Bull Radar

Style Outperformer:
Small-cap Growth (+.27%)

Sector Outperformers:
Defense (+2.71%), Steel (+2.36%) and Computer Services (+1.48%)

Stocks Rising on Unusual Volume:
RTP, TIE, FLIR, ITT, CAJ, IRE, NTY, PRXL, PMTI, ULTA, KNXA, AMWD, CDZI, OGXI, CAVM, CMCO, JOYG, TITN, IPCR, PRXL, ZOLT, GMCR, MYRG, BIDU, BOOM, SPWRA, GES, RTI, ABM and BBL

Stocks With Unusual Call Option Activity:
1) SOL 2) HANS 3) BIIB 4) WNR 5) GES

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Friday Watch

Late-Night Headlines
Bloomberg:

- Democrats’ drive for a government-run program to provide health coverage to some of the nation’s uninsured ran into resistance today from lawmakers in both political parties. A day after President Barack Obama said he “strongly” supports offering a government-run insurance program to compete with private coverage, some Republicans on the Senate Finance Committee said such a plan must be dropped from any health-care overhaul to draw their support. A group of House Democrats from Republican-leaning states said any “public option” must be tightly restricted so it doesn’t undermine private industry. “We cannot create a public option that stacks the deck -- through rate-setting and forced participation -- against a system that currently provides coverage to 160 million Americans,” said Representative Mike Ross of Arkansas, chairman of the health-care task force of conservative “Blue Dog” House Democrats. Obama has called the next few months a “make-or-break period” for his top domestic priority.

- France’s budget deficit may exceed the record set 16 years ago as the government lifts spending and the recession erodes revenue, Budget Minister Eric Woerth said. Woerth said in an interview yesterday the 2009 shortfall could be more than 1993’s 6.4 percent of gross domestic product. “It’s possible that we will surpass the ‘93 record,” Woerth said in Paris.

- Venezuela moved to nationalize the country’s chemicals industry as President Hugo Chavez tightens his grip over South America’s third-largest economy. A law requiring private sector chemicals-makers to become minority partners in joint ventures with the state passed its first reading in the national legislature today and will be debated Tuesday, National Assembly Deputy Angel Rodriguez said. Chavez, a self-described revolutionary socialist, has already forced all of the country’s private oil companies into minority positions in joint ventures. In the past month, Venezuela ordered the seizure of property from at least 74 oilfield service companies and also this week started taking over gas compression plants, Chavez said yesterday.

- Former Countrywide Financial Corp. Chief Executive Officer Angelo Mozilo and two of his top deputies were sued by regulators for allegedly hiding the home lender’s deteriorating finances as the subprime mortgage crisis unfolded. While publicly reassuring investors about the quality of his loans, Mozilo issued “dire” internal warnings and engaged in insider trading accelerating stock sales to reap about $140 million, the agency said in the suit at Los Angeles federal court. In one e-mail, he described a “particularly profitable subprime product as ‘toxic.’” He also wrote that Countrywide was “flying blind” and had “no way” to determine the risks of some adjustable-rate mortgages, the SEC said.

Wall Street Journal:

- As companies give mobile-phone advertising a try, many are starting to focus on the search ads that have worked so well on personal computers. After years of sticking largely to mobile display or banner ads, such companies as Marriott International, Honda Motor and 1-800-FLOWERS.com have boosted their spending on mobile search ads. The ads can be targeted to specific consumer requests, and they are more easily measured and less intrusive, which some see as positives given the limited screen sizes on many mobile phones. This time, the trend is being driven by the growing adoption of high-end phones like Apple's iPhone that have full Web browsers and are being used to do everything from search for the nearest restaurant to make a hotel reservation. The growing interest in mobile search ads benefits companies with Internet search businesses like Yahoo and particularly Google. Google, which accounts for more than two-thirds of the U.S. search-ad market, is now trying to make it easier for marketers to buy ads that show up when people search for everything from celebrities to restaurants using their phones. Since December, the Internet search giant has updated its search advertising system to allow any advertiser that purchases regular search ads to automatically have those ads run on high-end mobile phones, like the iPhone or phones running Google's own Android software. "We're seeing some nice, robust growth in mobile search," says Doug Garland, Google's vice president of product management for mobile and local ad products.

- After months of uncertainty about Steve Jobs's health, the Apple Inc.(AAPL) chief executive appears on track to return from medical leave this month, said people familiar with Apple. The big question now among Apple's business partners, investors and fans: Will Mr. Jobs make his reappearance at Apple's annual software developers' conference next week in San Francisco, possibly to unveil a new iPhone?

