US banks try to clean up remaining mortgage mess

WASHINGTON (AP) — U.S. banks have taken another step to clear away the wreckage of the 2008 financial crisis by agreeing to pay $8.5 billion to settle charges that they wrongfully foreclosed on millions of homeowners.
The deal announced Monday could compensate hundreds of thousands of Americans whose homes were seized because of abuses such as "robo-signing," when banks automatically signed off on foreclosures without properly reviewing documents. The agreement will also help eliminate huge potential liabilities for the banks.
But consumer advocates complained that regulators settled for too low a price by letting banks avoid full responsibility for foreclosures that victimized families and fueled an exodus from neighborhoods across the country.
The settlement ends an independent review of loan files required under a 2011 action by regulators. Bruce Marks, CEO of the advocacy group Neighborhood Assistance Corp. of America, noted that ending the review will cut short investigations into the banks' practices.
"The question of who's to blame — the homeowners or the lenders — if you stop this investigation now, that will always be an open-ended question," Marks said.
The banks, which include JPMorgan Chase, Bank of America and Wells Fargo, will pay about $3.3 billion to homeowners to end the review of foreclosures.
The rest of the money — $5.2 billion — will be used to reduce mortgage bills and forgive outstanding principal on home sales that generated less than borrowers owed on their mortgages.
A total of 3.8 million people are eligible for payments under the deal announced by the Office of Comptroller of the Currency and the Federal Reserve. Those payments could range from a few hundred dollars to up to $125,000.
Homeowners who were wrongly denied a loan modification will be entitled to relatively small payments. By contrast, people whose homes were unfairly seized and sold would be eligible for the biggest payments.
Banks and consumer advocates had complained that the loan-by-loan reviews required under the 2011 order were time-consuming and costly and didn't reach many homeowners. Banks were paying large sums to consultants to review the files. Some questioned the independence of those consultants, who often ruled against homeowners.
The deal "represents a significant change in direction" that ensures "consumers are the ones who will benefit, and that they will benefit more quickly and in a more direct manner," Thomas Curry, the comptroller of the currency, said in a statement.
But Charles Wanless, a homeowner in the Florida Panhandle, is among those who question that promise. Wanless, who is fighting foreclosure proceedings with Bank of America, says he doubts the money will benefit many who lost homes.
"Let's say they already foreclosed on me and I lost my home," said Wanless, who runs a pool cleaning business in Crestview, Fla. "What's $1,000 going to do to help me? If they took my house away wrongfully, is that going to get me my house back? I might be able to find one if I'm one of the lucky ones who gets $125,000."
Diane Thompson, a lawyer with the National Consumer Law Center, complained that the deal won't actually compensate homeowners for the actual harm they suffered.
The deal "caps (banks') liability at a total number that's less than they thought they were going to pay going in," she said.
Thompson supports the decision to make direct payments to victimized homeowners. But she said the deal will work only if it includes strong oversight and transparency provisions.
The companies involved in the settlement announced Monday also include Citigroup, MetLife Bank, PNC Financial Services, Sovereign, SunTrust, U.S. Bank and Aurora. The 2011 action also included GMAC Mortgage, HSBC Finance Corp. and EMC Mortgage Corp.
Regulators announced the deal on the same day that Bank of America agreed to pay $11.6 billion to government-backed mortgage financier Fannie Mae to settle claims related to mortgages that soured during the housing crash.
The agreements come as U.S. banks are showing renewed signs of financial health, extending their recovery from the 2008 crisis that nearly toppled many of them. They are lending more and earning greater profits than at any time since the Great Recession began in December 2007.
Monday's foreclosure settlement doesn't close the book on the housing crisis, which caused more than 4 million foreclosures. It covers only consumers who were in foreclosure in 2009 and 2010. Some banks didn't agree to the settlement. And resolving millions of claims involving multiple banks and mortgage companies is complicated and time-consuming.
"It's going to take a few more years to get it sorted out," said Bert Ely, an independent banking consultant.
Michael Allen of Petersburg, Va., hopes to benefit from the settlement. He lost his home last month after 2½ years of trying to modify his mortgage. He had fallen behind on his payments after the plant he was working closed.
"I was working with the banks to re-modify (my loan), and I'd get to the final stages and I'd have to start over again. They didn't give me any reason. I'd call them, they'd transfer me from one person to the next. ... They just kept giving me the runaround."
Citigroup said in a statement that it was "pleased to have the matter resolved" and thinks the agreement "will provide benefits for homeowners." Citi expects to record a charge of $305 million in the fourth quarter of 2012 to cover its cash payment under the settlement. The bank expects that existing reserves will cover its $500 million share of the non-cash foreclosure aid.
Bank of America CEO Brian Moynihan said the agreements were "a significant step" in resolving the bank's remaining legacy mortgage issues while streamlining the company and reducing future expenses.
Amy Bonitatibus, spokeswoman for JPMorgan Chase, said the bank had "worked very hard" on the foreclosure review and was "pleased to have it now behind us."
U.S. Bancorp, which owns U.S. Bank, said its part of the settlement includes an $80 million payment to homeowners. That payment will reduce its fourth-quarter earnings by 3 cents per share. It has also committed $128 million in mortgage aid.
Leaders of a House oversight panel have asked regulators for a briefing on the proposed settlement. Regulators had refused to brief Congress before announcing the deal publicly.
Rep. Elijah Cummings of Maryland, the top Democrat on the House Committee on Oversight and Government Reform, said the settlement "may allow banks to skirt what they owe and sweep past abuses under the rug without determining the full harm borrowers have suffered."
He complained that regulators failed to answer key questions about how the settlement was reached, who will get the money and what will happen to others who were harmed by these banks but were not included in the settlement.
The settlement is separate from a $25 billion settlement among 49 state attorneys general, federal regulators and five banks: Ally, formerly known as GMAC; Bank of America; Citigroup; JPMorgan Chase and Wells Fargo.

