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Coast guard divers searching the submerged part of the Costa Concordia on Sunday found the bodies of two elderly men still in their life jackets, authorities said, raising to five the death toll after the luxury cruise liner ran aground and tipped over off the Tuscan coast.

Divers scouring the bowels of the ship in the murky, cold sea discovered the bodies at the emergency gathering point near the restaurant where passengers were dining when the ship carrying more than 4,200 people hit a reef or rock near the island of Giglio, Coast Guard Cmdr. Cosimo Nicastro said.

The discovery reduced to 15 the number of people still unaccounted for after an Italian who worked in cabin service was pulled from the wreckage Sunday and a South Korean couple on their honeymoon were rescued late Saturday in the unsubmerged part of the liner when a team of rescuers heard their screams.

“We are still searching” for any bodies, “but (also) in the hope that there might have been an air pocket” to allow the survival of others, Nicastro told Sky TG24 TV dockside.

Authorities are holding the Italian captain for investigation of suspected manslaughter and abandoning his ship among other possible charges. According to the Italian navigation code, a captain who abandons a ship in danger can face up to 12 years in prison. A coast guard official said Sunday officers exhorted Francesco Schettino to return to his ship as panicked passengers desperately fled the cruise liner.

The chaotic evacuation has added to the difficulty in tracking down survivors _ with six of those unaccounted for crew members and the others passengers. Two of the unaccounted for passengers are American, the U.S. Embassy in Rome said.

In the first hours after the accident late Friday night, three bodies were found in the waters near the ship. The victims discovered Sunday were two elderly men who were wearing life vests, said Coast Guard Cmdr. Francesco Paolillo.

“The divers had to remove the life vests to get the bodies out,” he said, because they could have floated away. Their nationalities were not immediately released.

The divers’ search through the ship, which is lying on its side with a huge gash, was already dangerous because of the risk the vessel could suddenly move and sink into waters over a nearby lower sea bed.

Their safety was increasingly threatened by floating objects in the belly of the 290-meter (nearly 1,000) foot long liner, as well as muck drastically reducing visibility, Nicastro said.

“There are tents, mattresses, other objects moving which can get tangled in the divers’ equipment,” Nicastro said. Officials were going to huddle soon to see how long the underwater search could safely continue, he said.

Divers say they are using a kind of long cord they hook near the point of entrance and unroll as they work, so they can find their way out when finished.

Prosecutor Francesco Verusio confirmed reports that prosecutors are investigating allegations the cruise liner’s captain, Francesco Schettino, abandoned the stricken liner before all the passengers had escaped.

Asked Sunday by Sky TG24 about the accusations, Grosseto prosecutor Francesco Verusio replied, “unfortunately, I must confirm that circumstance.”

Paolillo said the captain was spotted on land during the evacuation. Officers had urged him to return to his ship and honor his duty to stay aboard until everyone else was safely off the vessel, but Schettino ignored them, he said.

“We did our duty,” Paolillo told The Associated Press.

A French couple who boarded the Concordia in Marseille, Ophelie Gondelle and David Du Pays of Marseille, told the AP they saw the captain in a lifeboat, covered by a blanket, well before all the passengers were off the ship. They insisted on telling a reporter what they saw, so incensed that _ according to them _ the captain had abandoned the ship before everyone had been evacuated.

“The commander left before and was on the dock before everyone was off,” said Gondelle, 28, a French military officer.

“Normally the commander should leave at the end,” said Du Pays, a police officer who said he helped an injured passenger to a rescue boat. “I did what I could.”

Schettino has said the ship hit rocks that weren’t marked on his nautical charts, and that he did all he could to save lives.

“We were navigating approximately 300 meters (yards) from the rocks,” he told Mediaset television. “There shouldn’t have been such a rock.”

He insisted he didn’t leave the liner before all passengers were off, saying “we were the last ones to leave the ship.” That clearly wasn’t the case as the finding of the three survivors aboard Saturday night and Sunday showed payday loan no faxing.

Coast guard spokesman Capt. Filippo Marini told Sky Italia TV that Coast Guard divers have recovered the so-called “black box” with the recording of the navigational details from a compartment now under water.

A Dutch firm has been called in to help extract the fuel from the Concordia’s tanks before any leaks into the area’s pristine waters. No leaks have so far been reported.

