer advocates are urging the adoption of a new agency that would make sure consumer products such as mortgages and credit cards are safe and easy to understand.

Cookie dough recall

More than sixty people across twenty-eight states have fallen ill from E. coli bacteria possibly from eating raw cookie dough. Video courtesy Fox News.

"It has become clear that a major cause of the most calamitous worldwide recession since the Great Depression was the result of the simple failure of federal regulators to stop abusive lending, particularly unsustainable home mortgage lending," according to testimony from Travis Plunkett, legislative director of the Consumer Federation of America.

The testimony is being delivered at a Wednesday hearing of the House Financial Services Committee. The Obama administration has recently proposed creating a Consumer Financial Protection Agency, which would have the power to ban practices seen as unfair, enforce rules and aim to create understandable products and disclosures. U.S. lawmakers have proposed similar ideas to create such an agency.

Barney Frank, chairman of the House committee, said Wednesday the proposal to create an agency will be marked up in July. Ultimately, creating an agency will be part of one large financial regulation bill, and an agency will be an important piece of the bill.

"The fear that this will be some out-of-control entity ravaging the financial sector is unsupported by anything in American history," Frank said.

Industry representatives have reiterated that creating a new agency, especially while the country remains in recession, could be tough on banks and have unintended consequences for consumers.

"The proposal for a new consumer regulator, rather than rewarding the good banks that had nothing to do with the current problems, will add an extensive layer of new regulation that will take resources that could be devoted to serving consumers and make it more difficult for small community banks to compete," according to testimony from Edward Yingling, president of the American Bankers Association.

Consumers need financial protection, Congress told

Hot News: ECB loans 442 billion euros for 1 year

LONDON (Reuters) – JPMorgan (JPM.N) tops a list of the world&&9;s strongest banks, while Royal Bank of Scotland (RBS.L) suffered the biggest loss of any lender last year, according to new industry rankings on Wednesday.

RBS&&9;s &&6;59.3 billion loss last year eclipsed all rivals, including Citigroup&&9;s (C.N) &&6;53 billion loss and Wells Fargo&&9;s (WFC.N) &&6;47.8 billion loss, according to The Banker magazine.

Global bank profits slumped 85 percent last year to &&6;115 billion, down from &&6;781 billion, and return on equity plunged to 2.69 percent from 20 percent, the magazine estimated.

JPMorgan topped The Banker&&9;s annual list of the strongest 1,000 global banks, moving up from fourth place a year earlier. The rankings, which have run since the 1970s, are based on capital strength, or the amount of Tier 1 capital held.

Bank of America (BAC.N) ranked second, Citigroup (C.N) was third and RBS was fourth, despite the problems for all three last year. JPMorgan was helped by its takeover of Bear Stearns and Washington Mutual and Bank of America was boosted by its acquisition of Merrill Lynch.

HSBC (HSBA.L) fell to fifth spot from first, but it was the only one of the top five not to receive any government support, and would rank third if government support was stripped out, The Banker said. Mitsubishi UFJ (8306.T) was the highest ranked Asian bank in seventh, a place ahead of China&&9;s ICBC (1398.HK).

ICBC was the most profitable bank last year with earnings of &&6;21.3 billion, the Banker estimated.

The five most profitable banks were all from China or Spain. China Construction Bank (0939.HK) ranked second with a &&6;17.5 billion profit, followed by Santander (SAN.MC) (&&6;15.8 billion), Bank of China (3988.HK) (&&6;12.6 billion) and BBVA (BBVA.MC) (9.6 billion).

They were followed by Britain&&9;s HSBC (&&6;9.3 billion) and Barclays (BARC.L) (&&6;8.9 billion).

(Reporting by Steve Slater; editing by Elaine Hardcastle)

JPMorgan tops strong bank list, RBS biggest loss

Hot News: Justice Department Denies Plan to Settle UBS Case

HONG KONG (MarketWatch) -- Three leading Chinese banks said Tuesday regulators had uncovered irregularities in their businesses , but added there would be negligible impact on their financial results, according to a published report.

Irregularities in lending or administrative practices were uncovered by the National Audit Office in Industrial & Commercial Bank of China , China Construction Bank and China CITIC Bank , according to an AFP report Tuesday, which cited separate statements by each bank.

None of the three lenders disclosed the size of the irregular lending practices. The banks reportedly separately have taken steps to improve risk management and internal controls.

China's banking auditor said in February that about $878 million had been misused in 20 major cases uncovered during investigations in 2008.

Lending irregularities are a major concern this year as authorities encourage banks to pump credit into the economy.

New bank lending in the first half of this year is expected to total 6.5 trillion yuan ($951 billion), mainland media reported Monday. Lending in June is expected to top the 664.5 billion yuan extended in May, the reports said.

China auditor flags banks' lending

Hot News: Asian Stocks Sag on Economic Worries

BOSTON (MarketWatch) -- The U.S. residential real estate market is caught in the worst correction in decades with few reasons to be optimistic as the economy worsens, according to a key housing report released Monday.

"Despite unprecedented federal efforts to jumpstart the economy and help homeowners keep up with their mortgage payments, home prices continued to fall and foreclosures continued to mount in most areas through the first quarter of 2009," according to the executive summary of the State of the Nation's Housing annual report released by Harvard University's Joint Center for Housing Studies.

