Microsoft gave the US markets a boost yesterday on news that it was close to a settlement of its three-year anti-trust battle with the US government. The reports enabled investors to shrug off a big fall in manufacturing activity and a larger-then-expected plunge in consumer spending in September.
The outline of a final settlement would require almost no changes in the design of Microsoft's Windows software and would not diminish the company's market power, according to lawyers involved in the case.
While Microsoft's shares rose on the expectation of a settlement, the 18 US states that are co-plaintiffs in the action taken by the US Justice Department have not revealed if they favour the proposed deal.
The tentative agreement would give personal computer makers greater freedom to install non-Microsoft software on new models, but it would not prevent the Seattle-based company from binding rival software to Windows.
A deadline for settlement was set for today by US District Judge Colleen Kollar-Kotelly who was assigned to decide how to restrict Microsoft's anti-trust business practices.
After three days of losses, the Dow Jones Industrial Index rose to more than 180 in mid-afternoon trading, its best performance this week, buoyed by the Microsoft news - still some 300 points below its close last Friday. The Nasdaq Composite and the S&P, on both of which Microsoft is also traded, were also pulled up on anticipation of the software giant's deal.
All three indexes closed in positive territory. The Dow was up 2.08 per cent at 9,263.90 and the Nasdaq was up 3.32 per cent at 1,746.3. The S&P closed at 1,084.1, up 2.29 per cent, but any Wall Street rally is likely to be short lived given the economic and political uncertainty in the US, which is on alert for new terrorist attacks, and the market is already factoring in a further rate cut - the 10th this year - when the Federal Reserve policy-making committee meets on Tuesday.
US President George W Bush has set the end of this month as a deadline for a Congressional stimulus package to jump-start the stalled economy, and US Treasury Secretary Paul O'Neill has used the latest economic data to press the White House case for getting a stimulus bill to the President inside four weeks.
Mr O'Neill also faces the prospect that, if the United States resists pressure to support an International Monetary Fund bailout of Argentina, which is $132 billion (€146 billion) in debt - a decision he must make soon - the markets could be dragged down by a default of the biggest Latin America economy.
The stakes are high. With the US now in negative growth, the World Bank has warned that "as 2001 draws to a close the global economy is slipping precariously towards recession" with the risk of a global downturn "substantially raised" by the September 11th attacks on the US.
The downturn in the US was sharply underlined by more alarming data yesterday.
Manufacturing activity declined in October for the 15th consecutive month. The National Association of Purchasing Management said its index of business activity plunged to 39.8 from 47 in September. Analysts had been expecting a reading of 44.5. Anything below 50 shows a contraction.
After gaining 0.3 per cent in August, consumer spending dropped 1.8 per cent in September, the largest decline since January 1987, the US Commerce Department said. The last time the loss was higher was in May 1960, when consumers cut spending by 1.9 per cent. Analysts had foreseen a fall of just 0.9 per cent in September. Americans cut spending on durable goods such as cars and household appliances. Spending on services fell 1.8 per cent, the biggest drop on record.
