Financial thoughts

Stocks rallied Thursday, with the major indexes flirting with 2009 highs, after Dow component Alcoa posted better-than-expected earnings and a report showed an unexpected drop in jobless claims.

The Dow Jones industrial average (INDU) rose 61 points, or 0.6%. The S&P 500 (SPX) index gained 8 points, or 0.8%, and the Nasdaq composite (COMP) climbed 14 points, or 0.6%.

Stocks ended mixed Wednesday as the previous two-day rally lost steam. Dow component Alcoa (AA, Fortune 500)’s after-the-bell announcement helped revive investors Thursday, starting off the financial reporting period on a positive note.

Stocks steadily moved higher as the session wore on, with the Dow briefly posting triple-digit gains, as 21 of 30 components rose.

"I think the market is clearly moving on expectations of better-than-expected earnings," said Tom Hepner, financial adviser at Ruggie Wealth Management. "But I’m just not sure we’re going to see that. There are still plenty of reasons to think that the market has gotten ahead of the recovery."

A weak dollar, along with rising oil and gold prices, gave a lift to dollar-sensitive multi-nationals such as Dow components 3M (MMM, Fortune 500), GE (GE, Fortune 500) and Johnson & Johnson (JNJ, Fortune 500). The oil rise lifted Chevron (CVX, Fortune 500), Exxon Mobil (XOM, Fortune 500) and other commodity names.

Gold closed at a record $1,056.30 an ounce and hit an electronic trading high of $1,062.70 during the day Thursday.

Market breadth was positive. On the New York Stock Exchange, winners beat losers by nearly three to one on volume of 1.28 billion shares. On the Nasdaq, advancers topped decliners five to four on volume of 2.42 billion shares.

Results: Third-quarter S&P 500 earnings as a whole are expected to decline more than 20% from a year ago, with materials, energy and industrials leading the decline. That means S&P 500 earnings will have slumped for nine straight quarters, the longest streak since earnings tracker Thomson began calculating the numbers.

But separate from the big picture, Wall Streeters are looking to see if individual companies are starting to see any earnings growth, beyond the impact of cost-cutting overnight pay day loans. In the second quarter, more than 70% of companies reported results that topped estimates, due to reducing costs. But few market-moving companies reported sales growth or revenue that topped estimates.

Cost-cutting is expected to continue to drive results this quarter, but topline growth could be improving at least in some sectors, if Alcoa is an indication.

The aluminum maker reported quarterly earnings and revenue that dropped from a year ago, but handily beat estimates. Shares rallied in extended-hours trading and also gained 2% Thursday.

Economy: Around 521,000 Americans filed new claims for unemployment last week versus forecasts for 540,000, the Labor Department reported. The number was the lowest in more than 9 months. Around 554,000 Americans filed unemployment claims in the previous week.

Continuing claims, a measure of those who have been receiving benefits for a week or more, fell to 6.040 million from 6.112 million the previous week.

The Commerce Department said wholesale inventories fell 1.3% in August versus forecasts for a drop of 1%. Inventories fell 1.6% in the previous month.

World markets: Global markets rallied. In Europe, London’s FTSE 100 gained 0.9%, while France’s CAC 40 and Germany’s DAX both gained 1.3%. Asian markets ended higher.

Currency and commodities: The dollar fell versus the euro and yen, extending its recent slide against a basket of currencies.

U.S. light crude oil for November delivery rose $2.12 to settle at $71.69 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery rose $11.90 to settle at a record $1,056.30 an ounce, the third straight record high for the precious metal.

Bonds: Treasury prices tumbled, raising the yield on the 10-year note to 3.24% from 3.18% late Wednesday. Treasury prices and yields move in opposite directions.  

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Let’s try this again.

When Group of 20 leaders meet in Pittsburgh this week, they will call for a coordinated global effort to tighten financial regulation to prevent future financial collapse.

That sounds a lot like the same thing they said at the previous two meetings they convened over the past year in April and last November.

"We’ll discuss some of the steps that are required to safeguard our global financial system and close gaps in regulation around the world — gaps that permitted the kinds of reckless risk-taking and irresponsibility that led to the crisis," President Obama said last week.

Leaders will probably walk away from the Pittsburgh summit with a general agreement on at least two priorities: Requiring banks to build stronger safety nets for their balance sheets and getting tougher on executive pay in order to curb risky practices. They may even set some deadlines — as in next year or several years from now.

