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Houston’s deputy controller, James Moncur, figured last May the fourth-largest U.S. city escaped the unraveling credit markets by refinancing some of its $1.8 billion of auction-rate bonds.

Instead, Houston wound up paying 15 percent interest on the new securities, not the money-market rates city officials had anticipated. The so-called variable-rate demand notes backfired when investors fled the market in October, forcing the bank that had guaranteed the bonds, Brussels-based Dexia SA, to buy them.

“This was like round two of the great financial crisis of 2008,” Moncur, 56, said. “We were under the impression we had taken care of the problem.”

The $479 billion market for the securities, whose rates are typically reset by banks every day or week, is turning into a quagmire for local officials who embraced a financing strategy they didn’t fully understand. Federal Reserve Chairman Ben S. Bernanke said last month that U.S. taxpayers may wind up as the buyers of last resort for the debt, known as VRDNs.

“A large volume” of variable-rate demand notes were forced back to banks and “exposed the vulnerabilities of the VRDN market, raising questions about the desirability of its continuation as a significant vehicle for municipal finance,” Bernanke said in a March 31 letter to Representative James Moran, a Virginia Democrat.

Auction-Rate Collapse

VRDNs, like auction-rate bonds, offer borrowers short-term interest costs on longer-term debt because rates on the notes are reset at regular intervals. Auction-rate securities fell apart in February 2008 when bankers who had provided support for two decades abandoned the market, stranding investors with notes they couldn’t sell and borrowers with annualized interest as high as 20 percent.

Dozens of local governments sold VRDNs to pay off their auction-rate obligations. Lower-rated borrowers in the variable- rate market are required to have a guarantor, called a credit facility provider, who promises to buy bonds investors don’t want. Interest rates are set by banks at a level they expect investors will accept.

The market lost favor among municipalities this year as costs to guarantee the bonds increased and issuers incurred unexpected charges to get out of their privately negotiated transactions.

Sales of tax-exempt debt with variable interest rates plummeted 55 percent to $9.6 billion in the first three months of the year, according to data compiled by Bloomberg. New issues dropped even as the average weekly rate on the securities fell below 1 percent, to as low as 0.48 percent on Feb. 4.

Rising Guarantee Cost

Houston agreed to pay the 15 percent annual rate for 60 days, Moncur said. Harris County, Texas, later bought $118 million of the city’s taxable VRDNs and the rate is currently 6.9 percent, he said. Houston is the Harris County seat.

Banks, reeling from almost $1.3 trillion in credit market losses since the start of 2007, raised the cost for providing guarantees as much as 10-fold, Concord, Massachusetts-based Municipal Market Advisors said in January.

Some borrowers that want to refinance VRDNs are stuck since the bonds are “often paired with interest-rate swaps that would be quite costly to unwind because many of the swaps are now underwater,” Bernanke said.

Municipalities use swaps — private agreements in which a borrower and another party agree to exchange interest rates — to create fixed-rate obligations by joining them with variable- rate debt. If the arrangements go awry, issuers have to pay fees to terminate the contracts.

The New York State Dormitory Authority wound up paying bankers $26.8 million to get out of $390 million of VRDNs last month, after Dexia increased the fees for its letter of credit to 0.5 percent from 0.27 percent and interest rates on the bonds rose as high as 8 fast cash advance.48 percent, according to public disclosures.

Negotiated Rates

Besides the cancellation fee, the dormitory authority paid $2.76 million to underwriters led by Goldman Sachs Group Inc. to sell about $500 million of new bonds.

As with all variable-rate notes and swaps, terms of the sale were set in negotiations with underwriters, not through competitive bidding. When fees from the new debt are added to interest, the total financing cost was 6.11 percent, according to Marc Violette, a Dormitory Authority spokesman.

The yield on the Bond Buyer 20 index of interest costs on 20-year general obligation bonds averaged 4.96 percent for the past year. The new dormitory bonds, like the old, were backed by state appropriations and financed the construction of mental health facilities.

Borrowers in the $2.69 trillion market for state and local government debt increased swap agreements while abandoning sales of bonds through competitive bidding.

