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MACRO AND HOUSING

U.S. Initial Jobless Claims Drop By 26,000

First-time applications for unemployment fell by 26,000 to 299,000 last week, a larger-than-forecast drop and their lowest level in almost five months. This is the first time unemployment claims have penetrated 300,000 since July. Analysts were expecting 324,000. A four-week moving average of claims, which smoothes out week-to-week volatility, also dropped to 314,750 from 316,500 the previous week. Last month, the economy generated a surprisingly strong 167,000 jobs. The report suggests the overall labor market remains strong in the face of slowdowns in the housing and auto industries, but it is notoriously difficult to extrapolate from data compiled during holiday seasons. Last week's figures were particularly skewed, as they were affected by both New Year's and the national day of mourning for President Gerald Ford. The encouraging report likely contributed to yesterday's record close on the DJIA. Analysts believe a recession is unlikely in the current climate and that the Fed will succeed in achieving a soft landing for the economy.
• Sources: Bloomberg, Forbes, MarketWatch, Reuters
• Related commentary: Fed's Kohn: Soft Landing Likely for U.S. Economy, Too Early To Worry About Employment Being Too Strong, Market Hiccups As Fed's December Minutes Are Released, Home Sales and Consumer Confidence Get Year-End Boosts, but Jobless Claims on Upswing
• Potentially impacted stocks and ETFs: S&P 500 Index (NYSEARCA:SPY), NASDAQ 100 Trust Shares ETF (QQQQ), Diamonds Trust Series 1 ETF (NYSEARCA:DIA), iShares Russell 2000 Index ETF (NYSEARCA:IWM), iShares Lehman 1-3 Year Treasury Bond ETF (NYSEARCA:SHY), iShares Lehman 7-10 Yr Treasury Bond ETF (NYSEARCA:IEF), iShares Lehman 20+ Year Treasury Bond ETF (NYSEARCA:TLT), iShares Lehman TIPS Bond Fund (NYSEARCA:TIP)

TECHNOLOGY AND INTERNET

SAP's Software Sales Widely Miss Forecast; ADRs Slump

SAP ADRs were hammered by as much as 10% yesterday after the company missed its 2006 software-license sales targets, a critical benchmark, because of slowdowns in the U.S. and Asian markets. This is the second time in four quarters that the company has missed Street forecasts. Revenue was hurt in part by the strong euro, which slashed the value of sales generated in the U.S. Software sales are a critical revenue source for companies like SAP and Oracle because they generate subsequent revenue from maintenance and consulting. Last January, SAP forecast sales growth of 15-17%, but in October, it called that range unlikely. Full-year software-license revenue came in at 13.5%. Q4 license sales in the Americas were flat, widely missing the Street's 20% growth forecast. Revenue in Asia grew 2% versus a 17% analyst estimate. Oracle, which reported last month, also missed estimates, posting a 1% Q2 gain in revenue from software applications. SAP did not comment on these misses in its report, but plans to hold a press conference on Jan. 24 to give details of its Q4 earnings.
• Sources: Bloomberg, Business Week, Wall Street Journal
• Related commentary: Deciphering SAP's Poor Report, SAP Warns, Sending Shockwaves Through Enterprise Software