- Flush with $30 billion in new capital from the U.S. government, General Motors Corp. has agreed to finance a private-equity firm's buyout of bankrupt auto-parts company Delphi Corp. GM will provide more than $2.5 billion of the $3.6 billion necessary for Beverly Hills-based buyout firm Platinum Equity to gain control of Delphi, according to a person familiar with the matter.

- After getting millions of people to dump their boxy television sets for sleek flat-panel models, manufacturers are now pitching even thinner screens. Some of the new liquid-crystal-display (LCD) and plasma TVs that have begun appearing in stores around the world are less than one inch thick. They weigh 15% to 25% less than previous models -- which were about four inches thick -- and are easier to hang on a wall.

- The oil-and-gas industry is gearing up for a battle over the regulation of a high-tech drilling technique that has opened up huge new fields for drilling, but that environmentalists fear could contaminate ground water. On Thursday, a congressional subcommittee held a hearing on the practice, known as hydraulic fracturing, and two Democratic lawmakers said they would introduce legislation that would regulate it at the federal level for the first time. Environmental groups and members of Congress are also pushing the Environmental Protection Agency to investigate the impact of fracturing on drinking-water resources. Hydraulic fracturing -- known within the industry as "hydro-fracking," or simply "fracking" -- involves the injection of millions of gallons of water and chemicals into oil or natural-gas wells at high pressure. The process cracks open rock formations thousands of feet underground, allowing trapped hydrocarbons to flow to the surface. Fracking has been used since the 1940s, but it has become far more common in recent years, as the industry has increasingly drilled in dense rock formations that require fracking to produce significant quantities of oil and gas. The industry estimates 60% to 80% of new wells require fracking to be profitable.

MarketWatch.com:
- House Republican leaders outlined $375 billion in federal budget savings on Thursday, telling President Barack Obama that their proposals will save taxpayers money and help to shrink the deficit. In a letter to Obama, House Republican Leader John Boehner of Ohio and Republican Whip Eric Cantor of Virginia called the American fiscal situation grave and said it's up to both parties to slash wasteful and unnecessary spending. Last month, Obama released details of his $3.6 trillion budget for fiscal 2010, a number Republicans say is far too big.

CNBC.com:
- With takeover talk rampant and two big catalysts on the horizon, tech stocks could be making some big moves, very soon.

NY Times:

- Federal prosecutors indicted a former top executive of a prominent investment firm on Thursday on charges involving questionable tax shelters made and sold by the firm up until 2006. The executive, Jeffrey I. Greenstein, is a former chief executive and a co-founder of the Quellos Group, whose core business was bought by BlackRock for $1.7 billion in 2007. He faces 18 counts of conspiracy, fraud and tax evasion. Quellos, which was based in Seattle and catered to wealthy investors, had star clients, including former President Bill Clinton and his wife, Hillary Rodham Clinton; Robert Wood Johnson IV, the owner of the New York Jets football team; and the Hollywood mogul Haim Saban, the producer of the “Mighty Morphin Power Rangers” children’s show, according to public records.

IBD:

- The federal comprehensive energy bill could change the whole game for the solar industry. If the bill passes Congress and becomes law, it would require U.S. utility companies to supply around 15% of their electricity from renewable sources like solar and wind power by 2020.

LA Times:

- Amid the economic downturn and slow growth for retail and outpatient medical care services, pharmacy giants Walgreen Co. and CVS Caremark Corp. are rolling out new specialized services at their in-store clinics, going beyond treatment of routine maladies. Launched over the last four years to care for such simple ailments as ear and sinus infections, strep throat or pink eye, retail clinic operators now are training nurses to do specialized injections for such chronic conditions as osteoporosis and asthma. In addition, they are offering treatments for advanced skin conditions that include removal of warts and skin tags or closing minor wounds. Care for minor "sprains and strains" also is being offered at some retailers, and pilot projects are underway for breathing treatments and special infusions of drugs derived from biotechnology.

cnet:

- Universal Music Group and YouTube have answered the question of whether any of the major labels will be interested in joining the new all music video Web site, Vevo. Sony Music Entertainment has joined the venture, the companies said Thursday in a statement. Vevo will launch sometime later this year featuring video content from at least the two largest recording companies. (Universal is the largest.)

