Investors face another Washington deadline

NEW YORK (Reuters) - Investors face another Washington-imposed deadline on government spending cuts next week, but it's not generating the same level of fear as two months ago when the "fiscal cliff" loomed large.

Investors in sectors most likely to be affected by the cuts, like defense, seem untroubled that the budget talks could send stocks tumbling.

Talks on the U.S. budget crisis began again this week leading up to the March 1 deadline for the so-called sequestration when $85 billion in automatic federal spending cuts are scheduled to take effect.

"It's at this point a political hot button in Washington but a very low level investor concern," said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. The fight pits President Barack Obama and fellow Democrats against congressional Republicans.

Stocks rallied in early January after a compromise temporarily avoided the fiscal cliff, and the Standard & Poor's 500 index <.spx> has risen 6.3 percent since the start of the year.

But the benchmark index lost steam this week, posting its first week of losses since the start of the year. Minutes on Wednesday from the last Federal Reserve meeting, which suggested the central bank may slow or stop its stimulus policy sooner than expected, provided the catalyst.

National elections in Italy on Sunday and Monday could also add to investor concern. Most investors expect a government headed by Pier Luigi Bersani to win and continue with reforms to tackle Italy's debt problems. However, a resurgence by former leader Silvio Berlusconi has raised doubts.

"Europe has been in the last six months less of a topic for the stock market, but the problems haven't gone away. This may bring back investor attention to that," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

OPTIONS BULLS TARGET GAINS

The spending cuts, if they go ahead, could hit the defense industry particularly hard.

Yet in the options market, bulls were targeting gains in Lockheed Martin Corp , the Pentagon's biggest supplier.

Calls on the stock far outpaced puts, suggesting that many investors anticipate the stock to move higher. Overall options volume on the stock was 2.8 times the daily average with 17,000 calls and 3,360 puts traded, according to options analytics firm Trade Alert.

"The upside call buying in Lockheed solidifies the idea that option investors are not pricing in a lot of downside risk in most defense stocks from the likely impact of sequestration," said Jared Woodard, a founder of research and advisory firm condoroptions.com in Forest, Virginia.

The stock ended up 0.6 percent at $88.12 on Friday.

If lawmakers fail to reach an agreement on reducing the U.S. budget deficit in the next few days, a sequester would include significant cuts in defense spending. Companies such as General Dynamics Corp and Smith & Wesson Holding Corp could be affected.

General Dynamics Corp shares rose 1.2 percent to $67.32 and Smith & Wesson added 4.6 percent to $9.18 on Friday.

EYES ON GDP DATA, APPLE

The latest data on fourth-quarter U.S. gross domestic product is expected on Thursday, and some analysts predict an upward revision following trade data that showed America's deficit shrank in December to its narrowest in nearly three years.

U.S. GDP unexpectedly contracted in the fourth quarter, according to an earlier government estimate, but analysts said there was no reason for panic, given that consumer spending and business investment picked up.

Investors will be looking for any hints of changes in the Fed's policy of monetary easing when Fed Chairman Ben Bernake speaks before congressional committees on Tuesday and Wednesday.

Shares of Apple will be watched closely next week when the company's annual stockholders' meeting is held.

On Friday, a U.S. judge handed outspoken hedge fund manager David Einhorn a victory in his battle with the iPhone maker, blocking the company from moving forward with a shareholder vote on a controversial proposal to limit the company's ability to issue preferred stock.

(Additional reporting by Doris Frankel; Editing by Kenneth Barry)

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Russians Demand Return of Brother of Dead Adopted Boy in Texas

MOSCOW — Russian lawmakers on Friday demanded the return of a 2-year-old boy whose 3-year-old brother, adopted by the same family in Texas, died under murky circumstances in January, prompting allegations of abuse and an investigation.

The younger boy, Kristopher Shatto, who was born Kirill Kuzmin in Russia, remains in the custody of his adoptive parents, Alan and Laura Shatto, in Gardendale, Tex. His biological mother, Yulia V. Kuzmina, who lost custody of the boys because of alcohol addiction, has also demanded Kirill’s return.

