Signs of firm US recovery trigger market gains

LONDON (AP) — Evidence that the U.S. economic recovery is firmly on track drove markets higher on Friday, adding to the cheer from good economic indicators out of Europe.

The world's largest economy added 157,000 jobs in January, in line with market expectations, though hiring over the past two years was revised up. The improvement was not sufficient to prevent the unemployment rate — which is based on surveys of households, not employers — from edging up to 7.9 percent from 7.8 percent in December.

But the figure eased concerns that the U.S. economic recovery may have been running out of steam. Official data this week showed the economy contracted on an annualized basis in the fourth quarter for the first time in three years, though mainly due to a one-off fall in defense spending.

Other indicators released Friday proved similarly upbeat — a measure of manufacturing activity in the U.S. rose strongly in January while construction spending grew in December.

In Europe, Germany's DAX rose 0.7 percent to close at 7,833.39 while France's CAC-40 added 1.1 percent to 3,773.53. Britain's FTSE 100 rose 1.1 percent to 6,347.24.

Wall Street rallied as well, with the Dow rising 1 percent to 13,999.08, trading momentarily above 14,000 for the first time since October 2007. The broader S&P 500 added 1 percent to 1,512.31.

Although the Dow Jones industrial average finished lower on Thursday, the index logged its best January since 1994 by finishing 5.8 percent higher for the month. The Standard & Poor's 500 finished the month 5 percent higher, its best start to the year since 1997.

Earlier, upbeat news in Europe had helped push markets higher. Official figures showed the unemployment rate in the 17-country eurozone was at a lower-than-expected 11.7 percent in December, unchanged from the previous month's rate, which was revised down from 11.8 percent, a record high. Inflation was also steady, suggesting the recession ravaging the currency union is it abating.

"With eurozone economic activity seemingly bottoming out last October and business confidence picking up, the pressure on labor markets has eased," said Howard Archer, chief European economist at HIS Global Insight.

"Nevertheless, business confidence is still relatively low in most countries and eurozone economic activity is unlikely to be strong enough to prevent further rises in unemployment over the coming months."

Earlier in Asia, stocks were mixed after manufacturing data from China fell short of expectations. Industrial production is still growing, but at a slower pace, according to the government-sanctioned China Federation of Logistics and Purchasing. Its manufacturing index for January fell to 50.4 from 50.6 in December on a 100-point scale in which numbers above 50 indicate expansion.

Hong Kong's Hang Seng fell marginally to 23,721.84. South Korea's Kospi dropped 0.2 percent to 1,957.79. Australia's S&P/ASX 200 gained 0.9 percent to 4,921.10. The ASX closed at 4,879 on Thursday, capping its best January since 1995, Lucas said.

Japan's Nikkei 225, meanwhile, was once again energized by the yen's continued descent against the dollar. The index rose 0.5 percent to 11,191.34.

Benchmark oil for March delivery was up 46 cents to $97.95 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 45 cents to close at $97.49 a barrel on the Nymex on Thursday.

In currencies, euro rose to $1.3701 from $1.3574 late Thursday in New York. The dollar rose to 92.51 yen from 91.38 yen.

___

Pamela Sampson in Bangkok contributed to this report.

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Spain's Rajoy denies wrongdoing in kickbacks scandal

MADRID (Reuters) - Spanish Prime Minister Mariano Rajoy on Saturday denied wrongdoing in a growing corruption scandal that threatens his credibility just as he makes headway against economic crisis.

The ruling People's Party (PP) has been buffeted all week by media reports alleging its former treasurers operated a slush fund with donations from construction industry executives that were then doled out to Rajoy and other party leaders.

"I need only two words: it's false," Rajoy said in a televised address after an extraordinary meeting of party leaders to discuss the allegations.

Rajoy, who has had a reputation for being boring but clean, welcomed an investigation into the affair and said he would publish his tax declarations on the internet.

Last week El Pais published extracts from what it said were secret ledgers by PP treasurers over 20 years.

"It is not true that we received cash that we hid from tax officials," Rajoy said. He did not take media questions.

The PP on Saturday also released findings from an internal probe into party accounts back to 1995, concluding payments to members and income from donations were correctly declared and legal. An external investigation would begin in weeks, the report said, and three auditing firms would pitch for the job.

Dozens of police in riot gear guarded PP headquarters in central Madrid on Saturday. A small gathering of demonstrators shouted "resign" outside the building after several hundred people protested there on Thursday and Friday nights.

The scandal has hit Rajoy, 57, just as he had appeared to make some headway in the country's financial crisis. Last year doubts over Spain's solvency forced state borrowing costs dangerously high and Rajoy looked to be on the brink of seeking an international bailout as Greece, Portugal and Ireland have.

But market attacks have abated since the European Central Bank pledged it would back Spain.

Rajoy has asked Spaniards for sacrifices and cut spending. His popularity has sunk during 13 months in office as austerity measures aggravate a deep recession and 26 percent unemployment.

The small United Left party urged him to resign and call early elections over the scandal. But the PP has an absolute parliamentary majority and has shown no sign of any split that might allow opponents to carry a vote of no confidence.

The main opposition Socialists demanded explanations but not his resignation. Polls show they would not win an election now.

CORRUPTION "PERVASIVE"

Bankers called for a rapid response to the scandal. Spain has taken 40 billion euros in European rescue money to clean up its financial sector.

Francisco Gonzalez, chairman of the country's second-biggest lender BBVA, defended Rajoy at a news conference on Friday, saying he knew him well and that he was honest.

"There are clearly many bad practices in many parts of our country and these practices need to be eradicated," he said.

"This is an opportunity for Spain to come out much cleaner."

The anti-corruption prosecutor's office said on Friday it was investigating the alleged payments to PP members. Newspaper El Pais says it has photocopies of ledgers showing annual payments to Rajoy of 25,200 euros ($34,200) over 11 years.

If he reported the income to tax authorities and they appear in public PP accounts, the payments may not be illegal.

If the prosecutor finds evidence of a crime, he will report to the High Court, which will then decide whether it opens a judicial investigation, the first step to any criminal trial.

A judicial probe could take many years to conclude.

In the meantime, Rajoy may struggle to turn around public opinion. A poll before the scandal broke found 96 percent of Spanish adults see corruption as pervasive in politics. Tax evasion and unemployment benefits fraud are rife.

Education and healthcare cuts have soured the public mood. Protesters march in Madrid and other cities almost every day.

Around 10,000 people, many pensioners, protested across Spain on Saturday over how their savings, invested in complex securities, will be wiped out in a bank bailout.

Spain's rescue of its lenders is a common complaint, as the government goes further into debt to help banks that lent recklessly to builders during a property bubble.

A prolonged economic boom, which went into reverse in 2008, was fed by construction. Courts have probed cases of builders accused of paying politicians in exchange for public works contracts or for re-zoning rural land to allow development.

THE BARCENAS PAPERS

Former PP treasurer Luis Barcenas has been under investigation since 2009 for alleged involvement in a kickbacks scheme known as the Gurtel Case. A number of PP mayors and city councilors have had to resign in the Gurtel probe, but the case has bounced from one judge to another and never gone to trial.

The affair returned to the public eye in January when court officials said they had discovered Barcenas had a Swiss bank account that once held as much as 22 million euros.

Barcenas's lawyer said the money came from legitimate businesses and has now been reported to tax authorities.

"The People's Party does not have and never had accounts in a foreign country and has never issued orders to open accounts in a foreign country. We have nothing to do with it," Rajoy said on Saturday.

El Pais said last week it had 20 photocopied pages of Barcenas' secret ledger, allegedly showing almost 20 years of cash donations from executives and a stream of payments. The ledger also allegedly detailed expenses such as suits for Rajoy. Barcenas denied any wrongdoing and called the reports "false".

(Additional reporting by Iciar Reinlein and Rodrigo de Miguel; Writing by Fiona Ortiz; Editing by Andrew Roche and Jason Webb)

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Fed officials see brighter global economic outlook

WASHINGTON/NEW YORK (Reuters) - Two top Federal Reserve officials painted a picture of cautious optimism on Friday for the U.S. economy in 2013, helped by stronger global growth as the central bank aggressively prints money to curb the nation's lofty rate of unemployment.

The Fed this week decided to keep buying bonds at a $85 billion monthly pace, and hold interest rates near zero until the jobless rate falls to 6.5 percent, so long as inflation does not threaten to rise above a threshold of 2.5 percent.

U.S. unemployment edged up 0.1 percentage point to 7.9 percent in January, and the economy shrank slightly in the final quarter of 2012.

But New York Federal Reserve President William Dudley and St. Louis Fed chief James Bullard, who both voted in favor of the U.S. central bank's policy decision this week, saw reasons to be cheerful about the year ahead.

Their remarks are the first public comments by Fed policy-makers since the central bank issued a statement on Wednesday outlining its decision to keep in place an unprecedented level of monetary stimulus, which has tripled its balance sheet to almost $3 trillion since 2008.

"I think a lot of uncertainties that were around this economy in 2012 have come off the table," Bullard told Bloomberg Television in an interview.

"The (U.S.) election has come off. Some of the fiscal risk that was in the U.S. has come off. The European situation has settled down a lot. China looks like it will have a better year. Emerging markets generally...will have a better year," he said.

U.S. lawmakers on Thursday voted to allow the federal government to keep borrowing money until at least May 19, averting a potential collision with the U.S. debt limit that could have caused the nation to default on its debt obligations.

