Markets subdued as weak US open weighs on trading

LONDON — Markets have started the week on a steady note with any optimism generated by Japanese election results fading away following a downbeat U.S. housing survey and softer-than-anticipated earnings from McDonald's.

The week had got off to a solid start, particularly in Asia, after election results in Japan gave the country's ruling coalition a majority in parliament's upper house and an apparent mandate to push ahead economic reforms.

Preliminary results from Sunday's election showed the coalition led by Shinzo Abe won a majority in the upper house.

Japan's stagnant economy is showing signs of perking up, helped by the aggressive monetary and fiscal stimulus — two of the so-called Three Arrows that Abe has let loose since he took office in late December. Stocks have surged, business confidence is improving and the weaker yen has eased pressure on exporters.

Long-term growth requires another "arrow" — measures to boost competitiveness and cope with Japan's rapidly aging population and soaring national debt.

"The win will now allow him to push on with implementing his third and final arrow, in his attempt to revive the Japanese economy which has stagnated for the last two decades," said Craig Erlam, market analyst at Alpari.

As the third-largest economy in the world, that's a potential boon for the region and that helped Asian shares post solid gains — Tokyo's Nikkei 225 gained 0.5 percent to 14,658.04.

That modest optimism carried through into the European trading session for a while before lackluster trading on Wall Street took root.

In Europe, the FTSE 100 index of leading British shares was down 0.1 percent at 6,623 while Germany's DAX was barely changed on the day, down 0.01 percent to 8,331. The CAC-40 in France was 0.4 percent higher at 3,939.

In the U.S., the Dow Jones industrial average was up 0.06 percent at 15,554 while the broader S&P 500 index was up 0.2 percent to 1,695.

A surprising fall in U.S. existing home sales in June to a seasonally adjusted annual rate of 5.08 million kept investor sentiment on Wall Street in check. A smaller than anticipated 4 percent rise in second-quarter earnings at McDonald's also weighed on trading.

Earnings from a raft of companies around the world will be closely monitored this week. Nearly a third of the S&P report this week and there's also a number of European companies due to announce their results.

Investors are also keeping a watch on developments in Portugal after the country's president accepted a compromise reached by the coalition government that allows it to stay in power, defusing a crisis that had roiled financial markets.

The yield on the country's benchmark 10-year bond — a gauge of investor sentiment — fell 0.45 percentage point to 6.28 percent.

Portugal has been relying on a financial bailout from its euro partners and the International Monetary Fund for over two years now and the prospect of the government collapsing over a disagreement over austerity had weighed on recent sentiment.

Earlier in Asia, China's benchmark Shanghai Composite Index added 0.6 percent to 2,004.76 despite concerns over the scale of the country's economic slowdown. Hong Kong's Hang Seng rose 0.2 percent to 21,356.03.

In the currency markets, the dollar was under pressure after recent strength that sent it above 100 yen. It was down 1 percent to 99.56 yen while the euro rose 0.4 percent to $1.3196.

Oil prices tracked equities downward through the day, with the benchmark New York rate down 52 cents at $107.35 a barrel.

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How the world will learn about royal baby's birth

LONDON — Now that Kate is in the hospital, what can royal baby watchers expect next? How do royal fans find out when the infant has arrived?

The short answer: Ignore all rumors on social media until there is an official announcement from Buckingham Palace. Unless you are Queen Elizabeth II or a senior member of the royal family, you will have to rely on a small piece of paper to get confirmed news that the baby is born.

Protocol requires that the queen be informed about the birth before the general public is told.

Following a time-honored royal tradition, the world will first read about the birth from a small bulletin posted in front of Buckingham Palace. It was the exact way officials announced the birth of Prince Charles in 1948 and Prince William in 1982, though this time around the monarchy has moved with the times and added social media as an easier way to reach more people.

According to officials, the process will go something like this:

— Once the baby is born, doctors will sign a foolscap-size document, with the palace letterhead, giving the baby's gender and time of birth. It will be terse and formal — the language is dictated by protocol — and will read something like "The Duchess of Cambridge was safely delivered of a prince / princess." It may also provide the infant's weight. Foolscap is a traditional British paper size — rarely used nowadays — that is taller but slightly narrower than either A4 or U.S. letter size.

