Today's Headlines

Bloomberg:

• Services Expand at Slowest Pace in Eight Months. Service industries in the U.S. expanded in April at the slowest pace in eight months as companies cut back in response to higher energy costs. The Institute for Supply Management’s index of non- manufacturing companies declined to 52.8 last month, lower than the median forecast of economists surveyed by Bloomberg News, from 57.3 in March. The ISM’s measure of new orders at service providers decreased to 52.7, the lowest since December 2009, from 64.1 in March. The 11.4-point drop was the biggest since record-keeping began in 1997. A gauge of business activity, which reflects sentiment among purchasers, also declined. The group’s employment gauge dropped to 51.9 from 53.7 a month earlier. Fueled by spreading unrest in the Middle East, the average price of a gallon of regular gasoline at the pump advanced to $3.98 on May 3, the highest since July 2008, according to data from AAA, the nation’s biggest motoring group. Forced to spend more for food and fuel, household purchases have cooled. Consumer spending adjusted for inflation rose at a 2.7 percent annual pace in the first quarter, down from 4 percent in the last three months of 2010, the Commerce Department said last week.
  
• ADP Estimates U.S. Companies Added 179,000 Jobs in April. Companies in the U.S. added workers in April, signaling the labor market is strengthening, data from a private report based on payrolls showed today. Employment increased by 179,000 in April from a revised 207,000 the prior month, according to figures from ADP Employer Services. The median estimate in the Bloomberg News survey called for a 198,000 advance this month.
• U.S. May Pursue More Lenders After Suing Deutsche Bank(DB) on Faulty Mortgages. The U.S. Department of Justice may pursue claims against other lenders after suing Deutsche Bank AG for more than $1 billion, alleging the firm lied while arranging federal insurance on faulty mortgages. The Housing and Urban Development Department is examining loans insured through the Federal Housing Administration and may refer additional cases to the Justice Department, HUD’s general counsel, Helen Kanovsky, said yesterday in an interview. “We go where the evidence takes us, and if it takes us to the larger players on Wall Street, so be it,” Kanovsky said. “We could see another potential big negative for the industry out of this,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and an analyst with FBR Capital Markets in Arlington, Virginia. “It’s going to be a continued earnings drag on the industry.”
• China's Stocks Fall Most in Two Months on 'Critical' Inflation. China’s stocks fell the most in two months after the government said taming inflation is “critical,” signaling to investors that more policy tightening measures may be ahead even as economic growth slows. China Shenhua Energy Co., the nation’s biggest coal company, and Yanzhou Coal Mining Co. plunged more than 5 percent after Goldman Sachs Group Inc. said the government may cap thermal coal prices to help power producers. Jiangxi Copper Co. and PetroChina Co. led a drop for commodity producers as metal and oil prices extended declines. China Citic Bank Corp. fell the most in six months after the China Securities Journal said the central bank will raise lenders’ reserve requirements this month. “Curbing inflation is the top priority for the government,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “China’s economic growth has shown signs of a slowdown but that won’t change the government’s intention to cool inflation with more monetary measures.” The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid 66.2 points, or 2.3 percent, to 2,866.02 at the 3 p.m. close, the most since Feb. 22. “A moderate growth slowdown in 2011 could be taken as a signal of a hard landing going forward,” Bank of America- Merrill Lynch economists led by Ting Lu said in a report today. Growth indicators such as industrial production and fixed- asset investment will likely moderate in April from March, they said. “Stabilizing prices and managing inflation expectations are critical,” the People’s Bank of China said in a first- quarter monetary policy report published yesterday. Bank reserve requirements have no “absolute ceiling,” the report said, restating Governor Zhou Xiaochuan’s comment on April 16.
• Qaddafi's Forces Bombard Rebel Cities as Allies Prepare for Rome Meeting. Libyan forces loyal to Muammar Qaddafi bombarded rebel-held cities in the west of the country as ministers from 22 nations prepared to meet in Rome to discuss ways to end the fighting. “The nature of the conflict has changed significantly in a month, but what has not changed and will not change is the resolve of NATO and our partners,” NATO Secretary-General Anders Fogh Rasmussen told reporters today in Brussels. “It is hard to imagine that the attacks against civilians in Libya will cease as long as Qaddafi remains in power.”
• Russia's Micex Falls More Than 10% From High; Enters Correction. Russia’s Micex Index fell more than 10 percent from this year’s peak, the world’s first major benchmark stock gauge to enter a correction in six weeks. The Micex sank 2 percent to 1,657.54 by the 6:45 p.m. close in Moscow, its lowest level since Dec. 10. The 30-stock gauge has retreated from an April 6 high of 1,859.99 as commodities slipped and concern deepened that tighter monetary policy will curb economic growth.
• Crude Oil Falls in New York After U.S. Supplies Climb to a Six-Month High. Crude oil dropped to a two-week low as a U.S. government report showed supplies surged, and on signals that U.S. economic growth is slowing. Oil fell as much as 2 percent after the Energy Department said stockpiles rose 3.42 million barrels to 366.5 million last week, the highest level since October.“The inventory numbers were much more bearish than expected,” said Andre Julian, chief financial officer and senior market strategist at OpVest Wealth Management in Irvine, California. “We were already poised for a move lower when the inventory data and the negative economic numbers came out. This is looking like a perfect time to take risk off the table.” Crude oil for June delivery fell $2.07, or 1.9 percent, to $108.98 a barrel at 11:21 a.m. on the New York Mercantile Exchange.
• Applied Materials(AMAT) Agrees to Buy Varian(VSEA) for $4.9 Billion. Applied Materials Inc. (AMAT), the world’s largest producer of chipmaking equipment, agreed to buy Varian Semiconductor Equipment Associates Inc. (VSEA) for $4.9 billion in cash to add technology for chips used in mobile devices. The company will pay $63 a share, 55 percent more than yesterday’s closing price, Santa Clara, California-based Applied Materials said in a statement today.
• Deutsche Bank(DB) Sued by Los Angeles Over Foreclosed Properties, Evictions. Deutsche Bank AG (DBK) was sued by the City of Los Angeles for allegedly failing to maintain foreclosed properties and illegally evicting low-income tenants. The lawsuit comes a day after the U.S. Department of Justice sued the German bank for more than $1 billion, claiming it lied while arranging federal insurance on faulty mortgages. Deutsche Bank’s MortgageIT unit falsely certified that it was examining default risks while qualifying loans for Federal Housing Administration insurance, according to the government.
• Goldman Sachs(GS) May Make 'Near-Term' Management Changes, UBS Says. Goldman Sachs Group Inc. (GS), accused of misleading clients by a U.S. Senate inquiry, is likely to make management changes in the “near-term,” said William Tanona, an analyst at UBS AG. “Any turnover will concern investors despite the firm’s deep bench,” Tanona, who worked at Goldman Sachs from 2005 to 2008, wrote today in a note to investors. “GS’s management team is very strong; however, missteps on the public relations front have further tarnished the firm’s reputation.” Managers will remain under strain after lawmakers sent findings to the Justice Department and Securities and Exchange Commission, he said.
• Intel(INTC) Develops '3-D' Chipmaking Approach in Bid to Widen Lead Over Rivals. Intel Corp. (INTC), the world’s largest semiconductor maker, unveiled a processor made with a “3-D” manufacturing technique that increases chip performance as much as 37 percent while using less power.
• ConAgra(CAG) Sweetens Ralcorp(RAH) Offer to $4.9 Billion to Spur Talks. ConAgra Foods Inc. (CAG) offered to buy Ralcorp Holdings Inc. (RAH) for about $4.9 billion, sweetening its bid to lure the largest U.S. store-brand foods maker into takeover negotiations. The unsolicited cash offer is $86 a share, 32 percent more than Ralcorp’s closing price before the initial bid, ConAgra said today.