Competitive Sales

Competitive sales reduce interest costs on municipal debt from 0.17 percentage point to 0.48 percentage point, according to a study by Mark D. Robbins, an associate professor at the University of Connecticut in West Hartford, and Bill Simonsen, a professor at the institution. The survey, titled “Persistent Underwriter Use and the Cost of Borrowing,” was published in the winter 2008 issue of the Municipal Finance Journal.

VRDN fees may increase because banks don’t want to risk being forced to buy bonds that investors shun, said Michael Marz, vice chairman of First Southwest Co. in Dallas, the third- largest financial adviser to state and local governments.

Most variable-rate debt requires a bank guarantee to be eligible for sale to money market funds, and banks are only willing to back the highest-rated credits, said George Friedlander, a municipal market analyst at Citigroup Inc., in an April 3 report.

Lower-Rated Jurisdictions

Local governments with credit ratings above A- can obtain letters of credit, while those with lower grades are struggling, said Michael Decker, co-chief executive officer of Alexandria, Virginia-based Regional Bond Dealers Association, which represents about 20 securities dealers and underwriters, most based outside New York.

Mendocino County, California, was rejected for a $26 million loan in a pool of borrowers seeking short-term funding for operating expenses because its rating was too low for the bank backing the debt, said Shari Schapmire, the county treasurer. Mendocino, which has an A- rating from Standard & Poor’s, may have to pay $750,000 more to get the money on its own, which may force officials to trim some of the government’s 1,400 workers, she said.

Variable-rate borrowers “are experiencing substantial increases” in costs, said Bernanke in his letter. The market for municipal variable-rate debt “appears to be under more stress” because investors have been putting their bonds back to the guarantor bank, he said.

Federal Aid

State and local governments have asked the U.S. government to provide guarantees for VRDNs as costs of bank assurances rise. U.S. Representative Barney Frank’s Financial Services Committee is writing legislation to help create a new backstop.

Houston’s decision to convert to variable-rate debt has drawn criticism from Councilman Peter Brown, who said officials shouldn’t have agreed to floating-rate debt with a 15 percent penalty rate, given the turmoil in financial markets.

“The city ended up holding the bag,” said Brown, who is running for mayor. “We should have been smarter so we were not put into this position.”

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European Central Bank Executive Board member Lorenzo Bini Smaghi said the bank can intervene in the currency market if needed.

“Exchange-rate markets are prone to episodes of overshooting and undershooting,” Bini Smaghi said in a speech in Brussels today. “Public intervention — in the form of public statements or even outright interventions in FX markets - - may thus be warranted.”

Euro-area policy makers have expressed concern that the pound’s 13 percent slide against the euro in the past year could push the 16-nation bloc deeper into recession by undermining exports to its biggest trading partner. The region is already grappling with the worst recession since World War II as a collapse in global demand chokes foreign sales, prompting companies to scale back output and cut jobs.

The euro declined almost half a cent to $1.3506 and also weakened against the pound after Bini Smaghi’s comments were published.

While Bini Smaghi cited the International Monetary Fund’s view that the euro is “on the strong side of medium-term fundamentals,” he didn’t indicate the ECB is planning to intervene. Bini Smaghi said it may be detrimental for a country to devalue its currency to make exports cheaper.

‘Fuel Resentment’

“Using the exchange rate as an instrument to gain a competitive advantage over others may fuel resentment and stoke protectionist pressures,” he said. The question also arises whether the single market created by Europe’s monetary union “can function smoothly when the exchange rate is allowed — or even encouraged — to depreciate sharply health insurance quote.”

The Swiss National Bank began buying foreign currencies on March 12, helping to push the franc down against the euro. Before the move, the franc had appreciated 8 percent in six months, neutralizing interest-rate cuts and weighing on exports. Since the SNB’s announcement, the franc has lost about 3 percent against the euro.

The euro’s relative strength against the dollar and the pound is partly due to the ECB’s reluctance to lower interest rates as aggressively as the Federal Reserve and the Bank of England.

The ECB has cut its benchmark lending rate by 3 percentage points to the 1.25 percent since last October. By contrast, the Fed, Bank of England and Bank of Japan have cut their key rates to almost zero and have started buying corporate and government debt.

“If market perceptions of the inadequacy of the euro area’s response to the crisis grow and the euro loses out to competitive devaluations elsewhere, pushing it higher, the zone’s ability to take advantage of a tentative global recovery will be impeded,” Deutsche Bank AG economist Mark Wall wrote in a report published on April 3. Deutsche Bank said a sustained 5 percent gain in the euro reduces gross domestic product by 0.5 percent to 0.9 percent a year.

