That stock News

SAN FRANCISCO (Reuters) – Regulators are looking into the events surrounding Mark Hurd's abrupt exit as chief executive of Hewlett Packard Co, a source familiar with the matter said on Monday.

The SEC's probe was first reported by the Wall Street Journal, which cited anonymous sources as saying the Securities and Exchange Commission was investigating claims that Hurd shared inside information with an ex-contractor ahead of its $13.9 billion acquisition of Electronic Data Systems in 2008.

Hurd's departure in August stunned investors and sent shares tumbling 8 percent in the first trading day after the announcement. Now an Oracle co-president, he left under a cloud of sexual harassment accusations, although the board found no evidence to back up that allegation.

HP instead accused Hurd of filing inaccurate expense reports to conceal a "close personal relationship" with a former contractor, although Hurd's representatives have disputed that.

Now, the government was also examining the claims of inaccurate expense reports filed by Hurd at HP, and looking into whether Hurd destroyed computer evidence related to his departure, the Journal reported.

HP confirmed the SEC probe but declined to comment on what the government was specifically investigating. Hurd declined comment through a spokesman.

"HP is cooperating fully with the SEC on its investigation," a spokeswoman for the technology giant said.

Oracle declined comment. The SEC also would not comment.

Jodie Fisher, the contractor at the center of the controversy that led to Hurd's ouster on August 6, alleged in a June 24 letter that Hurd divulged details about HP's plans to acquire EDS before the deal was announced, a source said last month.

At that time, Hurd's representatives denied the allegations, which were contained in the same letter in which Fisher accused Hurd of harassment.

(Reporting by Gabriel Madway; Editing by Gary Hill)

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NEW YORK (Reuters) – U.S. stocks tacked on further gains to push the S&P 500 to a two-year high on Monday, continuing a steady upward march investors believe will continue in 2011.

Volume was light, as is expected through the rest of 2010. Investors stayed with sectors that have led a sharp December rally, including financials, energy and materials stocks. The S&P 500 is up 5.7 percent for the month and 11.8 percent for the year.

"We have seen this year-end rally refuse to give up any ground," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

The combination of improving economic data, additional stimulus from the Federal Reserve and the extension of tax cuts was keeping equities in demand, Hellwig said.

The financial sector (.GSPF), which has lagged the broader market, was up 0.4 percent as some investors bet the sector could be among the leaders next year after a strong December.

However, American Express (AXP.N) tumbled 3.4 percent to $42.50 after Stifel Nicolaus downgraded the stock to "hold" from "buy."

Boeing Co (BA.N) also kept gains in check. The stock was down 2.7 percent to $63.27 after the Seattle Times newspaper said a delivery delay could be announced for the plane maker's 787 Dreamliner aircraft.

The Dow Jones industrial average (.DJI) dipped 13.78 points, or 0.12 percent, to 11,478.13. The Standard & Poor's 500 Index (.SPX) added 3.17 points, or 0.25 percent, to 1,247.08. The Nasdaq Composite Index (.IXIC) rose 6.59 points, or 0.25 percent, to 2,649.56.

U.S. markets will be closed on Friday to observe the Christmas Day holiday on Saturday.

Energy shares led the way up as the price of oil rose nearly 1 percent in choppy trading. Chevron (CVX.N) added 0.4 percent to $88.88.

Amazon.com (AMZN.O) helped boost the Nasdaq on optimism the company will benefit from improved holiday spending. According to research firm comScore, U.S. online sales are up 12 percent to $27.5 billion so far this season compared with a year ago.

Shares of Amazon gained 3.2 percent to $183.29, while the S&P consumer discretionary sector (.GSPD) was up 0.6 percent.

Amex shares are down 7.8 percent since last Thursday when the Federal Reserve proposed limiting debit interchange fees at 12 cents per transaction.

Stifel said the company is increasingly exposed as a cut in fees "will significantly increase pressure on higher-cost payments alternatives like Amex."

Nick Kalivas, senior equity index analyst at MF Global in Chicago, said some of the optimism over the financial sector was sapped by last week's proposal.

"There was the feeling there could be some opportunities in the banks and I think the interchange (proposal) cooled that," said Kalivas.

Food and beverage company Sara Lee Corp (SLE.N) has been in talks to sell itself to Brazilian meat producer JBS (JBSS3.SA), but the two companies are at odds over price, a source said. Sara Lee shares rose 2.5 percent to $17.69.

About 6.37 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below last year's estimated daily average of 9.65 billion.

Declining stocks slightly outnumbered advancing ones on the NYSE by 1,534 to 1,482, while on the Nasdaq, decliners beat advancers 1,383 to 1,273.

(Reporting by Leah Schnurr; Editing by Kenneth Barry)

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SAN FRANCISCO (Reuters) – A former sales executive at clothing marketer Carter's (CRI.N) committed financial fraud by manipulating the amount of discounts granted to one of the company's largest customers, securities regulators alleged in a civil lawsuit on Monday.

The Securities and Exchange Commission accused Joseph Elles, a former executive vice president at Carter's, of concealing the discounts from the company's accountants, the lawsuit said.

R. Joseph Burby IV, an attorney for Elles, said Elles intended to vigorously defend himself in court, adding that his handling of customer discounts was "well known" to senior management at Carter's.

"Why the SEC has decided to selectively pursue claims against Mr. Elles will be one of the issues to be determined in the litigation," Burby said.

Carter's entered into a non-prosecution agreement with the SEC and will not be charged with any violations of federal securities laws, regulators said in a statement.

That agreement reflects Carter's "exemplary and extensive cooperation" in the investigation, the SEC said.

Carter's did not immediately respond to a request for a comment.

Because of Elles's actions, Carter's income in certain quarters was overstated, the SEC lawsuit said.

The lawsuit said that Elles made about $4.7 million in profit from his stock sales during this time.

Securities regulators are seeking disgorgement of any ill gotten gains, civil penalties and to bar from Elles serving as an officer or director at a public company.

(Reporting by Dan Levine; Editing by Robert MacMillan)

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NEW YORK (Reuters) – Investors will be taking advantage next week of the some of the last remaining trading days of the year to place their bets on what will be the winners of 2011.

One of the defining characteristics of 2010 has been the strong correlation across asset classes. Movements in the dollar or in bonds had just as much impact on equities as more fundamental factors, such as corporate outlooks.

The tight relationships came as investors focused on the same factors -- further stimulus from the Federal Reserve, sovereign debt worries in the euro zone and the strength of the economic recovery.

The macro focus has meant investors made the same trades rather than differentiating individual sectors and industries.

"No matter how much work you put in trying to pick winners and losers, the profit available from doing so was way below normal," said Charlie Blood, director of financial markets strategy at Brown Brothers Harriman in New York.

Analysts expect that correlation to ease in the coming year, allowing sectors to see more divergence and affording investors more chances to outperform the market.

"It's structurally just unsustainable to have that kind of (correlation) because it doesn't allow for diversification," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York.

"I do think it has to reverse -- it's just not a healthy part of the capital market," he said.

