Kraft quarterly results could make a case to Cadbury

CHICAGO (Reuters) - Kraft Foods Inc (KFT.N) will need to show progress in cutting costs and improving organic revenue when it reports earnings on Tuesday, in a bid to convince Cadbury (CBRY.L) shareholders it is a viable deal partner.

Lower commodity prices and cost controls helped other consumer-staples companies beat analyst estimates in recent weeks, including Kellogg Co (K.N), Clorox Co (CLX.N) and General Mills Inc (GIS.N). They also came in slightly ahead of muted revenue expectations.

If that trend holds for Kraft -- which is due to present a formal takeover bid for UK confectioner Cadbury by November 9 -- it could boost the company's shares and make for a more compelling offer.

"The trend has been for food companies across the board to beat the number," Edward Jones analyst Matt Arnold said. "I haven't seen many companies in consumers staples post a miss lately."

Kraft is likely to stick by its initial cash and stock proposal to Cadbury shareholders that was disclosed on September 7, sources familiar with the situation told Reuters.

That deal was valued at 745 pence a share, or 10.2 billion British pounds ($16.7 billion), at the time. The proposed bid was worth 733.4 pence, or 10.06 billion pounds ($16.5 billion) Monday afternoon based on the decline in Kraft shares.

The world's No. 2 foodmaker is scheduled to post third-quarter earnings after the New York Stock Exchange closes at 4 p.m. EST.

LETTING THE NUMBERS DO THE TALKING

Kraft Chief Executive Officer Irene Rosenfeld is not expected to take questions about the Cadbury bid when she talks to analysts about earnings on Tuesday, a spokesman said.

But the results will help set the stage for Kraft's bid.

The maker of Velveeta cheese and Oreo cookies is expected to post earnings of 48 cents a share in the quarter, according to Thomson Reuters I/B/E/S, up from 44 cents a year earlier, with lower commodity costs and its own cost-cutting measures helping boost profits.

But revenue is expected to fall to $10.32 billion from $10.46 billion, hurt by divestitures and strength in the dollar compared with a year earlier.

Cadbury chairman Roger Carr dubbed Kraft a "low growth conglomerate" in his letter to Rosenfeld rejecting the initial offer and analysts say Kraft will need to show sustainable growth prospects to overcome that perception.

In the past three quarters, Kraft has actually disappointed analysts in terms of revenue, with sales coming in 2 percent, 3 percent and 4.6 percent below expectations, according to Thomson Reuters I/B/E/S.

Earnings per share have been better, with the company reporting earnings of 4.4 percent more than analysts expected in the second quarter and 13.3 percent more than expectations in the first quarter.

Kraft's earnings' report comes almost two weeks after Cadbury reported a 7 percent rise in underlying sales for the third quarter, beating even the most bullish forecasts.

(Reporting by Brad Dorfman; editing by Carol Bishopric)

BMW 3Q net income falls 74 percent to euro78 million

FRANKFURT (AP) -- German carmaker BMW AG said Tuesday its net income fell 74 percent in the third quarter as it continued to be affected by the global economic downturn.

AP - FILE - In this March 18, 2008 file photo the company sign of German car manufacturer BMW is ...

BMW, the world's biggest luxury car company by sales, said net income for the period amounted to euro78 million ($115 million), down from euro298 million in the July-September period of 2008.

BMW's share price slid 7.1 percent to euro31.20 in Frankfurt after the earnings announcement as net income came in well below the consensus estimate of around euro150 million.

The Munich-based company said it delivered 7.2 percent fewer cars during the July-September period and that its revenue fell 6.6 percent to euro11.8 billion from euro12.6 billion in the July-September period of 2008.

"Although there are some emerging signs that the lowest point of the current economic downturn has been passed, the BMW group only expects the situation to stabilize at a low level during the last quarter of 2009," BMW said in its report.

"For the time being at least, it cannot be assumed that an enduring recovery has taken hold. Nevertheless the BMW group has performed well despite the difficult business environment," the company said.

BMW said that total car sales would likely be between 10-15 percent lower than in 2008 provided there are no further economic setbacks. The company's brands include its namesake BMW cars, the Mini compact and the super-luxury Rolls-Royce brands. The company also builds BMW motorcycles.

Despite the likely sales decline, BMW said it expected to report a positive result for the financial year 2009 and to maintain its leading position in the premium segment.

BMW said net income for the first nine months of the year fell 96 percent to euro47 million from euro1.3 billion in the January-September period of 2008 as the company saw a large pretax loss on its automobile business during the period.

Revenue for the first nine months declined 10 percent to euro36.2 billion from euro40.4 billion.

Automobile group production for the first nine months of the year was 21 percent lower at 907,429 compared to almost 1.2 million cars in the same period a year ago.

Motorcycle production was also 21 percent lower during the first nine months of 2009 at 65,909 from 83,845.

The company said it had also reduced its work force by 5.3 percent to 98,358 employees at September 30, compared with 103,850 employees at the end of September 2008.

Observers are looking forward to the group's new models including a Mini coupe and a new Rolls Royce model called the Ghost, which should add to future revenue.

BMW has said the order book on the new super-luxury Ghost -- which is a step below the top of the line Phantom -- is developing well. It hopes to start selling that new car next year.

UBS won't stem withdrawals soon as Q3 disappoints

ZURICH (Reuters) - Swiss bank UBS (UBSN.VX)(UBS.N) does not expect to win back assets from rich clients any time soon as it struggles to rebuild its reputation after a bitter U.S. tax row even as its underlying performance improves.

Higher-than-expected accounting charges pushed UBS into its fourth consecutive quarterly loss as it reported disappointing total net withdrawals of 36.6 billion Swiss francs ($35.81 billion) at its key wealth and asset management divisions.

UBS's results contrast with stellar profits seen at European peers Credit Suisse (CSGN.VX) and Deutsche Bank (DBKGn.DE) which both took advantage of a rebound in investment banking at the time UBS was slashing its own operations.

"The performance at the investment bank shows signs of recovery, but significant questions remain on the wealth management front as outflows were larger than anticipated," said Sebastien Lemaire, an analyst with Natixis Securities.