Vista Sales Beat Forecasts, MSFT Shares Climb

A report from software researcher NPD Group says Microsoft's Vista OS December sales were stronger than expected. NPD analyst Chris Swenson said the results were particularly impressive considering MSFT's main marketing push doesn't come until the end of January, when the OS is released to retail Microsoft 12 01 2007 Chartcustomers. Vista sales are 4% behind XP in its first month -- but XP was released to businesses and consumers together -- and 62.5% higher than Windows 2000 in its launch month. Big companies may be interested in adopting Vista sooner than expected: With XP, twice as many large and mid-sized companies bought volume licenses as small companies; in Vista's first month, the ratio was seven to three. Swenson: "That says that the large enterprises are actually very interested in this technology... I think these results could be classified as 'strong,' or at least 'stronger than expected,'" He said that not many businesses went for Vista Ultimate Edition, while noting that buying Ultimate is the only way small businesses can access one of Vista's most compelling features: its BitLocker security feature that fully encrypts an OS volume, similar to Apple's FileVault. MSFT shares gained $1.04 (3.5%) to $30.70, hitting a 52-week high of $30.75 intraday.
• Sources: CNET News, MSN/AP
• Related commentary: Bill Gates' CES Keynote Insights, Microsoft Vista 's Voice-Recognition Software: The Future of PC Applications, Microsoft Vista Still Isn't Ready?, Pacific Crest Analyst Says Microsoft Is Likely To Launch Home Server. Conference call transcripts: Microsoft F1Q07
• Potentially impacted stocks and ETFs: Microsoft Corp. (NASDAQ:MSFT). Competitors: Apple Computer Inc. (NASDAQ:AAPL), Google Inc. (NASDAQ:GOOG), International Business Machines Corp. (NYSE:IBM). ETFs: iShares Goldman Sachs Technology Index (NYSEARCA:IGM), iShares S&P Global Technology (NYSEARCA:IXN), NASDAQ 100 Trust Shares (QQQQ), Technology Select Sector SPDR (NYSEARCA:XLK), Vanguard Information Technology (NYSEARCA:VGT)

AMD Issues Q4 Earnings Warning, Shares Tumble in Extended Trading

Yesterday evening AMD issued a brief news release saying excluding ATI-related segments, Q4 (ended Dec. 31) revenue will grow 3% to $1.33 billion. However, operating income (ex-ATI and other charges) is "expected to be positive but substantially lower" compared to Q3 due to "significantly lower microprocessor" ASPs, which "largely offset a significant increase in unit sales." AMD-1yr-chart-01-11-06 In the pre-market AMD's shares were trading a low as $18.30 on volume approaching 700k for a drop of over 9% versus yesterday's close of $20.18. Analysts at Goldman and Citi have already slashed their target share prices: $19 -> $16 and $26 ->$21, respectively. Bloomberg quotes a ThinkEquity Partners analyst who says, "It's probably an AMD problem more than a market problem. It's going to be tougher and tougher for AMD. They're giving share back to Intel."
• Sources: AMD press release, Bloomberg
• Related commentary: Color on AMD's Warning, AMD Warns On Q4 Operating Income, Key Earnings Reports Over Next Two Weeks: INTC, AAPL, IBM, C, GE, AMD Whacked By Analysts Over Pricing Pressures
• Potentially impacted stocks and ETFs: Advanced Micro Devices (NYSE:AMD), Intel (NASDAQ:INTC). ETFs: Semiconductor HOLDRs (NYSEARCA:SMH), iShares Goldman Sachs Semiconductor (IGW)

iPhone Ain't Palm's Only Problem

In his influential Personal Technology column WSJ editor Walt Mossberg contends Apple's iPhone isn't Palm Inc.'s only problem: Given the chance to use one during its launch, he vouches the iPhone has "the largest and most beautiful screen I've ever seen on PALM 12 01 2007 Charta cellphone, even though it's incredibly thin," a brilliant user interface, exceptional-looking email and web browser, along with its full blown iPod, video player, and voice mail -- making his Treo 700p seem downright primitive. And Palm competitors like Motorola, Nokia and Samsung have, over the last few months, rolled out models that rival the Treo, are thinner, lighter, and much cheaper. Palm's latest, the Treo 750 is a bit thinner and 16% lighter, but next to the Samsung's svelte BlackJack -- which is 36% smaller -- it looks bulky. BlackJack also packs 33% better resolution, 38% more battery life, runs on a faster network, and is half the price ($199 vs. $399).
• Sources: Wall Street Journal
• Related commentary: Apple's iPhone: Winners and Losers, iPhone: Who Stands To Gain and Lose?, Why I'm Disappointed By The iPhone, Palm Treo 750 Delays May Be Worse Than Expected, How Apple's iPhone Could Flop, Every Design Decision Has Tradeoffs - Even the iPhone, iPhone: On A More Sober Note.... Conference call transcripts: Palm F2Q07
• Potentially impacted stocks and ETFs: Palm Inc. (PALM), Apple Computer Inc. (AAPL), Nokia Corp. (NYSE:NOK), Motorola Inc. (MOT), Research In Motion Ltd. (RIMM). ETFs: Internet Architecture HOLDRs (NYSE:IAH), iShares S&P Global Technology (IXN)

