American Capital Strategies The private- equity company was cut to "sell" from "neutral" at UBS AG, citing an accounting rule that took effect in January and requires companies to value assets in line with what might be obtained for them if they were sold now, may force the company to reduce asset valuations.

Berkshire Hathaway Inc Del The company reported a 64% drop in quarterly profit late Friday on falling insurance rates. At the company's annual meeting this past weekend, Warren Buffett warned investors to lower their expectations.

Countrywide Financial Corp The largest U.S. mortgage lender retreated after Bank of America Corp., which agreed in January to buy the company, said on May 2 that it may not guarantee $38.1B of Countrywide's debt after taking over the lender, increasing the likelihood of a default. Separately, Friedman Billings Ramsey & Co. said the bank should drop or reduce its takeover bid.

Hovnanian Enterprises, Inc New Jersey's biggest homebuilder will report additional costs of as much as $275M for the fiscal second quarter because of the worsening U.S. property market.

Sprint Nextel Corporation Deutsche Telekom, Europe's largest telephone company, is considering a bid for Sprint in a deal that may create the biggest wireless service in the United States, according to the Wall Street Journal.

Yahoo! Inc Microsoft withdrew its bid over the weekend. The failed deal came as a disappointment to Wall Street, as merger-and-acquisition activity tends to boost shareholder value.

ML economist David Rosenberg says past recessions have started even if GDP was positive. "Employment peaked in December/07. Real income peaked in September/07. Production peaked in January/08. Real sales peaked in October/07. So, it is still reasonable to believe that the recession started some time between September and January."

The major indices are trading at or near their session lows, with the Dow down more than 100 points. Financial stocks (-1.5%) are acting as the main drag on the broader market.

From Morgan Stanley: “With the S&P 500 hovering around the top of its trading range (1260-1400) and the Fed now on the sidelines, we see no strong case for a decisive move to the upside, particularly as earnings weakness spreads. For the market to move higher we think we would need to see a substantial decline in the oil price, a bottoming out in housing, and a steady improvement in labor conditions.”

The euro rose against the dollar for the first time in three days on speculation the European Central Bank will keep interest rates at a six-year high this week to control inflation.
The 15-nation currency, down 3.4 percent versus the dollar after reaching a record on April 22, appreciated as ECB President Jean-Claude Trichet said the risk of inflation is ``significant.''
``Hawkish tones from the ECB will keep the euro'' in demand, said Dustin Reid, a senior currency strategist in Chicago at ABN Amro Bank NV. ``The market is very focused on any type of price data coming out of Europe.''
The ECB will leave its main refinancing rate at 4 percent when policy makers meet May 8, according to all 53 economists in a separate Bloomberg News survey.
Inflation expectations in the euro region, measured by the difference between the yields of nominal and inflation-protected bonds, increased as oil rose to a record $120.21 a barrel and other commodities spiraled higher.
The U.S. currency briefly pared its drop against the euro as a private report showed service industries expanded in April. The Institute for Supply Management's index of non-manufacturing businesses, which make up almost 90 percent of the economy, increased to 52, from 49.6 the prior month.

The major indices continue to trade with modest losses. The Dow is underperforming with only five of its 25 components posting a gain. Chevron (CVX 95.91, +0.59) and American Express (AXP 50.50, +0.10) are the main leaders. 3M (MMM 77.48, -1.07) and AIG (AIG 47.78, -1.26) are the main laggards.

"The April headline print for the non-manufacturing index of the ISM is encouraging but most likely exaggerates the degree of health in the economy. The gauge averaged 53 in the second half of last year, and April was most assuredly not as solid as the second half of last year (real final sales averaged better than 3% annualized in the second half of last year and shrank slightly in Q1). So, all the talk of a V-shaped recovery is in our view premature," said Stephen Stanley, Chief Economist at RBS Greenwich Capital.

Microsoft said Saturday that it was abandoning its sweetened $46 billion deal for Yahoo and would not pursue a hostile takeover. The talks fell apart over the weekend after Yahoo rejected Microsoft's higher offer. Shares of Yahoo slumped 16% in the morning, while Microsoft added 2.5%.
Shares of Google rose after a Goldman Sachs analyst boosted its price target, saying that the company could benefit from the fallout from the failed Microsoft-Yahoo deal.
In other potential deal news, Deutsche Telekom is reportedly considering making a bid for Sprint Nextel, according to a Wall Street Journal article Monday.
The day's one economic report was surprisingly strong. The April ISM services sector index rose to 52.0 from 49.6 versus forecasts for a drop to 49.1. Any reading over 50 indicates expansion in the sector.
U.S. light crude oil for June delivery jumped $1.93 to $118.25 on new supply worries.
COMEX gold for June delivery rose $12 to $870 an ounce.
Treasury prices slipped, raising the yield on the benchmark 10-year note to 3.88% from 3.86% late Thursday.

