Thursday, August 30, 2007

Crude Bolts Past $73

By Chuck Marvin (TheStreet.com)

Crude oil and refined products received a boost from bullish petroleum inventory figures Wednesday, while natural gas continued to trend lower in New York. October light sweet crude gained $1.76 to $73.49 a barrel, and reformulated gasoline rose 9 cents to $2.10 a gallon. Heating oil climbed 5 cents to $2.04 a gallon. Near-term natural gas lost 16 cents, finishing at $5.43 per million British thermal units. The Energy Information Administration's oil inventory report for the week ended Aug. 24 was more supportive of prices than analysts were expecting. Crude oil stores fell by 3.5 million barrels, whereas analysts had forecast a 600,000-barrel decline. Gasoline stores shrank by 3.7 million barrels, 1 million more than had been expected. Distillates increased by 889,000 barrels, which was slightly higher than what surveys had projected. Refinery utilization rates fell to 90.3% from 91.6% during the week. "The drop in crude and gasoline inventories was a real surprise," says Alan Mandel, analyst at Alan M. Trading. "Gasoline inventories are now at their lowest in three years." Crude will likely stay in an intermediate-term trading range between $69 and $76 a barrel, while natural gas prices will probably stay low as long as the weather remains abnormally temperate, according to Mandel. Meanwhile, energy stocks were broadly higher, and the CBOE Oil Index climbed 3% to 732.48.

Wednesday, August 29, 2007

Company says it's cooperating after ICE raid

Business Courier of Cincinnati

The chicken-processing company whose facilities were raided Tuesday by Immigration and Customs Enforcement agents said it is cooperating with the investigations and resuming operations.

More than 160 suspected illegal aliens were arrested at Koch Foods' chicken packaging plant in Fairfield, and its corporate headquarters in Park Ridge, Ill., also was raided. Those who have been arrested face deportation proceedings.

The Hamilton Journal-News reported that the company's hiring practices have been under investigation for more than two years.

Koch said in a statement on its Web site that it is "fully cooperating" with immigration authorities, and that it requires all employees to provide documentation of legal residency. It also said it have established a program to audit documentation, and is implementing another through the Department of Homeland Security to verify workers' legal status.

The company also said in the statement that it is continuing normal business operations at its Park Ridge site, and resumed operations at the Fairfield plant Tuesday evening.

Koch Foods is one of the largest poultry processors in the United States, operating its own hatcheries and feed mills, as well as processing and packaging plants. Koch ranks 274th on Forbes magazine's list of the country's largest privately owned companies.

Sunday, August 19, 2007

LEAD: Nikkei rises nearly 600 pts in morning on Wall St. surge, weaker yen+

(AP) - TOKYO, Aug. 20 (Kyodo)—(EDS)

Tokyo stocks rebounded sharply Monday morning after last Friday's plunge, lifting the Nikkei index nearly 600 points due to higher U.S. shares and a weaker yen.

The 225-issue Nikkei Stock Average surged 562.89 points, or 3.69 percent, to end the morning at 15,836.57, rebounding from its more than 870-point plunge Friday, the largest one-day fall in over seven years. The index surged to as high as 15,871.92 at one point in the morning, up 598.24 points.

The Topix index of all First Section issues on the Tokyo Stock Exchange was up 53.89 points, or 3.64 percent, to 1,534.28.

Brokers said worries over the recent global stock market turbulence prompted by concern over the U.S. subprime loan crisis eased as U.S. and European shares rebounded sharply Friday following the U.S. Federal Reserve's surprise move to cut the discount rate by half a percentage point to 5.75 percent.

"Expectation grew that battered global stocks may revert to their normal states in the near future" following the Fed's action and consequent stock rebounds overseas, said Hiroichi Nishi, equities chief at Nikko Cordial Securities Inc. He said that given the extent of the recent sharp falls, investors were motivated to launch bargain- hunting.

A wide range of shares were snapped up, with wholesale, marine transport, oil, and nonferrous metal sectors leading the way.

With the dollar recovering to the 114 yen level following its slump to a 14-month low at the 111 yen level Friday in Tokyo, export-oriented auto and high-tech stocks also attracted active buying.

Wall Street yearns for Fed rate cut

By Adam Shell, USA TODAY

NEW YORK — Steps taken by the nation's central bank to restore confidence to jittery financial markets accomplished a key goal last week: It halted the stock market rout on Wall Street.