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Caterpillar, the world’s largest maker of mining and construction equipment, has seen its sales wither as the sluggish world economy and the credit crisis weaken demand for its products, used to build everything from houses to highways. The company had expanded dramatically in recent years, helped by a building boom in developing countries.

In response to the worsening conditions, Caterpillar in January announced job cuts that will ultimately eliminate 20,000 positions. It also said it would slash executive compensation by up to 50 percent and offer buyouts to about 25,000 U.S.-based employees. Caterpillar, which employs about 112,000 people worldwide, said it had imposed a global hiring freeze.

In the latest cuts, the Peoria, Ill.-based company said 2,365 support and management workers had been notified of layoffs expected to last at least six months — including 245 announced previously — and 89 workers will be let go permanently.

Among the affected workers are 1,726 at plants in Illinois. They include 911 workers at a plant in East Peoria that makes track-type tractors and pipelayers and 815 at a factory in Aurora that produces hydraulic excavators and wheel loaders. Caterpillar notified the employees Tuesday of the layoffs, expected to last at least six months starting in June.

In Indiana, Caterpillar notified 439 employees at its large- engine factory in Lafayette of layoffs effective May 29, also expected to last at least six months. The plant makes diesel engines for boats, locomotives and other applications.

Caterpillar notified 89 employees at its Jefferson, Ga., fuel systems plant that they would be laid off permanently when the company closes the facility, expected by the end of June faxless payday loan.

Work currently done at the plant will be shifted to factories in Thomasville, Ga., and Pontiac, Ill.

Also in Georgia, Caterpillar said it had notified 200 employees at a plant in Griffin, where the company makes generators, engines and oil service units, of layoffs scheduled to begin in May.

Meanwhile, the company has implemented so-called rolling layoffs, which vary in duration, at plants across the country and around the world, according to Jim Dugan, a Caterpillar spokesman.

Caterpillar said more layoffs may be needed as the year continues, depending on business conditions.

In January, Caterpillar said its earnings plunged 32 percent in the last three months of 2008, and that it had lowered its 2009 profit expectations. Demand plummeted at the end of the year, pulled down by slumping commodity prices, tight credit markets and a decline in house building.

It said a first-quarter loss is possible as costs may outstrip falling orders.

In February, Caterpillar said it planned to offer early retirement to about 2,000 production workers.

The White House tried Tuesday to sound a positive note despite the news of more layoffs at Caterpillar.

Press Secretary Robert Gibbs said the White House was confident the stimulus bill will create opportunities for Caterpillar and other companies because of the many construction projects on which states will be breaking ground.

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The U.S. economy "deteriorated further" in almost all corners of the country over the last two months as consumer spending slumped and manufacturing declined, the Federal Reserve said in its regional business survey.

Ten of 12 Fed district banks reported "weaker conditions or declines" in their regional economies, and respondents didn’t expect a "significant pickup" until late this year or early next year, the Fed said Wednesday in its Beige Book release, published two weeks before officials meet in Washington to set monetary policy. Housing "remained in the doldrums in most areas," the Fed said.

Lending fell across the United States, and credit availability "remained tight," the Fed said.

"We’re in the throes of the deepest part of the recession now," Kevin Flanagan, a Purchase, N.Y.-based fixed-income strategist for Morgan Stanley’s individual-investor clients, said on Bloomberg TV.

The report reflects information reported through Feb. 23 and summarized by staffers at the San Francisco Fed, which oversees the largest portion of the U.S. economy.

"Consumer spending remained very weak on balance, albeit with slight firming noted by many districts," the Fed report said. About half of the districts said consumer demand was slower or "fell significantly" from a year earlier.

The economy shrank at a 6.2 percent annual rate in the fourth quarter, the most since 1982, revised government figures showed last week. Home construction contracted at a 22 percent pace after a 16 percent decline in the prior quarter.

The recession in U.S. manufacturing persisted for a 13th month in February, a private report showed this week. Other reports showed consumer spending rose in January with a spurt of post-holiday discounts, and construction dropped more than twice as much as anticipated cheap credit report.

"Reports on manufacturing activity suggested steep declines in activity in some sectors and pronounced declines overall," the Fed said.