Even as investors reposition themselves, the broad market is likely to drift until year-end with next week shortened by the Christmas holiday.

Indeed, Wall Street's fear gauge, the CBOE Volatility index, or VIX (.VIX), on Friday fell to its lowest level since April.

Investors will also take in a round of economic data next week, including the final reading of gross domestic product for the third quarter, new and existing home sales for November and December consumer sentiment.

TOO HOT TO HANDLE

Stocks that have been the best performers for the year are already seeing a pullback, suggesting investors are happy to lock in profits as they search for fresh opportunities.

Salesforce.com (CRM.N), one of the best-performing stocks on the S&P 500 this year, has backed off this week, sliding 8.1 percent. Even so, the stock is up 85 percent for the year.

Mid-cap Netflix (NFLX.O), another investor favorite this year, has shed 12.6 percent since the beginning of December, though that still leaves the stock up some 226 percent this year.

Similarly, small- and mid-cap indexes have outpaced blue chips with the S&P MidCap 400 index (.MID) and S&P SmallCap 600 index (.SML) both up more than 24 percent in the year to date compared to the S&P 500's (.SPX) 11.6 percent gain.

But with valuations on smaller companies becoming stretched, investors are likely to shift into blue-chip names next year, said Bob Gorman, chief portfolio strategist at TD Wealth Management in Toronto.

"The extent of the valuation gap would suggest to us you probably start to see that rotation into bigger companies with more consistent sales, earnings and dividend growth and that are selling at lower multiples," said Gorman.

Investors will also continue to put their faith in technology shares next year on the expectation they will benefit from corporate and consumer spending as well as strong balance sheets.

The sector's sensitivity to the economy made for a lackluster performance for the sector overall this year with the S&P tech sector (.GSPT) gaining 8.7 percent, though some of the year's best gainers were in the tech space.

Financials are starting to look favorable to some, particularly with the possibility the large banks could resume paying dividends next year, but others view the uncertainties of financial reform as too much of a headwind.

Colas said he likes financials as a contrarian play, noting: "They don't seem to go down very much when the bad news strikes and that's usually a sign that it's an OK contrarian investment."

Others are betting the less flashy industrials sector will hold onto its leadership position next year after gaining 22.8 percent so far in 2010.

"They haven't attracted the hot money like emerging markets have or like the trendy consumer stocks or cloud computing have," said Derek Hernquist, chief investment officer of Integrative Capital in Charlotte, North Carolina.

"When I see those major broad groups are attracting the smooth, steady money flows that they are, it seems like it would point to a healthier economy," which is not fully priced in yet, said Hernquist.

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NEW YORK (Reuters) – The S&P clung to a two-year high on Friday as investors predicted a pause as volumes are expected to dry up in the days ahead, and after a 5 percent gain already so far in December.

The last two weeks of the year are traditionally quiet, and therefore market moves are less meaningful to the overall trend, which took the S&P 500 to a two-year high early this week.

Some indicators imply investors have grown complacent. The CBOE Volatility index (.VIX), a measure of expected volatility on Wall Street, fell to its lowest level since April, dropping 7.4 percent to 16.11.

"The bullish camp is -- I'm sure -- very pleased at the day-after-day, slow steady increase they are engineering," said Larry McMillan, president of options research firm McMillan Analysis in a research note. "But below the surface, tensions are building, and they will likely explode to the downside in a sharp, but perhaps only short-lived, correction."

Some indicators are pointing to an overbought market such as high levels of bullishness, often seen as a contrarian indicator, as well as a high call to put ratio, indicating investors may be complacent about hedging a fall in prices.

Some of the year's biggest winners have endured selling of late and were down again Friday. Apple Inc (AAPL.O) fell 0.2 percent to $320.61, while Salesforce (CRM.N) fell 0.7 percent to $136.50.

This was offset on the Nasdaq by gains in both Oracle Corp (ORCL.O) and Research in Motion (RIMM.O) (RIM.TO) a day after they posted strong quarterly results. Oracle gained 3.9 percent to $31.46 while U.S.-listed shares of RIM were up 1.6 percent to $60.20.

The Dow Jones industrial average (.DJI) dropped 7.34 points, or 0.06 percent, to 11,491.91. The Standard & Poor's 500 Index (.SPX) gained 1.03 points, or 0.08 percent, to 1,243.90. The Nasdaq Composite Index (.IXIC) rose 5.66 points, or 0.21 percent, to 2,642.97.

While traders and investors were already nervous after the S&P 500 rallied over 5 percent so far this month, old concerns over European debt also resurfaced, with Moody's downgrade of Ireland's ratings hitting European bank shares in U.S. trade.

U.S.-listed shares of Banco Santander (STD.N) fell 2 percent to $10.52 while Royal Bank of Scotland (RBS.N) dropped 5.5 percent to $11.90. However, the impact on U.S. shares not directly linked to the Irish situation were limited.

"There are more shoes to drop in Europe, but precedent has been set to help these countries. That's why equity markets aren't reacting significantly negatively to the news," said Michael Gault, a senior portfolio strategist at the New York-based Weiser Capital Markets, which has about $150 million in assets under management.

"Unless that support won't be there, I think investors will in general be able to shake off the news and find positives, like the tech results," he added.

Regional banks traded higher after Canada's Bank of Montreal (BMO.TO) agreed to buy Marshall & Ilsley Corp (MI.N) for $4.1 billion, sending the stock up 18 percent to $6.85.

Peer regional bank KeyCorp (KEY.N) climbed 4.1 percent to $8.42 while Regions Financial (RF.N) added 1.8 percent to $6.24.

The KBW Regional Banks index (.KRX) rose 0.3 percent and has risen more than 11 percent this year, with most of that coming in December alone despite continued debt woes from European banks.

Mergers and acquisitions are up for the first full year since 2007 and may mark the start of a new, multiyear M&A cycle, according to Thomson Reuters data.

About 8.9 billion shares were traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, over the year's daily average of 8.5 billion.

Volume was increased by traders adjusting or exercising derivative positions on four different types of expiring equity futures and options contracts, also know as "quadruple witching."

(Reporting by Edward Krudy; Additional reporting by Doris Frankel; Editing by Chizu Nomiyama)

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By Matthew Goldstein and Rachelle Younglai Matthew Goldstein And Rachelle Younglai – Fri?Dec?17, 5:22?pm?ET

NEW YORK/WASHINGTON (Reuters) – Securities regulators have broadened their inquiry into the mortgage industry, asking big banks about the early stages of securitizing home loans, two sources familiar with the probe said.

The Securities and Exchange Commission launched the new phase of its investigation by sending out a fresh round of subpoenas last week to big banks including Bank of America Corp, Citigroup Inc, JPMorgan Chase & Co, Goldman Sachs Group Inc and Wells Fargo & Co, the sources said.

Months ago, the SEC began looking into the banks' foreclosure practices following allegations that mortgage servicers were using shoddy paperwork to evict delinquent borrowers from their homes.

Now the SEC is looking at how the lenders packaged up mortgages for sale to investors, said the sources, who requested anonymity because the probe is not public.

