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By Claudia Assis, MarketWatch

SAN FRANCISCO (MarketWatch) — President Barack Obama unveiled Monday a $50 billion plan to upgrade the nation’s roads, airports and railways, choosing a Labor Day rally in Milwaukee to announce the administration’s latest proposal to revive the economy.

The proposal includes an overhaul of the nation’s highways, bus and rail systems, and air-traffic controls.

“All of this will not only create jobs now, but will make our economy run better over the long haul,” Obama said to an audience of mostly labor-union members and their families gathered at a fairground to celebrate Labor Day.

“This is a plan that will be fully paid for and will not add to the deficit over time — we’re going to work with Congress to see to that,” the president added.

The public-works plan is part of a larger effort to provide more jobs and help the economic recovery. That larger plan, to be announced Wednesday in Cleveland, would build upon projects and investments already underway through the Recovery Act, White House officials said.

Amid other signs the economy is sputtering, the latest unemployment figures released Friday showed unemployment at 9.6% in August, from 9.5% in July.
Read the latest about unemployment figures.

The plan calls for investments over six years. Part of the money would fund an infrastructure bank to invest in projects critical to the economy, while also providing jobs.

The bank would unite private, state and local capital “to invest in projects that are most critical to our economic progress,” a departure from “the federal government’s traditional way of spending … through earmarks and formula-based grants” allocated more through geography and politics than value, a White House statement about the plan said.

“Instead, the Bank will base its investment decisions on clear analytical measures of performance, competing projects against each other to determine which will produce the greatest return for American taxpayers,” it said. It would focus on “the smartest investments,” Obama told the Milwaukee audience.

The plan calls for rebuilding 150,000 miles of roads, building or maintaining 4,000 miles of railways, and constructing or refurbishing some 150 miles of airport runways along with a new air navigation system to cut travel times and airport delays.

As part of the longer-term plan, the government also said it aims to integrate high-speed rail “on an equal footing into the surface transportation program,” to ensure a commitment to high-speed rail system; and to streamline and prioritize transportation investments through consolidation of different programs now in place.

It is unclear how many jobs the public-works plan would create. According to news reports, White House officials declined to estimate the total cost of the plan, saying only the initial $50 billion would be a substantial portion of it. It was also unclear whether the plan would get support from Republicans.

Labor Secretary Hilda Solis said in an appearance on NBC’s Today Show on Monday the infrastructure plan “will put people back to work immediately” and garner bipartisan support.

Claudia Assis is a San Francisco-based reporter for MarketWatch.

Obama unveils $50 bln infrastructure plan

By MarketWatch

SAN FRANCISCO (MarketWatch) — Among the companies whose shares are expected to see active trade in Tuesday’s session are Dollar General Corp., Hewlett-Packard Co. and Winn-Dixie Stores Inc.

Dollar General
/quotes/comstock/13*!dg/quotes/nls/dg
(DG
27.38,
-0.71,
-2.53%)
is expected to report second-quarter earnings of 39 cents a share, according to analysts surveyed by FactSet Research.

After Monday’s closing bell, Hewlett-Packard
/quotes/comstock/13*!hpq/quotes/nls/hpq
(HPQ
38.56,
+0.56,
+1.47%)
agreed to pay the U.S. government $55 million as part of a settlement of claims that the technology giant defrauded the General Services Administration, according to the Justice Department. The government had alleged that the Palo Alto, Calif.-based H-P “knowingly paid kickbacks, or ‘influencer fees,’ to systems-integrator companies in return for recommendations that federal agencies purchase H-P’s products.”

Watch list

Donaldson Co.
/quotes/comstock/13*!dci/quotes/nls/dci
(DCI
42.88,
-0.48,
-1.11%)
said that its fiscal fourth-quarter net income rose to $51.2 million, or 65 cents a share, from $23.6 million, or 30 cents a share, in the year-ago period. Revenue increased to $515.2 million from $421.3 million a year ago. Analysts surveyed by FactSet Research forecast 64 cents a share on revenue of $498.9 million. The filter maker forecast 2011 earnings of $2.28 to $2.48 a share, compared with an analyst consensus of $2.49 a share.

