Market Dispatches4/4/2008 1:00 PM ET

A bleak jobs report

Nonfarm payrolls fall even more than expected in March but markets shrug off the bad news. A former UBS boss wants the company to break up. Apple tops Wal-Mart in U.S. music sales. San Francisco Fed President Yellen expects weak economic growth this year.

By Charley Blaine and Elizabeth Strott
Stocks were shrugging off some more disappointing news about the employment picture in the U.S.

March nonfarm payrolls fell by 80,000, the Labor Department reported this morning, the worst monthly jobs loss since March 2003. The February jobs number was revised to a loss of 76,000 from an originally reported loss of 63,000.

Analysts had expected a loss of 50,000 jobs in March, although estimates ranged broadly -- from a loss of 15,000 to a loss of 150,000 jobs.

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Stocks didn't seem too fazed by the disappointing report, turning higher this afternoon. At 1 p.m. ET, the Dow Jones Industrial Average was up 51 points to 12,677. The Nasdaq Composite Index had added 23 points to 2,386, and the Standard & Poor's 500 Index was up 10 points to 1,379. Light, sweet crude oil rose $1.56 to $105.39 a barrel this afternoon. Gold was up 30 cents to $909.90 to $911.70 an ounce.

Reaction to the report was mixed.

"I think the market is reacting differently to what otherwise would be negative news, and I think that is a clear sign that we're getting close to a bottom," Art Hogan, chief market strategist at Jefferies & Co., told CNBC.

Another observer was more pessimistic. "The revisions are the real surprise in the report," said John Silvia, chief economist for Wachovia, to CNNMoney.com. "If we had known it was anything like that, there would not have been any debate going on about whether we were in a recession. It's pretty stark."

Video: Inside the jobs report

The unemployment rate rose slightly to 5.1% from 4.8% in February. Average hourly earnings rose 0.3% last month. On a year-over-year basis, average hourly earnings rose 3.6%.

Gains in the government, mining and food-services sectors were offset by losses in manufacturing, construction and services.

On Thursday, the Labor Department's weekly report showed an unexpected rise in jobless claims for the week ending March 29. Claims rose by 38,000 to 407,000, the highest level since September 2005, just after Hurricane Katrina.

Earlier this week, the ADP March jobs report showed a surprising 8,000 gain in private-sector nonfarm payrolls.

Former UBS exec wants a breakup
Swiss banking giant UBS AG (UBS, news, msgs) is under pressure again today. The bank, which has struggled recently with massive write-downs related to the subprime-mortgage mess and a fourth-quarter loss, is now dealing with the wrath of former president Luqman Arnold. Arnold is pushing for a breakup of the bank.

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Arnold, who is currently chairman of investment firm Olivant, wrote a letter to UBS vice chairman Sergio Marchionne on Thursday requesting talks. Olivant owns a 0.7% stake in UBS. "We are not convinced that the 'one bank' integrated business model that has served UBS well in the past will survive the damage inflicted by the proprietary trading losses and write-downs. Nor are we sure that it will meet with the support of clients and staff," Arnold's letter stated.

Earlier this week, UBS said it will write down $19 billion in the first quarter because of bad mortgage bets; the bank also said it was raising $15 billion to shore up its capital position. Marcel Ospel will also be leaving his position as chairman of UBS this month because of the subprime fallout.

Arnold joined UBS in 1996 and was president of the bank's group executive board in April 2001; he left later that year. UBS was created in 1997 as a merger between Swiss Bank and Union Bank of Switzerland.

Shares of the bank were up $1.47 cents, or 4.5%, to $33.96 at midday; the stock has lost more than 50% over the past year.

Citi to write down more?
Another bank is in hot water today.

Citigroup (C, news, msgs) will write down another $8.5 billion in the first quarter, JPMorgan Chase (JPM, news, msgs) analyst Vivek Juneja wrote in a note to clients this morning. "Rising credit losses, further sizeable loan loss reserve build and additional write-downs should continue to weigh on Citi's earnings," Juneja wrote.

Late payments hit 16-year high

Citigroup, like UBS, has been struggling with losses because of the subprime debacle, frustrating shareholders and forcing CEO Chuck Prince to leave his post earlier this year.

Shares of Citigroup fell 15 cents to $24.21 in midday trading; the stock has plunged 50% in the past 12 months.

Banking deal on the way?
There may be another bank interested in troubled National City (NCC, news, msgs).

Fifth Third Bancorp (FITB, news, msgs) is reportedly considering making an offer for National City after the Midwestern bank on Tuesday said it had hired Goldman Sachs (GS, news, msgs) to explore strategic alternatives.