But even as the State Duma, the lower house of Parliament, adopted a resolution calling for Kirill to be brought back to Russia, news outlets here reported that Ms. Kuzmina and her boyfriend had gotten into a drunken brawl and were removed from a train by the police while returning to Gdov, a town near the border with Estonia. They had been in Moscow for a television appearance.

Yevgeny Usovich, the owner of a resort on Lake Peipus where Ms. Kuzmina’s boyfriend, Vladimir Antipenko, worked as a bathhouse attendant, said he had seen the couple after their return but was unable to get details of their travel. “It was useless; they were drunk,” Mr. Usovich said in a telephone interview. “What could I find from them?”

In an interview with the Interfax news agency, Mr. Usovich said employees at the Ustye Beach Resort, where Mr. Antipenko worked, were shocked by the television appearance. “The staff here at the club were outraged as they were watching yesterday’s television program,” Mr. Usovich said. “And all of them said the child must not be handed back over to this couple.”

The older boy, Max Shatto, who was born Maksim Kuzmin, died on Jan. 21, and news of his death set off a huge outcry this week in Russia, which late last year banned adoptions by American citizens. Texas child welfare officials said they had received a report of abuse on the same day that Max died.

On Thursday, Shirley Standefer, chief investigator for the Ector County Medical Examiner’s Office in Texas, said bruises were found on Max’s lower abdomen. An autopsy was conducted on Jan. 23, and it normally takes 8 to 12 weeks to get results, she said. The chief medical examiner will then rule on the cause of death, she added, possibly early next week.

Russia’s child rights commissioner, Pavel A. Astakhov, who had said he would help Ms. Kuzmina regain custody of Kirill, posted a statement on his Web site on Friday seeming to backtrack after the reports of her drunkenness. He said that a decision on restoring parental rights could be made only by a court and that the bigger issue was the way American courts had mishandled abuse cases involving adopted Russian children.

“I repeat once again — the final decision is made by the court only,” Mr. Astakhov said in his statement. “Unfortunately, the debate around the death of little Maksim Kuzmin does not solve the main problem — to restore justice.”

Some Russian officials quickly accused the adoptive mother, Ms. Shatto, of beating the boy to death, but they have since pulled back and said she was guilty of negligence at a minimum.

President Valdimir V. Putin’s spokesman, Dmitri S. Peskov, on Friday urged the public to wait for the forensic results. “To qualify it is a murder or as an accident is not allowed while there is still no evidence,” Mr. Peskov said on Dozhd, a television station. “In this case, I would consider it necessary to temper emotions a bit.”

Earlier in the day, the American ambassador to Russia, Michael A. McFaul, posted a statement on his blog in English and Russian calling Max’s death a “tragedy” but urging that it not be exploited. In the post, Mr. McFaul said he was “troubled” by how some Russian news outlets were portraying the United States and Americans in the context of the Shatto case.

Ms. Shatto has told investigators that she had left the boys playing outside unattended and returned to find Max lying on the ground, unresponsive. He died later that day at a hospital.

In the resolution adopted on Friday, Russian lawmakers urged American officials to regard the issue of adopted Russian children in the United States as an “emergency situation requiring immediate reaction on the part of all government branches of our states.”

Such adoption cases are now covered by a bilateral agreement between the two countries — ratified last year — that sets forth a number of requirements for oversight and cooperation. Along with the adoption ban, which took effect on Jan. 1, the Russian government announced that it would terminate the existing agreement on adoptions on Jan. 1, 2014, following a required one-year notification period.

Mr. Putin called the adoption ban an appropriate retaliation for an American law that seeks to punish Russians accused of violating human rights.

The Russian law was named for Dima Yakovlev, a 21-month-old boy who was adopted from Russia and died of heatstroke in Virginia in July 2008, after being left in a parked car for nine hours by his father, Miles Harrison. Mr. Harrison was acquitted of manslaughter charges by a judge who called the death a tragic accident.

