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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.

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.

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.

U.S. auto sales slumped to a 16-year low in July as automakers failed to keep up with consumers’ growing demand for smaller, more fuel-efficient vehicles. While production changes may help that problem, trouble in the credit and auto leasing markets will continue to take a toll on sales.

General Motors, Ford, Toyota and other automakers said Friday that their U.S. sales fell by double-digits. Nissan Motor Co. was the only major automaker to report a gain, with truck sales up 18 percent thanks in part to the new Rogue crossover and a boost in incentives. Nissan’s overall sales rose 8.5 percent.

Automakers were expecting a slide in July as high gas prices continued to cut into sales of trucks and sport utility vehicles and new troubles in the auto leasing sector further wrecked consumers’ confidence. July’s seasonally adjusted sales rate — which shows what sales would be if they continued at the same pace for the full year — was 12.5 million vehicles, according to Autodata Corp. That’s down from 17 million as recently as 2005.

Automakers expect things to get worse before they get better.

“We expect the second half of 2008 will be more challenging that the first half as economic and credit conditions weaken,” Ford’s marketing chief, Jim Farley, said in a statement.

Mark LaNeve, GM’s vice president of North American sales, said tightening standards for buyers with poor credit are costing the automaker sales of about 10,000 vehicles per month.

Customers looking for vehicle financing options were further squeezed late last month, when Chrysler LLC announced its financial arm would get out of the leasing business by the end of July. Automakers trying to sell trucks and SUVs returned by leaseholders are suffering big losses because the vehicles’ values have declined far more than projected.

Following Chrysler’s lead, Ford told dealers it would raise the price of leases on some trucks and SUVs, while GMAC Financial Services said it would stop offering leasing incentives in Canada. LaNeve said Friday that GM will watch the competition to decide whether it makes further leasing changes. Toyota said it has no plans to change its leasing strategy.

Farley said he doesn’t expect the changes to have a big impact on sales because automakers will start countering the higher lease costs with an escalation of sales incentives.

That rush began Friday, when Chrysler announced new incentives for August, including a 72-month financing plan with monthly payments similar to those of 36-month lease payments.

But even if automakers get buyers into the showroom, they’re having trouble matching their production with growing demand for smaller vehicles. Small cars represented 27 percent of sales industrywide in July, up from 21 percent in the same month last year, according to George Pipas, Ford’s top U.S. sales analyst.

Mike DiGiovanni, GM’s executive director of global market and industry analysis, said if supply constraints remain at the same pace for the rest of this year, it would cost the industry about 300,000 vehicle sales, but as the year goes on and automakers adjust production, he expects that number to go down.

Toyota said Friday it is accelerating production of four-cylinder engines and boosting production of the subcompact Yaris and the small Corolla by 40,000 units through October. Honda Motor Co. said it will adjust production of the hot-selling Civic, while GM is adding shifts to make the fast-selling Chevrolet Malibu and Cobalt cars, and Ford is boosting production of the Focus.

But meanwhile, automakers are suffering. General Motors Corp. said its July sales plunged 26 percent, led by a 35 percent decline in sales of trucks and SUVs. Some car models showed strength, with Chevrolet Malibu sales jumping 79 percent from the same month a year ago. But even GM’s car sales fell 12 percent as the company failed to keep up with demand for smaller models.

Earlier Friday, GM reported a $15.5 billion second-quarter loss, the third-worst quarterly performance in its history, largely due to North American sales losses and expenses from a massive restructuring plan.

Ford Motor Co. said its U.S. sales fell 15 percent compared with the same month a year ago. Its car sales were flat, while sales of Ford’s trucks and SUVs continued their steep decline, falling 22 percent.

Ford’s bright spot was the Focus, which saw sales rise 16 percent in July.

Despite its fuel-efficient lineup, Toyota Motor Corp. said its sales fell 12 percent last month, led by a 27 percent drop in truck and SUV sales. Sales of its Prius hybrid fell 8 percent as the Japanese company failed to keep up with growing demand for the fuel-efficient car.

Chrysler, whose lineup is more heavily tilted to trucks and SUVs than any other major automaker, said its sales fell 29 percent, with truck and SUV sales down 30 percent. Chrysler said that was partly due to cuts in low-profit sales to fleets, but even the company’s most fuel-efficient model, the Dodge Caliber, saw sales slide 9 percent.

Still, Chrysler remained upbeat, saying retail sales — or sales not to fleets — rose between June and July. The privately held company also said Friday it earned $1.1 billion before taxes in the first half of the year and is ahead of its financial goals thanks to aggressive cost-cutting.

Even Honda, which has reported sales increases in the last few months as consumers flock to its fuel-efficient cars, said sales fell 2 percent in July. Honda’s car sales were up 14 percent, but results were dragged down by a 22 percent drop in truck and SUV sales.

The Associated Press reports unadjusted auto sales figures, calculating the percentage change in the total number of vehicles sold in one month compared with the same month a year earlier. Some automakers report percentages adjusted for sales days. There were 26 sales days last month, two more than in July 2007.

When hackers infiltrated Citibank ATMs at 7-Eleven stores, they revived the fear of everyone looking to get out a few bucks for a Slurpee - is using this machine safe?
Experts say the answer is that an ATM’s safety depends on where it is. If it’s at a bank, an ATM is somewhat safer than it is in a public place, such as a ballpark, a train station or a convenience store.

“You should never use ATM machines at convenience stores if you can help it because those are much more susceptible to tampering,” added Avivah Litan, a security analyst with the Gartner research firm.

While consumers can’t do much when hackers break into back-end computers that approve cash withdrawals in order to steal PIN codes - such as happened during last year’s Citi ATM breach - the odds are slim that it will happen to you.