While ship owner Costa has insisted it was following the same route it takes every week between the Italian ports of Civitavecchia and Savona, residents on the island of Giglio said they had never seen the Costa come so close to the Le Scole reefs and rocks that jut from Giglio’s eastern side.

“This was too close, too close,” said Italo Arienti, a 54-year-old sailor who has worked on the Maregigilo ferry service that runs between the island and the mainland for more than a decade. A now-retired Costa commander used to occasionally do “fly-bys” on the route, nearing a bit and sounding the siren in a special salute for his hometown, he said. Such a fly-by was staged last August, but there was no incident, he said.

He said the cruise ship always stayed more than five to six nautical miles offshore, well beyond the reach of the “Le Scole” reefs, popular with scuba divers.

The terrifying escape from the luxury liner, which was on a weeklong Mediterranean cruise, was straight out of a scene from “Titanic.” Many passengers complained the crew didn’t give them good directions on how to evacuate and once the emergency became clear, delayed lowering the lifeboats until the ship was listing too heavily for many to be released.

Several other passengers said crew members told passengers for 45 minutes that there was a simple “technical problem” that had caused the lights to go off.

Amateur footage taken aboard the ship showed the situation immediately after it ran aground, as an announcement in various languages tells passengers the liner is having electrical problems and “the situation is under control.” When a man asks a crew member in Spanish why he is wearing a life vest, the crew member doesn’t answer and continues on his way.

Other video shows people crowded together in life jackets, apparently calm and waiting to disembark the ship. A third video taken from a lifeboat, shows mostly darkness as people shout and scream in panic.

Passengers said they had never participated in an evacuation drill, although one had been scheduled for Saturday. The cruise began on Jan. 7.

Costa Crociera SpA, which is owned by the U.S.-based cruise giant Carnival Corp., defended the actions of its crew and said it was cooperating with the investigation. Carnival Corp. issued a statement expressing sympathy that didn’t address the allegations of delayed evacuation.

Some 300 of the crew members were Filipinos and three of them were injured, the Philippine Department of Foreign Affairs said.

The captain has insisted that the reef was not marked, but locals said the stretch of sea is not difficult to maneuver. Anello Fiorentino, captain of a ferry that runs between Giglio and the mainland, said he makes the crossing every day without encountering problems.

“Yes, if you get near the coast there are reefs, but this is a stretch of sea where all the ships can safely pass,” he said.

Islanders on Giglio opened up their homes and businesses to accommodate the sudden rush of survivors. Rossana Bafigi, who runs a newsstand, said she was really moved by the reaction of the passengers.

She showed a note left by one Italian family that said, “We want to repay you for the disturbance. Please call us, we took milk and biscuits for the children. Claudia.”

At Mass on Sunday morning in Giglio’s main church, which opened its doors to the evacuees Friday night, altar boys and girls brought up to the altar a life vest, a rope, a rescue helmet, a plastic tarp and some bread.

Don Lorenzo, the parish priest, told the faithful that he wanted to make this admittedly “different” offering to God as a memory of what had transpired.

He said each one carried powerful symbolic meaning for what happened on Friday night: the bread that multiplied to feed the survivors, the rope that pulled people to safety, the life vest and helmet that protected them, and the plastic tarp that kept cold bodies warm. “Our community, our island will never be the same,” he told the few dozen islanders gathered for Mass.

_____

Frances D’Emilio contributed to this story from Rome.

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Nintendo Co.’s upcoming Wii U game console will come with a controller that has a big, touch-enabled screen. At first glance, that seems like an obstacle to the kind of casual multiplayer gaming that made the first Wii console such a breakout hit.

But in demonstrations Tuesday, the company emphasized that the Wii U will work with the cheaper, stick-like Wii controllers as well, making family multiplayer games feasible.

The Japanese company is giving some journalists hands-on time with the console on the sidelines of the International Consumer Electronics Show, which started Tuesday in Las Vegas.

It’s the second time the U.S. media is getting a glimpse of the device, which was first shown in June. Nintendo said the device will go on sale after the next Electronic Entertainment Expo gaming trade show in Los Angeles in June.

Nintendo went against conventional wisdom with the original Wii in 2006. The quirky, cheap game console relied not on high-end graphics and complex buttons to lure in hardcore players, but on simple motion controls to lure in everyone.

Although the company successfully courted casual gamers with the Wii, it is now facing increased competition from Apple Inc.’s iPhone and other devices that offer simple games. It had hoped to win new gamers through a 3-D handheld device. But sales were slow, and Nintendo slashed prices on the 3DS within six months.