Politicians had already sidestepped potential tax hikes on all Americans at the start of 2013 by agreeing to raise taxes only on families who make more than $450,000 a year.

SLOWING BOND PURCHASES?

Bullard, who is viewed as a centrist on the Fed's 19-member policy committee, said that continued improvements in the labor market during the course of the year would put the Fed "in a position to slow down or stop the purchases."

A closely watched employment report released by the U.S. government earlier on Friday showed that 157,000 new jobs were created in January, while the previous two months' scale of employment creation was also revised higher. U.S. stocks rallied on the news.

"Things aren't perfect. But things are definitely improving, and that will actually be helpful for the U.S. outlook," Dudley told the New York Bankers Association in a speech that was mostly focused on revamping the wholesale funding market.

"If the rest of the world gets healthier, the demand for U.S. goods and services will increase and that will provide support to our own economy," he said.

With the Fed forecasting unemployment to decline only slowly over the next two years, economists do not expect it to begin raising interest rates until 2015 and see bond purchases continuing for the rest of this year and possibly into 2014.

However, minutes of the Fed's December 11-12 meeting, which were released with a three-week lag, showed that several policymakers wanted to slow or halt the buying well before the end of 2013.

Bullard, who had opposed the third round of bond purchases when it was announced in September, said he voted to back its continuation at the most recent meeting because it was a decision to keep policy steady.

"I felt that was probably the right thing to do at this meeting and so I was in agreement with the chairman and the majority in this case," he said.

However, he made clear that the central bank's policy committee continued to wrestle with quantitative easing.

Nor was there any consensus on providing markets with more clues on when the purchases will end, beyond current Fed guidance that it will look for a substantial improvement in the labor market outlook in weighing when to stop.

"I don't think we have any more agreement among members at this point," he said.

Some Fed officials favor adopting numerical economic thresholds to guide expectations of when buying will end. But Fed-watchers doubt the committee will be able to quickly come to a consensus over this matter, and it may prove impossible.

(Reporting By Alister Bull)

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US gains 157K jobs; jobless rate rises to 7.9 pct.

WASHINGTON (AP) — The U.S. job market is proving sturdier than expected at a time when the economy is under pressure from Washington gridlock and the threat of government spending cuts.

Employers added 157,000 jobs in January, and hiring was much stronger at the end of last year than the government had previously estimated.

The Labor Department's estimated job gains for the final two months of 2012 — a period when the economy was being threatened by the fiscal cliff — rose from 161,000 to 247,000 for November and from 155,000 to 196,000 for December.

The mostly encouraging jobs report Friday included one negative sign: The unemployment rate rose to 7.9 percent from 7.8 percent in December. The rate is calculated from a survey of households, and more people in that survey said they were unemployed.

The monthly job gains are derived from a separate survey of employers.

The hiring picture over the past two years also looked stronger after the department's annual revisions. The revisions showed that employers added an average of roughly 180,000 jobs a month in 2012 and 2011. That was up from previous estimates of about 150,000.

"The significantly stronger payroll gains tell us the economy has a lot more momentum than what we had thought," Joseph LaVorgna, chief U.S. economist at Deutsche Bank, said in a research note.

Stocks surged immediately after trading began at 9:30 a.m. Eastern time, an hour after the jobs report was released. The Dow Jones industrial average jumped 130 points and briefly touched 14,000 for the first time in more than five years, before falling back.

Other economic news Friday contributed to the stock rally. Manufacturing expanded at a much faster pace in January compared with December, a private survey found. Ford, Chrysler and General Motors all reported double-digit sales gains for January. And construction spending rose in December at a healthy pace.

The employment report revealed a notable shift in the job market: More hiring by construction companies. They added 28,000 jobs in January and nearly 100,000 over the past four months. Those job gains are consistent with a rebound in home construction and a broader recovery in housing.

Retailers added 33,000 positions. Health care gained 23,000 jobs. Manufacturers reported a small increase of 4,000. Restaurants and hotels added 17,000.

The solid hiring in retail, construction, restaurants and hotels suggested that such companies expect consumer spending to hold up in coming months.

"The strong and steady job gains from retail trade and construction look a lot more like a normal economic expansion," said Scott Anderson, chief economist at Bank of the West. "This is a sign that consumer spending is playing a far more important role in this expansion than it has so far."

The job market has remained steady despite pressure on the economy from the rift between President Barack Obama and Republicans over taxes and spending. Across-the-board spending cuts are set to kick in March 1. Financing to run the government will expire by March 27, raising the threat of a government shutdown. And the federal borrowing cap must be raised by May 18 or the government could default on its debt.

Friday's jobs report showed that average hourly wages rose 4 cents to $23.78 and have risen an encouraging 2.1 percent in the past 12 months. That's slightly above the inflation rate, which was 1.7 percent.

Last month's hiring should cushion the impact of the higher Social Security taxes that most consumers are paying this year. And it would help the economy resume growing after it shrank at an annual rate of 0.1 percent in the October-December quarter.

Higher Social Security taxes are reducing take-home pay for most Americans. A person earning $50,000 a year will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less. Taxes rose after a 2 percent cut, in place for two years, expired Jan. 1.

Analysts expect the Social Security tax increase to shave about a half-point off economic growth in 2013, since consumers drive about 70 percent of economic activity.

The hit to consumers is coming at a precarious moment for the economy. It contracted in the fourth quarter for the first time in 3½ years. The decline was driven largely by a steep cut in defense spending and a drop in exports. Analysts generally think those factors will prove temporary and that the economy will resume growing.

Still, the contraction last quarter points to what are likely to be key challenges for the economy this year: the prospect of sharp government spending cuts and uncertainty over whether Congress will agree to raise the federal borrowing cap.

Most analysts predict that the economy will grow again in the January-March quarter, though likely at a lackluster annual rate of around 1 percent. They expect the economy to expand about 2 percent for the full year.

Two key drivers of growth improved last quarter: Consumer spending increased at a faster pace. And businesses invested more in equipment and software.

In addition, homebuilders are stepping up construction to meet rising demand. That could generate even more construction jobs.

And home prices are rising steadily. That tends to make Americans feel wealthier and more likely to spend. Housing could add as much as 1 percentage point to economic growth this year, some economists estimate.

Auto sales reached their highest level in five years in 2012 and are expected to keep growing this year. That's boosting production and hiring at U.S. automakers and their suppliers.

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Energy Secretary Chu is latest Obama Cabinet departure

WASHINGTON/LOS ANGELES (Reuters) - U.S. Energy Secretary Steven Chu, the Nobel Prize winner who shepherded an effort to help spur a clean energy U.S. economy, will step down after a tenure rocked by the failures of some costly government investments.

Chu's departure, which was announced Friday and follows similar moves by the Environmental Protection Agency administrator and the interior secretary, will allow President Barack Obama to craft a fresh team to address climate change.

Obama has said responding to the threat of climate change will be a priority during his second term, giving the issue a prominent place in his inaugural address last month.

After legislation setting up a program to cap greenhouse gas emissions failed to get through Congress, the administration pushed ahead with regulating carbon through the EPA. Lawmakers are still divided over climate change and analysts expect Obama will continue to use federal agencies to target emissions.

Chu's successor will likely operate under a much more constrained budget, but could play a key role as the department develops energy efficiency standards, funds research into clean energy innovations and helps oversee the shale oil and gas boom.

Potential contenders for the energy post are said to include Christine Gregoire, former governor of Washington; Bill Ritter, former governor of Colorado; and Dan Reicher, a Stanford professor and former Google climate change executive who worked in the Energy Department during the Clinton administration.

Analysts have said Obama likely will pick a successor with business expertise or political clout to fend off congressional critics of the department's spending on clean energy.

CHALLENGING TENURE

For the last two years, Chu had been at the center of Republican-led probes of his management of the $37 billion his department received for clean energy development from the 2009 economic stimulus.

When Chu took the energy post that year, he was supposed to put a new focus on clean energy. "Drill baby drill" was out, the Toyota Prius - or even better, the Chevy Volt - and solar roof panels were in.

Chu got to play Santa Claus to the clean energy sector with the stimulus funds. But hard times followed when one of the recipients, solar-panel maker Solyndra, filed for bankruptcy in 2011 after receiving a $535 million loan guarantee.

Chu defended his record to the end, fighting off charges that his department doled out funds to political allies.

"We should be judged not by the money we direct to a particular state or district, company, university or national lab, but by the character of our decisions," he said in his resignation letter.

Chu said he may remain in his post past the end of February to help in the transition to his successor.

AWKWARD STYLE

Unlike his predecessors, who included former politicians and businessmen, Chu was a self proclaimed nerd and energy efficiency fanatic who does not own a car, cycles to work and walks many flights of stairs to his office.

Instead of focusing on fossil fuels, Chu made clear his focus was on fuels of the future. In a famous early misstep, Chu even said OPEC was not his domain, then backtracked.

Chu's scientific pedigree was often touted as an asset by the administration. The White House tapped Chu to help figure out how to cap BP's ruptured Macondo well during the 2010 Gulf oil spill, crediting him with helping to devise the ultimate solution for capping the well.

Detractors complained that the bookish physicist's awkward style made it hard for him to push a compelling message promoting renewable or alternative fuels.

Under his watch, big increases in U.S. wind and solar power development were overshadowed by new methods to get at old-fashioned energy sources: crude oil and natural gas.

