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Wall Street closed mixed Friday after playing out a now familiar scenario: Upbeat sentiment about falling oil prices flagged amid ongoing concerns about weak credit markets and the economy. The major indexes also turned in a mixed performance after another volatile week.

Investors were encouraged early in the session as oil’s pullback lifted the outlook for consumer companies and eased concerns that record-high energy prices would force Americans to curb spending. Light, sweet crude dropped $1.24 to settle at $113.77 a barrel on the New York Mercantile Exchange, and earlier traded as low as $111.34, its lowest level in more than three months.

Oil fell on a growing sense that economies around the world are joining the U.S. in a slowdown. The rising dollar, which is gaining strength on economic concerns, contributed to the sell-off in crude and other commodities. Crude is down more than $35 from its July 11 record of $147.27; meanwhile, gold prices that swept past $1,000 an ounce earlier this year are now below $800.

While the decline in oil was placating investors this week, it still did not offset their ever-present anxiety over the slumping housing and credit markets. Concerns about more write-downs at investment banks continued, causing major market indexes to fluctuate over the course of the week; the Dow Jones industrials continued a volatile streak, dropping more than 100 points two days in a row amid intensifying fears about the health of the financial sector.

“With some of this sharp price collapse in commodities you would think the market would be up a lot more,” said Greg Church, chief investment officer of Church Capital Management. “The underlying factor is that credit continues to appear to be very weak.”

The Dow rose 43.97, or 0.38 percent, to 11,659.90.

Broader indexes were narrowly mixed. The Standard & Poor’s 500 index rose 5.26, or 0.41 percent, to 1,298.20, while the Nasdaq composite index fell 1.15, or 0.05 percent, to 2,452.52.

Volume remained extremely light, exaggerating moves in the major indexes. On the New York Stock Exchange, advancing issues were relatively even with decliners; consolidated volume came to 3.99 billion, about even with Thursday.

For the week, the Dow finished down 0.63 percent and the S&P 500 rose a modest 0.15 percent. The tech-focused Nasdaq, however, logged its fifth-straight weekly gain by finishing up 1.59 percent; it has risen 8.5 percent since mid-July.

The market has been trying to sort through a number of different factors, including the price of oil and other commodities, ongoing concerns about the state of the credit markets and varying economic data. Investors seem to be grabbing on to any piece of news that might signal a turnaround for the economy.

The Nasdaq’s performance this week indicates that investors are rotating back into technology stocks. However, the market has had little motivation to move into other sectors — and analysts said many traders are simply buying into the dips.

The uncertainty in the market has increased demand for the safety of government debt, which rose modestly Friday. In late trading, the yield on the benchmark 10-year Treasury note, which moves opposite its price, slid to 3.84 percent from 3.90 percent late Thursday.

The dollar rose against other major currencies, contributing to Friday’s pullback in oil and other commodities.

The day brought somewhat disappointing news about consumers. The University of Michigan reported a slightly smaller-than-expected rise in consumer sentiment in early August compared with July, evidence that the consumer remains under pressure.

Moreover, earnings outlooks from retailers J.C. Penney Co. and Abercrombie & Fitch Co. on Friday came in below forecasts.

“At the beginning of this year, earnings expectations started to drop precipitously, and the stock market dropped with them,” said Scott Bleier, founder of market advisory service CreateCapital.com. “Those expectations got built into the stock market and to an excess. A lot of stocks discounted all of the bad news that was out there.”

New York Attorney General Andrew Cuomo said Friday he plans to take legal action against Merrill Lynch & Co. as part of an ongoing investigation into the failure of the auction-rate securities market. Wachovia Corp., meanwhile, became the fifth bank in recent weeks to agree to repurchase billions of the investments as part of a settlement with regulators.

Merrill Lynch shares rose 4 cents to $26.33. Wachovia fell 24 cents, or 2.5 percent, to $15.57.

Airline stocks rose on the drop in oil. AMR Corp., the parent company of American Airlines, gained 46 cents, or 4.1 percent, to $11.74. However, shares of major oil companies declined, with ConocoPhillips down $1.71, or 2.1 percent, at $77.66.

The Russell 2000 index, which tracks small-cap stocks, fell 1.01, or 0.13 percent, to 753.37.

Overseas, Japan’s Nikkei stock average rose 0.48 percent. Britain’s FTSE 100 fell 0.66 percent, Germany’s DAX index rose 0.06 percent, and France’s CAC-40 rose 0.60 percent.

The Dow Jones industrial average ended the week down 74.42, or 0.63 percent, at 11,659.90. The Standard & Poor’s 500 index finished up 1.88, or 0.15 percent, at 1,298.20. The Nasdaq composite index ended the week up 38.42, or 1.59 percent, at 2,452.52.

The Russell 2000 index finished the week up 19.07, or 2.60 percent, at 753.37.

The Dow Jones Wilshire 5000 Composite Index — a free-float weighted index that measures 5,000 U.S. based companies — ended Friday at 13,271.88, up 74.75 points, or 0.57 percent, for the week. A year ago, the index was at 14,531.52.

The Los Angeles Times is getting a new publisher.
The paper’s Web site says Eddy Hartenstein — the former head of DirecTV — will assume the post on Monday.

He’ll be taking over at a newspaper that has cut hundreds of positions as it struggles with falling circulation and declining ad revenues.

The former publisher, David Hiller, resigned last month on the same day that Chicago-based Tribune Co., which owns the Times, began implementing more staff cutbacks.

Hartenstein, who has no newspaper publishing experience, will be the Times’ fourth publisher since Tribune acquired it in 2000.

Hartenstein was chairman and CEO of DirecTV from 2001 to 2004.

New York Attorney General Andrew Cuomo said Friday he sent a letter to Merrill Lynch & Co. notifying the investment bank that his office will file suit against it imminently as part of an investigation into the collapse of the auction-rate securities market.

“We have been trying to resolve the matter,” with Merrill, Cuomo said during a conference call with reporters. Cuomo said he has not been able to reach a satisfactory agreement with the bank.

The letter sent to Merrill, which was given to reporters by Cuomo’s office, is similar to one Citigroup Inc. received before settling with the attorney general. Cuomo is one of several regulators investigating whether financial companies misled investors in the auction-rate securities market; officials from several other states and the Securities and Exchange Commission have also been involved in negotiations with the big banks.

Merrill said in a statement it was surprised to receive a letter about potential legal action, noting it has held discussions with regulators since it announced a voluntary repurchase plan.

“We anticipated further talks,” Merrill said in the statement.

The expected lawsuit comes a week after Merrill said it would voluntarily repurchase auction-rate securities from customers. Merrill said it would buy back securities between Jan. 15, 2009 and Jan. 15, 2010. The bank said the repurchase plan would likely affect 30,000 clients holdings about $10 billion in the securities.

The attorney general’s office called the bank’s voluntary buyback plan “woefully inadequate,” according to the letter sent to Merrill. The letter said the attorney general is still open to reaching a settlement with Merrill, assuming the bank meets similar provisions agreed upon by other banks reaching settlements.

Cuomo said his office is investigating about 25 financial firms that were involved in selling the securities. The investigation includes Goldman Sachs Group Inc. and other underwriters of the securities as well as retail brokers, Cuomo said.

“We’ve had discussions with them,” Cuomo said of Goldman Sachs. Cuomo’s office has targeted the financial firms with the largest portfolios of auction-rate securities because settlements with those companies will affect the most customers.

Earlier Friday, Wachovia Corp. became the fifth bank to settle as part of the investigation; Wachovia agreed to buy back $8.5 billion of the securities at face value from investors. The Charlotte, N.C.-based bank will also pay $50 million in fines to be distributed among states. The fines will be distributed to states based on the amount of securities sold to investors in each state.

Over the past eight days, Citigroup, UBS AG, JPMorgan Chase & Co. and Morgan Stanley agreed to repurchase a combined $32.6 billion in auction-rate securities and will pay fines totaling $310 million.

