NEW YORK – The world’s bond buyers have turned on Europe’s deeply indebted governments and fled to another deeply indebted government across the Atlantic — the U.S. As a result, U.S borrowing costs have plunged to historic lows while rising rates in Europe have many worried about a catastrophic financial crisis.

The European debt crisis has made the U.S. Treasury market the world’s most popular spot for bond investors. But Kathleen Gaffney, co-manager of the $19.1 billion Loomis Sayles Bond fund, refuses to join them.

Gaffney concedes that over the course of a few months or even a year, it might look like a bad move. The Loomis flagship fund dropped 5 percent in the three months starting in July, while the benchmark bond index gained 3.8 percent. Like bond giant Bill Gross at Pimco, she avoided U.S. government debt and refused to follow the rest of the world into Treasurys this summer. The Treasury rally has pushed the Barclay’s index up 7 percent this year, compared with her fund’s 3 percent gain.

But Gaffney is used to getting the big picture right. The $19.1 billion Loomis Sayles Bond fund she helps manage has rewarded investors with an average 10 percent return each year for a decade. Morningstar and Lipper both rank it in the top tier of bond funds.

So Gaffney plans on sticking to her call. With Treasury yields below 2 percent, U.S. government debt isn’t worth the risk. And what if other bond buyers eventually sour on U.S. Treasurys just as they have European government debt? For now, she’d rather buy corporate junk bonds.

In a recent interview, Gaffney talked to The Associated Press about why she avoids Treasurys, the prospect of another credit-rating cut for the U.S. and the appeal of Canada.

Q: If you could go back in time and get a chance to do it all over again, would you load up on Treasurys and sell them back to everybody else in August?

Nope. Not at all. We’re not trying to win a popularity contest. It’s really about the yield. You’ll never get good long-term returns if you park your money in bonds paying less than 2 percent. The best way to have success is to follow your long-term perspective.

Q: So how much in Treasurys do you hold now? Your benchmark index is about 50 percent Treasurys.

We have no Treasury position in the fund. None of any kind. It’s been that way since March. They’re the least attractive asset class for the long term. They’re return-free (they pay less than the annual rate of inflation). They’re also very risky because rates will eventually go up.

Q: How do you replace U.S. government bonds?

The alternative that we’ve found is Canadian government bonds. They make up about 9 percent of our fund. It’s a deep market. But it’s really the natural resources that we like. Countries that export natural resources such as oil and metals are tied to rising commodity prices. They can protect against inflation. We also like Australia and New Zealand. Like Canada, their government budgets are in sound shape. And they export more than they import.

Q: Will the Congressional supercommittee’s failure to reach an agreement on $1.2 trillion in budget cuts affect the Treasury market? Automatic cuts are supposed to start in 2013, but some Republicans have said they’ll try to stop that from happening.

The concern is what do they do now. I think Congress is going to find a way to repeal the automatic spending cuts. The rating agencies would not look kindly upon that. We’d be looking at another downgrade for U.S. Treasurys. After the downgrade from S&P in August, Treasurys continued to act as a safe haven. This time the market may not be as kind.

WASHINGTON (Reuters) – Securities regulators are negotiating to raise the threshold that would trigger extensive reporting requirements for advisers to large hedge funds and other private funds, according to people familiar with the deliberations.

The final rule, due for a vote on Wednesday by the Securities and Exchange Commission, could provide some relief for advisers to larger hedge funds, liquidity funds and private equity funds, these sources said.

In addition to possibly raising the dollar threshold so that fewer advisers will be captured by the expansive reporting rules, the SEC is also planning to grant some relief for advisers to large private equity funds by only requiring them to file reports with the SEC annually, instead of quarterly.

The sources spoke anonymously because the final rule is not yet public and negotiations were continuing Tuesday on the details.

While advisers to large hedge funds will still be required to submit more extensive information to regulators about things such as their funds' exposures to various asset classes, the SEC's final rule will clarify that hedge fund advisers will not be forced to hand over detailed position-level data, one of the sources said.

(Reporting by Sarah N. Lynch; Editing by Tim Dobbyn)

NEW YORK (Reuters) – Stock index futures rose on Thursday as investors looking for an earnings season rally maintained interest in the market after a sharp fall the previous session, but concerns over Europe's debt crisis capped gains.