Kevin Book, managing director at Washington energy research firm ClearView Energy Partners LLC, said the shale natural gas boom in particular upended Chu's agenda.

"Secretary Chu came to Washington to transform America's energy infrastructure and he's going to leave Washington where natural gas has transformed the viability of everything he cared about," said Book.

That oil and gas bonanza has helped to put the country on track to its long-sought after goal of energy self sufficiency, but environmental groups have raised concerns about continued reliance on carbon-releasing fuels.

BAD BET ON SOLYNDRA

The fallout from Solyndra, a "bad bet" that was once a crown jewel of the Obama's renewable energy policy, engulfed Chu in a political firestorm.

Solyndra was supposed to be a success story in the White House's effort to promote green energy and create jobs.

But, after the federal loan aid and visits from President Obama and Vice President Joe Biden, Solyndra filed for bankruptcy in September 2011. The Republican-led House of Representatives probe into the government's aid to Solyndra then kicked into high gear.

"The fact that he was not extremely well versed in how to handle folks on Capitol Hill probably created a more adversarial atmosphere than there needed to be," said Salo Zelermyer, an attorney with Washington law firm Bracewell & Giuliani who served as senior counsel at the Energy Department during the Bush Administration.

The department's advanced battery grant program has also experienced some high profile setbacks, with battery maker A123 also filing for bankruptcy.

Despite the negative optics, though, analysts have said it would be unrealistic to expect such a large portfolio of projects to be without failures.

The full impact of the department's efforts is not yet clear, but Chu helped place the nation on a path to compete in the global clean energy market, said Joshua Freed, director of clean energy program at the think-tank Third Way.

"The secretary was brought in because he had an understanding and vision for how to innovate," Freed said. "He actually did that quite well."

Martin Lagod, managing director and co-founder of venture capital firm Firelake Capital Management, said Chu's most important legacy was ARPA-e, the DOE entity that promotes high-impact energy technologies not yet ready for prime-time.

"It is a beautiful program and frankly should be funded bigger and better. ... It's a great catalyst for creative and innovative thinking. A good role for government is to help spur and fund basic research and to me this is a very good example of it in the DOE," said Lagod.

(This story corrects Reicher's title to former Google executive in paragraph six)

(Additional reporting by Jeff Mason, Roberta Rampton and Timothy Gardner; Editing by Ros Krasny and Doina Chiacu)

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S.Africa's rand recovers against dollar, eyes 8.85

JOHANNESBURG (Reuters) - South Africa's rand was on track for a second day of gains against the dollar on Friday, eyeing 8.85 as investors that had sold the currency due to a gloomy economic outlook readjust their positions.

Government bonds took their cue from the stronger currency, with the yield on the heavily-traded benchmark 2026 bond shedding 5 basis points to 7.295 percent.

The yield for the short-dated paper due in 2015 was down 3.5 basis points at 5.325 percent.

The rand traded up 0.85 percent at 8.8756 to the dollar by 1552 41 GMT, after ending Thursday's session in New York at 8.9545. This was a 3 percent rise from Monday's four-year low of 9.16.

Friday's gains were the second strongest, after the Polish zloty, recorded against the dollar among 20 emerging market currencies tracked by Reuters.

The rand is however still down more than 5 percent against the dollar since the start of 2013, having taken a pounding in January as labour strikes in the key mining sector took some of the shine out of South Africa's high-yielding assets.

"The potential exists for the correction to extend back towards 8.8500 as offshore (accounts) unwind some long dollar-rand positions and bonds once again," Tradition Analytics said in a market note.

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China services' slow uptick highlights mildness of recovery

BEIJING (Reuters) - Growth in China's increasingly important services sector rose for the fourth straight month in January, though the slim increase added to evidence that the recovery in the world's second-largest economy remains a modest one.

China's official purchasing managers' index (PMI) for the non-manufacturing sector rose to 56.2 in January from 56.1 in December, the National Bureau of Statistics (NBS) said on Sunday.

The figure follows the bureau's PMI for the manufacturing sector on Friday, which eased to 50.4 in January, missing market expectations. A reading above 50 indicates growth is accelerating, while one below 50 indicates it is slowing.

"This marginal rise of non-manufacturing PMI again casts doubt on the strength and sustainability of the recovery," said Zhang Zhiwei, chief China economist at Nomura in Hong Kong.

He noted that new orders declined, pointing to weaker demand, while a rise in input service prices suggested inflationary pressure.

"We believe the government cannot further loosen policies given inflationary pressure, as growth may weaken beyond Q1 as policy easing runs out of steam," Zhang said.

The NBS said in a statement that the retail, air cargo and shipping sectors all reported levels of activity above 60 in January, though the construction sector, one of the big drivers of growth in December, ticked down slightly to 61.6 from 61.9.

The new orders index fell to 53.7 from the previous month's 54.3, showing a slowdown in demand even though the overall figure remained well above the 50 mark separating growth from contraction.

The intermediate input price index jumped to 58.2 from 53.8 last month, indicating rising costs for enterprises, with a big rise in costs the construction sector.

MODEST RECOVERY

The marginal rise in the services PMI is consistent with the view of many economists that recent data signals a modest recovery for China and that steady policy support may well be needed to keep it on track.

A Reuters poll last month showed that China's economic growth is likely to edge up to 8.1 percent in 2013 from 7.8 percent last year, which had been the economy's slowest growth since 1999.

But the recovery could fizzle in 2014 as a pick-up in inflation forces the central bank to revert to modest policy tightening, the poll found.

The services sector generated 44 percent of China's GDP in 2011, up from 35 percent in 2000, and Beijing has acknowledged that greater consumer activity is needed to reduce the economy's reliance on exports and investment-led growth.

The services industry has so far weathered the global slowdown much better than the factory sector, with the PMI consistently signalling healthy expansion and hitting a 10-month high of 58.0 in March.

That is partly due to a maturing economy as well as a historic shift in the last decade leading a majority of Chinese to live and work in cities rather than the countryside.

The January index of expected activity also fell from December, but remained above 60, indicating that service sector enterprises continued to be optimistic, the bureau said.

(Editing by Sanjeev Miglani)

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Obama names Stock as member of Council of Economic Advisers

WASHINGTON (Reuters) - President Barack Obama on Friday named James Stock to the White House Council of Economic Advisers.

Stock has been chief economist for the council since 2012. He was previously an economist at Harvard University and a member of the committee of the National Bureau of Economic Research that dates the start and end of recessions.

Stock's appointment brings the three-member panel to full strength, joining Chairman Alan Krueger and Katherine Abraham. He does not require Senate confirmation.

Stock's areas of research are forecasting trends in the broad economy, monetary policy, and recent changes in the U.S. business cycle. He is the author of a textbook on economic measurement.

A seat on the council has been vacant since member Carl Shapiro left in May.

(Reporting By Mark Felsenthal)

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France on track to meet 0.8 percent growth target: minister

PARIS (Reuters) - French Finance Minister Pierre Moscovici on Sunday said the government believed it could reach its 2013 economic growth target of 0.8 percent.

Moscovici told France 2 television that he is maintaining the target ahead of the publication of the European Commission's euro-zone economy forecasts, expected on February 22.

"We will have discussions," Moscovici said. "If we will need to adapt, we will adapt. But I am confident about the French economy."

Moscovici also said that although the euro has stabilised, it may have become too strong.

stabilized "The euro is stable, it is strong, perhaps too strong in some respects," he said.

The euro has been rising against the currencies of major trading partners, driven partly by relief that the euro project seems less fragile, but has prompted concerns about exports from euro-zone countries.

Moscovici said the government would disclose "within two to three weeks" a redrafted version of its proposal to tax the wealthy, which he said it would be imposed on households rather than individuals.

In a setback to the government's push to make the rich contribute more to cutting the public deficit, France's Constitutional Council in December rejected a plan to hit incomes over 1 million euros ($1.3 million) with a 75 percent tax rate.

The council said the tax was unfair as it would hit married couples where only one partner earned above a million euros but would not affect couples where each earned just under a million.

(Reporting by Elena Berton and Sophie Louet; editing by Erica Billingham and Keiron Henderson)

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Report: US job market looks surprisingly strong

WASHINGTON (AP) — The U.S. job market is proving surprisingly strong and raising hopes that the economy will be resilient enough this year to withstand a budget standoff in Washington and potentially deep cuts in federal spending.

Employers added 157,000 jobs last month, and hiring turned out to be healthier than previously thought at the end of 2012 just as the economy faced the threat of the "fiscal cliff."

Still, unemployment remains persistently high. The unemployment rate ticked up to 7.9 percent last month from 7.8 percent in December.

Many economists, though, focused on the steady job growth — especially the healthier-than-expected hiring late last year. The Labor Department revised its estimates of job gains for November from an initial 161,000 to 247,000 and for December from 155,000 to 196,000.

The department also revised its figures for all of 2012 upward — to an average of 180,000 new jobs a month from a previously estimated 150,000.

"The significantly stronger payroll gains tell us the economy has a lot more momentum than what we had thought," Joseph LaVorgna, chief U.S. economist at Deutsche Bank, said in a research note.

The government frequently revises the monthly job totals as it collects more information. Sometimes the revisions can be dramatic, as in November and December.

The January jobs report helped fuel a powerful rally on Wall Street. Stock averages all jumped more than 1 percent. The Dow Jones industrial average closed above 14,000 for the first time since October 2007, two months before the Great Recession officially began.