Nearly 150,000 customers have been affected by the five settlements.

The auction-rate securities market involved investors buying and selling instruments that resembled corporate debt, except the interest rates were reset at regular auctions, some as frequently as once a week. A number of companies and retail clients invested in the securities because they could treat their holdings almost like cash.

The bond-like investments were widely held by many institutional and individual investors and were seen as highly liquid, money market-like investments. However the market for them collapsed in February amid the downturn in the broader credit markets.

Regulators have been investigating the collapse in the market to determine who was responsible for its demise and whether banks knowingly misrepresented the safety of the securities when selling them to investors.

Like the other banks that have reached agreements with regulators, Wachovia will buy back all auction-rate securities from retail customers, charities and small businesses. It will buy back those securities by Nov. 28. Wachovia will also reimburse customers who sold securities at a loss after the market collapsed in February.

Wachovia will also repurchase securities from institutional shareholders by the end of June 2009. Wachovia neither acknowledged or denied any wrongdoing as part of the settlement.

These settlements come amid a time when banks have reported billions of dollars in losses from other investments because of deterioration in credit markets.

Banks have been forced to cut the value of mortgage-backed securities and other investments by more than $300 billion over the past year and added billions of additional dollars to reserves to cover likely loan losses.

Those losses have forced some banks to raise new capital to shore up their balance sheets.

Losses from the auction-rate securities are likely to be smaller than those from mortgage-backed securities.

UBS said it will take a charge of about $900 million on a pretax basis — including its $150 million fine — to buy back $18.6 billion in auction-rate securities.

Citigroup said it will take a pretax charge of about $500 million because of its settlement to repurchase $7 billion in the securities.

Russian forces built ramparts around tanks and posted sentries on a hill in central Georgia on Saturday, digging in despite Western pressure for Moscow to withdraw its forces under a cease-fire deal signed by Russian President Dmitry Medvedev.

The United States and France said it appeared Russia was defying the truce already. Russian troops still controlled two Georgian cities and the key east-west highway between them Saturday, cities well outside the breakaway provinces where earlier fighting was focused.

“From my point of view — and I am in contact with the French — the Russians are perhaps already not honoring their word,” U.S. Secretary of State Condoleezza Rice said.

Russia’s foreign minister, Sergey Lavrov, said Medvedev had signed the cease-fire deal and ordered its implementation, but would not withdraw troops until Moscow is satisfied that security measures allowed under the agreement are effective. He said Russia would strengthen its peacekeeping contingent in South Ossetia, the separatist Georgian region at the center of more than a week of warfare that sharply soured relations between Moscow and the West.

Asked how much time it would take, he responded: “As much as is needed.”

President Bush warned Russia Saturday that it cannot lay claim to the two separatist regions in U.S.-backed Georgia even though their sympathies lie with Moscow. “There is no room for debate on this matter,” the president, with Rice, told reporters at his Texas ranch.

Later Saturday, Georgia’s Foreign Ministry accused Russian army units and separatist fighters in one of the regions, Abkhazia, of taking over 13 villages and the Inguri hydropower plant, shifting the border of the Black sea province toward the Inguri River.

Abkhaz officials could not immediately be reached for comment on the late-night claim, and there was no information on whether the seizure involved violence.

The villages and plant are in a U.N.-established buffer zone on Abkhazia’s edge, and it appeared that the separatists were bolstering their control over the zone after Russian-backed fighters forced Georgians out of their last stronghold in Abkhazia earlier this week.

The tense peace pact in Georgia, a U.S. ally that has emerged as a proxy for conflict between an emboldened Russia and the West, calls for both Russian and Georgian forces to pull back to positions they held before fighting erupted Aug. 7 in the other breakaway province, South Ossetia in central Georgia.

But freshly dug positions of Russian armor in the town of Igoeti, about 30 miles west of the capital Tbilisi, showed that Russia was observing the truce at the pace and scope of its choosing.

Rice noted that the text of the cease-fire agreement, negotiated by French President Nicolas Sarkozy, the current leader of the European Union, outlined a very limited mandate only for Russian peacekeepers who were in Georgia at the time hostilities escalated. She said the agreement specifies that these initial peacekeepers can have limited patrols in a prescribed area within the conflict zone and would not be allowed to go into Georgian urban areas or tie up a cross-country highway.

According to Rice, Medvedev told Sarkozy that the minute the Georgian president signed the cease-fire agreement, Russian forces would begin to withdraw.

Sarkozy said Saturday that the truce explicitly bars Russian troops from Gori or “any major urban area” of Georgia.

Earlier Saturday, Russian forces dug shallow foxholes in the middle of Igoeti and parked tanks, one flying a Russian flag, along the road. In the afternoon, they withdrew from those positions to the town’s western outskirts. There, they set up defensive positions with tank cannons pointed back toward Georgian-held territory, where police and soldiers milled about, awaiting Russia’s next move.

West of Igoeti, Russian troops were deployed in large numbers in and around the strategic city of Gori, which endured an intense Russian bombardment during the fighting that began when Georgia attacked its breakaway region of South Ossetia. Military vehicles on the side of the road were camouflaged with branches; a couple of soldiers slept on stretchers in the shade of the hulking machines.

Russian troops effectively control the main artery running through the western half of Georgia, because they surround the strategic central city of Gori and the city and air base of Senaki in the west. Both cities sit on the main east-west highway that slices through two Georgian mountain ranges.

Controlling Senaki, which sits on a key intersection, also means the Russians control access to the Black Sea port city of Poti and the road north to Abkhazia. AP reporters have seen Russian troops there for days but noted a growing contingent Saturday and artillery guns and tanks pointed out from the city, which they appear to be using as a base for their sorties elsewhere in western Georgia.

An Associated Press Television News team saw Russian soldiers pulling out of the Black Sea port of Poti Saturday after sinking Georgian naval vessels and ransacking the port. A picture of Georgian President Mikhail Saakashvili in the looted office of the Navy and Coast Guard had been vandalized, with the face scratched out.

“They have robbed the military base and taken almost everything, and they have burned or sunk the stuff they could not carry,” port worker Zurab Simonia said.

Lavrov was not specific about the security measures planned, but suggested they would be limited mostly to South Ossetia, not Georgia proper. He accused Georgia of undermining security, citing the Russian military’s claim that it had averted an attack on a highway tunnel by stopping a car laden with grenade launchers and ammunition.

“We are constantly encountering problems from the Georgian side, and everything will depend on how effectively and quickly these problems are resolved,” he said.

Georgia, meanwhile, claimed that Russian forces blew up a railroad bridge Saturday. Russia denied it.

The rival claims underscored the fragility of the cease-fire. Lavrov said the deal Saakashvili signed Friday differed from the one with Medvedev’s signature, with Saakashvili’s version lacking an introductory preamble. While that difference may appear to be a technicality, it could be one either side could cite if it wants to abandon the deal.

The conflict erupted after Georgia launched a massive barrage to try to take control of South Ossetia. The Russian army quickly overwhelmed its neighbor’s forces and drove deep into Georgia, raising fears that it was planning on a long-term occupation.

Even if Russian forces do withdraw from the rest of Georgia, Moscow appears likely to maintain strong control over South Ossetia. Lavrov said Thursday that Georgia can “forget about” South Ossetia and Abkhazia, which broke from Georgian government control in early 1990s wars, and their future status is shaping up as a potentially explosive source of tension.

In Texas, Bush said, “A major issue is Russia’s contention that the regions of South Ossetia and Abkhazia may not be a part of Georgia’s future. These regions are a part of Georgia and the international community has repeatedly made clear that they will remain so.”

Russia views the growing relationship between the U.S. and Georgia as an encroachment on its traditional sphere of influence and a threat to its clout. The fighting came amid U.S. efforts to close a deal on a missile shield based in former Soviet satellites in Europe, an issue already damaging ties with its former Cold War foe.