Exceptions to the economy’s weakening included food production and pharmaceuticals, the Fed said.

In January, Fed officials downgraded their forecasts for growth this year, seeing a deeper contraction as the credit crunch tightens. Most forecast a contraction of 0.5 percent to 1.3 percent.

The Fed report said home prices kept falling this year "with little or no signs of a deceleration evident." Home builders "remain pessimistic regarding recovery prospects this year," the Fed said. Demand for commercial real estate "weakened significantly," and the retreat in construction is expected to continue through at least year-end, the Fed survey said.

U.S. employers probably eliminated 650,000 jobs from payrolls in February, the most since 1949, while the jobless rate may have increased to 7.9 percent from 7.6 percent, according to the median estimate of economists surveyed by Bloomberg News. The Labor Department will report the figures Friday.

The Beige Book says unemployment is up in "all areas, reducing or eliminating upward wage pressures." Weaker demand is spurring discounting of goods other than fuel and food, the Fed said. As such, "upward price pressures continued to ease across a broad spectrum of final goods and services," the Fed said.

The consumer price index was unchanged in January compared with a year before. That was the first month without a year-on-year increase since 1955.

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Federal Reserve Chairman Ben Bernanke may eventually be hailed as an economic Santa Claus if the Fed’s dramatic rate cut helps bring an end to this recession.

But if you’re an investor relying on a fixed income, Bernanke is The Grinch Who Stole Your Yield. Now that interest rates are effectively at zero, you won’t get much from owning Treasurys. The U.S. 10-year note sports a puny yield of 2.19%, for example.

With many experts predicting rocky times through 2009, it’s more important than ever for investors to own stocks and bonds that offer decent yields and a margin of safety.

One way to do that is with stocks that pay dividends. Many blue-chip stocks have yields well north of 5%, companies such as AT&T (T, Fortune 500), Verizon (VZ, Fortune 500) and Pfizer (PFE, Fortune 500).

Sure, some of these so-called "widow and orphan" stocks may not seem terribly exciting. But you know what? Earning 5% with a boring blue chip is better than losing all your money with Bernie Madoff.

"Many investors are concerned the market may be flat for many years. We feel that’s unlikely, but even if that were the case, earning a 5% yield might not be that bad," said Steve Neimeth, manager of the SunAmerica Value fund. "Even if the market is flat for two to three years, investors could get paid to wait for a recovery."

Neimeth, who owns Verizon, Pfizer and AT&T in his fund, also likes food giant Kraft (KFT, Fortune 500), which yields about 4.3%.

Of course, it’s always worth asking if a dividend-paying company is financially healthy enough to keep paying out.

Bank stocks’ high yields looked attractive earlier this year, but many institutions have since slashed their dividends - some near a penny per share - because of the credit crunch.

And one fund manager said that any bank asking the Treasury Department for capital is irresponsible if it continues paying dividends.

"Banks should not be paying any dividends if they are going to the government for money," said Don Wordell, manager of the RidgeWorth Mid-Cap Value fund.

Instead, Wordell said he’s focusing on technology companies that he believes are healthy enough to keep paying their dividends. Two of his top holdings are Intersil (ISIL), a semiconductor company with a 5% yield and no debt, and Harris Corp (HRS)., which makes radio communications equipment and has a yield of 2.2%

Paul Alan Davis, co-manager of the Schwab Dividend Equity fund, sees good opportunities in the beaten-down energy sector, including natural gas company Williams Companies (WMB, Fortune 500) and oil firms Chevron (CVX, Fortune 500), Exxon Mobil (XOM, Fortune 500) and Occidental Petroleum (OXY, Fortune 500). These stocks all pay yields ranging from about 2% to 3.3%.

These yields may not sound that lucrative, but Davis said it’s more important to focus on companies with the potential to grow their dividends, not just those with super-high yields no faxing pay day loans. After all, the yield is the dividend divided by the stock price, so an extremely high yield could actually be a warning sign.

Dividend-paying stocks aren’t the only way for investors to profit from a steady income stream. Sabur Moini, manager of the Payden High Income fund, has found plenty of opportunities in the world of high-yield corporate bonds.

Yes, many high-yield bonds are inherently risky. But Moini said there are values now because the market is pricing in higher default rates than he thinks are likely next year.