Wall Street Journal:

• U.S., Allies Discuss $4.5 Billion Fund to Help Libyan Rebels. The U.S. and its allies are discussing the creation of a fund to finance the operations of Libyan forces opposing the regime of Col. Moammar Gadhafi, according to people familiar with the matter. The potential €3 billion ($4.5 billion) fund, which will be on the agenda when Secretary of State Hillary Clinton and other top diplomats meet in Rome on Thursday—would be guaranteed by assets of the Gadhafi regime that were frozen in the wake of the dictator's violent crackdown on protesters this year, these people said.
• Galleon Deliberations to Start Anew After Juror Is Dismissed. Jurors were ordered to begin their deliberations from scratch Wednesday in the insider-trading trial of Galleon Group founder Raj Rajaratnam after a juror was dismissed.

Bloomberg Businessweek:

• Connecticut Senate Approves Democratic Budget Deal. The state Senate bucked a national trend of forgoing tax increases early Tuesday and instead passed a two-year, $40.1 billion budget that attempts to tackle the state's deficit with a combination of cuts, labor savings and wide-ranging tax hikes. Republican lawmakers warned the opposite will happen. They said the cornucopia of increased taxes -- about $1.4 billion in the first year and $1.2 billion in the second year -- on everything from personal and corporate income to diesel fuel, yoga studios, alcohol and pedicures hurts specific industries and everyday taxpayers still struggling from the recession. "Hold on to your hat. We're going to tax you from head to toe and everything in between," warned Sen. Andrew Roraback, R-Goshen, the ranking Republican senator on the tax committee. "It's the middle class that is taking it the hardest with the budget."

CNBC.com:

• Treasury Suggests $2 Trillion U.S. Debt Cap Raise: Sources. The Treasury has told lawmakers a roughly $2 trillion rise in the legal limit on federal debt would be needed to ensure the government can keep borrowing through the 2012 presidential election, sources with knowledge of the discussions said. Obama administration officials have repeatedly said that it is up to Congress to decide by how much the $14.3 trillion debt limit should be raised. But when lawmakers asked how much of an increase would be needed to meet the government's obligations into early 2013, Treasury officials floated the $2 trillion working figure, Senate and administration sources told Reuters.

Business Insider:

• Hedge Funds Go Long Asian Currencies At Record Levels. As of last Thursday, according to a senior Deutsche Bank currency strategist, "long positions in some of the Asian currencies had been close to a record high."
• India Had Warned The U.S. That Bin Laden Was Hiding Close to Islamabad.
• UBS Economist Explains Why China Is Zooming Towards a Gigantic Credit Collapse.
• Amazing Frontline Special Shows Everything Pakistan Does To Aid The Taliban.
  

Zero Hedge:

• Out Come The Big Gunz: Interactive Brokers Advises Traders Of Yet Unknown, But Certainly Scary, Silver Margin Increase.
• The Strategic Considerations In The Choice of Osama's Safe House by Stratfor. (video)
  

New York Times:

• China Establishes New Internet Regulator. A powerful arm of China’s government said Wednesday that it had created a new central agency to regulate every corner of the nation’s vast Internet community, a move that appeared to complement a continuing crackdown on political dissidents and other social critics.

LA Times:

• Boeing's(BA) Robotic Jet Phantom Ray Takes Maiden Test Flight. A sleek, delta-winged robotic jet took to the skies for the first time above the Mojave Desert at Edwards Air Force Base. Boeing Co.'s experimental drone, dubbed Phantom Ray, flew to 7,500 feet and reached speeds of 205 mph in its first flight. Unlike existing combat drones that are controlled remotely by a human pilot, the Phantom Ray could carry out a mission controlled almost entirely by a computer. A human pilot sitting miles away designs a flight path and sends it on its way, and a computer program guides it to the target and back.
• Obama Says White House Won't Release Osama Bin Laden Photos.
  

FINalternatives:

• Arizona Public Safety May Invest In Goldman Sachs(GS), Gracie Hedge Fund. The Arizona Public Safety Personnel Retirement System is set to consider investing more than $200 million in four hedge funds. The $6.1 billion public pension plan's board of trustees will consider a possible $60 million investment with Goldman Sachs Asset Management and $50 million with New York-based Gracie Capital, HFMWeek reports.

The Atlantic:

• Egypt's Muslim Brotherhood Sticks With Bin Laden. Most of yesterday's headlines proclaiming the death of Osama bin Laden used epithets like "terror mastermind" or "bastard" to refer to the internationally feared mass murderer. (That latter headline is from the New York Post.) But in its first public statement on the killing of bin Laden, Egypt's Muslim Brotherhood used the honorific term "sheikh" to refer to the al-Qaeda leader. It also accused Western governments of linking Islam and terrorism, and defended "resistance" against the U.S. presence in Iraq and Afghanistan as "legitimate." The Muslim Brotherhood's response to bin Laden's death may finally end the mythology -- espoused frequently in the U.S. -- that the organization is moderate or, at the very least, could moderate once in power.
  

Seeking Alpha:

• China Collapse Means Iron Ore Collapse. Can't read between the lines? Maybe you're missing the advanced warnings from the CEOs of these resource dependent companies? Allow me to throw in a quote: "These record-high levels are probably not sustainable," says Jan du Plessis, CEO of Rio Tinto (RIO), talking about base metals prices. While remaining confident of continuing strong demand from China and India, du Plessis, is prepping his firm's balance sheet for falls in copper and iron ore. It's my understanding that more than half of the iron ore in China goes into Real Estate. It ends up building negative return on investment style ghost towns. That said, right now everyone is pretending that this type of activity is adding long term economic value.

Reuters:

• Syria Charges Hundreds With "maligning the state". "Mass arrests are continuing across Syria in another violation of human rights and international conventions," said Rami Abdelrahman of the Syrian Observatory for Human Rights. Hundreds of Syrians have been charged with "maligning the prestige of the state," a Syrian rights group said, in President Bashar al-Assad's drive to crush pro-democracy protests against his 11-year autocratic rule. The charge, which carries a three-year prison sentence, was lodged Tuesday against hundreds of people detained this week before the Muslim day of prayer Friday, when the largest demonstrations calling for Assad's overthrow are typically seen. The campaign intensified after a tank-backed army unit, led by Assad's brother Maher, last week shelled and machinegunned into submission the old quarter of Deraa, cradle of the six-week-old uprising.
• Copper Falls on Fears of More China Tightening.
• Agrium(AGU) Shares Fall 5% on Weaker Forecast. Farm-products retailer and potash miner Agrium Inc offered a weaker than expected financial forecast on Wednesday, and its shares fell 5 percent despite strong first-quarter profit.