The dollar extended its rally on Friday, hitting a nearly 2-year high against the pound and gaining further against the euro, amid troubling signs about the global economy.
The dollar has soared against a number of currencies over the past month, most notably the euro. The 15-nation currency slid to $1.4713 in New York from $1.4803 late Thursday. It has fallen more than 13 cents from its high of $1.6038 set on July 15.

The British currency retreated to its lowest level since October 2006, sinking to $1.8629 from $1.8685 the previous session.

The dollar also climbed against the Japanese yen, rising to ¥110.49 from ¥109.77 late Thursday.

The dollar’s newfound strength had a ripple effect across commodity markets as well, as the price of gold and oil declined in Friday trading.

The dollar has climbed in recent weeks as the economic outlook outside the United States has worsened.

Figures published by the European Union Thursday revealed that the eurozone economy contracted by 0.2% in the April-June period, raising recession fears.

Earlier this week, the United Kingdom said unemployment is on the rise and inflation will continue to soar to 5%. As a result, the government hinted that interest rates may have to be lowered to prevent the country from entering a recession.

The European Central Bank and Bank of England both decided to hold interest rates steady last week to support economic growth, instead of raising them to combat inflation. And the latest figures suggest that rate cuts could be coming sooner rather than later.

At the same time, the annual inflation rate in the U.S. surged to 5.6% in July - its highest in 17 years. Rising inflation could prompt the Federal Reserve to start raising rates interest rates.

A combination of rate cuts in Europe and a rate hike by the Fed could help strengthen the dollar further. Rate hikes in the U.S. usually boost the dollar since higher rates increase returns on dollar-based assets.

Some analysts have recently speculated that the dollar rally could have some legs. In a research note, Goldman Sachs analysts led by Thomas Stolper said the lows the dollar hit earlier this year “are almost certainly behind us.”

Another surge in oil prices, a decline in U.S. exports or increasing signs of economic weakness in the American economy could derail the dollar’s rebound, Goldman Sachs analysts said. For now, however, they expect the euro to fall to $1.45 against the dollar over the next three months, and $1.40 a year from now.

Iraqi security forces are taking over checkpoints near the Iranian border previously manned by Georgian troops before they redeployed home following recent fighting with Russia, the U.S. military said Friday. Iraq

Shiite pilgrims, meanwhile, faced more violence as they headed toward the holy city of Karbala for a major religious festival.

A roadside bomb struck a minibus beginning the trip in eastern Baghdad Friday morning, killing at least one passenger and wounding 10 others, a police official said, speaking on condition of anonymity because he wasn’t authorized to release the information.

The attack came a day after a female suicide bomber struck Shiite pilgrims resting by the side of a road south of Baghdad in Iskandariyah, killing at least 18 people and wounding 75.

Georgia’s announcement last week that it was recalling its 2,000 soldiers from Iraq has forced the Americans to shuffle units to fill the vacuum.

The recall also came as the Bush administration is awaiting a recommendation from its top commander in Iraq, Gen. David Petraeus, on future force levels.

Col. Steve Boylan, chief spokesman for Petraeus, said the general has not completed his assessment and it was premature to speculate on any potential effect the Georgian withdrawal.

“It’ll be a factor in the overall analysis … but it isn’t the only factor,” Boylan said. “It is another element, although unexpected, of the overall analysis of the situation and will be factored into his recommendation.”

Petraeus is expected to submit that report around end of this month before leaving Iraq in mid-September to become commander of U.S. Central Command, a position of broader responsibility that includes the war in Afghanistan.

The Georgians — the third-largest contributor of coalition forces after the U.S. and Britain — had been responsible for searching vehicles and people at a series of checkpoints along weapon smuggling routes in the desert border region near Kut, 100 miles southeast of Baghdad.

Iraqi soldiers already have taken over traffic checkpoints and are providing security at the entrance of the Georgians’ former patrol base, the U.S. military said.

Meanwhile, American soldiers with the 41st Fires Brigade are training them to take over the rest of the Georgians’ mission, including patrols and the base itself, according to the statement.

The move came after U.S. officials acknowledged the Georgians’ departure would have a “near-term impact” but insisted adjustments were being made to minimize the disruption to operations. Americans have increasingly been trying to move to more of an oversight role and letting Iraqi security forces take the lead so the foreign troops can eventually go home.

“They have stepped up to the plate, and their partnership is why we are able to take over the mission that the Georgians had to leave behind, with no change in the security and safety of the Iraqi people,” brigade commander Col. Richard M. Francey, Jr., said of the Iraqi troops.

The U.S. military said 18 people were killed in Thursday’s attack in Iskandariyah, but Iraqi police in the area gave a higher death toll of 26.

The woman blew herself up in the same residential area that was hit by a Feb. 24 suicide bombing that killed at least 40 Shiite pilgrims, authorities said. Pilgrims frequently use the area, which is occupied by many displaced families, as a short cut.

The festival celebrates the birth of Mohammed al-Mahdi, the 12th Shiite imam, who disappeared in the ninth century. Devout Shiites believe he will return to restore peace and harmony. The ceremonies reach their high point this weekend.

Shiite cleric Muqtada al-Sadr called on his followers in a message read by his aides to renew their loyalty to the so-called Hidden Imam by signing a pledge with blood after Friday prayers.

Among the promises was “to liberate Muslims around the world and in Iraq in particular from troops of darkness,” apparent rhetoric for the U.S.-led foreign troops that he opposes.

The call came a week after al-Sadr effectively turned his Mahdi Army militia into a social welfare movement, although he said he would retain special guerrilla cells that his spokesman explained would attack U.S. troops only if the Americans don’t accept a timetable to leave Iraq.

A top Russian general said Friday that Poland’s agreement to accept a U.S. missile interceptor base exposes the ex-communist nation to attack, possibly by nuclear weapons, the Interfax news agency reported.

The statement by Gen. Anatoly Nogovitsyn is the strongest threat that Russia has issued against the plans to put missile defense elements in former Soviet satellite nations.

Poland and the United States on Thursday signed a deal for Poland to accept a missile interceptor base as part of a system the United States says is aimed at blocking attacks by rogue nations. Moscow, however, feels it is aimed at Russia’s missile force.

“Poland, by deploying (the system) is exposing itself to a strike — 100 percent,” Nogovitsyn, the deputy chief of staff, was quoted as saying.

He added, in clear reference to the agreement, that Russia’s military doctrine sanctions the use of nuclear weapons “against the allies of countries having nuclear weapons if they in some way help them.” Nogovitsyn that would include elements of strategic deterrence systems, he said, according to Interfax.

At a news conference earlier Friday, Nogovitsyn had reiterated Russia’s frequently stated warning that placing missile-defense elements in Poland and the Czech Republic would bring an unspecified military response. But his subsequent reported statement substantially stepped up a war of words.

U.S. officials have said the timing of the deal was not meant to antagonize Russian leaders at a time when relations already are strained over the recent fighting between Russia and Georgia over the separatist Georgian region of South Ossetia.

Russian forces went deep into Georgia in the fighting, raising wide concerns that Russia could be seeking to occupy parts of its small, pro-U.S. neighbor, which has vigorously lobbied to join NATO, or even to force its government to collapse.

Under the agreement that Warsaw and Washington reached Thursday, Poland will accept an American missile interceptor base.

“We have crossed the Rubicon,” Polish Prime Minister Donald Tusk said, referring to U.S. consent to Poland’s demands after more than 18 months of negotiations.

Washington says the planned system, which is not yet operational, is needed to protect the U.S. and Europe from possible attacks by missile-armed “rogue states” like Iran. The Kremlin, however, feels it is aimed at Russia’s missile force and warns it will worsen tensions.

In an interview on Poland’s news channel TVN24, Tusk said the United States agreed to help augment Poland’s defenses with Patriot missiles in exchange for placing 10 missile defense interceptors in the Eastern European country.