Lloyd’s List:

- SPOT freight rates that have halved over the past year dictated the terms for annual service contracts covering transpacific cargo, leaving lines with income that will not cover running costs. That is the picture emerging from this year’s round of contract negotiations that is drawing to a close. Singapore line APL has warned that transpacific carriers are faced with unsustainable annual contracts because of the influence of the spot market on rates agreed from the coming 12 months. “Levels are simply not sustainable and that is of great concern to us. The rates are not covering the carrier’s variable cost,” said APL vice-president Bob Sappio.

Reuters:

- Global miners Rio Tinto and BHP Billiton said on Friday they will combine their major Australian iron ore operations, scuppering a $19.5 billion bid by China's Chinalco to secure a stake in Rio and long-term access to its key ore supplies. BHP and Rio, the world's second and third largest iron ore miners, have agreed to combine the operations into a 50-50 joint venture, the companies said in a joint statement, generating savings of at least $10 billion.

- The U.S. government should close a loophole that allows unregulated firms to sell commodity contracts that may have swindled consumers out of millions of dollars, a U.S. lawmaker said on Thursday.

Financial Times:

- Apple plans to introduce a cheaper version of its popular iPhone as soon as Monday, in a move that could dramatically increase the company’s share of the market for web-surfing devices, people familiar with the initiative said on Thursday. Analysts said that the company wanted to show off either a $149 phone or a $99 phone, down from the current low end of $199 and still subsidized in exchange for an AT&T communications service contract. “It’s either a $50 or a $100 cut,” said Morgan Stanley analyst Kathryn Huberty. Citing a firm survey of consumers, she said that a $50 price cut could increase demand by 50 per cent and a $100 cut by 100 per cent. Apple sells about 11 per cent of the world’s smart phones, trailing Nokia’s 41 per cent volume and Research in Motion’s 20 per cent, according to Gartner figures from the first quarter. An even bigger impact on market share could come with new pricing from AT&T, which remains in an exclusive deal with Apple.

TimesOnline:

- The European Central Bank spurned pressure for more radical action to jumpstart the eurozone economy yesterday, sticking to a gradual, step-by-step strategy despite savagely cutting its forecasts for the 16-nation bloc. In drastic downgrades to its assessment of the eurozone’s prospects, the ECB said that it expects GDP to plummet this year by between 4.1 and 5.1 per cent — a far deeper slump than the 2.2 to 3.2 per cent decline it foresaw only three months ago. The Frankfurt-based central bank also unveiled a far bleaker view of recovery prospects for next year, warning that the eurozone recession will drag on into next summer. It now forecasts that GDP will tumble by up to a further 1 per cent in 2010, and at best grow by a meager 0.4 per cent. That compares with its March prediction for GDP to shrink by no more than 0.7 per cent, and possibly expand by as much as 0.7 per cent. Despite this grim view, the ECB again held official eurozone interest rates at 1 per cent.

Nikkei English News:

- Hybrid vehicles accounted for 12% of new car sales in Japan in May, citing data from the Japan Automobile Dealers Assoc. This was the first time hybrid sales exceeded 10%.

- JPMorgan Chase(JPM) can maintain a strong capital position even without funds from US taxpayers, citing an interview with CEO Jamie Dimon. The NY-based company is ready to repay funds from the TARP as early as this month, Dimon said. JPMorgan would have a Tier 1 Capital ratio of 9.3%, even without the funding, he said.

Edaily:

- The Bank of Korea doesn’t plan to cut the portion of the nation’s foreign-currency reserves invested in US Treasuries.

Mainichi:

- The Bank of Japan may upgrade its economic assessment for two months in a row at a two-day policy meeting that begins June 15. The bank may say this month that the pace of economic deterioration is slowing.

Late Buy/Sell Recommendations
Citigroup:

- Reiterated Buy on (XL), target $15, added to Top Picks Live list.

- Downgraded (HOG) to (SELL), target $16, added to Top Picks Live list.

Night Trading
Asian Indices are +.25% to +1.25% on average.
S&P 500 futures +.09%.
NASDAQ 100 futures +.03%.

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Earnings of Note
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- None of note

Economic Releases

8:30 am EST

- The Change in Non-farm Payrolls for May is estimated at -520K versus -539K in April.

- The Unemployment Rate for May is estimated to rise to 9.2% versus 8.9% in April.

- Average Hourly Earnings for May are estimated to rise .1% versus a .1% gain in April.

3:00 pm EST

- Consumer Credit for April is estimated at -$6.0B versus -$11.1B in March.

Upcoming Splits
- None of note

Other Potential Market Movers
- The Fed’s Rosengren speaking, Yellen and Kohn speaking in Panel Discussion, (WMT) analyst meeting and the Sandler O’Neil Electronic Trading Conference could also impact trading today.