Financial Times:

• Corn Crop Delays Hit Hedge Funds. For the past few months hedge funds and other speculators have been buying Chicago’s July corn contract, which represents the old-crop, and simultaneously selling the December contract, which represents the new crop due to be harvested later this year. The wager was that old crop supplies were tight – and prices need to increase to ration domestic demand and exports – while new crop supplies were set to ease on the back of a near record planting and expectations of a big rebound in output.

Bear Radar

Style Underperformer:

• Small-Cap Value (-.75%)

Sector Underperformers:

• 1) Alt Energy -2.01% 2) Networking -1.76% 3) Road & Rail -1.72%

Stocks Falling on Unusual Volume:

• SSYS, HLF, HYC, RDEN, CTCM, IOC, PZE, TWX, STO, AMX, SI, WWWW, OPEN, NXTM, QSFT, CNQR, LAMR, AMAG, MAKO, CENX, MOTR, UFPT, IPGP, MASI, TRMB, TISI, BGFV, SOHU, KRO, PLT, HRS, INT, PWR, APL, NCI, XCO, NOV, TFSL, HES, CAM, MWE, NRP, PPO, PAY, HP, IL, FST, SLV, OPLK, FCN, JKHY, WTS, FSLR, DNDN, AREX, MCP, APL, INT, LVS, BID and BEXP
  

Stocks With Unusual Put Option Activity:

• 1) NG 2) XOP 3) MT 4) M 5) ARMH
  

Stocks With Most Negative News Mentions:

• 1) AOL 2) MEE 3) RIMM 4) DVN 5) BA
  

Charts:

• ETFs Falling on Unusual Volume
• Stocks Falling on Unusual Volume
  

Bull Radar

Style Outperformer:

• Large-Cap Value (-.90%)

Sector Outperformers:

• 1) Drugs -.06% 2) Foods -.20% 3) Homebuilders -.35%

Stocks Rising on Unusual Volume:

• NUS, MW, GPS, VSEA, VCLK, FEIC, GMCR, HAIN, GRMN, AZPN, SGI, MYGN, NVLS, ASIA and RAH
  

Stocks With Unusual Call Option Activity:

• 1) GPS 2) GMCR 3) K 4) CAG 5) NWSA
  

Stocks With Most Positive News Mentions:

• 1) FEIC 2) PEP 3) ATK 4) CAH 5) BEAT

Charts:

• ETFs Rising on Unusual Volume
• Stocks Rising on Unusual Volume
  

Wednesday Watch

Evening Headlines
Bloomberg:

• Hamas, Fatah to Sign Cairo Accord Ending Four Years of Division. Leaders of the Palestinian Authority and the Islamic Hamas movement plan to sign an agreement today to end an almost four-year rift while Israeli Prime Minister Benjamin Netanyahu lobbies against it in Europe. Mahmoud Abbas, the authority’s president and chief of its ruling Fatah faction, is scheduled to meet Khaled Mashaal, head of the Hamas movement, in Cairo to sign an agreement that calls for a united Palestinian government and elections within a year, officials on both sides said. An alliance between the two ruptured in 2007, leaving Fatah in control of the West Bank and Hamas ruling Gaza. The Palestinian reconciliation moves follow rallies in the West Bank and Gaza Strip in which thousands of people, inspired by the wave of popular protests that led to the toppling of Egyptian President Hosni Mubarak and Tunisian President Zine El- Abidine Ben Ali, called for an end to the division. Abbas is asking foreign countries to recognize a Palestinian state and has said a united leadership will help the pursuit toward statehood.
  
• UN Says Qaddafi, Rebels Set Unacceptable Cease-Fire Conditions. Libya’s government and rebel leaders battling it have attached unacceptable conditions to declaring a cease-fire, complicating efforts to formulate peace proposals, the United Nations special envoy for the conflict said.
• China's Investment Curbs Prompt U.S. Frustration, Locke Says. China has failed to deliver on pledges made to the U.S. to guarantee equitable treatment of foreign investors, creating “real frustrations,” Commerce Secretary Gary Locke said. Locke, who is waiting for Senate confirmation to be the next U.S. ambassador in Beijing, said China pledged twice in the past two years to lift restrictions on foreign investments in industries where U.S. companies hold a competitive advantage.
• Subbarao Tweaks India's Rate-Rise Playbook as Inflation Undermines Bonds. The Reserve Bank of India’s decision to double the magnitude of interest-rate increases signals it is ready to step up the battle against inflation even at the risk of damping the nation’s economic growth. The central bank’s half a percentage point increase in the benchmark repurchase rate to 7.25 percent yesterday was the biggest move since July 2008. Governor Duvvuri Subbarao indicated he would tighten borrowing costs further and predicted inflation will stay at “elevated levels” until September. Bond yields rose to the highest level in more than three months yesterday as Subbarao accelerated monetary tightening after eight quarter-point moves since mid-March 2010. India’s inflation, already the fastest among Asia’s major economies, may quicken as surging oil costs put pressure on Prime Minister Manmohan Singh to allow higher fuel prices this year. “The RBI’s focus on inflation over growth signals a major shift in its policy,” said Samiran Chakraborty, Mumbai-based chief economist at Standard Chartered Plc. “Controlling prices must be the priority now, even if it comes at the cost of sacrificing growth in the short term.” The yield on the 7.80 percent note due April 2021 gained nine basis points to 8.23 percent at the close of trading in Mumbai.
• Silver Slumps for Third Day as Increased Margins Spur Sales by Investors. Silver futures fell for a third day, set for the worst run since January, as an increase in margin requirements on the Comex drove investors away. Gold may also extend its drop into a third day. Silver for July delivery in New York slumped as much as 5 percent to $40.465 per ounce, after losing 7.6 percent yesterday and 5.2 percent on May 2. The metal was at $41.215 at 8:27 a.m. in Singapore, taking losses over the three days to 15 percent.
• Kenneth Griffin, founder of hedge fund Citadel LLC, said the U.S. government's reaction to the financial crisis is forcing money managers such as him to look overseas for investments. "It's a different country we're in today," Griffin said during a panel discussion today at the Milken Institute Global Conference in Beverly Hills, California. "It's going to force capital abroad. Citadel, like every other investment firm, will be deploying more into countries abroad with better business conditions."
• Gasoline May Surpass 2008 Record on Supply Drop: Energy Markets. Gasoline futures in New York may climb above the record price of $3.63 a gallon set three years ago as refinery "outages", a decline in shipments from Europe and a jump in exports to Latin America deplete U.S. supplies. Refinery rates as of April 22 were the lowest even for this time of year even as the U.S. enters the summer driving season, according to the Energy Dept. in Washington. Imports from Europe were down 28% in April from the prior month, according to Clarkson Research Services Ltd., a unit of the world's biggest shipbroker, while exports rose to the highest for any February on record, data show. Gasoline stockpiles have dropped 35.5 million barrels since Feb. 11 as seasonal maintenance and "unplanned shutdowns" cut processing rates, according to the Energy Department. Refiners operated at 82.7% of capacity in the week ended April 22, 6.3 percentage points below a year earlier.
• Netflix(NFLX) Said to Seek Latin America Rights to Shows From Disney, Paramount. Netflix Inc. (NFLX), looking to expand globally, is in talks with entertainment companies for rights to stream movies and television shows in Latin America. CBS Corp. (CBS) is in “serious talks” with Netflix for Canadian and Latin American rights to its shows, Leslie Moonves, the New York-based broadcaster’s chief executive, said today on a conference call. Walt Disney Co. (DIS), Lions Gate Entertainment Corp. (LGF), and Viacom Inc. (VIA/B)’s Paramount Pictures are also discussing Latin American deals with Netflix, according to people with knowledge of the talks. Latin America would become Netflix’s second market outside the U.S. The company started a streaming-only service in Canada last year, and Chief Executive Officer Reed Hastings has said he’s looking to expand more.
• Goldman Sachs(GS) said traders should stop betting that U.S. industrial stocks will beat consumer companies selling necessities, citing a lack of reports that may boost investor optimism about economic growth.
• Bank Stocks Shunned by Money Managers Turned Off by Derivatives. Banks, in the view of some of today’s best-performing money managers, are too fancy -- their businesses and finances too complicated to understand even as regulators have tried to make them more transparent. Investors owning few if any of the stocks in the group include Clyde McGregor, who runs Oakmark Equity and Income Fund, Delafield Fund’s John Delafield and Donald Yacktman of Yacktman Focused Fund. The fund managers said they are frustrated by complex balance sheets stuffed with derivatives that make it hard to evaluate bank assets and how they will fare under different economic scenarios. They are also concerned that profits may be hurt by a slowdown in the economy, litigation over mortgage bonds and foreclosures, and new fee-crimping rules. “We find it hard to believe the banks have cured all their bad asset problems, and they aren’t transparent enough for us to understand the risks,” McGregor, whose $20.5 billion fund beat 99 percent of peers over the past decade, said in a telephone interview from Chicago.