"There’s little more you can expect from a meeting like this," said Benn Steill, director of International Economics at the Council of Foreign Relations. "Even I’d be a little uncomfortable with them trying to do more, because we’re a ways away from a consensus domestically on what the numbers should be."

European concern at pace of change

A White House senior adviser, speaking to reporters last week, defended G-20 progress on global regulatory reforms. For one thing, nations have been focused on the more immediate task of stabilizing their economies.

"If you asked people then what they thought the situation would be in September, they probably thought it would be worse than it is now," said Michael Froman, deputy national security adviser for international economic affairs.

Froman also stressed that just getting all the nations to agree on regulatory reform principles is an accomplishment.

"We should not necessarily underestimate what the significance of countries coming together and saying, ‘Given the lessons of this crisis, here are the policies we agree to pursue going forward, some of which require adjustment in our approach to our economic policy,’ " Froman said. "That’s a fairly significant innovation in international cooperation."

However, some European officials are worried about what they see as a lack of progress.

A group of regulators and academics called the European Shadow Financial Regulatory Committee sent the G-20 a letter this week warning that proposals on the table "are not likely to substantially reduce the likelihood of future crises."

"We are concerned that not enough has been done," said Harald Benink, a banking professor at Tilburg University in the Netherlands who chairs the group.

What will they do?

Earlier this month, U.S. Treasury Secretary Tim Geithner lobbied G-20 finance ministers to endorse a key reform effort: Requiring bigger capital cushions at financial firms. Such reserves can protect banks against losses and are considered important for preventing another financial crisis.

The idea is among those at the top of the list for the Pittsburgh meeting.

While nations agree about the need for boosting reserves, the debate will likely center around how best to do it. The more controversial question of how big capital reserves should be is not expected to be decided.

The United States would prefer to pass its own capital rules and have other countries follow suit, said Eswar Prasad, an international economist at Cornell University. The Europeans would prefer a multi-national process with all nations work together, more or less, as equals.

"The Europeans want to be very involved in developing those standards, so they’re not going to be as enthusiastic as they might be," Prasad said.

The more high-profile regulatory proposal will be over executive pay — and how to tackle it.

The French, among others, have been calling for global caps on executive pay, but the Obama administration isn’t budging on that issue.

"I think the president has been pretty clear that he supports a robust approach to executive compensation, but has been reluctant to sort of set individual compensation levels," Froman said.

International experts say they don’t expect the G-20 to endorse pay caps. Instead, the leaders are likely to give a nod to a set of principles that would encourage countries to decouple bonuses from risky behavior, while adding more disclosure of pay to regulators or shareholders.

Morris Goldstein of the Peterson Institute for International Economics said that the G-20 could create a compromise that satisfies all members by linking executive pay issues to stronger capital requirements. If financial firms are forced to increase capital requirements, it means they’ll have fewer profits, and less available for bonuses linked to profits.

Experts also say that the G-20 will also talk about the need for coordinated regulation of some of the kinds of complex financial products that were sold by Lehman Brothers and AIG (AIG, Fortune 500). However, the countries are not likely to reach agreement on how to do it.

Finally, experts believe the Pittsburgh meeting will feature discussion of broad, tricky issues of rebalancing different G-20 member economies.

The United States wants China to spend more and depend less on exports, and other nations want the United States to quit living on debt. But the meeting is not expected to produce a concrete plan for rejiggering the imbalances. 

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U.S. import prices spiked 2% in August as the cost of oil rose, the Labor Department said on Friday.

The increase, twice what analysts polled by Reuters had expected, was the fifth rise in the last six months. It followed a July drop of 0.7%.

Excluding petroleum, import prices increased a much milder 0.4% in August after falling 0.3% in July. Petroleum prices were up 10.5% and fuel import costs were up 9.8% — both the sixth increases in the past seven months.

Overall import prices dropped 15% from August 2008, and non-petroleum imports were down 6.5%.

Exports prices rose 0.7% in August, compared to falling 0.3% in July. Exports, excluding agricultural goods, rose 0.8%, the largest increase since July 2008. 

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Export-focused Italian jewelers are looking at emerging markets to help lift sales hammered by the global economic crisis.

Italy, the world’s leading jewelry exporter, is expected to see jewelry sales at home and abroad fall 20-30 percent lower this year but they may bottom out in 2010.

“We need to go where consumers are: Brazil, Russia, India, China, Mexico, Middle East where economies will recover quicker than in Europe and the United States,” said Massimo Carraro, chief executive of jeweler and watch maker Morellato & Sector.