“It is possible to install malicious software on a banking server to capture an encrypted pin as it passes through, but it is extremely rare,” according to Margot Mohsberg, a spokeswoman for the American Bankers Association.

There are other methods of getting scammed at the ATM, however, that are both popular and preventable.

Most often, thieves use a method called skimming, which means they insert a device into the card slot on an ATM that steals your data right off your card’s magnetic strip.

When it comes to skimming, non-bank ATMs are far more susceptible, putting you at greater risk. There’s less of a chance of skimming at your bank’s local branch, because the bank is videotaping and maintaining that ATM, than at the ones in a convenience store that are maintained by a third party, said Ellen Cannon, managing editor at bankrate.com.

“There are thefts constantly,” said Cannon.

To further decrease your odds of getting victimized, Cannon also suggests changing your PIN number regularly and using different PINs for different accounts.

Also, when shopping, opt for credit over debit. Chances are your credit card has 100% fraud liability, whereas your debit card may not.

“Basically, avoid using your PIN as much as possible,” Litan recommends. Despite industry standards that call for protecting PINs with strong encryption, that doesn’t always happen, so to stay on the safe side, keep transactions that require you to enter your PIN to a minimum.

And when it comes to online activity, never use your PIN under any circumstances. “There’s no online use of PINs,” Litan said, and any prompt to do so is just a scam.

Ultimately, the best thing you can do is check your account frequently and report any suspicious activity immediately.

Beyond that, there’s really not much else consumers can do, according to Thomas Fox, community outreach director of Cambridge Credit Corp., a nonprofit credit counseling agency based in Agawam, Mass. “It falls to the bank to employ new ways to deter hackers.”

But if you are a victim of theft, keep in mind that while it is a hassle, it is not necessarily a hardship.

“The bottom line is that consumers are not responsible for any fraudulent activity on their account,” Mohsberg said.

The price for a barrel of oil shed more $2 Monday with the dollar gaining strength, but traders watched for a further weakening of the greenback and renewed Mideast tensions.
Iranian state media reported Friday that EU foreign policy chief Javier Solana and Iran’s top nuclear negotiator have agreed to the latest in a series of talks during the second half of July over Iran’s nuclear program and the enrichment of uranium.

“The Iranian situation turned confrontational last week which raised valid concerns in the oil market (over a possible attack). Now that seems less likely and this is a positive development,” said John Vautrain, an analyst with Purvin & Gertz in Singapore.

Still, diplomats familiar with the negotiations there was little new on the table. And a European official told the AP that Solana had not committed himself to any meeting until Tehran’s offer was thoroughly examined by the six nations seeking to engage the Islamic republic.

Light, sweet crude for August delivery fell to $143.10 a barrel in electronic trade on the New York Mercantile Exchange by noon in Europe — $2.19 lower than Thursday’s floor close. After numerous record highs in volatile trading, however, traders analyst were doubtful that any bubble had burst Monday.

“As we look ahead to this week the bulls have their cross hairs set on $150,” wrote analyst and trader Stephen Schork, in his Schork report. “At this point, that critical point of reference looks like a done deal, but time will tell.”

The contract hit a trading record of $145.85 on Thursday in New York before settling at a record close of $145.29 a barrel. There was no floor trade Friday in the U.S. because of the July Fourth holiday.

The bulls were also encouraged by comments from the head of the Organization of Petroleum Exporting Countries over the weekend, said Vautrain.

OPEC President Chakib Khelil said that surging oil prices aren’t likely to fall amid strong demand, especially from China and India.

Khelil also told an energy conference in Algiers on Sunday that the steady increases of late were unrelated to supply and demand. He blamed the weak U.S. dollar, oil’s primary currency of exchange.

Khelil said he believes the reason the dollar has fallen against other currencies is the U.S. decision to lower interest rates as it tries to revive a flagging economy.

A falling dollar has helped boost oil prices around 50 percent this year. Investors buy commodities such as oil as a hedge against inflation when the greenback weakens. Also, a struggling dollar makes oil less expensive to investors overseas.

Reversing the trend, at least temporarily, the euro fell against the dollar Monday as markets continued to mull less-than-hawkish comments from the European Central Bank on its future interest rate course, and industrial production numbers are expected in Britain and Germany.

The 15-nation euro bought $1.5662 in European morning trading, down from $1.5699 in New York late Thursday.

In other Nymex trade, heating oil futures fell by more than 12 cents to $3.9340 a gallon while gasoline prices dropped by over 5 cents to $3.5175 a gallon. Natural gas futures lost more than 24 cents to fetch $13.336 per 1,000 cubic feet.

August Brent crude fell $1.11 to $143.31 a barrel on the ICE Futures exchange in London.

Associated Press Writer Eileen Ng contributed to this report from Kuala Lumpur, Malaysia.

Yahoo Inc. began pressing a case to major shareholders Monday that its board and management deserve a chance to prove they made the right move when they rejected a $47.5 billion takeover offer from Microsoft Corp.

The missed opportunity to sell to Microsoft infuriated many Yahoo shareholders, prompting activist investor Carl Icahn to agitate for replacing Yahoo’s nine directors and reviving negotiations with Microsoft. If he gains control of the board, Icahn intends to fire Yahoo co-founder Jerry Yang as chief executive.

In response, Yahoo has assembled a 32-page presentation for shareholders to elaborate on the points it has been emphasizing since Microsoft withdrew its bid May 3.

Investors will decide the dustup in a vote scheduled Aug. 1 at Yahoo’s annual meeting. That leaves another month for the Sunnyvale, Calif.-based company and Icahn to disparage each other.