Wall Street Journal:

• U.S. Is On Alert for Hastened Terror Plots. Zawahiri, bin Laden's Second-in-Command, Struggles to Keep Group Relevant Amid Popular Uprisings. U.S. intelligence agencies believe Osama bin Laden's second-in-command and other al Qaeda leaders may try to accelerate plots in the works to prove the terror network is still potent following its leader's death, officials said. Ayman al-Zawahiri is widely considered even more radical than bin Laden, but he is struggling to keep al Qaeda relevant at a time of popular uprisings inspired by others throughout the Arab world.
• Steep Drop Tarnishes Big Bets on Silver. Silver prices plunged, suffering their worst one-day drop in dollar terms in three decades, as investors fretted that rising trading costs could cripple a market that has been exhibiting signs of froth. Silver's fall of $3.50, or 7.6%, and a 1% drop in gold prices Tuesday came as some major investors have been selling. George Soros's big hedge fund, a firm operated by high-profile investor John Burbank and some other leading firms have been selling gold and silver, according to people close to the matter, after furiously accumulating precious metals for much of the past two years. Their selling suggested the sharp, nine-month run-up for precious metals could be entering more dangerous territory.
• Cash Crunch Won't Rush Dodgers' MLB Monitor. The Los Angeles Dodgers may not have enough cash to cover their expenses at the end of this month when a round to paychecks to players are due, according to two people familiar with the team's financial problems. The team also certainly will face insolvency by July, they said.
• GE(GE) CEO: Expects Clean-Technology Revenue of $21 Billion This Year.
• At Nasdaq(NDAQ), a Pitch and Woo. Exchange Courts Hedge Funds to Buy NYSE Shares; Private Meeting With Greifeld. Nasdaq OMX Group Inc. has rolled out the red carpet to hedge funds, racing to persuade them to buy up shares of NYSE Euronext to derail the Big Board's planned tie-up with Deutsche Börse AG. Investors have until May 4 to buy NYSE shares if they want to vote on the Deutsche Börse deal on July 7. Nasdaq is trying to boost the chances for its hostile bid by getting the hedge funds, who are interested in quick profits, to buy in.

MarketWatch:

• Barney Frank Targets Fed Hawks. Wants to Strip Regional Bank Presidents of FOMC Vote.Rep. Barney Frank, the top Democrat of the House Financial Services Committee, is taking aim at the hawks on the Federal Reserve. Frank announced Tuesday he will introduce legislation to strip the 12 regional Fed bank presidents of their votes on the central bank’s interest-rate setting Federal Open Market Committee. At the moment, several of these regional Fed bank presidents are more hawkish than the chairman, Ben Bernanke, and the majority of the voting members of the FOMC. That means they generally want the Fed to concentrate more on preventing inflation than stimulating growth. At the moment, several are urging the Fed to hike rates sooner rather than later.

CNBC:

• Las Vegas Sands(LVS) Takes Hit in Singapore, Shares Drop. Billionaire Sheldon Adelson's Las Vegas Sands disappointed investors with a lower-than-expected quarterly profit at its Singapore casino-resort, sending shares of the company down 10 percent.
• Glencore's IPO Price Range May Raise Up to $10 Billion. Switzerland's Glencore International has a set a price range for its initial public offering in London and Hong Kong, enabling the company to raise up to 6 billion pounds ($10 billion), a source with direct knowledge of the plan told Reuters on Wednesday.

Business Insider:

• Alabama Tornado Damage Pushes Jefferson County Even Closer To Largest-Ever Muni Bankruptcy.
• Senators Officially Request DOJ and SEC Investigate Goldman(GS) and CEO Lloyd Blankfein. Senators Carl Levin (D-MI) and Tom Coburn (R-OK) have requested that the SEC and the DOJ look into the dealings of Goldman Sachs and whether Lloyd Blankfein perjured himself during his epic testimony in front of Carl Levin's committee last year.
• Syria's 'Arab Spring' Could Unleash Chaos Across The Middle East.
  

Zero Hedge:

• Lucas van Praag: "Don't Blame Goldman(GS) For The Food Crisis, Blame The Middle Class".

Forbes:

• OpenTable(OPEN) Posts Higher 1Q Profit, Names New CEO. OpenTable Inc., which runs an online restaurant reservation system, said Tuesday that its profit increased 68 percent in the first quarter, as more restaurants signed up for the company's electronic booking system. Investors appeared displeased at the shuffle. OpenTable shares fell $8.02, or 7.6 percent, to $96.50 in aftermarket trading. The stock had closed the regular session down $8.83, or 7.8 percent, to $105 before the report.
• Can The Federal Reserve Print to Prosperity?
• Transmission Bottlenecks Bad News for Renewable Energy.
• Osama Bin Laden Down. When Will Ground Zero Go Up?
  

CNN Money:

• Sources: Panetta to Congress - Pakistan Either Incompetent or Involved. CIA Director Leon Panetta told House members Tuesday that any way you look at it, Pakistan's role in Osama bin Laden's whereabouts was troubling. According to two sources in a closed door briefing, Panetta told lawmakers "either they were involved or incompetent. Neither place is a good place to be." He made clear that he and other administration officials are trying to get to the bottom of which it was -involvement or incompetence. Bipartisan frustration had been boiling over from both parties when it became clear bin Laden's compound was in an urban area less than a mile from a major Pakistani military academy. "It had everything except a neon sign sticking out there," Democratic Sen. Frank Lautenberg of New Jersey, told CNN. Freshman Republican Allen West of Florida, who served in the army in Iraq and was a civilian officer in Afghanistan, told CNN "there is no way that people in the ISI [Pakistan's Intelligence Agency] and military did not know that Osama bin Laden has been living there for quite some time." Lautenberg and West are among several lawmakers who say Congress should cut off funding immediately, to try to force Pakistani officials to answer questions about what they knew about Bin Laden's location. Over the last eight years, the U.S. has given Pakistan nearly $20 billion dollars in foreign aid, mostly to try to convince the tenuous ally to help combat terrorism. The State Department requested $3 billion more for next year. The Defense Department asked for $2.3 billion just for Pakistani counterterrorism efforts.