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Exclusive: Disney looks for cost savings, ponders layoffs - sources

LOS ANGELES (Reuters) - Walt Disney Co started an internal cost-cutting review several weeks ago that may include layoffs at its studio and other units, three people with knowledge of the effort told Reuters, in an early sign that big companies may not be finished tightening their belts.
Disney, whose empire spans TV, film, merchandise and theme parks, is exploring cutbacks in jobs it no longer needs because of improvements in technology, one of the people said.
It is also looking at redundant operations that could be eliminated following a string of major acquisitions over the past few years, said the person.
The people did not want to be identified because Disney has not disclosed the internal review.
After years of repeated and sometimes severe cost cutting in the wake of the financial crisis, by last summer it looked as though Corporate America had trimmed all the fat and was back on the path of profits through operating growth. But news Disney is weighing cuts - on the heels of Eli Lilly and Co's warning last week that cost controls would drive earnings this year - could herald yet another wave of retrenchment.
Disney executives warned in November that the rising cost of sports rights and moribund home video sales would dampen growth.
"We are constantly looking at eliminating redundancies and creating greater efficiencies, especially with the rapid rise in new technology," said Disney spokeswoman Zenia Mucha.
In terms of profit margin, Disney's studio is the least profitable of the entertainment conglomerate's four major product divisions. The studio had a profit margin of 12.3 percent in 2012.
Its fifth division, the interactive unit that creates online games, lost $758 million over the last three years, according to the company's financial filings. The unit lost $216 million last year.
Disney could trim jobs at both the studio and interactive divisions as well as its music arm, said Tony Wible, an analyst with Janney Montgomery Scott, who has a neutral rating on the company's stock.
The media company is in what CEO Bob Iger calls a "transition year" after spending on projects such as the "Cars Land" expansion at the Disneyland Resort in California and a new cruise ship that launched last year.
"We invested a lot of money in our theme parks and resorts business," Disney Chief Financial Officer Jay Rasulo told a media conference in December. "We want to execute against delivering the returns that we've been promising all of you for the years that we've been making those investments. We really want to hunker down on it."
CUTS NOT CERTAIN
Staff cuts are not a certainty at this point, the source added, although the company has a history of streamlining operations through layoffs.
In 2011, the interactive group laid off about 200 people at its video games unit after what Disney executives said at the time was a shift away from console games to focus on online and mobile entertainment. In September, 50 employees at Disney Interactive were laid off in a restructuring of the money-losing unit, according to one of the sources.
The company also made cuts at its publishing unit last year, and cut workers at its studio in 2011.
"This is not necessarily a negative thing," said Michael Morris, an analyst with Davenport and Co who has a buy recommendation on the stock but was not aware of the review.
"It speaks to a fiscally responsible management."
CORPORATE AMERICA CUTS BACK
If Disney does make some cuts, it would be the latest company to warn that costs still need to come under control.
Lilly said last week that sales this year would be flat to slightly higher, but said profit growth would exceed Wall Street estimates on the back of cost controls. In late December, book publisher Scholastic Corp said it too would look for cost savings in the current fiscal year.
Disney and Lilly are far from alone, though. Tech companies in particular are expected to have been hurt by the fourth-quarter uncertainty over the impending "fiscal cliff" of automatic tax increases and spending cuts which led corporate clients to slow or stop spending.
Congress agreed to a deal on January 1 that averted the cliff.
Fear of the cliff may have affected sales across a range of industries, further clouding the growth picture. Retailers are also expected to contend with the fallout of a lackluster holiday season, which could lead to cutbacks.
Thomson Reuters corporate earnings research analyst Greg Harrison said many of the themes that held true in 2012 -- like cost cuts that helped earnings, even as sales stalled -- were likely to carry over into this year.
"In the absence of any fresh catalysts for profits emerging, it may be reasonable to expect that current estimates for earnings growth in the low- to mid-single digits throughout 2013 may shrink, even though analysts believe that the slowest part of the earnings growth is now behind us," Harrison wrote in a preview of the fourth-quarter earnings season.
If a trend is emerging, it should begin to be clear as soon as the next two weeks, as companies start reporting 2012 results and offering up their 2013 outlooks.
STUDIO COULD BE TARGET
The present review, headed by CFO Rasulo, has already identified areas to change in the company's travel policy, said one of the sources. It is also looking at a hiring freeze rather than layoffs, said a second source.
Cuts are most likely at the studio, said two of the three sources, where the strategy has changed to focus on fewer films and rely more on outside producers such as Steven Spielberg's DreamWorks studio, which finances its own films and pays Disney a fee to market and distribute them.
The film strategy shift began when Iger took over as CEO in late 2005. Under Iger, the company purchased "Toy Story" creator Pixar Animation and Marvel, which brought it characters such as "Thor" and "Iron Man" that featured in this summer's blockbuster hit "The Avengers."
Disney completed a $4.06 billion acquisition of "Star Wars" creator George Lucas' Lucasfilm in December, and has said that it will begin producing new installments of the lucrative franchise in 2015, and make a film every two to three years.
Shares in the company fell 2.3 percent on Monday to close at $50.97, sharply underperforming broader markets.