Winn-Dixie
/quotes/comstock/15*!winn/quotes/nls/winn
(WINN
8.02,
+0.05,
+0.63%)
reported its fourth-quarter net income rose to $14 million, or 25 cents a share, from $9.4 million, or 17 cents a share, in the same quarter last year. Revenue edged up 1.8% to $1.75 billion, while same-store sales fell 5.2% in the quarter, which the retailer blamed on “increased competitive activity.” Analysts surveyed by FactSet had forecast earnings of 15 cents a share on revenue of $1.79 billion. For fiscal 2011, the company expects adjusted earnings before interest, taxes, depreciation and amortization of $100 million to $130 million.

Stocks to Watch: Stocks in focus Tuesday: Dollar General, H-P

By John Letzing, MarketWatch

SAN FRANCISCO (MarketWatch) — The U.S. Justice Department has completed its review of the proposed merger between United Airlines and Continental Airlines without raising objections, according to a statement released late Friday.

“We are pleased to have achieved this critical milestone,” United parent UAL Corp.
/quotes/comstock/15*!uaua/quotes/nls/uaua
(UAUA
20.45,
+0.81,
+4.12%)
Chief Executive Glenn Tilton said in the statement, while adding that he expects the merger to close by Oct. 1.

“The DOJ’s decision permits us to clear one of the last regulatory hurdles,” added Continental
/quotes/comstock/13*!cal/quotes/nls/cal
(CAL
21.80,
+0.87,
+4.16%)
CEO Jeff Smisek.

Reuters

State attorneys general are still reviewing the planned merger, which was announced in May. Regulators in Europe signed off on it last month.

Both companies have planned Sept. 17 stockholder meetings to vote for approval of the deal.

United and Continental have touted the merger as combining “the two most complementary networks of any U.S. carriers, with minimal domestic and no international route overlaps.”

The airlines serve a combined 144 million passengers per year, flying to 370 destinations.

Critics of the merger between United and Continental have included Rep. James Oberstar (D., Minn.), the chairman of the House Transportation Committee.

During a hearing in June, Oberstar objected strongly to the proposed deal, arguing that continued consolidation in the airline industry will lead to “little choice for passengers, little choice for cities, little choice for competition.”

“The Justice Department ought to turn it down,” Oberstar said of the United-Continental bid to merge, adding, “The moment this thing is approved, I will draft and introduce legislation to reestablish market regulation by the government of airlines.”

John Letzing is a MarketWatch reporter based in San Francisco.

DOJ signs off on United-Continental merger

By Kristen Gerencher and Chris Oliver, MarketWatch

SAN FRANCISCO (MarketWatch) — With nearly 78% of the general-election votes counted Saturday, Australia appeared headed for the first time in 70 years for a hung parliament that would allow three independent lawmakers to decide the nation’s leadership, according to media reports.

The lack of a clear winner also threatens to unsettle markets Monday as investors wait to learn who will govern for the next three years and whether a controversial new tax on mining-company profits will become the new law of the land. Australia’s currency also could come under renewed selling pressure, analysts said.

Prime Minister Julia Gillard, who came to power almost two months ago when her center-left Labor party ousted her unpopular predecessor, was looking to lock in growing public support and become the first elected female prime minister in the country’s history.

But voters delivered anything but a clear mandate after weighing Gillard’s platform against that of her rival, conservative Liberal party member Tony Abbott.

At stake is Gillard’s party’s plan to impose a new tax on mining company profits, a plan that’s not as extreme as her predecessor Kevin Rudd’s controversial tax proposal. Rudd proposed a 40% tax, which played a big role in his ultimate resignation in June. Opposition leader Abbott has said he won’t tax mining profits.