But many analysts say more help from the Federal Reserve is needed if markets are to successfully navigate the liquidity crunch that first infected the subprime mortgage market but has since spread to corporate debt markets, hedge funds and short-term funding vehicles once deemed conservative.

Wall Street is hoping that Fed Chairman Ben Bernanke will prescribe the same medicine that his predecessor, Alan Greenspan, often did to speed the recovery of ailing financial markets: slash short-term interest rates. That sentiment was summed up by Edward Yardeni, investment strategist at Yardeni Research: "Earth to Fed: Ease now!"

While Yardeni acknowledges that the Fed's job is to keep a lid on inflation — not bail out investors who got burned taking big risks — he stresses that the Fed's No. 1 goal is to restore confidence in the financial system. There is a belief that the current crisis won't fix itself, that serious issues still exist.

On Friday, the Fed took a big step toward reassuring markets when it slashed a key interest rate that it charges banks — the discount rate — to 5.75% from 6.25%. While many analysts called the move symbolic, since few banks actually use the discount window to borrow, it still fueled a 233-point rally in the Dow Jones industrials. The Dow closed at 13,079.08, down just 6.6% from its July high when it topped 14,000.

"The notion that the house is a ablaze and the firemen (the Fed) can't see the smoke has passed," says Bob Barbera, economist at ITG. But problems remain, he says.

Mortgage lenders are still under strain. So are leveraged hedge funds that lost money and are facing redemptions, and bond investors hurt by a sharp increase in corporate borrowing rates.

That's why many investors think the Fed must cut another key interest rate called the fed funds rate. This is the overnight rate, currently 5.25%, banks charge other banks. More important, the fed funds rate influences rates businesses and consumers pay on certain loans, such as credit cards, adjustable mortgages and home-equity lines of credit. A cut would help the ailing bond market most but also lift the stock market, which has been hurt by carnage in bonds, says Chris Orndorff, portfolio manager at Payden & Rygel.

The Fed said Friday it was "prepared to act as needed," to lessen the economic fallout, which suggests a rate cut may come on or before their Sept. 18 meeting.

Historically, the first rate cut by the Fed has been bullish for stocks, both short- and long-term. More important, rate cuts have resulted in big gains for financial stocks, which have been hurt most in the crisis and account for 20% of the market's value. Financials rose 9.1% three months following first cuts dating back to 1990, Citigroup says.

The fact that the Fed has room to cut is positive. "The powder is still dry," says Jon Najarian, analyst at OptionMonster.com.

Friday, August 17, 2007

Stocks Fly After Fed Cut (TheStreet)


By Robert Holmes

A surprise cut in the Federal Reserve's lending rate to banks sent stocks higher Friday as traders hoped the move would help calm the turbulent financial markets.

The Dow Jones Industrial Average rose 233 points, or 1.8%, to 13,079, and the S&P 500 added 35 points, or 2.5%, to 1446. The Nasdaq Composite gained 54 points, or 2.2%, to 2505. Earlier, the Dow was up more than 300.

The Fed, reacting to a crisis in liquidity conditions that has roiled markets around the world, reduced the discount rate, or the interest rate it charges banks that want to borrow, 50 basis points to 5.75%.

Discount-window borrowing is intended to provide liquidity to individual institutions in the event of urgent short-term funding needs. It differs from the better-known fed funds rate, which is used when banks lend to each other.

A statement from the Fed said that "financial market conditions have deteriorated, and tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward."

The central bank reiterated that it believes the economy is continuing to expand at a moderate pace, but "downside risks to growth have increased appreciably."

"The Fed's move to cut the discount will certainly help alleviate the liquidity problem," said Peter Cardillo, chief market economist with Avalon Partners. "They left the fed funds rate unchanged, but they said they are monitoring the situation. They were concerned about growth faltering, they acted, and the markets like it."


Separately, the Fed injected another $6 billion of liquidity into the system by way of a three-day repurchase agreement.

Despite the rally, the major averages were still lower for the week. Currently, the Dow has lost 1.7% over the five sessions, the S&P 500 has fallen 1.3%, and the Nasdaq is down 2.3%.

Overseas, Asia's indices were hit hard, but Europe bounced after the Fed cut. Tokyo's Nikkei 225 plummeted 5.4%, and Hong Kong's Hang Seng fell 1.4% overnight. London's FTSE rebounded to jump 3.5%, and Germany's Xetra Dax added 1.5%.