The major indices fall to session lows, as the financial sector extends its loss to 1.6%. Dow components AIG (AIG 47.89, -1.15) and Bank of America (BAC 39.29, -0.50) are the main laggards. Friedman Billings said AIG may report $12.7 billion in CDS losses. Friedman also reported that Bank of America could face $20 to $30 billion when it closes its deal with Countrywide (CFC 5.26, -0.72), and may renegotiate the transaction down to the $0 to $2 level.
Shares of Warren Buffet's Berkshire Hathaway (BRK.A 131,500, 2,100) are down roughly 1.6%. The company reported a 64% drop in net income, largely due to unrealized derivative losses. Meanwhile, operating earnings also fell, but by a smaller amount o

June NYMEX crude contract continues to surge, is up $2.40 from early US levels and now trades over $119.00 bbl at $119.42, up $3.11 and just $0.50 off its all-time high seen just a week ago.

The Nasdaq and S&P 500 briefly traded in positive territory following the better than expected services sector economic data, but have since retreated near their session lows.
The tech sector is performing in-line with the broader market with a 0.3% decline, even as Yahoo! (YHOO 23.97, -4.70) plummets 16% on the pulled Microsoft (MSFT 30.00, +0.76) bid. Yahoo's decline is taking 0.72 points off the S&P 500, but is being offset by Microsoft adding 0.70 points. Further, Google (GOOG 594.02, +12.73), is adding 0.34 points as traders bet the search giant will benefit from the failed takeover.

USD/JPY refreshed overnight highs and challenged Y105.60. Currently rate retreats, holding around Y105.34. Bids at session lows on Y105.00, while offers around Y105.70/80.

EUR/USD slides to fresh lows near $1.5424 in the wake of the non-manufacturing ISM report that shows that sector of the economy expanding at a modest pace. A few stops were flushed below $1.5440. Bids expected at the $1.5415 area.

EUR/USD: $1.5500, $1.5525, $1.5600, $1.5675
USD/JPY: Y103.00
EUR/JPY: Y166.00
GBP/USD: $1.9725
GBP/CHF: Chf2.1000
AUS/USD: $0.9280

USD/JPY has eased to fresh lows for the session near Y105.00/05 with traders mention demand at Y104.90/00.

U.S. stocks looked set to pull back Monday after the recent rally, with attention focused on Yahoo after Microsoft walked away from its takeover bid for the Internet firm.

Microsoft said over the weekend that it withdrew a sweetened offer for Yahoo. The move comes after a three-month long takeover battle that many had expected to turn hostile.

Yahoo shares are expected to fall sharply when the market opens in New York. In Frankfurt, the stock sank 19%. Microsoft shares rose 4% in Germany.

On the economic front, a report on the services sector due out after the market open is expected to show a slight decline in April.

Also, Federal Reserve Chairman Ben Bernanke is due to speak in New York.

In other corporate news, Deutsche Telekom AG is considering a bid to acquire Sprint Nextel, according to a report in The Wall Street Journal.

Warren Buffett's Berkshire Hathaway reported a 64% drop in quarterly profit late Friday.

Oil prices rose on supply worries after an attack on a Shell oil station Nigeria. U.S. crude rose 58 cents to $116.90 a barrel in electronic trading.

EUR/USD tries to rebound, holding around $1.5470 after chopping inside a narrow $1.5445/65 range. Bids in place around $1.5440, further at $1.5415.

Michael Woolfolk of Bank of New York Mellon says last week “has been important for financial markets, but especially US stocks and the dollar.” Q1 GDP and non-farm payroll, both better than expected, came at a time market sentiment was already shifting to be less pessimistic about US prospects. “The dollar has had room to rally and indeed may rise further”, Woolfolk says. Euro-dollar support March 24 low) may soon be tested, with a move towards $1.5000 possible. “Is it achievable? Absolutely!” he says. Next week's US data line-up (ISM non-mfg, pending home sales etc.) is unlikely to turn the current trend.

The dollar set stable on Monday in Europe after failing to build on gains made after slightly more robust than expected U.S. jobs data last week, as investors concluded that more pain was likely for the U.S. economy.
The dollar gained on Friday after the better-than-expected jobs data in April. The U.S. economy shed 20,000 jobs last month, less than the 75,000 that most economists had predicted. The unemployment rate also unexpectedly fell to 5% from 5.1% in March.