Dozens of American families are still hoping to complete adoptions that were in process when the ban took effect. The issue has become a major source of tension in an increasingly troubled diplomatic relationship. Officials have said that Secretary of State John Kerry and the Russian foreign minister, Sergey V. Lavrov, will discuss the Shatto case among other issues at a meeting next week in Berlin.

Staci Semrad contributed reporting from Lubbock, Tex.

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Courtney Lopez: Gia Thinks Our Dog Is Having a Baby

Mom & Babies
Celebrity Baby Blog

02/22/2013 at 01:00 PM ET

Denise Truscello/Wireimage

Mario Lopez is a man of his word.

Following a December wedding, the EXTRA host declared he and wife Courtney would get to work expanding their family immediately — and he wasn’t kidding.

In January, the couple discovered they were indeed expecting.

“Mario and I are so excited to add to our family! I found out a month ago and surprised Mario with the good news at breakfast,” Courtney tells PEOPLE.

But the proud parents aren’t the only ones gearing up for a new addition. Big sister Gia Francesca, 2, already has babies on the brain.

“Gia kind of understands that there is a baby in my belly,” Courtney notes. “She also told me our dog Julio has a baby in his belly — so who knows!”

Despite a bumpy start — “I had a rough couple of weeks when I first found out,” she shares — the mom-to-be is feeling better and already sporting quite the blossoming belly. “I am showing so much faster this time around,” she says.

And with warmer weather on the way, Courtney will be swathing her bump in floor-length frocks — but plans on forgoing a few fashion ensembles from her past.

“I love being pregnant in the summer! I live in maxi dresses,” she says. “Looking back at my first pregnancy, there are certain things that I wore and I have no idea why. I looked horrible and I won’t do that again!”

Originally from Pittsburgh, the expectant mama is thrilled to have settled down with her growing family on the West Coast. Her only wish? That her children will one day enjoy a winter wonderland.

“I don’t miss the East Coast at all — especially the humidity,” she explains. “The one thing I do want my children to experience from an early age is snow. There is nothing like being a kid playing in the snow.”

– Anya Leon

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FDA approves new targeted breast cancer drug

WASHINGTON (AP) — The Food and Drug Administration has approved a first-of-a-kind breast cancer medication that targets tumor cells while sparing healthy ones.

The drug Kadcyla from Roche combines the established drug Herceptin with a powerful chemotherapy drug and a third chemical linking the medicines together. The chemical keeps the cocktail intact until it binds to a cancer cell, delivering a potent dose of anti-tumor poison.

Cancer researchers say the drug is an important step forward because it delivers more medication while reducing the unpleasant side effects of chemotherapy.

"This antibody goes seeking out the tumor cells, gets internalized and then explodes them from within. So it's very kind and gentle on the patients — there's no hair loss, no nausea, no vomiting," said Dr. Melody Cobleigh of Rush University Medical Center. "It's a revolutionary way of treating cancer."

Cobleigh helped conduct the key studies of the drug at the Chicago facility.

The FDA approved the new treatment for about 20 percent of breast cancer patients with a form of the disease that is typically more aggressive and less responsive to hormone therapy. These patients have tumors that overproduce a protein known as HER-2. Breast cancer is the second most deadly form of cancer in U.S. women, and is expected to kill more than 39,000 Americans this year, according to the National Cancer Institute.

The approval will help Roche's Genentech unit build on the blockbuster success of Herceptin, which has long dominated the breast cancer marketplace. The drug had sales of roughly $6 billion last year.

Genentech said Friday that Kadcyla will cost $9,800 per month, compared to $4,500 per month for regular Herceptin. The company estimates a full course of Kadcyla, about nine months of medicine, will cost $94,000.

FDA scientists said they approved the drug based on company studies showing Kadcyla delayed the progression of breast cancer by several months. Researchers reported last year that patients treated with the drug lived 9.6 months before death or the spread of their disease, compared with a little more than six months for patients treated with two other standard drugs, Tykerb and Xeloda.