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Exclusive: SEC probes Ernst & Young over audit client lobbying

WASHINGTON/NEW YORK (Reuters) - The Securities and Exchange Commission is investigating whether auditing company Ernst & Young violated auditor rules by letting its lobbying unit perform work for several major audit clients, people familiar with the matter told Reuters.
The SEC inquiry began shortly after Reuters reported in March 2012 that Washington Council Ernst & Young, the E&Y unit, was registered as a lobbyist for several corporate audit clients including Amgen Inc, CVS Caremark Corp and Verizon Communications Inc [ID:nL2E8DL649], according to one of the sources.
The SEC's enforcement division and its Office of the Chief Accountant are looking in to the issue, according to the two sources, who spoke in recent days and who could not be named because the investigation is not public.
It is unclear how far along the probe is, or whether it could result in the SEC filing civil charges against Ernst & Young, one of the world's largest audit and accounting firms.
An SEC spokesman declined to comment.
Ernst & Young spokeswoman Amy Call Well declined to comment on whether the company was being investigated. "All of our services for audit clients undergo considerable scrutiny to confirm they are consistent with applicable rules," she said.
U.S. independence rules bar auditors from serving in an "advocacy role" for audit clients. The goal is to allow auditors to maintain some degree of objectivity regarding the companies they audit, based on the idea that auditors are watchdogs for investors and should not be promoting management's interests.
The SEC's rule does not definitively say whether lobbying could compromise an auditor's independence. It is more focused on barring legal advocacy, such as expert witness testimony.
In interviews last year, former SEC Chief Accountant Jim Kroeker told Reuters that certain lobbying activities could potentially be covered under the general prohibition on advocacy. Kroeker is now an executive at Deloitte, a rival of Ernst & Young.
'ABUNDANTLY CLEAR' LINE
Harvard Business School Professor Max Bazerman said on Monday that it was "abundantly clear" that a firm that is lobbying for a company is no longer capable of independently auditing that company.
Ernst & Young has previously said it complied with independence rules. It also said that it did not act in an advocacy role and that the work performed by its lobbying unit was limited to tax issues.
Tax consulting is a permissible activity under auditor independence rules if it does not involve public advocacy.
About two months after publication of the Reuters story, federal records showed Washington Council Ernst & Young was no longer registered as a lobbyist for Amgen, CVS Caremark or Verizon Communications.
A spokesman for Amgen did not immediately respond to calls seeking comment. Verizon and CVS spokesmen declined to comment.
Ernst & Young also terminated a lobbying relationship with a fourth company, Nomura Holdings Inc, which also used an E&Y affiliate for auditing services.
Obtaining an independent view on the books is the main reason companies are required to hire outside auditors, said Richard Kaplan, law professor at the University of Illinois.
Ernst & Young was suspended in 2004 from accepting new public company audit clients for six months because of alleged violations of independence rules. The suspension stemmed from a joint venture that Ernst had in the 1990s with business software provider PeopleSoft, now part of Oracle Corp, when Ernst was also auditing PeopleSoft's books.
An SEC administrative law judge ordered Ernst & Young to give back $1.7 million in audit fees and issued a cease-and- desist order against future independence violations.