Australia has managed to avoid tumbling into the recession that has crippled many of its wealthy international counterparts, and companies have argued the tax could hurt the country’s economic growth.

Mining giants Rio Tinto
/quotes/comstock/22x!e:rio
(AU:RIO
71.58,
-1.60,
-2.19%)

/quotes/comstock/13*!rtp/quotes/nls/rtp
(RTP
51.05,
-0.48,
-0.93%)
and BHP Billiton
/quotes/comstock/22x!e:bhp
(AU:BHP
37.90,
-0.40,
-1.04%)

/quotes/comstock/13*!bhp/quotes/nls/bhp
(BHP
67.44,
+0.09,
+0.13%)
wouldn’t be immune to the tax move, but more volatility is expected from smaller coal and iron-ore producers such as Mount Gibson Iron Ltd.
/quotes/comstock/22x!e:mgx
(AU:MGX
1.75,
-0.03,
-1.69%)

/quotes/comstock/11i!mtgrf
(MTGRF
1.46,
-0.09,
-5.81%)
and Gindalbie Metals Ltd.
/quotes/comstock/22x!e:gbg
(AU:GBG
0.94,
+0.01,
+0.53%)

/quotes/comstock/11i!gdbgf
(GDBGF
0.97,
+0.09,
+10.23%)
, which would be most affected by Gillard’s compromise tax plan. Analysts expected shares of the latter companies to rally if the Liberal party succeeded in unseating Labor.

With no major third party to drain votes from the two dominant parties, it will be up to three independent lawmakers to negotiate a resolution and restore order to this typically stable democracy, according to a report in The Wall Street Journal. Their backgrounds vary. One has a history in conservative politics while the other two have ties to the environmental movement. Two of the three have indicated support for the mining tax, according to the Journal.

It’s also unclear how Australia’s tie-breaking lawmakers would negotiate the parties’ differences on climate-change policy and a push to install a national high-speed Internet network. A final verdict on the hung parliament isn’t expected for days.

The Australian dollar may take a beating in the interim. Early Friday morning, the Australian dollar was buying 88.86 U.S. cents, down from highs around 92 U.S. cents earlier in the month, but still above the year’s low of 81 U.S. cents touched in late May and early June, according to FactSet Research data.

Kristen Gerencher is a reporter for MarketWatch in San Francisco.
Chris Oliver is MarketWatch’s Hong Kong bureau chief.

No clear winner in Australia’s general election

By Alistair Barr, MarketWatch

SAN FRANCISCO (MarketWatch) — The market for mortgage-backed securities has had a good run this year, but it’s taken a hit in recent days on growing talk of a “mega-refi” program that could let homeowners refinance home loans more easily at lower rates.

On Tuesday, Bill Gross, manager of the world’s biggest bond fund at Pacific Investment Management Co., proposed a refinance program where homeowners with Fannie Mae
/quotes/comstock/11k!fnma
(FNMA
0.36,
-0.01,
-1.88%)
and Freddie Mac
/quotes/comstock/11k!fmcc
(FMCC
0.40,
-0.01,
-1.25%)
fixed mortgages could cut interest rates on their loans from about 6% to current rates well below 5%.

A program like this could provide a stimulus of $50 billion to $60 billion for the U.S. economy, while boosting house prices, Gross said during a conference in Washington, D.C., on the future of the mortgage market.
Read about the conference here.

Speculation about a mega-refi program has been growing. Treasury bond yields have slumped in recent months and mortgage rates have fallen to record lows. But refinance activity hadn’t picked up much until recently. That’s muted the impact of lower rates and sparked discussions of ways to tackle the problem.

A major wave of mortgage refinancing could reduce borrowers’ monthly interest payments, leaving more money in their pockets for spending. That, in turn, could boost economic growth.

However, lots of refis would be bad for mortgage-backed securities investors. That’s because older securities with higher interest rates would be paid off at face value then replaced with newer bonds with lower coupons.