— A royal aide will give this bulletin to an official, whose task is to carry the news from the hospital to the palace. It's going to be a suspenseful short journey, about 15 minutes, and the drive will almost certainly be broadcast live to millions of television viewers worldwide.

— Once at the palace, the official will post the bulletin on a wooden easel placed in the frontcourt for the public to see.

— At the same time, the monarchy's official Twitter and Facebook accounts will announce the news online.

The method of announcement has survived remarkably intact throughout the years, with only a few minor points of difference — for example, the bulletin used to be posted on the black railings outside the palace, not on an easel.

The biggest difference, of course, is the presence of online social media for the first time in the history of royal births. Twitter and Facebook have replaced cables and radio announcements, which mean that the new royal baby will be the first to own a hashtag — and the first to receive thousands of instant blessings and well wishes from around the world.

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Near-record home sales dip slightly amid mortgage rate hikes

Monthly existing home sales in the U.S. dropped in June, but sales remain far above where they were a year ago and near a three-and-a-half year high, the National Association of Realtors said today.

Despite the dip, sales were still up 15.2 percent from last year.

Lawrence Yun, NAR chief economist, said the housing outlook still remains positive.

"Affordability conditions remain favorable in most of the country, and we're still dealing with a large pent-up demand," he said.

The NAR said rising mortgage rates slowed sales of higher-priced homes, especially in high-cost areas like California and New York

Mortgage rates are the highest since October 2011, the NAR said.

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EU clears Baxter's $2.76 billion bid for Gambro

BERLIN — The European Union's antitrust authority has cleared U.S. pharmaceutical company Baxter's proposed $2.76 billion takeover bid of Sweden's dialysis products firm Gambro.

The European Commission said Monday the acquisition can go ahead on condition that Baxter divest its renal replacement therapy, which serves patients suffering from acute kidney failure.

The Commission, the 28-nation bloc's antitrust watchdog, said Baxter's commitment to selling that business line has appeased concerns the takeover would stifle competition in the segment.

Gambro AB makes dialysis products for patients with acute or chronic kidney disease and it has annual sales of about $1.6 billion.

Baxter International Inc., based in Deerfield, Illinois, proposed to buy the privately held Swedish firm in December.

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Theft trial opens for ex-chairman of Pequot tribe

NEW HAVEN, Conn. — A prosecutor says a former chairman of the tribe that owns Connecticut's Foxwoods Resort Casino improperly charged more than $100,000 to a tribe-issued credit card.

A federal theft trial opened Monday for Michael Thomas, who was chairman of the Mashantucket Pequot Tribal Nation from 2003 to 2009.

Prosecutor Christopher Mattei said Thomas was in financial distress when he used the card for limousine rides to doctor's appointments for his mother and personal expenses such as television and satellite radio services.

Defense attorney Paul Thomas, who is not related to his client, says the jury will have to decide whether the credit card usage was permissible or not.

Thomas has pleaded not guilty to theft from an Indian tribal organization and theft concerning an Indian tribal government receiving federal funds.

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Six Flags shares edge down as probe continues

NEW YORK — Six Flags shares are down slightly as the company continues to investigate a fatality at one of its parks.

A woman died Friday while riding the Texas Giant roller coaster at the company's park in Arlington, Texas. The 14-story ride, which remains closed, is touted as the tallest steel-hybrid roller coaster in the world.

Six Flags CEO James Reid-Anderson says the company won't release any further information until its investigation is complete.

Six Flags also said Monday that its second-quarter net income dropped 34 percent, pulled down by a steep increase in income tax expense and lower park attendance stemming from bad weather. Its results fell short of Wall Street predictions.

In midday trading, shares of Grand Prairie, Texas-based Six Flags Entertainment Corp. are down 42 cents to $35.43.

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McDonald's predicts tough year despite new items

NEW YORK — McDonald's is mixing up its menu with healthier, fresher sounding items such as its chicken McWraps but not enough customers are biting.