Morellato & Sector, which makes about 50 percent of sales abroad, already sells “accessible luxury” items in China and India and plans to expand in Brazil, the Middle East and Russia, Carraro said at a trade fair.

Limited exposure to the U.S. market has helped his group to outperform peers this year when Morellato & Sector expects its sales to fall 5 percent or even be stable on 2008, he said.

Exports of Italian jewelry to the key U.S. market plunged nearly 40 percent in the first four months of this year, while exports to the United Arab Emirates — which in 2008 replaced the United States as the biggest by-value market for Italian jewelry — fell 12 percent, according to industry data.

Italy used to sell about a quarter of its output in the United States. But its share of the world’s biggest jewelry market has shrunk in the past few years due to competition from China, India and Turkey.

Some Italian jewelers have decided to focus elsewhere free online credit report.

Consumers have warmed to Italian jewelry in Latin America, a potentially big market previously overlooked by the sector, said Domenico Girardi, general manager of the Vicenza fair, organizers of the international jewelry fair.

Upmarket jeweler Picchiotti’s deputy chairman Filippo Picchiotti said Russia, Ukraine, Kazakhstan and Azerbaijan have replaced the United States as its main export market.

But the U.S. market would retain its key role for the Italian jewelry sector and it was hoped to stage a recovery next year, Girardi told reporters at the fair.

There has been a “muted and fragile” pick up in demand from U.S. jewelry consumers, especially for Italian pieces, Maurice Golderberg, a wholesale buyer, told Reuters.

“MORE ACCESSIBLE” SILVER

Roberto Coin, designer of bespoke diamond and gold jewelry with a lion’s share of sales coming from the United States, said he was prepared to see an about a 20 percent fall in U.S. revenue this year but sales volumes should remain stable.

“We have made more accessible products … and we have kept our clientele in these difficult times,” said Coin who this year launched an “anti-crisis” Capri Plus collection which offers pieces of identical design made with materials ranging from gold to silver to ebony and from diamonds to semi-precious stones. 

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California sent out its last IOU on Thursday. The "lucky" recipient: Yellow Cab Co. of Sacramento, the oldest and largest taxi company in California’s capital city.

Yellow Cab’s historic warrant was for $41.60, covering a trip taken by a California Department of Fish and Game worker. The IOU hasn’t yet arrived in Yellow Cab’s office, but when it does, it will have plenty of company. In the two months that California relied on warrants to pay its bills, Yellow Cab collected 62 of them, totaling $16,435.68.

"It hurts with cash flow, but it hasn’t hurt that much," Yellow Cab President Fred Pleines Jr. said of his growing IOU collection. "If it went on for a long time, it would be a problem, but $16,000 — that’s livable."

Yellow Cab has been through this before with California and its perennial budget woes. Founded in 1917 and owned by the Pleines family since 1951, Yellow Cab received a stack of IOUs from California in the early ’90s, the last time the state’s cash coffers ran dry.

California began issuing IOUs on July 2 to cover some of its payments due to individuals and businesses. The vouchers carried an initial redemption date of Oct. 2, but the state controller moved that date forward to Sept. 4 after California lawmakers reached a budget agreement. Those holding IOUs can begin redeeming them on Friday.

Each IOU carries a 3.75% annual interest rate. The state issued 449,241 warrants, totaling $2.6 billion. If every one is cashed, the interest payments will total $9.68 million.

State Controller John Chiang said California owes "a debt of gratitude" to the individuals and businesses that "were forced to bear the brunt of the State’s chronic fiscal mismanagement." The end of California’s IOU program doesn’t mark the end of its budget crisis: The state needs to borrow $10.5 billion to meet its cash needs for the next year.

"I urge the Governor and Legislature to continue their efforts to fix the State’s structural budget deficit and ensure we are never again forced to issue IOUs or delay payments to California families and small businesses," Chiang said in a written statement payday loans with no fax.

Yellow Cab is still holding most of the IOUs it was sent. Its bank, U.S. Bank (USB, Fortune 500), stopped accepting warrants in mid-July. Yellow Cab cashed in some before the deadline, but it’s been stuck with the rest, waiting for California to start its redemptions.

"’We’ve got them stored up," Pleines said.

Yellow Cab is a family-owned business with 30 employees and 70 drivers. Pleines, who took over as the company’s president when his father retired 20 years ago, has been involved in the business since he was a toddler. The recession has taken its toll this year: Fewer people are catching cabs, and Pleines says he’d welcome the chance to do more work for California — despite the state’s problems paying its bills.