The recent surge in the value of the Japanese yen was partly to blame for the heavy declines in Asia. The yen is at its highest against the dollar in over a year, leaving it poised for its best weekly gain in nearly nine years.

The overseas indices were partly reacting to a roller-coaster day in the U.S. After overcoming a hideous decline on Thursday that had stocks at their worst levels around midday, the Dow finished down just 15.69 points, or 0.12%, at 12,845.78. At one point, the Dow had been lower by 343 points.

The S&P 500 did fully erase its losses, and rose 4.56 points, or 0.32%, to 1411.26. The Nasdaq shed 7.76 points, or 0.32%, to 2451.07, but was well above its lowest mark of the day.

Robert Pavlik, chief investment officer with Oaktree Asset Management, said that while the futures are bouncing for the moment, the Fed's move may not be the end of rampant selling.

"This has stemmed the downward pressure for now, but this is the discount window and not the fed funds rate," said Pavlik. "Mortgage loans are not tied to the discount window. This doesn't help the individual consumer because it doesn't completely straighten out the subprime mess. It's not necessarily going to bring back the market liquidity that helped finance all the leveraged buyout and private-equity deals."

Ian Shepherdson, chief economist with High Frequency Economics, said that traders can only speculate, but "the decision to move the primary discount rate rather than the fed funds rate may indicate that the Fed anticipates some institutional failure as soon as today, probably not a bank, but rather an institution that has substantial bank liabilities that may not be able to clear."

U.S. Treasury bonds, which had been a safe haven for investors as the major averages slid dramatically this week, were losing ground. The 10-year note was lower by 2/32 in price, raising the yield to 4.67%, and the 30-year bond was down 15/32, yielding 4.99%.

Energy and commodity prices were rebounding after falling hard last time. Oil prices dropped $2.33 during the previous session, but finished up 98 cents to close at $71.98 a barrel. Gold futures gained $8.80 to $666.80 an ounce, and silver was higher by 30 cents to $11.80 an ounce.

Among equity names, Countrywide (CFC) was again making headlines. The stock has tumbled 31% this week, falling most recently on news that it has tapped an $11.5 billion credit line in order to fund loans.

Ahead of the open, Banc of America Securities upgraded Countrywide to neutral from sell, saying it believes that the decision to access credit should help the company weather the subprime storm. Shares were jumping $2.23, or 11.8%, to $21.18.

Hewlett-Packard (HPQ) was also in focus after the tech giant posted fiscal third-quarter earnings following the previous close that beat Wall Street's estimates.

H-P also raised fiscal fourth-quarter earnings and sales guidance, and the stock was up $1.39, or 3%, to $47.44.

Sunday, August 12, 2007

No US dollar sell-off, Chinese central bank official says

HEAT IS ON: As the US dollar has fallen in value, China's central bank is facing pressure to diversify its holdings to maintain the value of its reserves

AP, BEIJING

China sought yesterday to dampen speculation it will conduct a massive sell-off of US dollar holdings, with a central bank official saying the US dollar remains a mainstay of its foreign exchange reserves.

In an interview carried by the government's Xinhua news agency, an unnamed official with the People's Bank of China said US dollars and government bonds are "an important part of China's foreign reserve investments."

China's US$1.3 trillion in foreign exchange reserves are the largest in the world and are believed to be comprised largely of dollar assets, potentially giving Beijing enormous sway over the dollar's value worldwide.

A report in the British newspaper the Daily Telegraph last week that quoted Chinese government economists as saying China would dump its dollar holdings in the event of a trade war with Washington added to jitters in stock markets already unnerved by volatility in US share markets.

Xinhua said the central banker's remarks were intended to counter reports in Western media that China "is threatening to carry out a sell-off of US dollars."

The People's Bank does not disclose the composition of its foreign exchange reserves, which have swelled in recent years as China's exports surged and investors poured money into the country to profit from an economy now in its fourth straight year of double-digit growth.

But the reserves have become a political issue both within China and between Beijing and Washington. As the US dollar has fallen in value, the People's Bank has come under pressure to diversify its holdings to maintain the value of the reserves and improve returns.

Wednesday, August 8, 2007

Flooding Cripples Subway System



By Sewell Chan (NYTimes)

Flooding from torrential overnight rains crippled the New York City subway system this morning. As of noontime, the majority of the subway lines were either disrupted or beset by severe delays. The Metropolitan Transportation Authority said its efforts were focused on restoring normal service by the evening rush. Its Web site was frequently unavailable this morning, and its subway service advisories were not updated for about two hours this morning.