The Detroit News:

• UAW Hires Dem Insider to Head Washington Effort. The United Auto Workers announced today it has named a politically connected former Democratic presidential campaign manager, Mary Beth Cahill, as the head of its Washington office and director of its Community Action Program. "We are thrilled to have Mary Beth join the UAW leadership team, especially in light of the difficult challenges ahead for our union," said UAW President Bob King.

Politico:

• Congress Turns Against Pakistan. Congress expressed fury at Pakistan Tuesday for its role in housing Osama bin Laden for the past several years, as a wide range of powerful lawmakers are raising new questions about the billions in foreign aid the United States has spent propping up what many believe is an unreliable ally.

USA Today:

• Rental Car Gas Prices Hit More Than $9 a Gallon.

Reuters:

• Gaddafi Forces Bombard Rebel-Held Zintan - Rebels. Forces loyal to Libyan leader Muammar Gaddafi bombarded the rebel-held town of Zintan in the Western Mountains with over 40 Grad rockets late on Tuesday, a rebel spokesman said. "They were fired in two salvoes," the spokesman, named Abdulrahman, said by telephone. "The last salvo landed moments ago. We can hear NATO aircraft overhead now." A Libyan ambulance driver from Zintan who crossed into Tunisia on Tuesday told Reuters the town had come under intense shelling by pro-Gaddafi forces.
• U.S. Agents Grill Chipotle(CMG) Staff as Probe Widens. U.S immigration agents descended on Chipotle Mexican Grill restaurants on Tuesday, interviewing employees in about two dozen restaurants in Los Angeles, Atlanta and other cities. U.S. Immigration and Customs Enforcement (ICE) agents also interviewed workers in Minnesota and Washington, D.C., said Robert Luskin, Chipotle's outside counsel and a partner at Patton Boggs in the capital.
• Portugal Bailout Agreed, Cross-Party Accord Needed. Portugal reached a deal with the European Union and the IMF on Tuesday on a 78 billion euro 3-year bailout, the third euro zone member to do so after Greece and Ireland, caretaker Prime Minister Jose Socrates said. The deal will need broad cross-party support because the collapse of Socrates' government last month -- pushing up borrowing rates and forcing Lisbon to seek a bailout -- means the winner of a June 5 snap general election will implement it.
• First Solar(FSLR) Beats Street But Sees Tough 2011. First Solar Inc's first-quarter profits topped Wall Street expectations and the company stuck to its 2011 outlook, but it warned the solar market would face a tough second half of the year, sending its shares down more than 8 percent. The world's most valuable solar company said much of its sales and earnings for the year would be pushed into the second half of 2011 due to delays in closing a U.S. Department of Energy loan guarantee for a large Arizona project and subsidy changes in top European markets that are hammering demand and sending panel prices down rapidly.
• Green Mountain(GMCR) to Raise Coffee Prices; Shares Up On Strong Results. Green Mountain Coffee Roasters Inc's gross margins got a boost as it effectively passed on higher coffee costs to buyers, and the company said it would raise its prices again to deal with record high coffee costs. Shares of the company, which is the leader in the U.S. single-cup coffee market with its popular Keurig machines, jumped 21 percent after the bell as it reported market-topping quarterly results and raised its outlook for the year.
• U.S. Senate to Act on Energy Legislation This Month.

Financial Times:

• 'ET' Stokes Fears About Sweeping Swaps Rules. As regulators in the US work to implement Dodd-Frank financial reforms, and with their European counterparts close behind, the way foreign subsidiaries of US and European banks are treated by the laws is becoming a sensitive issue. For the most part, the hundreds of pages of new rules for the swaps market released in recent months by US regulators such as the Commodity Futures Trading Commission and the Securities and Exchange Commission have not directly addressed how regulations for clearing, trading and reporting swaps would apply to foreign subsidiaries of US banks or foreign banks that register as swap dealers in the US. Last month, though, one rule did address the issue of “extraterritoriality”.
• Almost a third of Russia's banks are not prepared for a repeat of the global financial crisis and would see their capital requirement dip below the 10% minimum if a similar situation were to recur, citing the results of a stress test by the country's central bank.
  

Passauer Neue Presse:

• A budget expert from Germany's governing coalition and his counterpart from the biggest opposition party urged Portugal to consider selling some of its gold reserves to ease its debt problems.

Australian:

• Most Australian voters oppose Prime Minister Julia Gillard's proposed carbon plan, citing a Newspoll survey carried out last weekend. The survey shows 60% of voters are against her plan to put a price on carbon next year, while 30% are in favor.

NHK:

• Tokyo Electric Power Co. is developing a sea water decontamination system to install at the Fukushima Dai-Ichi nuclear plant in late May. The new system has a metal container filled with zeolite to filter water and remove radioactive material.

Xinhua:

• China's State Council sets up an office to manage Internet information, citing a statement from the cabinet. The office will supervise online content management and be responsible for approvals and scrutiny of new reporting on the Internet.

Shanghai Daily:

• Shanghai Air Pollution Now The Worst on Record. SHANGHAI is experiencing its worst level of pollution to date with yesterday's recorded air quality again at the top of the scale - severe, the same as Monday. The last time pollution topped the five-level scale was on April 2, 2007 but for a shorter duration. A short spell of rain yesterday morning resulted in muddy showers in many parts of the city leaving cars covered in a layer of wet dust washed down by the rain. But the wet weather failed to substantially reduce the pollution, with the Shanghai Environmental Protection Bureau again recording its highest level of air pollutants.
  

China Securities Journal:

• China may raise banks' reserve requirement ratios this month as new yuan positions at Chinese banks accumulated from sales of foreign exchange to the central bank may remain high, the China Securities Journal reported on its front page.

Shanghai Securities News:

• China may expand limits on the purchase of property and on home prices to more cities, citing a person close to the Ministry of Housing and Urban-Rural Development. An unidentified official at the housing ministry has urged policies be taken to limit investment in smaller cities by investment funds that weaken efforts to control the Chinese property market. A total of 36 Chinese cities announced property limits at the start of this year.
• The China Electricity Council has asked the government to "appropriately" increase power prices to help ease supply shortages.
  

China Daily:

• China should impose a resource tax, a business tax and an urban construction tax as the main sources of local government tax income, Jia Kang, head of the Ministry of Finance's research institute, wrote in a commentary. Local governments should also boost tax revenues from collecting property tax.
• Chinese local governments should fund themselves through property tax collection, Jia Kang, director of the Research Institute for Fiscal Science of the Ministry of Finance, wrote. Inadequate fiscal resources render local governments "incapable of exercising their administrative responsibilities," as the fiscal and taxation system is heavily tilted toward the central government, Jia wrote
  

Evening Recommendations
Citigroup:

• Upgraded (NOV) to Buy, target $92 .
  

