If big banks start failing again, what will replace them?

In the United States and Europe, that is a question with unsatisfactory answers in the aftermath of the financial crisis.

To put it in sports terms, there was nobody on the bench waiting for a chance to become a star. One result is that even after a crisis in which it was every country for itself, banking is becoming more internationalized than ever.

It was not always such in the United States. After the previous big financial crisis in the early 1980s, which centered on bad loans made to Latin American countries, there were major regional banks that — because of luck or wisdom — had not made the same mistakes.

Charlotte, N.C., became an international financial center. NationsBank, which began life as North Carolina National Bank, took over Bank of America. The name stayed, but the company was very different.

To some extent, the availability of a bench stemmed from a long-held suspicion of banking in the United States. Americans feared big banks long after President Andrew Jackson abolished the Bank of the United States. For most of the 20th century, banks operated in only one state. In some, Illinois most prominently, banks could have only one office.

When barriers to interstate banking fell, there were many players able to grow into major institutions.

But those days seem to be gone. The banks with the ability and desire to snap up significant banks now seem to be at least as likely to be based outside the United States as inside.

If the previous crisis was largely caused by ill-advised international lending, this one was homegrown. The lending excesses centered on home mortgages, an area in which nearly every bank took part. When things blew up, there were few banks that could escape unscathed.

Still, some did better than others. JPMorgan Chase seems to have made fewer bad loans, although it has major headaches stemming from its acquisition of the assets of Washington Mutual, one of the largest irresponsible players.

Bank of America might be a shining star if it had restrained its own acquisitive instincts. Instead, it first rescued, then acquired Countrywide, which may have made more bad mortgage loans than any other lender.

Then, as the crisis grew, it picked up Merrill Lynch, an investment bank that had not figured out what you would think was something that any small-town retailer would know: If no one is buying what you are selling, there may be a problem with your product. So it bought its own products — mortgage securitizations — and kept the fees rolling. Unsurprisingly, it, or more accurately Bank of America, ended up losing money on the purchases.

All three acquisitions were encouraged by regulators, who wanted bigger institutions to buy — or at least take over with government help — smaller troubled institutions. Alas, neither the government nor the bigger banks understood the scale of the problem until it was too late. Nor did either bankers or regulators understand just how unrealistic were bank capital calculations.

There are a few well understood lessons from the debacle:

¶It is bad to have banks that are too big to fail cash advance in one hour. They may coin profits in good times, but the government is left with the bill in bad times.

¶Regulation matters. Banks in countries with good regulation fared the best. Canada has only a few major banks, but they did not get caught up in the credit bubble and are now able to buy American banks. Toronto Dominion ranked seventh in United States deposits in mid-2009, the most recent figures available, before it agreed to buy Chrysler Financial last week.

The Bank of Montreal has agreed to buy Wisconsin-based Marshall & Ilsley, which ranked 25th in 2009. Spain had a property bubble, and has many smaller banks in trouble, but strict rules kept the big Spanish banks from making the same errors that others made. They appear to be healthy.

¶Capital is crucial and so is liquidity. Regulators knew that banks were creating financial instruments whose primary purpose was to increase reported capital in dubious ways, but they did nothing about it. They completely ignored liquidity until they saw a “well-capitalized” Lehman Brothers collapse. Now regulators are phasing in tougher rules, but they fear acting too quickly because bank lending is needed now more than ever.

¶It can be suicidal for a country to have a financial sector that is too large, as Iceland and Ireland learned.

But there is one lesson that has been overlooked: Just as big league baseball teams need a farm system to provide replacements for players who age or are injured, a banking system needs a second tier of institutions that can step in and become major league banks if necessary.

Part of the problem in Europe now is that there was no second tier available in many countries. Virtually all the banks in Ireland made the same mistakes, and there were no available replacements.

In 1994, which is not that long ago, the 10 largest banks had about a quarter of all bank deposits in the United States. Now the top 10 have more than half of the deposits. In 1994, the next 30 on the list — No. 11 through No. 40, collectively had more deposits than the top 10. Now they have much less than half.

In 1994, there was one foreign-owned institution in the top 25. That was Banco Santander of Spain, at No. 14. By 2009, there were eight.

There is nothing wrong with foreign-owned banks, even if their number does come as a surprise in a country that was seen by everyone as the financial leader. But the sheer number of them is an indication of just how thin the homegrown farm system has become in the United States.

That is not an easy issue to deal with. But as the country recovers from the last crisis, regulators would do well to look to the second tier, and do all they can to assure those banks are both healthy and ready to rise if needed when the next crisis arrives.

We have learned that it is risky to have banks that are too big to fail. We need to understand that is it also risky not to have banks that are big enough to pick up the pieces when the too-big banks do fail.

High & Low Finance: Major Banks Need Midsize Ones

Hot News: Currencies: U.S. dollar drops after positive data

MADRID (MarketWatch) — U.S. stock futures were slightly higher Wednesday, with the Dow industrials adding to the prior day’s gains, but a scarcity of economic and corporate news to focus on for investors.

Futures on the Dow Jones Industrial Average index rose 12 points, or 0.1%, to 11,521, while those for the S&P 500 index rose 1.6 points, or 0.1%, to 1,255.70. Futures on the Nasdaq 100 rose 5.5 points, or 0.2%, to 2,231.

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A day featuring a mixed bag of economic data nonetheless carried the blue-chip Dow gauge  to a 28-month high Tuesday, up 20.51 points at 11,575.54. The S&P 500  also gained, but the Nasdaq Composite Index  fell slightly.

“I suspect the market will make attempts to close at a new high in sluggish trading,” said Peter Cardillo, chief market economist at Avalon Partners, Inc. He said market participants s will also be watching an auction of 7-year Treasury notes Wednesday.

The government saw weak demand Tuesday from investors for an auction of 5-year notes, which has created a backdrop of bearishness for the $29 billion auction of 7-year notes, though the U.S.’s debt auction Monday went off better. See Bond Report for details on the Monday and Tuesday Treasury sales.