"While new and existing home sales and single-family starts have shown some signs of stabilizing, ongoing job losses, house price deflation, and tighter mortgage credit are placing any recovery at risk," the report said.

A recent bump-up in mortgage rates and rising foreclosures and job losses are just a few of the challenges standing in the way of a lasting recovery, economists say.

"Although there are some signs of improvement or at least steadiness in new construction and sales, housing starts stand near 60+ year lows and any life in home sales is coming from distressed foreclosure sales, temporary first-time buyer tax credits, and low interest rates that moved higher in recent weeks," said Nicolas Retsinas, director of Harvard's Joint Center, in a press release.

"The best that can be said of the market is that house price corrections and steep cuts in housing production are creating the conditions that will lead to an eventual recovery," added Eric Belsky, executive director of the Joint Center.

"For now, markets remain under considerable stress," Belsky said.

The bleak study coincided with a separate report from the World Bank warning of more damage in the global economy. See full story.

This week, investors will be focusing on housing data and any commentary the Federal Reserve offers on the economy. See Economic Forecast and Calendar.

"On the economic front, new and existing home sales should show improvement but from very low levels," said David Kelly, chief market strategist at JPMorgan Funds. "The recent back-up in mortgage rates, although unwelcome, really should not be enough to prevent pent-up demand and still very good affordability from triggering a housing rebound."

Recovery in doubt

Still, some Wall Street analysts covering the home-builder sector remain skeptical of talk of a sustained recovery.

"Overall, the California builders we met with echoed what we have been hearing throughout the U.S.: that there was clear momentum in sales in the spring, but concerns still remain around the sustainability of the improvement we have seen," said Barclays Capital analyst Megan McGrath in a note recapping a recent industry conference.

"The availability of credit, to both builders themselves and to buyers, continues to be challenging," McGrath wrote. "While it appears that banks are willing to do some construction-only loans to builders, land-related financing appears to be relatively non-existent."

Sales of existing single-family homes were down 30% last year from the 2005 level, while new-home sales showed a record-breaking plunge of more than 60% from 2005 to 2008, according to the Harvard report.

According to the Mortgage Bankers Association, at least 3.2 million homeowners entered foreclosure in 2007 and 2008, and an additional 600,000 entered foreclosure in the first quarter of 2009.

Despite these dismal figures, the Harvard report did see some long-term positives for the U.S. residential market. In particular, it cited demographic trends such as expected demand from immigrants and so-called echo boomers, or the children of baby boomers.

Housing recovery faces uphill climb: Harvard study

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Satyam Computer Services said on Sunday it would rebrand itself as Mahindra Satyam, its latest step in efforts to recover from India&S217;s worst corporate fraud scandal.

Tech Mahindra, a unit of the tractor and utility vehicle maker Mahindra &&8; Mahindra, won an auction in April for a controlling stake in Satyam.

Satyam was one of India&S217;s largest information technology companies, with more than 50,000 employees and market capitalization of more than $7 billion, before the chairman, B. Ramalinga Raju, said in January that he had falsely claimed assets of about $1 billion in cash and inflated the company&S217;s operating margins.

According to Indian investigators, more than a dozen people in the company&S217;s finance department were involved in the fraud.

Satyam provides back office and information technology services for hundreds of companies, including Nestl&>33; and General Electric. The Indian government took control of the company after the fraud was revealed and pushed through a quick sale to prevent losses in the country&S217;s $71 billion outsourcing industry.

Tech Mahindra, a leading telecommunications services provider, is 31 percent owned by the BT Group, the British telecommunications company.

&S220;We are optimistic that this new brand will re-energize the organization and will be well received by all our stakeholders,&S221; Vineet Nayyar, executive vice chairman of Satyam&S217;s board, said in a statement.

After Fraud Scandal, the Indian Outsourcer Satyam Is Renamed

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BEIJING, June 19 (Xinhua) -- China's stocks rose for the third straight day Friday, driving the benchmark index to a 10-month high as financial shares gained after the securities regulator approved the nation's first initial public offering (IPO) since September.

The benchmark Shanghai Composite Index gained 26.59 points, or 0.93 percent, to close at 2,880.49. The Shenzhen Component Index closed at 11,242.29 points, up 90.66 points, or 0.81 percent.

Total turnover climbed to 232.58 billion yuan (34.02 billion U.S. dollars) from 225.08 billion yuan the previous trading day.

Gainers outnumbered losers by 419 to 416 in Shanghai and 377 to 356 in Shenzhen.

Guilin Sanjin Pharmaceuticals Co. won approval Thursday from the China Securities Regulatory Commission to conduct the first IPO after a nine-month hiatus.

The news helped boost financial shares as brokerage companies were expected to benefit from the resumption of new issues, said Xu Chong, analyst with Jinzheng Consulting.

Sinolink Securities rose by the daily limit of 10 percent to close at 21.46 yuan. Northeast Securities rose 5.65 percent to 31.96 yuan.

Medical shares continued upward after the Sanjin news and helped push up the index.

Beijing Tiantan Biological Products Co., Ltd. advanced 6.91 percent to 25.52 yuan, and Dalian Merro Pharmaceutical Limited Company rose by the daily limit of 10 percent to close at 6.90 yuan. Special Report: Global Financial Crisis

China's stocks rise for third day, to 10-month high

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