Overall, patients taking Kadcyla lived about 2.6 years, compared with 2 years for patients taking the other drugs.

FDA specifically approved the drug for patients with advanced breast cancer who have already been treated with Herceptin and taxane, a widely used chemotherapy drug. Doctors are not required to follow FDA prescribing guidelines, and cancer researchers say the drug could have great potential in patients with earlier forms of breast cancer

Kadcyla will carry a boxed warning, the most severe type, alerting doctors and patients that the drug can cause liver toxicity, heart problems and potentially death. The drug can also cause severe birth defects and should not be used by pregnant women.

Kadcyla was developed by South San Francisco-based Genentech using drug-binding technology licensed from Waltham, Mass.-based ImmunoGen. The company developed the chemical that keeps the drug cocktail together and is scheduled to receive a $10.5 million payment from Genentech on the FDA decision. The company will also receive additional royalties on the drug's sales.

Shares of ImmunoGen Inc. rose 2 cents to $14.32 in afternoon trading. The stock has ttraded in a 52-wek range of $10.85 to $18.10.

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Investors face another Washington deadline

NEW YORK (Reuters) - Investors face another Washington-imposed deadline on government spending cuts next week, but it's not generating the same level of fear as two months ago when the "fiscal cliff" loomed large.

Investors in sectors most likely to be affected by the cuts, like defense, seem untroubled that the budget talks could send stocks tumbling.

Talks on the U.S. budget crisis began again this week leading up to the March 1 deadline for the so-called sequestration when $85 billion in automatic federal spending cuts are scheduled to take effect.

"It's at this point a political hot button in Washington but a very low level investor concern," said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. The fight pits President Barack Obama and fellow Democrats against congressional Republicans.

Stocks rallied in early January after a compromise temporarily avoided the fiscal cliff, and the Standard & Poor's 500 index <.spx> has risen 6.3 percent since the start of the year.

But the benchmark index lost steam this week, posting its first week of losses since the start of the year. Minutes on Wednesday from the last Federal Reserve meeting, which suggested the central bank may slow or stop its stimulus policy sooner than expected, provided the catalyst.

National elections in Italy on Sunday and Monday could also add to investor concern. Most investors expect a government headed by Pier Luigi Bersani to win and continue with reforms to tackle Italy's debt problems. However, a resurgence by former leader Silvio Berlusconi has raised doubts.

"Europe has been in the last six months less of a topic for the stock market, but the problems haven't gone away. This may bring back investor attention to that," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

OPTIONS BULLS TARGET GAINS

The spending cuts, if they go ahead, could hit the defense industry particularly hard.

Yet in the options market, bulls were targeting gains in Lockheed Martin Corp , the Pentagon's biggest supplier.

Calls on the stock far outpaced puts, suggesting that many investors anticipate the stock to move higher. Overall options volume on the stock was 2.8 times the daily average with 17,000 calls and 3,360 puts traded, according to options analytics firm Trade Alert.

"The upside call buying in Lockheed solidifies the idea that option investors are not pricing in a lot of downside risk in most defense stocks from the likely impact of sequestration," said Jared Woodard, a founder of research and advisory firm condoroptions.com in Forest, Virginia.

The stock ended up 0.6 percent at $88.12 on Friday.

If lawmakers fail to reach an agreement on reducing the U.S. budget deficit in the next few days, a sequester would include significant cuts in defense spending. Companies such as General Dynamics Corp and Smith & Wesson Holding Corp could be affected.

General Dynamics Corp shares rose 1.2 percent to $67.32 and Smith & Wesson added 4.6 percent to $9.18 on Friday.

EYES ON GDP DATA, APPLE

The latest data on fourth-quarter U.S. gross domestic product is expected on Thursday, and some analysts predict an upward revision following trade data that showed America's deficit shrank in December to its narrowest in nearly three years.

