For the week ended October 14, 2011

Week in Review: Stocks rally despite Europe's widespread banking woes

• G 20 starts talks on eurozone rescue plan
• S&P downgrades Spain to AA-
• Harrisburg, Pennsylvania files for bankruptcy
• Fitch downgrades UBS, RBS, and Lloyds
• Apple's iPhone 4S hits stores

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Stocks rose for the third week despite a rash of downgrades that put financial shares under pressure. Investor sentiment got a boost as Group of 20 policymakers began talks on ways to tame the European debt crisis and amid optimism about plans to recapitalize eurozone banks. Solid earnings from Google also gave markets a lift late in the week.

U.S. and global economic news

G 20 starts talks on eurozone rescue plan
The Group of 20 nations began talks to contain Europe's debt woes. Policymakers are discussing an expansion of the International Monetary Fund's role as they seek to come up with rescue measures for the region. Some officials are considering boosting the IMF's lending capacity. On Wednesday the European Commission set out its plan to shore up European banks.

S&P downgrades Spain to AA-
Standard & Poor's Ratings Services downgraded Spain for the third time in three years as slowing growth and rising defaults threaten banks and undermine efforts to contain Europe's sovereign debt crisis. Its rating was lowered one level to AA-.

Harrisburg, Pennsylvania files for bankruptcy
Pennsylvania's capital city, Harrisburg, filed for bankruptcy protection from creditors after a faction of the city council repeatedly rejected a state-backed plan that called for selling or leasing assets to pay down debt. The case is being closely watched by other cities and towns looking for ways out of financial troubles. Harrisburg is the second city to file for such Chapter 9 protection this year. In August, Central Falls, Rhode Island filed for bankruptcy protection after retired city workers refused to accept an offer to cut their pensions.

U.S. retail sales rise more than expected
U.S. retail sales rose a more-than-expected 1.1% in September as consumers spent more on cars, clothing, and fuel. The gains were broad based and also seen in restaurants, furniture, and department stores. The increase eased some concern that slumping consumer confidence will hurt spending.

U.S. trade gap with China hits record
The U.S. trade gap with China, the fastest growing major market, widened 7.4% to a new record in August — $28.96 billion. Globally, the U.S. trade deficit narrowed to $45.61 billion.

European inflation accelerates
European inflation accelerated to 3% in September, the fastest pace in almost three years, amid rising energy costs. The inflation complicates the job of the European Central Bank as it seeks to keep interest rates low to combat the region's debt woes.

U.S. and global corporate news

Fitch downgrades UBS, RBS, and Lloyds
Fitch Ratings downgraded Swiss banking giant UBS and foreshadowed possible ratings cuts for other European banks as the lenders continued to grapple with the debt problems. UBS' long-term issuer default rating was cut to A from A+ as the bank struggles to recover from a multi-billion-dollar trading scandal that has already triggered a slew of management changes. Fitch said it was concerned about waning government support for the bank. This week, Fitch also cut ratings on Royal Bank of Scotland and Lloyds Banking Group after determining they are also less likely to receive government support in the future. RBS and Lloyds are 83% and 41% state-held, respectively. Both were downgraded two notches to A from AA-. Barclays, which has never taken direct state support and is rated AA-, was put on Ratings Watch Negative.

Apple's iPhone 4S hits stores
Apple's iPhone 4S hit stores on Friday and sold out for preorder at AT&T, Verizon Wireless, and Sprint Nextel on Thursday. Apple said that it had received more than 1 million iPhone pre-orders — a record for the company — on October 7, the first day of preorders.

Google's profits jump 26%
Google's profits rose a better-than-expected 26% in the third quarter, and revenue jumped 33% amid record spending on online advertising.

JPMorgan's profits fall 33%
JPMorgan Chase reported its profits fell 33% because of weak results in its investment-banking operations, which were not offset by strong lending and revenue gains. JPMorgan Chase is the first of the big banks to report results and is watched as a barometer.

BofA to cut 324 New York jobs
Bank of America plans to cut 324 jobs in New York beginning next month. The reduction will include investment bankers and equity traders and comes as the lender seeks to reduce expenses after losing half its market value. The cuts are part of plans to eliminate 3,500 jobs that were announced in August.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; msnbc.com. The Wall Street Journal Digital News

This is not a loan commitment. Programs are subject to change without notice and are only available to qualified borrowers. Underwriting terms and some restrictions may apply.

The week ahead

• The U.S. Federal Reserve Board reports on industrial production on Monday, October 17.
• Japan's Ministry of Economics, Trade, and Industry distributes its industrial production figures on Monday, October 17.
• The ZEW research group publishes its expectations of economic growth on Tuesday, October 18.
• The U.S. Bureau of Labor Statistics releases its Producer Price Index on Tuesday, October 18, and its Consumer Price Index on Wednesday, October 19.

Sources: MFS research; The Wall Street Journal; The Wall Street Journal Online; Bloomberg News; Financial Times; Forbes.com; CNNMoney.com; msnbc.com.

This is not a loan commitment. Programs are subject to change without notice and are only available to qualified borrowers. Underwriting terms and some restrictions may apply.