“Bill Gross’s statement in favor of a mega-refi program is probably the major story for mortgage traders,” said Steve Kuhn, who oversees mortgage investments at hedge fund firm Pine River Capital Management LP.

A week ago, Fannie Mae mortgage-backed securities with 6% coupons were trading at 109. These bonds are now trading at about 107 3/4, Kuhn noted.

“The market is more concerned this refi event could happen sometime,” he added in an interview.

Mortgage securities have rallied this year as interest rates fell and refinancing activity remained lackluster.

A mortgage security with a 6% coupon looks more attractive as yields on comparable bonds drop. With access to cheap borrowing, mortgage traders have been able to buy these mortgage securities and generate healthy returns.

“A 6% yield looks very good and you can get funding at LIBOR in the mortgage market and buy that. The trade could earn almost 6% a year in theory, partly because funding costs are so low,” Kuhn said.

An index of hedge funds that trade mortgages jumped more than 12% in the first seven months of 2010, making it the best-performing strategy so far this year, according to HedgeFund.net. The average hedge fund tracked by HedgeFund.net is up less than 2% in the same period.

But if a lot of refinancing happens, investors who paid 109 for a mortgage bond with a 6% coupon would in theory be repaid at par, or 100.

“Investors could lose as much as 9 percentage points if everyone refinanced very quickly,” Kuhn said.

The mortgage market is currently pricing in about a 20% chance that a mega-refi program happens, he added.

If a plan is unveiled, it would probably take about six months to get going. So investors may still be willing to pay about 103 for Fannie and Freddie mortgage securities with 6% coupons, Kuhn explained.

With funding costs close to zero, investors would be able to make about 3 percentage points over half a year. Then the refis would kick in and investors would be repaid at par, or 100.

Alistair Barr is a reporter for MarketWatch in San Francisco.

Credit Markets: Mortgage market knocked by ‘mega-refi’ talk

By Benjamin Pimentel, MarketWatch

SAN FRANCISCO (MarketWatch) — Cisco Systems is expected to report a roughly 28% jump in sales, as the networking-gear maker rides a wave of strong demand fueled by businesses ramping up spending on information technology.

The San Jose, Calif.-based Cisco
/quotes/comstock/15*!csco/quotes/nls/csco
(CSCO
24.49,
+0.42,
+1.74%)
is scheduled to report fiscal fourth-quarter results on Wednesday, Aug. 11, with many analysts expecting upbeat data points from the company on the state of tech demand.

Analysts currently expect the San Jose, Calif.-based Cisco to report earnings of 42 cents a share, on revenue of $10.9 billion.

For the year-earlier period, the company posted adjusted earnings of 31 cents a share, on revenue of $8.5 billion.

“All indications are that demand for Cisco products remained strong throughout the quarter, with the company’s newer products continuing to lead the way,” BMO Capital analyst Tim Long said in a note.

However, Long also said, “Upside could be a bit more modest than in previous quarters, but as usual [Chief Executive] John Chambers’ macro commentary will be key and should set the tone for Cisco and the rest of tech.”

Cisco shares have fallen more than 2% over the past three months, amid worries about the trajectory of the tech market and the overall health of the global economy.

But Cisco has typically been a bright spot for investors despite the economic uncertainties.

“We expect a fairly ’standard’ Cisco report, in-line or penny upside for July, guidance for October that brackets consensus at the midpoint, but likely a more optimistic tone from Chambers, who will acknowledge macro challenges, but suggest strong Cisco product cycles,” Gleacher & Company analyst Mark McKechnie said in a note.

Analysts also generally see Cisco posting gains across its major segments, from networking, enterprise to service providers.

Barclays Capital analyst Jeff Kvaal said in a note that “networking vendors have yet to indicate a meaningful slowdown in Europe.”

