AP Business Highlights

Food and gas costs push consumer prices higher

WASHINGTON -- Americans are paying more for food and gas, a trend that threatens to slow the economy at a crucial time.

So far, the spike in such necessities hasn't stopped businesses from stepping up hiring or slowed factory production, which rose in March for the ninth straight month. Still, higher gas prices have led some economists to lower their forecasts for growth for the January-March quarter.

Consumer prices rose 0.5 percent last month, the Labor Department said Friday. Nearly all of the gains came from pricier gas and food.

When taking out those two volatile categories, core inflation was relatively flat. But at the same time, employees are only seeing small, if any, pay increases. How big the economic impact will be is the critical question. Many analysts expect food prices will come down and oil prices will stabilize by summer. If companies continue to create jobs, consumer spending will rise faster. That would give the economy a boost by fall.

Factories boost output for 9th straight month

WASHINGTON -- U.S. factories produced more consumer goods, business equipment and raw materials in March, boosting manufacturing activity for the ninth straight month.

Output at the nation's factories, mines and utilities increased 0.8 percent last month after edging up 0.1 percent in February, the Federal Reserve said Friday. February's results were dragged down by a weather-related drop in utility production.

Factory production, the largest single segment of industrial production, increased 0.7 percent last month. Manufacturing has been a key driver of economic growth since the recession ended. That continued last month, even with supply chain disruptions stemming from the crisis in Japan. Overall industrial production has risen about 12 percent since its recession-low in June 2009. It is still about 7 percent below its pre-recession peak, reached in September 2007.

China trims holdings of US securities in February

WASHINGTON -- China, the biggest buyer of U.S. Treasury securities, trimmed its holdings for a fourth straight month in February. Japan boosted its holdings one month before a devastating earthquake hit the country.

Total foreign holdings increased 0.5 percent to $4.47 trillion. However, as the government moves closer to the $14.3 trillion debt limit, it will have to scale back sales unless Congress moves to raise the limit.

China cut its holdings by $600 million to $1.15 trillion, the Treasury Department reported Friday. Japan, the second-largest foreign holder, boosted its holdings by $4.4 billion to $890.3 billion. There have been concerns that the March earthquake and tsunami may cause Japan to scale back its purchases in order to use the money for reconstruction.

IRS paid $513 million in undeserved homebuyer tax credits

WASHINGTON (AP) -- The Internal Revenue Service paid out more than a half-billion dollars in homebuyer tax credits to people who probably didn't qualify, a government investigator said Friday.

Most of the money -- about $326 million -- went to more than 47,000 taxpayers who didn't qualify as first-time homebuyers because there was evidence they had already owned homes, said the report by J. Russell George, the Treasury inspector general for tax administration. Other credits went to prison inmates, taxpayers who bought homes before the credit was enacted and people who did not actually buy homes.

BofA finds it hard to shake off mortgage troubles

NEW YORK (AP) -- Bank of America Corp. is still trying to shake off troubles arising from mortgages written during the housing bubble.

Higher fees from battling lawsuits and costs related to its mortgage business led to a 39 percent decline in BofA's first-quarter earnings, the bank announced Friday. It wasn't what investors wanted to hear, since just three months ago the bank announced several big charges and settlements that seemed to resolve many of its mortgage problems.

Brian Moynihan, CEO of Bank of America, tried to cast his bank's results in a positive light. "All the businesses have moved back to profitability except our mortgage business," he said in a conference call with analysts. BofA's Merrill Lynch division set records for revenue, asset management fees and brokerage income.

As the largest U.S. bank serving about half of the nation's households, Bank of America also provides a snapshot for the health of the American consumer and the overall economy. The bank said the number of customers who were late on their credit card payments by 30 days or more fell to near all-time lows in the first quarter. It was the sixth straight quarterly decline.

Bratz lawsuit takes toll on Mattel profit

NEW YORK (AP) -- Sales of Barbie helped Mattel Inc.'s revenue rise 8 percent during the first quarter. But higher costs for its lawsuit over the Bratz dolls and other expenses sent net income down 33 percent.

Still, results for the quarter, which is a small one for toy makers because it follows the crucial holiday quarter, were higher than analysts expected. Shares rose 5 percent to a 52-week high during trading.

Mattel, the largest U.S. toymaker, is gearing up for a heavy movie tie-in summer, with toy lines tied into Disney/Pixar's "Cars 2" due out June 24 and "Green Lantern," Warner Brothers' new superhero franchise out June 17. Expectations are particularly high for "Cars 2" because the "Cars" line has been a strong seller for Mattel despite having no new movie since the original in 2006.

"Cars 2" action figures and new track sets are expected to be on toy shelves in mid-May.

Merck, J&J reach deal to end drug rights dispute

WHITEHOUSE STATION, N.J. (AP) -- Drugmakers Merck and Johnson & Johnson said they've reached a deal to end a multibillion dollar arbitration dispute over rights to two lucrative drugs for immune disorders.

Merck & Co. will pay J&J $500 million, and the companies will amend a previous agreement to divide distribution rights outside the United States for Remicade and successor drug Simponi, which treat chronic inflammatory diseases like rheumatoid arthritis.

Honda adds 2 weeks to factory slowdowns; Toyota to keep limited Japan output May 10-June 3

DETROIT (AP) -- Honda Motor Co. will slow down production at its 11 North American factories into at least early May because it's running short of parts made by earthquake-damaged factories in Japan.

The company said Friday that it's extending the cuts through May 6, and it expects more disruptions after that.

Separately, Toyota Motor Corp. said it will maintain output at half capacity in Japan from May 10 to June 3 amid a supply crunch following the March tsunami disaster. The world's No. 1 automaker said it still remains unclear when the company will return to full production in Japan. Toyota spokeswoman Shiori Hashimoto said the company was struggling to secure around 150 types of auto parts.

By The Associated Press(equals)

The Dow Jones industrial average rose 56.68 points, or 0.5 percent, to 12,341.83. The Standard & Poor's 500 index rose 5.16 points, or 0.4 percent, to 1,319.68.

The Nasdaq composite gained 4.43, or 0.2 percent, to 2,764.65.

Benchmark West Texas Intermediate crude for May delivery rose $1.55 to settle at $109.66 per barrel on the New York Mercantile Exchange. At one point it rose to $110.10. In London, Brent crude added $1.45 to settle at $123.45 per barrel on the ICE Futures exchange.

In other Nymex trading for May contracts, heating oil rose 3.52 cents to settle at $3.2242 per gallon and gasoline gained 5.45 cents to settle at $3.2892 per gallon. Natural gas gave up 0.8 cent to settle at $4.204 per 1,000 cubic feet.

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