Wall Street has been susceptible to wild swings on headlines coming out of Europe and on Thursday, investors took some heart in a report the euro zone's bailout facility will be able to buy bonds on the secondary market.

"If we can get through this European thing I think the market wants to move higher based on the economic and earnings news but it just needs to get this fear out of the way," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont.

Investors are closely watching the developing U.S. earnings season which so far has produced mixed results. Many are hoping a strong performance will power equities into the end of the year. Microsoft (MSFT.O) and AT&T (T.N) are among companies reporting results on Thursday.

S&P 500 futures rose 3.2 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 55 points, and Nasdaq 100 futures climbed 0.25 points.

In Europe, shares trimmed losses on Thursday after a guideline document obtained by Reuters said the region's European Financial Stability Facility rescue fund would be able to buy bonds on the secondary market. However, the market was still nervous ahead of a European Union summit this weekend and the FTSEurofirst 300 index (.FTEU3) was down 0.6 percent.

"Everybody is on a hair trigger here until we see what comes out of Sunday's EU finance ministers' meeting," said Mendelsohn. "Everybody is getting everything second-hand so nobody knows what's going to happen."

The S&P 500 has struggled after reaching the top end of a two-month trading range at around the 1,230-1,250 level and progress on Europe's debt crisis is critical to breaking out of that range.

On the earnings front, American Express Co's (AXP.N) third-quarter earnings beat expectations late on Wednesday, while eBay (EBAY.O) gave a cautious outlook for the rest of the year although third-quarter revenue came in line with Wall Street expectations.

EBay's shares fell 4.8 percent to $31.60 while American Express was thinly traded and flat at $46.15 in pre-market trade.

The Wall Street Journal reported Microsoft was working with Silver Lake Partners (SILAK.UL) and the Canada Pension Plan Investment board on a joint bid for Yahoo.

Yahoo's stock rose 1.6 percent to $16.20 before the bell.

U.S. weekly jobless claims are due at 8:30 a.m., while the Philadelphia Federal Reserve Bank's October business activity survey and U.S. existing home sales for September are released at 10:00 a.m.

U.S. stocks fell on Wednesday on doubts about the euro zone's ability to come up with a comprehensive plan to solve its debt crisis and the Federal Reserve gave a weak economic outlook for the United States.

(Editing by Chizu Nomiyama)

BOSTON – Mutual fund investors retreated from stocks in September as the stock market declined. It capped the biggest quarterly withdrawal from stock funds since the financial crisis in late 2008.

Industry consultant Strategic Insight says investors withdrew a net $15 billion from U.S. stock funds in September.

Over the past three months, investors have pulled out nearly $60 billion from U.S. stock funds. That’s the biggest quarterly flow out of stock funds since a net $71 billion was withdrawn in the fourth quarter of 2008.

But investors added new cash to funds investing in bonds, as well as to funds holding foreign stocks.

Stock prices have fallen for five consecutive months. The Standard & Poor’s 500 index declined 7 percent in September.

NEW YORK (Reuters) – Stocks were little changed on Tuesday, with major indexes seesawing between gains and losses before a key vote by Slovakia on expanding the euro zone rescue fund.

The back-and-forth moves on Wall Street follow several days of sharp gains. The S&P 500 has risen 8.7 percent over the past five days, its biggest five-day move since March 2009, as stocks recovered from steep losses tied to worries about the euro zone debt crisis.

Markets have been reacting to news from the euro zone where officials are trying to contain a debt crisis that threatens large European banks and global financial stability.

"It's been the biggest problem on the front burner for the U.S.," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville. "It looks like it's being diffused."

With 16 of 17 euro zone states having ratified a pact to boost the size and powers of the European Financial Stability Facility bailout fund, all eyes turned to Slovakia. The country's finance minister said the country was expected to approve the changes this week.

Any more delays in coming up with a plan intended to head off crisis could give the market an excuse to sell. Stocks have reached the top of a recent range, hitting resistance around 1195 on the S&P 500.

With earnings season beginning after the close of trading with Alcoa Inc's (AA.N) profit report, investors hoped for more gains.