And with Yahoo shares sliding back toward $19.18 — their value before Microsoft’s bid — Yahoo’s management is facing even more pressure to end the financial malaise that triggered the takeover bid in the first place. Yahoo shares fell 67 cents Monday to close at $20.66.

Icahn didn’t respond to a request for comment Monday, but he wrote on his blog last week that he would share his latest opinions on Yahoo “shortly.”

Yahoo argues that entrusting the company’s fate to Icahn would be foolhardy because his strategy centers on resurrecting a dead deal.

Its breaking point came after Yang and Microsoft CEO Steve Ballmer couldn’t agree on a price. Ballmer had orally offered $33 per share, but Yang wanted $37 per share — a price that Yahoo’s stock hasn’t reached in nearly 2 1/2 years.

Since Microsoft walked away, Yahoo said it tried to reopen sales negotiations in meetings on May 17 and June 8, only to be told “unequivocally” that the software maker no longer is interested in buying Yahoo in its entirety.

Hoping to dispel any perception that it mishandled the Microsoft negotiations, Yahoo’s shareholder presentation lists the dates of at least eight meetings that its management or other representatives held with Microsoft before the bid was withdrawn.

Yahoo also wants to raise doubts about the sincerity of Microsoft’s bid, arguing that its unsolicited suitor was “unresponsive and inconsistent” during the first three months of negotiations.

“The record casts doubt on whether Microsoft was ever committed to a whole company acquisition,” Yahoo asserted in the shareholder presentation.

But Ballmer appeared to leave little doubt he prized Yahoo’s whole franchise when he submitted his initial bid of $44.6 billion, or $31 per share. The Jan. 31 offer was 62 percent above Yahoo’s stock price at the time. Microsoft made its oral offer of $47.5 billion May 2.

“This is simply revisionist history,” Microsoft spokesman Frank Shaw said Monday about Yahoo’s account of events.

Yang may have a prime opportunity to share his side of the story next week when he is scheduled to be at the same exclusive media investment conference as Gordon Crawford and Bill Miller, the money managers for Yahoo’s two biggest shareholders.

Both Crawford, of Capital Research Global Investors, and Miller, of Legg Mason Capital Management, have publicly criticized Yahoo’s handling of the Microsoft negotiations.

Microsoft Chairman Bill Gates and Yahoo President Susan Decker also are on the guest list for the media conference, which is hosted annually in Sun Valley, Idaho, by investment bankers Allen & Co. and is renowned for hatching big business deals.

To move on from the Microsoft bid, Yahoo hopes for a major boost from a planned advertising partnership with Internet search leader Google Inc.

By relying on Google’s superior technology to show some of the ads alongside its search results, Yahoo believes it can increase its annual revenue by about $800 million and generate another $250 million to $450 million in annual cash flow.

Although the Google partnership still could be blocked by antitrust regulators, Yahoo believes it offers more value than an alternative deal proposed by Microsoft. The software maker offered $9 billion for Yahoo’s online search operations and a roughly 16 percent in stake in the rest of Yahoo’s business.

In its shareholder presentation, Yahoo argues Microsoft’s partial offer is a “bad choice” because it wouldn’t be as lucrative or as flexible as the Google partnership.

Wall Street ended an erratic day with a modest gain after the Federal Reserve left interest rates unchanged and issued a mixed assessment of the economy.
The Fed pointed to a few positive signs in the economy, including “some firming in household spending.” But it also said persistently rising energy prices are likely to limit growth — and not just quicken inflation, which also remains a major concern for the central bank.

The central bank said after a two-day meeting it is keeping the benchmark federal funds rate at 2 percent. The hold was expected, after several speeches by Fed officials suggesting that inflation is becoming a bigger worry for policy makers. It was the first time in 10 months that the central bank did not cut rates — last summer, the key rate was above 5 percent.

The Fed is at a critical turning point, said Quincy Krosby, chief investment strategist for The Hartford. There are still big credit troubles at the nation’s major banks, the job market has been deteriorating for several months, and home prices are still tumbling; to raise rates prematurely could cause these trends to worsen further.

“The goal of the central banks is to get us through this as smoothly as possible, but this is not a science; it is an art form,” Krosby said. “This is as delicate as it gets.”

Barring another sharp rise in unemployment or a dramatic drop in gross domestic product, the Fed seems to be leaning toward raising rates again, Krosby said. “Nonetheless, they’ve left the window open for a cut if need be.”

The Dow Jones industrial average closed up 4.40, or 0.04 percent, to 11,811.83, after rising more than 100 points shortly after the Fed announcement.

Broader stock indicators managed to log stronger gains than the blue chips. The Standard & Poor’s 500 index rose 7.68, or 0.58 percent, to 1,321.97, and the Nasdaq composite index rose 32.98, or 1.39 percent, to 2,401.26.

Trading is often uneven after a rate decision as the market parses the central bank’s statement.

“One of the other factors complicating trading today is that we’re close to the end of the quarter,” said Michael Sheldon, chief market strategist at RDM Financial Group in Westport, Conn. Volatility can arise when managers shift their portfolios’ holdings before presenting them to shareholders at the end of the quarter.

Moreover, a sharp drop in Boeing Inc. also dragged on Dow. Shares of the aircraft manufacturer dropped to their lowest level in more than two years, and finished down $5.15, or 6.9 percent, at $69.64.

Government bond prices pared their losses after the rate decision. The yield on the 10-year Treasury note, which moves opposite its price, traded at 4.10 percent by late afternoon, the same as late Tuesday.

Crude oil fell $2.45 to $134.55 a barrel on the New York Mercantile Exchange. Gold prices also slid, while the dollar weakened against most other major currencies.

Some investors were relieved that policymakers did not talk tougher on inflation.

