Southwest raises fares, others match

CHICAGO (Reuters) - A $10 fare hike by Southwest Airlines Co (LUV.N), has triggered matching fare increases by rivals as the industry struggles to offset soaring fuel prices and build on a recovery that began last year. The leading U.S. low-cost carrier on Tuesday said it raised one-way fares over the weekend.

AMR Corp's (AMR.N) American Airlines, UAL Corp's (UAUA.O) United Airlines, Northwest Airlines Corp (NWA.N) and US Airways Group (LCC.N) all said they matched Southwest's move. Other airlines weren't immediately available for comment.

U.S. airlines have initiated several revenue-boosting fare increases this year, but many attempts have failed due to a lack of matching by low-cost airlines like Southwest.

Southwest has long been the biggest obstacle to fare hikes because its well-hedged fuel consumption makes it less vulnerable than competitors to spikes in oil prices. But as the carrier's below-market hedges expire, the airline is losing that cost advantage and must hike fares to compensate.

"It is increasingly evident that if we are to count on higher oil prices, we can count on Southwest pushing fares higher," said JP Morgan airline analyst Jamie Baker in a research note.

Southwest increased fares on flights of over 1,250 miles $10 each way effective August 31, while it raised tickets on select short- and medium-haul routes by $1, $3, and $5 each way, company spokeswoman Beth Harbin said.

Baker noted that US Airways and Alaska Air Group (ALK.N) benefit more than other airlines because an estimated 35 percent to 40 percent of their revenue is derived in markets where Southwest leads pricing.

Southwest shares were up 0.99 percent at $15.26 in morning trade on the New York Stock Exchange. Shares of US Airways were up 4.01 percent at $32.19 on NYSE.

(Reporting by Chris Reiter and Kyle Peterson in Chicago)

OECD cuts U.S. forecast, recession not ruled out

By Brian Love, European Economics Correspondent
DUBLIN (Reuters) - The OECD on Wednesday reduced its forecast for U.S. economic growth and recommended a rapid cut in interest rates to limit the fallout from a housing and mortgage market slump that has sparked global financial market turmoil.
In an update to its economic forecasts for major industrial nations, the Paris-based Organisation for Economic Cooperation and Development also said interest rates should not be raised for the moment in Japan or the 13-country euro currency zone.

It said it was impossible at present to evaluate the potential damage which broader financial market turmoil could add to the direct impact of a sharp downturn in U.S. housing and a defaults crisis in the subprime mortgage market there.

"Downside risks have become more ominous," the OECD's chief economist, Jean-Philippe Cotis, said in a statement.

The OECD was not for now predicting U.S. recession but was not discounting the possibility either, he added in an interview with Reuters.

He recommended that the U.S. Federal Reserve reduce its key interest rate by a quarter of a percentage point this month to shore up growth, but without going so far as to give foolhardy investors the idea that public authorities would always be there to bail them out by cutting the cost of credit.

He presented updated GDP forecasts for several countries and said U.S. growth was expected to be 1.9 percent this year rather than 2.1 percent forecast previously, and that growth in third and fourth quarters would be much weaker than a surprisingly strong showing reported for the April-June period.

"Recent developments have revealed serious imperfections in the functioning of U.S. housing markets and, more broadly, in credit markets worldwide," Cotis said.

The U.S. housing market downturn is widely regarded to have set in two years ago but the troubles caused by rising interest rates on already high-cost loans to poor, or subprime, borrowers surfaced later, recently triggering fears of a wider U.S. slump and global credit crunch.

"Our diagnosis is a slowdown," Cotis told Reuters, conceding that the downturn was bigger than the OECD had expected. "We cannot rule out a recession," he added.

The OECD forecast third-quarter growth of 0.5 percent in GDP quarter-on-quarter, which is roughly 2 percent annualized, and a subsequent 0.4 percent for the fourth quarter, which equates to about 1.6 percent in standard U.S. data publications.

Those predictions were on the high side, with large margins of error and an as yet unquantifiable hit from market turmoil that could potentially push either quarter to zero growth or even a contraction, Cotis said.

NOT SO BAD ELSEWHERE, SO FAR

In Europe, growth remained relatively dynamic, and the case for further rises in ECB rates for the euro zone was valid, but not until it became clearer how the gyrations in fragile and fear-riven financial markets would pan out over time, he said.