"It takes a little while to get paid, but cab drivers love it," he said. "It’s a nice, safe passenger and an easy trip."

California’s landmark final IOU has historic value, but Pleines says he doesn’t plan to souvenir the voucher — or sell it off on eBay (EBAY, Fortune 500).

"It will be cashed in," he said. "We can use the money, and Laura and Nancy in our accounts receivable want their account balanced and paid in full."

Have you suffered a setback because of the economy? What are you doing to overcome it and get back on track? If you’ve been confronted with some challenge during this recession but are fighting back, send an email to realstories@cnnmoney.com and you could be profiled in an upcoming segment on CNN. For the CNNMoney.com Comment Policy, click here.  

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Initial construction of U.S. homes edged lower in July following a surge in the previous month, according to government figures released Tuesday.

The report had some modest indications of stabilization. "A mixed bag this time around," said Mike Larson, real estate and interest rate analyst at Weiss Research, in a research note.

Housing starts fell to a seasonally adjusted annual rate of 581,000, down 1% from a revised 587,000 in June, the Commerce Department said.

Economists were expecting housing starts to increase to an annual rate of 599,000 units, according to a consensus estimate gathered by Briefing.com.

The recession has cut deeply into consumer demand and access to financing. Housing starts for July were 37.7% lower than the July 2008 rate of 933,000.

Meanwhile, applications for building permits, an indication of future construction activity, dipped 1.8% to a seasonally adjusted annual rate of 560,000 in July. Economists were looking for the forward-looking measure to increase to an annual rate of 577,000 units.

Building permits were 39.4% below the July 2008 rate of 924,000.

"Construction activity remains low, historically speaking," said Larson. "But evidence continues to mount that the worst of the declines for this cycle are behind us low cost car insurance."

Single-family strength: One indication of strength was single-family housing starts, considered the core of the housing market, which managed to gain 1.7% in July after rising sharply the previous month. Single-family building permits rose 5.8% in July.

As the single-family segment showed signs of improvement, however, the multi-family segment continued to get hit hard, pulling topline numbers lower.

Going forward, Larson predicts the construction market will continue to struggle because of the oversupply of foreclosed properties available at bargain basement prices.

"Buyers still have plenty of homes to choose from, and distressed and foreclosed properties will continue to flood the market well into 2010," said Larson.

Regionally, the Midwest was the only part of the country with an increase in the rate of new homes being constructed, posting a 12.9% gain from June.

The Northeast suffered the most severe pullback, with housing starts down 16.3%. Starts dipped 1.4% in the South and 1.6% in the West. 

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Dealers who have been muscled out at Chrysler Group and General Motors are trying to get Congress to force the automakers to take them back.

The push by the dealers to reverse the cuts has garnered strong bipartisan support, especially from powerful Democratic leaders Financial Service Committee Chairman Barney Frank and House Majority Leader Steny Hoyer.

The measure, which restores franchise rights that were stripped out as part of the bankruptcy process, was attached as an amendment to an appropriations bill to fund a variety of federal regulators, including the Securities and Exchange Commission. It is expected to easily pass the House Thursday.

It faces more opposition in the Senate, where Senate Majority Leader Harry Reid said earlier this week the measure is not a priority and that he was satisfied with the decision to have the automakers use bankruptcy to shed dealers.

"When you have a bankruptcy, there are winners and losers. That’s what happened. And there were some losers. It’s unfortunate, but that’s the way the bankruptcy courts operate," he said.

But Reid’s spokesperson backed away from those comments Thursday, saying that the majority leader was speaking off the cuff.

Even some of the measure’s supporters acknowledge that many of the dealers being cut are unlikely to stay in business for much longer or restart their businesses.

The Chrysler Group dealers cut during the bankruptcy process were forced to stop selling Chrysler, Dodge and Jeeps in June while virtually all GM dealers being cut lose will be phased out by between January and September 2010.

"I think a number of them can be reopened, but it’s not the goal of them to have them all reopen," said Rep. Rep. Steven LaTourette, the Ohio Republican who inserted the dealer language into the appropriations bill.

But if the franchise rights are restored, the automakers would have to spend millions of dollars to buyout the dealerships it wants to cut. When GM dropped the Oldsmobile brand at the start of the decade, for example, it spent about $1 billion to do so — most of it in payments to dealerships.

Dealers and their supporters argue that larger dealership networks do not cost the automakers any money, and that it can actually increase their sales. They say it is unfair for state franchise laws, which protected their investment in the dealerships, to be thrown out in the bankruptcy process.