The Dow Jones industrial average (.DJI) was down 17.33 points, or 0.15 percent, at 11,415.85. The Standard & Poor's 500 Index (.SPX) was down 0.66 point, or 0.06 percent, at 1,194.23. The Nasdaq Composite Index (.IXIC) was up 8.21 points, or 0.32 percent, at 2,574.26.

Alcoa, the largest U.S. aluminum company, was up 2.6 percent to $10.35, making it the best performer on the Dow.

"Expectations are so low that Alcoa doesn't have to say a lot in order to beat expectations," said King Lip, chief investment officer at Baker Avenue Asset Management in San Francisco.

In the past week, analysts have lowered their consensus earnings estimates for Alcoa, citing a precipitous drop in metals prices in recent months sparked by global economic concerns.

At midday, about one stock advanced for every decliner on the New York Stock Exchange and the Nasdaq. About 2.87 billion shares were traded on the New York Stock Exchange, NYSE Amex and Nasdaq, lower than average.

(Reporting by Ashley Lau; editing by Kenneth Barry)

NEW YORK – Stocks are wavering between small gains and losses on worries that Slovakia might impede a European financial rescue plan.

Sixteen countries that use the euro have approved a measure to strengthen a European rescue fund, but Slovakia hasn’t signed off on the plan yet. A vote is expected later in the day. If Slovakia blocks the measure, it could complicate efforts to address Europe’s debt jam.

The Dow Jones industrial average is down 2 points, to 11,430, shortly before noon. The S&P is 500 is up 1, or 0.1 percent, at 1,196. The Nasdaq is up 16, or 0.7 percent, at 2,582.

The weak trading comes a day after the Dow jumped 330 points, its largest increase since Aug. 11.

NEW YORK – Stocks mostly rose Thursday after applications for unemployment benefits fell to a five-month low and Germany voted to expand the powers of Europe’s bailout fund. The Dow Jones industrial average gained nearly 90 points.

Banks, which would have the most to lose if Europe’s debt crisis gets worse, rose more than the rest of the market. JPMorgan Chase & Co. rose 1.7 percent, and U.S. Bancorp rose 2.4 percent.

Several strong reports on the U.S. economy encouraged investors to buy stocks. First-time applications for unemployment benefits fell last week to 391,000. That’s the lowest level since April 2 and also the first time applications have fallen below 400,000 since Aug. 6. The big drop suggests that layoffs are decreasing.

The government also raised its estimate of economic growth in the April-June period. The Commerce Department said the economy grew at a 1.3 percent annual rate in the second quarter, up from its previous estimate of 1 percent. It attributed the increase to growth in consumer spending and trade.

“This gives us a little more confidence that maybe the economy will muddle through here as we go through all these challenges,” said Rob Lutts, president and chief investment officer of Cabot Money Management.

The Dow Jones industrial average was up 86 points, or 0.8 percent, at 11,096 as of 2 p.m. It had been up as many as 260 points at 10 a.m. after the U.S. economic reports came out.

The Standard & Poor’s 500 index rose 3 points, or 0.2 percent, to 1,153.

Bank stocks rose sharply as worries eased about Europe’s debt problems. Morgan Stanley rose 4.3 percent. Genworth Financial Inc. soared 6.4 percent, the most of any company in the S&P 500 index.

Technology stocks lagged the rest of the market. The Nasdaq composite index lost 29, or 1.2 percent, to 2,462.

The measure approved by German lawmakers to expand the region’s bailout fund must be approved by all 17 countries that use the euro. The plan will allow the bailout fund to buy government debt and lend money to troubled European countries. Finland approved the measure Wednesday.

Analysts cautioned that the gains could quickly disappear if Europe stumbles in its efforts to contain its debt crisis.

“Investors need to be very careful, because there is still a vast labyrinth of potential challenges that remain to be cleared with regard to Europe,” said Frank Barbera, a portfolio co-manager of the Sierra Core Retirement Fund.

Advanced Micro Devices Inc. fell 15.3 percent, the most of any stock in the S&P 500, after the company cut its revenue and earnings forecast for the third quarter, saying it was having problems getting its chips made.

BOSTON (Reuters) – Billionaire investor George Soros, whose stock-picking career has spanned nearly four decades, said he will manage money only for himself and his family as new regulations threaten to crimp the hedge fund industry he made famous.