Sony PS2: Top-Selling Game Console During Holidays

Game console holiday sales data compiled by market research firm NPD Group revealed a surprising winner. The Sony PlayStation 2, not the PS3 or other "next-gen" consoles such as Microsoft's Xbox 360 or Nintendo's Wii, was the top-seller. An NPD analyst credited the PS2's $129 price as the key sales driver, compared to the PS3 which costs $499-$599. The cheapest next-gen console is the Wii, priced at $249. Sony-SNE-Nintendo-NTDOY-Microsoft-MSFT-3m-chart-01-11-07 NPD estimates 1.4 million PS2s were sold in December, followed by 1.1m Xbox 360s, 604k Wiis and 491k PS3s. The sales figures for the newest consoles missed analyst estimates, but it was not for a lack of demand. According to GameStop, the Wii is still in short supply and flying off the shelf when replenished. However, there is said to be "tons of" PS3s in stores now, according to Wedbush Morgan analyst Michael Pachter. He comments, "I don't think consumers are aware of it because there hasn't been much advertising."
• Sources: Bloomberg, NY Times
• Related commentary: Game Points: Game Console and Software Stock Update, Video Game Console Makers Meet '06 Targets, GameStop Holiday Sales Impress, Nintendo Ups Guidance and Boosts Dividend; Wii Sales Crush PS3 in Japan
• Potentially impacted stocks and ETFs: Microsoft (MSFT), Nintendo (OTCPK:NTDOY), Sony (NYSE:SNE), GameStop (NYSE:GME). Gaming software publishers: Electronic Arts (ERTS), Activision (NASDAQ:ATVI), Konami (NYSE:KNM), Take Two (NASDAQ:TTWO), THQ (THQI)

AT&T Undertakes Major Campaign To Rebrand Cingular 'AT&T Wireless'

Last month, AT&T acquired the 40% of Cingular Wireless it didn't own when it got the final go ahead on its acquisition of BellSouth. Now, the company is planning a major advertising campaign to rebrand all Cingular products with the AT&T name. It is the third rebranding related to AT&T since 2004. At that time, AT&T was renamed Cingular after the company acquired the old AT&T's wireless unit. Last year, AT&T dropped a billion dollars changing its name from SBC Communications to AT&T and the current campaign is expected to cost no less. One company likely to profit from such a campaign is AT&T's primary ad agency, Omnicom Group's GSD&M and BBDO.
• Sources: Press Release, NY Times, Reuters,
• Related commentary: It's Official: AT&T/BellSouth Merger Gets FCC Approval, Apple's iPhone Partnership With Cingular Could Drag It Down, AT&T: Optimism On Cingular Growth, Minor iPhone Impact on AT&T
• Potentially impacted stocks and ETFs: AT&T (NYSE:T), Omnicom Group (NYSE:OMC). Competitors: Verizon (NYSE:VZ), Sprint Nextel Corporation (NYSE:S), Vodafone (NASDAQ:VOD). ETFs: Telecom HOLDRS (NYSEARCA:TTH), iShares S&P Global Telecom (NYSEARCA:IXP), iShares Dow Jones US Telecom (NYSEARCA:IYZ), PowerShares Dyn. Telecom & Wireless (PTE), Vanguard Telecommunication Services (NYSEARCA:VOX)