The Wii U will be sold as a bundle with one touch-screen controller, which is almost as big as the game console itself. Nintendo hasn’t said what the package or an extra controller will cost. Touch screens are expensive, often accounting for nearly half of the cost of a phone or a tablet computer.

Nintendo’s demonstrations reveal that the touch-screen controller is designed to work with older controllers free credit report and score. For example, in one of Nintendo’s demonstration games, four players with Wii remotes chase a fifth, who uses the touch controller. The fifth player uses the screen on the controller to guide his movements, which are thus kept secret from the other players. The other players keep track of their own movements on the TV screen.

In another demonstration game, two players with Wii remotes collaborate to fight a third, who zooms around in a spaceship, controlled through the touch controller.

The integration of the older remotes and the touch controller goes even further. The existing Wii console is able to keep track of where the old-style Wii remotes are with the help of a “sensor bar” that attaches to the TV set. That’s how the Wii remote can be used to “point” to things on the screen. The new Wii U controller has its own sensor bar, so the Wii U can figure out where a Wii remote is in relation to the controller, not just the TV set.

This sounds complicated, but it enables simple, unexpected forms of game play. For instance, Nintendo showed in a video how the Wii U controller could be placed on the floor for a golf game. The screen of the controller shows a teed-up golf ball. Swinging a Wii remote like a golf club above the controller gets the ball flying.

While the ability to use older remotes will appeal to consumers, supporting multiple remotes could pose a challenge for game developers, who might decide to drop support for older hardware. To make things more complicated, there are two versions of the Wii remote, with differing motion-sensing abilities, and an accessory “Nunchuck” controller.

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WASHINGTON • If timing is everything, as the saying goes, then Matt Blunt might consider a job giving advice on when to make career changes.

Blunt picked 2004 as the year to run for governor of Missouri. It turned into a strong year for Republicans and, at age 33, he became America’s youngest governor.

In his new incarnation, Blunt last year became chief spokesman and a lobbyist in Washington for Detroit’s Big Three automakers just as the American automotive industry was enjoying a resurgence.

It is one of several positions Blunt holds these days that enable him to prove life after Missouri’s Governor’s Mansion can be rewarding and, he says, enjoyable.

As president of the American Automotive Policy Council, one of Blunt’s main tasks is reminding Congress of his industry’s recent success, a rare good news story about American manufacturing.

Two years after General Motors and Chrysler emerged from bankruptcy, both companies, along with Ford, reported profits and increasing sales in 2011. Their turnaround is hailed in reports such as a recent Time magazine cover story titled, “How America Started Selling Cars Again.”

Yet many Americans — some of them in Congress — see the automotive industry as bloated and inefficient, surviving on government bailouts.

“What some people believe about automobile manufacturers, the American-based companies, isn’t accurate,” Blunt said. “The companies today are fundamentally different than they were just a few years ago, in terms of what they make and how they make it.”

Blunt’s portfolio these days includes the vital matters affecting American carmakers, including global trade agreements, new fuel economy standards and a recent recommendation to ban texting and cellphone use in automobiles.

Blunt, who turned 41 in November, is leading a life different from his sometimes rocky four years as a young governor, in which he endured criticism for his cuts to Medicaid and low approval ratings at times.

After leaving office in January 2009, he moved swiftly into the world of business. Besides his Big Three job, he is a director for Copart Inc., an online auto auction company in California that claims to sell 1 million vehicles yearly. He is a senior adviser for Rubicon Global, an Atlanta-based waste management firm, and an advisory board member for private equity funds.

Rather than living in Jefferson City or Springfield, Blunt, his wife, Melanie, and sons Branch, 6, and Brooks, who turned 2 on New Year’s Day, reside now in Middleburg, Va., situated in rolling horse country that has been home to such notables as Jacqueline Kennedy Onassis and Elizabeth Taylor.

Blunt says he is comfortable in a part of the country where he has spent considerable time. He graduated from the Naval Academy in nearby Annapolis, Md., and he was stationed on a Virginia-based ship. His wife is a Virginia native.

In recent interviews, Blunt, whose father, Roy, just completed his first year in the U.S. Senate, said he has no regrets in deciding not to seek a second term.

“I loved being governor. It was a great experience. I was proud of what we accomplished,” he said. “But I don’t know that over another four-year term, I would have been particularly effective. I don’t know there’s much that I would have gotten done.”