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US drone strike in Pakistan kills influential Taliban commander

Key Pakistani Taliban commander Maulvi Nazir – considered a "good" Taliban by some among the Pakistani military – died in a US drone strike that left at least six dead on Thursday, according to local reports.
According to Pakistan's Dawn newspaper, Taliban and local government officials confirm that Mr. Nazir and at least two of his deputies were killed when a US drone hit their vehicle in South Waziristan, a Pakistani tribal region along the Afghan border. The commander's truck had reportedly broken down at the time.
The Guardian notes that neither the Pakistani government nor the Taliban has made an official statement on the reports, and that details remain murky.
Because journalists are usually prevented by militants from visiting places hit by drones, the exact details of what happened and who was killed in such attacks are often extremely hard to verify.
Residents and an intelligence official in South Waziristan who spoke to a local journalist said the total number of people killed in the first attack was either six or 10. The intelligence source said all the men killed were "top leaders" of the Mullah Nazir group, the leading militant group in South Waziristan.
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Maulvi Nazir was the primary militant commander in South Waziristan and a key figure in Pakistan's Taliban, having maintained a complex set of relationships among the region's players.
Unlike some of Pakistan's domestic militants, Nazir chose to focus his efforts fully on Afghanistan and the NATO and US forces stationed there, and according to the US “had a clear collaboration” with Afghanistan's powerful Haqqani network, a primary foe of US and NATO troops in Afghanistan. The Washington Post notes that he was accused of regularly sending troops into Afghanistan to fight alongside the country's own Taliban against the US-led forces there.
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His Afghan focus on targeting foreign troops earned him a reputation with parts of the Pakistani military as a "good" Taliban, and he negotiated a deal with the Islamabad to stay out of its battle with domestic militants in the region. His militants have also aided Pakistani troops in attacking members of Tehrik-e-Taliban Pakistan (TTP), an anti-Islamabad faction of the Taliban.
But that also earned him the hostility of some of his domestic Taliban peers. Nazir was wounded in November during a suicide attack on his convoy. Rival Taliban commanders were believed to have been behind the attack, which was said to have caused some fracturing of the Pakistani Taliban in the region.
Security analyst Imtiaz Gul told the Guardian that Nazir's death will likely be welcomed by both the US and Pakistan – despite the latter's peace deal with the late militant.
"Both the US and Pakistan will be happy because they now have one less enemy," he said. "Although he was in an undeclared peace deal with the government, he was also subverting the stated goals of that agreement by providing support and shelter to al-Qaida people whose leaders have pleaded with the rank and file of the Pakistani army to rebel against the state.

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Russia plans biggest war games since Soviet era

The Russian navy has announced that it will hold its biggest war games since Soviet times in the Mediterranean and Black seas later this month.
The ambitious exercises, which will involve ships from all four major Russian fleets, are a sign of growing confidence on the part of Russia's military as it begins to enjoy the benefits of President Vladimir Putin's huge budget allocations for renewing and re-equipping all branches of the armed forces.
The purpose of the war games will be to strengthen integration between different types of forces and gain practice with major military deployments outside Russia's immediate neighborhood, the Defense Ministry said in a statement Tuesday.
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As part of the maneuvers, naval ships will arrive at an "unprepared" coast in the Russian northern Caucasus region to take amphibious troops onto transport vessels.
"The primary goal of the exercise is to train issues regarding formation of a battle group consisting of troops of different branches outside of the Russian Federation, planning its deployment and managing a coordinated action of a joint Navy group in accordance with a common plan," the ministry's statement said.
The participating ships, it said, will be drawn from all of Russia's four major naval formations: the Northern, Baltic, Pacific, and Black Sea fleets.
Some experts suggest the war games may be cover for an increasingly nervous Moscow's preparations to evacuate Russian citizens and their dependents from war-torn Syria.
About 9,000 Russians are registered with the Russian embassy in Damascus, but some experts say the full number may be 30,000 or more. Over the nearly half a century that Moscow has enjoyed good relations with Syria, thousands of Russian women have married Syrian men and moved to the country. Many of them may urgently demand to return with their children to Russia if the situation turns critical.
This week the Russian navy refreshed a fleet, including several huge amphibious assault ships capable of carrying thousands of people, which it had deployed to the eastern Mediterranean last summer.
Experts say the replacement fleet dispatched this week is of similar makeup, with at least five huge troop-transport ships at its core.
As part of Russia's 8-year, $659-billion rearmament program, the navy is slated to receive 50 new warships by 2016, including new Borey-class nuclear-powered ballistic-missile submarines – the third of which entered service last weekend – 18 major surface warships, and dozens of special purpose and support vessels.