U.S. GDP unexpectedly contracted in the fourth quarter, according to an earlier government estimate, but analysts said there was no reason for panic, given that consumer spending and business investment picked up.

Investors will be looking for any hints of changes in the Fed's policy of monetary easing when Fed Chairman Ben Bernake speaks before congressional committees on Tuesday and Wednesday.

Shares of Apple will be watched closely next week when the company's annual stockholders' meeting is held.

On Friday, a U.S. judge handed outspoken hedge fund manager David Einhorn a victory in his battle with the iPhone maker, blocking the company from moving forward with a shareholder vote on a controversial proposal to limit the company's ability to issue preferred stock.

(Additional reporting by Doris Frankel; Editing by Kenneth Barry)

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Montevideo Journal: Uruguay’s Video Game Start-Ups Garner Attention

MONTEVIDEO, Uruguay — For a start-up that has a hit video game for the iPhone, the new loft-style offices of Ironhide Game Studio are exactly what one would expect — a newly hired staff labors feverishly on software updates not far from a pinball machine and custom-built monster arcade cabinet intended for letting off steam.

But the company, a success in the fiercely competitive field of video game development, stands out from other high-tech ventures in one respect: its unconventional location, which frequently confuses people abroad. “They politely ask, ‘Where is Uruguay?’ ” said Álvaro Azofra, one of the three founders of Ironhide, the company behind Kingdom Rush, a lucratively popular game in the United States that involves a cartoonish kingdom under attack by marauding yetis and ogres.

Squeezed between Brazil and Argentina and long dependent on commodities exports, Uruguay may be better known for its flocks of sheep and herds of cattle. But attention is now shifting to the country’s growing constellation of start-ups that are engineering video games for computers and hand-held devices.

Developers point to a variety of reasons that Uruguay has been able to compete with South America’s larger economies, whether the creativity of its engineers and commercial artists or its relatively relaxed immigration rules and extensive use of computers in schools.

“It’s ironic, because historically, this is a country that hates entrepreneurship, but not the culture of entrepreneurship,” said Gonzalo Frasca, a video game theorist whose company, Powerful Robot, has developed numerous games for clients in the United States, including Legends of Ooo, based on the Cartoon Network animated television series “Adventure Time.”

Mr. Frasca, 40, contrasted the skepticism that persists in relation to private enterprise in Uruguay’s cradle-to-grave welfare state, in which companies in sectors like telecommunications, casinos and even whiskey production remain under state control, with the country’s robust tradition of creativity in the arts and sciences.

“We still have strong schools for computer science,” said Mr. Frasca, who has a doctorate in video game studies from IT University of Copenhagen and is a pioneer in Uruguay’s game industry. “When people graduate, they realize they’re in a small country where they have no choice but to engage with the rest of the world.”

While ORT, Uruguay’s largest private university, offers one of the region’s first degrees in video game design, the relaxed atmosphere of seaside Montevideo — the Uruguayan writer Eduardo Galeano once remarked that his countrymen resembled “Argentines on Valium” — can still make it seem as if it would be an unlikely place for technology start-ups to thrive.

Other parts of Latin America are nurturing their own video game development scenes. Chile, for instance, recently drew attention when Atakama Labs, a game developer based in Santiago, was acquired by the Japanese gaming company DeNA.

Gaming studios have also emerged in São Paulo and Rio de Janeiro, Brazil’s two largest cities, but developers there complain of byzantine tax regulations and labor rules that make hiring employees costlier than in some rich industrialized countries. In Argentina, dozens of game-developing start-ups have been founded in Buenos Aires.

But while Argentina has traditionally had more companies in the industry, some of the momentum is seen shifting across the border to Uruguay as Argentine ventures struggle with abrupt changes in economic policy, including the tightening of currency controls that have complicated operations for exporters.

In Latin America and beyond, developers are seeking to mimic the success of Kingdom Rush, ranked in 2012 among the top-selling paid applications for the iPhone in the United States. In addition to Ironhide and Powerful Robot, an array of other game developers operates quietly.