"For now, 'stay put'," he said of ECB rate policy ahead of a Thursday meeting of the euro zone's central bank, which has been steadily raising rates since December 2005 as the economy of the region began to pull out of the doldrums.

His advice was broadly similar for the Bank of Japan, which has for years had to worry about deflation rather than the risk of inflation that the primary concern of central banks in much of the rest of the world.

The OECD's forecasts for growth in 2007 as a whole were held at 2.4 percent for Japan and trimmed minimally for the euro area, to 2.6 percent from 2.7.

The OECD and Cotis offered no advice on rates to the Bank of England but raised its growth forecast for Britain markedly, to 3.1 percent from 2.7 while it cut Italy's forecast growth to 1.8 percent from 2.0 and raised Canada's to 2.7 percent from 2.5.

Cotis said he still believed other regions such as Europe and Japan could avoid being pulled down as hard as the United States even if the world's largest economy flirted with recession.

"There'd be an impact but would not drag Europe onto the same path as U.S. ... Asia has a momentum of its own, there are consumers there too," he said.

He stressed that the problem at the moment was one caused in the first place by trouble in the subprime segment of the U.S. home loans sector.

While the trouble also concerned exposure to such debt via debt derivatives markets, this was not as big and broad a bubble as the one that preceded the dot-com crash six years ago.

"This is not 2001, when the stock market bubble was a much wider phenomenon. It's not the same thing. We're not talking about a share problem of the same intensity," he said.

Stocks rise after manufacturing data

By MADLEN READ, AP Business Writer
NEW YORK - Wall Street extended its rebound from the big summer slump Tuesday after dips in manufacturing growth and construction spending raised investors' hopes for an interest rate cut.
The market also got a boost as investors bought technology stocks viewed as bargains after being battered during last month's selloff. Tech and telecom are still seeing takeover activity despite credit concerns, and furthermore, demand for computers, cell phones and other such products appears strong.

Though Tuesday's economic data came in a bit slower than anticipated, the market built on the sharp gains it made Friday. Ahead of Labor Day weekend, Federal Reserve Chairman Ben Bernanke said the central bank stood ready to "act as needed" to prevent credit troubles from hurting the national economy — which investors believed hinted at the Fed's willingness to lower rates.

When investors returned from the long weekend, the Institute for Supply Management said the manufacturing sector expanded more slowly in August than in July, and the Commerce Department said construction activity fell in July by 0.4 percent. Wall Street was pleased that the snapshots were neither too weak nor too strong — suggesting the economy isn't falling apart, but that the Fed will be inclined to cut the benchmark federal funds rate when it meets Sept. 18, after more than a year of holding rates steady.

"We haven't had anything happen to change that outlook," said Arthur Hogan, chief market analyst at Jefferies & Co. "Everything still points to a Fed that could lower rates."

In recent weeks, more difficult access to credit has made it harder for consumers and businesses to borrow, raising fears that tighter access to money will hurt the economy.

The Dow Jones industrial average rose 91.12, or 0.68 percent, to 13,448.86. The blue-chip index is about 4 percent below its July 19 record close of 14,000.41, but about 4.7 percent above its summer closing low of 12,845.78 reached Aug. 16.

The biggest gainer among the 30 Dow companies was General Motors Corp., which rose $1.18, or 3.8 percent, to $31.92 after reporting a surprising increase in August sales.

Broader stock indicators also advanced. The Standard & Poor's 500 index added 15.43, or 1.05 percent, to 1,489.42, and the technology-dominated Nasdaq composite index surged 33.88, or 1.30 percent, to 2,630.24.

In keeping with its promise to aid the markets as needed, the Fed on Tuesday added a relatively moderate $5 billion to the banking system through a repurchase agreement.

Further bolstering the argument for a rate cut, U.S. Federal Reserve Bank directors, in minutes released Tuesday from three discount rate meetings from July 9 to Aug. 6, said a contracting U.S. housing market posed a risk to growth.

Bond prices slipped as stocks gained. The yield on the 10-year Treasury note, which moves inversely to its price, rose to 4.55 percent from 4.53 percent late Friday. The dollar was mixed against other major currencies, while gold prices rose.

Advancing issues outnumbered decliners by about 12 to 5 on the New York Stock Exchange, but trading was still relatively light. Consolidated volume came to 2.76 billion shares, up only modestly from Friday's 2.69 billion.

