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June 18, 2008 at 4:51 PM
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Financial firms drag down U.S. markets

NEW YORK, June 18 (UPI) -- U.S. stock markets closed lower Wednesday with major financial firms continuing to exhibit signs of frailty.

Midwest regional bank Fifth Third Bancorp took heavy losses Wednesday, down 19.6 percent after announcing it would liquidate $1 billion in preferred stock, The Wall Street Journal reported.

Bigger institutions also lost ground. Lehman Brothers Holdings Inc. dropped 2.5 percent and Goldman Sachs Group fell 2.4 percent, the Journal reported.

The Dow Jones industrial average fell 131.24 points to 12,029.06, off 1.08 percent at the close. The Standard & Poor's 500 index rose 13.12 points to 1,337.81 down 0.97 percent. The Nasdaq composite index fell 1.14 percent to 2,429.71, down 28.02 points.

On the New York Stock Exchange, 850 stocks advanced and 2,246 declined on volume of 1.282 billion shares traded.

The 10-year U.S. Treasury note rose 14/32 to yield 4.13 percent.

The euro traded at $1.5534 from Tuesday's $1.5512, while the dollar traded at 107.867 yen from Tuesday's 108.08 yen.

In Tokyo, the Nikkei index gained 104.45 points to 14,452.82, up 0.7 percent.

In London, the FTSE 100 index lost 105.00 points to 5,756.90, off 1.79 percent.

GAO backs Boeing on tanker bid complaint

WASHINGTON, June 18 (UPI) -- The U.S. Government Accountability Office Wednesday backed Boeing Co.'s complaint that the bidding process for a $40 billion military contract was flawed.

The bidding for refurbishing planes as Air Force in-flight refueling tankers included "significant errors that could have affected the outcome of what was a close competition," GAO said in a release.

GAO attorney Michael Golden said the office "denied a number of Boeing's challenges."

But, the GAO recommended the Air Force "obtain revised proposals, re-evaluate the revised proposals" to make a new decision consistent with GAO recommendations.

The GAO said the Air Force used "as a key discriminator" Northrop's proposal to exceed specification for the tanker plans, although its evaluation criteria for the contract specified it not do so.

The Air Force also informed Boeing it had met a key performance objective before bids were complete, then ruled against the company with a complaint the objective was only "partially met," the GAO ruled.

The decision is seen as huge a victory for Chicago-headquartered Boeing and a setback for the Northrop-EADS group. The original $40 billion contract could grow to a lifetime value of more than $100 billion, aerospace industry analysts said.

House panel raises ante on civilian raises

WASHINGTON, June 18 (UPI) -- A House panel has approved a 2009 pay hike for federal civilian employees that is 1 percent higher than the raise proposed by U.S. President George Bush.

The House Subcommittee on Financial Services and General Government approved the 3.9 percent raise on a voice vote, The Washington Post reported Wednesday.

Before taking effect, the pay raise would need to be adopted by Congress as part of a $22.4 billion spending package for 2009. The Senate has yet to consider the issue, the Post reported.

Rep. Jose E. Serrano, D-N.Y., the subcommittee chairman, said the 1.9 million civilian government employees "need and deserve to have their pay reflect their efforts."

The raise matches the bump the committee approved for military personnel.

The White House had proposed a 3.4 percent raise for military personnel and 2.9 percent raise for civilian workers, the Post reported.

Bank of Scotland warns of market crash

EDINBURGH, Scotland, June 18 (UPI) -- The Royal Bank of Scotland warned its clients of a global stock market crash that could be among the worst in the past 100 years.

The bank predicted a 300-point drop in the Standard and Poor's 500 index by September, the Telegraph reported Wednesday. That represents about a 21-percent drop from the current S&P 500 level.

The bank's credit strategist Bob Janjuah said, "a very nasty period is soon to be upon us."

"I do not think I can be much blunter," Janjuah said. "If you have to be in credit, focus on quality, short durations, non-cyclical defensive names."

"Cash is the key safe haven," he said.

Kit Jukes, head of the bank's debt markets, said "economic weakness is spreading and the latest data on consumer demand and confidence are dire."

Jukes said "the political fall-out" in Europe "could be substantial as finance ministers from the weaker economies rail at the ECB."

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