Some, like Trojan Chicken, a developer of educational games in Spanish for schoolchildren, benefit from the heavy presence of the state across Uruguay’s economy, which avoided the privatization wave of neighboring Latin American countries in the 1990s.

Ingenio, a state-controlled incubator for start-ups, helped finance Trojan Chicken, which has created educational games including 1811, an adventure game set in colonial Uruguay, and D.E.D., a detective game in which players solve thefts of national heritage. The games are designed to be played on the inexpensive laptops distributed to schoolchildren across Uruguay.

Nearly all of the 300,000 children in Uruguay’s public schools now have their own computers, after the authorities here began embracing One Laptop per Child, the ambitious project aimed at bringing computing to children in the developing world, in 2006. Called the Plan Ceibal here, it is financed by public money.

Miguel Brechner, the director of the Plan Ceibal, said the initiative was already serving as a catalyst for Uruguayan content developers, notably gaming and animation studios. Describing Ceibal as a “digital equality plan,” he said that “reality has shown that kids get excited about games.”

Encompassing the video game companies, software development in Uruguay has evolved into a $600 million industry, making the country Latin America’s leader in per-capita software exports. But some here say that the industry may also be falling victim to its success, as salaries for developers rapidly climb and make it more expensive for start-ups to compete internationally.

Still, Uruguay’s immigration laws offer certain advantages in the competition for talented employees. Building on a history of attracting immigrants from Europe, engineers, animators and other foreign hires at start-ups can legally reside and work in Uruguay while their applications for work visas are being processed.

“Uruguay is a remarkably open place when it comes to attracting talent,” said Evan Henshaw-Plath, an American among the founders of the company that became Twitter. After moving to Uruguay in 2007, Mr. Henshaw-Plath founded a software development company that now has employees from countries like Poland and Ecuador.

Drawing a contrast between Uruguay and Brazil, he delights in telling a story about an American technology investor based in Japan who was about to embark on a business trip to South America aimed at finding start-ups in which to invest or to acquire outright.

Upon discovering that Brazil required Americans to go through a bureaucratic ordeal to obtain a visa, the investor canceled his trip there. Instead, he visited Uruguay, which has no such visa requirements, and eventually acquired Mr. Henshaw-Plath’s 20-person company, Cubox.

Mauricio Rabuffetti contributed reporting.

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Cirque Du Soleil Announces New Michael Jackson-Themed Show in Las Vegas

By Mark Gray

02/21/2013 at 09:15 PM EST

The logo

Courtesy Cirque du Soleil

The King of Pop will live in Vegas!

The long-rumored Cirque Du Soleil show based on the music of Michael Jackson was formally announced Thursday afternoon.

Premiering June 29 at Las Vegas's Mandalay Bay, the show, Michael Jackson ONE, will run 90 minutes and will feature more than 60 dancers and aerialists performing to Jackson's best known music.

Executives say the show will be different from the current Cirque Du Soleil show Immortal, which features Jackson's music.

Jackson friend and choreographer Jamie King said, "Everything [Jackson] does is with a childlike heart. For Michael, every day was fresh, every day was new, every day had to be bigger and better than the last one."

Tickets for the general public go on sale March 7.

Which Jackson song are you most excited to see performed in the show? Sound off in the comments below!

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APNewsBreak: Govs to hear Oregon health care plan

SALEM, Ore. (AP) — Oregon Gov. John Kitzhaber will brief other state leaders this weekend on his plan to lower Medicaid costs, touting an overhaul that President Barack Obama highlighted in his State of the Union address for its potential to lower the deficit even as health care expenses climb.

The Oregon Democrat leaves for Washington, D.C., on Friday to pitch his plan that changes the way doctors and hospitals are paid and improves health care coordination for low income residents so that treatable medical problems don't grow in severity or expense.

Kitzhaber says his goal is to win over a handful of other governors from each party.

"I think the politics have been dialed down a couple of notches, and now people are willing to sit down and talk about how we can solve the problem" of rising health care costs, Kitzhaber told The Associated Press in a recent interview.