EUR/USD failed to break above $1.5500 and retreated to $1.1.5440. Bids around $1.5450/40, $1.5415. Offers mentioned between the $1.5500/10, $1.5520/25, $1.5540/50.
GBP/USD printed high on $1.9790 before it fell to the new lows around $1.9660. Bidsnear$1.9640/50, then– at$1.9620/10. Offersnear$1.9800.
USD/JPY held within the Y105.15/40 range.

With U.S. service sector data due at 1400 GMT also expected to post a decline, some analysts said expectations for the U.S. Federal Reserve to pause in its aggressive rate cutting cycle after last week's rate 25 basis point easing to 2% might prove premature.

EUR/USD: $1.5500, $1.5525, $1.5600, $1.5675
USD/JPY: Y103.00
EUR/JPY: Y166.00
GBP/USD: $1.9725
GBP/CHF: Chf2.1000
AUS/USD: $0.9280

1.Very, very important to avoid second round inflation effects
2.Global growth significant despite some slowing vs. 2007
3.Global food prices a "very, very important phenomenon"
4.Across the board signs that some financial markets now doing better
5.Declines any monetary policy comment, citing blackout period
6.No discussion of exchange rates

From Lehman: “Nothing in Payrolls report changes our view that the trend in payrolls is lower and that the labor market will continue to be soft for some time adding additional pressure on an already strained US consumer.”

The U.S. dollar traded in a narrow range against the euro and the yen in afternoon trading on Monday ahead of the European Central Bank (ECB) meeting this week.
After a busy week in the U.S., which released its first-quarter economic data and jobless figures while the Fed held its rate-setting meeting, investors are now switching their attention to the euro area where the ECB will be holding its meeting on May 8.
Most analysts are predicting that the ECB will maintain its key rate at a six-year high of 4% as it continues to battle inflation. The ECB has kept its rate unchanged since June, while the Fed has slashed its benchmark rates by a total 325 basis points since September.
“The ECB meeting will be interesting this week after recent comments from politicians about high inflation in the euro zone,” said David Mann, currency strategist at Standard Chartered Bank. “The ECB is likely to keep its rate on hold.”
Consumer prices in the 15-member euro area rose 3.6% in March from a year ago, the highest in 16 years and way above the ECB's 2% average inflation target. The European Commission has recently raised its inflation projection for the euro area to 2.9% for the whole of 2008 from as low as 2.1% previously.
Standard Chartered has maintained its view that the Fed's monetary easing cycle is not yet over as it expects two more rate cuts of 25 basis points each in the next Federal Open Market Committee meetings, Mann said.
The Fed on April 30 trimmed its key rate by a quarter of a percentage point to 2%, the lowest since December 2004, and signalled that the rate may stay unchanged for a while given creeping inflation in the United States.
The dollar gained on Friday after the better-than-expected jobs data in April. The U.S. economy shed 20,000 jobs last month, less than the 75,000 that most economists had predicted. The unemployment rate also unexpectedly fell to 5% from 5.1% in March.
Andrew Spencer, a foreign exchange analyst at Thomson IFR Markets, said the dollar has found support as it is likely that the Fed will keep rates on hold for the next few months.

Tom Fitzpatrick currency strategyst at Citigroup: “The underlying non-farm number was way better than the average market expectations. However, while it may have an effect on the day, it'd be dangerous to extrapolate that number into the broader picture... it's a lagging indicator.”

GBP/USD continues to slip lower with EUR/GBP continues to hold firm just off earlier rally highs of stg0.7855. The pound breaks under $1.9720 and challenges the support area between $1.9705/95. Stops noted on a break of $1.9690, which if triggered seen opening a deeper move toward $1.9675/65 ahead of $1.9650. Offers remain in place between $1.9785/00.

Resistance 3: Y106.60
Resistance 2: Y106.30
Resistance 1: Y105.70
Current price: Y105.13
Support 1: Y104.30
Support 2: Y103.30
Support 3: Y102.60
Comments: Dollar holds within the narrow range. Support still near last Friday’s low on Y104.30, then – at Y103.20 with a break under will widen losses to Apr 22-23 lows around Y102.60/70. Resistance comes near Friday’s highs on Y105.70. Above there is a room for a rise up to Y106.30, then – to Y106.60.

Resistance 3: Chf1.0730
Resistance 2: Chf1.0670
Resistance 1: Chf1.0600
Current price: Chf1.0534
Support 1: Chf1.0430
Support 2: Chf1.0360
Support 3: Chf1.0330
Comments: Techs is steady. Strong resistance comes at Friday’s highs on Chf1.0600. Above the target comes at Chf1.0670 and Chf1.0730 (Feb 01 high). Support is around Friday’s lows near Chf1.0430. Below there is a risk of sliding to Chf1.0360 and then – to Apr 30 lows on Chf1.0330.