“Low liquidity might take a toll, but juicy yields and a building concession should bring enough buyers,” said analysts at Nomura Securities in emailed comments, who reminded clients that the weak 5-year auction had taken place in a thin-volume market payday advance.

There are no major economic-data reports in focus for Wednesday.

Among stocks expected to attract equity-market attention are Allstate Corp. , which reportedly has sued Bank of America Corp.  and its Countrywide Financial unit over a $700 million investment made by the insurer in residential-mortgage-backed securities. See Movers & Shakers.

GM’s riding optimism

Sharon Terlep explains why Wall Street is optimistic about the future of General Motors.

Metals prices are likely to be a focus of the markets after gold futures for February delivery closed up $22.70 at $1,405.60 an ounce Tuesday in the largest one-day gain since early November. Those futures were last up 60 cents to $1,406.20 an ounce.

Copper futures for March delivery fell 1 cent to $4.10 a pound after new highs were seen Tuesday. Record highs for copper were reported Wednesday in London. See Metals Stocks.

Commodities rose as investors sought a hedge to a weaker dollar. The dollar was lower across the board, down 0.2% against the euro at $1.3125 and off 0.1% against the Japanese yen at ¥82.24. Get live currency-exchange rates.

Crude-oil futures for February delivery were off 36 cents at $91.13 a barrel, remaining atop the key $91 level. But futures were unable to reach the two-year high of $91.88 a barrel.

European stocks were generally higher, but London stocks fell with investors returning uninspired after a long holiday break. Some mining stocks keyed on gains among metals.

In Asia, stocks in Hong Kong and Shanghai rebounded, led by banks and commodity shares, as investors moved past worries about the weekend rate hike in China.

Indications: U.S. stock-index futures point to Wall St. gains

BAGHDAD (AFP) – Iraq&&9;s oil output has risen to more than 2.6 million barrels a day, its highest level for two decades, Oil Minister Abdulkarim al-Luaybi said Monday after a ceremony to mark his official takeover of the ministry.

"Today, our production is over 2.6 million barrels per day," Luaybi told reporters after the ceremony. "This figure has not been reached for more than 20 years."

Luaybi, who was previously a deputy oil minister, took over from Hussein al-Shahristani, who oversaw the signing of billions of dollars in oil deals that paved the way for global energy majors to return to Iraq more than 30 years after Saddam Hussein kicked them out.

Shahristani is now a deputy prime minister.

"We know that developing Iraq&&9;s economy and providing funds for finishing projects and providing jobs for people all depend on revenue from oil," Luaybi said in his speech at the handover ceremony, saying the ministry would meet the challenge.

He said the ministry would "reactivate the role of the exploration teams and geological surveys in order to strengthen national production," and also emphasized previously-announced plans to expand oil sector infrastructure.

These plans include "projects to expand oil and gas pipelines, and make good use of the gas that comes out with the extraction of oil," he said.

"New large refineries" will also be established, Luaybi said, adding that "Iraq will be transformed into a country that exports" petroleum products.

Oil ministry spokesman Assim Jihad said there are plans to build three new pipelines to Syria -- one with 1.5 million barrels per day capacity, another with a capacity of 1.25 million bpd and a third for gas.

A new set of pipelines is also planned for southern Iraq, to increase export capacity to 4 low fee payday advance.5 million bpd, he said.

The current export capacity for the southern Basra terminal is about 1.8 million bpd.

Jihad said that four new refineries will be built: one with a 300,000 bpd capacity in Nasiriyah, a 140,000 bpd refinery in Karbala, a third in Maysan with 150,000 bpd capacity and a fourth in Kirkuk with a capacity of 150,000 bpd.

They are to be completed in three to five years.

With his takeover of the ministry, Luaybi also inherits Baghdad&&9;s long-running dispute over contracts signed by the autonomous Kurdistan region, with confusion over whether the central government would approve the deals.

The Kurdish regional government says it has signed 37 contracts with 40 international companies, amounting to an investment of 10 billion dollars when completed, for oil exploration and production since 2004.

Baghdad has previously said the deals are not binding as they have not been approved by the central government, while Kurdistan says they are in line with the constitution.

Luaybi was on Saturday quoted by Dow Jones Newswires as saying in Cairo that Iraq would recognise the Kurdish contracts.

But Jihad said Monday that the issue has not yet been discussed by the ministry, much less resolved. "The ministry has not yet discussed the issue of recognising the Kurdistan contracts," he said.

He said it has been decided "Kurdistan will hand over 150,000 barrels to the ministry of oil, the ministry will export this oil, and the government and finance ministry will pay the real costs of the production to the companies."

Iraq oil production tops 2.6 mln barrels a day

Hot News: Sony to spend $1.2 billion to boost image sensor output

Shares in Britain closed above the 6,000 level on Friday, for the first time since June 2008, as British equities looked set for their strongest December performance since 1987.

And in Toronto, the main stock index ticked higher on Friday, keeping it on track to end the year at its highest level since the 2008 financial crisis.

The FTSE 100 in London rose 12.85 points, or 0.2 percent, to 6,008.92. The British index is up 8.4 percent this month. The Toronto Stock Exchange’s S&P/TSX composite index rose 11.96 points, or 0.1 percent, at 13,383.16. It was its highest close since the end of August 2008. In its shortened trading day, rising oil prices and merger activity lifted energy and financial shares.

Markets in the United States and most European countries were closed Friday, though the FTSE and the CAC 40 in Paris were open for a half-day. The Paris exchange declined 10.93 points, or 0.28 percent.

Trading was thin, with volumes at the two European exchanges under 10 percent of their 90-day daily average.

“The index turned around in the closing auction” in London, said Jimmy Yates, head of equities at CMC Markets. “Clearly the lack of volume helped with the sudden rebound.”