Questions from the SEC include information about the role of so-called "master servicers" -- specialized firms that oversee the selection and maintenance of the large pool of home loans that go into every mortgage-backed bond.

In many cases, Wall Street banks that underwrite mortgage-backed securities either own their own master servicing firms or are closely aligned with one.

The Justice Department, banking regulators and the attorneys general in all 50 U.S. states are also probing potential wrongdoing.

The state of Arizona sued Bank of America on Friday, accusing the bank of misleading consumers about its home loan modification process.

TRUSTS AND TRANSFERS

One of the sources said the SEC is seeking information about the role banks had in mortgage securitization. The regulator is also looking at the role trustees for the trusts that issued the mortgage-backed securities had in monitoring the performance of the underlying loans.

The SEC is looking at whether loans were properly transferred to the trusts that issued the securities, the source said.

The renewed look at the securitization process is an extension of the SEC's preliminary probe into the mortgage mess. The SEC's regional offices are all looking at some aspect of the foreclosure crisis.

The SEC had no comment.

Separately, the SEC is still investigating banks, credit rating agencies and individuals in connection with the 2007-09 subprime crisis. Those investigations center around potential misrepresentations to investors about the value of the mortgage-backed securities that helped fuel the crisis.

The agency has filed some high-profile cases, including one against former Countrywide Financial chief Angelo Mozilo and another against Goldman Sachs.

Banking regulators, including the Federal Reserve, are reviewing lenders' foreclosure practices and are expected to reveal their findings in January.

In particular, the Fed is concerned about investors accusing lenders of misrepresenting the loans that underpin mortgage securities, and demanding repayment.

That has already happened with Bank of America, which has started negotiating with a group of angry mortgage investors, including BlackRock Inc.

Bank of America, Citigroup, JPMorgan and Goldman had no comment. Wells Fargo said it is "always working with regulators and others who are interested in its servicing business" but declined to comment on whether the bank had received a subpoena.

(Additional reporting by Elinor Comlay and Joe Rauch; editing by John Wallace and Tim Dobbyn)

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NEW YORK (Reuters) – Investors will be taking advantage next week of the some of the last remaining trading days of the year to place their bets on what will be the winners of 2011.

One of the defining characteristics of 2010 has been the strong correlation across asset classes. Movements in the dollar or in bonds had just as much impact on equities as more fundamental factors, such as corporate outlooks.

The tight relationships came as investors focused on the same factors -- further stimulus from the Federal Reserve, sovereign debt worries in the euro zone and the strength of the economic recovery.

The macro focus has meant investors made the same trades rather than differentiating individual sectors and industries.

"No matter how much work you put in trying to pick winners and losers, the profit available from doing so was way below normal," said Charlie Blood, director of financial markets strategy at Brown Brothers Harriman in New York.

Analysts expect that correlation to ease in the coming year, allowing sectors to see more divergence and affording investors more chances to outperform the market.

"It's structurally just unsustainable to have that kind of (correlation) because it doesn't allow for diversification," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York.

"I do think it has to reverse -- it's just not a healthy part of the capital market," he said.

Even as investors reposition themselves, the broad market is likely to drift until year-end with next week shortened by the Christmas holiday.

Indeed, Wall Street's fear gauge, the CBOE Volatility index, or VIX (.VIX), on Friday fell to its lowest level since April.

Investors will also take in a round of economic data next week, including the final reading of gross domestic product for the third quarter, new and existing home sales for November and December consumer sentiment.

TOO HOT TO HANDLE

Stocks that have been the best performers for the year are already seeing a pullback, suggesting investors are happy to lock in profits as they search for fresh opportunities.

Salesforce.com (CRM.N), one of the best-performing stocks on the S&P 500 this year, has backed off this week, sliding 8.1 percent. Even so, the stock is up 85 percent for the year.

Mid-cap Netflix (NFLX.O), another investor favorite this year, has shed 12.6 percent since the beginning of December, though that still leaves the stock up some 226 percent this year.

Similarly, small- and mid-cap indexes have outpaced blue chips with the S&P MidCap 400 index (.MID) and S&P SmallCap 600 index (.SML) both up more than 24 percent in the year to date compared to the S&P 500's (.SPX) 11.6 percent gain.

But with valuations on smaller companies becoming stretched, investors are likely to shift into blue-chip names next year, said Bob Gorman, chief portfolio strategist at TD Wealth Management in Toronto.

"The extent of the valuation gap would suggest to us you probably start to see that rotation into bigger companies with more consistent sales, earnings and dividend growth and that are selling at lower multiples," said Gorman.

Investors will also continue to put their faith in technology shares next year on the expectation they will benefit from corporate and consumer spending as well as strong balance sheets.

The sector's sensitivity to the economy made for a lackluster performance for the sector overall this year with the S&P tech sector (.GSPT) gaining 8.7 percent, though some of the year's best gainers were in the tech space.

Financials are starting to look favorable to some, particularly with the possibility the large banks could resume paying dividends next year, but others view the uncertainties of financial reform as too much of a headwind.

Colas said he likes financials as a contrarian play, noting: "They don't seem to go down very much when the bad news strikes and that's usually a sign that it's an OK contrarian investment."

Others are betting the less flashy industrials sector will hold onto its leadership position next year after gaining 22.8 percent so far in 2010.

"They haven't attracted the hot money like emerging markets have or like the trendy consumer stocks or cloud computing have," said Derek Hernquist, chief investment officer of Integrative Capital in Charlotte, North Carolina.

"When I see those major broad groups are attracting the smooth, steady money flows that they are, it seems like it would point to a healthier economy," which is not fully priced in yet, said Hernquist.

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NEW YORK (Reuters) – Stocks, bucking a trend of late-day selloffs, ended higher on Thursday as economic bellwether FedEx offered a bullish profit outlook that augured well for broad growth.

Stocks that performed well in 2010 were among Thursday's biggest gainers as investors sought to boost returns by the year's end. Advancing stocks outnumbered decliners by more than two to one on both the New York Stock Exchange and Nasdaq.

Package shipper FedEx Corp (FDX.N) raised its full-year outlook, though its quarterly profit and revenue missed expectations. Shares rose 2 percent to $94.22 while larger rival United Parcel Services (UPS.N) gained 2.1 percent to $73.76 and the Dow Jones Transportation Average (.DJT) gained 1.3 percent.

"The fact that FedEx missed its earnings is overshadowed by its very strong outlook, which is a good indicator that we're looking for good economic times ahead," said Kimberly Foss, president at the Sacramento, California-based Empyrion Wealth Management, which has more than $200 million in assets under management.

Visa Inc (V.N) and MasterCard Inc (MA.N) tumbled on heavy volume after the Federal Reserve issued a proposal that would force banks and card networks to slash the fees they charge retailers on debit cards. Visa sank 13 percent to $67.19 while MasterCard slumped 10 percent to $223.49.

The Dow Jones industrial average (.DJI) was up 41.78 points, or 0.36 percent, at 11,499.25. The Standard & Poor's 500 Index (.SPX) was up 7.64 points, or 0.62 percent, at 1,242.87. The Nasdaq Composite Index (.IXIC) was up 20.09 points, or 0.77 percent, at 2,637.31.