"Clearly we are in a recession and 2009 won’t be good," he said. "But a number of companies that raised money in 2005 and 2006 are fine and won’t have to refinance or have debt coming in due in the next year."

The key, Moini said, is to focus on companies in defensive industries that generate strong cash flow.

"The bonds we own have attractive yields and the companies will be around for the next few years. We are staying away from autos, homebuilders and more cyclical companies," he said.

Some of Moini’s top investments are high-yield bonds of cable company Cablevision (CVC, Fortune 500), satellite TV firm DirecTV (DTV, Fortune 500), hospital operator HCA, which was taken private in 2006, and privately held California supermarket chain Stater Brothers. The bonds for all four companies yield more than 10%

Jeffrey Saut, chief investment strategist for Raymond James Financial, said he’s looking more closely at high-yield investments and finding the best values in funds that invest in municipal bonds.

Even though the credit crisis has many state and local governments dealing with major budget problems, Saut said the pessimism in the muni bond world is overdone.

"Unless all municipalities go bankrupt, there are some funds trading at big discounts with the potential for stock-like returns," he said.

Three funds he recommends are the Nuveen Insured Dividend Advantage Municipal (NVG) fund, which yields about 7.5%, the BlackRock MuniHoldings Insured Fund II (MUE), which yields almost 8%, and the Lord Abbett Bond Debenture fund, which yields nearly 9%.

Rob Arnott, chairman of Research Affiliates, a Newport Beach, Calif.-based money management firm with about $30 billion in assets under management, agreed that investors should look to bonds for bargains.

He said that while the stock market is probably accurately factoring in the likelihood of a long recession, bond investors are much gloomier and are pricing in another Great Depression.

"The out-of-mainstream parts of the bond market are wildly attractive. Why would anyone hold cash yielding zero when they can get double-digit yields?" asked Arnott, whose firm is the subadviser for the PIMCO All Asset fund.  

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China's economy may expand at the slowest pace in nearly two decades next year as demand for exports slumps in the U.S. and Europe and government spending fails to bridge the gap.

Gross domestic product may advance 7.5 percent or less, the weakest since 1990, according to estimates by Credit Suisse AG, UBS AG and Deutsche Bank AG. Royal Bank of Scotland Plc predicts the economy will grow 8 percent next year, while 5 percent “can't be ruled out.''

China hasn't yet ramped up spending on railways, roads, and low-cost housing by enough to stop a slowing economy from cooling more, economists said. At stake is the contribution to global growth — 27 percent last year — that Premier Wen Jiabao says is the nation's way of helping the world through the financial crisis.

“The government's fiscal stimulus plan may not come in time to avert a deeper economic slowdown,'' said Ha Jiming, chief economist at China International Capital Corp in Beijing. Growth may be 7.3 percent next year, he said.

Indicators from auto sales to power consumption and export orders are pointing down and a slump in the property market is also threatening growth.

“I'm getting pretty worried,'' said Paul Cavey, an economist at Macquarie Securities Ltd. in Hong Kong. “It really looks like things are slowing down quite sharply and there's nothing in the works that can turn it around in the next six months or so.''

Influence Beyond Shores

China has averaged 9.9 percent growth for the past 30 years and its expansion underpins demand for the exports of its Asian neighbors and commodities from iron ore to soybeans.

China contributed the most to global growth in 2007, the International Monetary Fund said in a report in April this year. It used purchasing power parity calculations, which account for differences in the exchange rates of national currencies.

Exports may cool to 18.1 percent in October from a year earlier, compared with 21.5 percent in September, according to a survey of 17 economists by Bloomberg News. The report is due next week.

“Exports could suddenly decelerate sharply as the global credit crunch restrains normal business and trade financing,'' said Wang Tao, an economist at UBS cash advance no faxing. “Anemic export growth could seriously affect manufacturing investment.''

Unsold Cars

Manufacturing contracted by the most since at least 2004 last month and export orders dropped to their lowest, according to CLSA Asia Pacific Markets. Unsold new vehicles were at a four- year high in September.

“The golden years have shuddered to a dramatic halt,'' said Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai. Green is reviewing his 7.9 percent forecast for next year because a “big fiscal policy package'' hasn't arrived.

The government ordered Finance Minister Xie Xuren to return home early this week from an economic conference in Peru to deal with economic problems, an organizer of the event said.