“I think it was a conscious effort, probably, to hold down expectations that they are going to immediately start fighting inflation and look to raise interest rates,” said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland.

McCain said the Fed needs time to determine what will happen with energy prices, because they are set by worldwide demand. China’s decision to decrease fuel subsidies and possible interest rate hikes in Europe could help curb energy demand, he said.

“I think the Federal Reserve legitimately would like to see the effect of some of those things before they have to determine if they have to take the step of raising rates here to slow the economy further,” he said.

European Central Bank President Jean-Claude Trichet said Wednesday that investors shouldn’t necessarily expect a series of interest rate hikes in the coming months. While the ECB is expected to raise rates at its July 3 meeting, he said he wouldn’t “precommit” to rate hikes beyond that.

On Thursday, the technology sector is likely to come into focus. After the market closed Wednesday, Research In Motion Ltd. shares dropped when the BlackBerry maker reported rises in quarterly profit and revenue that fell just short of analyst expectations. Research in Motion shares fell nearly 9 percent to $129.61 in after-hours trading.

On the New York Stock Exchange, advancing issues outnumbered decliners by more than 2 to 1. Consolidated volume came to 4.72 billion shares, up from 4.06 billion shares on Tuesday.

The Russell 2000 index of smaller companies rose 8.38, or 1.18 percent, to 716.30.

Overseas, Japan’s Nikkei stock average slipped 0.14 percent. Britain’s FTSE 100 rose 0.56 percent, Germany’s DAX index added 1.25 percent, and France’s CAC-40 rose 1.40 percent.

Oil futures ended an uneven session with a modest gain Tuesday as traders awaited news that could help the market break out of a trading range that has lasted for more than two weeks. Retail gas prices, meanwhile, slid below a national average of $4.07 a gallon.

Some investors were buying in response to another drop in the dollar. When the dollar loses ground, crude and other commodities tend to rise on their appeal as a hedge against inflation. Also, a weaker dollar makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar’s protracted decline has been one of the main reasons oil has nearly doubled in value over the past year.

But Tuesday’s advance was limited by concerns about the impact high prices are having on demand, and worries about Congress’ increasing scrutiny of the oil market.

In a weekly report, MasterCard’s SpendingPulse survey found that demand for gasoline fell 2.7 percent last week compared to the same week last year, and is off by an average of 3.6 over the last four weeks compared to the same period in 2007.

Light, sweet crude for August delivery rose 26 cents to settle at $137.00 a barrel on the New York Mercantile Exchange after alternating between gains and losses for most of the day.

Prices drew some support from recent production outages in Nigeria. But reports of an oil workers strike, which helped push prices higher Monday, were denied by Babatunde Ogun, president of Pengassan, Nigeria’s white-collar oil union.

“There’s no strike,” Ogun said. “We’re trying to settle the matter.”

Ogun said talks continued Tuesday among his union, Chevron Corp. and government mediators in Nigeria, Africa’s largest oil producer and a major U.S. supplier.

Separately, a government-appointed mediator charged with leading a peace conference on Nigeria’s oil region called Tuesday for a 90-day truce in the area. On Sunday, the region’s main militant group has said it will not attend the conference, but announced a unilateral cease-fire.

OPEC President Chakib Khelil insisted Tuesday that oil producers saw no need to raise supply, blaming high prices on factors such as U.S. pressure on Iran over its nuclear program and the weak dollar. Khelil’s comments came days after Saudi Arabia disappointed the crude futures market by saying it would boost production less than many had hoped.

Another support for prices came from new sanctions against Iran approved by European Union nations, imposing additional financial and travel restrictions on a list of Iranian companies and experts including the country’s largest bank. The 27-nation bloc stopped short of banning oil and gas exports from Iran, OPEC’s second-largest producer, in response to its nuclear program plans.

A litany of recent reports from the Energy and Transportation departments has offered concrete evidence American consumers are driving less in response to high prices. At the pump, the average price of a gallon of regular gas slipped 0.3 cent overnight to $4.069 a gallon, according to a survey of stations by AAA, the Oil Price Information Service and Wright Express. Still, prices are $1.09 higher than a year ago.

“We’re seeing demand deterioration in the U.S.,” said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates in Galena, Ill.

Vienna-based JBC Energy predicted U.S. gasoline demand will fall 1.7 percent this year compared to 2007, citing Department of Transportation reports showing that U.S. vehicular traffic fell by 2.1 percent between January and April of this year compared to the same period last year.

Increased scrutiny of oil trading practices is keeping some potential investors on the sidelines, analysts said. At least nine bills aimed at curbing speculation in oil contracts have been introduced in Congress in recent weeks. Michael Masters, managing member of hedge fund Masters Capital Management told Congress Tuesday that eliminating excessive speculation could lower oil prices to around $65. But pension fund managers testifying Tuesday said high prices are not their fault, arguing that pension funds place less than 1 percent of their assets in commodities.

In other Nymex trading Tuesday, July gasoline futures rose 0.84 cent to settle at $3.4635 a gallon, and July heating oil futures rose 1.72 cents to settle at $3.8136 a gallon. July natural gas futures fell 19.2 cents to settle at $13.011 per 1,000 cubic feet.

In London, August Brent crude futures rose 55 cents to settle at $136.46 a barrel on the ICE Futures exchange.

AP Business Writer Matthew Perrone in Washington, Associated Press writers Edward Harris in Lagos, Nigeria, Bashir Adigun, in Abuja, Nigeria, Aoife White in Brussels, Belgium, George Jahn in Vienna, Austria, and Gillian Wong in Singapore contributed to this report.