Resistance 3: $1.9960
Resistance 2: $1.9900
Resistance 1: $1.9800
Current price: $1.9734
Support 1: $1.9700
Support 2: $1.9660
Support 3: $1.9610
Comments: Cable retreats a bit with resistance comes near session high on $1.9790/00. Stronger level is around Friday’s high on $1.9900, then – Apr 28 highs on $1.9960. Strong support comes at Friday’s low on $1.9700, with a break under widens the correction to $1.9660 and $1.9610/20.

Resistance 3:$1.5640
Resistance 2: $1.5580
Resistance 1: $1.5520
Current price: $1.5490
Support 1: $1.5360
Support 2: $1.5330
Support 3: $1.5280
Comments: Euro slowly gets higher with strong resistance comes at channel line from Apr 23 on $1.5520. Break above will point to $1.5580. Stronger level is around last week’s highs on $1.5640. Support is around Friday’s lows at $1.5430, stronger – on $1.5400 with a break down will widen the correction to $1.5340.

EUR/USD $1.5500, $1.5525, $1.5600, $1.5675
USD/JPY Y103.00
EUR/USD Y166.00
GBP/USD $1.9725
AUD/USD $0.9280

Three central banks are scheduled to meet this week, ECB, BoE & RBA. All are expected to be on hold. Market's expectation will mainly be on ECB's press conference, in particular in a situation where downside risk in Euro is starting to build up. Another major factor will again be carry trade and investors' sentiments. Any dollar positive news will support the dollar as well as the stock markets too, which in turn will pressure yen and swissy.

US data begins on Monday with the April ISM non-manufacturing (service sector) sentiment index, which covers the other 85% of the economy outside manufacturing. Tuesday sees only weekly ABC consumer confidence, which just hit a new cycle low in the last week at -41. Wednesday sees preliminary 1Q non-farm productivity, unit labor costs, March pending home sales and consumer credit. Thursday sees weekly jobless/continuing claims and March wholesale inventories. Friday sees only the US March trade deficit.

Eurozone data begins on Tuesday sees final-April Eurozone services PMI's and March Eurozone PPI. Wednesday sees March Eurozone retail sales and German March factory orders. Thursday sees German March trade balance and industrial production, followed by the ECB rate decision and press conference. Friday sees French and Dutch March industrial production.

UK data starts on Tuesday with the April Services PMI in the morning, followed at midnight by April Nationwide Building Society consumer confidence. Wednesday morning sees March industrial and manufacturing production and the April BRC shop price index, a private inflation gauge. Thursday see only the BOE MPC rate decision.

Japanese markets will be closed until Wednesday for the Golden Week Holidays and no data is scheduled until Friday morning Tokyo-time and then only the preliminary March Leading Economic Index is of note.

Dominic Bryant, economist at BNP Paribas: “Overall data provide further evidence that growth conditions within the euro zone are deteriorating, meaning the economy should grow notably below trend from Q2 onwards this year. Clearly, however, Germany will do better than the average... At the other end of the spectrum Italy and, in particular, Spain will have a very tough year with growth well below trend.”

- Exports to Europe also still expanding
- Exports to other countries to offset slow US exports.

The euro rose against the dollar for the first time in three days on speculation the European Central Bank will leave interest rates at a six-year high this week.

The 15-nation currency gained for a second day against the yen as economists forecast the ECB will keep borrowing costs at 4 percent after the European Commission raised its prediction for consumer prices. The Australian and New Zealand dollars climbed on speculation rising commodity prices will bolster both countries' exports.

Losses in the dollar may be limited by speculation that the Federal Reserve will pause in lowering borrowing costs after cutting its benchmark rate by a quarter-percentage point to 2 percent last week, the seventh reduction since September.