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Taiwan undersea oil plans raise neighbors' eyebrows

Taiwan, a normally quiet claimant to portions of the disputed South China Sea, plans to explore for undersea oil there, a move likely to test fragile relations with China and upset major Southeast Asian nations.
Ringed by China, Vietnam, the Philippines, Indonesia and others, the waters are believed to hold as many as 213 billion barrels of oil but competing claims from the six bordering nations have fueled tensions, prompting US officials to step in last year to urge calm.
Taiwan’s Bureau of Mines and its top energy company plan to explore this year for some of that oil near an islet that the government holds in the Spratly archipelago, a spokesman for the company said.
Taiwan’s search for oil would remind five competing nations that it still has clout, despite old foe China. The more powerful Beijing forbids its allies around Asia from talking to Taipei and has its own ambitions in the disputed 3.5 million-square-kilometer (1.4 million-square-mile) sea.
“Taiwan seems to be seeking ways to remind other nations of its sovereignty claims,” says Bonnie Glaser, senior Asia adviser with the Washington-based think tank Center for Strategic and International Studies. “Taiwan doesn’t want to be ignored or forgotten.”
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China has considered self-ruled Taiwan part of its territory since the Chinese civil war of the 1940s, chilling ties until 2008 when the two sides put aside political differences to discuss trade and economic links.
But new incidents have challenged the fragile détente, and Taiwan is already angry about last year’s Chinese passports that claim two Taiwanese landmarks. Oil could be next, as Taiwan says it has no plans to share its search with China.
Vietnam and the Philippines also staked claims in the sea. Vessels from China and the Philippines were locked in a standoff last year, and 70 Vietnamese sailors died in a clash in 1988.
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But even as both countries periodically make what's thought of as aggressive moves in the region, both would stop short of forcing Taiwan out from the waters near Spratly where it already has an airstrip, analysts say. Too much bluster might push Taiwan closer to China, which wants more economic ties with Taiwan and which Southeast Asian claimants see as a bigger threat to their maritime interests.
“Lacking much naval power, Manila would have a hard time actually physically preventing any oil exploration by Taiwan,” says Scott Harold, associate political scientist at the RAND Corp., a policy research nonprofit in the United States.
“Hanoi would have a better prospect of reacting militarily, but any stand-off would potentially put them on the wrong side of both Washington and Beijing,” he says.
But much of the oil is already spoken for. China’s state-owned CNOOC Ltd. began drilling undersea last year, and its peer in Hanoi, PetroVietnam, has started surveying. The Philippines is also contracting out other exploration tracts.
Fellow claimant Malaysia currently produces about half the South China Sea’s oil, which is estimated at 1.3 million barrels per day. Brunei also claims parts of the ocean.
Taiwan’s Bureau of Mines will draw up a budget this year and hire CPC Corp. Taiwan to look for oil, CPC spokesman Chen Ming-hui says. Officials told parliament that exploration would cost at least $562,000.
Taiwan needs the oil as 99 percent of energy sources are now imported, Mr. Chen says. “The South China Sea is a place where Vietnam and others have sighted oil, so we think the opportunities there are good,” he says.

