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  • Stocks post 2010's second-biggest gain. U.S. stocks rallied Thursday after China reassured investors by saying it isn't planning to sell European bond holdings, and Spain passed a €15B austerity package. DJIA surged 285 points, finishing +2.85%. S&P was up 3.3% and Nasdaq gained a market-leading 3.7%. Still, going into the month's final session, U.S. stocks look ready to post the worst May since 1962.
  • Shell scoops up East Resources for $4.7B. Royal Dutch Shell (NYSE:RDS.A) said Friday it will acquire privately-held East Resources Inc. for $4.7B in cash, giving it substantially more exposure to North American natural gas plays. East Resources owns and operates more than 2,500 producing oil and gas wells in New York, Pennsylvania, West Virginia, and Colorado, and has been operating in the much-coveted Marcellus Shale for 25 years. The acquisition is the second-biggest oil and gas deal this year, after BP's (NYSE:BP) acquisition of deepwater assets from Devon Energy (NYSE:DVN) for $7B in March. Last December, ExxonMobil (NYSE:XOM) agreed to buy XTO Energy (XTO), the No. 1 U.S. natural gas producer, for $31B.
  • Prudential goes bargain shopping. Prudential (NYSE:PUK) confirmed Friday it has entered discussions with AIG (NYSE:AIG) regarding the status of its proposed acquisition of AIG's Asia arm, AIA Group. Prudential is looking to drop the $35.5B price tag to about $30B in a move to placate large shareholders opposed to the deal. Meanwhile, the U.S. Treasury categorically denied a report it is urging AIG to accept a lower price, and has agreed to take on 11% ($5.5B) or more of the new company if it would help tip the scales.
  • Goldman probe focuses on Timberwolf. Sources contacted by federal prosecutors investigating Goldman Sachs (NYSE:GS) say they are focusing on Timberwolf, the infamous "sh**ty deal" repeatedly cited in a tense Senate hearing last month. David Mapley, who claims his Australian hedge fund collapsed shortly after Goldman sold it $100M of securities in Timberwolf, says the deal was "a fraudulent concoction," adding, "We examined the whole trade, what led up to the trade, the way it was marketed and everything about it was inaccurate. You think you're buying one thing and what you see is totally different." Separately, sources say Goldman is trying to settle with the SEC on a charge other than fraud, and a fine of hundreds of millions of dollars.
  • BP top kill resumes. BP (BP) said this morning top kill efforts could continue for another 24-48 hours, and pegged the cost of tackling the disaster so far at $930M, up from $760M on May 24. "If the well were successfully 'killed,' it is expected that cementing operations would then follow. The top kill procedure has never before been attempted at these depths and its ultimate success is uncertain," BP said. Reading between the lines, though, Washington blog surmises that top kill has failed, and says BP is hoping adding additional materials to the mix will do a better job than the heavy mud which has thus far failed to plug the leak. On Thursday, a federal panel of scientists said the spill would eclipse the Exxon (XOM) Valdez disaster of 1989 as the worst in U.S. history. Also Thursday, President Obama accepted the resignation of his top oil regulator, accepted blame for failures before and after the sinking of the Deepwater Horizon, and vowed tougher regulations for the oil industry.
  • U.S. halts deepwater drilling. The government ordered a temporary halt to drilling at 33 deepwater exploration rigs Thursday, part of its response to the massive BP (BP) oil spill. Unlike the six-month extension of the ban on new deepwater drilling permits, and cancellation of a much-anticipated lease sale offshore Virginia, the halt on existing deep-sea rigs threatens to affect proven oil discoveries rather than untested areas, leaving companies struggling to figure out how they would be affected. About 24% of total U.S. oil production and about 5% of gas output comes from wells in Gulf waters more than 1,000 feet deep.
  • Congress mulls pension bailout. Congress is laying the groundwork for a possible federal bailout of faltering multi-employer pension plans that are jointly run by companies and unions. The plans, common in certain industries, cover almost 25% of all workers who have a private pension. Opponents argue targeted aid would lead to a broader bailout of the whole class of pensions, potentially costing taxpayers tens of billions of dollars.
  • Toys R Us files for $800M IPO. Toys R Us filed for an $800M IPO Friday morning. Toys R Us was bought in 2005 by KKR (KFN), Bain, and Vornado (NYSE:VNO) for $6.6B. Underwriters: GS, JPM, BAC, CS, DB, C, WFC, MFG.
  • Samberg pays $28M to settle insider trading charges. Pequot hedge fund founder Arthur Samberg, without admitting guilt or denying wrongdoing, agreed to pay nearly $28M to settle SEC charges that he engaged in insider trading of Microsoft (NASDAQ:MSFT) shares. In a note to a former Microsoft employee who joined Pequot just before MSFT's April 2001 earnings announcement, Samberg wrote: "I shouldn't say this, but you have probably paid for yourself already!"
  • Boeing wins legal victory in tanker battle. The House approved a Boeing-backed bill that would force consideration of illegal subsidies in the multibillion-dollar competition between Boeing and Europe's EADS for the Air Force's $50B tanker aircraft contract. Earlier this week, Boeing accused EADS of courting Iran and other countries at odds with the U.S., and said this should be taken into account in the tanker competition too.
  • GDP growth falls short but remains strong. The Census Bureau's second Q1 GDP estimate came in at a lower-than-expected 3%, down from 3.2% in the advance estimate and short of the 3.4% growth economists expected. Most sectors posted negative revisions in the second estimate, and it appears economists overestimated inventory growth contributions. Inflation remains a non-starter, with the GDP deflator revised up to 1% from 0.9%. Although headline GDP fell short of expectations, it still reflects a continuation of the recovery. Meanwhile, corporate profits rose a robust 42.7%, following a 51.8% jump in Q4.
  • Ford may bid farewell to Mercury. Sources say Ford (NYSE:F) will likely shutter its Mercury brand, launched by Edsel Ford during the Great Depression. While Mercury sales are clearly weak, it's difficult to estimate or quantify the loss of brand recognition and customer loyalty, a lesson GM learned when it closed down Pontiac. Meanwhile, Ford is preparing an aggressive relaunch of the Explorer.

Earnings: Thursday After Close

  • Guess? (NYSE:GES): Q1 EPS of $0.58 beats by $0.09. Revenue of $539M (+22.2%) vs. $507M. Shares -7.2% AH. (PR)
  • J Crew Group (JCG): Q1 EPS of $0.68 beats by $0.11. Revenue of $414M (+19.7%) vs. $394M. Shares +0.8% AH. (PR, earnings call transcript)
  • Novell (NASDAQ:NOVL): FQ2 EPS of $0.07 in-line. Revenue of $204M (-5.4%) in-line. Shares -0.5% AH. (PR, earnings call transcript)

Today's Markets

  • Asia: Japan +1.3%. Hong Kong +1.7%. China flat. India +1.2%.
  • Europe at midday: London +0.5%. Paris +0.1%. Frankfurt +0.4%.
  • Futures at 7:15: Dow +0.1% to 10242. S&P +0.1% to 1102.
    Crude +0.8% to $75.15. Gold +0.1% to $1,213.
    10-year Tsy +0.1%. Euro +0.2%. Yen -0.1%.

Friday's Economic Calendar

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