Beyond the job market, the economy is showing other signs of health. Factories were busier last month than they have been since April 2012. Ford, Chrysler and General Motors all reported double-digit sales gains for last month, their best January in five years.

Home prices have been rising steadily. Higher home values tend to make Americans feel wealthier and more likely to spend.

Housing construction is recovering, too. Construction spending rose last year for the first time in six years and is expected to add 1 percentage point to economic growth this year.

The housing rebound appears finally to be producing a long-awaited return of construction-industry jobs, which have typically help drive economic recoveries. Construction companies added 28,000 jobs in January. Over the past three months, construction has added 82,000 jobs — the best quarterly increase since 2006. Even with the gains, construction employment is about 2 million below its housing-bubble peak of 7.7 million in April 2006.

Health care employers added 28,000 jobs in January. Retailers added 33,000, and hotels and restaurants 17,000. The job growth in retail, hotels and restaurants suggests that employers have grown more confident about consumer spending, which fuels about 70 percent of the economy.

The government uses a survey of mostly large businesses and government agencies to determine how many jobs are added or lost each month. That's the survey that produced the gain of 157,000 jobs for January.

It uses a separate survey of households to calculate the unemployment rate. That survey captures hiring by companies of all sizes, including small businesses, new companies, farm workers and the self-employed. From month to month, the two surveys sometimes contradict each other. Over time, the differences between them usually even out.

The household survey for January found that 117,000 more Americans said they were unemployed than in December. That's why the unemployment rate inched up from 7.8 percent to 7.9 percent.

Some economists had feared that federal budget standoffs might chill spending, investing and hiring. They worried that companies wouldn't hire and consumers would scale back spending in November and December because big spending cuts and tax increases were to take effect Jan. 1 if the White House and congressional Republicans couldn't reach a budget deal.

It turns out, the fears were overblown. In the midst of the budget fight late last year, employers kept hiring.

And Friday's jobs report showed that average hourly wages — up 4 cents to $23.78 in January — were staying ahead of inflation. They had generally failed to keep up with prices since the recession ended in June 2009.

The steady hiring gains should help cushion the economic pain from higher Social Security taxes, which last month began shrinking most workers' take-home pay. A person earning $50,000 a year will have about $1,000 less to spend in 2013. A household with two high-paid workers will have up to $4,500 less.

Analysts expect the Social Security tax increase to shave about a half-point off economic growth in 2013, because consumers drive about 70 percent of economic activity.

The hit to consumers is coming at a precarious time. The economy contracted in the fourth quarter of 2012 for the first time in 3½ years. The drop was due mainly to a steep cut in defense spending and declining exports. Most analysts think those factors will prove temporary and that the economy will grow this quarter and the rest of the year.

Friday's report did serve as a reminder that unemployment has been stuck at 7.8 percent or more since September. The rate would be even higher if many Americans hadn't retired or stopped looking for work. The proportion of the adult population that is working or looking for work is near a 32-year low. If labor force participation were still at its prerecession level, unemployment could exceed 11 percent.

And despite the consistent hiring gains, the job market has a long way to go to fully heal from the recession. Between January 2008 and February 2010, the United States lost 8.7 million jobs. Since then, it's regained 5.5 million — 63 percent of the lost jobs.

"We are still in a crisis-level jobs hole," says Heidi Shierholz, an economist with the liberal Economic Policy Institute.

Long-term unemployment remains a chronic problem. About 4.7 million people have been out of work for six months or more. That's down 15 percent in the past year. But it's still much higher than it's ever been after previous recessions.

Among the long-term unemployed is Will Nielsen, who has struggled to find work for more than a year. He worked as a contractor doing graphic design and video production for a startup company that went bust in December 2011.

The job search has been frustrating: Most of the jobs he's seen advertised are part-time or freelance. Permanent jobs with salaries and benefits seem to him nonexistent.

Contractors aren't eligible for unemployment benefits, so he's been relying on his girlfriend's salary, which has "strained" their relationship.

Nielsen, 37, who lives in Santa Rosa, Calif., applied last month for an electrician's apprenticeship program that would pay a stipend while he learned a new trade. But when he arrived at the training center to submit his application, at least 20 people were there ahead of him.

"It looked like the Great Depression," he said.

Yet the burst of hiring at the end of 2012 has raised hopes that the recovery from the Great Recession is finally strengthening.

"This could be a breakout year for the economy," Bernard Baumohl, chief global economist at the Economic Outlook Group, wrote in a note to clients. "The economy, sales, employment and the stock market are all higher in spite of the bickering and rancor in Washington."

Kaltura, a New York-based online video software company, plans to hire 100 people in 2013, which would bring their staff to 300. The company has 17 open jobs.

Company President Michal Tsur said Kaltura has managed to benefit from the sluggish economy: Companies use its software to post training videos online, reducing the cost of training. Universities are also pushing online video courses to reach more students.

Entertainment companies like HBO are using Kaltura's software to post videos on YouTube, Facebook and on the websites of video providers like Verizon.

Even with high unemployment, Tsur said, it's hard to find the software engineers, sales people and programmers Kaltura needs.

"If we stumble upon superstars," she said, "we'll hire them immediately."

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Dow hits 14,000 for 1st time since October 2007

NEW YORK (AP) — The Dow stock market index flirted with the 14,000 line Friday, bringing reminders of the last time it hit that mark — almost a different era, before the financial crisis rocked the world economy.

Propelled by reports on U.S. jobs and auto sales, the Dow Jones industrial average crossed the line and kept its ground through the early afternoon, after flitting back and forth throughout the morning. The other major stock indexes also rose.

"There's a newfound enthusiasm for the equity market," said Jim Russell, regional investment director at U.S. Bank Wealth Management in Minneapolis.

But market watchers were divided over what the Dow milestone — or even what a Dow all-time high, which is quickly approaching — really means. To some, it's an important booster to hearts and minds, making investors feel optimistic and thus more willing to bet on the market.

"The Dow touching 14,000, it matters psychologically," said Peter Cardillo, chief market economist at Rockwell Global Capital in New York. "It attracts smaller investors."

And smaller investors, until the past few weeks, had been shying away from stocks. In the past three weeks, though, billions have flowed into mutual funds targeting U.S. stocks, according to the Investment Company Institute. Before that, investors had been pulling more cash from U.S. stock funds than they'd deposited for every month since April 2011.

To others, though, the Dow 14,000 is nothing but a number on a board, a sign more of how traders feel than how the economy is faring. And even then, it's not even the best number on the board, some traders say. Professional investors usually pay more heed to the Standard & Poor's main index, which tracks 500 companies compared to the Dow 30. The Dow, however, is more familiar to the general public.

Joe Gordon, managing partner at Gordon Asset Management in North Carolina, wasn't celebrating on Friday. He thinks the gains won't last. The fact that small investors are finally piling back in the stock market, he said, is a sign that it's getting overhyped and ready to fall.

After the Dow hit its all-time record in 2007, it fell almost steadily and a year later had lost nearly 40 percent of its value a year later.

"It is good trivia to talk about on television and the radio," Gordon said, referring to the 14,000 mark. "It's meaningless to the average professional." And for workers still unemployed by the financial crisis, he said, "it really means nothing to them."

If there's dissent over what Dow 14,000 means, what's undeniable is that it's a rarefied event: The Dow has crossed 14,000 only 15 times in its history, and the last time was more than five years ago, on Oct. 17, 2007.

If the gains hold throughout the day and the Dow closes above 14,000, that would put it in territory even more uncommon. On just nine days has the Dow managed to stay above the 14,000 mark until the end of trading. Friday's gains also mean that the Dow is within striking distance of its all-time record of 14,164.53, which it reached on Oct. 9, 2007.

For the average investor, that was all back when the stock market still seemed like a party. Housing prices were starting to ebb but hadn't cratered. Jobs were abundant, with unemployment at 4.7 percent — compared to 7.9 percent now. Lehman Brothers still existed. So did Bear Stearns, Wachovia and Washington Mutual.

In the afternoon, the Dow was up 152 points to 14,013. The Standard & Poor's 500 rose 15 to 1,513. The Nasdaq composite index was up 38 to 3,180.

Auto sales helped. Toyota, Ford, GM and Chrysler all reported double-digit gains for January.

The government jobs report that pushed stocks forward was mixed, but traders chose to focus on the positive. The U.S. said it added 157,000 jobs in January, which was in line with expectations. Unemployment inched up to 7.9 percent from 7.8 percent in December. But, encouragingly, the government also reported that hiring over the past two years has been higher than it originally thought.

The jobs number is based on a survey of employers, and the unemployment rate is based on a separate survey of households, which is why they can diverge.

In Europe, tentative and incremental signs of a recovery were enough to push up stocks in France, Britain and Germany. December unemployment in the European Union was lower than analysts had feared, inflation unexpectedly fell, and a survey raised hopes of some growth in the manufacturing sector.

But there were also reminders that the debt problem is far from solved. The Netherlands was also forced to take over one of its major banks, to try to stave off a collapse. In Greece, dock workers extended a strike over the government's spending cuts.

Among companies making big moves:

— Drugmaker Merck fell nearly 3 percent, down $1.15 to $42.10. Its fourth-quarter profit suffered because of competition from generic medicines against its blockbuster allergy drug Singulair.