Stocks gained momentum after a slow start to the day, with big gainers for the year boosting the Nasdaq.

Intuit Inc (INTU.O), known for its tax-filing software, gained 3 percent to $49.35 after rising about 60 percent for the year.

Some shares raised hopes consumers will be less frugal over the holiday shopping season. Amazon.com Inc (AMZN.O) rose 1.4 percent to $178.10 and its stock was up 32 percent for the year.

After the closing bell, Oracle Corp (ORCL.O) reported a surge in new software sales in its second quarter, lifting its shares 3.2 percent to $31.24.

Starbucks Corp (SBUX.O) rose 2.3 percent to $32.59 after Goldman Sachs gave the coffee chain a "conviction buy" rating with a $44 price target.

Economic data added to the positive mood. Factory activity in the U.S. mid-Atlantic region unexpectedly rose in December, while jobless claims dipped for a second week. November housing starts rose, but permits for future home construction dropped to a 1-1/2 year low.

U.S.-listed shares of Research in Motion (RIM.TO)(RIMM.O) rose 1.8 percent to $60.28 after it reported its third-quarter results after the close.

"While we expect the market to continue growing, the slower growth we expect is going to be good for those companies that execute well, but challenging for the ones that have been struggling," said Alan Gayle, senior investment strategist at RidgeWorth Investments in Richmond, Virginia.

About 7.54 billion shares were traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, well below the year's daily average of 8.62 billion.

(Reporting by Ryan Vlastelica; Editing by Kenneth Barry)

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CHICAGO/WASHINGTON (Reuters) – The chief derivatives regulator on Thursday proposed making trading in the most popular swaps as transparent as stock exchanges, while trying to ensure that requirements for less popular swaps do not end up killing them.

Dozens of firms, such as IntercontinentalExchange Inc, hope to qualify as swap trading venues as the opaque swaps market is forced onto the public stage as part of a Wall Street financial overhaul mandated by the U.S. Congress.

How market regulators define these swap execution facilities, or SEFs, will determine who will be allowed to compete in what is expected to be the lucrative business of trading and brokering the swap contracts.

A week ago, Commodity Futures Trading Commission Chairman Gary Gensler delayed the long-awaited plan due in part to Republican and industry concerns that the rule was not flexible enough.

The new plan fixes most of those concerns, several swaps trading outfits said on Thursday.

The CFTC voted 4-1 to issue a proposal allowing swap execution facilities to use various trading systems, as long as certain requirements are met.

The proposal would allow SEFs to have electronic trading systems similar to stock market order books, where bids and offers are continuously updated. But it would not require them to do so, a possibility that some had feared would knock the wind out of trading in some of the less popular contracts.

"We applaud the CFTC for proposing these definitions for the trading of derivatives, and believe that they will increase transparency and create more efficient markets for end-users," Tradeweb CEO Lee Olesky said. Tradeweb, which offers electronic buying and selling of swaps, is owned by Thomson Reuters.

Swap venues also could have a "request for quote" system, as long as the request for a quote to buy or sell a swap was sent to at least five market players in the trading system.

Republican Commissioner Jill Sommers, who called the original proposal too narrow in scope, balked at the requirement that SEFs give market participants the option to post both firm and so-called "indicative" quotes, where the trader indicates what price he would be willing to trade without committing to the transaction.

Both types of quotes would have to be viewed by multiple parties.

Sommers said the dual requirement may limit competition.

"In my view this provision is not mandated by Dodd-Frank and may limit competition by shutting out applicants who wish to offer (request for quote) systems without this type of functionality," said Sommers, who voted against the proposal.

Fellow Republican Commissioner Scott O'Malia questioned whether the plan would serve all markets in a "manner that is transparent".

Allowing market participants to post "indicative" quotes is designed to ensure that less liquid derivatives are not forced into a fully transparent environment that traders say would deter participants from posting true bids and offers.

Under the Dodd-Frank overhaul, the CFTC has been given the power to police most of the estimated $600 trillion over-the-counter derivatives market.

The U.S. Securities and Exchange Commission is in charge of security-based swaps, which are at most about a 10th of the market. The SEC is expected to offer a similar plan in the new year.

The original CFTC proposal offered three tiers of transactions: larger trades that meet a specific level of volume, smaller trades that are not block trades but do not have major volume, and other transactions such as block trades where an SEF could provide end-users the chance to trade even though it is not required.

Companies that traditionally have been big players in the over-the-counter swaps market are working to ensure they stay in the game as the business moves under the CFTC's regulatory oversight. Barclays, Credit Suisse, Morgan Stanley and others have met with the agency to discuss the new trading platforms.

The CFTC proposal is open for a 60-day comment period.

(Additional reporting by Christopher Doering, Jonathan Spicer and Ayesha Rascoe; Editing by Robert MacMillan, Jim Marshall and Dale Hudson)

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WASHINGTON (Reuters) – U.S. financial regulators would get big budget increases to enforce the Dodd-Frank overhaul of Wall Street regulations under a Senate spending bill unveiled on Tuesday.

The Commodity Futures Trading Commission would get a budget increase of 69 percent, while the Securities and Exchange Commission would get an increase of 18 percent under the bill, according to a summary posted on the website of the subcommittee that funds both agencies.

(Reporting by Andy Sullivan)

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WASHINGTON (Reuters) – Thousands of companies could be forced to reveal the source of metals and ores they use under a proposed U.S. rule aimed at cutting the flow of money to armed rebels in the Democratic Republic of Congo.

The U.S. Securities and Exchange Commission proposed on Wednesday that companies annually reveal whether they are sourcing tantalum, tin, gold and tungsten from the war-torn region.

That means companies such as Hewlett-Packard and Research in Motion Ltd, which rely on the metals to make their electronic gadgets and laptops, could be subject to the new rule. The SEC estimates 6,000 companies could be affected.

"The idea is to cut off funding for the armed rebels in the Democratic Republic of Congo who are getting money from the sale of these minerals to fund these activities," said Darren Fenwick, a senior manager at Enough Project, an organization aimed at ending genocide and crimes against humanity.

"It is going to create transparency in the supply chain process. It will force consumers to make a choice," he said.

Much of Congo's metals and ores come from its troubled east, where fighting between government forces and rebel groups has displaced more than 1.4 million people.

The SEC rule is required by the Dodd-Frank legislation that was enacted in July to reform Wall Street and chiefly aimed at plugging regulatory gaps after the worst financial crisis since the Great Depression.

The "conflict mineral" provision was put into the bill by a number of senators, including Dick Durbin, who has said he witnessed first-hand atrocities of horrific and inhumane proportions.

Under the SEC's proposal, a company would have to disclose the source of the conflict mineral if that mineral is needed to make the product work. Likewise, a company would be subject to the rule if it contracts a manufacturer that uses the mineral for the product.

The electronics industry relies on tantalum for its ability to store and release an electrical charge and is used in power-storing processes in devices like smart phones and laptop computers.

SEC commissioners had no comment on the proposal and voted unanimously to seek public input, due by the end of January.

