Wall Street rebounded Tuesday after the Abu Dhabi Investment Authority said it will invest $7.5 billion in Citigroup Inc. — a vote of confidence for the nation’s largest bank, which has suffered severe losses amid the ongoing crisis in the mortgage market. The Dow Jones industrials rose more than 150 points.

The banking industry has been battered in recent months as defaults on home loans have risen and rendered some mortgage-backed securities essentially worthless. Major financial institutions, including Citi and its competitors, have had to book some $80 billion of writedowns on those holdings — a trend that has left the markets nervous about the full extent of the damage.

“The Citi deal is certainly a relief after a series of negative news on Monday with respect to the financials,” said Todd Salamone, director of trading at Schaeffer’s Investment Research. “Sovereign wealth funds that have plenty of cash may be viewed as a potential rescuer given the balance sheet troubles the banks are having. A weak dollar makes it that much more possible.”

Investors were relieved that Citi was able to secure an injection of capital, and that others might be able to do the same. Concerns about further writedowns caused the Dow to fall 240 points Monday, bringing the blue chip index, along with the Standard & Poor’s 500 index, down 10 percent from recent highs, a decline that signifies a correction.

Still, the market showed some vulnerability to anyone raising the specter of a sagging economy.

Charles Plosser, president of the Federal Reserve Bank of Philadelphia, said he won’t be surprised if U.S. economic data over coming months is weak, and warned that recent central bank rate cuts have increased the risk of higher inflation. Meanwhile, Federal Reserve Bank of Chicago head Charles Evans said in a speech that further turmoil in financial markets could cut into business investment and curb consumer spending on big-ticket items.

Their comments helped erode some of the day’s gains. The Dow rose 150.54, or 1.18 percent, to 12,883.98 after being up nearly 250 points earlier in the session.

Broader stock indexes also moved higher, with the S&P 500 index up 9.39, or 0.67 percent, at 1,416.61, and the Nasdaq composite index up 23.36, or 0.92 percent, at 2,564.35.

The seesaw trading so far this week is typical of what investors have seen for months. The market has been erratic as investors have struggled with and tried to overcome concerns about the banking sector, the credit markets, consumer spending, energy prices and the overall economy.

A pullback in oil prices aided the market’s gains. A barrel of light, sweet crude dropped $3.28 to $94.42 on the New York Mercantile Exchange on expectations that the Organization for Petroleum Exporting Countries will raise production at its Dec. 5 meeting.

Government bond prices fell. The yield on the 10-year Treasury note jumped to 3.94 percent from 3.85 percent late Monday. Gold prices fell as the dollar rebounded.

Abu Dhabi’s purchase of a stake in Citigroup will make the city-state one of the bank’s largest shareholders. Sheik Ahmed Bin Zayed Al Nahayan called Citi “a premier brand and with tremendous opportunities for growth.” Citigroup shares rose 17 cents to $29.97.

Standard & Poor’s said it expects Morgan Stanley will take a $4.2 billion charge, up from an earlier $3.7 billion estimate and projected Merrill will write down 25 percent to 30 percent of its $21 billion of such assets in the fourth quarter. The brokerages’ shares continued to rally with other financial stocks.

Still, Morgan Stanley shares jumped 99 cents to $48.97, while Merrill shares added 52 cents to $51.75.

Brokerage shares were somewhat under pressure after Standard & Poor’s downgraded Morgan Stanley and Merrill Lynch & Co. to “sell,” saying that further deterioration in the mortgage securities market has added to pressure on the value of the investment banks’ asset-backed securities. But that news did little to faze the market’s enthusiasm.

“While these announcements from the financial industry are continuing to unsettle investors, the lower dollar has put the U.S. in the position of being for sale at attractive prices, so Abu Dhabi can come along and buy an interest in Citi,” said A.C. Moore, chief investment strategist for Dunvegan Associates in Santa Barbara, Calif. “Anytime you have corporate action, that’s one of the strong bull arguments” for stocks.

The market showed little reaction to a report from the Conference Board that its Consumer Confidence Index dropped to its lowest point since October 2005. The index fell to 87.3 for November, down almost 8 points from the revised 95.2 during October — and below analyst expectations for a reading of 91.5.

Staples Inc., the world’s largest office products supplier, said third-quarter profit fell 5 percent due to lower sales at stores open at least one year, or same-store sales, and costs from a legal settlement. Excluding the settlement charge, earnings topped Wall Street expectations — and shares surged $2.04, or 10.3 percent, to $21.81.