Night Trading

• Asian equity indices are -1.25% to -.25% on average.
• Asia Ex-Japan Investment Grade CDS Index 106.0 +2.5 basis points.
  
• Asia Pacific Sovereign CDS Index 112.0 +3.0 basis points.
  
• S&P 500 futures -.29%.
  
• NASDAQ 100 futures -.26%.

Morning Preview Links

Earnings of Note
Company/Estimate

• (FCN)/.50
• (HCA)/.75
• (PWR)/.04
• (DVN)/1.30
• (SPW)/.50
• (MMC)/.56
• (TWX)/.56
• (TRW)/1.76
• (AOL)/.26
• (KCP)/-.21
• (ICE)/1.69
• (K)/1.04
• (AGN)/.74
• (PCG)/.80
• (CVD)/.51
• (WFMI)/.46
• (NWSA)/.27
• (ERTS)/.22
• (MET)/1.26
• (JDSU)/.20
• (BMC)/.77
• (PRU)/1.47
• (IPI)/.31
• (VMC)/-.46
• (CECO)/.75
• (CUZ)/.11
• (ANDE)/.77
• (JOE)/-.06
• (SAM)/.45
• (MUR)/.98

Economic Releases
8:15 am EST

• ADP Employment Change for April is estimated at 198K versus 201K in March.

10:00 am EST

• ISM Non-Manufacturing for April is estimated to rise to 57.5 versus 57.3 in March.

10:30 am EST

• Bloomberg consensus estimates call for a weekly crude oil inventory build of +2,000,000 barrels versus a +6,156,000 barrel gain the prior week. Distillate supplies are estimated to rise by +500,000 barrels versus a -1,805,000 barrel decline the prior week. Gasoline supplies are expected to fall by -500,000 barrels versus a -2,508,000 barrel decline the prior week. Finally, Refinery Utilization is estimated to rise by +.5% versus a +.2% gain the prior week.

Upcoming Splits

• (MMSI) 5-for-4
  

Other Potential Market Movers

• The Fed's Lockhart speaking, Challenger Job Cuts report for April, weekly MBA mortgage applications report, Goldman Cloud Computing Conference, Morgan Stanley IT Services Conference, (IHS) investor day, (IMAX) investor day and the (LO) analyst meeting could also impact trading today.
  

BOTTOM LINE: Asian indices are lower, weighed down by commodity and technology shares in the region. I expect US stocks to open modestly lower and to rally into the afternoon, finishing mixed. The Portfolio is 75% net long heading into the day.

Stocks Falling into Final Hour on Emerging Markets Inflation Fears, Growth Growth Worries, Profit-Taking, More Shorting

Broad Market Tone:

• Advance/Decline Line: Substantially Lower
  
• Sector Performance: Almost Every Sector Declining
  
• Volume: Above Average
  
• Market Leading Stocks: Performing In Line
  

Equity Investor Angst:

• VIX 17.27 +8.01%
  
• ISE Sentiment Index 101.0 -7.34%
  
• Total Put/Call .91 +8.33%
  
• NYSE Arms .81 -28.30%
  

Credit Investor Angst:

• North American Investment Grade CDS Index 88.77 +1.37%
  
• European Financial Sector CDS Index 85.67 +.97%
  
• Western Europe Sovereign Debt CDS Index 188.37 +.65%
  
• Emerging Market CDS Index 200.91 +1.38%
  
• 2-Year Swap Spread 18.0 +1 bp
  
• TED Spread 25.0 +1 bp
  

Economic Gauges:

• 3-Month T-Bill Yield .02% -1 bp
  
• Yield Curve 265.0 -2 bps
  
• China Import Iron Ore Spot $182.60/Metric Tonne +.76%
  
• Citi US Economic Surprise Index -6.70 -2.5 points
  
• 10-Year TIPS Spread 2.55% -1 bp
  

Overseas Futures:

• Nikkei Futures: Indicating -104 open in Japan
• DAX Futures: Indicating -18 open in Germany

Portfolio:

• Slightly Lower: On losses in my Tech and Biotech sector longs
  
• Disclosed Trades: Added (IWM)/(QQQ) hedges, added to my (EEM) short, added a commodity short, then covered some of my (IWM)/(QQQ) hedges
  
• Market Exposure: Moved to 75% Net Long

BOTTOM LINE: Today's overall market action is bearish as the S&P 500 trades lower, despite lower energy prices, mostly positive earnings reports, buyout speculation and lower long-term rates. On the positive side, Telecom, Utility, Bank and Education shares are higher on the day. Copper is rising +1.0% and oil is falling -1.9%. Weekly retail sales rose +5.1% versus a +5.0% gain the prior week. On the negative side, Coal, Alt Energy, Energy, Oil Service, Ag, Paper and Hospital shares are under significant pressure, falling more than -2.0%. Small-caps and cyclicals are underperforming. Commodity-related equities have traded very heavy throughout the day again despite a stable euro. The US price for a gallon of gas is rising .02/gallon today to $3.97/gallon. It is up .85/gallon in 77 days. Lumber is falling -2.81% and has plunged around -25.0% in just over 2 months. Rice futures are rising another +1.28%. The US dollar continues to trade very poorly. The Greece sovereign cds is rising +2.0% to 1,339.53 bps, the Israeli sovereign cds is jumping +9.3% to 140.50 bps and the Saudi sovereign cds is climbing +12.6% to 114.68 bps. The most frothy parts of the market are getting hit the hardest today with Chinese internet stocks and silver seeing precipitous declines. As well, the sectors that are the most sensitive to global growth are getting hit. I continue to believe the global economy is slowing more than economists expect on soaring food/energy prices, US housing, European austerity, central bank tightening in emerging markets and the Japan nuclear crisis. I suspect commodities, emerging markets and industrials will continue their recent underperformance for awhile. I expect US stocks to trade mixed-to-lower into the close from current levels on profit taking, more shorting, technical selling, global growth concerns, Mideast unrest and emerging markets inflation fears.

Today's Headlines

Bloomberg:

• Death of Bin Laden Prompts Review of Pakistan Relations, Afghanistan Goals. The death of Osama bin Laden prompted immediate calls from U.S. lawmakers to re-evaluate the relationship with Pakistan, where the al-Qaeda leader was found and killed less than 35 miles from the capital of Islamabad. Even as Secretary of State Hillary Clinton said the U.S. is “committed to supporting the people and government” of Pakistan, politicians and analysts raised questions about support for the country and the need to maintain troop levels in neighboring Afghanistan. The discovery of bin Laden’s hideaway in the military town Abbottabad is the latest event to heighten U.S.-Pakistan tensions. Pakistan’s foreign ministry issued a statement today saying that the U.S. action that killed bin Laden was mounted without the country’s knowledge and may undermine future cooperation. CIA Director Leon Panetta, in an interview released today by Time magazine, said U.S. officials planning the raid “decided that any effort to work with the Pakistanis could jeopardize the mission” because “they might alert the targets.”Democratic Senator John Kerry of Massachusetts, an architect of a 2009 bill that tripled non-military aid to Pakistan, committing $1.5 billion annually for five years, called a new round of hearings to “assess the strategic relationship” between the two countries and to examine how to arrive at an “acceptable end-state” in Afghanistan. White House counterterrorism adviser John Brennan said yesterday that members of Congress are “understandably” raising questions about whether bin Laden got support from some elements of the Pakistani government. “We are looking right now at how he was able to hold out there for so long, and whether or not there was any type of support system within Pakistan that allowed him to stay there.” Obama’s 2012 budget proposes $1.2 billion in assistance for Pakistan, largely to support counterinsurgency training for troops posted along the border with Afghanistan.
• Indian Equities Drop Most Among Major Indexes on Rate Increase. Indian stocks dropped the most among major indexes in the world after rate increases by the nation’s central bank exceeded economists’ estimates. State Bank of India (SBIN) paced losses among lenders after the Reserve Bank of India raised rates by half a percentage point, more than analysts’ forecast, and predicted inflation to remain at about 9 percent until September because of higher oil costs. Mahindra & Mahindra Ltd. (MM), the largest maker of tractors, fell the most in three months. Jaiprakash Associates Ltd. (JPA), a builder of dams, roads and bridges, sank 8.2 percent. “The central bank is reacting to the alarming situation of inflation,” said Manish Sonthalia, who manages $300 million in stocks for wealthy individuals at Motilal Oswal Securities Ltd. in Mumbai. “I was expecting a 75 basis point increase by the end of the year, but there’s been front-loading of rate tightening.” Sonthalia is avoiding companies that require large amounts of capital as borrowing costs are set to rise. The Bombay Stock Exchange Sensitive Index, or Sensex, lost 463.33, or 2.4 percent, to 18,534.69 at the 3:30 p.m. close in Mumbai. The gauge fell for the seventh day, its longest run of losses since November 2008, to close at the lowest level since March 24.
• Sell Bullish Options on Indian State Banks on Rates, Morgan Stanley Says. Investors should sell bullish options on India’s state-owned banks because their values may fall as lower lending profits reverse the “strong” revenue growth of the past two years, Morgan Stanley derivatives strategists said.
• China April Home Prices Rise as Premier Wen Is 'Determined' to Cool Them. China’s home prices rose for the eighth consecutive month in April, Soufun Holdings Ltd. said today, defying government steps to cool prices. The latest gain underscores the challenge facing Premier Wen Jiabao, who said May 1 that the nation is “determined” to bring down housing prices in some cities to a “reasonable” level. Home prices rose 0.4 percent in April from March and climbed in 77 of 100 cities tracked by the nation’s biggest real-estate website owner. Wen said the government is committed to bringing down some cities’ property prices during a visit to a construction site in Beijing, the official Xinhua News Agency reported yesterday. The comments may help correct a misconception in the stock market that the government only wanted to curb increases, according to Credit Suisse Group AG. “We still expect more tightening measures,” Credit Suisse analysts led by Jinsong Du wrote in an e-mailed note today, noting that Wen’s comment was the first time he has committed to lowering some prices. “We continue to prefer taking profits on China property sector, especially after the 25% sector rally in the past one and a half months.”
• China's Central Bank Signals Tightening May Continue Even as Growth Cools. China’s central bank said controlling inflation is its top priority, even after a manufacturing survey indicated that growth may slow in the second-biggest economy. “Stabilizing prices and managing inflation expectations are critical,” the People’s Bank of China said in a first- quarter monetary policy report published on its website today. Bank reserve requirements have no “absolute ceiling,” the report said, restating an April 16 comment from Governor Zhou Xiaochuan. “Given the loose monetary policies of major economies and gradual recovery of the global economy, commodity prices keep climbing and global inflation expectations are rising significantly,” the People’s Bank of China said. “China is seeing increasing pressure from imported inflation.”
• Navy SEAL Raid on Bin Laden Reflects Tradition of Grit, Secrecy. The fatal shooting of Osama bin Laden with two bullets, the first to the chest and the second to the head, was the climax in a risky, secret Navy SEAL mission of the kind the U.S. is turning to more frequently for its national security. In a post-Cold War era of “irregular warfare” against antagonists such as insurgents and drug traffickers, the U.S. leans increasingly on covert skills and operations. The U.S. military’s Special Operations Command, which includes the SEALs, has more than tripled its budget and quadrupled the number of operatives deployed overseas since the Sept. 11, 2001, terrorist attacks.
• Russian Manufacturing Falls Most Since 2008 as Ruble Strength Hits Exports. Russian manufacturing growth slowed in April for the largest monthly drop since December 2008 after export orders declined and companies scaled back investment. The Purchasing Managers’ Index fell to a seasonally adjusted 52.1, the weakest level since November, from 55.6 in March, HSBC Holdings Plc (HSBA) said in a report today, citing data compiled by Markit Economics, a financial information services company.
• Syria Detains 1,000 People in Two Days, Local Human Rights Group Says. Syrian authorities have arrested more than 1,000 people in the last two days as a crackdown on demonstrations intensifies, according to a local activist group.
• Williams-Sonoma(WSM) Chooses Clicks Over Bricks in Web Rollout. Williams-Sonoma Inc. (WSM), the 55-year-old housewares chain known for its meticulously arranged stores and baking demonstrations, is cooking up a new strategy: remaking itself as an Internet company. Web orders are already the fastest-growing source of revenue for the San Francisco-based company, and now it’s preparing to make its e-commerce sites global by the end of June, Chief Marketing Officer Patrick Connolly said last week. Williams-Sonoma, which also owns Pottery Barn and West Elm, will invest tens of millions in the project. “We are absolutely obsessed with the Web right now,” Connolly said. By the end of next month, the company’s e- commerce site will go live in more than 75 countries.
• Orders Placed With U.S. Factories Increase More Than Forecast. Orders placed with U.S. factories rose more than forecast in March on increasing demand for machinery and computers that points to further gains in business spending. Bookings for manufacturers’ goods climbed 3 percent, a fifth consecutive increase, after a 0.7 percent February advance, the Commerce Department said today in Washington. The report also revised up estimates for capital equipment bookings issued last week.
• Sears Holdings(SHLD) Tumbles After Same-Store Sales Decline. Sears Holdings Corp. (SHLD), the department- store chain majority-owned by Edward Lampert, dropped the most in almost a year in Nasdaq trading after comparable-store sales fell and the company predicted a first-quarter loss. Sales at stores open at least a year declined 3.6 percent in the quarter ended April 30, the Hoffman Estates, Illinois- based company said yesterday in a statement.
• Senate Report on Goldman(GS) Under Review by Justice Department. The Justice Department is reviewing a report by a U.S. Senate panel that said Goldman Sachs Group Inc. (GS) misled clients about the firm’s bets on securities tied to the housing market, according to Attorney General Eric Holder. Holder told the House Judiciary Committee at a hearing today that the department is reviewing the April report by the Senate Permanent Subcommittee on Investigations. Holder didn’t elaborate on which aspects of the report are under review. At the time the report was released, Senator Carl Levin said he wanted the Justice Department and the Securities and Exchange Commission to examine whether Goldman Sachs violated the law by misleading clients who bought the complex securities known as collateralized debt obligations without knowing the firm would benefit if they fell in value.
• Deutsche Bank(DB) Faces U.S. Fraud Lawsuit Over Mortgage Lending. Deutsche Bank AG (DBK), Germany’s biggest bank, was sued for more than $1 billion by the U.S. government, which claims it “repeatedly lied” so that thousands of risky mortgages qualified for a government insurance program. The Frankfurt-based bank and its MortgageIT unit falsely certified that borrowers didn’t face risk of default, qualifying the loans for insurance by the Housing and Urban Development Department’s Federal Housing Administration, according to a complaint filed today in Manhattan federal court. The bank and MortgageIT masked problem loans through “egregious” violations of HUD rules for analyzing the income and creditworthiness of borrowers, the Justice Department said. MortgageIT endorsed more than 39,000 loans for FHA insurance after 1999, making them “highly marketable for resale,” the U.S. said. Of those, 12,500 defaulted.