The SEC also unanimously voted to require mining companies to disclose mine safety information and proposed rules that would force companies to disclose payments to government in developing oil, natural gas or minerals.

The types of payments required to be disclosed include royalties, bonuses and taxes.

DERIVATIVE RULE EXEMPTION

At the same meeting, the SEC largely followed the chief U.S. futures regulator's proposal to exempt certain companies from new derivatives rules.

So-called "end users," companies such as Ford Motor Co that use derivatives to manage their risk, are trying to make sure that they will not have to set aside extra capital in order to use the financial instruments.

Under the SEC and Commodity Futures Trading Commission's plan, an end-user would be exempt if the deal is not speculative and one side of the trade is a nonfinancial entity.

The company would need to prove to regulators that it had the financial support needed for the derivative deal such as written third-party guarantee or credit line.

Regulators won new powers to police the estimated $600 trillion over-the-counter derivatives market under Dodd-Frank after insurer AIG's pile of risky credit swaps unsettled financial markets. The SEC will police about a tenth of the market, while the CFTC will supervise the rest.

The exemptions would apply deal by deal and not be a blanket exemption for a company. The SEC sought comment on whether additional exemptions were needed for small banks, savings associations, farm credit system institutions and credit unions with total assets under $10 billion.

Most derivatives, private contracts between two parties, will be forced onto trading venues and through clearinghouses. The trading venues, also known as swap execution facilities, will help make the market more transparent. The clearinghouses are expected to help mitigate risk if one party defaults.

(Reporting by Rachelle Younglai; Editing by Richard Chang, Dave Zimmerman and Tim Dobbyn)

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NEW YORK (Reuters) – Short interest slipped on the New York Stock Exchange but was little changed on the Nasdaq in late November, two weeks before a sharp rally for stocks, according to data released by the exchanges on Thursday.

Although the S&P 500 fell 1.6 percent during the period, it has rallied more than 4 percent since the start of December as many investors predict a strong end to the year.

Short interest on the New York Stock Exchange slipped 1.2 percent to 13.65 billion shares through November 30, compared with 13.81 billion shares as of November 15.

Investors who sell securities short seek to profit from a decline in stock prices. They borrow shares and then sell them in hope of buying them back later at a cheaper price, pocketing the difference.

The short interest on November 30 was equal to 3.57 percent of the total shares outstanding, the NYSE said.

Short interest on the Nasdaq dipped 0.08 percent during the period to 7.034 billion shares, compared with 7.040 billion shares as of November 15.

The short interest on Nasdaq was 3.39 days' average daily volume, compared with an average of 3.47 days for the previous reporting period, according to Nasdaq.

(Reporting by Edward Krudy; Editing by Jan Paschal)

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NEW YORK (Reuters) – U.S. stocks rose on Friday, with the S&P 500 at its highest level since the week Lehman Brothers collapsed in 2008, and breaching technical levels that suggest the year-end rally will persist.

Indexes closed near session highs with the Nasdaq Composite up for its eighth consecutive daily gain; in that time, the tech-heavy index is up 5.5 percent. The Nasdaq finished at its highest level since December 31, 2007. Volume was below average as is typical for this time of the year.

Industrial shares led the pack, with General Electric (GE.N) up more than 3 percent after it raised its dividend for a second time this year. The S&P industrial sector index (.GSPI) rose 1.03 percent.

After the S&P 500 ended on Thursday above 1,228, the closely watched 61.8 percent retracement of its drop from late 2007 to March 2009, the benchmark index managed to hold above that key level for a second day.

"That met some significant resistance so closing above there and staying above there is a pretty good sign," said Art Hogan, chief market analyst at Jefferies & Co in Boston.

The S&P 500 tried and failed to breach 1,228 back in April and later in early November, with both attempts followed by steep declines.

The Dow Jones industrial average (.DJI) added 40.26 points, or 0.35 percent, to 11,410.32. The Standard & Poor's 500 (.SPX) gained 7.40 points, or 0.60 percent, to 1,240.40. The Nasdaq Composite (.IXIC) rose 20.87 points, or 0.80 percent, to 2,637.54.

For the week, the indexes also posted gains. The Dow rose 0.2 percent, the S&P 500 was up 1.3 percent and the Nasdaq added 1.8 percent.

The Nasdaq Composite, boosted by a 2.3 percent gain in shares of Oracle Corp (ORCL.O), hit its highest level since December 2007. Oracle shares closed at $29.95.

In the latest signs of improvement in the U.S. economic recovery, data showed consumer sentiment rose more than expected in early December, according to the Thomson Reuters/University of Michigan survey, while import prices in November climbed at their fastest pace in a year.

Another positive signal came from the Commerce Department, which said the U.S. trade deficit narrowed much more than expected in October.

Overseas news helped boost equities, after a slew of data showed China's imports and exports jumped in November, bank lending topped forecasts and property investment powered ahead. China increased reserve requirements for banks but kept interest rates on hold.

GE jumped 3.4 percent to $17.72 after the company said quarterly payments to shareholders will increase by 2 cents to 14 cents per share.

Lifting the S&P health care index (.GSPA), Tenet Healthcare Inc (THC.N) shares jumped 55 percent to $6.65, easily surpassing the $6-per-share bid from Community Health Systems Inc (CYH.N) and likely forcing the potential buyer to raise its offer for the rival hospital company.

Community Health shares rose 13.4 percent to $35.89.

Shares of Netflix Inc (NFLX.O) rose after Standard & Poor's said the company, along with F5 Networks Inc (FFIV.O), Newfield Exploration Co (NFX.N) and Cablevision Systems Corp (CVC.N), will be added to the S&P 500 index after trading closes next Friday.

Netflix added 1.9 percent to $194.63, Cablevision jumped 4.1 percent to $34.72, Newfield gained 3.3 percent to $72.37 and F5 Networks rose 3 percent to $143.09.

About 7.4 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, below the year's average of 8.62 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of almost 2 to 1, while on the Nasdaq, more than two stocks rose for every one that fell.

(Reporting by Rodrigo Campos; Editing by Jan Paschal)

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NEW YORK (Reuters) – This year's miracle won't be limited to 34th Street. It will spill onto Wall Street as well.

The recent agreement to extend the Bush-era tax cuts will help lift the markets in the final weeks of December, analysts say, with retail stocks expected to be among the top beneficiaries.

Late-year advances, known as "Santa Claus rallies" because of their proximity to Christmas, occur on a seasonal jump in bullish sentiment, as well as window dressing -- a strategy used by fund managers to improve the appearance of their funds by chasing strong performers.

It helps that stocks are already on an uptrend, with the Standard & Poor's 500 Index trading at two-year highs.

Increased sentiment "is not totally uncommon at this time of year," said William Delwiche, an investment strategist at Robert W. Baird & Co in Nashville. "Year-end and holidays tend to make people cheerful and optimistic about the new year."

The gains, which can be amplified by the period's light trading volume, have helped make December an historically strong month.

According to Thomson Reuters Datastream, the S&P 500 has gained an average of 1.5 percent in December since 1975, the third-best month behind April and November. The index is up 5 percent so far this month.