The octogenarian fund manager, known as much for earning $1 billion on a nervy currency bet as for giving away millions to support liberal causes, will return roughly $1 billion to outside investors most likely by the end of the year and turn Soros Fund Management into a family office. The sum represents only a small portion of the $25 billion he oversees.

Keith Anderson, who has been Soros’ chief investment officer since 2008, will leave the firm.

Since launching the Quantum Fund nearly 40 years ago, Soros, who emigrated to the United States from Hungary, created one of most envied records in the industry, returning about 20 percent a year. But recently volatile market conditions have taken their toll on the fund as it lost 6 percent in the first half of 2011 and gained only 2.5 percent last year.

In a letter to investors, Soros’ two sons, the fund’s deputy chairmen, cited impending industry regulation as a reason for returning the money now.

Bloomberg first reported the news.

EXEMPTIONS NO MORE

Under the new Dodd-Frank Act, hedge funds will be forced to register with financial regulators, giving the Securities and Exchange Commission fresh insight into exactly how these generally secretive portfolios make money. But family offices are treated more leniently under the new regulations.

Ever since their father reorganized the Quantum fund in 2000 after heavy losses, the firm has effectively been operating as a family office, relying on various exemptions to avoid registration, the Soros brothers wrote.

Now that many loopholes have been closed, it made more sense to return outsiders’ money instead of going through the expensive and time consuming process of registration, people familiar with Soros’ thinking said.

“An unfortunate consequence of these new circumstances is that we will no longer be able to manage assets for anyone other than a family client as defined under the regulations,” Jonathan and Robert Soros said.

Soros joins a growing list of fund managers who have recently revamped their businesses in the face of fresh regulation. Stanley Druckenmiller, Soros’ long-time deputy who helped engineer the firm’s winning bet against the British pound in 1992, returned money as did Chris Shumway, who was mentored by another industry great, Julian Robertson. Earlier this year Carl Icahn did the same.

For some outsiders the trend is raising some red flags.

“If the top money managers are closing shop because of overly onerous regulations, then this will ultimately be to the detriment of our institutional investors,” said Jim Liew, who teaches finance at NYU’s Stern School of Business. “In this environment, we actually need more hedge fund activity: hiring people, raising capital, allocating money, and ultimately stimulating our economy,” he added.

MORE BARK THAN BITE

Soros’ decision to return money sounds dramatic but the move is expected to be more symbolic than disruptive. The firm is not expected to shrink in size from its roughly 100 employees and George Soros is expected to remain as active in managing money as he always has been.

Soros, and Anderson, recently unwound a huge bet on gold, selling off almost $800 million of exchange-traded funds that hold gold during the first quarter, according to a recent SEC filing. Soros also slashed stakes in gold mining stocks like Kinross Gold and Novagold Holdings.

Indeed even Carl Icahn, who returned outsiders’ money, has not retreated from the public stage and recently made a prominent play for bleach maker Clorox. And Julian Robertson, who long mentored some of the industry’s next generation of stars, is now letting outsiders invest along side him again.

George Soros’ particular focus on philanthropy may have played a hand in his decision to manage only his own money as his support for liberal causes and candidates have increasingly made him into a lightning rod for conservatives.

Last year, Soros told Reuters “I will effectively give away half my income as I earn it and the other half I will give away on my death.”

Outsiders interpret this to mean he wants to make more and now it may be easier to act on his own. “The trades that people will have to conduct in the future in order to make money may not be very politically correct — you may have to short the dollar and do other things that are considered unpatriotic– and making those bets may be easier without having limited partners calling up to complain,” said Charles Gradante, co-founder of Hennessee Group which invests with hedge funds but has no money with Soros right now.

(Additional reporting by Aaron Pressman in Boston and Michelle Nichols in New York, editing by Gerald E. McCormick, Dave Zimmerman)

WASHINGTON (Reuters) – U.S. regulators are poised to expand oversight of the roughly $2 trillion hedge fund industry, with the U.S. Securities and Exchange Commission expected on Wednesday to adopt rules requiring private fund advisers to register with the agency.

The new rules, mandated by the Dodd-Frank Wall Street overhaul law, would force advisers to hedge funds and private equity funds with more than $150 million under management to register with the agency.

In a move that frees resources at the SEC for its hedge fund monitoring, the agency is passing responsibility for a bigger swath of smaller fund advisers to state regulators.