Wall Street Journal:

• Pakistan Criticizes U.S. Raid on Bin Laden. Pakistan said Tuesday it had "concerns and reservations" about Washington's decision to attack and kill al Qaeda leader Osama bin Laden deep inside Pakistan without seeking their permission or giving forewarning. "This event of unauthorized unilateral action cannot be taken as a rule," Pakistan's foreign ministry said in a statement.
• Citi(C) Slashes Price Target on AOL(AOL). Citi cuts its target price and earnings estimates for AOL, as the market scribblers fret about the online company’s spending on new deal toy the Huffington Post and on Patch, AOL’s local-news umbrella organization. Citi expects AOL’s results — first up: first quarter numbers are due in Wednesday — to be “fundamentally weak” amid the $315 million HuffPo acquisition and continued “declines in (AOL’s) various businesses.” Citi expects the first quarter to show the — gasp! — 20th straight quarter of revenue declines for AOL. Citi lowers its price target to $23 from $28 and keeps its investment rating at hold.

Bloomberg Businessweek:

• Digital Realty(DLR) Gains on Data-Center Frenzy. Digital Realty Trust, the largest provider of data-center real estate, has almost tripled on the New York Stock Exchange since late 2008, amid a server-farm demand surge that the company says may intensify this year. The proportion of companies that plan to expand data centers rose four percentage points, to 85 percent, this year, San Francisco-based Digital Realty said yesterday in a statement, citing a survey it commissioned from Campos Research & Analysis.

CNBC.com:

• Fed Still Lacks 'Exit Strategy,' But Talks Are Heating Up. Federal Reserve officials held intense talks about exit strategies at their last meeting, with policymakers divided over whether to sell billions of dollars of assets first or simply raise interest rates, according to people familiar with the matter.
• A Perverse Bin Laden Incentive for Pakistan. It's pretty clear that at least some of Pakistan's intelligence operatives were hiding Osama bin Laden from the United States.

Business Insider:

• These Hedge Funders ARE Getting Slammed by Today's Silver Nosedive.
• The Red-Hot Chinese Internet Stocks Are Getting Killed Today.
• Former Goldman(GS) Client Explains How Goldman Treats Clients Like They're Dumber Than They Are.
• Why You Should Blame Tim Geithner, Not the GOP, If the US Defaults.
• Everything Facebook Will Tell The Police About You.
• Why One of the World's Biggest China Bulls Is Getting Worried. Goldman's(GS) Jim O'Neill is the man who invented BRICs, and he's been a fervent China bull. And yet in his latest monthly note, he's concerned. Basically, he's not seeing China shift its growth strategy the way he'd like. Inflation is still torrid, and the central bank is being forced to resort to blunt instruments.
• Dubai-Owned Emirates Says Oil Prices "Threaten To Bring All Of Us To Our Knees".
• Chinese Real Estate Developers Profits Drop, Debts Approach One Trillion. Chinese real estate developers have finished reporting their first quarter results. According to this report, the profits of 113 real estate companies dropped, while inventories and debts rose to some unprecedented levels.

Zero Hedge:

• Pew Finds $1.26 Trillion State Retirement Shortfall, Says States Only Have $31 Billion In Assets To Pay For $635 Billion In Liabilities.

NY Post:

• Sources: Goldman(GS) Chief to Stay 2 Years. Ceo Lloyd Blankfein, approaching his fifth anniversary running the storied investment bank amid some Wall Street speculation that recent regulatory tussles have left him burned out and looking to step down, is likely to stay put at the helm of Goldman Sachs for at least two years, sources tell The Post. Call it a desire to do more of "God's work," as Blankfein once famously described it two years ago. Or call it Bronx-born Blankfein's unwillingness to the leave the gold-plated Manhattan franchise with a reputation more tarnished than when he found it on June 29, 2006, the day he ascended to the top spot following Hank Paulson's confirmation as Treasury Secretary.

Time:

• CIA Chief Breaks Silence: U.S. Rued Out Involving Pakistan in Bin Laden Raid Early On. In his first interview since commanding the mission to kill Osama bin Laden, CIA chief Leon Panetta tells TIME that U.S. officials feared that Pakistan could have undermined the operation by leaking word to its targets.
  

Rasmussen Reports:

• 19% of Workers Report Their Firm is Hiring, 25% Laying Off.
• 72% Say $5-A-Gallon Gas Likely By July 1.
  

Reuters:

• Alcoa(AA) Shares Rise on Talk of Bid Interest: Traders. U.S. aluminum producer Alcoa Inc (AA.N) shares rose as much as 3.2 percent in early trade on Tuesday, with three traders in Europe citing market talk of bid interest from miner Rio Tinto (RIO.L)(RIO.AX).
• Nissan Wins NYC Taxi Contract. Japan's Nissan Motor Co Ltd (7201.T) won New York City's 10-year contract to build the next generation of taxis for the city, a deal estimated to be worth more than $1 billion, the New York Daily News reported on Tuesday, citing unnamed sources. The other two finalists for the concession were Turkish manufacturer Karsan Otomotiv (KARSN.IS) and U.S. automaker Ford Motor Co (F.N).
• Senate Democrat's Budget Would Hike Taxes. Democratic Senator Kent Conrad said his budget proposal does not necessarily conflict with efforts by the bipartisan "Gang of Six" senators, who are trying to come up with a budget deal acceptable to both Republicans and Democrats.
• Global Manufacturing Growth Eases in April - JPMorgan(JPM).
  

USA Today:

• Doctors, Lawyers, Dentists Tops in Fed Jobs That Pay $180,000-Plus. As Congress eyes the federal payroll for budget cuts, do you know who the nation's highest-paid federal workers are? Department of Veterans Affairs doctors, Securities and Exchange Commission lawyers and National Institutes of Health physicians represent the most numerous groups among at least 17,828 federal employees whose annualized salaries totaled $180,000 or more in September 2010.

Financial Times:

• Renren Replaces Audit Chief Ahead of IPO. Renren has replaced the head of its audit committee on the eve of its initial public offering on Nasdaq, as the Chinese social network is trying to protect itself from the fall-out of an accounting controversy at another company at which the executive serves. According to an amendment to Renren’s prospectus filed with the US Securities and Exchange Commission on Monday, Derek Palaschuk, chief financial officer of Longtop, a Chinese Nasdaq-listed specialist software company, no longer heads Renren’s audit committee and is also no longer an independent director appointee. The step follows an accounting controversy at Longtop which sent the firm’s shares plummeting last week.

National Business Daily:

• China can't control inflation with yuan appreciation, citing Tan Yaling, director of the China Forex Investment Research Institute. The pace of the currency's current appreciation is too fast and goes against the laws of economics, Tan said. The government should intervene in the yuan exchange rate, he said.