The dollar rose the most against the euro since March and reached a two-month high versus the yen as traders bet the Federal Reserve will stop cutting interest rates and the U.S. lost fewer jobs in April than economists forecast.
The currency appreciated versus the Swiss franc, the Swedish krona and the South Korean won this week after the Fed cut the target lending rate by a quarter-percentage point on April 30 and said ``substantial'' easing since September would help foster economic growth. The euro weakened as confidence among European executives and consumers fell in April.
``The tide is beginning to turn for the dollar on two fronts,'' said Jim McCormick, head of global currency strategy at Lehman Brothers Holdings Inc. in an interview on Bloomberg Radio. ``One is that the Fed is becoming less dollar-unfriendly. The other is a clear signal that economies outside the U.S. are starting to slow.''
The dollar increased 1.3 percent to $1.5424 per euro this week, from $1.5630 on April 25. It touched $1.5361 Friday, the highest level since March 24. The dollar rose 0.9 percent to 105.40 yen, from 104.42 a week earlier. It touched 105.70 yen, the strongest since Feb. 28. The euro fell 0.5 percent this week to 162.53 yen, from 163.15. The dollar has risen 3.6 percent from a record low of $1.6019 versus the euro reached on April 22. This was the second consecutive week it advanced versus the euro, the first time it posted back-to-back weekly gains since December.

Oil prices fell last week as the dollar rose to a five-week high against the euro after the smaller-than-expected job loss last month, which may indicate the labor market is weathering the economic slowdown. When the dollar rises, commodities often fall because they lose appeal as a hedge against inflation. Oil touched a record $119.93 a barrel on April 28, as the dollar dropped.

Crude oil rose more than $3 a barrel Friday after a report showed that the U.S. lost fewer jobs than forecast in April and as Turkey renewed its military offensive against Kurdish rebels in Iraq. Iraq's northern region is controlled by a semi-autonomous Kurdish administration. Kirkuk, at the center of the region's biggest oil field, is about 100 miles (161 kilometers) from the Turkish border.

The Organization of Petroleum Exporting Countries won't consider increasing crude-oil production before it meets in September because the market is well supplied, Qatari Oil Minister Abdullah al-Attiyah said Friday. The 13-member group is responsible for more than 40% of the world's oil output.

U.S. stock indexes closed third week higher after a better-than-forecast jobs report and the $23 billion takeover of Wm. Wrigley Jr. Co. pushed the market to its longest streak of gains in seven months.The S&P 500 rose 1.2% this week. The measure has gained 6.1% in the past three weeks, paring its 2008 decline to 3.7%. The Dow Jones Industrial Average added 1.3%.

Sure, there was the news Monday that Mars is going to buy Wrigley (WWY) for approximately $23 billion and the news Tuesday that Mastercard (MA) had a blowout quarterly earnings report, but that, and other items like the FDA shooting down a new cholesterol drug from Merck (MRK), led to a James Bond-like trade in that the indices were shaken, but not stirred.

The stirring action was reserved for the latter part of the week, which brought the Q1 GDP report, the FOMC meeting and the April employment data. In addition, it also brought some noteworthy movement in the dollar and some volatile activity in the commodity arena.

The Fed appears to be feeling better about the economy's prospects, too. After cutting the fed funds rate Wednesday another 25 basis points to 2.00%, it issued a directive that was different in tone from prior directives. In particular, the directive omitted a prior reference to the idea that "downside risks to growth remain." Verizon Communications Inc., the second-largest U.S. phone company, said first-quarter profit jumped 9.8 percent as mobile- phone customers spent more on text messages and wireless Internet browsing. Verizon shares rose 6.9 percent to $39.59 this week.

Walt Disney Co., Cisco Systems Inc., Clear Channel Communications Inc. and Sara Lee Corp. are among S&P 500 companies slated to report quarterly results next week.

Deutsche Telekom is analyzing a possible takeover of Sprint Nextel, the third-biggest U.S. mobile-phone company, Der Spiegel reported, without saying how it got the information.

High Low Close
EUR/USD 1.5495, 1.5361, 1.5409
USD/JPY 105.68, 104.32, 105.35
GBP/USD 1.9895, 1.9703, 1.9729
USD/CHF 1.0606, 1.0463, 1.0563

EUR/JPY 162.60, 161.43, 162.39
EUR/GBP 0.7835, 0.7764, 0.7808
GBP/JPY 209.00, 206.25, 207.87
GBP/CHF 2.0962, 2.0680, 2.0842

Change % Change Last
Nikkei +282.40 +2.05% 14049.26.
FTSE 100 +128.20 +2.11% 6,215.50
CAC 40 +73.17 +1.46% 5,069.71
Xetra Dax +94.41 +1.36% 7,043.23
DOW +48.20 +0.37% 13,058.20
NASDAQ -3.72 -0.15% 2,476.99
S&P 500 +4.56 +0.32% 1,413.90
10yr Note +0.9600 +0.256% 3.845%
NYMEX Crude Oil +3.80 +3.27% 116.32
Gold +7.10 +0.83% 858.00

Japan Children's Day
UK May Bank Holiday
14:00 USA ISM Non-mfg business index (April) 52.2
14:00 USA ISM Non-mfg composite index (April) 49.8 49.6