“There is plenty of Christmas cheer and good will out there to see the index close above 6,000,” Mr. Yates said. “Equities remain the preferred asset class.”

Stocks have lately been buoyed by expectations of a brighter economic outlook in the United States, with further stimulus, and continuing strength in China and India. But some analysts were cautious.

“I am not on the same camp as many investment banks that think we will have a fantastic 2011. We’ve got problems, we’ve got sovereign debt issues. On the peripheries, there are still issues that are outstanding that can clearly come back quite easily,” said Jawaid Afsar, a trader at Securequity.

Fitch on Thursday cut Portugal’s rating by one notch to A-plus, with a negative outlook. Even after the downgrade, however, Fitch’s rating is two notches above that of Standard & Poor’s A-minus. On Friday, Portugal’s share index was flat, while shares of the Portuguese bank Banco BPI fell 0.4 percent.

Banks, which had dragged back the FTSE in early trading, turned flat, shrugging off Europe’s debt concerns, while mining and energy stocks rebounded as investors’ appetite for risk showed no sign of abating payday advance lender. Mining companies, for example, have gained more than 13 percent in December.

But Randgold Resources fell 3.3 percent after it said its fourth-quarter production would be hindered by political tension in Ivory Coast.

Analysts warned there could be a correction in the near term.

“While clearly this index is in a long-term uptrend, short-term traders still feel it is vulnerable to a near-term correction,” said Enis Mehmet at Autochartist.

In Canadian trading, shares in Suncor Energy advanced 0.1 percent, to 38.34 Canadian dollars, and stock in the EnCana Corporation rose 0.4 percent, to 29.02 Canadian dollars.

“Energy keeps chugging along. It’s certainly been the feature the last little while,” said John Kinsey, portfolio manager at Caldwell Securities, pointing to a rise in the price of oil to over $90 a barrel.

The Toronto exchange will reopen on Dec. 29 for a short week ahead of the New Year holiday.

In Asian trading, stocks in Hong Kong and China slipped on Friday, with trading most active in the auto sector, where investors dumped shares in a thin market on new restrictions on car sales in Beijing.

The Hang Seng index fell 0.3 percent, to 22,833.8, in a shortened session. It posted a slight gain of 0.5 percent on the week after two successive weeks of declines.

Shanghai’s main stock index fell 0.7 percent. The Shanghai composite is down 2 percent this week as a shortfall of funds in the financial system curbed the amount of cash available for stock trading. The money market is experiencing an acute squeeze after a series of official monetary tightening steps since mid-October.

News of Beijing’s decision to limit car registrations to tackle traffic congestion in the capital prompted a sell-off in auto stocks, although some analysts played down the move as a knee-jerk reaction.

“The overall stock market is weak, not only the auto sector,” said Chen Shaodan, a senior analyst at China Development Bank Securities in Beijing. “People scrambling for money needed to sell some stocks and they made the auto news an easy excuse.”

Indexes in Britain and Canada Climb to Levels Last Hit Before the 2008 Crisis

WASHINGTON (Reuters) – Demand for a range of long-lasting U.S. manufactured goods surged in November and consumer spending rose for a fifth straight month, cementing views of a solid economic growth pace in the fourth quarter.

The brightening outlook was also bolstered by other reports on Thursday showing an improving labor market and consumer sentiment, though housing continues to struggle.

Durable goods orders excluding transportation increased 2.4 percent last month, the largest advance since March, the Commerce Department said. The increase followed a 1.9 percent drop in October and beat economists&&9; expectations for a 1.6 percent rebound.

The durable goods orders report should help to allay fears of a marked slowdown in factory activity.

"This looks like an economy that is now growing over three percent on a quarter-over-quarter annualized basis and even more important as we head into 2011, there is ample stimulus in the system now," said Brian Levitt, an economist at Oppenheimer Funds in New York.

He was referring to the &&6;858 billion tax deal recently signed into law by President Barack Obama, which prompted forecasters to raise estimates for next year by as much as a percentage point, on top of the Federal Reserve&&9;s program to buy &&6;600 billion worth of government bonds to spur growth.

The economy grew at a 2.6 percent annualized pace in the third quarter and a raft of recent upbeat data ranging from retail sales to trade has led many analysts to expect gross domestic product to expand at a 3 percent to 3.5 percent pace over the final three months of the year.

Despite the optimistic data on durable goods excluding transportation, overall orders dropped 1.3 percent last month, dragged down by a plunge in the volatile civilian aircraft component. A gauge for business spending rebounded 2.6 percent in November after dropping 3.6 percent the prior month.

In another report, the department said consumer spending rose 0.4 percent, a touch below expectations for a 0.5 percent gains. October&&9;s spending was revised up 0.7 percent.

HANDOVER TO CONSUMERS UNDERWAY

Manufacturing has largely led the economy&&9;s recovery from the worst recession since the Great Depression of the 1930s, but the spending data offered more evidence that the handover of the baton to consumers was under way. Consumer spending accounts for more than two-thirds of U.S. economic activity.

The data had a limited impact on U.S. financial markets, where trade volumes were light ahead of the Christmas break.

The broad Standard & Poor&&9;s 500 Index was marginally down after scaling its highest level in more than two-years on Wednesday payday loans lenders. Prices for U.S. government traded down, while the dollar fell against a basket of currencies.

The spending report suggested consumer spending probably accelerated in the current quarter after growing at a 2.4 percent rate in the July-September period.

There was also encouraging news on the labor market, with initial claims for state unemployment benefits falling 3,000 last week to 420,000, matching economists&&9; expectations.

Last week&&9;s claims data covered part of the survey period for the government&&9;s closely watched employment report for December.

"This report is consistent with our view that the pace of labor market improvement is picking up," said Nicholas Tenev, an economist at Barclays Capital in New York.