One woman was killed on Staten Island got killed after her car got stuck in an underpass. “Another car came along and hit her and she died as a result of her injuries,” Mayor Michael R. Bloomberg announced this afternoon.

The thunderstorm caused havoc across the region, forcing thousands of people, like the pedestrians who crowded the Manhattan Bridge in both directions, to walk to work or work from home.

The National Weather Service was investigating whether a tornado had touched down, but Jeff Warner, a meteorologist at Pennsylvania State University, said radar showed “spinning” associated with the storm but no tornado. According to Consolidated Edison, the storms toppled electric wires in parts of Brooklyn and Staten Island. Meteorologists warned about scorching heat this afternoon, while in Bay Ridge, Brooklyn, high winds damaged rooftops and toppling trees.

Alfonso Quiroz, a Consolidated Edison spokesman, said that about 4,000 customers throughout the city were without power — including 1,500 on Staten Island and 1,000 in the Bronx — largely because the storm knocked down power lines.

At 9:55 a.m., transit officials warned that the subway system would not be back until noon at the earliest — and possibly not until the evening rush. “We can pump a lot of water out of the system — we do, on a daily basis — but when we have this much rain in the system at one time, our ability to pump the water out into the sewer system is hampered because that system is overwhelmed,” Paul J. Fleuranges, a New York City Transit spokesman, told NY1 News.
busA knot of commuters squeezed onto a southbound bus outside Time Warner Center at around 8:45 this morning. (Photo: David W. Dunlap/The New York Times)

In the NY1 interview, Mr. Fleuranges acknowledged that the M.T.A. Web site was down much of the morning. “It’s not an excuse,” he said. “We can do better. We should do better.”

The information was changing so quickly, Mr. Fleuranges said, that transit officials struggled to respond.

For much of the morning, the M.T.A.’s news office had only one employee on duty; the others were trying to get in. Charles F. Seaton, a spokesman for the agency, said at 10:35 a.m. that he had just reached the office after trying to do so for three hours.

As of 9:15 a.m., the Long Island Rail Road reported scattered disruptions, and delays of up to a half hour throughout its system, but the Metro-North Railroad reported at 8:50 a.m. that service on all three of its lines had been restored, although significant delays coming in to Grand Central Terminal remain. Delays were also reported on New Jersey Transit and PATH commuter lines.

The region’s three major airports — La Guardia, Kennedy and Newark — reported flight cancellations and delays.

The New York Times is interested in any photographs readers may have taken of the disruptions or damage caused by the heavy rains. Readers are invited to send to e-mail their photos (in JPG or TIFF format) to cityroom.nyt@gmail.com.

Despite the heavy rains overnight, the New York region was not expected to get cooler.

At 4:09 a.m., the National Weather Service issued a heat advisory for 1 to 6 p.m. today in southeastern New York and northeastern New Jersey. “The combination of temperatures rising into the lower to mid 90s, along with high humidity, will result in heat-index values around 100 degrees for several hours in the afternoon,” the weather service said. In New York City, the thermometer is expected to reach 94 degrees.

The weather service warned that the thunderstorms moving into the area this morning would produce “gusty winds and locally heavy rainfall, resulting in minor urban and small stream flooding.” There is a slight chance of thunderstorms this afternoon, as well.

At 8:45 a.m., an increasingly impatient crowd of 60 or 70 people stood outside the Time Warner Center, waiting for southbound buses to round their way into Columbus Circle. Knots of would-be passengers formed outside both the front and rear doors, but because the buses were already packed, most people had to give up and settle for the bus after that. Or the bus after that. Or the bus after that.

After a packed-to-the-gills A train pulled into a packed-to-the-gills 34th Street station this morning, the conductor offered some words of advice over the loudspeaker to the grumbling passengers struggling to get on and off the train: “Write a letter to Mayor Bloomberg and tell him to clean the drains!”

Around 9 a.m., the Crossroads Cafe, which sits atop the Fort Hamilton Parkway stop in the F line, in Windsor Terrace, Brooklyn, was packed with commuters who gave up on waiting for the train and decided to get coffee and wait out the delays.

Matthew A. Brown, 30, an architect, read a novel, ate a croissant and sipped coffee. “I waited for five trains,” he said. “You couldn’t get on. There were little tiffs, like: ‘Hey buddy, there’s no room.’ I decided not to fight it.”