Yahoo (YHOO) and Microsoft (MSFT) are talking again, say TechCrunch, CNET, and an SAI source.
TechCrunch’s sources say the two are talking about a full buyout. One of our sources was highly skeptical of this. A second source said “TechCrunch is 1000% wrong.”

CNET thinks they’re talking about just a search deal (presumably the one Yahoo walked away from two weeks ago.) Our sources concur.

TechCrunch’s Michael Arrington intelligently observes that Microsoft’s “No Comment” is a change of position from yesterday.

Microsoft official comment is “no comment,” which actually contains more information than it appears to. For well over a month, Microsoft has officially been saying they’re no longer interested in Yahoo. They didn’t say that today.

If the companies are talking about a full buyout, it is almost certainly at a price lower than the $33 Microsoft offered a month or so ago. There is no reason on earth for Microsoft to pay that much now that reeling Yahoo has dropped to $21 again. Yahoo shareholders, in fact, would probably be grateful for $25.

Citigroup could take substantial write-downs for subprime mortgages, leveraged buyout loans and other assets in the second quarter, the company’s chief financial officer said on a call with investors.
Shares of Citigroup (NYSE: c) dropped more than 3 percent on the New York Stock Exchange. Before his comments, the shares had been up nearly 1 percent.

In at least some of these areas, the write-downs are on track to be smaller than the first quarter, but could still be substantial, CFO Gary Crittenden said.

Costs linked to worsening consumer credit quality could have a meaningful impact on Citi’s results for the rest of the year, Crittenden said.

The company is always willing to look at acquisitions, and will make them where it makes sense, but is focusing more on improving its performance, he said.

Crittenden spoke on a Deutsche Bank Securities investor conference call.

Goldman Sachs Group Inc., the world’s largest investment bank, on Tuesday said second-quarter earnings fell about 10 percent, but still easily beat lowered Wall Street expectations on higher fees from asset management and stock underwriting.

The company reported a profit of $2.05 billion, or $4.58 per share, for the three months ended May 30 compared to $2.29 billion, or $4.93 per share a year earlier. Revenue fell 7 percent to $9.42 billion from $10.18 billion a year earlier.

The latest results easily surpassed Wall Street expectations for a profit of $3.42 per share on $8.74 billion of revenue, according to analysts polled by Thomson Financial.

Shares of the company rose 60 cents to $182.69 in midday trading.

“Given the difficult market conditions, we are particularly pleased to be able to report strong results for the second quarter,” said Chairman and Chief Executive Lloyd Blankfein in a statement. “We are realistic about the market challenges we face, but times of market dislocation also produce opportunities, and we will continue to take advantage of the most attractive of these as they arise.”

His comments were echoed by Chief Financial officer David Viniar who believes that the first few weeks of March marked what most people feel was the bottom for the credit markets. He said the company will continue to navigate through a credit crisis that has hurt some of its competitors and caused the near collapse of Bear Stearns.

“We’re a ways through what has happened,” he told reporters. “I think there is a lot of the crisis behind us, and that means there’s less to come then there was.”

The Goldman results were in sharp contrast to the nearly $3 billion loss that Lehman Brothers Holdings Inc. reported on Monday. The nation’s fourth-largest investment bank was forced to raise nearly $6 billion in fresh capital, and investor angst about the loss led to the ouster of its chief financial officer and chief operating officer.

Global banks and brokerages have been roiled by the implosion of mortgage-backed securities and leveraged loans, which forced them to write down nearly $300 billion worth of assets since last year. Morgan Stanley on Wednesday will report its results for the second quarter.

Goldman benefited from a $725 million gain during the quarter from its own investments, including a $214 million gain from its stake in Industrial and Commercial Bank of China Ltd. Revenue for all of Goldman’s trading and principal investments fell 16 percent to $5.59 billion.

But, it wasn’t entirely smooth sailing for the investment bank, which had $775 million of write-downs from credit market losses. That caused revenue from its fixed-income business to fall 29 percent versus a year ago.

The higher price of energy and other commodities pushed that business “to a near record,” Viniar said. Goldman does not break out how much its commodities business made.

Equity underwriting produced quarterly net revenues of $616 million, its second best quarter and highest in eight years. Securities services — which includes the firm’s prime brokerage business — posted record quarter revenue of $985 million.

Goldman reported that revenue from its investment banking business fell 2 percent to $1.69 billion. However, its financial advisory business posted revenue of $800 million — 13 percent higher due to robust trading during the quarter.

Revenue from Goldman’s asset management business surge 18 percent to $2.15 billion. Goldman said the increase was due to “market appreciation in equity assets’ and inflows into money market and fixed-income products.

Goldman said it had $226.87 billion of capital as of May 30. That includes $44.82 billion in shareholder’s equity.

U.S. home prices are only about halfway through their decline and most of the further erosion should occur this year, major bank economists said Tuesday.
The 10 economists, including those from Wells Fargo Bank and JPMorgan Chase & Co., also cited the negative overall tone of the economy, with consumer spending curbed, spiking fuel and food prices, tight credit and relatively high unemployment.

“There are a number of headwinds that consumers are dealing with,” said Peter Hooper, chief economist at Deutsche Bank Securities and head of the American Bankers Association’s economic advisory committee. “There’s plenty for consumers to feel gloomy about.”

The group — which also includes economists from Northern Trust Co., SunTrust Banks Inc., PNC Financial Services Group Inc. and Huntington Bancorp — met with officials of the Federal Reserve on Monday.

It expects “sluggish growth, picking up moderately next year,” Hooper said at a news conference.

The economy will experience an “unprecedented” type of recession — the first one without a significant quarterly decline in the gross domestic product, he said. That indicates that factors other than GDP, such as income and employment levels, are important shapers of recession.