He added, “I don’t necessarily miss politics.”

understanding autos

Blunt is dealing now with politics of a different order, in some cases global. He was outspoken last fall in pressing to keep Japan out of the budding Trans-Pacific Partnership free trade alliance, noting Japan’s protectionist policies that keep out all but a few thousand American cars yearly.

Trade is a key focus for Blunt but just one of many focuses for an industry that experts say needs help.

Joe Wiesenfelder, executive editor of Chicago-based Cars.com, said he sees “a gross misunderstanding in Washington about developing and building cars and how long it takes, about the inconsistency of the market and about inconsistency of regulation and the effects on companies.”

Until two years ago, Ford, Chrysler and GM were aligned in Washington with the Auto Alliance, which also includes foreign automakers. But the interests of domestic and foreign companies diverged just as legislation and government rules were becoming more consequential.

Blunt’s background as a governor likely played a role in his selection as the industry sought to navigate tricky political waters in Congress after the controversial bailouts No teletrak payday loan.

Blunt technically is not a registered federal lobbyist because he spends less than 20 percent of his time lobbying. Nevertheless, he works the halls of Congress, trumpeting the key role of the Big Three in the nation’s economy. GM, Ford and Chrysler will add 34,000 jobs in coming years, he said, which translates to 400,000 jobs in the economy supported by automotive plants.

“The American companies are competitive, they are productive and they are making great products,” Blunt said, sounding like the car salesman he has become. “Because of that, what recovery we do have in the American economy, the automobile makers are playing a big part.”

As a self-described conservative Republican, Blunt might find old allies who decry the $80 billion bailout of Chrysler and GM. Most of the money has been paid back, and the White House projected the cost to taxpayers at $14 billion.

“Decisions that President Bush made at the end of his administration and President Obama made early in his administration have had a successful outcome,” he said. “It’s always an academic debate whether a different road map would have led to the success.”

As governor, Blunt was an advocate of smaller government. Those sensibilities could come into play as government moves more aggressively to dictate vehicle design.

After an agreement with both domestic and foreign manufacturers, the administration of President Barack Obama in November proposed nearly doubling fuel economy requirements to 54.5 miles per gallon by 2025. In 2010, the administration completed rules to raise the fuel standard to 35.5 mpg by 2016. The current requirement for new autos is 27.3 mpg.

Foreign-based manufacturers believe the White House has tilted the rules in favor of the domestic industry. True or not, the Big Three will need to be vigilant as regulations are implemented; their focus will be on easing the burden those regulations could cause.

“It’s the classic ‘devil’s in the details,’ and it will be very important to see the rules filed by all the agencies,” Blunt said.

Texting debated

Automakers took notice recently when the National Transportation Safety Board said states should ban texting and cellphone use in vehicles. The board made the recommendation after concluding that a driver’s texting was a factor in a deadly pileup near St. Louis.

Blunt said companies he represents are paying close attention because “they really do believe that you can integrate technology into a vehicle that’s not only safe but safer than the way most drivers use technology today.”

“As you think about what you might or might not ban in a vehicle, it’s important to do it in a way that wouldn’t inhibit safety ideas some of the companies have today, and at the same time be realistic,” he said. “Quite frankly, I don’t think (a cellphone ban is) very realistic.”

As a lobbyist, Blunt seemingly could have a ready ear from father Roy, who won election this month to a Senate GOP leadership slot. Matt Blunt said he doesn’t intend to talk business at family gatherings, perhaps because Roy Blunt has in the past been criticized for ties to lobbyists in his family and otherwise.

Matt’s brother, Andy Blunt, works at a law firm in Jefferson City with a long list of lobbying clients. His sister, Amy, maintains some lobbying clients in her business in the state capital, which largely deals with helping candidates comply with Federal Election Commission rules. Roy Blunt’s wife, Abigail, was a lobbyist for tobacco giant Philip Morris before joining Kraft’s legislative affairs team.

Andy Blunt said his brother arrived in a position that suits his talents.

“He’s a great manager and executive and has the ability to focus on details while thinking about long-term strategy,” he said.

Blunt, who acknowledged driving a German-made automobile in the past, also is walking the talk now — driving it, actually.

He gets around Washington in a Chrysler-made Jeep Grand Cherokee.

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Home prices in Australia

World stocks markets fell Wednesday, with trading thinned by year-end holidays and mixed economic news out of the U.S. and Japan.