UBS shares fell 7.2 percent to 16.11 Swiss francs by 1059 GMT, their lowest level since the bank settled a U.S. tax lawsuit on August 19, helping dampen sentiment on European bourses, with the DJ Stoxx European banking index .SX7P down 3.3 percent.

For a graphic showing UBS profit and share price, click here: here

UBS's net loss of 564 million Swiss francs was narrower than 1.4 billion Swiss francs in the second quarter but larger than average analyst forecasts for 207 million.

"We do not expect an immediate recovery in client net new money flows," Chief Executive Oswald Gruebel and Chairman Kaspar Villiger, both appointed earlier this year to turn around the Swiss bank, said in a letter to shareholders.

But they noted that pretax operating profit excluding charges nearly doubled to 1.6 billion francs, signaling the crisis-hit bank was gradually on the mend.

"UBS expects to see further progress in restoring the underlying profitability of the business in future quarters, particularly in 2010. However, this progress will depend on market and other factors," they said.

Former Credit Suisse CEO Gruebel is expected to give more details on his strategy for UBS at an Investor Day on November 17.

UBS's Tier 1 ratio, a measure of a bank's financial strength, rose to a better-than-expected 15 percent at the end of the third quarter against 13.2 percent the previous quarter.

UBS Chief Financial Officer John Cryan told an analyst call the core wealth management unit would be under pressure as long as the bank reported losses and also noted UBS was under greater scrutiny than rivals amid a global clampdown on tax havens.

TROUBLE IN AMERICA

During the quarter, UBS settled the U.S. lawsuit, in which Washington accused it of helping rich Americans hide money in Switzerland, but still saw client withdrawals at the troubled Americas wealth management division accelerate to nearly 10 billion francs, almost twice as much as in the previous quarter.

"The brand has been more hit by reputation issues than expected -- especially in the Americas," Vontobel analyst Teresa Nielsen said in a client note.

UBS hired Merrill Lynch veteran Robert McCann last week to try to rebuild its U.S. franchise.

Net client withdrawals at the Wealth Management and Swiss Bank division, were as large as in the previous quarter, with UBS losing net money also among Swiss clients.

In asset management, UBS did better than in the previous quarter, but outflows were still worse than analyst forecasts.

UBS has suffered total net client withdrawals of 91 billion Swiss francs in asset and wealth management this year.

Profitability at UBS's investment bank improved to break even, but was overshadowed by accounting charges.

These included an own credit charge of 1.436 billion Swiss francs and a net loss of 409 million on its sale of it Brazilian Pactual business and charges related to the conversion of the notes issued to the Swiss government after the bank got state aid.

Switzerland sold its UBS stake in August.

Cryan said he expected the investment bank to continue to improve into 2010, but said UBS risked another big charge on its own credit in the fourth quarter as spreads tighten further.

"The investment bank is on the definitive road to recovery but it will be a bit of a wobbly road," UBS's Cryan added.

UBS said its cost reduction program was on track and said it had adjusted its headcount target for 2010 to 65,000 from a previous 67,500 to reflect divestments it announced in 2009. UBS had 69,000 staff at the end of September 2009.

A year earlier, UBS turned a small quarterly profit, mainly due to tax credits, but still ended 2008 with the biggest annual loss in Swiss corporate history.

($1=1.021 Swiss francs)

(Additional reporting by Rupert Pretterklieber and Emma Thomasson; Editing by Mike Nesbit)

Australia lifts interest rate to 3.5 percent

SYDNEY (AP) -- Australia's central bank raised its key interest rate Tuesday by a quarter percentage point for the second month in a row, declaring the global downturn over and warning that inflation was set to rise.

The decision to hike rates was widely expected by analysts and moves Australia further away from most economies, which have yet to respond to signs that the financial crisis has eased by raising lending rates.

The Reserve Bank of Australia board decided at its monthly meeting to raise the cash rate by 25 basis points to 3.5 percent. A month earlier, Australia became the first major economy to raise interest rates since the outbreak of the crisis when the bank hiked its key rate by a quarter point from a 50-year low.

Gov. Glenn Stevens said in a statement explaining the decision that inflation "will probably not fall as far as earlier thought" and "will probably rise somewhat over the coming year."

"With the risk of serious economic contraction in Australia now having passed, the board view is that it is prudent to lessen gradually the degree of monetary stimulus that was in place when the outlook appeared to be much weaker," Stevens said.

Australia has survived the downturn better than many countries thanks to strong demand from China for its mineral resources and huge government stimulus spending.

Stevens said the global economy has resumed growing. While the expansion was expected to be modest in most countries, "prospects for Australia's Asian trading partners appear to be noticeably better," he said.

China's strong growth was having a significant impact on other economies in the region, he added.

Fed to mull recovery, financial stability at policy meeting

WASHINGTON (Reuters) - Federal Reserve officials meeting this week must weigh improving economic data against the risk, reinforced by a persistently weak job market, that a burgeoning recovery remains on shaky ground.

A 3.5 percent annualized jump in third quarter gross domestic product revived debate between analysts who believe a sustainable turnaround is under way, and those who think growth will falter once a heavy dose of stimulus fades.

The uncertainty is evident within the Fed itself, with many policymakers emphasizing the hazards in their outlook, even as they vow to vigorously fight any early signs of inflation.

With inflationary warning signals largely absent, an immediate shift in the central bank's ultra-easy policy stance, including any tinkering with its pledge to keep interest rates low for an "extended period," appears unlikely.

"The Federal Reserve is unlikely to change its assessment significantly," said Marc Chandler, global currency strategist at Brown Brothers Harriman.

The Federal Open Market Committee, the central bank's policy setting group, meets on November 3 and November 4.

RECOVERY'S ARRIVAL

The third quarter GDP report on Friday signaled the end of the worst U.S. recession since the Great Depression, but government stimulus, including the "cash for clunkers" incentive for auto purchases and a $8,000 tax credit for first time homebuyers, helped prop the economy up.

The Institute for Supply Management's manufacturing index, a widely watched barometer of industrial strength, suggested activity remained robust in October. The measure jumped to 55.7 last month, its highest level since April 2006. It has held above the 50 line that separates expansion from contraction for three straight months.