BOTTOM LINE: Asian indices are higher, boosted by commodity and automaker stocks in the region. I expect US equities to open modestly higher and to weaken into the afternoon, finishing mixed. The Portfolio is 100% net long heading into the day.

Stocks Finish at Session Highs, Boosted by Financial, Commodity, Construction and REIT Shares

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In Play

Stocks Rising into Final Hour on Less Economic Fear, Diminishing Financial Sector Pessimism, Short-Covering

BOTTOM LINE: The Portfolio is higher into the final hour on gains in my Technology longs, Financial longs and Defense longs. I have not traded today, thus leaving the Portfolio 100% net long. The tone of the market is positive as the advance/decline line is higher, most sectors are rising and volume is heavy. Investor anxiety is high. Today’s overall market action is bullish. The VIX is falling 2.97% and is very high at 30.10. The ISE Sentiment Index is below average at 128.0 and the total put/call is about average at .88. Finally, the NYSE Arms has been running about average most of the day, hitting .95 at its intraday peak, and is currently .91. The Euro Financial Sector Credit Default Swap Index is rising 2.75% today to 105.98 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is falling 2.81% to 123.36 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is falling 4.41% to 49 basis points. The TED spread is now down 414 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 11.31% to 47.31 basis points. The Libor-OIS spread is falling 3.87% to 41 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is rising 1 basis point to 1.93%, which is down 71 basis points since July 7th. The 3-month T-Bill is yielding .13%, which is unch. today. Considering the 4% gains in many financial stocks, today’s broad market performance is a bit disappointing. Several sectors are lower on the day. This is likely the result of the surge in oil and long-term rates. If tomorrow’s jobs report is better-than-expected, long-term rates will likely surge again, which would be a negative for stocks. However, a below expectations report could spur economic worries. Thus, stock market bulls likely need an “at expectations” report and a calming of oil/interest rates to see another broad market rally tomorrow. As well, the AAII % Bulls jumped to 47.56% this week, while the % Bears fell to 36.60%, which is a mild negative. Nikkei futures indicate an +107 open in Japan and DAX futures indicate an +19 open in Germany tomorrow. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering, less economic fear, investment manager performance anxiety and diminishing financial sector pessimism.

Today's Headlines

Bloomberg:

- MasterCard Inc.(MA), the world’s second- biggest electronic payments network, said the “freefall” in U.S. retail spending has abated amid an increase in consumer confidence. “The recovery is showing signs of life,” McWilton said at the conference, sponsored by KBW Inc., adding that consumer confidence is improving.

- Shares of US banks are in “the beginning stages of a multi-year bull market” and will perform better than benchmark stock indexes, according to analysts at RBC Capital Markets. RBC raised its rating on the group to “overweight” from “sector weight” today. Earnings potential has replaced “burn down analysis” as the main catalyst for stock price moves, the report said.

- European Central Bank President Jean- Claude Trichet indicated the ECB has no immediate plans to increase its asset-purchase plan or cut interest rates further as the economy shows signs of recovery. Interest rates are “appropriate,” Trichet said at a press conference in Frankfurt today after the ECB held its benchmark at a record low of 1 percent. Asked if the bank will expand its bond plan, Trichet replied: “We have decided to embark on a 60 billion-euro purchase of covered bonds, full stop.”

- Fifth Third Bancorp(FITB), the largest lender based in Ohio, led the KBW Bank Index higher after saying it more than filled the $1.1 billion capital gap found by federal stress tests, and that the company will concentrate on paying back the U.S. bailout fund.

- Intel Corp.(INTC), the world’s largest maker of semiconductors, agreed to buy software company Wind River Systems Inc.(WIND) for about $884 million, a bid to get its chips into more consumer electronics and wireless devices. The price is $11.50 a share in cash, Santa Clara, California-based Intel said today in a statement, offering a 44 percent premium over Wind River’s closing price yesterday.

- General Dynamics Corp.(GD), the maker of the U.S. Army’s Abrams battle tanks, agreed to buy Axsys Technologies Inc.(AXYS) for about $643 million to expand its line of surveillance equipment such as infrared cameras. The $54-a-share acquisition will be neutral to 2009 earnings and add to profit after that, Falls Church, Virginia- based General Dynamics said today in a statement.