They also argue that at a time of rising job losses, it doesn’t make sense to force dealerships to close, throwing more people out of work. The average dealership has about 50 employees, meaning the closing of 2,000 dealership could cost more than 100,000 jobs nationwide.

The dealers are well positioned to fight the battle in Congress. They are found in each congressional district, and many are successful business owners that have been supporting members of Congress since they first ran for for local elected office. Their influence in the Senate is generally acknowledged to be somewhat less than in the House, though payday loans guaranteed no fax.

The automakers and most auto industry experts argue that GM and Chrysler were hurt by a bloated dealership network that is a remnant of years gone by when they both had a much larger share of U.S. vehicle sales.

They say cutting the dealerships allows the surviving dealers to sell and service more vehicles, making them more profitable in a way that allows them to spend money on the advertising and their facilities needed to attract sales.

"If this legislation is enacted, it would put our viability at serious risk," said Greg Martin, spokesman for GM’s Washington office. "Having the right number of dealers in the right location is essential to our ability to compete."

The Obama administration, which pushed the automakers to make even deeper cuts in dealer networks than they originally proposed, is fighting the dealers’ efforts in Congress.

"The decision to invest taxpayer dollars into these companies required all stakeholders to make difficult sacrifices, and it would set a dangerous precedent, potentially raising legal concerns, to intervene into a closed Judicial bankruptcy proceeding on behalf of one particular group at this point," the administration said in a statement Wednesday.

The two automakers are also doing what they can to fight the dealers’ efforts in Congress.

GM CEO Fritz Henderson was on a conference call with the Michigan delegation Wednesday evening, during which he was pushed by some of the company’s greatest defenders in Congress to reach a deal with dealers to try to make them drop the legislative effort.

Some of the leading proponents of the measure in Congress say they also hope that the automakers can come up with a compromise solution to satisfy dealers and make the legislation unnecessary.

"Legislation is a hammer. I would prefer not to use a hammer," said LaTourette. "I’d rather use a scalpel. Let [the automakers] come in and work this thing out."

But a spokesman for the National Automobile Dealers Association said his group, which flooded Capitol Hill with more than 200 dealers visiting members of Congress earlier this week, said his group is committed to passing some form of the legislation to restore their rights.

"We are not interested in making a deal," said NADA’s Bailey Wood. "There is an immense amount of support and it is growing on a daily basis. There is absolutely no reason we need to make a deal."

Even if the language is stripped out of the appropriation bill when it goes to the Senate, a stand-alone version of the bill has been co-sponsored by more than half of the House members and 24 senators so far. NADA is pushing to bring more than two-thirds of the House on as co-sponsors to prove they have the votes to override a veto. 

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Financial difficulties at commercial lender CIT Group Inc could hurt small businesses that depend on credit to fund their growth and operations, though many of CIT’s units serve an important function and are unlikely to disappear if the company restructures in bankruptcy court.

The company, which lends to small- and medium-sized businesses, is scrambling to devise a plan to assure clients and investors it can work its way out of a deepening liquidity crunch, the Wall Street Journal reported on Sunday.

On Saturday, the paper reported that CIT was preparing for a possible bankruptcy filing.

A CIT spokesman declined to comment on Sunday.

CIT said on Friday it is in active talks with the U.S. government to gain access to a key lending program, but there is no guarantee the Federal Deposit Insurance Corp FDIC will allow CIT to join the Temporary Liquidity Guarantee Program.

The government has made it clear that a possible bankruptcy by CIT is not seen as a systemic risk to the financial system, the Wall Street Journal reported, since other lenders including JPMorgan Chase & Co or Deutsche Bank AG can take on many of the same loans in which CIT specializes.

“I don’t think it (a possible bankruptcy) would have a wide impact. We’re not talking about a systemic issue,” said on Sunday a restructuring adviser with extensive experience working with companies in the financing sector. The adviser declined to be named due to the sensitivity of the topic.

A U.S. Treasury Department spokesman declined to comment on Saturday when asked if the administration might consider coming to CIT’s aid.

If the company does restructure its operations in bankruptcy court, some clients could suffer, though its most important units will survive payday loans with no fax.

“CIT has been an important provider of credit to not only retailers and retail suppliers, but a vast array of businesses for over 100 years,” said Scott Avila, a partner for corporate restructuring adviser CRG Partners, which is not doing business with CIT. “So whatever restructuring they go through, I expect CIT or some portion of CIT to continue in the future.”

In particular, CIT’s factoring business is vital to the retail industry and unlikely to disappear.