Kitzhaber introduced the plan in 2011 in the face of a severe state budget deficit, and he's been talking for two years about expanding the initiative beyond his state. Now, it seems he's found people ready to listen.

Hospital executives from Alabama visited Oregon last month to learn about the effort. And the U.S. Department of Health and Human Services announced Thursday that it's giving Oregon a $45 million grant to help spread the changes beyond the Medicaid population and share information with other states, making it one of only six states to earn a State Innovation Model grant.

Kitzhaber will address his counterparts at a meeting of the National Governors Association. His talk isn't scheduled on the official agenda, but a spokeswoman confirmed that Kitzhaber is expected to present.

"The governors love what they call stealing from one another — taking the good ideas and the successes of their colleagues and trying to figure out how to apply that in their home state," said Matt Salo, director of the National Association of Medicaid Directors.

There's been "huge interest" among other states in Oregon's health overhaul, Salo said, not because the concepts are brand new, but because the state managed to avoid pitfalls that often block health system changes.

Kitzhaber persuaded state lawmakers to redesign the system of delivering and paying for health care under Medicaid, creating incentives for providers to coordinate patient care and prevent avoidable emergency room visits. He has long complained that the current financial incentives encourage volume over quality, driving costs up without making people healthier.

Obama, in his State of the Union address this month, suggested that changes such as Oregon's could be part of a long-term strategy to lower the federal debt by reigning in the growing cost of federally funded health care.

"We'll bring down costs by changing the way our government pays for Medicare, because our medical bills shouldn't be based on the number of tests ordered or days spent in the hospital — they should be based on the quality of care that our seniors receive," Obama said.

The Obama administration has invested in the program, putting up $1.9 billion to keep Oregon's Medicaid program afloat over the next five years while providers make the transition to new business models and incorporate new staff and technology.

In exchange, though, the state has agreed to lower per-capita health care cost inflation by 2 percentage points without affecting quality.

The Medicaid system is unique in each state, and Kitzhaber isn't suggesting that other states should adopt Oregon's specific approach, said Mike Bonetto, Kitzhaber's health care policy adviser. Rather, he wants governors to buy into the broad concept that the delivery system and payment models need to change.

That's not a new theory. But Oregon has shown that under the right circumstances massive changes to deeply entrenched business models can gain wide support.

What Oregon can't yet show is proof the idea is working — that it's lowering costs without squeezing on the quality or availability of care. The state is just finishing compiling baseline data that will be used as a basis of comparison.

One factor driving the Obama administration's interest in Oregon's success is the president's health care overhaul. Under the Affordable Care Act, millions more Americans will join the Medicaid rolls after Jan. 1, and the health care system will have to be able to absorb the influx of patients in a logistically and financially sustainable way.

The federal government will pay 100 percent of the costs for those additional patients in the first three years before scaling back to 90 percent in 2020 and beyond.

"There are a lot of governors who are facing the same challenges we're facing in Oregon," Kitzhaber said. "They recognize that the cost of health care is something they're going to have to get their arms around."

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Wall Street ends lower on growth worries

NEW YORK (Reuters) - U.S. stocks fell for a second straight day on Thursday and the S&P 500 posted its worst two-day loss since November after reports cast doubt over the health of the U.S. and euro-zone economies.

But a late-day rally helped stocks erase some of their losses with most of the pullback concentrated in the technology- heavy Nasdaq. The move suggested investors were still willing to buy on dips even after the sharp losses in the last session.

In Europe, business activity indexes dealt a blow to hopes that the euro zone might emerge from recession soon, showing the downturn across the region's businesses unexpectedly grew worse this month.

"The PMI numbers out of Europe were really a blow to the market," said Jack De Gan, chief investment officer at Harbor Advisory in Portsmouth, New Hampshire. "The market was expecting signs that recovery is still there, but the numbers just highlighted that the euro-zone problem is still persistent."