Activision Inc. jumped $2.21, or 11.7 percent, to $21.14 after the video game maker reported strong Thanksgiving weekend sales and raised its fiscal third-quarter and full-year profit and sales forecasts beyond Wall Street’s expectations. The company said sales of “Guitar Hero III: Legends of Rock” and “Call of Duty 4: Modern Warfare” were particularly brisk.

Pulte Homes Inc. shares slipped 33 cents to $8.82 after it said late Monday that housing demand remains weak and inventories high but the homebuilder reaffirmed its fourth-quarter forecast. The company expects to break even or earn as much as 10 cents per share.

The Russell 2000 index of smaller companies rose 2.64, or 0.36 percent, to 737.71.

Advancing issues outpaced decliners by nearly 3 to 2 on the New York Stock Exchange, where volume came to 1.07 billion shares.

Overseas stock markets ended mixed. Britain’s FTSE 100 fell 0.64 percent; Germany’s DAX index lost 0.48 percent and France’s CAC-40 declined 0.44 percent. In Asia, Japan’s Nikkei stock average closed up 0.58 percent. Hong Kong’s Hang Seng index fell 1.51 percent.

AP

The yen traded near a 1 1/2-year high against the dollar as credit-market losses caused investors to sell higher-yielding assets funded by loans in Japan.The currency gained the most versus the Australian dollar and the South Korean won as a decline in Asian stocks reduced confidence in the so-called carry trade. The yen strengthened against the euro on speculation subprime-mortgage losses will erode earnings at companies in Europe, making it harder for the European Central Bank to raise interest rates.

“Subprime fallout is gradually getting worse and could continue until early next year,” said Akifumi Uchida, Tokyo- based deputy general manager of the marketing unit at Sumitomo Trust & Banking Co., Japan’s fifth-largest publicly traded lender. “Traders are likely to continue buying the yen as they reverse carry trades.”

The yen traded at 109.70 per dollar at 12:25 p.m. in Tokyo from 109.76 late in New York yesterday. It rose to 109.13 per dollar on Nov. 12, the strongest since May 2006, and may advance to 105 against the dollar and 155 per euro this month, Uchida forecast. Japan’s currency traded at 160.67 a euro from 160.95 yesterday. The dollar was at $1.4644 per euro from $1.4665.

The yen rose against 12 of the 16 most-active currencies after Goldman Sachs Group Inc. said in a report that Citigroup Inc., the largest U.S. bank by assets, may write down $15 billion in collateralized debt obligations over the next two quarters. It gained to 96.28 to the Australian dollar from 97.04 yesterday in New York.

Against Asian currencies, the yen climbed 1.3 percent to 8.4357 won from 8.3288, advanced 1.1 percent to 75.47 versus Singapore’s dollar and gained 0.8 percent to 3.385 to Taiwan’s dollar. The Morgan Stanley Capital International Asia Pacific Index of regional shares fell 2.5 percent.

Regional Stocks

The euro fell against 10 of the world’s 16 most-actively traded currencies after Swiss Reinsurance Co. said yesterday it made a 1.2 billion-franc ($1.08 billion) loss related to the collapse of the U.S. subprime-mortgage market.

“Concern over further losses ahead are not all behind us,” said Sean Callow, senior currency strategist in Singapore at Westpac Banking Corp., Australia’s fourth-largest lender. “The sentiment is that the credit-market story is a problem for both the euro and the dollar.”

The euro may move between $1.4520 and $1.4750 and between 158.70 yen and 164.50 yen this week, Callow forecast. The ECB said in its monthly report published last week it needs more information on the economic impact of rising credit costs before deciding whether to increase its benchmark 4 percent interest rate again.

Carry Trades

The yen has strengthened against all 16 most-traded currencies this month, gaining 11.9 percent versus Australia’s dollar and 8.4 percent against New Zealand’s.

In carry trades, investors borrow money in low-yielding economies such as Japan and lend the funds in high-yielding countries to profit from the spread. The risk is that currency moves wipe out their earnings.

Japan’s benchmark rate is 0.5 percent, the lowest among industrialized nations. The key rate in Australia is 6.75 percent while New Zealand’s is 8.25 percent.