THQ Ups Quarterly and Fiscal Year Guidance

Gaming software publisher THQ Inc announced higher Q3 (ended Dec. 31) and FY07 (ending Mar. 31) guidance yesterday and also said it expects to reach the $1 billion net sales milestone for FY07. THQ cited "stronger than expected sales of mass-market franchises" during the holidays "across key current and next-generation hardware systems." THQ-THQI-1yr-chart-01-11-07 Q3 diluted EPS (proforma) is now seen totaling $0.97 ($0.91 GAAP) on revenue of $475 million versus a previous estimate of $0.69 - $0.74 per share ($0.65 - $0.70 GAAP) on sales of $400m - $425m. This tops Thomson's estimate of $0.74 EPS on sales of $425m. A Lazard Capital analyst commented on THQ benefiting from its exposure to popular Nintendo platforms and noted a positive forex impact related to sales in Europe. THQ raised its fiscal Q4 diluted EPS guidance to $0.14 ($0.09 GAAP) with sales expected to be in-line with its previous estimate of $146m. Q4 results will be negatively impacted by the later release of a Sony PS3 game now due out in Q1 FY08. Fiscal '07 diluted EPS was raised to $1.20 ($1.00 GAAP) on sales of $1b, compared to prior estimates of $0.95 - $1.05 ($0.77 - $0.87 GAAP) on sales of $925m - $975m. Early this morning Kaufman Bros reiterated its "hold" rating on THQ, while raising its target to $34 from $28. THQ will report fiscal Q3 earnings on Feb. 2 before the market opens.
• Sources: THQ press release, newratings.com, Reuters
• Related commentary: THQ Raises Fiscal 3Q07 Guidance: Stock May Be Negatively Affected, Gaming Software: THQ Gives Mixed Outlook, Credit Suisse Likes Activision, THQ, Inc. - How Serious Are its Problems?, Game Points: Game Console and Software Stock Update
• Potentially impacted stocks and ETFs: THQ (THQI). Competitors: Electronic Arts (ERTS), Activision (ATVI), Konami (KNM), Take Two (TTWO)

Infosys Shares Rise on Strong Earnings Report

Shares of Infosys Technologies, the Indian software developer, were up yesterday after the company reported a 52% rise in fiscal Q3 net income. Profit came in at $218 million, or $0.38/share, up from $143 million, or $0.26/share, in the year-ago quarter. Revenue rose 47% to $821 million. Analysts had expected $0.37/share on sales of $797.3 million. The company expects global IT demand to continue strong and raised its EPS forecast for the year to 66.63 rupees from 66 rupees, though it warned a stronger rupee could negatively affect earnings. The rupee gained almost 3.8% against the dollar during the quarter just ended. Operating margins for Q3 rose to 28.6% from 28.3% in Q2. Infosys grew its telecom operations by 72%, its package implementation business by 61%, and its European business by 58%. The company forecasts revenue of $859-861 million and EPS of $0.40 for fiscal Q4.
• Sources: TheStreet.com, Wall Street Journal, Bloomberg. Conference call transcripts: FQ307 (Ended 12/31/06)
• Related commentary: Infosys Tops Estimates; Outsourcing Market Still Strong, Infosys Earnings Preview, Indian IT Services Firms Continue Their Overseas Expansion, Cognizant's Income Statement Is As Good As They Get
• Potentially impacted stocks and ETFs: Infosys Technologies Limited (NYSE:INFY). Competitors: Satyam Computer Services Ltd. (SAY), Wipro Ltd. (NYSE:WIT), Cognizant Technology Solutions (NASDAQ:CTSH). ETFs: BLDRS Emerging Markets 50 ADR Index (NASDAQ:ADRE), streetTRACKS Morgan Stanley Technology (NYSEARCA:MTK)

ENERGY AND MATERIALS

Oil Approaches 19-Month Low; Dow Sets Record

Crude oil sank another 4% to $51.88 yesterday, its lowest close since May 2005. The oil price is now down a third from its July high on warm temperatures, high inventories, and speculative selling. The DJIA jumped 72.82 points to a record close of 12514.98 on the prospect that the oil swoon could benefit the U.S. economy. Americans who spend less on energy can increase their discretionary spending, which could mitigate the effects of the housing slowdown. Low energy prices can also benefit airlines and automakers. The oil price slide could be behind a recent spate of positive economic indicators, including December growth in nonfarm payrolls of 167,000 jobs and estimated Q4 growth in consumer spending above 4%. The drop also makes the Fed even less likely to lower interest rates. As encouraging as the price slide is for consumers, it is ominous for OPEC, which faces a shrinking of both revenues and political clout. It also bodes ill for integrated oil companies like ExxonMobil and Chevron. OPEC is considering an emergency meeting at which it might discuss a third production cut.
• Sources: Bloomberg, TheStreet.com, MarketWatch, Wall Street Journal
• Related commentary: Oil Price Long Term Outlook, Panic in the Crude Pits, What's Driving Oil Prices Down?, Oil Price Hits 19-Month Low, What's Really Behind This Oil Price Crash?
• Potentially impacted stocks and ETFs: Exxon Mobil Corp. (NYSE:XOM), BP plc (NYSE:BP), Royal Dutch Shell (NYSE:RDS.A), Chevron Corp. (NYSE:CVX), Marathon Oil (NYSE:MRO). ETFs: Oil Service HOLDRs Trust (NYSEARCA:OIH), United States Oil Fund LP (NYSEARCA:USO), PowerShares DB Oil (NYSEARCA:DBO), iShares Dow Jones U.S. Oil & Gas Exploration Index (NYSEARCA:IEO)

How Will GE Spend Its Plastics Units Proceeds?