Additional declines in average U.S. home prices of around 15 percent between now and late 2009 “clearly will be a drag on consumer spending,” the engine of economic growth, Hooper said.

The forecast was issued hours after the government reported that wholesale prices in May grew at the fastest pace in six months as energy and food costs zoomed higher.

The Labor Department said its Producer Price Index, which measures the costs of goods before they reach store shelves, rose 1.4 percent in May. That was up from a modest 0.2 percent rise in April and marked the biggest increase since November.

However, stripping out energy and food prices, the “core” rate of inflation rose 0.2 percent in May, an improvement from the prior month’s 0.4 percent increase.

A Commerce Department report showed the number of new housing projects started in May fell by 3.3 percent to a 975,000 pace — the lowest in 17 years — as builders pulled back further given the market’s deep slump.

About two-thirds of the economists in the bankers’ group don’t expect the Federal Reserve to begin raising interest rates until next year, while the others believe the central bank could do so this fall amid growing concern over inflation.

“There’s some scope for the Fed to be patient for a while,” Hooper said.

Many economists believe the Fed will hold interest rates steady at 2 percent, a four-year low, when it meets next week. Fed Chairman Ben Bernanke and his colleagues have signaled that the Fed’s rate-cutting campaign, started last September to shore up economic growth, was over because of growing concerns about inflation.

Crude oil futures swung wildly on Monday, rising to a record and then tumbling as investors wrestled with whether they should put stock in Saudi Arabia’s promise to boost production. Retail gas prices rose to a record $4.08 a gallon.

Light, sweet crude for July delivery fell 25 cents to settle at $134.61 a barrel on the New York Mercantile Exchange after earlier soaring to a trading record of $139.89. Earlier, they dropped as low as $132.84.

With little in the way of news to explain oil’s turnabout, analysts pointed to Saudi Arabia’s weekend decision to boost production and to Tuesday’s expiration of crude options, which are agreements to buy or sell futures at higher or lower prices.

Trading is often volatile in the days immediately preceding options expiration. “That could be the cause of some of the volatility today,” said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.

Saudi Arabia, the world’s largest oil producer, told U.N. chief Ban Ki-moon over the weekend that it would boost oil output by 200,000 barrels a day, or by 2 percent, from June to July. In May, the kingdom raised production by 300,000 barrels a day.

A sense that the Saudis may be getting serious about boosting output could be growing among some investors. Still, many analysts believe the boost in Saudi output is too little to make much difference.

“Saudi Arabia’s proposed output addition will only go some way in offsetting the significant output losses in other OPEC nations like Nigeria,” said Barclays Capital analyst Kevin Norrish in a research note.

Cordier said Saudi Arabia has “to increase by north of 1 million barrels per day” to have an impact on prices, “and the market doesn’t think they have it.”

According to the International Energy Agency, OPEC spare capacity fell below 2 million barrels a day in May for the first time since 2006. The majority of that — about 1.45 million barrels a day — was in Saudi Arabia.

Earlier Monday, prices rose as the dollar fell against the euro. Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker dollar makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar’s protracted decline is a major factor behind oil’s doubling in price over the past year.

Investors were also mulling the effects of an overnight fire at a StatoilHydro ASA drilling rig in the North Sea, which could affect as much as 150,000 barrels of daily oil production, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Conn., in a research note.

At the pump, meanwhile, the national average price of a gallon of gas rose 0.3 cent overnight to its latest milestone, according to AAA and the Oil Price Information Service. Gas prices are following crude prices higher, and likely have several more cents to rise before catching up with oil’s latest advance.

If oil prices pass $140 and head even higher, the pain consumers are feeling at the pump will intensify.

Diesel fuel prices held steady Monday at a record $4.797 a gallon. High prices for diesel, used to transport most of the world’s food, are pushing food prices higher, putting even more pressure on consumers.

In other Nymex trading, July gasoline futures fell 2.47 cents to settle at $3.4379 a gallon, while July heating oil futures fell 0.94 cent to settle at $3.8274 a gallon.

July natural gas futures rose 30.8 cents to settle at $12.933 per 1,000 cubic feet.

Anadarko Petroleum Corp. said Monday that natural gas production from a project in the deep waters of the Gulf of Mexico has been restored, hitting a gross rate of about 900 million cubic feet per day. Output from the Independence Hub was halted April 8 after a pipeline leak was found.

In London, August Brent crude futures fell 40 cents to settle at $134.71 on the ICE Futures exchange.

AP Business Writer John Porretto, in Houston, and Associated Press writers George Jahn in Vienna, Austria, and Eileen Ng in Kuala Lumpur, Malaysia, contributed to this report.

Saudi Arabia’s oil minister on Sunday will address reports that the world’s largest oil-producing country is set to raise production by about 500,000 barrels per day, his adviser said.

The increase would bring Saudi Arabia’s oil production to 10 million barrels a day, the country’s highest ever, according to reports by The New York Times and the Middle East Economic Survey, an industry publication.

Adviser Ibrahim al-Muhanna told The Associated Press on Saturday that he could not confirm the reports, but added: “Minister Ali al-Naimi will clarify this tomorrow.”

Saudi Arabia has called for a meeting of oil producing and consuming countries on June 22 in the port city of Jiddah to discuss ways of dealing with soaring energy prices.

The New York Times report on Saturday, citing unnamed analysts and oil traders briefed by Saudi officials, said the production increase was to be announced following the meeting.

The Middle East Economic Survey said Friday that Saudi Arabia was considering a production increase, but did not provide a source.

The Saudis are concerned that sustained high oil prices will eventually slacken the world’s appetite for oil, affecting them in the long run.

Crude prices have reached record highs, surpassing $139 per barrel on June 6 after surging nearly $11 in the biggest single-day price leap ever.