Benchmark oil hovered above $101 per barrel while the dollar fell against the euro and the yen.

European stocks dropped in early trading. Britain’s FTSE 100 fell 0.2 percent to 5,501.25. Germany’s DAX was 0.9 percent lower at 5,839.98 and France’s CAC-40 lost 0.4 percent to 3,092.01. Wall Street also appeared headed for a lower opening. Dow Jones industrial futures rose 0.2 percent to 12,199 while S&P 500 futures dipped 0.3 percent to 1,256.60.

Earlier in Asia, trading was subdued, as it typically is between the Christmas holiday and New Year’s.

Japan’s Nikkei 225 index fell 0.2 percent to close at 8,423.62. Hong Kong’s Hang Seng Index fell 0.6 percent to 18,518.67, while South Korea’s Kospi lost 0.9 percent to 1,825.12. Australia’s S&P ASX 200 lost 1.3 percent to 4,088.80. Benchmarks in Singapore, Taiwan and Indonesia were also lower.

Japan’s industrial output dropped a seasonally adjusted 2.6 percent last month _ the first decline in two months. But the negative news was mitigated by expectations of rebounding manufacturing and production this month and next, which helped to mute stock market losses.

The Shanghai Composite Index reversed course after early losses, rising 0.2 percent to 2,170.01. But the smaller Shenzhen Composite Index sank 0.5 percent at 849.76.

Some investors were “dumping shares” because Beijing has failed to take steps they expected to stimulate slowing economic growth, said Peter Lai, investment manager for DBS Vickers in Hong Kong.

“Some investors believed there would be a reduction in interest rates or the bank reserve ratio. But this hasn’t happened,” Lai said.

Tokyo Electric Power plunged 11.8 percent, a day after Japanese Industry Minister Yukio Edano suggested that the embattled utility be put under temporary state control and warned the company against resorting to electricity bill hikes.

TEPCO operates the Fukushima Dai-ichi nuclear power plant, which was heavily damaged in the March earthquake and tsunami, and owes massive compensation payments to people and companies harmed by a nuclear disaster at the plant faxless pay day loans.

Hong Kong-listed property shares also slumped. China Overseas Land & Investment slid 3 percent. China Resources Land lost 2.7 percent.

China Mengniu Dairy, the country’s biggest dairy company, plummeted 24 percent in Hong Kong after acknowledging that a cancer-causing toxin had been found in milk produced by the company. Mengniu apologized and said no tainted milk had made it to the market. The government blamed the problem on bad feed given to cows.

Retail shares also slid on growing anxiety over the global economy in 2012. Hong Kong-listed jewelry retailer Chow Sang Sang shed 4 percent. Australian department store chain David Jones fell 2.1 percent and Woolworth’s lost 0.9 percent.

On Wall Street on Tuesday, the Dow Jones lost less than 0.1 percent to close at 12,291.35. The S&P 500 was up marginally to 1,265.43. The Nasdaq composite rose 0.3 percent to 2,625.20.

U.S. consumer confidence surged to an eight-month high, but home prices fell in 19 of the 20 cities tracked by the Standard & Poor’s/Case-Shiller index. That report dampened investors’ enthusiasm about a jump in consumer confidence to the highest level since April.

Benchmark crude oil rose 2 cents to $101.36 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.66 to finish at $101.34 per barrel on the Nymex on Tuesday.

In currency trading, the euro fell to $1.3075 from $1.3069 late Tuesday in New York. The euro has been weak because of worries about Europe’s government debt crisis. It is still trading just above an 11-month low of $1.2943 reached on Dec. 14.

The dollar fell to 77.73 yen from 77.85 yen.

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The Italian government has won a confidence vote over its package of anti-crisis austerity measures in the lower chamber of Parliament.

Premier Mario Monti called the vote, held Friday in the Chamber of Deputies, to speed passage of the measures he says are vital to save Italy from financial disaster. The package was approved by a vote of 495 in favor and 88 against. The Senate is expected to vote on the measures in the next few days.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

ROME (AP) _ The Italian government faces a confidence vote over a package of austerity measures while a transport strike to protest the cuts is causing havoc for commuters across the country.

Premier Mario Monti is putting his package of new and higher taxes and pension reforms to a confidence vote in the lower Chamber of Deputies to speed up its passage cash advance payday loan.

The vote, which is expected by early evening Friday, will likely clear the measures, paving the way for final approval in the Senate within days.