One-month implied volatility for the yen rose to 13.60 percent today, from 13.20 percent yesterday. Dealers quote implied volatility, a gauge of expectations for currency moves, as part of pricing options. Higher volatility may discourage carry trades.

U.S. Housing Starts

Demand for the dollar may weaken as economists forecast a government report today will show U.S. housing starts dropped to a 14-year low in October.

The dollar has lost 9.9 percent against the euro and 7.8 percent versus the yen this year as two rate cuts by the Federal Reserve dimmed the allure of U.S. assets. It weakened to an all- time low of $1.4752 per euro on Nov. 9.

The yield advantage of U.S. two-year Treasuries over similar-maturity Japanese government debt shrank to 2.41 percentage points, the narrowest since October 2004, making U.S. assets less attractive to international investors.

Today’s Commerce Department report will show housing starts fell to an annualized rate of 1.17 million in October, from 1.19 million during September, according to a Bloomberg News survey. The data are due for release at 8:30 a.m. Washington time.

The Fed is scheduled to issue the minutes from its Oct. 31 meeting at 2 p.m. The central bank is also expected to release quarterly forecasts for the economy and inflation.

`Hard to Buy’

“The dollar is hard to buy,” said Motonari Ogawa, vice president for interest-rate products and foreign exchange in Tokyo at Morgan Stanley, the world’s second-biggest securities firm. “The markets are fixated on today’s U.S. housing data and FOMC minutes. Overseas investors will actively respond to them.”

The U.S. currency may fall to 109.40 yen today, Ogawa said.

Futures traded on the Chicago Board of Trade show the odds of the U.S. central bank cutting rates a quarter-percentage point to 4.25 percent on Dec. 11 are 96 percent, up from 72 percent a month ago.

Bloomberg

Many programs offer to bail you out of an impending mortgage rate increase. Do any really help?Major considerations: Often, these programs require counseling sessions, which may take too long if you’re in a loan due to reset soon. Some have special requirements, which may disqualify you. You first may have to negotiate with your lender, who may or may not help. The loan terms for which you qualify may be unattractive. Also, investment property or non-owner-occupied property may be excluded.

So where can you turn if your adjustable-rate mortgage rate is resetting to be assured of fast help?

FHASecure, the program recently announced by President George Bush, may be about the first to get borrowers, at risk of foreclosure, into a new loan fast.

As of last week, 35 FHASecure loans had been originated, and Countrywide Financial had started offering the program. Offices of First Horizon Home Loans, an affiliate of First Horizon National Corp., Memphis, were gearing up to launch FHASecure. Learn more at www.fha.gov.

FHASecure aims to get your loan payments back to around what they were before the loan rate reset, says Bill Glavin, the U.S. Housing and Urban Development’s special assistant to the federal housing commissioner. The program has strict rules, which generally are the same as for a traditional Federal Housing Administration mortgage.

The chief difference: For FHASecure, you must be delinquent on your mortgage for 30 days due specifically to a rate reset. You also must have made at least six consecutive payments on time prior to the reset.

Catches: You can’t use this loan to refinance an FHA loan. Much like FHA loans for low-down-payment borrowers, you generally must have 3% equity in your home. Also, loan limits vary by geographic region — to a maximum $362,790.

Some lenders, Glavin says, may issue this type of loan even with a bankruptcy.

Nonprofit help

Can’t qualify for FHASecure? The Neighborhood Assistance Corporation of America (NACA), Boston, on Oct. 1 was touting a 5.625% rate on a 30-year fixed-rate mortgage for refinances in many areas. NACA is a Boston-based nonprofit IRS 501 (c) 4 social action organization and mortgage broker.

So far, the organization — at http://www.naca.com/index.html — has $1 billion, obtained from large banks, specifically to refinance predatory loans. There are no down-payment requirements, points, closing costs, fees or credit score considerations.

To qualify, however, you must have a predatory interest rate, currently at least 10%, or the home must be in need of substantial repairs. You must have had your mortgage at least two years. It must be based where the program is available and meet specific maximum regional purchase price limits.

You can’t be using loans to pay for living expenses, and all properties must have a thorough home inspection and termite inspection. If applicable, a septic inspection may be required.

The attractively priced loan requires a $50 monthly fee toward a “Membership Assistance Program,” once you get the loan. That money, says Bruce Marks, CEO, funds free counseling and short-term financial assistance for up to three mortgage payments in case you can’t make monthly payments. The $50 fee must be paid monthly for five to 10 years, depending upon the amount borrowed.