He said the deal also includes a “mutual commitment” between the two nations to come to each other’s assistance “in case of trouble.”

That clause appeared to be a direct reference to Russia.

Poland has all along been guided by fears of a newly resurgent Russia, an anxiety that has intensified with Russia’s offensive in Georgia. In past days, Polish leaders said that fighting justified Poland’s demands that it get additional security guarantees from Washington in exchange for allowing the anti-missile base on its soil.

Western leaders engaged in intense diplomacy Friday to persuade Russia to pull troops out of Georgia, but regional tensions soared after a top Russian general warned that Poland could face attack over its missile defense deal with the United States.

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In his strongest declaration of support for Georgia, President Bush declared that America would stand by the Georgian people and that the staunch American ally’s territorial integrity must be respected after last week’s eruption of violence.

“We will not cast them aside,” he said in Washington.

But Russian President Dmitry Medvedev, speaking at virtually the same time, said the separatist Georgian regions at the center of the conflict appear destined for independence.

“After what happened, it’s unlikely Ossetians and Abkhazians will ever be able to live together with Georgia in one state,” he said in a joint news conference in the Russian resort of Sochi with German Chancellor Angela Merkel.

Meanwhile, Secretary of State Condoleezza Rice arrived in Georgia Friday to press President Mikhail Saakashvili to sign a fragile cease-fire deal. It would require major Georgian concessions, but Rice said the U.S. would never ask Georgia to agree to something that isn’t in its best interests.

The plan calls for the immediate withdrawal of Russian combat troops from Georgia, but allows Russian peacekeepers who were in South Ossetia violence erupted of violence to remain and take a greater role there.

“This is not an agreement about the future of Abkhazia and the future of South Ossetia,” Rice said. “This is about getting Russian troops out,” she said.

As the West pressed for peace, Russian Gen. Anatoly Nogovitsyn was quoted by Interfax News Agency on Friday as saying that by accepting a U.S. missile defense battery Poland “is exposing itself to a strike.”

He pointed out that Russian military doctrine permits the use of nuclear weapons “against the allies of countries having nuclear weapons if they in some way help them,” Interfax reported.

Poland and the U.S. signed a deal Thursday for Poland to accept a missile defense battery as part of a system the United States says is aimed at blocking attacks by rogue nations but that Moscow claims is aimed at weakening Russia.

On the ground in Georgia, Russian troops on Friday allowed some humanitarian supplies into the strategic city of Gori but continued their blockade, raising doubts about Russian intentions in the war-battered country.

Gori, about 45 miles west of the Georgian capital of Tbilisi, is key to when — or if — Russia will honor the terms of a cease-fire that calls for both sides to pull their forces back to the positions they held before fighting broke out last week in the separatist region of South Ossetia.

Russian forces also were in several other cities deep in Georgia, officials said.

By holding Gori, Russian forces effectively cut the country in half because the city sits along Georgia’s only significant east-west highway. Russian military vehicles were blocking the eastern road into the city on Friday, although they allowed in one Georgia bus filled with loaves of bread.

“It’s quiet there, but now there are problems with food,” said Alexander Lomaia, the head of Georgia’s national security council. He said he was able to tour the city during the night.

Georgian Interior Ministry spokesman Shota Utiashvili said Friday that there are no Russian troops in the city of Kutaisi, Georgia’s second-largest city, despite reports they were headed in that direction overnight. However, he and Lomaia both said that troops remain in the Black Sea port city of Poti.

On the outskirts of Tbilisi, Georgia stepped up aid efforts at a camp for displaced people.

“We’re in a difficult situation, but our government is helping us,” said Zhozhona Gogidze, a displaced person. “You know I am very ashamed, we don’t have a kopeck left and I’m so hungry.”

Frustrations were mounting in the capital over confusion about the cease-fire deal.

“We need to understand what the international agreement is,” said Archil Rezhabidze. “All these agreements are agreed only to be broken later. We should not trust them for one minute.”

In a report released Friday, Human Rights Watch said it has collected evidence of Russian warplanes using cluster bomb against civilian areas in Georgia. The international rights group urged Russia to stop using the weapons, which more than 100 nations have agreed to outlaw.

The group said Russian military aircraft killed at least 11 civilians and injured dozens in the town of Gori and the village of Ruisi. Russia’s Defense Ministry denied the claim, the ITAR-Tass news agency reported, citing an unnamed official who complained that the organization gathered the information from biased witnesses.

On Thursday, Russian Foreign Minister Sergey Lavrov said Georgia could “forget about” getting back South Ossetia and its other breakaway province, Abkhazia. The former Soviet republic remained on edge as Russia sent tank columns to search out and destroy Georgian military equipment.

Georgian officials accused Russia of sending a column of tanks and other armored vehicles toward Kutaisi, the second-largest city in Georgia, then said the convey stopped about 35 miles out.

“We have no idea what they’re doing there, why the movement, where they’re going,” Georgian Prime Minister Lado Gurgenidze said in a telephone briefing. “One explanation could be they are trying to rattle the civilian population.”

The U.S. said a move toward Kutaisi would be a matter of great concern, but two defense officials told The Associated Press the Pentagon did not detect any major movement by Russia troops or tanks. There was no immediate response from Russia itself.

“I think the world should think very carefully about what is going on here,” Saakashvili said. “We need to stop everything that can be stopped now.”

U.S. Defense Secretary Robert Gates warned Thursday that Russia was in danger of hurting relations with the U.S. “for years to come” but said he did not see “any prospect” for the use of American military force in Georgia.

Associated Press writers Misha Dzhindzhikhashvili and Matti Friedman in Tbilisi, Georgia; Mansur Mirovalev in Tskhinvali, Georgia; Jim Heintz and Vladimir Isachenkov in Moscow; Alexander Higgins in Geneva; Carley Petesch in New York; Matthew Lee traveling with Rice; and Terence Hunt in Washington contributed to this report.

Intel Corp. is unveiling new technology that will let computers wake up from their power-saving sleep state when they receive a phone call over the Internet.
Current computers have to be fully on to receive a call, making them impractical and energy-wasters as replacements for the telephone.

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The new component Intel is announcing Thursday will let computers automatically return to a normal, full-powered state when a call comes in. The computer can activate its microphone and loudspeaker to alert the user, then connect the call.

“This certainly helps the PC become a much better center of communications in the home,” said Trevor Healy, chief executive of Jajah, which will be the first Internet telephone company to utilize the feature.

The first Intel motherboards with the Remote Wake capability will be shipping in the next month, said Joe Van De Water, director of consumer product marketing for Intel.

These components, which are at the heart of every computer, will most likely be used by smaller computer manufacturers. Bigger names like Dell Inc. and Hewlett-Packard Co. use their own motherboard solutions, but Intel is working to supply them with the technology as well.

The four initial Remote Wake motherboards will be for desktop computers and will need an Internet connection via Ethernet cable, as Wi-Fi doesn’t work in sleep mode.

Van De Water said the computer will know to wake up only for calls from services to which the user has subscribed, so computer-waking prank calls should be impossible.

Mountain View, Calif.-based Jajah is setting itself up as a link between Web companies and the phone system. In April, it signed a deal to become the phone service provider for Yahoo Inc.’s Messenger. Jajah intends to offer the ability to wake up computers to other instant-messaging and Internet voice services, like Google Inc.’s Talk and Microsoft Corp.’s Windows Live Messenger, Healy said. It will be able to wake up subscriber computers both for calls dialed with a number and for those that are directed at a user name.

A fully on desktop PC usually consumes more than 60 watts of power, with many models ranging into the hundreds of watts. In the so-called S3 sleep state, they consume around 10 watts.

Korean Air Lines Co. posted a second-quarter net loss amid soaring fuel costs and a weak South Korean currency, it said Thursday.
Korean Air, South Korea’s biggest airline and the world’s largest international cargo carrier, recorded a net loss of 289 billion won ($279 million) in the three months ended June 30, the company said in a statement. It lost 214.4 billion won in the same period a year ago. The most recent loss was the airline’s third straight on a quarterly basis.