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Target ad campaign puts food in the spotlight

NEW YORK (AP) — Is Target's grocery aisle ready for its close up?
Target is pushing its food, laundry detergent and other groceries in a national ad campaign that pokes fun at high-fashion advertising by featuring models interacting with everyday products.
In one ad, a model in a white dress and high heels struts by blueberry muffin and cake mix boxes that explode in different colors. Then she crushes an egg with her hand.
"Dominate that PTA bake sale," a voiceover whispers. "The Everyday Collection. By Target."
The campaign is part of a larger move by Target, better known for its cheap-chic clothing and home goods, to focus more on its grocery-store aisle. Wal-Mart Stores Inc. and other Target competitors also have been expanding their selection of groceries to lure more customers into stores.
For its part, Target has been expanding its grocery selection, particularly with investments in its "P-Fresh" fresh-food section. Out of its 1,782 stores, about 1100 have an expanded fresh food layout and more than 250 have a full grocery store.
With that push complete, Target decided the time was right to put the focus on its groceries, but in a way that still plays on Target's fashion know how, said chief marketing officer Jeff Jones.
Target, with ad agency Mono in Minneapolis, created the tongue-in-cheek campaign that treats groceries and home products like fashion accessories in a photo shoot. Spending is undisclosed on the ad campaign, but it will include eight TV ads that will run throughout 2013. In addition to TV spots and newspaper inserts, it will include eight TV spots, three radio ads, and digital short films that will run as banner ads online.
One TV ad shows an $11.99 bottle of Tide laundry detergent and a model in a white dress dancing fancifully.
"We all yearn for something," says a voiceover as bubbles float by the model. "And that something is the other sock."
The campaign "creates a foil for what people are used to seeing for grocery advertising," said Jones. "It combines the design ethos and fashion creditability that Target has with the idea that it also has great grocery items at a great price."
Target's ad campaign comes as the retailer faces some challenges.
On Thursday, Target reported that revenue at stores open at least one year was flat in December — a key holiday sales period. The company, based in Minneapolis, blamed the decline in part on weakness in sales of merchandise such as furniture and electronics.
Target, which has been successful in the past by pairing up with upscale designers who create lines of products that it can sell for a limited time, also recently was dinged by bad publicity for its collaboration with posh retailer Neiman Marcus. The line debuted Dec. 1 and included 50 products from 24 designers, including a $70 Marc Jacobs scarf and a $500 Alice + Olivia bike.
But the merchandise was criticized for being too expensive, among other things, and all remaining items in that collection were marked down 70 percent off on Jan. 1. That's quite a reversal from its Missoni collection a year ago, which was so popular demand caused Target's Web site to crash.

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Stocks gain, pushing the S&P 500 to 5-year high

The Standard & Poor's 500 closed at its highest level in five years Friday after a report showed that hiring held up in December, giving stocks an early lift.
The S&P 500 finished up 7.10 points at 1,466.47, its highest close since December 2007.
The index began its descent from a record close of 1,565.15 in October 2007, as the early signs of the financial crisis began to emerge. The index bottomed out in March 2009 at 676.53 before staging a recovery that has seen it more than double in value and move to within 99 points of its all-time peak.
The remarkable recovery has come despite a halting recovery in the U.S. economy as the Federal Reserve provided huge support to the financial system, buying hundreds of billions of dollars' worth of bonds and holding benchmark interest rates near zero. Last month the Fed said it would keep rates low until the unemployment rate improved significantly.
"Without the Federal Reserve doing what they did for the last few years, there would be no way you'd be near any of these levels in the index," said Joe Saluzzi, co-head of equity trading at Themis Trading. "I would call this the Fed-levitating market."
The Dow Jones industrial average finished 43.85 points higher at 13,435.21. It gained 3.8 percent for the week, its biggest weekly advance since June. The Nasdaq closed up 1.09 point at 3,101.66.
Stocks have surged this week after lawmakers passed a bill to avoid a combination of government spending cuts and tax increases that have come to be known as the "fiscal cliff." The law passed late Tuesday night averted that outcome, which could have pushed the economy back into recession.
The Labor Department said U.S. employers added 155,000 jobs in December, showing that hiring held up during the tense fiscal negotiations in Washington. It also said hiring was stronger in November than first thought. The unemployment rate held steady at 7.8 percent.
The jobs report failed to give stocks more of a boost because the number of jobs was exactly in line with analysts' forecasts, said JJ Kinahan, chief derivatives trader for TD Ameritrade.
"The jobs report couldn't have been more in line," Kinahan said. "The market had more to lose than to gain from it."
Among stocks making big moves, Eli Lilly and Co. jumped $1.84, or 3.7 percent, to $51.56 after saying that its earnings will grow more than Wall Street expects, even though the drugmaker will lose U.S. patent protection for two more product types this year.
Walgreen Co., the nation's largest drugstore chain, fell 61 cents, or 1.6 percent, to $37.18 after the company said that a measure of revenue fell more than analysts had expected in December, even as prescription counts continued to recover.
Stocks may also be benefiting as investors adjust their portfolios to favor stocks over bonds, said TD Ameritrade's Kinahan. A multi-year rally in bonds has pushed up prices for the securities and reduced the yield that they offer, in many cases to levels below company dividends.
Goldman Sachs reaffirmed its view that stocks "can be an attractive source of income," and warned that there is a risk that bonds may fall. In a note to clients, the investment bank said that an index of AAA rated corporate bonds offers a yield of just 1.6 percent, less than the S&P 500's dividend yield of 2.2 percent.
The 10-year Treasury note fell, pushing its yield higher. The yield on the 10-year note fell 2 basis points to 1.91 percent. The note's yield has now climbed 52 basis points since falling to its lowest in at least 20 years in July.
Other notable stock moves;
— Accuray Inc. plunged $1.37, or 20 percent, to $5.41 after the radiation oncology equipment company reported weak sales and said it would cut 13 percent of its staff.
— Lululemon, a yoga apparel maker, dropped $3.14, or 4.2 percent, to $71.95 after Credit Suisse predicted slowing momentum and downgraded its stock.
— Finish Line Inc., an athletic footwear and clothing company, fell $1.58, or 8.3 percent, to $17.18 after it reported a small loss after sneaker trends changed and customers didn't take to its new web site launched in November. Analysts had forecast a profit.