Bloomberg reports that General Electric wants to use the $10 billion or so it nets from selling its plastics unit to buy healthcare technology developers and energy service and equipment makers in order to tap into faster-growing markets. Analysts say potential healthcare targets include instrument maker Waters Corp., software makers Vital Images Inc. and Allscripts Healthcare Solutions Inc., genetic analysis company Illumina Inc. General Electric 12 01 2007 Chartbiotech researcher Invitrogen Corp., Cerner Corp. and Eclipsys Corp. Energy possibilities include oilfield-equipment makers Cameron International Corp., FMC Technologies Inc. and Dril-Quip Inc. Merrill Lynch said in a note today that GE may spend tens of billions of dollars on an acquisition. Shares of ABB Ltd., the world's largest electricity network builder and Schneider Electric SA, the biggest supplier of circuit breakers, were up about 2.5% on speculation the two European companies might be targets. Sub-sea drilling may be interesting sector, after GE agreed to buy this week drilling-equipment maker Vetco Gray Inc. for $1.9 billion. GE declined to comment.
• Sources: Bloomberg
• Related commentary: GE Plastics Unit Sale -- Subject to Restrictions, GE to Buy Vetco's Oil & Gas Unit for $1.9 Billion, GE and Citigroup Rallies: How Wall St. Missed It, General Electric: Financial Company Dressed in the Bond Rating of an Industrial Conglomerate. Conference Call Transcript: General Electric Q3 2006
• Potentially impacted stocks and ETFs: General Electric Co. (NYSE:GE), Waters Corp. (NYSE:WAT), Vital Images Inc. (NASDAQ:VTAL), Allscripts Healthcare Solutions Inc (NASDAQ:MDRX), Illumina Inc. (NASDAQ:ILMN), Invitrogen Corp. (IVGN), Cerner Corp. (NASDAQ:CERN), Eclipsys Corp. (ECLP), Cameron International Corp. (NYSE:CAM), FMC Technologies Inc. (NYSE:FTI), Dril-Quip Inc. (NYSE:DRQ), ABB Ltd. ADR (NYSE:ABB)

TRANSPORT

Nissan to Tap Renault for 'Econocar' Design, But No 'Cross-badging'

The Wall Street Journal reports a Nissan North America executive said Nissan could take advantage of its alliance with Renault to gain product design know-how from the latter's Logan 'econocar' to develop its own version to target emerging markets. The Logan was launched in '04 and sells for under $8,000 in some markets. Nissan-NSANY-1yr-chart-01-11-07 Rivals such as DaimlerChrysler, Toyota and GM are already studying or developing econocars, in some cases via partnership with local emerging market automakers. The Nissan executive said Nissan's version would be a Logan derivative and not merely a "cross-badging." Nissan-Renault CEO Carlos Ghosn is a known skeptic of hybrid technology, but he seems more than willing to embrace econocars. Nissan and its rivals face an imminent threat from Chinese autos entering overseas markets, competing mostly on price.
• Sources: Forbes.com-AP, The Wall Street Journal
• Related commentary: India's Auto Industry Attracting More Investment, Nissan Also Eying Russia as Japanese Autos Hit New Milestone , Japanese Automakers Eye Mexico, Japanese Autos Increase Investment and Activity in China and India
• Potentially impacted stocks and ETFs: Nissan (OTCPK:NSANY). Competitors: Toyota (NYSE:TM), Honda (NYSE:HMC), Ford (NYSE:F), General Motors (NYSE:GM), DaimlerChrysler (DCX), Tata Motors (NYSE:TTM)