- Derivatives dealers would face new regulations under a Commodity Futures Trading Commission proposal that seeks to ensure privately negotiated contracts are subject to the same oversight as trades on an open exchange. Regulators must make sure that dealers aren’t able to make slight modifications to the structure of derivatives transactions to evade public reporting requirements for standardized contracts, CFTC Chairman Gary Gensler told the Senate Agriculture Committee today in Washington. “All derivative dealers should be subject to capital requirements, initial margining requirements, business conduct rules and reporting and recordkeeping requirements,” Gensler said in prepared remarks. “Standards that already apply to some dealers, such as” banks, should be strengthened, he said.

- Bonds of retailers fell out of distressed territory yesterday for the first time since September after slashing jobs, costs and inventories. The extra yield investors demand to own bonds of Sears Holdings Corp. and other similar retailers rated below investment grade narrowed to an average of 9.93 percentage points more than Treasuries, according to Merrill Lynch & Co. index data. The spread has held above 10 percentage points, a level investors consider “distressed,” since Sept. 23, eight days after Lehman Brothers Holdings Inc. filed for bankruptcy. Retailer bonds and stocks are rallying as cost cutting bolsters cash flow and traders bet the U.S. recession is easing.

- Crude oil rose to a seven-month high after Goldman Sachs Group Inc. said prices may reach $85 by the end of the year as demand recovers and supplies shrink.

Wall Street Journal:

- United Airlines(UAUA) has asked Boeing Co.(BA) and Airbus to propose dueling bids for up to 150 new airliners -- the latest example of major companies exploiting the recession to bargain-hunt. For the two aircraft makers, the deal could be worth more than $10 billion at a time when both are watching other customers cancel or defer orders.

- Rio Tinto PLC(RTP) Thursday said it is "pursuing a range of options" to shore up its heavily indebted balance sheet as Aluminum Corp. of China's proposed $19.5 billion investment in the Anglo-Australian miner appeared headed for the scrap heap.

- A Connecticut bill that sought to impose transparency regulations on hedge funds has effectively died after the state House of Representatives didn't bring the measure to a vote.

- The number of investors withdrawing their investments with hedge funds has slowed to about one-fifth of the record redemption levels at the end of 2008, according to new research, but investors still are holding off putting new money into an industry recovering from its worst year to date. A Morgan Stanley report called ‘Wholesale Financials’ estimates that in the second quarter investors have redeemed 5% of all money invested in the $1.3 trillion hedge-fund industry. If that estimate is correct, it would be just one fifth of the record 25% investors pulled in the fourth quarter. Investors pulled 10% of their money in the first quarter, according to the report.

- Not so long ago, we were warned about the prospect of devastating deflation, a widespread decline in wages and prices. Today, we hear equally dire warnings of an outbreak of inflation. It's like preparing for an epochal drought and suddenly being told, "Never mind! Get ready for a flood of Biblical proportions." An immediate outbreak of inflation is improbable.

CNBC:

- Billionaire investor Carl Icahn told CNBC in a telephone interview that he thinks the future of large pharmaceutical companies is in buying biotechnology companies.

- Fewer U.S. workers filed new claims for jobless benefits for a third straight week last week and productivity rose at a stronger-than-expected pace in the first quarter, data showed on Thursday, supporting budding hope that the recession was losing force.

NY Times:

- Ramius, one of the nation’s largest hedge fund managers, struck a deal on Thursday to merge with Cowen Group, a boutique investment banking firm that has struggled recently as takeover deals have dried up. The combined company, which will continue to use the Cowen name, will encompass a broad mix of financial services including equity and debt raising, proprietary trading, asset management and research.

MarketWatch:
- Ford Motor Co.'s(F) joint venture partner in China reported a 49% rise in vehicle sales during May, with 27,800 vehicles snapped up by consumers during the month.

Forbes:

- Investors who were attracted to Highland Capital's tough investment style are now feeling a little roughed up. Before the credit crisis hit, investors poured money into hedge funds run by Highland Capital Management in Dallas, which at its peak was running $38 billion. The two founders, James Dondero and Mark Okada, had a reputation for scoring big returns using leverage and tough tactics like squeezing fees out of companies whose outstanding debt Highland purchased. Now three of Highland's funds, including its Crusader Fund, have failed, and investors are getting more of Highland's hardball tactics than they bargained for.

USAToday:

- It's official: The Internet is a part of daily life. According to a new report by the Census Bureau, Internet use tripled from 1997 to 2007. Sixty-two percent of U.S. households used the Internet from home; 18% did that in 1997.