John Han, 50, a financial adviser, decided to walk home from the station with his wife, after they waited from 7:45 to 8:45 a.m. as a few packed trains passed by. “It looked like a sardine can,” he said. “We’re going to go home and take a shower and try again later, because we’re very sweaty.”

On this blog, readers have already posted a variety of comments below. SH wondered why there was not more information on the morning news programs about the delays. “I walked to the 1 train to find the station was closed,” SH wrote. “Of course the MTA woman there was completely useless.”

Liz wrote, “I went for a morning jog across the brooklyn bridge for the first time this morning and was wondering the whole time if something was going on or do this many people walk to work every morning!”

El Jones wrote, “I am stunned how unreliable the New York Transit system is. For the price it must be the most poorly run system in the world; For half the system to be knocked out by a night of heavy rain is embarrassing. Even worse is the announcements/notifications that they give their PAYING customers. I entered the subway today, and there was no announcement, sign, employee, or anything else that would warn me that something was wrong, or which track to use. Once on the track, there was also no announcements or warnings.”

Roy Jones wrote: “It was crazy here in Canarsie/East New York. The rain was pretty bad but I think the worst part of it all had to be the lightning. I’m talking about lightning strikes every 10-20 seconds. Somewhere around 6:00 I saw a big flash of lightning, and then poof the power went out. I have to say it was kind of scary but yet impressive. Did anybody hear the 5 big cracks of thunder back-to-back? It was wicked man!!!!!

Eric wrote, “The drive to JFK from Prospect Heights Bklyn was nearly impossible at 5:30 this morning (S Conduit, Belt, everything flooded) — return home was worse! Then to try to get the subway to lower Manhattan was crazy — 2, 3, 4, 5, N, R, B, D, A, C — nothing running. Had a nice breakfast outside Borough Hall waiting for something to resume! The 4 finally made it to Bowling Green.”

As of 8:45 a.m., the Long Island Rail Road reported 25- to 30-minute delays across the rail network, caused by flooding in several locations. The Port Washington branch was suspended in both directions because of flooding in Bayside, Queens. The railroad was trying to arrange for alternate bus service. Service to Hunterspoint Avenue, in Long Island City, Queens, was restored after being suspended earlier this morning because of water conditions.

The L.I.R.R. Main Line was delayed by up to 30 minutes because of “high water conditions” just east of the Mineola station. The Oyster Bay Branch was temporarily suspended after an injured person was found on the tracks near East Williston, N.Y.

Michael Cooper, David W. Dunlap and Ann Farmer contributed reporting.

Monday, August 6, 2007

The Nardelli Era Starts at The New Chrysler

David Kiley (Business Week)


Just back from the Chrysler press conference at which Bob Nardelli (right)was introduced as chairman and CEO. I counted at least four times that he put his hand on former CEO Tom LaSorda’s (left)shoulder or back as the two presented a love-in to fix Chrysler.

LaSorda is staying on as president and vice chairman. And I’ll have to be proved wrong. But I get the impression that LaSorda, whom Nardelli referred to as “Tommy” at one point, is in some way happy that Nardelli has come on to take the spotlight and pressure off him.

I’ve spent a little time around LaSorda the last few years. He has an ego, like any manager who gets to be CEO. But LaSorda also has a pragmatic, realistic side that I have seen come out too. With Cerberus Capital Management now controlling Chrysler, it was unlikely that LaSorda was going to run the show. He’d been handpicked by DaimlerChrysler chief Dieter Zetsche, and the two of them mangled Chrysler’s comeback over the last two years.

Bu they need LaSorda. The son of a Canadian Auto Worker, LaSorda is a key man in Chrysler negotiations right now. He is also a key guy with the network of plant managers and, increasingly, dealers. A manufacturing and production guy, LaSorda will also be a guy who focuses on one of Chrysler’s biggest shortcomings—product and design quality. And he can do so, backed up Nardelli’s well-known Six Sigma whip and without having to worry about the financial/accounting part of the job.

In football terms, I have gotten the idea that being the head coach is not as critical to LaSorda as it is to Nardelli, and that he is one of those guys who can happily step back to being, for example, the Defensive coordinator. LaSorda is happy to be in the car business. It’s his life. He knows what he, and they, can do now outside the glare of Wall Street and with the running room afforded the management team by being private. If he is successful in fixing the thing with Nardelli, he will become richer and probably see his stock rise to be CEO of another car company. In short, LaSorda seems to know that Nardelli can teach him some things and is humble enough to go back to school.