Even the ISM employment index, long in contraction territory, turned positive, indicating the first inklings of a willingness to hire.

"Given the fairly good performance of this indicator in predicting the performance of the U.S. economy more generally, it is pointing to further upward momentum in U.S. economic activity," said Millan Mulraine, economics strategist at TD Securities.

THE UNEMPLOYMENT PROBLEM

Despite signs factory activity is picking up, the U.S. consumers who normally account for around 70 percent of the economy's growth, are facing major challenges.

Chief among them is a jobless rate currently hovering at a 26-year high just below 10 percent, which is expected to continue climbing into next year.

Coupled with three years of declines in home values, the unfavorable labor market has dampened consumers' appetite to spend. Even for those who have managed to hold onto their jobs, incomes largely remain stagnant or have lost ground.

The grim employment outlook raises doubts about whether growth can be sustained when the effects of the government's stimulus program fade.

FINANCIAL STABILITY

The banking sector, which has regained some of its swagger but remains relatively fragile, is another important consideration for Fed officials.

Some banks, like JPMorgan and Goldmans Sachs, have returned solidly to profitability and have, controversially, set aside vast sums for bonus payouts.

But much of this largess, say analysts, is the product of the government's implicit -- and sometimes explicit -- backing. The perception, cemented after Lehman Brothers' disastrous bankruptcy, that the public sector will not allow a major financial institution to fail, has lowered the cost of borrowing for banks.

Losses in the commercial real estate sector, which have been flagged loudly by Fed Governor Daniel Tarullo and a host of regional central bank presidents, suggest the perils of the credit crunch are not yet over for banks.

This should make the Fed leery of any sudden policy movements that might unhinge gains made thus far.

ap Air New Zealand to replace Boeing jets with Airbus

PARIS (AP) -- Air New Zealand has ordered 14 Airbus single-aisle A320 aircraft worth $1.07 billion at catalog prices to replace Boeing jets, the European plane maker said Tuesday.

Airbus said in a statement that New Zealand's national carrier has also placed purchase options for a further eleven A320s.

Airlines often negotiate discounts to the list prices.

The single aisle A320 is larger than the Boeing 737-300s it will replace, enabling the carrier to increase capacity, Airbus said.

After several bumper years, planemakers are seeing fewer orders this year as airlines cope with persistently high fuel prices, weak demand and falling fares.

Airbus is ahead of its American rival in net orders this year because Boeing has a higher number of cancellations. As of Sept. 30, Airbus had captured 123 net jet orders, compared with Boeing's Oct. 27 tally of 84

US stock futures follow global markets down

NEW YORK (AP) -- U.S. stock futures are down sharply, following selloffs in Asia and Europe, as concerns mount about the sustainability of an economic rebound.

Safe-haven investments like the dollar and Treasurys are rising, while most commodities are falling.

Investors around the globe have been jittery in recent weeks, wary of whether the economic recovery can maintain the same pace once government stimulus measures are removed.

On Tuesday, investors will get data on factory orders, as well as monthly sales reports from major automakers.

Ahead of the market's open, Dow Jones industrial average futures are down 94 at 9,641. Standard & Poor's 500 index futures are down 11 at 1,027, and Nasdaq 100 index futures are down 17 at 1,650.

Grim reality still grips U.S. commercial real estate

By Ilaina Jonas

NEW YORK (Reuters) - Executives do not expect the U.S. commercial real estate market to emerge from critical condition any time soon, according to a survey by The Real Estate Roundtable.

Although the three indexes tracked by the "Sentiment Survey" have risen dramatically since the near-collapse of financial markets last year, they reflect the respondents' collective sense of relief at having survived the worst of the turmoil, according to The Real Estate Roundtable.

The U.S. commercial real estate market has been in a downward spiral for more than two years. On the whole, U.S. commercial real estate values have fallen about 40 percent from their peaks in 2007. Borrowers face shortfalls in financings when loans come due, while other borrowers are struggling to meet even monthly payments.

The delinquency rate of U.S. commercial real estate loans that had been securitized into Commercial Mortgage-Backed Securities (CMBS) hit 4.8 percent in October, up from 4.36 the prior month and dwarfing the 0.77 rate a year earlier, according to Trepp, which tracks CMBS loans.

The Roundtable is a trade group that has been advocating for government policy changes to help jump-start the sector. It has urged policymakers to adopt its "Five-Point Liquidity Plan" which includes changes in tax rules that will allow more foreign investment and improving the Term Asset-Backed Lending Facility's (TALF) ability to foster new issuance of commercial mortgage-backed securities (CMBS).

According to the Roundtable's survey, U.S. property executives rate "current conditions" a 56 -- well below the ideal of 100.

An overall index of 100 would mean that respondents believe present conditions are "much better" than a year ago, and will be "much better" 12 months from now.

"The problems now are more clearly defined and there's a grim sense of reality setting in, but that's a long way from saying markets are stabilizing or that conditions are on the mend," Roundtable President and Chief Executive Jeffrey DeBoer said in a statement.

Policymakers need to restore credit availability, address the equity shortfall resulting from falling commercial property losses, and foremost help create jobs, the Roundtable said.

About 77 percent of the more than 100 commercial real estate executives surveyed said property values are lower than a year ago.

Although that was down from 93 percent the previous quarter, it was far from optimistic. Seventy-one percent of the respondents said they expected values to remain "about the same" or to erode even further in the next 12 months.

As far as financing sources, 28 percent of those polled said credit availability is worse today than a year ago, compared with 71 percent who said so in the previous quarter.

The percentage that characterized equity availability as worse today than a year ago also dropped significantly -- to 17 percent from 55 percent in the prior quarter. However, 95 percent expect debt market conditions to be at least the same or better 12 months from now.

(Reporting by Ilaina Jonas, editing by Matthew Lewis)

Senator demands Cigna clarify premiums, claims

WASHINGTON (Reuters) - For-profit insurance companies use a smaller amount of premium dollars on medical claims than consumers are being told, according to a Senate analysis of data filed with insurance regulators.

