AP
Financial crisis posing major challenge
Friday August 22, 7:29 pm ET

Fed Chairman Bernanke says financial crisis posing major challenge

Bernanke: Financial crisis taking toll on economy

JACKSON, Wyo. (AP) -- Federal Reserve Chairman Ben Bernanke said Friday the financial crisis that has pounded the country -- coupled with higher inflation -- is taking a toll on the economy and poses a major challenge to Fed policymakers as they try to restore stability.

While Bernanke welcomed the recent drops in oil and other commodities' prices, and believes inflation will moderate this year and next, the Fed chief also warned the inflation outlook remains highly uncertain. The Fed, he said, would monitor the situation closely and will "act as necessary" to make sure that inflation doesn't get out of hand.

Given dueling economic cross-currents-- weak economic growth and higher inflation -- many economists believe the Fed will leave rates where they are at its next meeting on Sept. 16, and probably through the rest of this year.

Stocks jump on falling oil, inflation forecast

NEW YORK (AP) -- Wall Street capped a volatile week with sharp gains Friday as oil prices tumbled and after Federal Reserve Chairman Ben Bernanke said inflation pressures are likely to moderate. The Dow Jones industrial average rose nearly 200 points to 11,628.06, near its highs of the session.

Speculation that Lehman Brothers Holdings Inc. could be sold helped buoy the financial sector and the overall market. Analysts warned this week that the investment bank could book large write-downs for bad debt. But reports Friday that Korea Development Bank is considering buying the company sent investors rushing for the stock. Investors also appeared cheered by an inflation forecast from Bernanke who said that inflation pressures should moderate this year amid tepid economic growth.

Oil prices fall over $6 on stronger dollar

NEW YORK (AP) -- Oil prices tumbled more than $6 a barrel Friday -- the biggest one-day percentage plunge in nearly four years -- after a rebounding dollar and a Russian troop pullback in Georgia sparked another frenzied sell-off.

Crude's nosedive wiped out all the gains from the previous day's big rally and reaffirmed the belief that high energy prices are still cutting into consumer demand for fossil fuels in the U.S. and overseas.

Light, sweet crude for October delivery fell $6.59, or 5.43 percent, to settle at $114.59 a barrel on the New York Mercantile Exchange. It was crude's largest single-day price drop percentage-wise since Dec. 27, 2004, when prices dropped 6.47 percent. In dollar terms, it was oil's steepest one-day slide since Jan. 17, 1991, just after the start of the Gulf War.

Freddie Mac courts investors, Buffett passes

NEW YORK (AP) -- Freddie Mac talked to investors this week about possibly buying its stock to raise much-needed capital but billionaire investor Warren Buffett said he passed on an opportunity to help the troubled mortgage giant.

The likelihood Freddie will find willing investors took another hit after Moody's Investors Service lowered the company's preferred stock ratings and those of its sister company Fannie Mae to near junk status.

Freddie spokesman Douglas Duvall confirmed to The Associated Press Friday that the company's management has been in talks with potential investors this week as part of ongoing discussions to raise capital. He declined to give any details about the meetings, possible investors or structures. The Wall Street Journal reported on the talks Friday.

Merrill Lynch settlement with SEC worth up to $7B

WASHINGTON (AP) -- Federal regulators said Friday that investors who bought risky auction-rate securities from Merrill Lynch & Co. before the market for those bonds collapsed will be able to recover up to $7 billion under a new agreement.

The largest U.S. brokerage will buy back the securities from thousands of investors under a settlement with the Securities and Exchange Commission, New York Attorney General Andrew Cuomo and other state regulators over its role in selling the high-risk bonds to retail investors. Under that deal, announced Thursday, Merrill agreed to hasten its voluntary buyback plan by repurchasing $10 billion to $12 billion of the securities from investors by Jan. 2.

Merrill also agreed to pay a $125 million fine in a separate accord with state regulators. The $330 billion market for auction-rate securities collapsed in mid-February.

King says Alpharma rebuffed a $1.4B buyout bid

NEW YORK (AP) -- King Pharmaceuticals Inc. said Friday that rival Alpharma Inc. has rejected a $1.4 billion buyout offer but indicated it is prepared to take the bid directly to shareholders in a move to expand its product offerings.

The Bristol, Tenn.-based drugmaker disclosed the $33 a share offer publicly for the first time on Friday. It said the offer was rejected by Alpharma, following a letter to that company's board of directors on Aug. 4.

Representatives from Bridgewater, N.J.-based Alpharma could not be reached Friday.

The bid amounts to a 37 percent premium over the $24.04 closing price of Alpharma's common stock on Thursday, but represents a 49 percent premium based on the Aug. 4 timeline.

Boeing weighs exiting $35B tanker competition

WASHINGTON (AP) -- Boeing Co. is considering bailing out of a politically charged competition for a $35 billion contract to build aerial refueling tankers for the Air Force, if it does not receive an additional four months from the Pentagon to assemble its offer.

The aerospace manufacturer said Friday it also may file a protest on the final bids request -- expected to be released early next week by the Pentagon -- which could further delay an award. No final decision will be made until Boeing has a chance to review the final bids request, said company spokesman Daniel Beck.

Boeing lost the initial contract in February to Northrop Grumman Corp. and its partner Airbus parent European Aeronautic Defense and Space Co. The competition was reopened after government auditors found "significant errors" in the Air Force's decision.

Audits of Medicare drug plans lacking

WASHINGTON (AP) -- Nearly three years into the Medicare drug benefit, federal officials have yet to ensure that private drug plans enacted programs to deter fraud and abuse, government investigators say.

About 24 million people are enrolled in Medicare drug plans subsidized by the federal government. The plans are required to develop programs to stem improper spending, but the Centers for Medicare and Medicaid Services has not conducted audits to ensure those programs were up and running properly. That lack of oversight "risks significant misuse of funds in this $39 billion program," the Government Accountability Office said in a report to be publicly released Monday.

Georgia, Khodorkovsky case hurt Russia sentiment

LONDON (AP) -- Denial of parole for a jailed Russian oil tycoon and tension between Russia and the West over Moscow's military clash with Georgia are giving global investors increasing reasons to worry whether the country is the right place to be.

The refusal Friday by a Siberian court to grant early release for former Yukos head Mikhail Khodorkovsky came as investors were already pulling money out because of falling oil prices, the spreading global credit crunch and fears of political meddling in business.

The dollar-denominated MICEX index of leading Russian stocks has dipped 4 percent since the start of hostilities in Georgia on Aug. 8, and interest rates on some Russia bonds have risen compared to U.S. Treasuries, indicating greater perception of risk.

By The Associated Press

The Dow rose 197.85, or 1.73 percent, to 11,628.06, near its highs of the session.

Broader stock indicators also rose. The Standard & Poor's 500 index rose 14.48, or 1.13 percent, to 1,292.20, and the Nasdaq composite index rose 34.33, or 1.44 percent, to 2,414.71.

Light, sweet crude for October delivery fell $6.59, or 5.43 percent, to settle at $114.59 a barrel on the New York Mercantile Exchange.

In other Nymex trading, heating oil fell 16.95 cents to settle at $3.1311 a gallon, while gasoline futures fell 17.66 cents to settle at $2.8686 a gallon. Natural gas futures fell 40.9 cents to settle at $7.843 per 1,000 cubic feet.