U.S. initial claims for unemployment benefits rose more than expected last week while the Federal Reserve Bank of Philadelphia said its index of business conditions in the U.S. mid-Atlantic region fell in February to the lowest in eight months.

Gains in Wal-Mart Stores Inc shares helped cushion the Dow. The shares gained 1.5 percent to $70.26 after the world's largest retailer reported earnings that beat expectations, though early February sales were sluggish.

The Dow Jones industrial average <.dji> fell 46.92 points, or 0.34 percent, to 13,880.62 at the close. The Standard & Poor's 500 Index <.spx> lost 9.53 points, or 0.63 percent, to 1,502.42. The Nasdaq Composite Index <.ixic> dropped 32.92 points, or 1.04 percent, to close at 3,131.49.

The two-day decline marked the U.S. stock market's first sustained pullback this year. The Standard & Poor's 500 has fallen 1.8 percent over the period and just managed to hold the 1,500 level on Thursday. Still, the index is up 5.3 percent so far this year.

The abrupt reversal in markets, which started on Wednesday after minutes from the Federal Reserve's January meeting suggested stimulus measures may end earlier than thought, looks set to halt a seven-week winning streak for stocks that had lifted the Dow and the S&P 500 close to all-time highs.

Wall Street will soon face another test with the upcoming debate in Washington over the automatic across-the-board spending cuts put in place as part of a larger congressional budget fight. Those cuts, set to kick in on March 1 unless lawmakers agree on an alternative, could depress the economy.

Semiconductor stocks ranked among the weakest of the day, pressuring the Nasdaq as the Philadelphia Semiconductor Index <.sox> fell 1.8 percent. Intel Corp fell 2.3 percent to $20.25 while Advanced Micro Devices lost 3.7 percent to $2.60 as the S&P 500's biggest percentage decliner.

The Dow also got a helping hand from personal computer maker Hewlett-Packard Co , which rose 2.3 percent to end the regular session at $17.10. The company was scheduled due to report first-quarter results after the closing bell.

Shares of Boeing Co rose 1.6 percent to $76.01 as a senior executive was set to meet with the head of the U.S. Federal Aviation Administration on Friday and present a series of measures to prevent battery failures that grounded its 787 Dreamliner fleet, according to a source familiar with the plans.

In other company news, shares of supermarket operator Safeway Inc jumped 14.1 percent to $22.97 after the company reported earnings that beat expectations.

Shares of VeriFone Systems Inc tumbled nearly 43 percent to $18.24 after the credit-card swipe machine maker forecast first- and second-quarter profits well below expectations.

Of the 427 companies in the S&P 500 that have reported results so far, 69.3 percent have exceeded analysts' expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters, according to Thomson Reuters data through Thursday morning.

Fourth-quarter earnings for S&P 500 companies are estimated to have risen 5.9 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.

Berry Petroleum Co jumped 19.3 percent to $46.02 after oil and gas producer Linn Energy LLC said it would buy the company in an all-stock deal valued at $4.3 billion, including debt. Linn Energy shares advanced 2.8 percent to $37.68.

About two stocks fell for everyone that rose on the New York Stock Exchange and Nasdaq. About 7.64 billion shares changed hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, well above the 20-day moving average of around 6.6 billion shares.

(Editing by Jan Paschal)

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World Briefing | Africa: Nigeria: Security Service Says It Halted Group Watching Israeli and U.S. Targets

Nigeria’s State Security Service said Wednesday that it broke up what it characterized as a terrorist group, backed by “Iranian handlers,” that wanted to gather intelligence about locations frequented by Americans and Israelis. The service said it arrested three suspects, but one remained at large. A spokeswoman, Marilyn Ogar, who was reading from a statement, identified the head of the group as Abdullahi Mustaphah Berende, a leader of a local Shiite sect. “He personally took photographs of the Israeli culture center in Ikoyi, Lagos,” she said. The group also conducted surveillance on USAID and the United States Peace Corps, she said. Ms. Ogar did not take questions.

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