The prices had receded by Friday, with the benchmark light, sweet crude for July delivery falling $1.88 to settle at $134.86 on the New York Mercantile Exchange. In London, July Brent crude lost $1.84 to settle at $134.25 on the ICE Futures exchange.

Meanwhile, the average national price for a gallon of regular gas in the U.S. rose to a record $4.066 Friday, from $4.06 a day earlier, according to AAA and the Oil Price Information Service. Diesel also set a new record, rising 0.2 cent to $4.796 a gallon.

Even with record highs in the U.S., prices remain far cheaper than in Europe and some parts of Asia. Oil-related protests have swept Europe, with fishermen staging strikes in Spain, Portugal, France, Belgium and Italy. Several Asian countries, including India, Indonesia and Malaysia, have slashed fuel subsidies, raising prices for millions of consumers and sparking demonstrations.

Wrapping up a summit in Japan on Saturday, finance ministers from the Group of Eight nations — Britain, Canada, France, Germany, Italy, Japan, Russia and the U.S. — urged oil-producing nations to increase production.

The current president of the Organization of Petroleum Exporting Countries, Chakib Khelil, has said that the cartel will make no new decision on production levels until its Sept. 9 meeting in Vienna. OPEC ministers often follow the lead of the Saudis when discussing whether to increase production to take the pressure off rising prices.

Yahoo Inc. became Microsoft Corp.’s takeover prey largely because Google Inc. established such a commanding lead in the Internet’s lucrative search advertising market.
But after eluding Microsoft’s grasp, Yahoo is now turning to Google to help squelch a rebellion among its shareholders who believe it should have accepted Microsoft’s $47.5 billion buyout offer while it was still available last month.

Yahoo announced its decision to let Google handle some of its advertising sales late Thursday, just a few hours after revealing it unsuccessfully tried to persuade Microsoft to renew its previous offer of $33 per share. The snub caused Yahoo to conclude that there is no hope for any kind of deal with Microsoft.

Although Yahoo believes Google could help boost its annual revenue by $800 million, the advertising partnership wasn’t enough to ease the disappointment of investors who had been holding out hope for a Microsoft deal.

Yahoo shares plunged $2.63, or 10.1 percent, to finish Thursday at $23.52 and was down 58 cents at $22.94 in premarket trading Friday. Google shares rose $2.80 to $555.75 in premarket dealings and Microsoft shares slipped 4 cents to $28.20.

Part of the problem for Yahoo is that antitrust concerns might prevent an alliance with Google.

Google already holds about 75 percent of the $11 billion search advertising market in the United States with Yahoo a distant second at 9 percent, according to the research firm eMarketer Inc.

Microsoft and a variety of consumer-interest groups already have signaled they will turn up the political heat in an attempt to prevent Google from working with Yahoo.

The outcry already has drawn the attention of U.S. Sen. Herb Kohl, chairman of the Senate subcommittee on antitrust, competition policy and consumer rights.

“The consequences for advertisers and consumers could be far-reaching and warrant careful review, and we plan to investigate the competitive and privacy implications of this deal further,” said Kohl, a Wisconsin Democrat.

Yahoo and Google have voluntarily agreed to wait until late September to begin working together to give the government adequate time to review the arrangement. If it isn’t blocked, the partnership could last for the next decade.

The antitrust scrutiny appears to be the least of Yahoo’s worries for now.

The Sunnyvale-based company also is trying to fend off a shareholder mutiny led by activist investor Carl Icahn, who has vowed to replace the company’s board because of the way the directors handled the Microsoft negotiations during the past 4 1/2 months.

But Icahn has been hoping to engineer a sale to Microsoft, so his campaign could be hurt by the perception that the software maker has lost all interest in buying Yahoo. Shareholders may be reluctant to support Icahn’s attempted coup unless he can demonstrate his slate of directors has a better turnaround plan than the current board.

Icahn did not return phone calls seeking comment Thursday.

The fate of Yahoo’s board is scheduled to be determined at the company’s Aug. 1 annual meeting.

“If you are a Yahoo shareholder, you just have to be scratching your head right now,” said Standard and Poor’s equity analyst Scott Kessler.

If Wall Street’s backlash becomes severe enough, Kessler said he believes Yahoo might have to consider replacing co-founder Jerry Yang as its chief executive — something Icahn has already promised he will do if he wins control of the board.

After Yang took over the reins from Terry Semel a year ago, Yahoo’s stock price fell from $28.12 to $19.18 at the time Microsoft launched its unsolicited takeover attempt in January.

Yang “has been slow to move, slow to act and it has cost shareholders as a result,” Kessler said.

Many Yahoo shareholders blame Yang for letting his emotional attachment blur his judgment during the Microsoft negotiations.

Yahoo’s board sent Yang and fellow co-founder David Filo to a pivotal May 3 meeting in Seattle to discuss Microsoft’s oral offer to buy the company for $33 per share, up from its initial bid of $31 per share. After Yang demanded $37 per share, Microsoft CEO Steve Ballmer withdrew the offer.

In recent weeks, Ballmer has been trying to buy Yahoo’s search engine instead.

Yahoo concluded that its search engine was too important to sell piecemeal.

Without explaining its logic, Microsoft said it believed a deal involving Yahoo’s search engine would have been more valuable to Yahoo than if it had bought the entire company at $33 per share. The Redmond, Wash.-based software maker said it remains open to buying Yahoo’s search operations.

Yahoo’s deal with Google includes an escape hatch should Microsoft or another suitor buy the company. If Yahoo is sold, Google would receive a termination fee of up to $250 million.

That clause could still raise hope that Icahn might be able to renew the Microsoft talks if he can win control of Yahoo’s board.