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US job market shrugs off fears of 'fiscal cliff'

WASHINGTON (AP) — The U.S. job market proved resilient in December despite fears that a budget impasse in Washington would send the economy over the fiscal cliff and trigger growth-killing tax hikes and spending cuts.
Employers added 155,000 jobs last month, roughly matching the solid but unspectacular monthly pace of the past two years.
The gains announced Friday weren't enough to reduce unemployment, which remained a still-high 7.8 percent. The November rate was revised up a notch from the 7.7 percent the government had originally reported.
The stable pace of December hiring suggested that many employers tuned out the fracas in the nation's capital. The threat wasn't averted until a deal won final passage on New Year's Day.
Rather than hold back until the fiscal cliff was resolved, many employers kept hiring, most likely in anticipation of higher customer demand.
"What would hiring have been if we had not been facing the fiscal cliff in December?" said Robert Kavcic, senior economist at BMO Capital Markets. "We might have seen quite a bit stronger job growth" — something closer to 200,000 a month.
That's an encouraging sign for the job market, because an even bigger budget showdown is looming: Congress must vote to raise the government's $16.4 trillion borrowing limit by late February. If not, the government risks defaulting on its debt. Republicans will likely demand deep spending cuts as the price of raising the debt limit.
Robust hiring in construction and manufacturing drove last month's job increases. Construction firms added 30,000 jobs, the most in 15 months. In part, that increase likely reflected hiring needed to rebuild from Superstorm Sandy. And the housing market's gradual recovery has energized homebuilding. Manufacturers added 25,000 jobs, the most in nine months.
Economists found other hopeful news in the report. Americans were given more work hours in December — an average 34.5 hours a week in December, up from 34.4 in November. And their pay outgrew inflation. Hourly wages rose 7 cents to $23.73 last month, a 2.1 percent increase compared with a year earlier. Over the same period, inflation rose 1.8 percent.
"Perhaps (the) underlying economic performance is accelerating, and even Washington can't screw it up," said Dan Greenhaus, chief global strategist at BTIG.
One company that hired last year and would like to add more jobs in 2013 is Arteriocyte, a Cleveland-based stem-cell therapy and medical device company. But CEO Don Brown is concerned about potential cuts in government spending, which he says could erode Arteriocyte's revenue.
One such cut is a 2 percent reduction in the reimbursements Medicare gives doctors and hospitals. That reduction was delayed by the budget deal reached this week. If the reimbursement cut is imposed later this year, it would lower revenue for the hospitals and surgeons that buy Arteriocyte's advanced products.
"Our entire customer base is unsure about what their reimbursement landscape is going to be," Brown said.
The Obama administration's health care reform law also imposed a 2.2 percent sales tax on medical devices. Brown estimates that will cost his company $400,000. He had hoped the tax would be eliminated as part of a fiscal cliff agreement.
Arteriocyte hired 10 workers last year and now employs 76. The new hires included research scientists, two marketing specialists and a sales representative. Brown hopes to make five to 10 additional hires this year, but he might be unable to do so if the Medicare cut takes effect.
Despite last month's hiring gains, Friday's report pointed to some weakness in the job market. For example, the number of unemployed actually rose 164,000 to 12.2 million. About 192,000 people entered the work force last month, but most did not find jobs.
The unemployment numbers come from a government survey of households. The number of jobs added comes from a separate survey of businesses.
A broader category that includes not only the unemployed but also part-time workers who want full-time jobs and people who have given up looking for work was unchanged in December at 22.7 million.
The government revised up its estimates of job growth for October and November by 14,000 jobs. October's job increases were revised down from 138,000 to 137,000 but November's were revised up from 146,000 to 161,000.