Consumers are also starting to notice the improving economic picture. The Thomson Reuters/University of Michigan&&9;s final reading on the overall index on consumer sentiment rose to 74.5 this month, the highest since June, from 71.6 in November.

CRUDE PRICES WATCHED

Economists expect the improved confidence to continue in 2011, but caution that rising oil prices could slow progress somewhat.

"If we start to see over ninety dollars a barrel or over three dollars a gallon at the pump, that&&9;s going to have implications for the consumer," said Oppenheimer Funds&&9; Levitt.

Signs of strengthening U.S. economic activity helped to lift crude oil prices to two-year highs above &&6;91 a barrel in New York on Thursday and some analysts were calling for a new year&&9;s run at &&6;100.

Though consumers are spending again, inflation remains muted. The Federal Reserve&&9;s preferred measure of consumer inflation -- the personal consumption expenditures price index, excluding food and energy -- rose 0.1 percent after being flat for four straight months.

In the 12 months through November, the core PCE index rose 0.8 percent, the same margin as in October and still the smallest year-on-year gain since records started in 1960.

While the broader economy is now firmly on an upward trajectory, other data from the Commerce Department underscored that housing continues to struggle. New single-family home sales increased 5.5 percent to a seasonally adjusted 290,000 unit annual rate in November, less than economists&&9; expectations for a 300,000 unit pace.

(Additional reporting by Emily Kaiser; Editing by Leslie Adler)

Data reinforce solid fourth-quarter growth hopes

WASHINGTON – Sales of previously owned homes edged up in November, the third increase in four months after a dismal summer for home-buying.

The National Association of Realtors says people bought previously owned homes at a seasonally adjusted annual rate of 4.68 million units last month, a gain of 5.6 percent from October.

The increases follow the worst summer for home sales in more than a decade faxless pay day loans. Even with the gains, sales were about 10 percent below the 5.2 million sales pace that analysts consider a healthy pace for housing.

The national median price for a home sold in November was $170,600.

Sales of previously owned homes rise in November

TORONTO (AP) — Research In Motion, maker of the BlackBerry, on Thursday said its quarterly earnings rose 45 percent as sales continued to surge overseas despite tough competition in the smartphone market.

The results beat analysts’ expectations, and the company provided a forecast for the current quarter that also exceeded Wall Street expectations. Its shares rose in extended trading.

R.I.M. said it shipped 14.2 million BlackBerrys in the quarter, narrowly beating Apple’s iPhone sales in its latest quarter, which ended in September. Most of R.I.M.’s growth is now coming from markets outside the United States, Canada and Britain, where the BlackBerry is the business phone of choice.

The company, based in Waterloo, Ontario, said its net income was $911 million, or $1.74 a share, up from $628 million, or $1 no fax cash advance.10 a share, a year earlier.

Analysts surveyed by Thomson Reuters expected earnings of $1.65 a share, on average.

Revenue in the period, which ended Nov. 27 and was the third quarter of R.I.M.’s fiscal year, rose 40 percent to $5.49 billion, better than the $5.4 billion expected by analysts.

“International markets continue to adopt BlackBerry in record numbers,” R.I.M.’s co-chief executive, Jim Balsillie, said on a conference call with analysts.

Forty-eight percent of R.I.M.’s subscriber base at the end of the quarter was international. Mr. Balsillie acknowledged some disappointment in subscriber additions in North America this year.

Research In Motion Profit Rises 45%

NEW YORK (Reuters) – Stocks eked out gains and U.S. Treasuries prices slumped on Tuesday after the Federal Reserve showed no signs of curtailing its economic stimulus measures and U.S. retail sales data signaled an accelerating economic recovery.

The dollar edged higher against the euro and the yen after the Fed modestly upgraded its evaluation of the U.S. economic recovery and reaffirmed its commitment to purchase &&6;600 billion in government bonds to boost the economy.

"The economic recovery is continuing, though at a rate that has been insufficient to bring down unemployment," the Fed said in a statement at the conclusion of a one-day meeting.

The Dow Jones industrial average touched a more than two-year high, and world stocks inched closer to overall two-year highs. Benchmark U.S. Treasury 10-year yields hit their highest levels in since May on signs of accelerating economic growth.

The government on Tuesday reported that U.S. retail sales rose for a fifth straight month, and the producer price index, a measure of business costs, increased more than expected, seen as a positive sign of demand.

"I&&9;m slightly disappointed that the (Fed) doesn&&9;t see the world in the same light that investors do," said Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Connecticut.

"The Fed continues to say that the outlook for employment and spending isn&&9;t as strong as the market perceives it."

Investors also kept their sights on a deal worked out between U.S. President Barack Obama and Republican lawmakers to extend tax cuts, jobless benefits and a payroll tax credit, which is expected to also boost the economy.

Wall Street did temporarily turn negative, weighed by declining bank shares after the Fed statement as hurt by a plunge in the stock of Best Buy Inc (BBY.N), the top U.S. electronics retailer that is seen a bellwether in consumer electronics. Best Buy shares fell 15 percent after it reported a drop in quarterly profit and sales and cut its full-year outlook, citing weak demand in its key U payday loan no faxing.S. market.

The Dow Jones industrial average (.DJI) was up 47.98 points, or 0.42 percent, at 11,476.54. The Standard & Poor&&9;s 500 Index (.SPX) was up 1.13 points, or 0.09 percent, at 1,241.59. The Nasdaq Composite Index (.IXIC) was up 2.81 points, or 0.11 percent, at 2,627.72.

The S&P 500 index is up 6 percent since November 29.

U.S. Treasuries extended losses after the Fed statement, adding to a sharp sell-off as the tax deal sparked concern over faster growth and a widening federal budget gap. U.S. Treasury 10-year yields, which influence consumer and corporate borrowing costs, rose to 3.44 percent from 3.28 percent late Monday.