"Santa Claus rallies don't come on specific catalysts so much as an intangible sense out there, and this year that sense is strong and to the upside," said Joseph Greco, managing director at Meridian Equity Partners in New York.

"The tax deal gave us a huge shot in the arm, we're seeing consistent strength in retailers, and it's possible that we could get a move of 2.5 (percent) to 3 percent up from here," Greco said.

NICE COMEBACK FOR THE CONSUMER

Sentiment on retail stocks has been bullish lately, thanks to encouraging reads on consumer spending in the holiday shopping season. Analysts said the tax deal is adding to that positive bias.

"For the first time in several years, the consumer is back in play, especially if the tax deal comes through the way it has been proposed," said Timothy Harder, chief investment officer at Peak Capital Investment Services in Denver, which has about $600 million in assets under management. "As that becomes more certain, companies that target consumers will see that benefit."

While Santa Claus rallies unofficially run in the final week of the year, some retailers have already racked up strong gains. Abercrombie & Fitch has surged 11.3 percent in December so far, while luxury retailer Saks Inc is up 6.8 percent.

Despite an expected positive end to the year, issues may resurface in January as traders return from vacation and trading volume increases.

"We'll see Santa in December, but then comes the 'January effect' when institutions and managers either take money off the table or really get involved," Meridian's Greco said.

According to Datastream, January is historically the fourth-best month of the year.

"I'm hopeful that once they get a read on how bullish things are, that'll stimulate them to keep things going."

(Reporting by Ryan Vlastelica; Additional reporting by Rodrigo Campos; Editing by Jan Paschal)

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NEW YORK (Reuters) – U.S. stocks rose on Friday, with the S&P 500 at its highest level since the week Lehman Brothers collapsed in 2008, and breaching technical levels that suggest the year-end rally will persist.

Indexes closed near session highs with the Nasdaq Composite up for its eighth consecutive daily gain; in that time, the tech-heavy index is up 5.5 percent. The Nasdaq finished at its highest level since December 31, 2007. Volume was below average as is typical for this time of the year.

Industrial shares led the pack, with General Electric (GE.N) up more than 3 percent after it raised its dividend for a second time this year. The S&P industrial sector index (.GSPI) rose 1.03 percent.

After the S&P 500 ended on Thursday above 1,228, the closely watched 61.8 percent retracement of its drop from late 2007 to March 2009, the benchmark index managed to hold above that key level for a second day.

"That met some significant resistance so closing above there and staying above there is a pretty good sign," said Art Hogan, chief market analyst at Jefferies & Co in Boston.

The S&P 500 tried and failed to breach 1,228 back in April and later in early November, with both attempts followed by steep declines.

The Dow Jones industrial average (.DJI) added 40.26 points, or 0.35 percent, to 11,410.32. The Standard & Poor's 500 (.SPX) gained 7.40 points, or 0.60 percent, to 1,240.40. The Nasdaq Composite (.IXIC) rose 20.87 points, or 0.80 percent, to 2,637.54.

For the week, the indexes also posted gains. The Dow rose 0.2 percent, the S&P 500 was up 1.3 percent and the Nasdaq added 1.8 percent.

The Nasdaq Composite, boosted by a 2.3 percent gain in shares of Oracle Corp (ORCL.O), hit its highest level since December 2007. Oracle shares closed at $29.95.

In the latest signs of improvement in the U.S. economic recovery, data showed consumer sentiment rose more than expected in early December, according to the Thomson Reuters/University of Michigan survey, while import prices in November climbed at their fastest pace in a year.

Another positive signal came from the Commerce Department, which said the U.S. trade deficit narrowed much more than expected in October.

Overseas news helped boost equities, after a slew of data showed China's imports and exports jumped in November, bank lending topped forecasts and property investment powered ahead. China increased reserve requirements for banks but kept interest rates on hold.

GE jumped 3.4 percent to $17.72 after the company said quarterly payments to shareholders will increase by 2 cents to 14 cents per share.

Lifting the S&P health care index (.GSPA), Tenet Healthcare Inc (THC.N) shares jumped 55 percent to $6.65, easily surpassing the $6-per-share bid from Community Health Systems Inc (CYH.N) and likely forcing the potential buyer to raise its offer for the rival hospital company.

Community Health shares rose 13.4 percent to $35.89.

Shares of Netflix Inc (NFLX.O) rose after Standard & Poor's said the company, along with F5 Networks Inc (FFIV.O), Newfield Exploration Co (NFX.N) and Cablevision Systems Corp (CVC.N), will be added to the S&P 500 index after trading closes next Friday.

Netflix added 1.9 percent to $194.63, Cablevision jumped 4.1 percent to $34.72, Newfield gained 3.3 percent to $72.37 and F5 Networks rose 3 percent to $143.09.

About 7.4 billion shares traded on the New York Stock Exchange, the American Stock Exchange and the Nasdaq, below the year's average of 8.62 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of almost 2 to 1, while on the Nasdaq, more than two stocks rose for every one that fell.

(Reporting by Rodrigo Campos; Editing by Jan Paschal)

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LONDON (Reuters) – World stocks edged higher on Friday as investors grew more confident about the prospect for economic recovery following robust U.S. and Chinese data while Treasuries stabilized after a sell-off earlier this week.

Friday's data showed China's imports and exports were much stronger than expected in November, robust numbers that served a reminder that Chinese demand was still growing apace and could pave the way for an interest rate rise as soon as this weekend.

Recent figures suggest the United States and stronger European economies are also picking up steam.

"The Chinese numbers and the performance of the U.S. overnight justify a higher start," Heino Ruland, strategist at Ruland Research in Frankfurt, said.

On Wall Street on Thursday, the benchmark S&P 500 index (.SPX) hit a two-year high with data showing first-time claims for jobless benefits fell more than expected last week.

MSCI world equity index (.MIWD00000PUS) rose 0.1 percent while the FTSEurofirst 300 index (.FTEU3) gained the same amount.

TREASURIES RECOVER

U.S. Treasuries edged up thanks to a strong auction of 30-year bonds that reflected investor appetite. Treasuries sold off heavily earlier in the week on U.S. President Barack Obama's plans to extend low tax rates. However, those plans hit some opposition ahead of a Senate vote next week.

Rising U.S. Treasury yields this week and growing inflation concerns in developing economies -- together with the prospect of tighter Chinese policy -- also encouraged investors to scale back their already overstretched bets on emerging markets.

Emerging stocks (.MSCIEF) lost 0.2 percent, partly on concerns about China's possible measures to tighten the economy.

"Data all suggest that further policy normalization is needed to keep China's economy on an even keel. So far, China has made only modest moves in this direction," RBC said in a note to clients.

"We expect to see more urgency from Beijing in the months ahead as tackling inflation becomes a greater priority, with both rate hikes and currency appreciation likely to be employed."

Ten-year Treasuries were up 8/32 in price to yield 3.185 percent, off a six-month high of 3.330 percent reached on Wednesday.