The analysis was released late on Monday by a top Democratic senator who has been pressing Cigna Corp and 14 other large health insurance companies for information about how much of premiums go toward medical care.

Senate Commerce, Science and Transportation Committee Chairman John Rockefeller, in a letter to Cigna, demanded that the company immediately clarify the amount of premiums it receives and the amount of the claims it pays for group health insurance products.

"The data released in this letter reveals that while health care costs are spiraling upward, consumers are paying more and getting less, and the insurance industry doesn't want anyone to know what they are up to," Rockefeller said in a separate statement.

He wrote in the letter that: The analysis shows that in the individual and small group segments, insurers spend a significantly smaller portion of each premium dollar on patient care than they do in their large group businesses."

"Instead of disclosing medical loss ratios (MLR) to help consumers and small business owners make informed health care choices, health insurance companies have hidden them behind a wall of corporate secrecy," the letter said.

According to the Senate analysis, the six largest public insurance companies' average ratio in 2009 was 74 percent for individuals; 80 percent for small companies with fewer than 50 employees, and 84 percent for large businesses.

America's Health Insurance Plans (AHIP), the industry association, disputed the finding.

"Government data show that 87 cents of every premium dollar go directly to pay for medical care," AHIP spokesman Robert Zirkelbach said in an email statement.

"The MLR is not an accurate measure of the efficiency or effectiveness of health plans. Administrative costs include programs and services that improve care and reduce overall health care costs for families and employers," Zirkelbach added.

Under healthcare legislation unveiled in the U.S. House of Representatives last week, insurance companies would be forced to give customers rebates if less than 85 percent of enrollees' fees is spent on actual health care.

In the letter to Cigna, Rockefeller also said the Senate Commerce committee's analysis found "serious inconsistencies" in the way Cigna and its subsidiaries provide business information to the public and to their regulators.

In August, the West Virginia Democrat asked Cigna for information about its handling of the small business group health insurance market and whether it dropped those whose employees made numerous and costly benefit claims.

Cigna spokesman Chris Curran said in response that the insurer complies with all regulatory requirements for the rates it charges and the terms of its insurance policies.

(Reporting by JoAnne Allen; Editing by Erica Billingham)

BofA reaches out to BNY Mellon chief for CEO job

NEW YORK (Reuters) - Bank of New York Mellon Corp (BK.N) Chief Executive Robert Kelly was recently approached about taking the CEO job at Bank of America Corp (BAC.N), but he has shown no interest in the job, The Wall Street Journal reported.

Citing people familiar with the matter, the Journal reported on Sunday that Kelly has been approached more than once about being a potential successor to Kenneth Lewis, who will retire at the end of this year.

Some Bank of America stakeholders and regulators are pushing the board's search committee to look outside the company for the next CEO, but potential candidates have fallen short of the board's hopes or were not interested, the paper reported on its website.

The search committee could also hire an insider, and Bank of America Chief Risk Officer Gregory Curl and small-business banking head Brian Moynihan are the two top candidates in that case, sources told the Journal.

The search committee is not expected to make a decision until the end of this week at the earliest, these sources told the paper.

Spokesmen for Bank of America and BNY Mellon did not immediately return calls seeking comment on the Journal report.

(Reporting by Anupreeta Das; Editing by Bernard Orr)

Goldman in talks to buy Fannie tax credits: report

NEW YORK (Reuters) - Goldman Sachs Group Inc is in talks to buy millions of dollars of tax credits from Fannie Mae, but the U.S. Treasury could block the deal, The Wall Street Journal reported on Sunday.

Goldman hopes to win approval this week, but the administration is wary about approving a deal that would help the bank reduce its tax bill, the Journal reported on its website.

"Treasury is reviewing and will not let it proceed unless it is clearly in the taxpayers' interest," Treasury spokesman Andrew Williams said, without providing further comment or details.

A Goldman spokesman had no comment. Spokespeople for Fannie and the Federal Housing Finance Agency (FHFA) were not immediately available for comment.

Fannie Mae, the mortgage giant controlled by the U.S. government, could get financial relief if Goldman bought the tax credits, the Journal reported.

Goldman could line up other investors for the deal as well, according to the paper.

Tax credits are incentives designed to bring more investment to low-income housing developments.

(Reporting by Anupreeta Das, Timothy Ahmann and Corbett Daly; Editing by Bernard Orr and Ian Geoghegan)

Teco Energy 3Q profit rises 11 pct

WALSENBURG, Colo. (AP) -- Bernice and Jerry Angely like to show visitors the singed T-shirt a friend was wearing when their water well exploded and shot flames 30 feet high.

AP - In this photograph taken on Monday, Aug. 10, 2009, Ben Bounds stands next to a pipe that vents ...

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Symbol	Price	Change
EGAS	8.88	-0.03

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The friend wasn't hurt. But that and an explosion at another home weeks earlier forced Colorado to suspend natural gas drilling around this southern plains town until someone could find out why dangerous levels of methane were getting into the groundwater.

Two years later, Walsenburg and surrounding Huerfano County are still waiting, its residents caught in a collision between two of the West's vital resources: Water and natural gas.

"The water is so saturated with methane and other chemicals it is not to be used for human consumption," said Bernice Angely, who's had water trucked to her home 10 miles west of town since her well blew up in July 2007.

Petroglyph Energy Inc., a Boise, Idaho-based firm that has worked the rolling plains of the Raton Basin since 1999, suspended drilling until it can stem the methane. Colorado also is rewriting rules that had allowed Petroglyph to discharge water runoff from its drilling into streams and creeks.

But Petroglyph says it's not clear the drilling caused the methane leaks or prompted other area water wells to run dry. Eying what it calls an extremely promising natural gas field, it believes a shallow water formation tapped by area homeowners isn't connected to a deeper one pumped by the company for its drilling operations.

Petroglyph chief operating officer Paul Powell also believes a growing number of new homes in the area could explain some of the dry water wells.

"We'll do what we need to do," Powell said, stressing that his firm is working with the state on a solution.

Petroglyph has a plan to prevent the flow of methane into water wells by creating a hydraulic barrier. The company has proposed pumping water from an underground formation and injecting it into a row of wells where gas drilling occurs. Powell said gas will migrate into a void, and "if the void is full of water, there isn't room for gas to migrate through it."