The main political parties have said they would back the package despite disagreeing on some measures.

Monti says austerity is needed to save Italy from financial disaster, but unions are furious. Public transport workers idled buses and subways Friday. State railways were also on strike.

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Jon Corzine is expected Tuesday to once again distance himself from an estimated $1.2 billion in customer money that vanished when MF Global collapsed this fall.

This time, Corzine will have company.

Bradley Abelow, MF Global’s president and chief operating officer, and Henri Steenkamp, the chief financial officer, are also scheduled to testify to the Senate Agriculture Committee.

All three say they don’t know where the money is, according to prepared remarks and Corzine’s previous testimony to a House panel last week. Nor do they take responsibility for authorizing the movement of money out of customer accoun.

Depending on the circumstances, transferring money from customers’ accounts could violate securities laws and, in some cases, could amount to a crime. Federal authorities have begun criminal investigations. And regulators are looking into whether the firm broke securities rules.

MF Global collapsed into the eighth-largest bankruptcy in U.S. history on Oct. 31 after a disastrous bet on European debt. Corzine stepped down as CEO on Nov. 4.

Corzine told the House Agriculture Committee last week that he didn’t know what happened to the money. He said he didn’t become aware of the shortfall until Oct. 30, one day before the firm filed for bankruptcy protection.

In his prepared testimony, Steenkamp says he had no direct involvement in the transfer of funds.

“Direct involvement with operational matters such as bank accounts or fund transfers has never been part of my duties,” Steenkamp says.

Abelow says he cannot explain what happened to the money without having access to MF Global documents, which a trustee now controls.

“At this time … I do not know the answers to those questions,” he says in his prepared testimony.

Anthony Sabino, a law professor at St. John’s University in New York, said Steenkamp and Abelow “are in a riskier position” than Corzine because they were responsible for day-to-day operations of MF Global.

Tuesday’s hearing will include an added element of drama because Corzine, a former Democratic senator from New Jersey, will be pressed by some senators he served with from 2000 through 2005 payday loans.

The Senate panel is one of three congressional committees to have issued subpoenas to compel Corzine’s testimony on the issue. It marked the first time a former senator has been subpoenaed by his former peers in more than 100 years, according to the Senate historian’s office.

Many lawmakers have heard from farmers, ranchers and small business owners in their states who are missing money that was deposited with the firm. Agricultural businesses use brokerage firms like MF Global to help reduce their risks in an industry vulnerable to swings in oil, corn and other commodity prices.

Corzine, who also was New Jersey governor from 2006 until early 2010, told lawmakers last week that he never intended to authorize the transfer of funds from customer accounts. If any subordinates moved clients’ money in the belief that Corzine had authorized it, “it was a misunderstanding,” he said.

Along with Corzine, Steenkamp and Abelow have been sued in class-action complaints on behalf of MF Global shareholders. The lawsuits accuse the executives of making false and misleading statements about MF Global’s financial strength and cash balances.

MF Global didn’t list the European debt on its balance sheet for all to see. Instead, those holdings were shifted to the company’s “off-balance sheet,” deep in its financial statements. Some separate filings with regulators excluded the European debt entirely.

A lawyer for the trustee overseeing the liquidation of MF Global’s brokerage operations said in court Friday that the trustee’s staff has discovered some “suspicious” trades in MF Global customer accounts that were made in the last days before the firm failed. The lawyer didn’t provide details.

Corzine said last week that customers’ losses weigh heavily on him.

“I think about this every day,” he said. “I could not be more regretful, more distressed that we are ruining people’s lives.”

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Europe’s fiscal pact may save the euro from collapse and stave off worldwide financial panic. But the concerns of many investors are more personal: Will it lift my flagging 401(k)?

The answer from the stock market on Friday was hopeful. As a summit of European leaders concluded with an agreement to deal with their debt crisis, the Standard & Poor’s 500 index rose 1.7 percent, capping a second straight week of gains.

Then again, stocks have rallied after other summits _ more than a dozen in two years _ only to fall again. And the reaction to the deal from even the optimists isn’t particularly reassuring.

Hank Smith, chief investment officer of Haverford Investments, says stocks could rise “sharply and quickly” _ but only if there’s more “good news” from Europe. And that assumes you agree that Friday’s deal was good at all.

In that deal, all 17 countries that use the euro agreed to allow a central European authority to oversee their future budgets. They also agreed to automatic penalties if they spend too much.