— Insurance company MetLife rose 2 percent, or 75 cents, to $38.09, after saying it plans to buy the largest private pension fund administrator in Chile.

— Zoetis, an animal health business that Pfizer just spun off, made its debut on the stock market. It was up 21 percent, rising $5.47 to $31.47.

__

AP Business Writer Matthew Craft contributed to this report.

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UK manufacturing growth in January eases recession fears

LONDON (Reuters) - Britain's manufacturing sector again expanded modestly in January, raising hopes the economy can avoid a new recession, although activity grew less than a month before and was below expectations.

Factory output, however, grew at the fastest pace since September 2011, the survey published on Friday showed. Lower factory output was a key reason for a contraction in the last quarter of 2012 which left Britain's economy within sight of its third recession in four years.

The Markit/CIPS Manufacturing Purchasing Managers' Index (PMI) inched down to 50.8 from a downwardly revised 51.2 in December. That was just short of forecasts for a reading of 51.0 but for a second month running was above the 50 level that separates growth from contraction.

"Broadly the findings argue against the UK going into a triple-dip recession, and ... offer hope that a more sustainable recovery might be in train," said Philip Shaw, economist at Investec.

Others were more cautious, noting that new orders hardly grew, tempering optimism about the first quarter of 2013.

Rob Dobson, the Markit economist who compiled the survey, said the wider impact of manufacturing's January expansion would be limited as the sector accounts for only about 10 percent of the economy.

"The survey will do little to assuage fears of a triple-dip recession unless accompanied by an improvement in the services sector," he said. Markit's January services sector PMI will be published on Tuesday.

OUTPUT JUMPS

In a clear sign of faster output growth, the PMI component measuring the change in factory output from the previous month climbed to 54.2 from 53.4 in December, despite a reported hit from poor weather.

"Sterling's weakness, plus indications of firmer demand in key export markets such as the euro zone, notably Germany, and emerging markets such as China should also help lift sales in coming months," Dobson said.

For now, companies said weak demand from continental Europe was behind the 13th consecutive drop in new export orders.

In further good news for the economy, government data showed that the number of companies which went into liquidation in England and Wales in the last three months of 2012 fell to its lowest level since the second quarter of 2008.

Markit said production of consumer goods grew robustly last month and output of intermediate products such as car engines also rose. But manufacturing of investment goods such as factory equipment declined.

Employment in factories ticked up, in contrast to the job losses that afflicted the sector for much of 2012.

Solid input price inflation continued to eat into manufacturers' profit margins, however, as the prices they charged rose by a smaller margin. Firms reported higher costs of chemicals, energy, food products, metals, packaging and plastics.

(Additional reporting by Li-mei Hoang and David Milliken; Editing by Catherine Evans)

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Watch what central bankers say, not what they do

LONDON (Reuters) - Central banking is in a state of flux as policymakers from Tokyo to Washington ditch prevailing orthodoxies to try to grab a bigger share of a slow-growing global economic pie.

That's why the focus this week will be on what European Central Bank (ECB)Governor Mario Draghi has to say about the strength of the euro and what Canadian central bank chief Mark Carney might have in mind when he succeeds Mervyn King at the Bank of England (BOE) in July.

Draghi holds a news conference on Thursday after an ECB policy-setting meeting. On the same day, with delicious timing, Carney will be wrapping up testimony to British lawmakers just as the BoE announces the results of its own policy meeting.

The unanimous verdict of economists polled by Reuters is that neither bank will change its stance. The environment, however, is shifting, presenting both with unwanted challenges.

The ECB must keep a close eye on the euro, which has risen to a 14-month peak against the dollar and a 30-month high against the yen, reflecting the Federal Reserve's promise to keep buying bonds until U.S. unemployment falls much farther and the Bank of Japan's plan for a much looser monetary policy.

Exchange rates have much less of an impact on trade volumes than the state of external demand.

But, with global growth languishing, the relative performance of euro zone exporters will take a hit, said Daniel McCormack, a strategist at Macquarie in London.

"The euro could well be starting to cause a bit of pain already. It's moved up significantly, and in the context of what Japan's doing and the Fed's desire to get the dollar down or keep it low, it will have some impact," he said.

WHAT MIGHT THE ECB DO?

France has already complained about the euro's climb and Germany has blamed Japan for encouraging a weaker yen.

But Goldman Sachs said an ECB rate cut in response to a rising euro was still some way off, not least because the currency's vigor was largely due to improving economic and financial news from the euro zone.

The bank's economists did acknowledge, however, that the risks to its forecast that rates will stay on hold in 2013 were skewed to the downside.

"While global growth is picking up and demand growing, concerns about appreciation may be muted. But a strengthening euro in a stagnant global economy is likely to prompt questions about where the ‘pain threshold' of German exporters to the level of the euro exchange rate lies," they said in a report.

Like the dollar, sterling has also fallen to a 14-month low against the euro.

British policymakers view a weaker pound as part of the solution to reviving the economy, which stagnated in 2012, and Goldman is among those who expect continued depreciation given the prospect of a more innovative and expansionary monetary policy under Carney.

McCormack reckons the shortfall in Britain's potential output that has opened up due to the recession is so great that the BOE might not need to contemplate tightening until 2018 - a full decade after the financial crisis climaxed.

But he said it was debatable whether Carney would prevail with his suggestion of targeting nominal gross domestic product, which implies permitting a temporary overshoot of inflation to allow growth to catch up.

"Most central bankers at the end of the day are in favor of strict inflation targeting. So he'll face a lot of intellectual pushback if he tries to get that through. But clearly there's the potential for some significant policy innovations once he's on board because he'll want to make his mark," McCormack said.

TRADE POLICY AND DATA IN SPOTLIGHT

Central banks are not alone in rummaging around for new ways to spur growth.

European Union leaders, who hold a summit on Thursday devoted mainly to the bloc's budget, are expected to call for maximum efforts to reach a series of bilateral free trade pacts to lower tariffs and cut red tape throttling exports.

The prospects for talks with the United States and Canada are still up in the air, but leaders are likely to endorse an early start to talks with Japan, according to diplomats.

Trade figures happen to be the core of this week's global economic releases.

Britain's gaping goods deficit is forecast to show a small improvement, due in part to sterling's weakness.

China's imports are projected to leap, which would bode well for world growth.

But, like most early-year data from Asia, interpretation will be treacherous because of calendar distortions: Lunar New Year, when factories in China close en masse, falls this year on February 10, while last year the week-long holiday was in January.

America is likely to show a narrower trade deficit in December. Improving net exports would reinforce the view that the unexpected dip in GDP last quarter was due to fleeting factors and not the harbinger of a trend.

Bruce Kasman, an economist with JP Morgan in New York, said after Friday's good-but-not-great January jobs report that the economy was on track to expand about 2 percent this year despite fiscal drag that would lop at least 1.5 percent off growth.

Kasman said he was heartened by solid gains in labor income in recent months. Risks of a break-up of the euro, a hard landing in China and a plunge off the fiscal cliff in the United States had also been avoided.

All this pointed to steady if unspectacular U.S. growth.

"We don't have by any means the kind of growth that we would like, but we are setting ourselves up for a world where there's less risk and more sustainability," Kasman said on a conference call.

(Editing by William Hardy)

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Energy leads TSX higher as U.S. data fuels optimism

TORONTO (Reuters) - Canada's main stock index closed stronger on Friday, led by energy and materials shares, which benefited from a rise in commodity prices after positive U.S. economic data.

U.S. non-farm payroll jobs rose in January and gains in the prior two months were bigger than initially reported, supporting views the economy's sluggish recovery was on track despite a surprise contraction in output in the final three months of 2012.

Another report showed factory activity in Canada's largest export market rose last month, reaching the highest level since April.

"Investors are assuming that U.S. and global GDP growth will surprise on the upside down the road," said Sid Mokhtari, market technician and director, institutional equity research, CIBC World Markets.

The analyst noted investors in general are turning more positive on equity markets, shifting to stocks from bonds, a phenomenon some have dubbed "the great rotation".

"There is some vitality to underlying economic trends. We seem to be getting back on track," said Fred Ketchen, director of equity trading at ScotiaMcLeod. "The employment reports have not been blockbusters, but they are better than some estimates."

The Toronto Stock Exchange's S&P/TSX composite index <.gsptse> closed up 83.59 points, or 0.66 percent, at 12,768.83. Nine of the 10 main sectors on the index were trading higher.

Energy shares rose 0.9 percent, tracking higher oil prices. Brent crude climbed above $116 to hit a four-month high on economic optimism.

Suncor Energy Inc , Canada's largest energy company, gained 1.5 percent to C$34.42 and played the biggest role of any single stock in leading the market higher.

Imperial Oil Ltd shares gained 0.25 percent to C$43.91 after the company reported a 7 percent rise in fourth-quarter profit. It also said its final cost of initial development of the Kearl oil sands project in Alberta is expected to be C$2 billion ($2.00 billion) more than earlier projections.

The materials sector, which includes mining stocks, played the second biggest role in lifting the market, rising 1 percent. Its influential gainers included Teck Resources Ltd , which rose 1.8 percent to C$37.

Other stocks on the move included Brookfield Office Properties Inc . Its shares gained more than 6 percent after results for the fourth quarter and full year edged higher.

($1 = $0.9989 Canadian)

(Additional reporting by Jeffrey Hodgson; Editing by Kenneth Barry)

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Washington Post puts its building on the block

(Reuters) - The Washington Post is the latest media company contemplating selling its headquarters as it tries to rein in costs.