And though the stock market appeared stable Tuesday, Wall Street is entering one of its historically most difficult months as investors return from their vacations and reassess their holdings. Last September was good for the stock market, but on average, the S&P 500 loses 0.7 percent during the month and 0.6 percent in Septembers that precede an election year, according to the Stock Trader's Almanac.

Jitters about the credit markets are not as high as they were in August, but they haven't been placated completely.

"Everybody is holding their breath, looking for more evidence that subprime and all those woes are still out there," said Kim Caughey, equity research analyst, Fort Pitt Capital Group.

Helping to boost the Nasdaq, discount wireless phone service provider MetroPCS Communications Inc. offered to acquire rival Leap Wireless International Inc. for about $5.12 billion in stock. Leap Wireless soared $10.97, or 15.1 percent, to $83.47, and MetroPCS rose $1.36, or 5 percent, to $28.65.

Opening statements set in for BP trial ( By JUAN A. LOZANO, Associated Press Writer)

GALVESTON, Texas - It was the deadliest petrochemical industry accident in more than a decade, killing 15 people and injuring more than 170 others. The force of the blast shattered windows and walls miles away.
Now nearly 2 1/2 years after an explosion ripped through BP PLC's Texas City plant, a jury was set to hear evidence in the first trial stemming from the accident.

Opening statements were set for Wednesday in the trial of five lawsuits filed by four injured contract workers and the estate of fifth contract worker whose suicide is being blamed by his attorneys on emotional trauma from the blast. About 1,350 of the thousands of lawsuits filed since the accident have been settled.

The 12-person panel of eight women and four men was chosen on Tuesday after three days of jury selection. Four alternates were also chosen for a trial that could last two months.

BP attorneys told potential jurors the company has never denied responsibility for the March 2005 accident but that the blast was not the result of gross negligence. Attorneys for the plaintiffs said BP placed profits over safety at the refinery.

The U.S. Chemical Safety and Hazard Investigation Board, one of several agencies that probed the accident, found BP fostered bad management at the plant and that cost-cutting moves by BP were factors in the explosion.

An internal report by BP released in May said there was a culture at the plant that seemed to ignore risk, tolerated noncompliance and accepted incompetence.

Originally seven lawsuits were to be tried, but two were settled before jury selection began.

The plaintiffs in the five lawsuits are:

• The 6- and 11-year-old sons of Rene Cardona Sr., 26, from Baytown, a contract worker for engineering and construction company Contech Control Services who committed suicide six weeks after the blast. One lawsuit was filed on behalf of the sons.

• Nara and David Wilson, both 44, from Santa Fe, Texas. The couple, who filed separate suits, worked for mechanical contracting company Altair Strickland.

• Scott Kilbert, 48, from Bellville, an instrumentation supervisor for construction company JE Merit.

• Rolando Bocardo, 41, from Baytown, an instrument fitter for JE Merit.

Attorneys for the Wilsons, Kilbert and Bocardo said their clients have suffered a variety of injuries, including back problems, hearing loss and post traumatic stress disorder.

The blast has cost the company at least $2 billion in compensation payouts, repairs and lost profit.

The Texas City explosion occurred when part of the plant's isomerization unit, which boosts the level of octane in gasoline, overfilled with highly flammable liquid hydrocarbons. A geyser-like release of flammable liquid and vapor ignited as the unit started up.

Alarms and gauges that should have warned of the overfilling equipment failed to work at the plant about 40 miles southeast of Houston.

Mattel recalls 800,000 lead-tainted toys

By ANNE D'INNOCENZIO, AP Business Writer
NEW YORK - Mattel Inc.'s reputation took another hit after the world's largest toy maker announced a third major recall of Chinese-made toys in little more than a month because of excessive amounts of lead paint.
The latest action, which involved about 800,000 toys and which was announced late Tuesday, is yet another blow to Mattel. The news, along with other recent recalls of tainted Chinese toys from other toy makers, could also make parents even more nervous about shopping for toys this holiday season.

The latest Mattel recall, whose details were negotiated by the Consumer Product Safety Commission, covers 675,000 Barbie accessories sold between October 2006 and August of this year. No Barbie dolls were included in the action.