"While we never comment on potential mergers, we have consistently said that we are focused on strategic opportunities for in-market consolidation," a Fifth Third spokesman said in a statement, according to The Wall Street Journal.

National City has been a potential takeover target since reporting a fourth-quarter loss because of investments in the subprime-mortgage market. Shares of National City have slumped 40% since the beginning of the year. The stock dipped 27 cents, or 2.8%, to $9.52 in midday trading after jumping 6.2% in trading on Thursday.

KeyCorp (KEY, news, msgs) is also mulling a bid for National City, reports say.

Investor group bails on Delphi
In another sign of the credit crunch, Appaloosa Management this morning said it terminated its deal to invest $2.55 billion in auto supplier Delphi.

In a termination letter filed with the Securities and Exchange Commission, Appaloosa said that Delphi violated terms of the deal. Appaloosa is asking for an $82.5 million breakup fee.

Delphi has been taking steps to exit bankruptcy protection. Delphi used to be a part of General Motors (GM, news, msgs) and continues to be GM's biggest supplier. Shares of GM fell 89 cents, or 4.1%, to $20.70 in afternoon trading.

Apple now No. 1 music seller
Apple (AAPL, news, msgs) is on top again. The maker of the iPod and the iPhone has become the No. 1 music retailer in the U.S., topping Wal-Mart Stores (WMT, news, msgs), according to NPD Group's MusicWatch survey. And Apple is not taking its time: In February, the same survey showed that Apple had knocked Target (TGT, news, msgs) out of the No. 2 position.

Analysis: Apple No. 1 again

Apple has benefited from its iTunes music store, which was launched in April 2003. Apple has since sold more than 4 billion songs. In contrast, the number of album sales fell 15% in 2007 to 500.5 million, according to data from Nielsen Soundscan.

In related news, News Corp.'s (NWS, news, msgs) online social-networking site, MySpace.com, is getting deeper into the music fray. MySpace late Thursday announced partnerships with Warner Music Group (WMG, news, msgs), Vivendi's Universal Music Group and Sony BMG Music Entertainment to offer free music, video streaming and ticket sales to its users in an effort to boost revenue.

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"Music has always been one of the cornerstones of MySpace," MySpace CEO Chris DeWolfe said in an interview with Adweek. "It's always been something that drives pop culture, and MySpace is a reflection of pop culture."

The venture will also be a potential rival to Apple's iTunes. "It's good news to both the industry and the customers that there's some potentially viable competition to the iTunes store," said David Card, an analyst with JupiterResearch, to Bloomberg News. "The question is, can they turn on enough revenue models to keep all the partner companies happy?"

MySpace's music site has 30 million users, according to DeWolfe.

Yellen expects 'sluggish' 2008
The economy isn't going to pick up

this year, according to Federal Reserve Bank of San Francisco President Janet Yellen.

Yellen spoke about the economy to the Stanford Institute for Economic Policy Research late Thursday.

Video: It's all about timing

"The economy is still likely to turn in a sluggish performance for the year as a whole," Yellen said. Inflation continues to be a concern for the Federal Reserve, but Yellen expects inflation to "moderate from present levels" over the next few years.

Yellen also talked about how the slowing economy is affecting consumers. "With respect to consumer spending, a long list of factors can be expected to have a depressing effect going forward. With house prices falling, homeowners' total wealth is declining. At the same time, the fall in house prices has lowered the value of mortgage equity," Yellen said.

But all is not gloom and doom, Yellen said. The Fed "has eased the stance of monetary policy substantially in the past six months, and the fiscal-stimulus package signed into law recently is well timed . . . Both of these actions can be expected to boost growth in coming quarters."

Yellen does not vote at Federal Open Market Committee meetings, but she is perceived to be in tune with Fed chief Ben Bernanke and his opinions about the economy.

Microsoft, Yahoo talk
Microsoft (MSFT, news, msgs) and Yahoo (YHOO, news, msgs) held talks this week, but no developments came from the discussions, The Wall Street Journal reported.

It was the second meeting between the two tech giants in the past few weeks.

Microsoft has not made any move to increase its $31-per-share offer for Yahoo, which it first made on Feb. 1. Yahoo rejected that bid as too low several days later. The value of the deal has dropped, however, as Microsoft shares have fallen since the offer was made. The original $44.6 billion deal is now worth about $42 billion. (Microsoft is the publisher of MSN Money.)

A Journal report earlier this week said that Microsoft would not raise its bid, citing people close to the deal. Microsoft is waiting it out, hoping the weakening economy will force Yahoo to accept its bid, the paper wrote.

Shares of Microsoft were down 11 cents to $28.89 per share in midday trading; Yahoo shares fell 25 cents to $27.88.

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