There also is a $20 annual fee per household to join the advocacy group once counseling actually starts. Based on a $200,000 loan, your monthly payment — even with added NACA fees — would be about $80 less at that program’s 5.625% rate than with the going average 6.66% 30-year fixed-rate mortgage rate, according to HSH.com.

Major catch: Refinancing through NACA is not guaranteed after you apply. It’s one solution that may arise from a mandated counseling session. Other potential solutions: Restructuring the loan with the lender or working out a payment plan so the borrower gets current.

“We would look to see what is the most appropriate action,” Marks says.

What to watch out for

More national lenders need to step up to the plate to refinance loans on more attractive terms, says Kate Crawford, consumer protection chairwoman for the National Association of Mortgage Brokers.

When considering a refinancing program, Crawford suggests taking these steps:

• If counseling is a requirement and a loan reset imminent, get a commitment upfront on how long the counseling session will take.
• Get a good-faith estimate of all costs before you apply.
• Always make a payment on your mortgage — even if you’re behind.
• Refinance only with a fixed-rate mortgage.
• If you’ve already made payments, try to get a loan equal to the term remaining. However, if payment relief is critical, you may have no other option than to obtain a longer-term loan.
• Avoid prepayment penalties.
• Carefully shop different lenders for rates, points, costs and other terms. They often vary — even on government programs.
• Avoid special programs in which monthly payments may change, based on income.

Yahoo! Finance

Consumer inflation posted another elevated reading in October as energy prices shot up by the fastest pace in five months.

The Labor Department reported Thursday that its Consumer Price Index rose by 0.3 percent last month, the second straight month with inflation at that level. The acceleration was occurring because of another jump in energy prices and continued increases in food costs.

Meanwhile, the government said that the number of laid off workers filing claims for unemployment benefits rose by 20,000 last week to 339,000, the highest level in four weeks. Labor Department analysts said the California wildfires boosted the number of jobless claims by about 2,000 and the writer’s strike, which has shut down production on many television programs, was also having an impact.

Core inflation, which excludes energy and food, continued to rise at a more moderate rate, rising by 0.2 percent in October, the fifth straight month at that level.

Before the back-to-back 0.3 percent gains in overall prices, consumer inflation had actually fallen by 0.1 percent in August and risen by just 0.1 percent in July.

So far this year, consumer prices are rising at an annual rate of 3.6 percent, up by more than a full percentage point from the 2.5 percent increase for all of 2006.

The economy is being buffeted by a steep downturn in housing, turbulence in financial markets and falling consumer confidence, raising fears that the country could dip into a recession in coming months.

Wall Street is hoping that the Federal Reserve, which has already cut interest rates twice, will reduce rates further to keep the economy’s problems from triggering a downturn.

But Federal Reserve Chairman Ben Bernanke told Congress’ Joint Economic Committee last week that the central bank believes that risks are roughly balanced at the current time between inflation and weaker growth, a comment that was viewed as a signal to markets not to count on further rate cuts.

For October, energy prices shot up by 1.4 percent, the biggest jump since a 5.4 percent rise in May. Consumers got a break in the summer with three straight monthly declines in energy costs. However, analysts said that further price increases are likely in coming months, reflecting the fact that crude oil prices last week surged to record levels, trading at one point above $98 per barrel.

Gasoline prices were up 1.4 percent in October, the largest jump since a 10.5 percent rise in May.

A gallon of unleaded gasoline hit a nationwide average of $3.11 on Wednesday, according to AAA and Oil Price Information Service. That was up from $2.78 a month ago and compared to an all-time record of $3.23 per gallon set in May.

So far this year, energy prices are rising at an annual rate of 12.3 percent, compared to a 2.9 percent increase for all of 2006.

Food costs rose by 0.3 percent in October and are up 5.5 percent at an annual rate so far this year, more than double the 2.1 percent rise for all of 2006. That price acceleration is blamed in part on higher demand for ethanol, which has pushed up the cost of corn and other food products.

Outside food and energy, core inflation is rising at an annual rate of 2.3 percent so far this year, a slight moderation from the 2.6 percent gain of 2006. The Fed plays close attention to core inflation, believing it provides a better reflection of underlying inflation pressures.