The recall also included 90,000 units of Mattel's GeoTrax locomotive line and about 8,900 Big Big World 6-in-1 Bongo Band toys, both from the company's Fisher-Price brand. The Big Big World products were sold nationwide from July through August of this year, while the GeoTrax toys were sold from September 2006 through August of this year.

Mattel's last recall, announced on Aug. 14, covered about 19 million toys worldwide. They included Chinese-made toys that either had excessive amounts of lead paint or had small magnets that could easily be swallowed by children.

On Aug. 1, Mattel's Fisher-Price division said it was recalling 1.5 million preschool toys featuring characters such as Dora the Explorer, Big Bird and Elmo because of lead paint. That action included 967,000 toys sold in the United States between May and August.

Robert Eckert, chairman and chief executive of El Segundo, Calif.-based Mattel, warned at a press conference last month that there may be more recalls of tainted toys as the company steps up its investigations into its Chinese factories and increases monitoring of production.

In a statement issued late Tuesday, Eckert said: "As a result of our ongoing investigation, we discovered additional affected products. Consequently, several subcontractors are no longer manufacturing Mattel toys. We apologize again to everyone affected and promise that we will continue to focus on ensuring the safety and quality of our toys."

Mattel added that it has completed its testing program for the majority of its toys and spent more than 50,000 hours investigating its vendors and testing its toys over the past four-week period.

Still, Mattel, which has cultivated an image of tightly controlling production in China, could face an uphill battle convincing consumers about the safety of its products this holiday season. The CPSC is also considering a possible investigation of whether Mattel notified authorities as quickly as it should have in connection with the Aug. 14 recall.

With more than 80 percent of toys sold worldwide made in China, toy sellers are also concerned shoppers will shy away from their products in this year's holiday season.

In June, toy maker RC2 Corp. voluntarily recalled 1.5 million wooden railroad toys and set parts from its Thomas & Friends Wooden Railway product line. The company said the surface paint on certain toys and parts made in China between January 2005 and April 2006 contains lead, affecting 26 components and 23 retailers.

In July, Hasbro Inc. recalled faulty Chinese-made Easy Bake ovens, marking the second time the iconic toy had been recalled this year.

A Chinese quality official said Wednesday that the country is investigating the latest recall.

Wang Xin, an official with the General Administration of Quality Supervision, Inspection, and Quarantine, said the agency, which oversees all products made in China, is trying to get details on when the toys were made and the manufacturers involved.

Mattel vowed as recently as last month it would tighten its controls at factories in China. About 65 percent of the company's toys are made in China, and about 50 percent of Mattel's production there is produced in company-owned plants.

The recalled toys in the Barbie accessory line included a Barbie Dream Puppy House, which had lead paint on the dog; a Barbie Dream Kitty Condo playset, which had lead paint on the cat; and a Barbie table and chairs kitchen playset, which had lead paint on the dog and dinner plates.

Mattel said in a statement that the Barbie products affected by the recall were produced by Holder Plastic Company, a Mattel contract vendor, which subcontracted the painting of miniature toy pets and small furniture pieces to Dong Lian Fa and Yip Sing. Both companies used uncertified paint and are no longer producing toys for Mattel, the company said.

Mattel added that its probe revealed that the subcontractors painted the affected toys between March 2007 and August 2007. However, Mattel said it's being cautious in recalling the entire production of the seven toys painted by the subcontractors, and toys made beginning in October 2006 are included within the recall.

Among the three Fisher-Price toys recalled are two GeoTrax toys and a toy from the Big Big World line.

The two GeoTrax toys were made by Apex Manufacturing Company Ltd., one of Mattel's contract vendors, which outsourced paint work to a subcontractor, Boyi Plastic Products Factory. Apex supplied Boyi with certified paint; however, the toys were made with uncertified paint. Boyi is no longer in business, Mattel said.

The GeoTrax toys were manufactured between July 31, 2006, and September 4, 2006; however, the painted parts were stored and incorporated into toy production throughout the year. Mattel said it is recalling toys shipped between August 3, 2006, and July 31 of this year.

Fisher-Price's Big Big World toy was manufactured by Shun On Factory, one of Mattel's contract vendors, which outsourced the molding and painting of one plastic piece. A subcontractor, Jingying Tampo Printing Processing Factory, used uncertified paint on the recalled piece.