The world's biggest hamburger chain on Monday reported a second-quarter profit that rose 4 percent but fell short of Wall Street expectations. It also said July sales are expected to be relatively flat and warned of a tough year ahead, given the heightened competition and rough economic conditions around the world.

"We don't have as much pricing power," said CEO Don Thompson, noting that the company wouldn't be able to easily charge more for its food without the risk of scaring off customers.

The company's stock fell 2.8 percent, or $2.76, at $97.53. Over the past year, its stock is up 13 percent.

The company, which has more than 34,000 locations worldwide, says global sales edged up 1 percent at restaurants open at least a year. The figure rose by the same amount in the U.S., where McDonald's has been touting its Dollar Menu while also trying to adapt to changing eating habits with items such as its veggie-filled chicken wraps and egg-white breakfast sandwiches.

But the small sales bump in the U.S. wasn't enough to offset the higher advertising and promotional costs for those new items, as well as the reduced efficiency in restaurants. Operating margin declined slightly as a result.

"We threw a lot of new products at restaurants this quarter," Chief Financial Officer Pete Bensen said in a call with analysts. "So our efficiency per crew hour was down a little bit."

The tepid sales growth for the quarter ended June 30 reflects the challenges facing McDonald's Corp., which for years had been a standout in the fast-food industry. Part of the problem is that economic conditions remain weak in many regions of the world, with the company repeatedly noting that people are being more careful about eating out. That's true in Europe and the region encompassing Asia, the Middle East and Africa, the company said, with both posting slight declines in sales at restaurants open at least a year.

But another challenge for McDonald's is the growing number of chains that offer quick, better quality food at higher prices, including Chipotle, Noodles & Company, Panera Bread and others. Those chains are reshaping expectations when people go out to eat.

Traditional fast-food chains have taken note and are scrambling to keep pace. Wendy's, which reports its results Tuesday, is in the process of renovating its restaurants to be more inviting and modern. Its new burgers are positioned as premium, and the chain has been making tweaks such as introducing natural-cut French fries and softening the edges of its famously square burgers so they don't look so processed.

Even KFC, which is owned by Yum Brands Inc., is opening a test restaurant that has a more upscale design and menu next month. To raise its own image, McDonald's has been revamping its restaurants with a sleeker design as well. It's also making tweaks to existing items, such as replacing the bacon in its wraps and burgers with a thicker, applewood-smoked variety.

But whether Thompson, who took over last summer, will be able to keep McDonald's image up to date as it struggles though the tough economic climate remains to be seen. In the previous quarter, McDonald's reported its first global quarterly sales decline at restaurants open at least a year.

On Monday, the company trimmed its estimate for new restaurant openings to reduce its capital expenditures. It now expects to open between 1,500 and 1,550 net new locations globally, down from its previous forecast of 1,500 to 1,600.

Despite the challenges, Thompson repeatedly expressed confidence that McDonald's would be able to grow over the long term.

"One thing we've never done at McDonald's, we don't cry or whine about market conditions" he said.

For the latest quarter, the Oak Brook, Ill.-based company said sales were down 0.1 percent in Europe. Results in Germany and France dragged down its stronger performance in the United Kingdom and Russia.

In Asia, the Middle East and Africa, sales also dipped 0.3 percent, as its three biggest markets — China, Australia and Japan — saw declines.

For the quarter, the company earned $1.4 billion, or $1.38 per share. That's up from $1.35 billion, or $1.32 per share, a year ago.

Earnings were short of the $1.40 analysts expected.

Revenue rose to $7.08 billion, in line with expectations, according to FactSet.

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Follow Candice Choi at www.twitter.com/candicechoi

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Yahoo to buy 40M shares from Loeb, he exits board

SUNNYVALE, Calif. — Activist investor Dan Loeb and two other directors nominated by his hedge fund are leaving Yahoo's board after big gains in the Internet company's stock price over the past year.

Yahoo is also buying back 40 million shares of its common stock from Third Point LLC, Loeb's hedge fund. That cuts Loeb's stake in Yahoo from 5.8 percent to less than 2 percent.