The sale of $13 billion of reopened 30-year U.S. bonds went through at a yield below the level trading on the open market, indicating investors bid aggressively for the debt, with strong demand particularly from foreign buyers.

The dollar (.DXY) was steady against a basket of major currencies, while the euro was also unchanged at $1.3236.

U.S. crude oil rose a quarter percent to $88.59 a barrel. The bund futures rose 0.2 percent.

(Reporting by Natsuko Waki, editing by Mike Peacock)

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NEW YORK (Reuters) – The December rally may be reaching its climax, with just two weeks to go before Santa Claus makes his midnight run. Dwindling volume, excess optimism, and history all point to a stock market that could be running out of steam.

Investors appear to have grown complacent as the CBOE Volatility Index, or VIX (.VIX), has fallen to levels not seen since April. Stocks have made new highs on almost a daily basis. The S&P 500 (.SPX) closed on Friday at its highest level since September 2008 and the Nasdaq (.IXIC) scored its best finish since late December 2007, with many expecting gains to run through the end of the year.

But Cleveland Rueckert, an analyst at Birinyi Associates in Stamford, Connecticut, believes the year-end rally may be largely done.

"The majority of that gain may already have occurred," he said. "Most people are more likely to be closing out their books at the end of the month and looking for opportunities to open new positions at the start of the next month."

Rueckert said that over the last 65 years, when the S&P 500 has rallied at year's end, the average gain has been 3.4 percent between Thanksgiving and New Year's. So far, the index has risen 3.5 percent since the start of the period.

"A lot of stocks this year have had very big gains and it really wouldn't be surprising to see a lot of the managers close out positions and take some vacation time," he said.

When trading resumes on Monday, that will start the last five-day trading week before Christmas. The following week will be cut short by the holiday. With December 25th falling on Saturday this year, the U.S. stock market will be closed on Friday, December 24th, in observance of the Christmas holiday.

Inflation data for November will dominate next week's economic calendar, with the U.S. Producer Price Index due on Tuesday and the U.S. Consumer Price Index set for Wednesday.

BULLS IN THE EGGNOG

Some see signs of the bulls getting into the eggnog.

The American Association of Individual Investors' latest sentiment survey shows bullish sentiment reached a four-week high. What's more, bullish sentiment has spent 14 weeks above its historical average -- its longest streak in six years.

That is often seen as a contrarian indicator.

This week, the S&P 500 has broken through closely watched resistance levels and has climbed for six of the last eight days to close at fresh two-year highs.

But gains have been accompanied by decreasing participation. Average volume during the last three days of the week was 7.76 billion, well below this year's daily average of 8.62 billion.

"We are entering now the beginning of the seasonal pattern where volume really dries up," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York. "It seems like it's starting a little sooner than usual.

"I don't think we're at any risk of a meaningful sell-off into the end of the year, but I think the basic contours of what the economy looks like are pretty well set," he said.

That sentiment was reflected in the VIX, also known as Wall Street's favorite barometer of investor fear. Although the VIX edged up on Friday, the index has fallen for six of the last nine sessions. It now stands at 17.61 after hitting its lowest since April.

The 15-day moving average of the advance/decline ratio on the New York Stock Exchange, a measure of the proportion of advancing to falling stocks, has started to slip and currently stands at around 1.5. It peaked this year in July at about double that, according to Reuters data.

In addition, the 3-day moving average of stocks making new 52-week highs has also turned lower after a spurt at the start of the month. It now stands at around 125, down from more than 250 at the start of the month.

The breadth and ratios have not been "on board" this rally of late, according to a report from McMillan Analysis Corp. Equity-only put-call ratios remain on "sell" signals, the analysts say.

Chart-minded investors are bullish. The S&P 500 has closed well above 1,228, the 61.8 percent Fibonacci retracement of the 2007-2009 bear market slide, a key technical level.

"When a market surpasses a certain retracement level, then the probability increases of a rise to the next retracement level, which in this case would be a 76.4 percent retracement and that's a ways up at 1,362," said Chris Burba, short-term market technician at Standard & Poor's.

The 1,120 level, the top of a recent trading range, is seen as strong support.

On Friday, the S&P 500 closed at 1,240.40 and was up 1.3 percent for the week. The Dow Jones industrial average (.DJI) ended Friday's session at 11,410.32 and was up just 0.2 percent for the week. The Nasdaq closed on Friday at 2,637.54; for the week, the Nasdaq was up 1.8 percent.

LOOK OUT FOR FED HAWKS

An agreement to extend the Bush-era tax cuts over the next two years has started to seem like less of a done deal. The agreement is expected to be approved by the U.S. Senate on Tuesday, but could face a tougher road to passage in the House.

If the legislation stalls, resulting in higher capital gains and dividend taxes at the start of next year, then U.S. stock prices could fall.

The Federal Reserve's policy-making body, the Federal Open Markets Committee, will convene on Tuesday for its last meeting of the year. The recent clutch of stronger economic data could spark a debate over how far to stretch the central bank's $600 billion stimulus plan, designed to keep interest rate low through bond purchases.

"The hawkish members on the Fed may seize on this cluster of strong numbers and use them to support the argument against" quantitative easing, said Pierre Ellis, senior global economist at Decision Economics in New York.

(Reporting by Edward Krudy; Additional reporting by Caroline Valetkevitch and Doris Frankel; Editing by Jan Paschal)

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By Rachelle Younglai and Jonathan Spicer Rachelle Younglai And Jonathan Spicer – Wed?Dec?8, 7:04?pm?ET

WASHINGTON/NEW YORK (Reuters) – Securities regulators are probing whether traders have intentionally exacerbated volatility or unlawfully exploited the deeply fragmented stock markets, Securities and Exchange Commission Chairman Mary Schapiro said on Wednesday.

A lack of surveillance across the 50 some trading venues, and between the mostly electronic stock, futures and options markets was a clear focus at a congressional hearing into how to avoid a repeat of the May 6 "flash crash."

Since the unprecedented market plunge, the SEC and the Commodity Futures Trading Commission have been under intense pressure to bolster the integrity of the markets now seen by many as flawed and unstable.

SEC enforcement staff are investigating whether market participants "intentionally contributed to market volatility or manipulated the price and volume of securities at the expense of innocent investors," Schapiro told a congressional panel.

Schapiro said her staff was examining trading practices such as "spoofing," which includes when a trader submits many bids and offers with no intention of carrying them out.

The flash crash reverberated across asset classes, rocked investor confidence in the vast trading network and has prompted lawmakers to demand fixes to the markets.

At the hearing, Senator Carl Levin dropped a stack of paper measuring "five inches high" that he said contained the message and trading traffic across all exchanges in one major U.S. stock "over the course of one second."

"There is a long, long way to go particularly with respect to coordinating market protections and surveillance across market venues and across the futures, options, and equities markets," said Levin, who along with fellow Democratic Senator Jack Reed, chaired Wednesday's hearing.

Levin said that coordinated protections across asset classes "isn't even on the drawing board," adding: "It took the CFTC and the SEC five months of intense work to figure out what happened over a few minutes on May 6."

The SEC is painfully aware that it cannot see the entire marketplace or easily collect data from the dozens of trading venues.

