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Talks continue following lawsuit vs. AT&T/T-Mobile deal. The Justice Department is reportedly continuing discussions with AT&T (NYSE:T) and T-Mobile USA (OTCQX:DTEGY) over their $39B merger after the DOJ yesterday filed a suit to block the deal, saying it would harm competition and lead to higher prices. Despite the talks, and with the FCC also expressing "serious concerns" about the transaction, the chances of success for the merger look slim. AT&T has the motivation to fight, given that it would have to pay T-Mobile parent Deutsche Telekom an estimated break-up fee of $6B in cash and other assets, including extra spectrum.

Costco CEO Jim Sinegal to step down. Costco (NASDAQ:COST) CEO Jim Sinegal plans to step down in January and will be replaced by COO Craig Jelinek. Sinegal, who will stay at Costco throughout 2012 as an advisor, built the company into the country's third-largest retailer, steering the firm through the recent recession without layoffs or cutting health benefits. He said he is quitting because of his age, 75, and because Costco is in good shape. That was underscored by same-store sales for August, which rose an annualized 11% and beat forecasts of 9.3%.

BNY Mellon fires CEO. Bank of New York Mellon (NYSE:BK) CEO Robert Kelly has stepped down "due to differences in approach to managing the company," and will be replaced by bank veteran and President Gerald Hassell. Sources say Kelly was asked to leave, as he was viewed as being difficult to work with and he had alienated some directors and top executives, with the board fearing an exodus of valued employees. Despite being fired, Kelly could receive over $30M in cash compensation, retirement benefits and stock awards.

German manufacturing growth downgraded. German final August PMI data for manufacturing fell to 50.9 from 52 in July, dropping to its weakest level in almost two years. The reading was also below the flash estimate of 52, and indicates the eurozone slowdown is spreading to its engine. Notwithstanding, the reading of above 50 signals that PMI is growing in Germany, unlike in the eurozone as a whole, where the figure dropped to 49 from 50.4. Two sets of Chinese PMI data painted a mixed picture, with one showing expansion and the other contraction.

IMF pours further doubt on strength of EU banks. An IMF analysis shows that marking the sovereign bonds of six highly indebted eurozone countries to market would reduce the tangible common equity of EU banks by about €200B ($287B), or 10%-12%. The countries concerned are the usual suspects of Ireland, Greece, Portugal, Italy and Spain plus Belgium. IMF officials said the estimates indicated that EU banks need to raise more capital, an argument that Christine Lagarde made at the weekend. However, Spain's Finance Minister criticized the analysis for not including German Bunds, which have risen.

Ireland: Finland's collateral deal with Greece axed. A controversial agreement in which Greece promised to provide collateral to Finland in exchange for rescue loans is "off the table," Irish Finance Minister Michael Noonan said today. "There are other arrangements being made to compensate," he added. The deal prompted calls from other eurozone countries for similar agreements, and sparked opposition from Germany and Austria, with the fissure threatening to cause a fresh eurozone crisis.

Spain sells bonds in disappointing auction. Spain has sold €3.6B ($5.14B) of five-year bonds in an auction that received tepid demand, leading the country to pay an average yield of 4.489%. That was higher than a yield of 4.25% in the secondary market for a different five-year paper late yesterday. As with Italy's disappointing sale earlier this week, the ECB supported Spain's auction in the resale market, where the yield on 10-year bonds rose following the sale. More happily, France experienced few problems as it sold €7.8B of three bonds that analysts said were well-received.

Sanofi wins Lipitor license. Sanofi (NYSE:SNY) has reportedly obtained a licence from Pfizer (NYSE:PFE) to produce a generic version of the latter's cholesterol treatment Lipitor - the world's top-selling pharmaceutical - possibly even before the expiry of the drug's patent in May next year. The license approval is part of Sanofi's strategy of seeking growth in the market for copycat drugs as it prepares for the loss of patents on several of its own treatments.

Goldman and others reach mortgage deal with NY. Goldman Sachs (NYSE:GS), its Litton Loan Servicing unit and Ocwen Financial (NYSE:OCN) have reportedly reached a deal with New York in which they have pledged, among other things, to end robo-signings, although there's no word of any fines. The agreement will allow Ocwen's $264M purchase of Litton to proceed, and could provide a framework for other mortgage deals between large banks and regulators. It comes after New York raised objections to a prospective agreement between states and five leading banks, not including Goldman.

Panel: Up to $60B wasted in Iraq and Afghanistan. A Congressional panel has found that the U.S. has misspent $31B-$60B on contracting for services in Iraq and Afghanistan, due to waste, fraud and abuse. One example is an extortion letter sent by Afghan insurgents to a contractor working on a U.S.-funded construction project. The study also cites schemes that were poorly conceived, badly executed and unsustainable. The panel urged Congress to strengthen oversight, including with the creation of a permanent inspector general.

UAW workers OK strike option. In advance of a contract expiration on September 14, UAW workers in Detroit have voted to give union leaders the option of calling a strike against Ford (NYSE:F). The authorization follows similar actions by local unions in other cities. Ford is the only major carmaker without a no-strike clause, but investors seem unperturbed - shares have easily outperformed GM (NYSE:GM) over the last month. This could be because such votes are considered routine and are aimed at providing union negotiators with more leverage.

Apple iPhone prototype goes missing in bar - again. So, an Apple (NASDAQ:AAPL) employee and his iPhone walk into a bar...In a repeat of an incident last July, Apple's yet-to-be-released iPhone 5 has gone missing after being left in a San Francisco tequila lounge. The company, with the assistance of the police, is mounting a furious search for the device.

Today's Markets:
In Asia, Japan +1.2% to 9060.8. Hong Kong +0.3% to 20585. China -0.4% to 2556. India closed.
In Europe, at midday, London -0.5%. Paris -1.0%. Frankfurt -1.9%.
Futures at 7:00: Dow -0.3%. S&P -0.45%. Nasdaq -0.2%. Crude -0.4% to $88.43. Gold -0.4% to $1824.20.

Thursday's economic calendar:
Chain Store Sales
Auto sales
8:30 Initial Jobless Claims
8:30 Productivity and Costs
10:00 ISM Manufacturing Index
10:00 Construction Spending
10:30 EIA Natural Gas Inventory
12:00 PM Fed's Duke: 'Rebalancing the Housing Market'
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Earnings Results: Companies that beat EPS expectations last night and today include Cooper Companies (NYSE:COO), Zumiez (NASDAQ:ZUMZ), Ciena (NYSE:CIEN). Those that missed forecasts include SAIC (SAI). Full real-time earnings coverage here.

Notable earnings before Thursday's open: CIEN, UTIW

Notable earnings after Thursday's close: FNSR, HRB

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Source: Wall Street Breakfast: Must-Know News