State regulators say the plan is plausible but that Petroglyph needs to prove it works. Democratic U.S. Rep. John Salazar, who farms in the nearby San Luis Valley, has asked the U.S. Geological Survey to weigh in by evaluating the area's water quality and formations to determine if the gas drilling is to blame for the problems.

Water coursing through porous rock and streams has allowed farming, ranching and new subdivisions to thrive in the semiarid area about 160 miles south of Denver.

It also helps trap methane gas in the vast coal seams that once made the area a mining hot spot. The coal mines are gone, but the methane that made digging for it dangerous is a valuable resource. Companies like Petroglyph pump huge volumes of water out of the ground to relieve the pressure trapping the natural gas.

Steve Gunderson, director of Colorado's water quality control division, said Petroglyph will have to build a water treatment plant before it gets a new permit to discharge water. The old permit allowed Petroglyph to release up to 8 million gallons of water daily.

Fourth-generation dairy farmer Brett Corsentino blames the discharges into the Cucharas River for ruining his corn crops. He uses river water to irrigate his crops just a few miles east of the homeowners having problems with their wells. He says the high levels of sodium in the wastewater has diminished his soil's ability to absorb water and stunted the corn's growth.

"They say, `Well, there's no proof,'" Corsentino said. "Well, we'd been getting along for generations just fine until they started pumping 8 million gallons out of this country."

Corsentino also says his herd suffered abnormally high birth and death rates and now numbers 400, down from 650. He believes the cows consumed too much sodium from the water and corn grown from it. His corn used to produce 6,000 tons of silage; this year's crop yielded 1,500 tons.

However, Corsentino says his herd is healthier and milk production has increased since drilling stopped.

"There's an obvious direct, substantial impact to Brett Corsentino's dairy," the state's Gunderson said of the drilling.

Petroglyph paid for soil tests on Corsentino's farm. They showed high levels of sodium but that it also needed more calcium, Powell said. Petroglyph and Corsentino are discussing possible treatments.

"We still don't believe we have liability for the situation," Powell said. "But we were willing to help him fix his land and get back to productivity."

Ten miles west of Walsenburg, a rushing sound emanates from a pipe that vents methane from Ben and Melanie Bounds' water well. The pipe was installed after a June 2007 explosion blew off a shed roof covering the well.

The Bounds had moved from Dallas to build what they call their dream home atop a hill with a breathtaking view of the Spanish Peaks. They say their problems started when Petroglyph began drilling nearby. They're suing the company and haul water from town to their cistern.

"If I could run the clock back, we'd have never tried this," Ben Bounds said.

"I had more methane coming out of my water well than they had out of any of their gas wells. It sounded like a locomotive going down the road," said Kent Smith, who also has a methane detector in his house. "The damage and the problems they've caused have got to be addressed, and they keep getting pushed aside and forgotten about."

Petroglyph insists it's a good neighbor. Despite the methane mystery, it's trucking water to 14 area homes and has supplied 15 homes with methane alarm systems.

After stock market slide data take on new urgency

NEW YORK (AP) -- After a forceful reminder that the third quarter is history, stock investors are now uneasy about the final months of the year.

AP - FILE - In this Oct. 30, 2009 file photo, specialist Donald Vaneck works at his post on the ...

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CSCO	22.81	-0.71
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Stocks posted their biggest losses in four months Friday as traders worried that consumers won't be able to help lift the economy. Only a day earlier, investors celebrated news that the economy grew at the fastest pace in two years in the July-September period.

The Dow Jones industrial average rose 200 points Thursday only to tumble 250 on Friday.

The market's volatility adds urgency to a flood of data this week that could help signal whether investors have been prescient or premature in the bets they've been placing on a rebound in the economy. The benchmark Standard & Poor's 500 index lost 2 percent for October to break a seven-month streak of gains but is still up 53.2 percent from a 12-year low in March.

Much of this week's data on employment, manufacturing, services and home sales will provide investors with more up-to-date snapshots of the economy than last week's numbers on the third quarter. The Federal Reserve also will weigh in after it wraps up a two-day meeting on interest rate policy.

The week may be pivotal because investors will searching for clues about how the country will stand without as much government hand-holding as in the third quarter, when the economy grew at an annual pace of 3.5 percent. Some programs like Cash for Clunkers that drummed up car sales and puffed up the overall economy have ended.

Traders also will be sifting through comments from the Fed for signals on when policymakers might start to raise interest rates, which are at essentially zero, a record low.

Investors will be looking under the hood of economic reports for any insight about what might happen in the final two months of the fourth quarter and in 2010. The Institute for Supply Management's October index on manufacturing is expected Monday. Analysts will be paying particular attention to its new orders index, which is an indicator of future activity. The ISM's index on service industries is due Wednesday.

The biggest report of the week is expected to be the Labor Department's October employment report. Unemployment stands at a 26-year high of 9.8 percent. Analysts predict unemployment will have risen for October and that it will top 10 percent by next year.

Even though unemployment doesn't tend to fall until well after economic recoveries have begun, some investors are worried that layoffs and the threat of layoffs will prove so severe that they will undermine the economy's ability to recover by keeping consumers away from stores.

Increased spending by households is considered key to a sustained recovery. So far, the economy's turn has come from government spending and businesses boosting profits by slashing costs.

Jill Evans, portfolio manager of the Alpine Dynamic Dividend Fund in Purchase, N.Y., said that even as consumers hold back, some businesses like manufacturers are doing better as overseas economies recover faster. The weak dollar makes U.S. exports cheap for foreign buyers.

"I think we're having a bit of a tug-of-war here," she said, referring to improvements among some businesses and lagging consumers.

Evans noted that consumers have been the ones to pull the economy out of recessions since the 1990s but that more often, increased spending by businesses and government is what plucks the economy from downturns.

"The consumer is expected, in our opinion, to be the last thing to turn here," she said.

Investors are focused on consumer spending because they know that companies can't keep turning profits by cutting costs. Eventually, revenue will need to pick up for companies to keep making money.