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Sales during the quarter rose 18 percent to 2.48 trillion won ($2.4 billion), compared with 2.11 trillion won last year.

Korean Air said fuel expenses during the quarter increased 79.4 percent and were exacerbated by weakness in the South Korean won against the U.S. dollar. Fuel expenses are denominated in dollars.

The weak won also hurt Korean Air in terms of its mostly US dollar-denominated foreign currency debt. The airline booked a foreign exchange translation loss of 273.2 billion won ($263.2 million) during the quarter.

The airline, which had about $5.3 billion in foreign currency debt, books the amount in South Korean won at the end-of-quarter exchange rate. The U.S. dollar traded at 1,043.4 won on June 30, compared with 991.7 won three months earlier, it said.

The airline has struggled with soaring fuel costs amid a sharp run-up in crude oil prices that has battered the global aviation industry.

Conversely, the weak currency boosted cargo revenue by 28.4 percent as Korean exporters shipped more products overseas.

“The weakening Korean won continues to trigger additional air cargo demand from Korean exporters,” Korean Air said.

Cathay Pacific Airways Ltd. of Hong Kong last week reported its first half-year loss since 2003, while Japan’s All Nippon Airways Co. said last month its most recent quarterly profit fell by over 90 percent due to soaring fuel costs.

Japan Airlines Corp. also last week reported a loss for its most recent quarter, but managed to reduce the flow of red ink compared with the previous year.

Despite the net loss, Korean Air pointed to gains in passenger and cargo revenue as bright spots during the second quarter.

Korean Air said international passenger sales rose 16.5 percent, while revenue from first and business class, on international routes rose 17 percent.

Korean Air, which operates nearly 400 passenger flights daily to 115 cities in 38 countries, has been trying to raise its international profile with a sleek global advertising blitz stressing service and sophistication.

Korean Air said it opened new routes during the second quarter to Munich, Germany and Sao Paulo, Brazil. The airline said this week that it would begin regular passenger service to Tashkent, Uzbekistan, next month.

Shares in Korean Air fell 3.7 percent to 43,750 won ($42) in early afternoon trading.

Old China hands have maintained for years that the country’s economy would stay strong through the Olympics. Well, now the Olympics are almost done, the stock market has crashed, and inflation is out of control. So is this the end?

My guest Philip Pan, former Beijing bureau chief for the Washington Post and author of the new book Out of Mao’s Shadow, knows better than to make pinpoint economic predictions. But he wisely observes that no economy can sustain momentous growth forever, and that without political reforms China’s bust could be a violent one.

See part one of my discussion with Pan, where he argues that free-market capitalism won’t necessarily lead to democracy in China.

Cablevision Systems Corp. executives met with major shareholders this week to talk about strategic options for the company, but while many alternatives remain open they are not seeking to go private again or mount another major acquisition, an analyst said.
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Chris Marangi, a cable and entertainment analyst for Gabelli & Co. who was involved in the discussions, said one new thing Cablevision is considering is managing the operations of other cable systems for a fee.

It’s a tactic that could “potentially yield very large rewards with no capital investment and little risk” for the company, he told The Associated Press on Wednesday.

On Monday, Gabelli began hosting talks between Cablevision and several institutional investors in and outside of New York. Cablevision said last week it would talk with major shareholders to consider strategic alternatives including spin-offs or sales of assets. The diversified cable operator believes its stock price does not reflect the underlying value of its operations.

Gabelli, which holds about a 7 percent stake through Gamco Investors and Gabelli Funds, said the first round of talks is over but there’s more to come.

Cablevision spokeswoman Kim Kerns declined to comment on the talks.

Bethpage, N.Y.-based Cablevision is considered one of the best-run U.S. cable companies. But the company also has a number of non-cable assets, such as Madison Square Garden, cable channels including IFC and professional sports teams such as the New York Knicks. Cablevision recently bought the Long Island-based newspaper Newsday for $650 million and the independent Sundance Channel for $496 million.

Marangi said alternatives include spinning off Madison Square Garden, or the Rainbow Media Holdings programming subsidiary, or both. Cablevision could also sell Rainbow.

Cablevision is also considering returning capital to shareholders in the form of a special or regular dividend and stock repurchases, which could be funded by free cash flow or proceeds from an asset sale.

A renewed attempt to go private again is not on the agenda after Cablevision’s founding Dolan family failed to do so last October. The company tried to go private several times in recent years.

“Management is going to take the feedback they will get from these meetings back to the board of directors and decide on a strategic path shortly,” Marangi said. “All options are on the table within the constraints of the current credit environment.”

Oil prices rose for a second day Thursday in Asia, approaching $117 a barrel after U.S. gasoline supplies fell more than expected in a weekly government report.
Light, sweet crude for September delivery rose 75 cents to $116.75 a barrel in electronic trading on the New York Mercantile Exchange by midday in Singapore. The contract jumped $2.99 overnight to settle at $116 a barrel.

“It’s the first bright news for traders in the oil market in a while,” said Gavin Wendt, head of mining and resources research at Fat Prophets in Sydney. “The dramatic drop-off in commodities, and specifically oil, has been well overdone in my view.”

Before the stockpile report, September Nymex crude touched a low of $112.87 on Wednesday, more than $34 below its July 11 high of $147.27.

Later, in its weekly inventory report, the U.S. Energy Department’s Energy Information Administration said gasoline supplies fell by 6.4 million barrels for the week ended Aug. 8, nearly three times more than the 2.2 million barrel drop expected by analysts surveyed by energy research firm Platts.

The EIA said crude stockpiles fell 400,000 barrels last week against analyst expectations of a 500,000 barrel increase. Inventories of distillate fuel, which include diesel and heating oil, decreased by 1.7 million barrels; analysts had expected distillate stocks to rise by 1.9 million barrels.

Mixing the picture, though, the EIA also said demand for gasoline over the four weeks ended Aug. 8 was almost 2 percent lower than a year earlier, averaging 9.4 million barrels a day.

But Wendt, who expects oil prices to test $150 a barrel by the end of this year, said U.S. investors have overestimated the impact a slowdown in the U.S. economy will have on global demand for crude.

“They still think the U.S. is the epicenter of the world economy,” Wendt said. “The U.S. is still very important, but as far as commodity demand is concerned, the U.S. isn’t the main game in town. China is the biggest consumer, and increasingly India.”

In other Nymex trading, heating oil futures rose 1.83 cents to $3.15 a gallon while gasoline prices gained 2.47 cents to $2.957 a gallon. Natural gas futures rose 8.6 cents to $8.542 per 1,000 cubic feet.

In London, Brent crude for September delivery rose 84 cents to $114.31 a barrel.

Tom Cruise’s producing partner Paula Wagner said Wednesday she will leave her job as chief executive of United Artists to produce projects independently.
Wagner will continue to co-own the studio with Cruise and “be attached to UA’s most exciting film properties,” UA and its parent company Metro-Goldwyn-Mayer Inc. added in a joint statement.

Cruise and Wagner were brought in to head UA in November 2006.

She said she still believes in the vision she and Cruise have for the film studio that was formed nearly 90 years ago by Hollywood actors including Charlie Chaplin and Mary Pickford.

“I am proud of all that we’ve accomplished in the past two years,” she said.

However, the effort has faced challenges.

The studio flopped on its first production attempt with last year’s political thriller “Lions for Lambs,” which was estimated to have lost about $30 million. Wagner has said the company took a modest financial risk with the film but its symbolic benefits were invaluable.

UA’s second effort “Valkyrie,” starring Cruise as a Nazi army officer executed after a failed attempt to assassinate Adolf Hitler, has been delayed a few times.

In April, UA pushed back the release date from Oct. 3 to February 2009. MGM announced Wednesday the film would be released Dec. 26.