The regulator has proposed to improve market surveillance by tracking stock orders across all U.S. equity markets -- a plan generally supported by market participants.

Kevin Cronin, the global head of equity trading at Invesco, told lawmakers that regulators need to be able to analyze the data. Tradeworx CEO Manoj Narang agreed that regulators needed better analytical tools.

"Regulators need to see markets in the same way its most active participants see it," said Narang, whose hedge fund runs high frequency trading strategies.

NOT JUST THEORY

Schapiro and CFTC Chairman Gary Gensler are looking for potential remedies for the markets, where high-frequency algorithmic traders are increasingly dominant.

A report by their agencies found that a large trade by a single trader helped send the Dow Jones industrial average down nearly 700 points on May 6 in minutes before recovering.

Had there been safeguards in place and coordinated rules across the bevy of trading venues, some companies might not have seen their stocks temporarily lose nearly all their value in seconds and investors may not have been stuck on the wrong side of the trade.

The SEC, which in 2009 had already started reviewing and pondering new rules for the marketplace, was forced prematurely into action by the flash crash and adopted the temporary circuit breaker program in June.

"As you know our market structure review is not a theoretical exercise," Schapiro told the senators.

Regulators are struggling to catch up to today's marketplace while at the same time creating a new regulatory framework for the nearly $600 trillion over-the-counter derivatives market.

The SEC and CFTC must implement dozens of rules that would force private swap contracts onto transparent trading venues and through clearinghouses.

Earlier on Wednesday, major U.S. exchanges including the New York Stock Exchange and the Nasdaq Stock Market proposed extending by four months the temporary circuit breaker program, which pauses trading in a volatile stocks and was due to expire on Friday.

The SEC is expected to approve the petition. An extension would give the SEC more time to develop its new solution that involves slowing trading during sharp swings, instead of halting trades.

Exchanges would also get more time to implement the SEC's new flash crash remedy known as limit up/limit down.

The SEC has tried to clarify when and at what prices exchange operators such as NYSE Euronext would have to cancel erroneous trades. It also eliminated so-called stub quotes, or quotes priced well off the public price of a stock.

Schapiro said on Wednesday that additional remedy -- to create a consolidated record of all trading -- would cost "dramatically" less to implement, and take less time, than initially thought.

(Reporting by Jonathan Spicer and Rachelle Younglai; Editing by Tim Dobbyn, Bernard Orr)

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NEW YORK (Reuters) – The Securities and Exchange Commission charged a Maryland business consultant and his uncle with insider trading, saying they used codes from the 1987 movie Wall Street to try to hide their scheme.

Baltimore-based consultant Brett A. Cohen received coded e-mails from a fraternity brother about two biotechnology companies and passed the information to an uncle, David V. Myers, of Cleveland, Ohio who traded on the tip, the SEC said.

The fraternity brother, who was not named, received the information from his brother, a patent agent for San Diego-based Sequenom Inc(SQNM.O), a maker of genetic analysis products, the SEC said.

In one of the e-mails sent to Cohen, the patent agent's brother asked if there was any word related to "Blu H@rsesh0e," the SEC said. In the movie Wall Street, "Blue Horseshoe loves Anacot Steel" was a code phrase used by actor Charlie Sheen to pass along an insider tip.

Attorneys for Cohen and Myers did not immediately respond to calls seeking comment.

Myers had garnered more than $600,000 in profits trading on the inside information, the SEC said.

In a parallel proceeding, the U.S. Attorney for the Southern District of California filed criminal charges against Cohen and Myers.

According to the SEC's complaint, the patent agent passed along nonpublic information about Sequenom's plans in January 2009 to acquire Exact Sciences Corp(EXAS.O).

Myers bought 35,000 shares of Exact Sciences before the acquisition was announced on January 9, 2009, the SEC said.

The news sent Exact Sciences' stock up 50 percent, allowing Myers to pocket illegal profits by selling most of the stock over the next few weeks, the SEC said.

The patent agent also passed on tips ahead of Sequenom's April 29, 2009 announcement that investors could no longer rely on previous data about its Down syndrome test, the SEC said.

Myers bought Sequenom put options just before the announcement, which caused a 75 percent drop in the company's stock, according to the SEC complaint.

Myers later sold that entire position for illegal profits of more than $570,000, the SEC said.

(Reporting by Dena Aubin; Editing by Ted Kerr)

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NEW YORK (Reuters) – Steady economic improvement should fuel U.S. stock gains through 2011, according to a Reuters poll of investors and strategists, but international concerns could limit gains in the second half of the year.

Median forecasts from 50 respondents surveyed over the past week showed the Standard & Poor's 500 index (.SPX) rising to 1,285 by end of the first half of 2011, an improved outlook from a September survey, which had a target of 1,250.

"There are a number of powerful tailwinds supporting higher stock prices, including an accommodative Fed, a potentially more business and investor-friendly Washington, and a strong M&A cycle," said Jonathan Golub, chief U.S. equity strategist at UBS.

The S&P has surged over 20 percent from a low reached in July, lifted by expanded monetary policies from the Federal Reserve, the mid-term elections and improved economic data.

The poll was conducted before President Barack Obama approved a plan to extend tax cuts for all Americans, which boosted European and U.S. stocks while hitting benchmark Treasury bonds.

Europe's sovereign debt woes and China's attempts to curb inflation contributed to recent weakness, though clarity on a bailout for Ireland has partially eliminated that headwind.

Many analysts expect Europe's woes to hurt markets in 2011, and cite that as a reason why gains are expected to slow in the second half of the year.

Based on the S&P's Tuesday close of 1,223.75, the mid-year target represents gains of about 5 percent. Analysts expect the index to end the year at 1,325, a more moderate increase than the first half of the year.

"The issues in Europe won't just disappear overnight; they'll take a year just to stabilize and could blow up on us at any moment," said JJ Kinahan, chief derivatives officer at TD Ameritrade in Chicago, who has a year-end target of 1,275.

He added that there was a fear that interest rates could begin moving up partway into 2011.

The spread of the forecasts for mid-year 2011 was 400 points, in a range of 1,040 to 1,440. Compared to last quarter's poll estimates, which had a range of 500 points, the latest survey suggests less uncertainty.

For the Dow Jones Industrial Average (.DJI), the median estimate for the middle of the year is 12,050 among 23 respondents, which would translate into a gain of about 6 percent from Tuesday's close of 11,359.16. The new target is higher than the 11,620 forecast in the September survey.

The year-end target for the Dow is 12,105 in another signal that investors are feeling guarded about the second half of next year.

Andrew Wilkinson, senior market analyst at Interactive Brokers in Greenwich, Connecticut, said he expects the recovery to continue. But he added: "a lot has been baked into the market and analysts will start reining in their expectations. Growth will be modest and unemployment will remain high."

(Additional reporting by Rodrigo Campos, Edward Krudy, Charles Mikolajczak, Angela Moon, Leah Schnurr and Caroline Valetkevitch. Additional polling by the Bangalore Polling Unit; Editing by Jon Loades-Carter)

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