GLOBAL OPTIMISM

European shares closed higher for a seventh straight session, reversing early losses after the U.S. retail sales data reinforced optimism about the pace of economic recovery. The FTSEurofirst 300 Index (.FTEU3) finished up 0.3 percent in thin volume.

The MSCI world equity index (.MIWD00000PUS) edged up 0.24 percent, nudging closer to a two-year high set in November. The Thomson Reuters global stock index (.TRXFLDGLPU) rose 0.4 percent, and emerging stocks (.MSCIEF) added 0.6 percent.

Currencies fluctuated throughout the day as the dollar temporarily slipped, bouncing back after Fed&&9;s announcement. The dollar gained 0.15 percent against a basket of major trading partner currencies (.DXY) and 0.35 percent against the Japanese yen to 83.69. The euro declined 0.07 percent to &&6;1.338.

As the dollar strengthened, spot gold pared gains after rallying to its highest in a week, closing up &&6;1.70, or 0.12 percent, at &&6;1394.80 an ounce.

U.S. crude oil futures also slid after the Fed&&9;s announcement, settling down 33 cents, or 0.33 percent, at &&6;88.28 per barrel on the New York Mercantile Exchange.

(Additional reporting by Angela Moon and Karen Brettell in New York and Melanie Burton in London; Editing by Leslie Adler)

U.S. stocks and bond yields rise on recovery outlook

FRANKFURT — In a shift of tone that may signal more commitment to keep the euro zone in one piece, the German finance minister has ruled out the possibility that any country would ever be ejected from European monetary union, and said calls to restore the Deutsche mark were “unrealistic nostalgia.”

The comments by the finance minister, Wolfgang Schäuble, may indicate that Germany, Europe’s biggest economy, is becoming more willing to finance measures to ensure that countries like Greece and Ireland do not default on their debts. Fears that Germany’s enthusiasm for the euro is waning have contributed to turmoil in global financial markets in recent weeks, as investors increasingly factor in the risk that the euro zone could break up.

Borrowing costs have risen not only for the overly indebted countries, but for healthy countries like Germany as well.

European heads of government are to hold a summit meeting this week when they will to try to establish a permanent mechanism for dealing with debt crises. They are under pressure to convince financial markets that the euro is solid before global bond trading recovers from its December lull. Authorization for the current bailout mechanism, the European Financial Stability Facility, is to expire in 2013. The facility has €440 billion, or $582 billion at current exchange rates, with which to provide bailouts to troubled euro-zone member states.

Along with the German chancellor, Angela Merkel, Mr. Schäuble has often taken a hard line toward the countries that have caused the crisis. In March, he told the mass-market newspaper Bild that it should be possible to eject countries from monetary union that are not able to get their budgets under control.

Such statements seem to be a response to widespread popular resentment in Germany at having to bail out Greece and Ireland. German reluctance to agree to aid measures has slowed European decision making and contributed to nervousness in the financial markets.

But recently German leaders have been trying to reaffirm their commitment to the euro. Guido Westerwelle, the foreign minister, said last week that Germany was determined to defend the euro and “anybody who wants to destroy the euro will realize that he cannot succeed.”

Erik F. Nielsen, chief European economist at Goldman Sachs, wrote in a note Sunday, “Whatever skepticism one might have had, one cannot doubt the political commitment to the European project.”

During an interview with Bild published Sunday, Mr. Schäuble reversed his earlier position on countries quitting the euro zone. “Even if only a small country were to leave, the consequences would be unforeseeable,” he said guaranteed unsecured personal loan.

Referring to the bankruptcy of the U.S. investment bank Lehman Brothers in 2008 that nearly caused a global financial collapse, Mr. Schäuble said, “Let us not make the same mistake twice.”

In contrast to his earlier statements, which seemed to play to popular opinion, Mr. Schäuble, during the Bild interview, emphasized the benefits that Germany enjoyed because of the euro.

He said it angered him when “people who know better” called for a return to the Deutsche mark.

“Anyone who looks at the development of the German economy knows that our international integration is greater than any other economy,” Mr. Schäuble said. “Without the euro our own currency would experience a rise in value with negative consequences for exports.”

Bild, aimed at working-class readers and offering a heavy dose of scandal and sex, is Germany’s most widely read newspaper. It has often helped inflame taxpayer resentment at having to rescue other countries. German politicians often speak to the newspaper when they want to convey a message to the population at large.

Economists point out that Germany is one of the main beneficiaries of the euro. The euro has deprived countries like Italy of the option of devaluing their currencies to obtain a price advantage on world markets. German growth has been among the fastest in Europe this year, and unemployment has been falling.

Mr. Schäuble reiterated that Germany was opposed to issuance of bonds backed by all euro members, saying that countries with weaker financial discipline should be required to pay higher interest rates. Mr. Schäuble said, however, that he was opposed to the idea “under the present structure of the euro area,” leaving open the possibility that new rules for the euro zone might lead Germany to change its position.

On Friday, Mrs. Merkel and President Nicolas Sarkozy of France rejected calls to introduce bonds collectively backed by euro-zone countries. Prime Minister Jean-Claude Juncker of Luxembourg, who is head of the group of euro-zone finance ministers, is among politicians who have called for such bonds to be considered as a means of deterring speculators and protecting the euro.

Mr. Schäuble told Bild that younger people might not appreciate how much the European Union and the euro have contributed to peace since World War II.

“We must not squander the historic opportunity of a common Europe,” he said.

Germany Signals Support for Euro-Zone Members

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For wannabe homeowners who can’t get past banks’ ultra-careful underwriting departments, there is another way: forging a “rent to own” deal with a homeowner who wants to sell.

As Lew Sichelman notes in Friday’s Realty Q&A, plenty of homeowners nationwide are unable to sell — and some of them may well be interested in a deal for a tenant to make regular monthly payments, a portion of which go towards a down payment.

But as Lew also notes, crafting a rent-to-own contract is no simple task. Do you agree on a sales price now, or in a few years’ time, when the deal is finalized? How many years should the renter rent, before completing the transaction? Read Lew’s column for more on the matter.