The deal shapes up as a major victory for Mountain View-based Google, which didn’t want Yahoo to fall into Microsoft’s clutches.

“I am happy to be helping them to stay independent,” Google co-founder Sergey Brin said in a Thursday interview.

With a Yahoo deal off the table, Microsoft could set its sights on a smaller acquisition that still might help its unprofitable Internet operations. Analysts have cited Time Warner Inc.’s AOL, Internet software service provider Salesforce.com Inc. and leading online social networks, News Corp.’s MySpace and Facebook Inc. as possible targets.

The Google partnership expands upon a two-week trial conducted in April while Yahoo was trying to pressure Microsoft into raising its bid. The tests confirmed Google’s technology would generate more revenue for Yahoo than its own system, which cost more than $2 billion to acquire and improve.

Nevertheless, Yahoo still intends to use its own search engine to distribute some ads and process all search requests. Working with Google will give Yahoo “the best of both worlds,” Yahoo President Sue Decker said a Thursday conference call.

Oil prices regained their stunning upward momentum Wednesday, rising as crude’s biggest drivers — a weak dollar and supply concerns — brought buyers back in force. At the pump, gas prices rose to a new record over $4.05 a gallon.

Oil futures that were falling a week ago on concerns about declining gasoline consumption have dramatically reversed course and appear poised to set new records above $140 a barrel. While the market remains concerned about the effect of high prices on demand, several weeks of falling oil inventories and the dollar’s inability to make headway against the euro have combined to turn market sentiment decidedly bullish.

That’s bad news for consumers, already struggling with rising prices for food and consumer goods. Analysts say gas prices could rise to a national average of $4.25 a gallon by the Fourth of July, and are unlikely to fall as long as oil prices keep surging.

On Wednesday, the Energy Department’s Energy Information Administration created new supply worries when it said oil inventories fell by 4.6 million barrels last week. Analysts surveyed by energy research firm Platts expected a much smaller decline of about 1.4 million barrels; any sign that oil supplies are falling has tended to send oil climbing.

Light, sweet crude rose $5.07 to settle at $136.38 a barrel on the New York Mercantile Exchange after earlier trading as high as $138.30. Oil surged shot up more than $16 over the course of last Thursday and Friday, reaching a trading record of $139.12 before pulling back earlier this week.

The dollar’s travails also sent oil prices rising. The euro bought $1.5562 in late afternoon trading, up from $1.5449 Tuesday. Oil prices have closely tracked dollar moves; last week’s sharp price increases came as the dollar fell. Prices then retreated more than $7 earlier this week as the dollar gained ground.

“(Oil’s) been hand in hand with what the dollar’s been doing,” said James Cordier, president of Tampa, Fla.-based trading firms Liberty Trading Group and OptionSellers.com.

Many investors buy commodities such as oil as a hedge against inflation when the dollar falls. Also, a weaker greenback makes oil less expensive to investors dealing in other currencies. Many analysts believe the dollar’s protracted decline is the primary reason oil prices have doubled over the past year.

Energy investors are betting that the European Central Bank will raise interest rates later this summer, and that the U.S. Federal Reserve will hold rates steady until this fall, Cordier said. If rates rise in Europe but remain unchanged in the U.S., the dollar will likely fall further against the euro.

“That’s going to really fuel the (investment) funds back into the long side of crude oil,” Cordier said.

Other elements of the EIA’s report were considered bearish for prices. Supplies of gasoline and distillate fuels such as diesel and heating oil both rose last week, and demand for gasoline fell by 1.3 percent.

But traders chose to focus on the big drop in crude supplies and the weaker dollar, propelling prices higher. Crude inventories have fallen by 23.6 million barrels over the past four weeks.

“If crude inventories were seriously in surplus, I think that would start to override the effects of the dollar,” said Michael Lynch, president of Strategic Energy & Economic Research Inc. in Winchester, Mass.

Retail gas prices, meanwhile, reached another record Wednesday, rising 0.9 cent overnight to a national average of $4.052, according to a survey of stations by AAA and the Oil Price Information Service. Prices continue rising, despite falling demand, because the price of oil keeps moving higher.

While oil prices have slipped some from last week’s record, analysts say gas prices still have some catching up to do, and could rise another nickel or so. Of course, if oil futures blast past that record and reach new highs, gas prices will likely rise even higher.

EIA chief Guy Caruso on Wednesday said motorists should expect gasoline prices to remain close to $4 a gallon through next year. On Tuesday, the EIA predicted that gas pries will peak at a monthly average price of $4.15 in August. Cordier thinks gas prices could reach $4.25 by the Fourth of July if oil remains near $140 a barrel.

Diesel prices are also soaring, and rose to a new record of $4.792 a gallon on Wednesday. Rising diesel prices are pushing up prices of food and consumer goods transported by train, truck and ship. The combination of high fuel and food prices is putting intense pressure on many consumers, and raising the prospects of a severe economic slowdown.

Oil prices were also supported Wednesday by reports that Chinese fuel imports rose more than expected over the first 5 months of the year, and Royal Dutch Shell PLC’s decision to extend force majeure on some Nigerian oil shipments. The legal declaration that means the company can’t meet contractual obligations to supply some customers. The company first made the declaration following a militant attack in April.

In other Nymex trading Wednesday, July gasoline futures rose 14.65 cents to settle at $3.4658 a gallon, and July heating oil futures rose 16.24 cents to settle at $3.9748 a gallon. July natural gas futures rose 22.5 cents to settle at $12.66 per 1,000 cubic feet.

In London, July Brent crude rose $4 to settle at $135.02 a barrel on the ICE Futures exchange.

Associated Press Writer H. Josef Hebert, in Washington, contributed to this report.