Katharine Weymouth, the publisher of the Washington Post and part of the Graham family that controls the paper, wrote to employees about the move, according to a memo from Weymouth obtained by Reuters.

"Our preliminary analysis suggests that a move will make good operational and economic sense, however we have not yet decided on where or when," Weymouth wrote.

The paper selected Studley, Inc and JM Zell Partners as its real estate advisers to help locate potential new sites and find buyers.

The building - in the heart of Washington D.C. - has been home to the newspaper since 1950, when the Graham family built a $6 million plant with new presses and equipment. The paper moved the presses out of the building more than 10 years ago.

By no means is the Washington Post the first publisher to mine its real estate holdings for potential money. It's a trend in newspaper industry that has been going on for several years as a way to cope with drastic declines in advertising revenue and staff reductions that have left swaths of empty space.

The Washington Post Co, which operates the newspaper, reported that print advertising revenue fell 14 percent to $160.7 million for the first nine months of 2012.

The owner of the Philadelphia Inquirer and Daily News, for example, sold its headquarter building recently.

(Reporting By Jennifer Saba in New York; Editing by M.D. Golan)

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U.S. manufacturing surges, Chinese recovery more modest

NEW YORK/LONDON (Reuters) - U.S. manufacturing growth quickened in January and hiring across the economy increased in late 2012, but Chinese factories only managed a slight rebound as the new year began, suggesting that world economic growth remains sluggish.

The euro zone economy, meanwhile, likely contracted again at the end of last year, though surveys on Friday suggested the worst of the region's downturn may be over.

Surveys conducted by the financial information firm Markit and the Institute for Supply Management both showed U.S. manufacturing grew in January at its fastest clip in nine months, boosted by a surge in domestic demand.

The data "suggests the underlying health of the industrial sector continues to improve and rising production will help the economy return to growth in the first quarter, providing there are no set-backs in coming months" said Markit chief economist Chris Williamson.

On Thursday the U.S. government reported the economy contracted in the fourth quarter for the first time since the recession ended three years ago, although analysts said there was no reason for panic because consumer spending and business investment picked up.

Separate data showed U.S. employers added 157,000 jobs in January and 127,000 more than initially reported in November and December, suggesting the sluggish recovery remained on track.

"This shows that underneath the surface, the fourth-quarter economy was really pretty good despite all the defense cuts. I think the private sector is leading the way," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago.

U.S. and European stocks moved higher after the data, with the benchmark U.S. S&P 500 stock index coming off its best monthly performance since October of 2011. <.n><.eu>

UNEVEN RECOVERY IN ASIA, EUROPE

Some analysts worried, however, that nearly $100 billion of U.S. government spending cuts set to take effect in March could crimp U.S. economic growth unless Congress acts to delay them.

The nature of the recovery on factory floors across Asia and Europe was more uneven. Surveys showed growth slowed in India and stalled in South Korea while Britain's expanded modestly.

Two separate versions of China's purchasing managers' index (PMI) pointed to rising factory output in the world's second-biggest economy but at very different speeds, suggesting a bumpy recovery from China's worst downturn in 13 years.

China's official PMI released by the government eased to 50.4 from 50.6 in December, while a similar PMI from banking group HSBC rose to a two-year high of 52.3.

Both showed export orders either grew marginally or shrank as shoppers in the United States and Europe, the two biggest buyers of Chinese goods, reduced spending.

Domestic demand, on the other hand, was the main force behind China's gentle economic rebound.

"The general sense, if you look at what it is in the pipeline, is that we will be getting a little bit more activity in the months to come," said Peter Dixon, an economist at Commerzbank.

"The Chinese economy does appear to be gaining a bit of traction but not a huge amount (and) the euro zone numbers tell us the economy remains stuck in low gear."

Even so, signs of improvement in Chinese, European and Japanese data suggested the global economy was "gradually" improving, New York Federal Reserve President William Dudley said on Friday.

WORST OVER FOR EUROPE?

Euro zone factories did post their best month in nearly a year, thanks to an improved outlook in Germany. With the euro zone PMI at an 11-month high of 47.9, some economists said the worst of the downturn may be over.

Total output in the 17 countries that use the euro still probably shrank by 0.4 percent in the final three months of 2012, which would be the third straight quarter of contraction, according to a Reuters poll published last month.

"While still in contraction territory, the manufacturing PMIs signal that upward momentum is spreading and the pace of contraction in euro zone output is slowing," said Evelyn Herrmann, European economist at BNP Paribas.

But she said the divergence in growth rates between core and peripheral countries as well as between Germany and France suggests recovery remains fragile.

Markit said the gap between the German and French PMIs was the widest ever, leaving Germany, Europe's largest economy, as the region's shining light.

Germany's PMI staged its biggest one-month jump since the middle of 2009 to 49.8, while the PMI for France, Europe's second-largest economy, sank to a four-month low of 42.9.

British manufacturing expanded modestly in January as output grew at the fastest pace since September 2011, offering a small boost to an economy flirting with recession.

Factories in Indonesia, the star emerging economy of the past year, said business shrank in January from December for the first time in eight months, while manufacturers in Taiwan reported the fastest growth in 10 months.

(Additional reporting by Koh Gui Qing; editing by Clive McKeef)

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HP to close site in Germany, cutting 850 jobs

(Reuters) - Computer maker Hewlett-Packard Co said on Friday it is planning to close a site in Germany by the end of October as part of its multi-year restructuring plan.

HP said it was closing its site in Ruesselsheim, Germany, southwest of Frankfurt, and that around 850 jobs would be cut. The remaining 250 employees may be able to transfer to HP partners or clients.

The restructuring of its enterprise services business will not affect HP's other major sites in Germany, the company said, adding that it would continue to employ about 10,000 people in Europe's largest economy.

HP said last year that it was planning to lay off 29,000 employees over two years as it tries to return to growth.

The company, which employs more than 300,000 people globally, began a multi-year restructuring last year aimed at focusing the sprawling company on services targeted at corporations.

HP shares were up 16 cents at $16.67 in morning trading.

(Reporting by Nicola Leske; Editing by David Holmes, Nick Zieminski)

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China poised to control strategic Pakistani port

KARACHI, Pakistan (AP) — China is poised to take over operational control of a strategic deep-water Pakistani seaport that could serve as a vital economic hub for Beijing and perhaps a key military outpost, according to officials.

The construction of the port, in the former fishing village of Gwadar in troubled Baluchistan province, was largely funded by China at a cost of about $200 million. It has been a commercial failure since it opened in 2007, because Pakistan never completed the road network to link the port to the rest of the country.

Chinese control of the port would give it a foothold in one of the world's most strategic areas and could unsettle officials in Washington, who have been concerned about Beijing's expanding regional influence.

The port on the Arabian Sea occupies a strategic location between South Asia, Central Asia and the Middle East. It lies near the Strait of Hormuz, gateway for about 20 percent of the world's oil.

China's interest is driven by concerns about energy security as it seeks to fuel its booming economy. It wants a place to anchor pipelines to secure oil and gas supplies from the Gulf. Beijing also believes that helping develop Pakistan will boost economic activity in its far western province of Xinjiang and dampen a simmering, low-intensity rebellion there.

Some experts view Gwadar as the westernmost link in the "string of pearls," a line of ports from China to the Gulf that could facilitate expansion of the Chinese Navy in the Indian Ocean. That has sparked concern in both the U.S. and India.

Pakistan's Cabinet agreed Wednesday to a proposal for a company owned by the Chinese government, China Overseas Port Holdings Limited, to purchase control of the port from Singapore's PSA International Pte Ltd., which won a bid in 2007 to operate the port for 40 years. The transaction has not yet occurred, a spokesman for Pakistan's Ministry of Ports and Shipping, Mohammed Raza, said Friday.

Pakistan views China as one of its most important allies and a counterweight to the United States, which has given Islamabad billions of dollars in aid but is often viewed as a fickle taskmaster.

China is expected to pay $35 million for control of the port to PSA and two other groups that own an interest, said Aqeel Karim Dhedhi, one of the other shareholders. The third shareholder is the National Logistics Cell, which is controlled by the Pakistani army. The Chinese are waiting for a Pakistani court case challenging PSA's control of the port to be dismissed to complete the transaction, Dhedhi said.

A senior Pakistani official said Beijing has agreed to spend hundreds of millions of dollars to finish a 900-kilometer (550-mile) road that would link the port with Pakistan's north-south Indus Highway, facilitating overland transport from Gwadar to China. The Pakistani government was supposed to complete the road in 2012, but it is only 60 percent finished, said the official, speaking on condition of anonymity because he was not authorized to talk to reporters.

It will still be a tough drive, passing along the Karakorum Highway that winds through the rugged mountains of northern Pakistan and then into Xinjiang province via a border crossing point at an elevation of 4,693 meters (15,397 feet). The path is often blocked by snow in winter.

Even so, the route will cut the overland distance from China's western provinces to the sea in half, from about 4,000 kilometers (2,500 miles) to China's east coast, to just 2,000 (1,250 miles) south to Gwadar.

Longer-term plans also call for road and rail links from Gwadar that would pass through strife-torn Afghanistan to energy-rich Central Asian states.

Asked about the port on Thursday, Chinese Foreign Ministry spokesman Hong Lei said "as long as projects are conducive to China-Pakistan relations, the Chinese side will positively support them."