If more homeowners adopted this strategy, it could be a good thing for the housing market. And it might help free up homeowners to go buy elsewhere, even as it keeps rent money coming into their personal coffers.

And then renters would get to start paying for maintenance costs! Nothing more fun than that. Buy your own auger. That’s all I can say.

— Andrea Coombes, Personal Finance editor

REAL ESTATE Rent-to-own agreements can be tricky

There likely are many places owned by people who want to sell but can’t, for one reason or another, and that could mean a situation ripe for a rent-to-own arrangement, Lew Sichelman says. But both you and your prospective landlord should proceed cautiously. Read more: Rent-to-own agreements can be tricky.

Hidden medical debt trips up homeowners

Two erroneous $11 doctor bills stopped Jeanne White from refinancing her home.The 49-year-old resident of Colleyville, Texas, pays 7% on the mortgage for her three-bedroom house. Read more: Hidden medical debt trips up homeowners.

Mortgage rate rise threatens refis and Fed

Rising government borrowing costs have driven mortgage rates to their highest level in six months, challenging the still-shaky housing market and the Federal Reserve’s efforts to boost the U.S. economy. Read more: Mortgage rate rise threatens refis and Fed.

CAREERS Seven things you should not do online at work

Ten years ago, it would have been pretty difficult for someone to steal 250,000 confidential government documents and then make them accessible to people on every corner of the globe. How things have changed. Read more: Seven things you should not do online at work.

HOLIDAY FINANCES Oh, Christmas tree: Not just tinsel and lights

Beneath the tinsel and the lights and all the warm, fuzzy connotations, the Christmas tree industry in the U.S. — especially the real-tree category — is grappling with some serious issues in its make-or-break season free online credit report. Read more: Oh, Christmas tree: Not just tinsel and lights.

What your home holiday lights will cost you

Think that inflatable snow globe in your neighbor’s front yard is costing him a fortune to run? Think again. Read more: What your home holiday lights will cost you.

TAXES Should you sink your savings into a Roth 401(k)?

Taxpayers are anxiously awaiting clarity on many tax issues this year, but the fog has lifted on one: conversions from a regular 401(k) retirement plan to tax-free Roth 401(k) account. Read more: Should you sink your savings into a Roth 401(k)?

Senate moving on $858 billion tax plan

The Senate is moving to pass a broad tax package estimated to cost $858 billion over 10 years, though a new roadblock emerged as Sen. Bernie Sanders held up the measure. Read more: Senate moving on $858 billion tax plan.

ECONOMY & POLITICS Obama seeks to mend relations with business

White House works to improve a damaged relationship with business in an effort to spur U.S. hiring. Read more: Obama seeks to mend relations with business.

In charts: Mortgage rates, exports and more

A weekly graphical summary of economic data shows mortgage activity dropping while the trade picture brightens. Read more: In charts: Mortgage rates, exports and more.

Commentary: Liberals should stop whining, start bargaining

Liberals are sad and angry. President Barack Obama went behind their backs to cut a deal with the Republicans to give rich people a big tax break that we can’t afford. And then Obama made fun of the liberals for being such crybabies about it. Read more: Liberals should stop whining, start bargaining.

Commentary: Who plays Assange in WikiLeaks, the movie?

Julian Assange, the mastermind of the WikiLeaks furor, has emerged as the archetypal 21st century villain. He is sinister, mysterious, blasphemous and unrepentant. Read more: Who plays Assange in WikiLeaks, the movie?

INVESTING Commentary: Is the bond bubble bursting?

Has the bond market finally turned? And if so, what is this going to mean for you and your money? Here’s the answer to the first question: It sure looks like it. Read more: Is the bond bubble bursting?

Climate-change investors changing tack

The poor performance of some sectors aiming to slow climate change is pushing money managers to cast further afield for investments that both carry green credentials and are likely to post better returns. Read more: Climate-change investors changing tack.

Hibernating commodities are primed to wake

Some commodities were a bit more unassuming than others this year, but 2011 could be the year they stand out.

Personal Finance Daily: Maybe rent-to-own could help solve housing mess

SINGAPORE (Reuters) – A sharp selloff in U.S. government bonds pushed the dollar to its highest in seven months versus the yen on Wednesday, giving the Japanese stock market a boost but sending most other investors to the sidelines.

Investors started selling U.S. Treasuries on Tuesday after President Obama proposed a deal to extend tax cuts that would support economic growth but raise national debt levels in the longer term.

The yield on 10-year Treasuries rose more than 4 basis points in early Asian trade to around 3.188 percent, its highest since late June.

"In the short run this is good news, but two or three years down the road foreign buyers of U.S. Treasuries may start to balk," said David Carter, chief investment officer at Lenox Advisers in New York.

The move in Treasuries made the dollar more attractive to investors looking for higher yields, pushing it up against the yen, the euro and most emerging Asia currencies. The dollar index (.DXY) against a basket of major currencies was up 0.4 percent.

The weaker yen gave the Japanese stock market a boost. The benchmark Nikkei average (.N225) hit its highest in almost seven months, reversing Tuesday&&9;s move to rise more than 1 percent.

Major exporters such as Sony Corp (6758.T) and Hitachi Construction (6305.T) were among the biggest gainers, both adding more than 1 percent in early trade. A weaker domestic currency helps exporters who are paid in foreign currency.

The selloff in Treasuries and the Nikkei&&9;s rise spurred further losses in Japanese government bonds after the previous day&&9;s weak 30-year debt auction. The yield on 10-year JGBs rose to its highest since June.

"A further rise (in Treasuries) would put pressure on some of the higher correlated bond markets in Asia such as Singapore, Hong Kong and Thailand which have seen yields rising in recent weeks due to inflationary pressures and year end profit taking," said Kenneth Akintewe, a fund manager at Aberdeen Asset Management who helps manage&&6;5 billion in Asian fixed income assets.