“We saw and tested the movie, and we believe a strong movie deserves a strong play date,” said Clark Woods, president of MGM Distribution.

Georgia has gotten its wish for another U.N. Security Council emergency session, just as the former Soviet republic said Russia’s firepower had effectively split it in half.

The Monday afternoon session tentatively begins at 5 p.m. EDT as private consultations that Georgia can’t attend, since it’s not a member of the 15-nation council. That leaves most of the diplomacy to Russia and the United States, Georgia’s ally.

It will be the fifth such session since clashes erupted Thursday and diplomats say it will examine the latest developments on the ground.

Georgia’s president says Russia’s troops have effectively cut the country in half by seizing Gori, a strategic city along the country’s main east-west highway and only about 60 miles west of the capital Tbilisi.

Russian tanks roared deep into Georgia on Monday, launching a new western front in the conflict, and Russian planes staged air raids that sent people screaming and fleeing for cover in some towns.

The escalating warfare brought sharp words from President Bush, who pressed Moscow to accept an immediate cease-fire and pull its troops out to avert a “dramatic and brutal escalation” of violence in the former Soviet republic.

Russian forces for the first time moved well outside the two restive, pro-Russian provinces claimed by Georgia that lie at the heart of the dispute. An Associated Press reporter saw Russian troops in control of government buildings in this town just miles from the frontier and Russian troops were reported in nearby Senaki.

Georgia’s president said his country had been sliced in half with the capture of a critical highway crossroads near the central city of Gori, and Russian warplanes launched new air raids across the country.

The Russian Defense Ministry, through news agencies, denied it had captured Gori and also denied any intentions to advance on the Georgian capital of Tbilisi.

In New York, the United Nations Security Council held an emergency session at Georgia’s request, the fifth meeting on the fighting in as many days.

The western assault expanded the days-old war beyond the central breakaway region of South Ossetia, where a crackdown by Georgia last week drew a military response from Russia.

While most Georgian forces were still busy fighting there, Russian troops opened the western attack by invading from a second separatist province, Abkhazia, that occupies Georgia’s coastal northwest arm.

Russian forces moved into Senaki, 20 miles inland from the Black Sea, and seized police stations in Zugdidi, just outside the southern fringe of Abkhazia. Abkhazian allies took control of the nearby village of Kurga, according to witnesses and Georgian officials.

By late Monday, Russian news agencies, citing the Defense Ministry, said troops had left Senaki, 20 miles inland from the Black Sea port of Poti, “after liquidating the danger,” but did not give details.

The new assault came despite a claim earlier in the day by a top Russian general that Russia had no plans to enter undisputed Georgian territory.

The Georgian president, Mikhail Saakashvili, told a national security meeting Russia had also taken central Gori, which its on Georgia’s only east-west highway, cutting off the eastern half of the nation from the western Black Sea coast.

But the news agency Interfax cited a Russian Defense Ministry official as denying Gori was captured. Attempts to reach Gori residents by telephone late Monday did not go through.

Fighting also raged Monday around Tskhinvali, the capital of the separatist province of South Ossetia.

Even as Saakashvili signed a cease-fire pledge Monday with European mediators, Russia flexed its military muscle and appeared determined to subdue the small U.S. ally, which has been pressing for NATO membership.

Russia’s massive and multi-pronged offensive has drawn wide criticism from the West, but Russia has rejected calls for a cease-fire and said it was acted to protect its citizens. Most residents of the separatist regions have Russian passports.

In Zugdidi, an AP reporter saw five or six Russian soldiers posted outside an Interior Ministry building. Several tanks and other armored vehicles were moving through the town but the streets were nearly deserted. Shops, restaurants and banks were shut down.

In the city of Gori, an AP reporter heard artillery fire and Georgian soldiers warned locals to get out because Russian tanks were approaching. Hundreds of terrified residents fled toward Tbilisi, many trying to flag down passing cars.

An AP film crew saw Georgian tanks and military vehicles speeding along the road from Gori to Tbilisi. Firing began and people ran for cover. Cars could be seen in flames along the side of the road.

Georgia borders the Black Sea between Turkey and Russia and was ruled by Moscow for most of the two centuries preceding the 1991 breakup of the Soviet Union.

Both provinces of South Ossetia and Abkhazia have run their own affairs without international recognition since fighting to split from Georgia in the early 1990, and both have close ties with Moscow.

When Georgia began its offensive to regain control over South Ossetia, the Russian response was swift and overpowering — thousands of troops and tanks poured in.

Georgia had pledged a cease-fire, but it rang hollow Monday. An AP reporter saw a small group of Georgian fighters open fire on a column of Russian and Ossetian military vehicles outside Tskhinvali, triggering a 30-minute battle. The Russians later said all the Georgians were killed.

Another AP reporter was in the village of Tkviavi, 7 1/2 miles south of Tskhinvali inside undisputed Georgian territory, when a bomb from a Russian warplane struck a house. The walls of neighboring buildings fell as screaming residents ran for cover. Eighteen people were wounded.

Hundreds of Georgian troops headed north Monday along the road toward Tskhinvali, pocked with tank regiments creeping up the highway into South Ossetia. Hundreds of other soldiers traveled in trucks in the opposite direction, towing light artillery weapons.

In a statement in the Rose Garden, Bush said there was an apparent attempt by Russia to unseat the pro-Western Saakashvili. He said further Russian action would conflict with Russian assurance its actions were meant to restore peace in the pro-Russian separatist areas.

Bush and other Western leaders have also complained that Russian warplanes — buzzing over Georgia since Friday — have bombed Georgian oil sites and factories far from the conflict zone.

The world’s seven largest economic powers urged Russia to accept an immediate cease-fire agree to international mediation. Secretary of State Condoleezza Rice and her colleagues from the Group of Seven leading industrialized nations spoke by telephone and pledged their support for a negotiated solution to the conflict.

“I’ve expressed my grave concern about the disproportionate response of Russia and that we strongly condemn the bombing outside of South Ossetia,” Bush told NBC Sports.

Putin criticized the United States for viewing Georgia as the victim instead of the aggressor, and for airlifting Georgian troops back home from Iraq on Sunday.

“Of course, Saddam Hussein ought to have been hanged for destroying several Shiite villages,” Putin said in Moscow. “And the incumbent Georgian leaders who razed ten Ossetian villages at once, who ran elderly people and children with tanks, who burned civilian alive in their sheds — these leaders must be taken under protection.”

The U.S. military was informing Russia about the flights from Iraq to avoid mishaps, one military official said Monday on condition of anonymity because he was not authorized to speak about the subject on the record.

A Defense Department spokesman said the U.S. expected to have all Georgian troops out of Iraq by day’s end.

Pentagon officials said Monday that U.S. military was assessing the fighting every day to determine whether to pull the fewer than 100 remaining American trainers out of the country.

Saakashvili’s cease-fire pledge had been proposed by the French and Finnish foreign ministers. The EU envoys headed to Moscow to try to persuade Russia to accept it.

Saakashvili voiced concern Russia’s true goal was to undermine his pro-Western government. “It’s all about the independence and democracy of Georgia,” he said.

The Georgian president said Russia had sent 20,000 troops and 500 tanks into Georgia. He said Russian warplanes were bombing roads and bridges, destroying radar systems and targeting Tbilisi’s civilian airport. One Russian bombing raid struck the Tbilisi airport area only a half-hour before EU envoys arrived, he said.

Another hit near key Baku-Tbilisi-Ceyhan oil pipeline, which carries Caspian crude to the West. No supply interruptions have been reported.

At least 9,000 Russian troops and 350 armored vehicles were in Abkhazia, according to a Russian military commander.

Abkhazia’s separatists declared Sunday they would push Georgian forces out of the northern part of the Kodori Gorge, the only area of Abkhazia still under Georgian control.