Oppenheimer analyst Ittai Kidron also cited signs of an “impressive October outlook,” saying in a note in late July that “A robust sales pipeline supports the channel’s bullish view.”

Benjamin Pimentel is a MarketWatch reporter based in San Francisco.

Cisco sales expected to jump about 28%

By Benjamin Pimentel, MarketWatch

SAN FRANCISCO (MarketWatch) — An economic recovery is “underway” in the United States, but the country’s ability to manage its growing public debt has become a major challenge, the International Monetary Fund said Friday.

The report by the IMF’s executive board said that “a massive policy response” has enabled the U.S. economy to emerge from a serious financial crisis.

But “setting public debt on a sustainable path is a key macroeconomic challenge,” the body said.

The IMF also noted that “economic recovery has been slow by historical standards — consistent with past experience in the aftermath of housing and financial crises — and the outlook remains uncertain.”

Meanwhile, a separate IMF report on the health of U.S. banks also said that “despite the restoration of stability, pockets of vulnerability linger and difficult challenges remain in implementing financial-sector reforms.”

The report said the U.S. economy and financial system “remain vulnerable to an unexpected weakening of demand, credit quality in the commercial real-estate sector, and housing prices.”

Benjamin Pimentel is a MarketWatch reporter based in San Francisco.

Managing debt key challenge for US economy: IMF

By Dan Gallagher, MarketWatch

SAN FRANCISCO (MarketWatch) — Shares of Amazon.com dropped as much as 13% in premarket trade Friday, a day after the firm posted second-quarter earnings that missed Wall Street’s estimates as it upped infrastructure and marketing spending.

Amazon’s
/quotes/comstock/15*!amzn/quotes/nls/amzn
(AMZN
120.07,
+2.64,
+2.25%)
third-quarter operating-margin forecast also came in below expectations, as the online retailer plans to spend more on its infrastructure to deal with its growing business.

“Fulfillment expenses were higher than we expected, which is a reversal of recent trends Amazon has demonstrated in terms of operating efficiency,” said Colin Sebastian of Lazard Capital Markets.

Amazon said it earned $207 million, or 45 cents a share, for the period ended June 30. The company earned $142 million, or 32 cents a share, for the same period last year.

Revenue grew 41% to $6.57 billion.

Analysts were looking for earnings of 53 cents a share on revenue of $6.5 billion, according to consensus forecasts from FactSet Research.

Operating income jumped 71% to $270 million. Analysts had been looking for about $320 million for the quarter. The company said free cash flow for the period increased 29% to $1.99 billion.

“Most of the operating income shortfall versus our model was due to about 40 basis points more marketing spend, driven by two factors: higher spend at Zappos and a temporary rampup in Kindle marketing,” J.P. Morgan Chase analysts wrote in a Friday research report.

Fulfillment costs jumped 42% to $582 million for the quarter compared to last year’s June period. Marketing costs rose 64% to $211 million.

“The margin expectations were getting a little high,” said Tim Boyd of MKM Partners, who called the stock reaction “a little ridiculous.” He blamed the earnings miss on the company investing in its growth.

“There’s a big difference between margin pressure and ramping investment,” Boyd said. “People need to learn to differentiate.”

In a conference call with analysts, Amazon Chief Financial Officer Tom Szkutak said the company was growing “very, very fast,” with plans to open 13 new fulfillment centers this year. Some of the investment in those centers took place in the second quarter, including the hiring of about 2,200 employees — most working in the company’s operations, Szkutak said.

Sales of electronics and other general merchandise overtook media sales in the second quarter compared to the same period last year. So-called EGM sales totaled $3.49 billion for the quarter while media sales totaled $2.87 billion.

For the third quarter, Amazon predicted revenue to come in the range of $6.9 billion to $7.6 billion. Analysts had been looking for $7.16 billion for the quarter.

Operating income is expected to come in between $210 million and $310 million, implying a margin range of 3% to 4%. Analysts had been expecting operating earnings of nearly $361 million, implying a margin of 5%.