"Still, inflows into the region are very strong ... which would mean any sharp selloff would be temporary and offer attractive entry points instant credit reports."

Other Asian stock markets stumbled as the suddenness and size of the U.S. bond selloff added to uncertainty heading into year-end.

South Korean stocks (.KS11) and the won fell briefly on a report North Korea had fired an artillery round, but partially recovered when it emerged it was a military exercise, while weak resources stocks dragged Hong Kong stocks down around 0.6 percent.

The MSCI Asia index excluding Japan was down 0.7 percent, but with a year-to-date gain of around 12 percent was still well ahead of the main MSCI world index.

Asia has been one of the chief beneficiaries of flows of capital from the United States, where the Federal Reserve is pursuing a policy of printing more cash.

The euro fell to &&6;1.322, wiping out Tuesday&&9;s gains, and is expected to remain under pressure given persistent concerns about high debt levels in the single currency zone.

"It&&9;s becoming increasingly clear the U.S. Is taking a very different approach to the Europeans in dealing with their debt overhang ... they&&9;re reflating their way out of it and the Europeans are going the opposite way," said Grant Turley, strategist at ANZ.

Gold, which has gained almost one-third since the start of the year, traded at &&6;1,400 per ounce, down from its most recent record high of over &&6;1,430.

The precious metal&&9;s fall is expected to be temporary, as it is firmly supported by its traditional appeal as a &&9;safe haven&&9; in contrast to the euro and the dollar, which are undermined by worries about debt levels, and the prospect of the U.S. central bank printing cash respectively.

The stronger dollar dragged down other dollar-denominated commodities.

U.S. crude oil futures fell for the second day in a row, losing nearly a dollar to &&6;87.76 per barrel, while benchmark industrial metal copper slid almost 1 percent to &&6;8,817 per metric ton after hitting a fresh peak of &&6;9,044 on Tuesday.

(Additional reporting by Hideyuki Sano in Tokyo and Ian Chua in Sydney)

(Editing by Kim Coghill)

U.S. bond selloff lifts dollar, Nikkei boosted

Hot News: Costco posts 18% jump in quarterly profit

LONDON (MarketWatch) — Shares in supermarket chains Tesco and J Sainsbury were among the strongest performers on a day of strong gains for the U.K.’s benchmark index Tuesday, with consumer-products company Unilever also rising on the back of a broker upgrade.

The FTSE 100 index  rallied 1.3% to 5,830.29, with mining stocks also among the top performers.

Other European markets rose sharply Tuesday as expectations that Ireland’s parliament will approve the country’s tough new budget helped drive some indexes to multi-year highs. Also see Europe Markets.

Google pits itself against Amazon

Rex Crum looks at whether Google's new eBooks initiative could turn Amazon's Kindle into a lump of coal at Christmas.

In London, shares in Tesco  gained 2.3% after the company said sales in the latest quarter rose 8.2%, helped by strong growth for its Asian and U.S. operations.

Jefferies International analyst James Grzinic said the figures were “slightly better than anticipated,” helped by a positive impact from foreign-exchange rates and a strong performance from the group’s financial-services arm.

Rival J Sainsbury  rallied 4.6% to 374 pence amid renewed speculation that Qatari shareholders may make a bid for the company.

A trader who asked not to be named said there is talk of a bid at around 450 pence a share, but added that the share-price reaction could also be attributed to Tesco’s strong sales numbers.

Talk of a potential bid from the Qatar Investment Authority, which already owns over a quarter of J Sainsbury, has boosted the stock on several occasions in the past quick payday loan.

Unilever   jumped 3.8% after Morgan Stanley lifted its rating on the group by two notches to overweight from underweight. The broker said the likelihood of consistent sales growth and stead margin improvement “have improved considerably,” thanks in part to a renewed focus on its higher margin businesses.

Oil and mining stocks added to the gains, with BP PLC   rising 1.8% as crude-oil futures temporarily climbed above $90 a barrel. The move also came after reports that the firm could sell some North Sea assets and that Pakistan’s national oil firm has asked for a deadline on bids for BP’s assets in Pakistan to be extended.

Metal prices also rose, helping drive shares in the volatile mining sector higher. Lonmin PLC  rose 1.5%. Xstrata  climbed 2.5% after saying it expects to spend $23 billion on capital expenditure through 2016.

Among smaller companies, shares in house builder Bellway PLC  rose 6.7% after the company said it expects pretax profit for the fiscal year to rise 20%.

Wolseley , which supplies building materials and plumbing products to contractors, was another climber, adding 3.4% on the benchmark index after saying trading profit in its fiscal first quarter rose 39% as demand improved in most countries.

The announcements lifted other construction-related stocks, with house builders Barratt Developments PLC  and Persimmon surging 6.2% and 8% respectively.

London Markets: Tesco, Sainsbury rise as FTSE rallies

NEW YORK (MarketWatch) — The Dow Jones Industrial Average climbed 2.6% this week, bolstered by a dose of better-than-expected economic reports, discounting Friday’s disappointing jobs numbers. The Nasdaq Composite Index and the S&P 500 Index also rose more than 2% for the five-day period.

Market players chose to put their bets on the week’s earlier economic data hinting at a steadily, if slowly improving economy, which showed strong housing data and decent growth in the nation’s several large economic districts. A significant upside revision to an estimate for U.S. GDP growth by Goldman Sachs helped too.

For a look at what’s coming, please check out our Week Ahead videos for Asia, Europe and the United States.