Before invading western Georgia, Russia’s deputy chief of General Staff Col.-Gen. Anatoly Nogovitsyn demanded Monday that Georgia disarm its police in Zugdidi, a town just outside Abkhazia. Still he insisted “We are not planning any offensive.”

Russia’s Deputy Foreign Minister Grigory Karasin said more than 2,000 people have been killed in South Ossetia since Friday, most of them Ossetians with Russian passports. The figures could not be independently confirmed, but refugees who fled Tskhinvali over the weekend said hundreds had been killed.

Many found shelter in the Russian province of North Ossetia.

“The Georgians burned all of our homes,” said one elderly woman, as she sat on a bench under a tree with three other white-haired survivors. “The Georgians say it is their land. Where is our land, then?”

On his way out of the game, Yao Ming thrust his fist through the air, and soon made that long, wobbly walk to the Chinese bench. The end of a brilliant and historic night for basketball, the end of responsibility for Yao. His work is done. Let him rest.

“The game was a treasure,” Yao said, “and it will be a treasure for the rest of my life.”

Here was a surreal sight on Sunday night in these Olympic Games. Here was the embodiment of Yao Ming’s legacy: His heart, his determination, his immensity. He made possible a billion people worldwide watching a basketball game on television. He made possible these blistering ovations and rock-star treatment the U.S. players receive here. He made possible the hundreds of millions of dollars that David Stern can generate here.

Yao leaving to an ovation.
(Getty Images)And above all, Yao gave China its Olympic flag-bearer and iconic athlete to frame the most important engagement it’s ever had with the world.

“Yao built the bridge for all of us,” Kobe Bryant said.

To watch Yao limp and flail and double over to breathe was to understand the reasons with which his sense of obligation brought him back so soon from another broken foot, another surgery. For Yao, this is his life’s lot. For his own preservation, his own crack at a career undiminished, he needs to tell a most unrelenting Chinese sports machine that its days of running him into the ground are gone.

No more summers with the national team in non-Olympic years, no more of the treatment that’s breaking down his body. The sport’s never seen an athlete of his size who is so skilled, so agile. His lower body has crumbled under the burden, with two broken feet, a broken leg and an infected toe. It breaks your heart to watch what has happened to him. As much as anyone, his body needs rest and recovery. The pounding has taken a terrible toll on him.

“They will continue to pressure him,” one high-ranking international basketball official said of Chinese officials. “The one thing they do with all of their athletes is drive them into the ground with training. The strongest survive. If you don’t, they’ll find another to come and do it.

“I mean, they don’t do little things like block out good airline seats for them when they travel. They can all be in middle seats in coach for all they care, and that’s how Yao travels with them. Whatever happens with his injuries, they’re going to insist that he keeps playing for them.”

The Chinese government had monitored his birth because of the perfect physical and athletic genes of his parents, forever treating him as something of a science project. Yet there’s nothing robotic, nothing programmed, about him. He has such humanity, such a sense of grace and honor. Over time, you can slowly see him assimilating into more of a Western mindset. He has things on his mind. Yes, he has plenty of opinions. It just isn’t his culture’s way to share them.

Poor Yao. The Rockets traded for the tempestuous Ron Artest and Yao’s reaction was perfectly appropriate. What he wanted to know, he said, was if Artest was done pummeling fans in the stands. Essentially, it was his way of asking: Will this clown ever get it right? Fair question, but the surprising bite to his words created a reaction that immediately sent Yao scurrying to make public and private apologies.

Yao showed a little edge, and he needs to do it again. After these Games, he needs to use the leverage of his popularity, his earning power in China and tell the regime that he’s done with the grinding national team calendar. Tell them that they’ll see him in 2012 in London, and that if they leave him alone, maybe he’ll make it there as an elite player.

When Yao crumbled with a stress fracture, necessitating the fourth surgery on his lower body in the past two years, his old Houston Rockets coach Jeff Van Gundy pleaded that Yao – or someone close with a willingness to be the bad guy – has to learn the word “No.”

Grabbing a breath.
(Getty Images)Still, Yao gives China its biggest star in these Olympics. Here, everything is about saving face, and the under-manned Chinese did that with a respectable showing. Yao missed seven of 10 shots and spent so much of his night crumpled over, holding his shorts, gasping for breath. He gave them one moment, though. Before the U.S. turned its Pool B game into a dunking line, Yao started it all. Of all things, he backed behind the three-point line and delivered the game’s first basket. Such a roar in this jammed building, such a poetic moment. After all, Yao has always defied range and reach.

“I felt honored to be there watching that,” U.S. point guard Chris Paul said. “It felt like a storybook when he hit that shot.’

So yes, everybody has made a killing on Yao Ming and he is tired and beaten and owed something here. Owed big. No one ever came to the NBA with his hype and pressure, with so many people openly pulling for him to be a flop. He was a mysterious figure out of the Far East and he felt like a threat. Now, everyone understands: The NBA needs Yao, the way China does. Only, he counted on them looking out for his best interests. They’ve bled him dry. His time, his turn now.

For once in his life, Yao needs it to be about him. He’s never going to lose face, but he could have his career cut far too short. Whatever’s happened, Yao must tell China’s government: Enough is enough – we’re even.

More banks are tightening lending standards on home mortgages and other consumer and business loans as a deepening credit crisis exerts a heavier toll on the economy.

The Federal Reserve said Monday the percentage of banks reporting tighter lending standards rose across various loan types in its July survey. In April, the central bank had found that the percentage of banks reporting tighter lending standards was already near historic highs.

The new survey, conducted in early July, found that about 75 percent of the banks surveyed indicated they had tightened their lending standards for prime mortgages. That was up from about 60 percent of banks who said they were tightening lending standards for prime mortgages in the previous survey.

The Fed’s July survey covered 50 banks which hold about 80 percent of the residential mortgages on the books of all commercial banks.

Out of this group of 50 banks, 32 said they were still originating so-called nontraditional home mortgages. Among these 32 banks, about 85 percent said they had tightened their lending standards, up from 75 percent who said they were tightening lending standards for nontraditional mortgages in the April survey.

The Fed defines nontraditional mortgages as adjustable-rate mortgages with multiple payment options, interest-only loans and “Alt-A” mortgages that require limited verification of income.

The Fed survey found that only seven of the 50 banks said they were still participating in subprime mortgages, loans made to borrowers with weak credit histories. Of those seven, six said they had tightened lending standards on subprime loans with only one saying it had left standards basically unchanged for subprime loans.

The survey found that most banks were reporting tighter lending standards across a broad swath of consumer and business loans over the past three months.

For home equity lines of credit, 80 percent of the banks surveyed said they had tightened their lending standards in this area.

For credit cards, the percentage of domestic banks reporting tighter lending standards was about 65 percent, more than double the 30 percent who reported they were tightening lending standards for credit cards three months ago.

Analysts said that the big jump in higher standards for credit card debt could represent a serious threat to the already weak economy, given that consumer spending accounts for two-thirds of total economic activity.

Harm Bandholz, an economist with UniCredit Markets, said that the tightening in bank standards for credit cards and other types of consumer loans would be “another nail in the coffin of the U.S. consumer, who is already suffering from the weak labor market, high inflation and falling house prices.”

David Wyss, chief economist for Standard & Poor’s in New York, said the tighter lending standards reflect the huge loan losses that banks have already suffered. Those losses have depleted the capital they need as reserves against future losses and made it more difficult for the banks to sell their mortgages and other loans as asset-backed securities, a process that provides them with money to make new loans.

Wyss said he did not believe bank lending will start to pick up until next spring when he is forecasting that the economy will begin to rebound.

“The country is probably going through the most severe credit crunch since 1991-92,” Wyss said, referring to a time when banks and savings and loans came under severe pressure while the economy was in a recession. “I think bank credit is going to remain tight for a while.”

The current credit crisis hit with force a year ago with rising defaults in the market for subprime mortgage loans. The credit problems have since spread from subprime loans, mortgages provided to borrowers with weak credit histories, to other types of mortgages and other kinds of loans.