Requiring hedge fund advisers to register is a power that eluded the SEC until the enactment of the Dodd-Frank Act last year. The agency tried to require it in 2006, but a federal appeals court tossed out the rule.

By requiring advisers of large funds to register, the SEC will be able for the first time to consistently receive data about the funds they manage.

Many fund advisers had already voluntarily registered with the SEC, but others relied on an exemption applying to those with fewer than 15 clients. Wednesday’s rule closes that loophole.

Certain exemptions to the new rules would apply, including a provision that would let advisers to venture capital funds avoid registration.

More scrutiny of hedge funds is to come.

A separate proposal being weighed by the SEC would greatly increase the amount of data the agency receives, to help regulators determine if large hedge funds and private equity funds pose a systemic risk to the broader marketplace.

State regulators have been gearing up for their increased workload under what they refer to as “the switch,” but the SEC is expected to give states even more time to transition.

In an April letter to the head of the North American Securities Administrators Association, the SEC disclosed it needed more time to get its computer database system ready for the changes. The SEC said it did not expect advisers to begin registering until the first quarter of 2012.

“There are lots of things we put in place to make sure we will be ready for it,” said Melanie Senter Lubin, the Maryland Securities Commissioner who heads a task force that is gearing up for the Dodd-Frank changes. “The states have had notice that this is going to come and … we think there will be adequate time to allow the advisers to get ready,” she said in an interview on Tuesday.

(Reporting by Sarah N. Lynch; Editing by Tim Dobbyn)

NEW YORK (Reuters) – About eight people besides a Taiwan-born technology consultant who is on trial for insider trading provided stock tips to Barai Capital Management, a former employee of the hedge fund testified on Tuesday.

The names of other consultants or employees of semiconductor companies came out in cross-examination of a witness testifying against Winifred Jiau, the only person to go to trial so far in the so-called expert network branch of a U.S. crackdown on suspicious Wall Street trading.

Jiau’s lawyer, Joanna Hendon, mentioned the names to show the jury that her client may not have been the only person with access to corporate secrets who is alleged to have leaked detailed earnings information to hedge funds in exchange for money.

A spokeswoman for the office of the Manhattan U.S. Attorney declined to comment on whether any of the people identified in Manhattan federal court were in any way part of the investigation.

At least 10 people charged, including witness Jason Pflaum, have pleaded guilty to criminal charges since last year’s probe was announced of so-called expert network firms that match investment managers with public companies. Prosecutors say the defendants abused their fiduciary duties and traded or helped others trade illegally on confidential company information.

Pflaum was a research analyst at the hedge fund until the end of last year and is assisting the FBI and prosecutors in the investigation.

DESTROYED FILES

Pflaum also testified that he destroyed the computer files or printouts of three people who had provided his boss, Samir Barai, with secrets that made the fund between $1 million and $5 million.

“The catalyst was the Galleon case when that broke,” Pflaum said, referring to the October 2009 arrest of Galleon hedge fund founder Raj Rajaratnam who was convicted last month in the same courthouse on insider trading charges. Rajaratnam was the central figure in that branch of the government’s investigation.

Pflaum testified that he and Barai discussed how there was “more sensitivity about contacts we had that were over the line.” Barai, said Pflaum, “wanted to make sure I got rid of them (the files).”

Barai pleaded guilty to criminal charges on May 27 and admitted conspiring with Jiau, 43, one-time consultant with Primary Global Research expert networking firm based in California. She has been denied bail after trial judge Jed Rakoff agreed with prosecutors that she might flee.

Pflaum also told the jury, which was chosen for Jiau’s trial on June 1, that he and Barai had contact with John Kinnucan, the head of an Oregon research company who late last year publicly refused to help the government in its probe.

The former Barai analyst testified that he was part of joint phone calls between Samir Barai and Kinnucan and knew of a series of emails that were exchanged between them.

“I don’t recall him giving us any great information,” Pflaum said.

Kinnucan’s lawyer, Nathaniel Burney, contacted to comment on Tuesday’s testimony mentioning his client, said: “John Kinnucan never conveyed any inside information.”

The case is USA v Winifred Jiau et al, U.S. District Court for the Southern District of New York, No. 11-00161.

(Reporting by Grant McCool, editing by Matthew Lewis)