The government is poised to this year announce a switch to a “proactive'' fiscal policy in 2009 to sustain growth, China Business News reported, citing unidentified government officials. The change may come after an economic planning meeting to be held this month or next.

Though the government has pledged to boost infrastructure spending and Chinese media reported this week that road building may get a boost of 2.9 trillion yuan ($425 billion) over three to five years, nothing concrete has been announced.

China has taken some steps to spur its expansion. It cut interest rates three times since September, eliminated quotas that restrict bank lending and cut export taxes. It's also stalled the yuan's gains against the dollar to keep exports competitive.

That's not enough, said Ma Jun, chief China economist at Deutsche Bank in Hong Kong.

“Without fiscal stimulus, China's GDP growth will likely decelerate to 6 percent next year,'' said Ma. “The downside risks to economic growth are significantly greater now than just a few months ago.''

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Iceland is nearing a deal to borrow up to $2.1 billion from the International Monetary Fund to prop up its economy, the IMF and Icelandic Prime Minister Geir Haarde’s office announced Friday.

The loan would be the first time the IMF has funneled money to a Western European country in 25 years, when it sent funds to Portugal.

The loan is "equivalent to 1,190% of Iceland’s quota in the IMF," IMF Managing Director Dominique Strauss-Kahn said, but he added Reykjavik deserved it because of the "ambitious economic program" it has put together.

The tiny island nation "aims to restore confidence to the banking system, to stabilize the krona through strong macroeconomic policies, and to help the country achieve medium-term fiscal consolidation following the collapse of its banking system."

Iceland’s stock market crashed earlier this month and the government nationalized three of the country’s biggest banks nevada payday loans. Trading on the country’s stock market was suspended for nearly a week.

The IMF deal must be approved by the organization’s executive board in Washington. Strauss-Kahn said that could happen as soon as early November.

The deal would include an economic stabilization program and access to up to $2.1 billion under a two-year loan. Iceland would have access to $833 million of that money immediately, the IMF said.

"Iceland is now in a much better position to establish a sound economic and financial base for the country," Haarde said in a written statement. 

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Bank of America Corp. (NYSE: BAC) said most of its wealth management operations will be run from New York city following the $50 billion takeover of Merrill Lynch.

The announcement is a blow to Boston, which became Bank of America’s wealth management headquarters after BofA’s takeover of FleetFinancial in 2004. That business will be run from New York by Merrill Lynch CEO John Thain.

Keith Banks, who was Bank of America’s global wealth and management chief, will now head private bank U.S. Trust and Columbia Management, which includes mutual funds. He will operate from New York.

Greg Fleming, Merrill’s star investment banker and president, will run global corporate and investment banking, which will include commercial banking, from New York cashadvance.

Tom Montag, currently global head of sales and trading at Merrill Lynch, will be head of Global Markets which includes sales, trading and research. He will operate from New York. Capital markets will report to both Montag and Fleming.

Peter Kraus, executive vice president of Global Strategy at Merrill Lynch, has decided to leave the company after the merger to pursue other opportunities.

Merrill vice chairman Bob McCann, who oversees the company’s army of 16,000 or so brokers, will head the combined financial advisor organization. He will operate from New York.

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A Wachovia Corp. investor wants a judge to block the company’s sale to Wells Fargo & Co., contending the proposed $15 billion price is too low and the shareholder vote will be unfair.

The suit contends the bank will force the sale without true approval from shareholders. It says Wachovia “essentially disenfranchised the voters … and locked up the vote in favor of the merger” by giving Wells preferred stock representing 39.9% of Wachovia voting shares as part of the merger agreement.

“If this is such a good deal, we don’t understand why they are doing that,” said Carl Stine, a partner with Wolf Popper, the New York law firm that filed the suit. “Why not have a free and open vote?”

Christy Phillips-Brown, a spokeswoman for Wachovia, said the suit is “without merit and we intend to defend the case vigorously.”

The suit is filed as a class action. The only named shareholder is Irving Ehrenhaus, who would be the lead plaintiff.

It asks a judge in North Carolina business court to block the deal, issuing both a temporary and permanent injunction. No hearings have yet been set, but Stine said his group hopes to have hearings before the deal closes at the end of the year.