The country’s major financial institutions have reported billions of dollars in losses and financial markets remain unsettled with investors concerned about potential losses that have yet to be disclosed.

Washington has little room for maneuver in the Caucasus conflict amid perceptions that it helped fuel the crisis by over-inflating Georgia’s hopes of US support for its young democracy, analysts say.

“This is probably a conflict where the United States would not be accepted by both sides as a mediator,” said analyst Steven Pifer, a former US ambassador in Kiev.

“The Georgians would welcome American participation. I suspect the Russians would probably not accept us because in Moscow, we are seen as too close to Georgia,” added the analyst from the Brookings Institute.

US President George W. Bush Monday condemned the Russian military offensive against Georgia, triggered after Tbilisi sent troops into the pro-Moscow rebel region of South Ossetia seeking to regain control from the separatists.

“I said this violence is unacceptable,” Bush told US broadcaster NBC. “I expressed my grave concern about the disproportionate response of Russia and that we strongly condemn bombing outside of South Ossetia.”

But Bush is acutely aware that Washington needs Moscow’s support on several key outstanding international dossiers including the crisis over Iran’s suspect nuclear program and moves to denuclearize North Korea.

In a plaintive reminder to the United States of its support for his 2003 Rose Revolution, Georgia’s staunchly pro-Western President Mikheil Saakashvili sought to remind his ally of how far Tbilisi has come in the past few years.

“No country of the former Soviet Union has made more progress toward consolidating democracy, eradicating corruption and building an independent foreign policy than Georgia,” he wrote Monday in the Wall Street Journal.

“This conflict is therefore about our common trans-Atlantic values of liberty and democracy,” wrote the Georgian leader.

The most charismatic of the Rose Revolution leaders who ousted veteran leader and former Soviet foreign minister Eduard Shevardnadze, the US-educated Saakashvili swept to the presidency in early 2004 on a wave of popular support.

His efforts to implement sweeping free-market reforms won high praise from the West, including Bush, who hailed Georgia as “a beacon of democracy” during a 2005 visit to Tbilisi.

The United States is now seeking to win backing for a strongly worded UN Security Council resolution calling for an immediate ceasefire.

The resolution would also demand a return to the status quo before Georgia sent forces into its breakaway South Ossetia enclave.

But with Moscow holding a power of veto in the Security Council there is little chance that it will pass a resolution strongly criticizing its own actions, and discussions have been deadlocked for days.

US Secretary of State Condoleezza Rice has also been noticeably absent on the diplomatic scene, having failed to interrupt her holidays to fly to Tbilisi in support of the Georgian government.

Instead senior State Department official, Matthew Bryza, who oversees the Caucasus region was sent, two days later than planned, to join a joint EU-US mediation effort to win a ceasefire.

French Foreign Minister Bernard Kouchner, who is leading the mediation mission for the EU, said Monday the United States was “in a sense part of the conflict,” between Russia and Georgia.

“You talk about the Americans, of course they are in a sense part of the conflict, that is why we must emphasise the presence and the strength of the European Union,” Kouchner told French radio.

But State Department deputy spokesman Robert Wood sought Monday to dismiss the notion that the US was relatively powerless in face of the escalating conflict.

“We and the Europeans have leverage … The Russians know how seriously we take the situation,” he said.

“The US relations with Russia is of course a complicated one, but certainly Russia understands where we are on this conflict, where the European Union is on this conflict and we expect and hope that Russia will heed the call of the International community to stop the bombings, to agree to an immediate ceasefire and to have discussions with Georgia.”

In San Jose, Calif., home to Silicon Valley and some of the highest home values in the country, a bumper sticker reads, “Dear God, one more bubble before I die.”

Chances are the car’s driver lives in Willow Glen, a neighborhood with a small-town feel, Spanish-style single family homes and a main street with sidewalk cafes and locally owned shops.

To live there, residents are paying the city’s highest prices relative to what they could pay to rent similar properties in the same area. When you compare mortgage payments to the value of a similar home on the rental market, the price to buy is 26.1 times higher, one of the biggest differences in the country.

More from Forbes.com:

• In Pictures: America’s Most Overpriced ZIP Codes

• In Pictures: America’s Most Expensive ZIP Codes

• In Pictures: Star-Studded ZIP Codes

Willow Glen is one example of a neighborhood where homeowners are still taking chances on future appreciation–and paying a premium above and beyond their neighbors for that confidence.

Still, it’s not as overpriced as New York’s TriBeCa (10013) or Boston’s Chinatown (02111), where demand for high-end condos, new development and proximity to downtowns have pumped up prices.

Behind the Numbers

While real estate markets may be slumping across the country, there are plenty of neighborhoods with similar characteristics. These include downtown Seattle (98104), Mission Hills, San Diego (92103) and Coronado, Phoenix (85006).

Boston

To find them, we used data from Hotpads.com, an aggregator of rental listings from brokerages and real estate investment trusts, as well as home sales offerings from multiple listing services and individual brokers.

In a report for Forbes.com, Hotpads.com produced a price-to-earnings spread for each ZIP code in the nation’s 40 largest cities by comparing rental costs with buying costs for similar properties, based on number of bedrooms, location and price per square foot.

Price-to-earnings, or P/E, expresses how much one has to pay for each dollar of return. A neighborhood with a high P/E is overvalued because a buyer is getting a low return based on costs–and paying a huge premium to live in area relative to how much it would cost to rent a similar property there. In TriBeCa, for example, which is No. 1 on our list, the P/E of the measured property is 36.3.

San Francisco

A high P/E can be a sign of an investment being overpriced, but a rock bottom P/E doesn’t mean a bargain. In fact, when you get into the single digits, you’re usually buying a weak investment in an area few are interested in.

Detroit’s 48235, around 7 Mile Road, for example, has a P/E of 3. It is inundated with foreclosed properties and houses going for as little as $25,000. It’s hard to put an exact epicenter on Detroit’s real estate crash, but this neighborhood is in contention.

High-Priced Properties

Instead, mini-bubbles are created when buyers invest in robust areas where they expect homes will continue to rise in value. If their gamble pays off and the neighborhood appreciates further, today’s overpriced buyer is tomorrow’s smart investor.

A neighborhood with a very high P/E, like West Hollywood, Calif., where rents trail prices by 30 times, has an expectation of future price increases baked into the cost of buying. It’s not prime West Hollywood, but since it’s on the edge of nicer parts of town and of affluent neighborhood Los Feliz, it’s been attractive to speculators, despite the cost.

But expensive does not mean always mean overpriced.

New York City

Limestone townhouses on the Upper East Side of Manhattan, for example, are listed for ever-dizzying prices. Financier J. Christopher Flowers bought a $53 million townhouse on East 75th Street in 2006, and sold a smaller East 73rd Street townhouse undergoing renovation for $23 million in 2007.

Expensive? Yes. Overpriced? Not so much.

Consider that a five-bedroom mansion on East 74th Street that once belonged to Eleanor Roosevelt is currently listed for $60,000 a month. Prices may be tops in the city, but prime rental prices are peerless as well.

Instead, the country’s most overpriced areas are ZIP codes like San Francisco’s Outer Sunset neighborhood, 94122, which, given its location near the Pacific Ocean and on the south side of Golden Gate Park, was during the most recent boom widely thought to be up-and-coming.

Median prices surged from $560,000 in June of 2003 to a peak of $771,000 in March of 2008, based on Trulia.com price data drawn from California’s multiple-listing service.

Sometimes, however, betting on price appreciation doesn’t quite work out, and when markets start to soften, speculative areas are often the first to take a hit.

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San Francisco as a whole has declined 6% over the last year, but prices in the Outer Sunset have declined 10%, dropping to $692,000. Based on asking prices and asking rents, though, the market still has a way to fall before reaching equilibrium.

Investors and homeowners in the other nine neighborhoods on our list are likely hoping for immunity from this trend.