- The Obama administration's plan to boost aid to Afghanistan is shaping up as a boon to private contractors, including a company whose previous work on U.S.-funded Afghan aid programs has been criticized by auditors. Despite Secretary of State Hillary Rodham Clinton's call to reduce the reliance on foreign aid contractors, the main U.S. aid agency is continuing to award multimillion-dollar contracts as it proposed to increase development spending in Afghanistan to $2.8 billion. Clinton has dubbed past Afghanistan aid efforts a "heartbreaking" failure. Last month, the U.S. Agency for International Development awarded a $150 million cooperative agreement to a partnership led by DAI, a Maryland company whose past Afghanistan contracts have been criticized by USAID's inspector general. The program is to promote alternatives to poppy crops.

Politico:

- In a nearly 6,000-word address Thursday extending an olive branch to the Muslim world, President Barack Obama managed never to utter the one word that comes to mind most often when many Americans think about Islam: terrorism. While both the White House and the Pentagon denied earlier this year that the Obama administration had issued orders to stamp out the phrase “war on terror,” the president’s decision to rely on the word “extremism” throughout his high-profile speech made clear his desire to execute a rhetorical shift. More than that, Obama sought to decouple Islam entirely from those who perpetrate violence. “Islam is not part of the problem in combating violent extremism — it is an important part of promoting peace,” Obama said.

LATimes:

- Though California is in the throes of a budget crisis, Vice President Joe Biden said Wednesday that the state's high-speed rail project is well-positioned to compete for a significant share of the $8 billion that the Obama administration set aside in the American Recovery and Reinvestment Act for rail lines. This summer, California officials will be vying against other states to get funding for a planned high-speed rail corridor that would ferry passengers between Los Angeles and San Francisco in a 2-hour, 40-minute trip. Voters approved $9 billion in bonds for the project in November -- and promoters hope the federal government and the private sector will kick in enough money to help them complete the $34-billion first phase.

American Chronicle:

- New York State's pay-to-play pension scandal appears to be pushing at least one prominent New York hedge fund close to the brink. Mezzacappa Management, founded by former Lazard Freres Vice Chairman Damon Mezzacappa, recently shed a raft of employees - including the firm's chief investment officer - amid withdrawal requests from the firm's single largest investor, the scandal- scarred New York State Common Retirement Fund, sources tell The Post. Now, the firm's 73-year-old founder, who launched the Fifth Avenue-based business in 1999, is considering the company's fate, which may include shutting it down, sources said.

Reuters:
- Discounter Wal-Mart Stores Inc says it will add more than 22,000 jobs in its U.S. namesake stores in 2009. The forecast points to lower growth compared with last year, as the world's biggest retailer opens fewer of its U.S. Wal-Mart discount stores to focus on expansions and renovations. Last year, the company created 33,800 U.S. jobs, though that figure also included new jobs at its much smaller Sam's Club members-only chain of warehouse stores.

Financial Times:
- US President Barack Obama called for a new beginning in relations between America and the Muslim world on Thursday with a dramatic address in Cairo that sought to overcome decades of deep mistrust. Drawing repeated rounds of applause as he quoted the Koran and spoke frankly to every segment of Muslim society – young people, women, leaders – Mr Obama appeared as a defender of Islam. Pointing to the glorious days of Muslim civilization, and to his own family background, he said in an hour-long speech: “I consider my responsibility as president of the US to fight against negative stereotypes of Islam whenever they appear.” The much-awaited speech in the domed hall of Cairo University did not lay out a detailed plan for Middle East peace, as some governments in the region had hoped. Mr Obama said the US relationship with Israel was “unbreakable” and called on Palestinians to pursue their aspirations for statehood peacefully. But he also had sharp words for Jewish state, insisting that the US “does not recognize the legitimacy of continued Israeli settlements” on occupied Palestinian land, and calling on Israel to improve the daily lives of Palestinians. He went further: “Let there be no doubt... the situation for the Palestinian people is intolerable,” he said, adding that America would not turn its back to the legitimate aspirations for dignity and a state of their own. For young people in the region, it was perhaps the last part of the speech that was most appealing, as Mr Obama promised to increase scholarships to the US, host a summit on entrepreneurship, and launch a fund to support technological development. Ayatollah Ali Khamenei, Iran’s supreme leader, weighed in on Wednesday, hours before Mr Obama spoke in Cairo, to remind Muslims that they hated the US. ”The nations in the region hate the US from the bottom of their hearts because they have seen violence, military intervention and discrimination,” Mr Khamenei said. ”The new US government seeks to transform this image. I say firmly, that this will not be achieved by talking, speech and slogans.”