Economists said the pace of hiring almost certainly isn't strong enough to lead the Federal Reserve to cut short its bond-buying program. The Fed is spending $85 billion a month on bond purchases to try to drive down long-term borrowing costs and stimulate economic growth.
The job market is being held back by government cutbacks. Governments at all levels cut 13,000 jobs in December. Since the Great Recession ended in mid-2009, governments have eliminated 645,000 jobs — an average of nearly 15,400 a month.
By contrast, during the recoveries from the recessions of 1990-1991 and 2001, governments added an average of more than 15,000 jobs a month. If governments were hiring at that pace instead of slashing payrolls, the U.S economy would be generating more than 180,000 jobs a month.
Instead, for two full years, monthly job growth has remained stuck at a tepid pace: It averaged 153,000 in both 2011 and 2012. That isn't enough to lower unemployment to what economists regard as a "normal" rate of 6 percent or less. The Federal Reserve doesn't expect unemployment to drop that low until after 2015.
The economy has replaced just 4.8 million, or 54 percent, of the 8.8 million jobs lost between January 2008, when the job market peaked, and February 2010, when it bottomed during the recession. It has been, by far, the weakest jobs recovery since the Great Depression of the 1930s.
"A status quo report in today's labor market represents an ongoing jobs crisis," says Heidi Shierholz, an economist at the liberal Economic Policy Institute.
Still, the economy has been showing broad improvement. Layoffs are down. Banks are lending a bit more freely. Companies have built up a near-record $1.7 trillion in cash. Consumers have cut their debts to pre-recession levels. Europe has avoided a financial catastrophe.
The once-depressed housing market is rebounding. A gauge of U.S. service firms' business activity expanded in December by the most in nearly a year. Manufacturing is benefiting from the best auto sales in five years. And Americans spent more at the end of the crucial holiday shopping season.
"There is little doubt that the seeds of faster growth are being planted," James Marple, an economist at TD Bank, said in a note to clients.
That said, most economists expect slight improvement at best in hiring this year. A 2 percentage point cut in the Social Security tax expired Jan. 1. That means a household with income of about $50,000 will have about $1,000 less to spend. A household with two high-paid workers will have up to $4,500 less.
And the government may impose spending cuts this year.
Higher taxes and less government spending, along with uncertainty about future budget fights, could restrain growth and hiring.
That "likely means acceleration in the labor market will remain elusive for the time being," said Ellen Zentner, an economist at Nomura Securities.

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Red Hat shares up on acquisition and 3Q results

Red Hat Inc.'s shares jumped Friday on the software company's solid third-quarter results and plans to acquire cloud-based software company ManageIQ.
THE SPARK: Red Hat said late Thursday that it would buy privately held ManageIQ for $104 million in cash.
The Raleigh, N.C., company also reported that it earned 29 cents per share for its fiscal third quarter on an adjusted basis, up a penny from the prior year and in line with analyst expectations. Its revenue for the period increased 18 percent to $343.6 million, which beats the $338 million that analysts polled by FactSet had forecast.
THE BIG PICTURE: ManageIQ's software helps businesses deploy and manage private clouds. Red Hat said the deal will expand the reach of its public-private cloud setups for its customers. The acquisition is expected to have no material impact to Red Hat's revenue for its fiscal year ending in February.
THE ANALYSIS: Stifel Nicolaus analyst Brad R. Reback said that the company has been able to maintain momentum even in a difficult environment and he thinks the latest deal offers an interesting longer-term angle for its business. He thinks the company is well positioned to generate at least 15 to 20 percent billings growth in the future. He reiterated a "Buy" rating and a $65 price target on its shares.
SHARE ACTION: Shares gained $2.25, or more than 4 percent, to $54.86 in afternoon trading. Shares have traded between $39.19 and $62.75 in the past 52 weeks.

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