GM To Increase CapEx In Bid To Appeal To New Customers

General Motors CEO Rick Wagoner was upbeat on a conference call with investors yesterday outlining his plan for further recovery at the world's largest automaker in 2007 and beyond.gm While maintaining GM's policy of not providing specific financial guidance, the company plans to address the 8% decline in U.S. vehicle sales last year by increasing capital spending to between $8.5 and $9 billion in 2007 and 2008 after spending less than $8 billion in 2005 and 2006. The additional spending is expected to help ratchet up GM's line of vehicles and make them more appealing to a larger range of consumers. A new campaign to target the urban, African American population with a souped up, customized version of the Buick Lucerne is one such example of GM's change in marketing strategy. Still, with all the hype being created by Wagoner about how successful 2006 was for the company, GM does not expect to begin generating more cash than it spends in the coming year. During the 12-month period ended yesterday, GM shares appreciated in value by more than 48%.
• Sources: Bloomberg, Wall street Journal, MSN, MarketWatch
• Related commentary: GM's Bob Lutz: "We're Going To Go To Market In a Different Way", Live From the Detroit Auto Show, the 'Big 4' Speak, Wagoner: GM Won't Go Down Without a Fight, GM Wins 2007 North American Car and Truck Awards. Conference call transcripts: General Motors Q3 2006 Earnings Call Transcript
• Potentially impacted stocks and ETFs: General Motors (GM). Competitors: Ford (F), DaimlerChrysler (DCX), Toyota (TM), Honda (HMC), Nissan (OTCPK:NSANY)

AEROSPACE AND DEFENSE

In Direct Plea To Shareholders, AirTran Ups Bid For Midwest

The words of AirTran CEO Joseph Leonard were direct and to the point: "You gave us no choice, but to bring our offer directly to the owners of the company," he said in a letter to Midwest Air Group's board.meh After Midwest rejected an earlier offer by AirTran to buy it out for $11.25 a share ($290 million) on the grounds it undervalued the company, AirTran upped its bid to $345 million, or $13.25 a share, while taking the case directly to Midwest's board. The offer as it now stands is for $13.25 a share, made up of $6.625 in cash and 0.5884 AirTran shares, and is due to expire on February 8 but could be extended. Midwest's shares ( pictured) rose $0.50, or 3.9%, to $13.40 as a result of the increased offer. The deal comes on the heels of other high profile buyouts in progress in the Airline sector including U.S. Airways hostile bid for Delta and a possible Northwest-Delta merger.
• Sources: Washington Post, MarketWatch, TheStreet.com, Mercury News
• Related commentary: Midwest Airlines Is Flying High. US Airways Ups Ante for Delta to $10.2 Billion, Northwest and Delta Flirt with Merger
• Potentially impacted stocks and ETFs: AirTran Holdings (AAI), Midwest Air Group (MEH). Competitors: Continental (CAL), American (AMR), JetBlue (NASDAQ:JBLU), US Airways (LCC), Southwest Airlines (NYSE:LUV), United (UAUA), Delta (DALRQ.PK), Northwest (NWACQ.PK)

HEALTHCARE

Bristol-Myers, AstraZeneca Reach Deal on Diabetes Drugs

In a deal that could bring Bristol-Myers over $1 billion, AstraZeneca has announced it will develop and sell two of Bristol-Myers's experimental diabetes drugs. Bristol-Myers's salesforce is geared more toward the specialty market, so AstraZeneca's extensive primary-care salesforce will be a great boon. The deal is also an excellent fit for AstraZeneca, which has been on the prowl for late-stage drugs to market after a series of drug failures. Bristol-Myers, elbowed by generic competition, expects to post annual profits through 2008 no better than those of 2005. Its strategy is to push new products but hedge risk by sharing both costs and profits with other companies. One of the drugs, the DPP-4 inhibitor saxagliptin, is in late-stage trials and will compete directly with Merck's Januvia. The other, dapagliflozin, is in mid-stage trials. AstraZeneca will pay Bristol-Myers $10 million upfront, up to $650 million if certain developmental milestones are met, and $300 million if certain sales goals are met. Diabetes affects 5.9% of the world's adult population. In 2005, the market for diabetes drugs was $15 billion.
• Sources: Business Week, Bloomberg, Reuters
• Related commentary: Merck Wins FDA Approval for New Type-2 Diabetes Drug, Novartis Diabetes Drug Gets FDA Setback, Biotech Stocks Day-in-Review: Genentech Beats Estimates, Top Pharma Innovations In 2006, Searching for Value Investments in the Drug Stock Universe
• Potentially impacted stocks and ETFs: Bristol Myers Squibb Co. (NYSE:BMY), AstraZeneca plc (NYSE:AZN). Competitors: Merck & Co. Inc. (NYSE:MRK), Novartis AG (NYSE:NVS), Pfizer Inc. (NYSE:PFE), Glaxosmithkline plc (NYSE:GSK). ETFs: Market 2000 HOLDRs (NYSEARCA:MKH), iShares MSCI EAFE Growth Index (NYSEARCA:EFG), iShares MSCI United Kingdom Index (NYSEARCA:EWU), iShares S&P Global Healthcare (NYSEARCA:IXJ), Pharmaceutical HOLDRs Trust (NYSEARCA:PPH), iShares Dow Jones U.S. Pharmaceuticals Index Fund (NYSEARCA:IHE), iFirst Trust Morningstar Dividend Leaders Index Fund (NYSEARCA:FDL), Shares Dow Jones US Healthcare Sector Index Fund (NYSEARCA:IYH)