Nardelli can be a back-breaker to the managers who report to him. That’s his reputation. What we’ll be looking for is whether the unpleasant and somewhat humiliating exit from Home Depot last January translated into any management lessons to the former GE exec, or whether this opportunity to run Chrysler back into sustained profitability is all part of a revenge plan to prove Nardelli’s naysayers wrong.

It’s more than a coincidence that Cerberus reached out to Nardelli about the same time it found some $10 billion plus in debt sitting on the shelf with no buyers. Even with the debt markets suddenly sinking, there was tepid interest and enthusiasm for a debt tied to a Chrysler comeback.

Nardelli is a brand name manager, like him or not. And it appears that Cerberus felt that Nardelli’s well-known brand of operational discipline and back-breaking style is what is needed to hot-foot confidence in this turnaround idea…The New Chrysler.

Friday, August 3, 2007

Toy recall shows challenge China poses to partners

Mattel's recall of lead-tainted toys illustrates the potential risks firms face as they seek to benefit from low-cost Chinese goods. U.S. and Chinese officials agreed to work more closely to promote product safety.

Jane Spencer And Nicholas Casey, Wall Street Journal

Mattel Inc.'s recall of nearly one million lead-tainted toys shows the challenge Chinese companies increasingly pose for U.S. partners: how to benefit from low-priced goods without getting torpedoed by safety and regulatory risks.

The Mattel recall, comprising 83 types of toys from its Fisher-Price unit, involves excessive levels of lead paint in toys -- a common problem in China despite lead-paint regulations both there and in the U.S.

China makes nearly 80% of the toys that come into the U.S. and is a leading exporter of products from electronics to apparel to auto parts. Recent weeks have brought a spate of quality-control concerns about Chinese exports, from pet food to toothpaste to tires, which besides spooking consumers has heightened existing trade tensions with Washington. The events also are triggering questions about the role Western companies should play in monitoring the complex supply chain that links them to low-cost production facilities in China.

The Chinese government has tried to reassure consumers about the safety of its products. Chinese Minister of Commerce Bo Xilai said this week that more than 99% of Chinese exports are safe and of good quality.

The toy industry, along with other businesses, has moved so much manufacturing to China, in order to cut costs, that it remains exposed to problems despite laws and efforts on the ground to contain them. Public-health experts say Chinese manufacturers repeatedly revert to lead paint regardless of the rules because it is cheap and readily available, and helps factories meet relentless pressure to contain costs. Such violations slip through because of regulatory gaps in both nations.

While the recent recalls have ignited health worries in the U.S., lead exposure is a major public-health problem in China, where millions of children have unsafe levels of lead circulating in their blood. One 2004 study by researchers at Peking University in Beijing found 34% of young children in China had blood-lead levels that exceed the safe limit set by the World Health Organization, though exposure rates have improved in recent years.

"We're obviously concerned about the toys reaching the U.S.," says Scott Clark, a professor of environmental health at the University of Cincinnati. "But there are kids in China who are exposed to this stuff all over the place." He has found unsafe levels of lead paint in India, Indonesia, Ecuador and Nigeria.

In the U.S., a crescendo of lead-related product recalls has encouraged calls for more-rigorous, standardized product testing for toys made in China. About a third of the 967,000 toys being recalled in the U.S. -- which include popular Elmo, Dora the Explorer and Sesame Street characters -- reached stores this spring and summer before Mattel began the recall process last month.

Mattel won't publicly name the manufacturer until the El Segundo, Calif., company completes an investigation of how the toys were tainted. But Jim Walter, the company's senior vice president of world-wide quality assurance, said, "It's my understanding that they are producing toys for other companies." He said if products from the factory were sold to other companies, it would be the responsibility of the factory owner, not Mattel, to alert them.

"We have no right to go in there to ask, 'Who else are you producing for, and what else are you making?' " Mr. Walter said. He added that he had personally received no calls from toy companies seeking the name of the factory. The Toy Industry Association, which has close ties to Mattel, said it hadn't asked for information on the toys' source.

U.S. retailers and toy makers, including Mattel, have attempted to devise processes to prevent products with lead contamination and other problems from reaching shelves. But the systems vary, and they haven't kept problem toys from slipping through the process. Sometimes, toys that have passed inspection more than once are later found to contain excessive levels of lead paint -- a sign Chinese companies may have been able to game the safety inspections.