The port is operating at only about 15 percent capacity now, and machinery originally installed by China is rusting for lack of use, said a Pakistani port worker, speaking on condition of anonymity because he was not authorized to talk to reporters.

On a purely economic basis, the level of trade through the port should be zero because of its drawbacks, but the government is spending millions of dollars in subsidies to ship fertilizer through the facility. It would be cheaper to send the shipments through the coastal city of Karachi, 700 kilometers (430 miles) to the east, the worker said.

Some government officials have claimed that violence in Baluchistan has prevented them from completing the road network. Baluch nationalists have waged a decades-long insurgency against the government, demanding greater autonomy and a larger share of the province's natural resources.

Gunmen shot to death two Pakistani air force personnel and a shopkeeper in a town near Gwadar on Tuesday, said local police official Izat Ali.

Other officials said the ruling Pakistan People's Party simply shifted priorities away from Baluchistan and spent the money building roads in its main areas of support in Sindh province.

"The solution to Gwadar is the Chinese, since they have shown the willingness to work in Pakistan under tough conditions," said shareholder Dhedhi.

___

Associated Press writers Adil Jawad in Karachi, Pakistan, Munir Ahmed in Islamabad and Joe McDonald in Beijing contributed to this report.

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January auto sales indicate strong start to 2013

DETROIT (Reuters) - U.S. auto sales rose 14 percent in January, kicking off the industry's fourth straight year of recovery since the depths of recession as American consumers increasingly sought to replace their aging cars and trucks.

January was the third straight month that the annual U.S. auto sales rate held above the 15 million mark, with a 15.3 million pace last month, according to industry research firm Autodata.

The results indicate the industry's gains will continue to outpace the broader U.S. economic recovery in 2013. So-called "pent-up demand" for new vehicles, the improving U.S. housing market and lower interest rates will boost new vehicle sales this year, industry executives and analysts said.

"We all started the year with a little bit of apprehension with the fiscal cliff debates and the new tax rates," said Toyota Motor Corp's Bill Fay, head of U.S. sales for the Toyota brand. "Our industry again emerged as one of the strong points for the economy."

Overall sales were in line with Wall Street expectations, although individual companies' performances varied. Toyota, General Motors Co and Ford Motor Co shot past expectations, while other companies, including Honda Motor Co , fell far short.

While the current pace was below pre-recession U.S. sales volume, it is much higher than the 10.4 million new vehicles sold in the United States in 2009. That year marked the lowest sales level since the early 1980s and pushed GM and Chrysler Group LLC into bankruptcy.

"It says to us that we continue to recover strongly from the recession despite the headwinds of higher taxes and lower government spending," Kurt McNeil, GM's head of U.S. sales operations, said on a conference call on January's results.

The industry could grow as much as 7 percent in 2013, GM predicted. Ford forecast a gain of as much as 8 percent, triple the 2 to 2.5 percent growth it sees for the overall economy.

PICKUP TRUCKS SHINE

Pickup trucks in particular outpaced the broader market last month, helped by improvements in the U.S. housing sector and purchases by small businesses, including bakeries, caterers and plumbers, GM executives said.

The average car on the road is more than 11 years old, according to automotive consulting firm Polk, after U.S. consumers delayed new vehicle purchases during the recession and the early days of the economic recovery.

"Truck buyers delayed their purchases longer than any other segment," TrueCar.com analyst Jesse Toprak said. "The biggest driver of truck sales is the housing market. Business owners are now feeling more positive about the prospects of the economy."

GM said purchases of its Chevrolet Silverado and GMC Sierra full-size pickup trucks jumped by about one-third for each model. Ford's F-Series truck sales were up 22 percent, while Chrysler's Ram pickup trucks were up 14 percent. Pickup trucks generate some of the strongest profits for automakers.

GM, the largest U.S. automaker by sales, said incentives on its current trucks were higher compared with a year ago. GM will launch its redesigned lineup of trucks in the second quarter.

OUTPACING THE INDUSTRY

U.S. auto sales in 2012 rose more than 13 percent to 14.5 million cars and trucks, and GM has forecast an increase to between 15 million and 15.5 million for 2013.

U.S. auto sales are among the early indicators of economic health each month. U.S. employment grew modestly in January and gains in the prior two months were bigger than initially reported, despite the unexpected contraction in economic output during the last three months of 2012.

GM posted a 16 percent year-on-year increase, while its smaller rival Ford logged a 22 percent jump. Japan's Toyota was up nearly 27 percent. The three automakers, which account for nearly half the U.S. market, beat Wall Street forecasts.

But others, including Chrysler, fell short of estimates. The No. 3 U.S. automaker, majority owned by Italy's Fiat SpA , posted a 16 percent gain. Nissan Motor Co's sales increased by 2 percent, and Honda's 12.8 percent rise came in below the more than 20-percent gain projected by analysts.

Sales of cars and crossovers, such as the recently launched Ford Fusion mid-size sedan and the Chevy Equinox mid-size crossover, also helped boost the industry last month.

But sales for Ford's Lincoln luxury brand fell 18 percent, hurt by inventory shortages of its newly launched MKZ sedan.

Ford said it was holding back those sedans to complete more rigorous quality checks. MKZ inventory should be at planned levels by April, Ford U.S. sales executive Ken Czubay said, adding that the checks were "paramount" to relaunching the brand.

(Additional Reporting by Paul Lienert and Bernie Woodall; Editing by Dale Hudson, David Holmes, John Wallace and Dan Grebler)

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Stocks climb on factory, U.S. jobs data; euro jumps, yen slumps

NEW YORK (Reuters) - Major world stock markets climbed to their highest in nearly two years on Friday, helped by manufacturing and employment data indicating the global economic recovery is on track.

The euro rose to its highest level against the U.S. dollar since mid-November 2011 after data showed euro zone factories had their best month in January in nearly a year. The yen fell to a two-and-a-half-year low against the dollar and a 33-month trough versus the euro, extending its recent weakness on bets the Bank of Japan will ease monetary policy further.

The MSCI world equity index <.miwd00000pus> was up 0.7 percent, helped by surveys indicating Chinese factory output was recovering, while German industrial output posted its best month in nearly a year, though the euro zone as a whole continued to struggle.

U.S. data showed employment grew modestly in January and factory activity touched a nine-month high. Payrolls rose by 157,000 last month and revisions showed 127,000 more jobs created in November and December than previously reported. Separately, the Institute for Supply Management said its index of national factory activity rose to 53.1 last month, its highest since April, from 50.2 in December.

Other data on Friday also suggested that the surprise contraction in U.S. economic activity in the last three months of 2012 was largely a fluke, not a trend.

"Fundamentals are looking good today after the data, but overall, the money that was on the sidelines is finally coming into the market again," said Doug Cote, chief market strategist at ING Investment Management.

The Dow Jones industrial average <.dji> closed up 149.21 points, or 1.08 percent, at 14,009.79. The Standard & Poor's 500 Index <.spx> was up 15.06 points, or 1.01 percent, at 1,513.17. The Nasdaq Composite Index <.ixic> ended up 36.97 points, or 1.18 percent, at 3,179.10.

The Dow industrials rose above 14,000 for the first time since mid-October 2007 and the S&P touched its highest since December of that year. The gains are the fastest start to the year for equities in 16 years.

European shares inched up as investors took advantage of the past two sessions' losses to snap up cheapened equities, reassured by the run of solid data from China, Europe and the United States.

The pan-European FTSEurofirst 300 <.fteu3> closed 0.3 percent higher at 1,168.08, clawing back some of the retreat suffered in the previous two sessions and edging toward a two-year peak set earlier in the week.

"Providing there are no further setbacks to the region's debt crisis, these data add to the expectation that the euro zone is on course to return to growth by mid-2013," said Chris Williamson, chief economist at data compiler Markit.

EURO RALLY

The euro was up 0.6 percent at $1.3657, with its session high at $1.3711. The currency also hit its highest point against the yen since April 2010, helped by factory activity data showing the worst of the euro zone's downturn may be over.

"The latest data is a great mix for a broadening of the 'risk-on' trade," said Alan Ruskin, head of G10 FX strategy at Deutsche Bank in New York.

The benchmark 10-year U.S. Treasury note was down 13/32, the yield at 2.0321 percent. Prices for U.S. Treasuries seesawed on Friday after the slight rise in the unemployment rate was checked by a separate report showing U.S. manufacturing growth picked up in January.

Gold was up 0.3 percent at $1,667.39 an ounce, although it pared gains in the wake of the U.S. payrolls data. Silver was up 1.4 percent at $31.83 an ounce and three-month copper on the London Metal Exchange rose to $8,310 a metric ton, its highest since early October.

In the oil market the rising economic optimism coupled with tension across the Middle East, the world's biggest oil producing region, has put Brent crude on track to its biggest weekly gain since mid-November, while U.S. crude is set to rise for an eighth straight week.

Brent oil was up 0.9 percent to $116.59 a barrel, while U.S. crude futures rose 15 cents to $97.64.

(Reporting by Nick Olivari; Editing by James Dalgleish)

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Dow hits 14,000, for a minute anyway

NEW YORK (AP) — The Dow Jones industrial average briefly topped 14,000 on Friday morning, a milestone not seen since before the financial crisis rocked the markets and the world economy.