Third-quarter reports are in from about two-thirds of the companies that make up the Standard & Poor's 500 index and about eight of every 10 companies have posted profits that exceed expectations, according to Thomson Reuters. Revenue is improving but remains weak.

The surprising profit reports were enough to lift the market in September and the early part of October but investors have grown accustomed to better-than-expected results.

Ford Motor Co. is slated to report Monday. Investors will hear later in the week from networking equipment maker Cisco Systems Inc., Kraft Foods Inc., Marathon Oil Corp., Starbucks Corp. and Time Warner Inc.

Monthly sales figures are due from major retailers as well as automakers.

Curtis Teberg, portfolio manager at the Teberg Fund, notes that even with all the worries investors are facing, many of the problems are already well-known and priced into the market.

"When I look at the history and say 'OK, is this a safe time to be in the equity markets?' I feel comfortable that it is. I don't know how much more negative news we can get coming out," he said.

Teberg noted that stocks tend to do well in the final stretch of the year as investors look to dress up their portfolios. In the past 50 years, the combined returns of November and December have been positive 85 percent of the time.

Colorado county copes with methane mystery

WALSENBURG, Colo. (AP) -- Bernice and Jerry Angely like to show visitors the singed T-shirt a friend was wearing when their water well exploded and shot flames 30 feet high.

AP - In this photograph taken on Monday, Aug. 10, 2009, Ben Bounds stands next to a pipe that vents ...

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The friend wasn't hurt. But that and an explosion at another home weeks earlier forced Colorado to suspend natural gas drilling around this southern plains town until someone could find out why dangerous levels of methane were getting into the groundwater.

Two years later, Walsenburg and surrounding Huerfano County are still waiting, its residents caught in a collision between two of the West's vital resources: Water and natural gas.

"The water is so saturated with methane and other chemicals it is not to be used for human consumption," said Bernice Angely, who's had water trucked to her home 10 miles west of town since her well blew up in July 2007.

Petroglyph Energy Inc., a Boise, Idaho-based firm that has worked the rolling plains of the Raton Basin since 1999, suspended drilling until it can stem the methane. Colorado also is rewriting rules that had allowed Petroglyph to discharge water runoff from its drilling into streams and creeks.

But Petroglyph says it's not clear the drilling caused the methane leaks or prompted other area water wells to run dry. Eying what it calls an extremely promising natural gas field, it believes a shallow water formation tapped by area homeowners isn't connected to a deeper one pumped by the company for its drilling operations.

Petroglyph chief operating officer Paul Powell also believes a growing number of new homes in the area could explain some of the dry water wells.

"We'll do what we need to do," Powell said, stressing that his firm is working with the state on a solution.

Petroglyph has a plan to prevent the flow of methane into water wells by creating a hydraulic barrier. The company has proposed pumping water from an underground formation and injecting it into a row of wells where gas drilling occurs. Powell said gas will migrate into a void, and "if the void is full of water, there isn't room for gas to migrate through it."

State regulators say the plan is plausible but that Petroglyph needs to prove it works. Democratic U.S. Rep. John Salazar, who farms in the nearby San Luis Valley, has asked the U.S. Geological Survey to weigh in by evaluating the area's water quality and formations to determine if the gas drilling is to blame for the problems.

Water coursing through porous rock and streams has allowed farming, ranching and new subdivisions to thrive in the semiarid area about 160 miles south of Denver.

It also helps trap methane gas in the vast coal seams that once made the area a mining hot spot. The coal mines are gone, but the methane that made digging for it dangerous is a valuable resource. Companies like Petroglyph pump huge volumes of water out of the ground to relieve the pressure trapping the natural gas.

Steve Gunderson, director of Colorado's water quality control division, said Petroglyph will have to build a water treatment plant before it gets a new permit to discharge water. The old permit allowed Petroglyph to release up to 8 million gallons of water daily.

Fourth-generation dairy farmer Brett Corsentino blames the discharges into the Cucharas River for ruining his corn crops. He uses river water to irrigate his crops just a few miles east of the homeowners having problems with their wells. He says the high levels of sodium in the wastewater has diminished his soil's ability to absorb water and stunted the corn's growth.

"They say, `Well, there's no proof,'" Corsentino said. "Well, we'd been getting along for generations just fine until they started pumping 8 million gallons out of this country."

Corsentino also says his herd suffered abnormally high birth and death rates and now numbers 400, down from 650. He believes the cows consumed too much sodium from the water and corn grown from it. His corn used to produce 6,000 tons of silage; this year's crop yielded 1,500 tons.

However, Corsentino says his herd is healthier and milk production has increased since drilling stopped.

"There's an obvious direct, substantial impact to Brett Corsentino's dairy," the state's Gunderson said of the drilling.

Petroglyph paid for soil tests on Corsentino's farm. They showed high levels of sodium but that it also needed more calcium, Powell said. Petroglyph and Corsentino are discussing possible treatments.

"We still don't believe we have liability for the situation," Powell said. "But we were willing to help him fix his land and get back to productivity."

Ten miles west of Walsenburg, a rushing sound emanates from a pipe that vents methane from Ben and Melanie Bounds' water well. The pipe was installed after a June 2007 explosion blew off a shed roof covering the well.

The Bounds had moved from Dallas to build what they call their dream home atop a hill with a breathtaking view of the Spanish Peaks. They say their problems started when Petroglyph began drilling nearby. They're suing the company and haul water from town to their cistern.

"If I could run the clock back, we'd have never tried this," Ben Bounds said.

"I had more methane coming out of my water well than they had out of any of their gas wells. It sounded like a locomotive going down the road," said Kent Smith, who also has a methane detector in his house. "The damage and the problems they've caused have got to be addressed, and they keep getting pushed aside and forgotten about."

Petroglyph insists it's a good neighbor. Despite the methane mystery, it's trucking water to 14 area homes and has supplied 15 homes with methane alarm systems.

Denbury to buy oil developer Encore for $2.64B

DALLAS (AP) -- Oil and gas developer Denbury Resources Inc. said Sunday it will pay $2.64 billion in cash and stock to purchase Encore Acquisition Co., in a move to become one of the largest independent oil exploration and production companies in North America.