Dan Gallagher is MarketWatch’s technology editor, based in San Francisco.

Amazon falls after earnings disappoint

By Rebecca L. McClay, MarketWatch

SAN FRANCISCO (MarketWatch) — President Obama called Saturday for support for his proposal to extend unemployment insurance and cut taxes on small-business owners.

In his weekly address, the president criticized Republican efforts to defeat the proposals as stalling tactics and obstruction.

He said Republicans have “no problem spending money on tax breaks for folks at the top who don’t need them and didn’t even ask for them; but they object to helping folks laid off in this recession who really do need help.”

In the Republican address, Kansas Sen. Pat Roberts criticized Obama’s recent appointment of Dr. Donald Berwick as the administrator for the Centers for Medicare and Medicaid Services as done “behind closed doors.”

Roberts said the position, known as the health-care czar, should have been filled not though a recess appointment, which bypasses Senate confirmation requirements, but by a public hearing, debate and vote.

“Americans will not know how much saving a life is worth until Dr. Berwick is calling the shots,” Roberts said. “There should be a public forum where he must address who should make medical decisions — your doctor, the patient, the family, or the government. We urge the president … to at least hold a public hearing now.”

Rebecca L. McClay is a MarketWatch reporter based in San Francisco.

Obama urges small business tax breaks

By Claudia Assis and Kate Gibson, MarketWatch

SAN FRANCISCO (MarketWatch) — Crude-oil futures pared their losses on Wednesday after a government report showed a larger-than-expected decline in inventories.

Crude oil for August delivery declined 19 cents, or 0.2%, to $76.93 a barrel on the New York Mercantile Exchange.

The Energy Department’s Energy Information Administration on Wednesday reported a decline of 5.1 million barrels in crude inventories in the week ended July 9.

Analysts polled by Platts expected a drop of 2.6 million barrels.

The EIA also reported an increase of 1.6 million barrels for gasoline stocks and a rise of 2.9 million barrels for stocks of distillates, which include heating oil and diesel.

The analysts surveyed by Platts had projected increases of 950,000 barrels in gasoline supplies and 800,000 barrels in distillate supplies.

Refineries operated at 90.5% of their operable capacity last week, the EIA said. Analysts had forecast a drop by 0.4 of a percentage point to 89.4%.

On Tuesday, crude for August delivery rallied $2.20, or 2.9%, to $77.15 a barrel, closing above the $77-a-barrel level for the first time since June 28.

But the weaker retail sales figures took the bullish edge off the market, said Tim Evans, an analyst with Citigroup’s Citi Futures Perspective unit, in a note to clients. Also weighing on the market are prospects of an increase in supplies.

The Commerce Department reported Wednesday that sales at U.S. retailers dropped 0.5% in June, joining other evidence in recent weeks that has pointed to the economic recovery slowing down.

The American Petroleum Institute, a Washington-based trade group, on Tuesday reported that oil inventories had climbed 1.74 million barrels last week.

The front-month contract has traded between $70 and $80 a barrel since late May amid mixed economic reports and relatively few changes in overall supply and demand.

The dollar offered some support to crude and other commodities, with the dollar index
/quotes/comstock/11j!i:dxy0
(DXY
83.29,
-0.36,
-0.43%)
, which compares the U.S. unit to a basket of six currencies, off 0.3% at 83.32.

A weaker dollar usually bolsters commodities as it makes them less expensive to holders of other currencies.

U.S.-listed shares of BP PLC
/quotes/comstock/13*!bp/quotes/nls/bp
(BP
36.62,
-0.26,
-0.70%)
fell 1.9% after the oil giant announced further delays in an effort to stem the flow of crude in the Gulf.
Read more about BP’s efforts.

Claudia Assis is a San Francisco-based reporter for MarketWatch.
Kate Gibson is a reporter for MarketWatch, based in New York.

Futures Movers: Oil trims losses after supply report