If the deal is closed before the case is heard, the suit asks the judge to undo the acquisition or award unpecified monetary damages.

The suit accuses the Wachovia board of breach of fiduciary duty in the deal. It accuses Wells of aiding and abetting that breach.

San Francisco-based Wells (NYSE: WFC) agreed Oct. 3 to buy Wachovia in a deal initially valued at $15.1 billion. This was while Wachovia’s future hung in the balance. The bank faced failure on Sept. 29 and was rescued only by a deal brokered by federal regulators to sell its banking operations to New York-based Citigroup Inc. (NYSE: C) for $2.1 billion payday advance lender.

That deal, announced Sept. 29, would have left a portion of Wachovia — basically Wachovia Securities and some asset-management operations — surviving as an independent company.

Wells made a higher offer Oct. 2, and the board accepted it shortly after midnight Oct. 3. Citigroup initially challenged that deal but has dropped efforts to block it. Instead Citigroup intends to seek up to $60 billion in damages from Wells and Wachovia over the deal gone sour.

Wachovia was on the verge of failure after a proposed bailout of the banking system foundered in the U.S. Congress. Before that failure, the suit says, Charlotte, N.C.-based Wachovia (NYSE: WB) was worth about $10 a share.

With the bank facing shutdown or a bargain-basement deal with Citigroup, Stine says, the roughly $7 a share Wells offered might be appropriate. But after the bailout passed, Wachovia was worth more than that. The board, he says, had a duty to renegotiate the price.

Wells, he said, had “a gun to Wachovia’s head” when the deal was made. And it demanded Wachovia enter into an immediate exchange of stock, giving the preferred shares to Wells.

Stine argues that all but assures the deal will be approved. Management and the board of Wachovia own about 2.5 percent of all shares, so Wells starts with a 41 percent stake in the deal, he says.

But granting that large a share of votes to Wells also effectively precludes any other bidder from coming in.

Wolf Popper, which has a national reputation in class-action suits, has asked Judge Albert Diaz in the business court for expedited treatment to allow the argument for an injunction to be heard as quickly as possible.

The suit was filed a little more than a week ago in Mecklenburg Superior Court.

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European Central Bank council member Ewald Nowotny said a “tri-polar'' global currency system is developing between Asia, Europe and the U.S. and that he's skeptical the U.S. dollar's centrality can be revived.

“What I see is a system where we have more centers of gravity'' Nowotny said today in an interview with Austrian state broadcaster ORF-TV. “I see for the future a tri-polar development, and I don't think that there will be fixed exchange rates between these poles.''

The leaders of the U.S., France and the European Commission will ask other world leaders to join in a series of summits on the global financial crisis beginning in the U.S. soon after the Nov. 4 presidential election, President George W. Bush, French President Nicolas Sarkozy and European Commission President Jose Barroso said in a joint statement yesterday.

Nowotny said he was “skeptical'' when asked whether the Bretton Woods System of monetary policy, set up after World War II and revised in 1971, could be revived to aid global currency stability. The U.S. meeting should aim to strengthen financial regulation, define bank capital ratios and review the role of debt-rating agencies.

European leaders have pressed to convene an emergency meeting of the world's richest nations, known as the Group of Eight, joined by others such as India and China, to overhaul the world's financial regulatory systems no qualifying payday advance. The meetings are to include developed economies as well as developing nations.

`Real Economy'

Bush, 62, has cautioned that any revamping must not restrict the flow of trade and investment or set a path toward protectionism. The G8 nations are Britain, Canada, France, Germany, Italy, Japan, Russia and the United States. The U.S. hasn't committed itself to the sweeping terms of Europe's agenda, White House press secretary Dana Perino said yesterday.

Sarkozy wants the G8 to consider re-anchoring their currencies, the hallmark of the 1944 Bretton Woods agreement that also gave birth to the International Monetary Fund and World Bank.

The current financial crisis, in which European governments have pledged at least 1.3 trillion euros ($1.7 trillion) to guarantee loans and take stakes in lenders, should be “under control'' by mid-2009, Nowotny said. The economy will suffer longer.

“What comes then, unfortunately in parallel, will be the problems for the real economy,'' Nowotny said. “The growth rate in 2009 will be significantly below what we have in 2008.''

He predicted gross domestic product growth around 1 percent in Austria next year.

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