In Mattel's case, its own inspection process -- praised for being an industry standard -- also failed. Mattel allowed the manufacturer to perform its own tests, the company said, because it has a trusted 15-year relationship with it. Mattel says it performed monthly audits of the manufacturer's toys, which sometimes involved testing samples and other times involved reviewing the manufacturer's own testing records. "They didn't perform the testing they should have," said Mr. Walter. "And the audit we performed didn't catch it."

"We're certainly taking a hard look as an industry for a common set of requirements or procedures," Mr. Walter added.

Such incidents are one reason for calls to mandate independent third-party testing.

Meanwhile, some critics say U.S. regulators such as the Consumer Product Safety Commission are ill-equipped to police toy imports from China. "The CPSC does not test the products in advance," says Ed Mierzwinski, the consumer-program director at the U.S. Public Interest Research Group. "Even if it were ordered to, it's underfunded, understaffed and has inadequate authority to even impose recalls."

Last month, acting CPSC Chairman Nancy A. Nord sent a letter to members of Congress asking them to help modernize the commission. It was last reauthorized in 1990, said agency spokeswoman Julie Vallese, and its regulatory powers weren't written for a globalized marketplace. The reauthorization didn't include how to deal with purchasing over the Internet, for instance, Ms. Vallese said, adding that the CPSC is "seeking 21st-century tools for 21st-century problems."

At the same time, Chinese regulators are seen as lax in enforcing their own lead-paint standards. China has laws banning lead paint from consumer products. But a lack of regulatory enforcement means such laws are routinely ignored. Over the past three years, Mr. Clark at the University of Cincinnati has tested 38 paint samples from China, representing 11 brands. He found more than 25% had lead levels exceeding the U.S. safe limit of 0.06% for paint.

Lead is a neurotoxin that hijacks the developing brain. It causes damage by mimicking helpful metals found naturally in the body, such as calcium, iron and zinc. Lead displaces those and disrupts brain circuits critical for learning. Occasional exposure to small amounts is unlikely to have serious health effects, but repeated exposure can cause declines in IQ and, in extreme cases, severe brain damage. New research suggests there is no safe level of lead exposure, and the World Health Organization has tightened its guidelines over the past year.

That has sharpened concern over whether industry or governments can stop Chinese manufacturers from using lead paint. A series of recalls so far this year has involved not just Mattel, but millions of pieces of children's jewelry, Thomas & Friends trains made by RC2 Corp. and other goods. The recalls can be costly for companies -- Mattel, which had 2006 sales of $5.65 billion, said today it expects to take a charge of $30 million for the second quarter for the incident.

Mattel could face liability lawsuits over the recall, even though the toys were made by a third party. RC2 faces several suits, with allegations including negligence and unfair and deceptive trade practices. Some plaintiffs are asking for funds to medically monitor children who played with the toys.

An RC2 spokeswoman said the company believes it has taken "the right steps to protect the safety of the children...and assure their parents the safe, high quality products they expect."

Lead can make paint more resistant to corrosion, stabilize it and fend off mold. It also helps it dry quickly, speeding up production and reducing costs.

Two decades ago, Mattel was one of the first U.S. companies to move manufacturing to China. The gritty industrial province of Guangdong in southern China now has more than 5,000 toy factories, where the majority of the world's toys are made.

Lead experts say the scale of the recall suggests the use of lead paint wasn't uncommon at the factory at issue in the Mattel recall. "From the size of the recall, we're not talking about accidental use of paints," says Paul Mushak, a toxicologist at PB Associates, a Durham, N.C., risk-assessment firm specializing in toxic metals. "We're talking about something that's been a conventional practice."

Mattel disputes this claim.

How to prevent lead-paint use has bedeviled U.S. toy makers. In 2003, for example, Toys "R" Us Inc. voluntarily recalled 50,000 lead-laden sticks of sidewalk chalk. Afterward, the company ramped up safety measures by evaluating products before full-scale manufacturing, as well as enlisting third-party labs to perform spot-checks. An internal team was also established to bring products beyond CPSC standards.

Even so, lead contamination has remained an issue for the retailer. In March, Toys "R" Us voluntarily recalled about 128,700 military toys produced by Toy Century Industrial Company Ltd. of Hong Kong that were found to contain high levels of lead paint.

According to Rick Ruppert, the company's executive vice president for product development and global sourcing, the toys had originally passed two safety inspections: first before they were put into production, and then on the first shipment. No lead was found. Subsequent shipments aren't always tested, Mr. Ruppert said, but periodic spot-checks were done by a third-party inspector as well as annual tests. It was during one such spot check that a Hong Kong lab detected the lead.