INTERNATIONAL

Chinese Markets Drop 3.7% -- Correction or Breather?

The Shanghai Composite Index lost a hefty 3.7% percent, closing at 2,668.11 Friday in its biggest decline in six months. Analysts were divided over whether the declines signal a serious correction is underway, or whether the market's just taking a break after its recent highs. In a FXI Index 12 01 2007 Chartresearch note this week, Morgan Stanley called Chinese banks and insurers "among the biggest equity bubbles in the financial world currently." Peng Yunliang of Shanghai Securities disagrees: "Since the beginning of January, the index has soared. It's very natural for investors to take profits." Regulators have recently began expanding investment quotas allotted to foreign institutional investors, but most of the market's growth has come from Chinese investors seeking refuge from low interest rates paid on bank deposits. Conversely, the Nikkei 225 index was up 1.3% to 17,057. Traders there expect nervous trading next week ahead of the BoJ's policy meeting.
• Sources: MSN, International Herald Tribune/AP
• Related commentary: Nervous in Shanghai, China ETFs: Don't Be The Last One Out The Door, 2006: The Year For Chinese Stocks, Chinese Stocks -- Blowoff Top or Just Warming Up?, China's Central Bank Still Trying to Tame the Dragon
• Potentially impacted stocks and ETFs: IShares Trust FTSE-Xinhua China 25 Index Fund (NYSEARCA:FXI), PowerShares Golden Dragon Halter USX China Portfolio (NYSEARCA:PGJ)

MUST-READS ON SEEKING ALPHA TODAY

U.S. Markets: 2007: When Misguided Gloom Comes To An End
Long Idea: Democrats May Help Restore Confidence in American Science and Engineering
Short Idea: Lamar Advertising -- In Your Dreams!
Internet: How to Invest in (Even Misspelled) Domain Names
Telecom: Sprint Nextel's A 2007 Turnaround Story - JPM
Hardware: Color on AMD's Warning
Software: Deciphering SAP's Poor Report
Consumer Electronics: Consumer Electronics Show: Roundup From Sell-Side Analysts
Media: Washington Post Online Strong; Reaches Out To Local Bloggers
Healthcare: Top Picks for 2007 from JPMorgan HealthCare Analysts
Retail: Lenox Group Shares Plummet As John Morgan Bails
Transport: Wal-Mart Trucking: Saving the Planet While Saving a Bundle of Cash
Gold: Crystallex Going Up with a Bullet
Energy: Investing Cautiously in Solar Energy
Financial: Hedge Funds in Hollywood
Asia: Negative For Chinese Mobile Content: 3G Launch Could Be Further Delayed
ETFs: 36-Month ETF Correlations with Russell 3000
Small-Caps: ArmorGroup Acquires Neil Young Associates
Sound Money Tips: Tips on Tax Deductions
Jim Cramer: Latest stock picks
Earnings Conference Call Transcripts: Audiovox F3Q06, Mercantile Bank Q4 2006, Genentech Q4 2006, Infosys F3Q07, Schiff Nutrition F2Q07

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