But the deal won’t help cut debt today, which in Italy, Greece and Spain has driven government borrowing costs close to levels considered unsustainable. All eyes are now on the European Central Bank, and whether it’s willing to buy enough national bonds from those countries to keep interest rates down.

The frustration for investors is that Europe has drowned out a string of good news in the U.S. that should have moved stock prices higher. U.S. companies are making more money than ever, signs are growing the economy is recovering and stocks are cheap compared with earnings.

So far this year, investors have endured stomach-churning moves up and down in stocks. But in the end, not much has changed.

The S&P 500 has barely budged in the past 12 months. The Dow Jones industrial average, which includes some deeply troubled financial stocks not in the S&P, has performed better _ up 5 percent.

Jim Russell, equity strategist at US Bank Wealth Management, is befuddled.

“Stocks are bad _ sell them,” he says, mocking the prevailing attitude in the markets. “It doesn’t matter if you blow out earnings.”

Russell is hoping that Europe’s latest deal means U.S. investors will forget about the region for a while, focus on the fact that big U.S. companies have increased profits by double-digit percentages for 10 consecutive quarters _ and maybe even start buying again.

But the only thing he’s convinced is sure to come is more wild stock moves.

Since August, S&P 500 stocks have gyrated by 1.7 percent a day, more than twice its average over two decades. The Dow index of blue chips stocks has seen similar volatility.

The culprit: Europe.

Early last month, the Dow plunged by 389 points on news that squabbling Greek politicians might not be able to push through needed reforms. A few days later, the Italian Senate passed a new austerity budget and the Dow rose 260 points. Then it dropped 326 points over two days on fears that U.S. banks had bet too heavily on Europe continuing to pay its bills and on news of a sudden spike in Italian borrowing costs. Then, another reversal. Several central banks announced they would make it easier for European lenders to borrow themselves, and the Dow jumped 490 points fast cash advance.

In addition to tighter controls on spending, Europe’s new “fiscal compact” calls for the launch of a permanent eurozone bailout fund in 2012, a year ahead of schedule. The deal also will send 200 billion euros ($267.41 billion) to the International Monetary Fund, which controls another emergency fund for countries in crisis.

Jeffrey Sica of Sica Wealth Management thinks the pact is inadequate, and stocks could fall 15 percent once investors wake up to that fact. He doesn’t think the European Central Bank will buy enough bonds to keep borrowing costs down. And that means banks in the region holding government debt will suffer big losses, with some collapsing. U.S. banks will also get hit with losses, and the economy will struggle for years.

“We had all this anticipation leading up to the meeting,” he says. “But nothing much happened.”

Sica, who manages $1 billion for clients, sold all of his stocks in August, and put proceeds in U.S. Treasury bills and into so-called “short” bets that stocks will fall.

His view is a nightmare, but even if you don’t buy it, there is plenty to worry about.

U.S. companies have generated record profits in part by cutting costs. But there’s a limit to how much they can squeeze suppliers and pile work on remaining workers. The other path to riches has been to sell more abroad, but there are signs that may prove difficult soon, too.

This past week, Europe’s biggest economy, Germany, reported its exports plunged in October. That followed bad news from a widely-followed survey suggesting that eurozone economy had likely contracted last month, which would make it the third monthly drop in a row. Many experts now think Europe is already in recession or will soon enter one.

This matters because S&P 500 companies get 14 percent of their revenue from Europe. Not surprisingly, some CEOs have been sounding more dour lately.

Many have slashed their guidance on earnings for next year. On Friday, chemical giant DuPont and semiconductor maker Lattice Semiconductor Corp. cut their financial outlooks for the current quarter. That followed a warning from Texas Instruments Inc. a day earlier that its revenue might fall short of expectations.

“We’ve seen the market highs for the year,” says Peter Boockvar, equity strategist Miller Tabak & Co. “Europe will be in recession and corporate earnings here could be challenging.”

Russell, the US Bank strategist, agrees that Europe is in trouble but he’s still cheery about U.S. stocks. He thinks earnings at S&P companies might grow only 7 percent in 2012, half the rate this year. But he’s still urging investors to buy.

Even at that lower rate, stocks are trading at roughly 12 times their projected earnings versus a long-term average of nearly 17 times, he says.

Translation: They’re cheap.

“We think investors will like what they see,” says Russell, assuming they “refocus on fundamentals.”

Given Europe’s troubles, it’s a big assumption.

Source

WASHINGTON