Factors buy the right to collect on the invoice of a retailer or other company at a discount to the value of the invoice. Then the factor assumes the risk that the invoice will not be paid.

Still, there could be some pain to the company’s smallest clients in the retail industry.

“It’s a difficult lending environment, and those small retailers that have seen sales slow to a minimum already may have a hard time securing lending sources until spending picks up,” said Melinda Crump, a spokeswoman for Sageworks Inc, which tracks and collates the financials of thousands of privately held U.S. companies, in an email.

Businesses that require substantial working capital depend on credit. Changes in financing options could force small businesses into tough choices such as having to fund a portion of their growth from cash flow until other sources of lending were to become available, she said. 

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Apple Inc chief executive Steve Jobs underwent a liver transplant at a Tennessee hospital and has “an excellent prognosis,” the hospital that performed the operation confirmed on Tuesday.

Jobs, 54, received the transplant because he was “the sickest patient on the waiting list at the time a donor organ became available,” the Methodist University Hospital Transplant Institute said in a statement on its Website.

“Mr. Jobs is now recovering well and has an excellent prognosis,” the statement said. James Eason, program director at the institute and the hospital’s chief of transplantation, added that the confirmation had come with Jobs’s permission.

The hospital did not release details of Job’s condition or when the operation was performed, but the Wall Street Journal reported over the weekend that the transplant took place about two months ago.

Hospital spokeswoman Ruth Ann Hale did not immediately respond to a request for comment on Jobs’ condition. A prognosis refers to a doctor’s prediction regarding the probable course of a disease, disorder or injury.

Apple shares have often fluctuated on speculation about Jobs’ health. The executive, considered by many investors to be the driving force behind Apple’s reputation for innovation, was treated in 2004 for a rare form of pancreatic cancer called an islet-cell, or neuroendocrine, tumor.

But he appeared gaunt at an Apple event in the summer of 2008, setting off a storm of speculation about his health that failed to abate in the ensuing months affordable health insurance in connecticut.

In January, after initially blaming his weight loss on a hormone imbalance, he announced his medical leave, saying his health issues were “more complex” than originally thought.

He has not been heard from since, though a Reuters witness spotted Jobs at Apple’s campus in Cupertino, California, on Monday and Jobs was quoted in a company press release.

The company would not say whether Jobs is off medical leave and back at work. Apple has said repeatedly that it looks forward to his return at the end of June.

A FULL LIFE

Jobs is viewed as the key visionary driving the company’s product development and the mastermind behind iconic products such as the iPod and the iPhone.

But analysts say Wall Street has become much more comfortable with other key executives in Jobs’s absence.

Apple shares have surged around 60 percent this year, despite falling 10 percent following Jobs announcement of medical leave.

Methodist’s confirmation comes as some newspaper and Internet reports speculated on whether Jobs waited his turn for a transplant. 

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NEW YORK (CNNMoney health insurance quotes.com) — The dollar rallied against the euro, as a credit downgrade for Ireland pushed the euro lower, and was mixed against other major currencies.

Early on Monday, credit-rating agency Standard & Poor’s downgraded Ireland’s credit rating to AA from AA-plus — its second cut in three months.

S&P’s statement said Ireland’s credit outlook remained negative, noting the nation’s suffering banking system.

The euro was down 0.5% against the dollar, at $1.3899, after reaching as low as $1.3806 earlier in the session.

The rating cut helped the greenback extend Friday’s gains, coming off a report that job losses slowed dramatically in May. Employers cut 345,000 jobs from their payrolls in the month, down from the revised decline of 504,000 jobs in April. Economists surveyed by had forecast a loss of 520,000 jobs.

The report sparked speculation the U.S. Federal Reserve may lift interest rates early next year, in turn pushing bond yields higher Monday.

An increase in yields tends to lead to higher demand for bonds, boosting the greenback because U.S. assets must be purchased in dollars.

But Jessica Hoverson of MF Global warned "the economic recovery theory has already been priced into the market," although the jobs data were better than expected.

"The unemployment rate was 9.4%," she observed in a research note. "Though the pace of job loss is slowing, there is no hiring activity."

With so much government intervention and consumers still struggling, residual uncertainty "will likely prolong high levels of unemployment," weighing on the dollar, she wrote.

The British pound gained on the dollar, up 0.5% by the end of the session, to trade at $1.6053.

The dollar edged down 0.1% against the Japanese yen, buying ¥98.53 near the end of the session. Both currencies are considered safe havens in an uncertain economy. 

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