Airline ticket prices were up 1.6 percent in October but the cost of new cars fell by 0.2 percent.

Clothing prices, which have been falling for much of this year, showed no change in October.

Medical care, one of the areas where inflation is rising at the fastest pace, posted another big jump of 0.6 percent in October and is up 4.8 percent over the past 12 months.

AP

House Democrats on Friday pushed through an $80 billion bill to block the spread of a dreaded tax on middle-income people. The White House and Republicans, protesting tax increases in the bill affecting mainly investment fund managers, maintained that it would never become law.

The 216-193 vote to “patch” the alternative minimum tax for a year sends the issue to the Senate, where its prospects are at best uncertain. Not one House Republican voted for it.

What is certain is that if Congress and the White House do not reach a compromise by the end of the year, anywhere from 21 million to 25 million middle-income taxpayers will be hit by the AMT, costing them as much as $2,000 in extra taxes.

The AMT was created in 1969 to ensure that a very small number of wealthy people could not use tax breaks or deductions to avoid paying any taxes. But it was never indexed for inflation, and every year the AMT draws in more middle-income taxpayers. This year some 4 million people were subject to the tax.

Congress has recently responded with annual fixes or patches to limit those affected by the tax while searching for a way to eliminate it. House Ways and Means Committee Chairman Charles Rangel, D-N.Y., last month outlined a plan to repeal the AMT, at a cost of $831 billion over 10 years, but acknowledged that action on his proposal is a long way off.

Friday’s bill would extend AMT relief for one year, at a cost of about $51 billion. It includes another $30 billion in largely popular tax relief measures, including expanding the child tax credit, providing a property tax deduction to some 30 million families and extending a tax exemption for the combat pay of military personnel.

It extends several dozen targeted tax breaks due to expire at the end of the year, including a deduction for college tuition, a deduction for teachers’ out-of-pocket expenses and deductions for residents of states that do not have income taxes. Others benefit winemakers, employers of Katrina victims, contributors to charities and state lawmakers.

The controversies come over some $80 billion in new tax revenues required under House Democratic rules that tax cuts or spending increases be offset so that the federal deficit does not grow.

The bill, said House Speaker Nancy Pelosi, will enable Congress “to plant a flag for fiscal responsibility.”

But anti-tax Republicans said the AMT was a mistake and thus offsets were unneeded. “What absolute lunacy,” said Rep. David Dreier, R-Calif., “paying for a tax that was never intended.”

The bill would bring in $25 billion over 10 years by taxing so-called “carried interest” as ordinary income. Critics say that it is unfair that private equity managers pay the 15 percent capital gains rate on profits from fees or services instead of the ordinary income tax rate of 35 percent for high earners.

Democrats argued that 23 million people in danger of getting hit by the AMT would be protected by tax changes affecting some 50,000 people earning carried interest.

But changing this tax rule, as well as others affecting corporate transactions, “would undermine the competitiveness of U.S. businesses in the global economy and could have adverse effects on the U.S. economy,” the White House said in a statement warning of a presidential veto if the House bill clears Congress.

Some pro-business Democrats joined Republicans in expressing concern that the carried interest provision could hurt venture capital and real estate investors as well as hedge fund managers making hundreds of millions of dollars.

Senate Finance Committee Chairman Max Baucus, D-Mont., plans to put together what he says will be a fiscally responsible Senate version of the AMT after the House vote, but has not committed to any specific tax raisers. Under Senate filibuster rules, Republicans have the votes to kill any bill with tax increases.

“Congress can and must stop this middle class tax hike before Thanksgiving — without raising taxes,” Senate Republican leader Mitch McConnell of Kentucky said Friday.

But Pelosi said that “we have an understanding with the Senate that this legislation, in order to go forward, must be paid for.”

“Raising revenues takes political courage,” said House Majority Leader Steny Hoyer, D-Md. “There is no courage whatsoever in plunging our country into debt, spending and not paying.”

The Internal Revenue Service has warned that delays in passing an AMT fix bill, because of House-Senate differences or a presidential veto, could have immediate repercussions for next year’s tax-filing season. The IRS says it is now preparing forms for next year and ambiguity about the fate of the AMT could delay processing of returns for as many as 50 million taxpayers and delay issuing of about $75 billion in refunds.

The White House also said language in the bill to terminate an IRS program farming out delinquency cases to private debt collectors would subject it to a veto.

AP