Loeb instigated the departure of former Yahoo CEO Scott Thompson in 2012 by revealing that Thompson did not have a computer science degree, as Yahoo had previously stated. He left that May as Loeb and his two allies were named to Yahoo's board. Longtime Google executive Marissa Mayer became CEO two months later.

The stock had risen about 85 percent since then on stock repurchases and earnings growth stemming from its stake in Chinese Internet company Alibaba. Shares dropped 3.4 percent Monday afternoon.

Yahoo is spending $1.16 billion to buy Third Point's stock. It's paying $29.11 per share, Friday's closing price. It will pay cash.

Yahoo said it will have about $700 million remaining under an existing $5 billion buyback announced last year. The Sunnyvale, Calif., company said it plans to continue making repurchases under that plan.

Loeb's allies, turnaround specialist Harry Wilson and former MTV executive Michael Wolf, will also be leaving Yahoo's board, which will then have seven directors. PayPal co-founder Max Levchin, who was named a board member upon mutual agreement between the board and Third Point, will continue in his post. Yahoo said that the remaining directors will take a look at the board's size and composition. It did not say when, or if, any other board changes would be made.

Shares of Yahoo fell $1 to $28.11 Monday. Shares hit a 5-year high of $29.83 on Thursday. The company on Tuesday reported that its second-quarter profit rose 46 percent to $331 million, while net revenue declined 1 percent to $1.07 billion. Yahoo is losing ground to rivals Google Inc. and Facebook Inc. in the online advertising market that generates most of their revenue.

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UK seeks automatic blocks on online porn

LONDON — Internet service providers in Britain will be asked to automatically block access to pornography sites unless customers opt in, Prime Minister David Cameron announced Monday.

Cameron announced the move as part of measures to stop extreme sexual images he said were "corroding childhood." Critics, however, said the measures were at best hard to implement and at worst a form of censorship.

In a speech to a children's charity, Cameron said that "family-friendly" filters would become the default setting for new customers by the end of the year, and only account-holders would be able to change them.

He also announced a proposal to make it a crime to possess violent pornography containing simulated rape scenes, and said Google and other search engines would be asked to block searches based on certain phrases.

Anti-pornography activists welcomed the announcement,

"This isn't about censorship or restricting freedom, it's simply about protecting children whilst allowing adults to do as they choose within the law," said Peter Wanless, chief executive officer of the National Society for the Prevention of Cruelty to Children.

Cameron said it was not entirely clear how the measures would work, but service providers should be able to come up with solutions.

"If there are technical obstacles to acting on this, don't just stand by and say nothing can be done; use your great brains to overcome them," he said.

"You're the people who have worked out how to map almost every inch of the earth from space, who have algorithms that make sense of vast quantities of information. You're the people who take pride in doing what they say can't be done."

But Padraig Reidy of free-speech group Index on Censorship said the proposals amounted to "a kind of default censorship."

"If a filter is set up as a default then it can really restrict what people can see legitimately," he told BBC radio. "Sites about sexual health, about sexuality and so on, will get caught up in the same filters as pornography. It will really restrict people's experience on the web, including children's."

Columnist Nick Cohen, of the Spectator magazine, said recent disclosures about government snooping should make people wary of giving companies and authorities personal information — such as a desire to view pornography.

"The expansion of legislation prohibiting pornographic images may sound equally reasonable until you remember it gives more powers to police and prosecutors," he wrote. "The record shows they cannot be trusted to use them justly."

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House GOP to slash environmental, arts funding

WASHINGTON — House Republicans are proposing slashing cuts to environmental programs and funding for the Smithsonian Institution and the arts as they unveil the latest legislation to implement the second year of budget cuts required under so-called sequestration.

The $24 billion spending measure guts the budget of the Environmental Protection Agency with a one-third cut and cuts the National Endowments for the Arts by almost half. Overall, the measure funding the Interior Department, EPA, national parks and federal firefighting efforts is cut by 19 percent below funding approved in March.

The bill reflects trade-offs made when making further cuts to domestic programs to restore opposed cuts to defense. It is sure to be slapped with a White House veto threat and is really just a placeholder until negotiations this fall.

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