Since the most recent incident, Toys "R" Us says it has stepped up testing for lead and has increased its quality-assurance budget by 25%.

But Mr. Ruppert said the cost of moving operations from China were too high given China's unique ability to produce high toy volume. "The cost of the transition would be disruptive," he said.

McDonald's Corp., one of the world's largest toy buyers, says the problem of lead paint is so widespread in China that the company has developed a system to monitor paint all the way through the supply chain back to the paint suppliers. The company requires its Chinese toy makers to agree to use only those suppliers.

"We never go on the open market, so we know exactly who we're dealing with," said Walt Riker, vice president of corporate communications.

P&G 4Q Net Up 19%, Plans Buyback Up To $30 Billion

By Anjali Cordeiro Of DOW JONES NEWSWIRES

NEW YORK -(Dow Jones)- Procter & Gamble Co.'s (PG) fourth-quarter profit jumped 19% despite hefty commodity-cost pressures, as sales jumped in the consumer giant's razor and home-care businesses.

The maker of Pampers diapers and Oil of Olay beauty products also said it will buy back $24 billion to $30 billion of its shares over the next three years at a rate of $8 billion to $10 billion a year. That is sharply higher than the company's fiscal 2007 repurchases of $5.6 billion.

Procter & Gamble's stock has had a weak performance this year, and the buyback may be a positive for the shares going forward. "Net net it's going to be good for the shares," said Sanford Bernstein analyst Ali Dibadj. The improved topline and margins also could make investors more comfortable about P&G's performance, he said. Still, the company's first-quarter guidance was slightly below analysts' average estimate, he pointed out.

The consumer company's sizable share repurchase comes at a time when shaky credit markets have derailed several buyouts and even caused one large company, online travel concern, Expedia Inc. (EXPE), to slash the size of its proposed stock buyback by 79%. Standard & Poor's said in a statement that its rating and outlook on P&G are unaffected, and the buybacks are expected to be funded mostly through free cash flow with some incremental debt.

However, P&G projected fiscal first-quarter and fiscal 2008 earnings just below analysts' mean estimates. For the first quarter, the company anticipates earnings of 88 cents to 90 cents a share, with overall sales increasing 6% to 8% and organic sales - a closely watched measure that excludes the effect of acquisitions and exchange rates - rising 4% to 6%. Mean estimates of analysts surveyed by Thomson Financial were for earnings of 91 cents a share on 6% revenue growth to $19.95 billion.

Procter & Gamble also projects fiscal 2008 earnings of $3.44 to $3.47 a share, revenue growth of 5% to 7% and organic sales growth of 4% to 6%. Analysts were expecting, on average, earnings of $3.48 a share on revenue growth of 6% to $ 80.69 billion.

P&G's stock recently was up 12 cents to $63.42 in premarket trading.

The Cincinnati consumer and health-care products company had fourth-quarter earnings of $2.27 billion, or 67 cents a share, up from $1.9 billion, or 55 cents a share, a year earlier.

Procter & Gamble said net sales for the quarter ended June 30 rose 8% to $ 19.27 billion from $17.84 billion a year ago.

Analysts surveyed by Thomson Financial expected, on average, earnings of 66 cents a share on revenue of $19.11 billion.

The company's organic sales growth rose 5%. The weaker dollar added 3 percentage points to overall sales.

During the quarter, P&G reorganized into three divisions - beauty care, global health & well being, and household care. The company plans to expand further into health and beauty products, which generate higher margins than the household line.

Sales at P&G's beauty segment, which includes Pantene shampoo and Olay skin- care products, increased 8% to $5.87 billion as volume rose 4%.

Sales of global health & well-being products jumped 11% to $2.19 billion amid high-teens growth at P&G's oral-care business.

Sales of fabric and home-care products climbed 10% to $4.8 billion as volumes increased 8%, thanks to double-digit gains in developing nations.

As the integration of Gillette nears completion, it continues to drive P&G's bottom line - during the quarter, blade and razor sales jumped 18% to $1.4 billion on a 6% volume increase.

P&G previously said that it continues to expect sales growth of 6% to 7% and per-share earnings of 64 cents to 66 cents for its fourth quarter.

Consumer-product companies continue to struggle with a difficult commodity cost environment. Procter & Gamble, like others in its sector, has been been fighting that pressure by aggressively cutting costs and raising prices for some products.