Encore shareholders will receive $50 for each share held, including $15 in cash and $35 in stock. The purchase price represents a 35 percent premium to the stock's closing price Friday.

Based on Encore's 52.8 million common shares outstanding at July 31, the acquisition is valued at about $2.64 billion. Denbury also plans to assume more than $1 billion in Encore debt and will take over Encore's minority stake in Fort Worth, Texas-based Encore Energy Partners LP, valued at nearly a half billion dollars. In total, the companies are estimating the deal is worth $4.5 billion.

Denbury operates mainly in Mississippi, and holds interests in the Barnett Shale region near Fort Worth, Texas, and properties onshore in Louisiana, Alabama and Southeast Texas. It owns hefty reserves of carbon dioxide, which Denbury injects into older oil wells to boost oil production, a method known as tertiary production. Fort Worth, Texas-based Encore buys and develops oil and natural gas reserves from onshore fields in the United States.

The combined company will continue to be known as Denbury Resources Inc. and remain headquartered in Plano, Texas.

"Encore has built an enviable asset portfolio in the Rockies, anchored by mature legacy crude oil assets, and our combined size and scale of operations will allow us to undertake significantly larger CO2 projects in the Gulf Coast and the Rockies," said Denbury CEO Phil Rykhoek, in a statement.

Denbury said it will finance the deal with a combination of equity and debt. It said J.P. Morgan has committed to providing a new $1.6 billion bank revolving credit facility and a $1.25 billion in debt financing. The latter will be used to fund the cash portion of the purchase price, and replace $825 million worth of outstanding subordinated notes as well as replace a bank credit line which has about $180 million outstanding.

Denbury expects to issue between 115 million and 146 million shares of common stock to fund the equity portion of the deal, which would boost its total shares outstanding to between 364.4 million and 395.4 million.

Denbury said it will sell off the companies' non-core oil and gas properties next year and use the estimated $500 million in proceeds to pay down its debt. The combined company may choose to sell some of the properties to Encore Energy Partners.

The boards of both Denbury and Encore have approved the deal, which is expected to close in the first quarter of 2010, subject to shareholders' approval. After the acquisition is complete, Denbury stockholders will own between 63 percent and 68 percent of the new company and Encore stockholders will own between 32 percent and 37 percent.

Denbury's board and senior management will remain unchanged.

J.P. Morgan Securities Inc. acted as financial adviser to Denbury and Barclay's Capital Inc. advised Encore. Baker & Hostetler LLP acted as legal counsel to Denbury and Baker Botts LLP as legal counsel to Encore.

Denbury in August reported sliding to a second-quarter loss of $87.2 million from a year-earlier profit, hurt by lower oil and gas prices and a write-down on the fair value of commodity contracts. Revenue dropped 48 percent to $217.4 million as the company's realized price of oil and gas tumbled 42 percent.

As previously announced, the company lowered its 2009 production outlook after it sold 60 percent of its Barnett Shale natural-gas assets to privately held Talon Oil & Gas LLC. The sale will result in lost output, prompting Denbury to slash its production outlook by 3,500 barrels of oil equivalent per day (BOE/d) to an adjusted average of 47,500 BOE/d.

The company has said selling the properties would allow it to focus on its core oil operations, which are more profitable and carry lower risk.

ap As jobs vanish, factory towns slow to see stimulus

WASHINGTON (AP) -- Many communities hit hardest by job losses, those built around dying factories and mills, have been slowest to see relief from President Barack Obama's stimulus plan, underscoring how hard it is for Washington policymakers to create lasting work in areas that need it most.

The manufacturing industry has shed hundreds of thousands of jobs during the recession as plants have closed or scaled back. Places such as the southwest Missouri city of Lamar, tucked amid endless fields of winter wheat and soybeans, have seen the cornerstones of their economies disappear, leaving a gap that even billions in roadwork and government aid cannot fill.

Lamar began feeling the recession ahead of the rest of the country, when the furniture-maker O'Sullivan Industries closed its doors in mid-2007, immediately leaving 700 workers unemployed and turning its factory into a million-square-foot vacancy.

That began what city manager Lynn Calton calls "a slow death." Stores folded. A 50-year-old car dealership went under. One in 10 jobs disappeared last year. Everyone suffered, from the downtown florist to the dentist who cleaned the factory workers' teeth.

Even Mayor Keith Divine filed for unemployment when his furniture store went out of business. He now sells carpet and mattresses and says he hasn't seen evidence of the 650,000 jobs saved or created nationwide thanks to the $787 billion stimulus.

"What work? Where?" Divine asks.

For the Obama administration, Lamar is as much a problem of expectations as it is of policy. For all the items contained in the stimulus, from tax cuts to road work to new schools, nothing could quickly replace what factory towns like Lamar had lost.

That's why the White House says it's unfair to judge the stimulus by the unemployment rate because no amount of stimulus was going to keep Lamar's unemployment rate from approaching 12 percent.

Nationwide, only 2,500 of the 650,000 stimulus jobs announced Friday were in the manufacturing industry, and many of those appear to be mislabeled. Teachers were the biggest winners because states used federal aid to fill budget gaps, then credited the money with avoiding layoffs -- even if no such layoffs were planned.

"We haven't seen any improvements in our town," said Gary Macklem, the mayor of Croswell, Mich., a small city in a county built on farming and factories, where unemployment has hovered just below 20 percent all year. "We lost two factories and the other factories are hanging by a shoe string."

One of the goals written into the stimulus was to help "those most impacted by the recession." And there are provisions to do just that, from increasing unemployment and Medicaid benefits to paying for worker retraining. Places such as Croswell and Lamar also probably would have been worse off if their states had endured their budget crises without federal help.

And there are billions of dollars to upgrade the electrical grid and encourage alternative energy, an historic investment expected to spur manufacturing of wind turbines, solar panels and clean-running buses.

"Will the stimulus program by itself turn around the decades-long decline in that sector? Of course not," said White House economic adviser Jared Bernstein. "But it will help, and it will help in some of the most key areas, where manufacturing can shift from contracting to expanding."