Asia’s Week Ahead: Central-bank policy decisions

Europe’s Week Ahead: Ireland in focus

U.S Week Ahead: Consumer confidence on tap

Greg Morcroft, assistant managing editor

Unemployment hits 9.8%

The U.S. economy added jobs at a much slower pace in November than in October, suggesting that the economy will continue to struggle in coming months.Nonfarm payrolls rose by 39,000 in November, far lower than the 155,000 gain expected by economists surveyed by MarketWatch and the upwardly revised figure of 172,000 jobs gained in October. The unemployment rate unexpectedly rose to 9.8% in November from 9.6% in October according to a separate survey of 60,000 households. Economists had been expecting the unemployment rate to remain steady. This is the highest unemployment rate since April. Read story on MarketWatch about rising U.S. inflation.

China says it will establish “prudent” monetary policy, signalling tight money

China will adopt a “prudent” stance in its management of liquidity in the economy next year, signaling tighter conditions as it seeks to restrain rising inflation, including soaring food prices linked to sporadic outbursts of social unrest. Emphasis will shift to “proactive fiscal policy and prudent monetary policy.” Analysts said the tone of the statement signalled policy makers were preparing to take a harder line on credit conditions. Read more from MarketWatch on China's plans for monetary restraint.

Europe bails out Ireland

European financial leaders on Sunday approved an aid package of 85 billion euro, or $112.53 billion, for debt-stricken Ireland. The financial package includes 10 billion euros for immediate recapitalization measures, 25 billion euros on a contingency basis for banking-system supports and 50 billion euros covering budget-financing needs, according to a statement from the euro-zone finance ministers.“This program is absolutely essential for the country,” said Irish Prime Minister Brian Cowen at a press conference in Dublin. “We have carefully considered all available policy options. [It’s] the best available deal for Ireland.” Read MarketWatch coverage of European bailout of Ireland.

Debt commission rejects sweeping reform plan

A sweeping plan to cut federal spending and remake the U.S. tax code failed to win enough votes from an 18-member presidential panel to send the proposal to Congress. Eleven members supported the plan, a number that fell short of the 14-vote supermajority called for by President Barack Obama and lawmakers for the plan to be sent to Congress for a possible legislative vote. Even without the backing of a supermajority of panelists, the plan did receive the support of 60% of participants. Because of the strong support, some argued that the package or many of the proposals within it are likely to come to a vote on Capitol Hill. Read MarketWatch story on deficit panel to and fro.

Cody Word Blog : How Apple gets to $1,000 from here

The last time I upset people with this much of a bullish Apple Inc cash advance america.  prediction, I was telling people in 2005 that someday Apple would have a bigger market cap than Microsoft Corp.  Lately, I’ve been saying that my analysis points to Apple getting to $1,000 by 2015 or so. And people write the most unbelievably mean things to me for predicting such wealth creation — one commenter literally asked me, “Can’t you just go die in a fire?” Read Cody Willard’s Apple at $1,000 call on MarketWatch.

Fed reveals credit-crunch aid for banks and funds

The U.S. Federal Reserve on Wednesday disclosed more than 21,000 transactions, mostly short-term loans, worth $3.3 trillion that it provided to banks and money-market funds during the credit crunch. And it wasn’t just U.S. firms. Foreign institutions participated aggressively, eligible because they had branches stateside. At least one lender directly owned by a foreign government, the Korea Development Bank, also participated. The Fed said it’s incurred no credit losses on programs that have been since wound down and that it doesn’t expect to incur any losses on remaining programs. Read coverage of the Fed's crisis lending at MarketWatch.

Pepsi plunges into Russia in winter, buys majority of Wimm-Bill-Dann

Food and beverage giant PepsiCo Inc.  will buy a 66% stake in Russia’s Wimm-Bill-Dann Foods, and later plans to make an offer for the remaining shares, bringing the company a step closer to building a $30 billion nutrition business by 2020. The deal will raise PepsiCo’s annual global revenues from nutritious and functional foods to nearly $13 billion, from around $10 billion today. Read MarketWatch story on Pepsi’s Russia play.

The retirement tax hit and how to avoid it

Whether you’re already living in retirement or still planning for it, it’s impossible to ignore the effect your annual tax bill may have on retirement income. And given the current tax-rate uncertainty, the best year-end strategies for 2010 may surprise you. At a recent MarketWatch roundtable discussion, two of the nations’ top retirement-planning experts offered tactics to consider to reduce your tax bill this year and next, and the benefits, and potential dangers, of Roth IRA conversions. Read about retirement tax planning on MarketWatch.

China gold imports headed for big rise

China’s gold imports are on track for a sharp increase this year, with data for the first 10 months showing bullion shipments up more than four times amid rising interest among investors seeking out a hedge against inflation. Bullion imported into China in the January-to-October period totaled 209.7 metric tons, compared with 45 metric tons in all of 2009, according to Shanghai Gold Exchange Chairman Shen Xiangrong. If current trends hold, China’s gold imports could rise nearly sixfold by the end of the year, according to calculations based on monthly averages. Read MarketWatch story about China’s surging appetite for gold.

Six great gifts for gun lovers

And a cartridge in a shotgun. … For many a generation, a beribboned firearm under the Christmas tree has been among the most cherished of American Christmas gifts, be it a teenager’s first .22, a pistol for the missus or a new double-barrel for grandpa. The tradition continues, at least among some demographic groups, with hard times, political uncertainty and fear of new regulations fueling an unprecedented boom in gun and ammunition sales over the last two years. And this is an especially merry time of year for gun makers and retailers as they typically put up their best numbers in the fourth quarter.

Top Ten: Top 10 MarketWatch stories Nov 29-Dec 3

MADRID – The Spanish government is meeting to approve austerity measures that it hopes will soothe investor fears about its debt.

The moves include selling off nearly third of its national lottery, partially privatizing airports, cutting a jobless benefit and trimming taxes for small companies. Spanish news reports say the government may also increase taxes on tobacco.

The measures are to be passed at a weekly cabinet meeting Friday free business cards.

Spain, which has soaring unemployment and a swollen deficit, is battling to convince markets it can handle its debt and will not need a bailout from the European Union like Ireland and Greece.

Spain to approve new measures to calm markets