After rising steadily in early trading thanks to the U.S. jobs report, the Dow briefly crossed 14,000 around 10:07 a.m. EST. The milestone was by a hair — the highest the Dow reached was 14,000.97 — and it lasted only a moment. The index was trading around 13,980 shortly afterward. The other major stock indexes were also up.

The Dow has crossed 14,000 only 15 times in its history. The last time was Oct. 17, 2007.

If the gains hold and it closes above 14,000 on Friday, that would put it in even more rarefied territory: On just nine of those days did it manage to close above 14,000 at the end of trading.

That time more than five years ago seems almost a different era — before signs of the devastating financial crisis were apparent to the average observer.

Lehman Brothers still existed. So did Bear Stearns, Wachovia and Washington Mutual. Housing prices were starting to ebb, but they hadn't cratered. The unemployment rate was 4.7 percent, meaning jobs were abundant.

The benchmark is not far from its all-time high, 14,164.53, which it reached on Oct. 9, 2007. A year later, in the depths of the financial crisis, it had shed nearly 40 percent of its value.

The Dow is an index of 30 big companies, and its purpose is to represent how the broader stock market is faring. And while hitting 14,000 would be an important psychological milestone, it wouldn't be much else.

The stock market is more a representation of how traders are feeling about the economy than the economy's underlying fundamentals. And many investors don't even think the Dow is the best way to track the market: They prefer the much bigger Standard & Poor's benchmark index, which follows 500 companies, because they think it represents a more accurate view of the economy.

"You can hit these milestones, but then it can always end badly," said Joe Gordon, managing partner at Gordon Asset Management in North Carolina. The fact that small investors are finally getting back in the stock market, he said, makes him think that stocks are due for a downturn.

"It's meaningless to the average professional," said Gordon, referring to the 14,000 benchmark. And for workers still unemployed by the financial crisis, he said, "it really means nothing to them."

At midmorning, the Dow was up 119 points to 13,980. The Standard & Poor's 500 rose 10 to 1,508. The Nasdaq composite index was up 19 to 3,161.

Overall, the government jobs report that pushed stocks forward was mixed, but traders chose to focus on the positive. The U.S. said it added 157,000 jobs in January, which was in line with what traders had been expecting. Unemployment inched up to 7.9 percent from 7.8 percent in December. But, encouragingly, the government also reported that hiring over the past two years has been higher than it originally thought.

The jobs number is based on a survey of employers, and the unemployment rate is based on a separate survey of households, which is why they can diverge.

In Europe, tentative and incremental signs of a recovery were enough to push up stocks in France, Britain and Germany. December unemployment in the European Union was lower than analysts had feared, inflation unexpectedly fell, and a survey raised hopes of some growth in the manufacturing sector.

But there were also reminders that the debt problem is far from solved. The Netherlands was also forced to take over one of its major banks, to try to stave off a collapse. In Greece, dock workers extended a strike over the government's spending cuts.

Among companies making big moves:

— Drugmaker Merck fell nearly 3 percent, down $1.22 to $42.02. Its fourth-quarter profit suffered because of competition from generic medicines against its blockbuster allergy drug Singulair.

— Insurance company MetLife rose more than 1 percent, up 52 cents to $37.86, after saying it plans to buy the largest private pension fund administrator in Chile.

— Zoetis, an animal health business that Pfizer just spun off, made its debut on the stock market. It was up 18 percent, rising $4.63 to $30.62.

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Mattel raises prices after ho-hum holiday quarter

(Reuters) - Mattel Inc , the maker of Barbie dolls and Hot Wheels cars, is raising prices globally as it looks to rebound from a lackluster holiday selling season plagued by concerns about the U.S. economy.

Friday's news helped the No. 1 toymaker's shares recover in morning trading. They rose about 1 percent to $38.55, their highest level since 1998, after falling as much as 2.3 percent to $36.75 earlier in the session.

While Mattel missed Wall Street's profit and sales estimates for the fourth quarter on weak demand for its mainstay Barbie and some games, it reassured investors about its margin prospects by talking about cost cuts and the global January 1 price increase, which it said was in a low single-digit percentage range.

Despite the sales miss, Mattel still appears to have gained market share from smaller rivals such as Hasbro Inc in the United States and nearly a half-dozen European markets, analysts said.

Last month, Hasbro had warned its fourth-quarter revenue might fall far short of analysts' estimates because of weaker-than-expected demand in what is typically the biggest selling season of the year.

"The retail environment was very difficult in the fourth quarter," said MKM Partners LLC analyst Eric Handler.

U.S. shoppers held back a bit during the 2012 holiday season, spending only 3 percent more than 2011 because of concerns about the economy, the National Retail Federation has said.

Sales of Barbie products fell 10 percent in North America in the fourth quarter, which Handler said was the steepest decline for the brand in several years.

But some of the weakness in the Barbie brand stems from the rising popularity of other Mattel dolls, such as Monster High, which appeared on many hot toy lists in 2012, Needham analyst Sean McGowan said.

"To some extent, Monster High is taking a lot of business from a lot of dolls," McGowan said. Barbie "just ran into its own competitor."

Both analysts expect Mattel to have a better 2013. Handler tied his optimism to the company's strong product lineup and the slowly recovering global economy.

Hasbro's lack of entertainment-themed toys could hurt its prospects in the near term, said Handler, who rates Mattel shares as "buy" and Hasbro as "neutral."

It will be another two years before the release of another "Transformers" movie, which is based on a Hasbro brand, Handler said.

Hasbro plans to report its fourth-quarter results on February 7.

WEAK SALES GROWTH

Mattel, also home to Hot Wheels cars and Fisher-Price toys, said its net income had fallen to $306.5 million, or 87 cents a share, from $370.6 million, or $1.07 a share, a year earlier.

Excluding a litigation charge, the company earned $1.12 a share, missing the analysts' average estimate of $1.15, according to Thomson Reuters I/B/E/S.

Net sales rose 5 percent to $2.26 billion, and fell short of the analysts' average estimate of $2.29 billion.

Global sales of Barbie products fell 4 percent. Sales at Mattel's entertainment business, which includes electronic games, were down 13 percent, mainly on weak demand for "Cars 2" movie-themed toys.

Also on Friday, Mattel announced a first-quarter cash dividend of 36 cents a share. That reflects an annualized payout of $1.44 a share, which would be up 16 percent from last year.

(Reporting by Dhanya Skariachan; Editing by Lisa Von Ahn)

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Wall Street surges to five-year highs; Dow ends above 14,000

NEW YORK (Reuters) - Stocks rose to five-year highs on Friday, with the Dow closing above 14,000 for the first time since October 2007, after jobs and manufacturing data showed the economy's recovery remains on track.

The S&P touched its highest since December 2007 after a 5 percent gain in January, which was its best start to a year since 1997. The index is now just about 60 points away from its all-time intraday high of 1,576.09.

Employment grew modestly in January, with 157,000 jobs added. That was slightly below expectations, but Labor Department revisions showed 127,000 more jobs were created in November and December than previously reported.

Analysts attributed the market's robust showing so far this year partly to a deluge of cash flowing into equities.

Investors poured $12.7 billion into U.S.-based stock mutual funds and exchange-traded funds in the latest week, concluding the strongest four-week flows into stock funds since 1996, data showed on Thursday.

"There is a lot of money looking for a home, and people are finally deciding the bond market is done and moving money into equities," said Edward Simmons, managing director and partner at HighTower in Portland, Maine.

"I see the rotation (of assets) pushing the market up in the face of not-massive amounts of good news," he said. "People are overlooking the higher risk in equities."

Other reports released Friday showed the pace of growth in the U.S. manufacturing sector picked up in January to its highest level in nine months, U.S. consumer sentiment rose more than expected last month, while December construction spending also beat forecasts.

"All the data seems to keep pointing to a slowly, steadily improving economy," said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago.

The Dow Jones industrial average <.dji> was up 149.21 points, or 1.08 percent, at 14,009.79. The Standard & Poor's 500 Index <.spx> was up 15.06 points, or 1.01 percent, at 1,513.17. The Nasdaq Composite Index <.ixic> was up 36.97 points, or 1.18 percent, at 3,179.10.

With the day's gains, major equity indexes rose five straight weeks.

More than 600 stocks on the NYSE and the Nasdaq combined hit 52-week highs on Friday, including Google which rose as high as $776.60, before closing at $775.60, up 2.6 percent.

Investors were also attuned to corporate earnings, with a trio of Dow components reporting profits that beat expectations.

Exxon Mobil ended flat at $90.04 after reporting results while Chevron added 1.2 percent to $116.50.

Drugmaker Merck & Co fell 3.3 percent to $41.83 after a cautious 2013 outlook.

Generic drugmaker Perrigo reported a better-than-expected second-quarter profit and its shares jumped 4.7 percent to $105.28.

Of the 252 companies in the S&P 500 that have reported earnings so far, 69 percent have exceeded expectations, according to Thomson Reuters data. That is a higher proportion than over the past four quarters and above average since 1994.

Overall, S&P 500 fourth-quarter earnings are estimated to have grown 4.4 percent, according to the data, up from a 1.9 percent forecast at the start of the earnings season but well below a 9.9 percent profit growth forecast on October 1.

Dell Inc gained 2.9 percent to $13.63 after sources said the company was nearing an agreement to sell itself to a buyout consortium led by its founder, Michael Dell, and private equity firm Silver Lake Partners.

(Reporting By Angela Moon; Editing by Kenneth Barry)

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