Such benefits are harder to see than a job and a paycheck. In manufacturing towns, those have been difficult to create. When they appear, they're not what the town is used to.

O'Sullivan Industries was the kind of company that hired kids right out of high school, a company where workers could eventually pull down $16 an hour and work overtime when the plant was running six days a week. Some employees had been there for 30 or more years. People who wanted to start a family and put down roots in their hometown could go get jobs at O'Sullivan.

The stimulus can't create those types of jobs, at least not directly and not right away. So despite Lamar's need, the county saw just 22 jobs from the stimulus. They are temporary positions working on a local highway project, not the kind of thing someone from O'Sullivan could easily walk into.

"They were building ready-to-assemble furniture. Somebody out there pouring concrete is a whole different job," said Calton, the city manager. "I don't know if those people were able to get on with someone doing a highway project."

They weren't. The highway contract went to a company that brought in crews from hours away.

Those workers count themselves as lucky, but already fear what may come next. One man has a toddler and said he'll take dishwashing jobs to get by once the stimulus project is over. Word down at the union hall is that things haven't been this bad in 10 years.

"You put your name on the list, and you're No. 90 or No. 106," said Bob Williams, who has worked construction since 1968. "You ain't going to work tomorrow."

In Monroe County, Ala., Georgia-Pacific Corp. idled its plywood mill this year, leaving 300 workers without jobs. In August, Fruit of the Loom closed its dye plant, laying off more than 100.

These were good jobs with benefits and retirement plans, said Mike Kennedy, the mayor of the county seat of Monroeville, the childhood home of author Harper Lee and the likely inspiration for the town in her book "To Kill a Mockingbird."

Unemployment is approaching 19 percent and the city budget is strained. Kennedy said he's hoping to receive stimulus money to make buildings more energy efficient. That would create some jobs.

But so far, Monroeville has seen just 8 jobs from the stimulus, according to the latest data.

"We got stimulus money to build sidewalk," Kennedy said.

Juozapavicius contributed to this report from Lamar, Mo.

ap Retail faces uncertainty as CIT enters bankruptcy

WASHINGTON (AP) -- The bankruptcy of a key lender that helps retailers stock their shelves is adding to the industry's worries ahead of the critical holiday shopping season.

CIT Group Inc. filed for Chapter 11 bankruptcy protection Sunday in New York after months of struggling to avoid collapse. The company provides badly needed credit to thousands of small and mid-sized businesses, and is a critical part of the flow of capital in the retail sector.

CIT stressed that its lending operations will continue to operate as it proceeds through bankruptcy with the hope of shedding $10 billion in debt. Chairman and CEO Jeffrey M. Peek said the company's prepackaged reorganization plan "will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy."

But retail groups and analysts warn that the case will likely add to the instability in the retail sector. CIT is an important source of capital, working with 2,000 vendors that supply merchandise to more than 300,000 stores. About 60 percent of the apparel industry depends on CIT for financing.

In the last few weeks, the nation's stores have begun filling their floors with holiday merchandise, but they still need a reliable source of lending to prevent shipping disruptions and to restock after the holidays. Even one day that vendors are cut off from much-needed financing could create a bottleneck, resulting in shipments of merchandise left on docks or in vendors' warehouses.

CIT expects to emerge from bankruptcy by the end of the year, but a dragged-out case or any glitches could further disrupt the already tight credit markets for retailers, said Joe Alouf, a partner with Eaglepoint Advisors, a crisis management company that is partly owned by Kurt Salmon Associates.

"CIT is the 600-pound gorilla in the industry," Alouf said.

Craig Sherman, vice president of government affairs at the National Retail Federation, thinks the industry "dodged a bullet on the holiday season" for the most part, because most merchandise is in stores' distribution centers. However, he said CIT's woes could throw a wrench in ordering for the important 2010 spring season. NRF officials say that as stores prepare for a rebound in consumer spending next year, access to credit is very important.

Harold Reichwald, co-chair of law firm Manatt, Phelps & Phillips' banking group, said that CIT's case will likely force the company's customers to look elsewhere for financing.

"If I was a small businessman, I would say to myself, 'I have to find alternatives,'" Reichwald said. "In this marketplace, there isn't a lot of alternatives."

CIT's Chapter 11 filing is one of the biggest in U.S. corporate history, following Lehman Brothers, Washington Mutual, WorldCom and General Motors. The bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion. The move wipes out current holders of its common and preferred stock, meaning the U.S. government will likely lose the $2.3 billion in taxpayer funds it sunk into CIT last year to prop up the company.

The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year. Treasury Department spokesman Andrew Williams said Sunday that the government will be closely monitoring the bankruptcy proceedings, but acknowledged that "recovery to preferred and common equityholders will be minimal."

CIT had been trying to fend off disaster for several months and narrowly avoided collapse in July. It had struggled to find funding as sources it previously relied on, such as short-term debt, evaporated during the credit crisis. The company pulled back sharply on lending to businesses as it tried to preserve cash. According to its most recent quarterly earnings report, the company originated just $4.4 billion worth of new business during the first six months of 2009, compared with $11.3 billion in the first half of 2008.

The company received $4.5 billion in credit from its own lenders and bondholders last week, reportedly made a deal with Goldman Sachs to lower debt payments and negotiated a $1 billion line of credit from billionaire investor and bondholder Carl Icahn. But the company failed to persuade bondholders to support a debt-exchange offer, a step that would have trimmed at least $5.7 billion from its debt burden and given CIT more time to pay off what it owes.

Ever since CIT's troubles flared up last summer, the retail industry has carefully monitored the lender, with many vendors scrambling to find alternative financing at rivals like Rosenthal & Rosenthal. But finding a replacement hasn't been easy because competitors can only take on so many more clients. Moreover, while large publicly traded companies with sales of more than $2 billion have found the credit market loosening up in recent months, small and medium-based companies have largely found themselves shut out, Alouf said.

The big question is how long CIT will remain under court protection. A prepackaged bankruptcy, which has the support of major bondholders, speeds up the process of restructuring CIT's debt and could help it exit court protection in a matter of months. A swift exit by the holidays could alleviate some retailers' worries.

D'Innocenzio reported from New York.