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The Federal Reserve is in talks with money-market mutual funds on agreements to help drain as much as $1 trillion from the financial system as policy makers prepare for the first interest-rate increase since June 2006, according to a person familiar with the discussions.

The central bank is looking to the money-market mutual fund industry which manages $3.2 trillion in assets because the 18 so-called primary dealers that trade directly with the Fed have a capacity limited to about $100 billion, estimates Joseph Abate, a money-market strategist at Barclays Capital in New York.

Money-market funds may welcome the opportunity to trade with the Fed after the financial crisis reduced the supply of safe assets in which they can invest. In one example of demand for such assets, auctions on four-week Treasury bills have attracted an average of $5.47 in bids for every dollar sold this year, compared with an average of $3.77 last year, according to Bloomberg data. Yields on the four-week bill were quoted at four basis points at 3:47 p.m. in New York trading from 18 basis points a year ago.

“There are lots of great credit stories, but the option of going with the Fed and the government — it takes away part of the risk,” said Deborah Cunningham, a chief investment officer at Federated Investors Inc. in Pittsburgh, which manages $318 billion in money-market investments. Conversations with the Fed “seem pretty positive,” she said, adding that the Fed and the industry should be in a position to conduct operations before the end of the year.

Fannie, Freddie

Chairman Ben S. Bernanke yesterday charted ways the Fed might withdraw record monetary stimulus pumped into the economy to fight the recession. Among the central bank’s tools are reverse repurchase agreements, in which the Fed sells securities with the intention of repurchasing them at a later date.

The Fed is also considering reverse repurchase agreements with mortgage lenders Fannie Mae and Freddie Mac, said the person familiar with the discussions. Freddie Mac spokeswoman Sharon McHale declined to comment. Fannie Mae spokesman Brian Faith also declined to comment.

“To further increase its capacity to drain reserves through reverse repos,” Bernanke said, the Fed is “in the process of expanding the set of counterparties with which it can transact” beyond primary dealers of government securities.

The primary dealers, which are required to bid at auctions of Treasury notes and trade directly with the New York Fed’s markets desk, include BNP Paribas Securities Corp., Banc of America Securities LLC and Goldman Sachs & Co.

‘Extended Period’

Bernanke repeated yesterday that while interest rates are likely to stay low for an “extended period,” the Fed in “due course” will need to “begin to tighten monetary conditions to prevent the development of inflationary pressures paydayloan.”

The central bank has created more than $1 trillion in excess reserves in the banking system through its purchases of $300 billion of Treasury debt and $1.25 trillion of mortgage- backed securities. To put upward pressure on the federal funds rate, the Fed may need to drain as much as $800 billion, Abate estimates.

One potential tightening tool is the interest rate on reserves that commercial banks keep on deposit at the Fed. By raising that rate, the central bank “will be able to put significant upward pressure on all short-term interest rates,” Bernanke said.

The Fed can also use reverse repos to shrink the quantity of reserves, which in turn gives it “tighter control over short-term interest rates,” he said.

Risk for Fed

Fed officials face the risk that when they start to tighten policy by raising the rate they pay banks on reserves, other market rates may not follow. That would keep monetary conditions too loose in an expansion.

“They still seem nervous that they might not be able to control short rates, and if they can’t control short rates, how do they tighten?” said Mark Spindel, chief investment officer at Potomac River Capital LLC, which manages $200 million in Washington.

The Fed has sought to keep the benchmark rate in a range of zero to 0.25 percent since December 2008. The federal funds rate is now 0.13 percent, even though banks can earn 0.25 percent by keeping their money on deposit at the Fed.

One reason for the discrepancy is that Fannie and Freddie have become “significant sellers” of funds in the overnight market and aren’t eligible to place cash on deposit at the Fed, according to a December research paper by the New York Fed.

Some hurdles remain in the Fed’s efforts to secure bigger repo capacity. Fed officials and mutual-fund industry representatives are working on a structure that would allow funds to invest in relatively liquid assets that can be sold in seven days, while allowing the central bank to avoid having to renew billions of dollars in transactions each week.

“There needs to be liquidity,” said Cunningham of Federated. “A reverse repo contract is not considered to be liquid in the context of anything beyond seven days.”

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Chicago-based Berlin Packaging said Monday it will acquire All-Pak Inc., a packaging supplier based in Bridgeville, near Pittsburgh.

Berlin Packaging describes itself as a "full-service supplier of plastic, glass and metal containers and closures." All-Pak evolved from the former Cunningham Glass Co., which has been in the Pittsburgh area for some 50 years.

Terms of the deal were not disclosed Monday, and it was not clear whether any Pittsburgh-area layoffs would result from the acquisition.

According to a news release, the combined company, which will be headquartered in Chicago, will have annual revenue approaching $500 million. All-Pak will maintain a "significant operational presence at all of its geographical locations," according to the release.

The acquisition is expected to close by the end of February, according to the release.

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European Central Bank President Jean- Claude Trichet is struggling to convince investors that the euro region shouldn’t be punished for Greece’s budget problems.

As the Greek government tries to control its record deficit and the country’s bonds slide, Trichet yesterday said the economy of the 16-nation euro area is solid and its budget shortfall will probably be smaller than those of the U.S. and Japan this year. The euro nevertheless fell more than half a cent against the dollar and Spanish and Portuguese stocks dropped on concern they are in a similar predicament to Greece.

Trichet “did not convince me,” said Stuart Thomson, who helps manage $100 billion at Ignis Asset Management in Glasgow, Scotland. “Where does he think the Greek, Spanish and Portuguese economies will be three years from now? Their austerity measures will weigh on the euro area as a whole.”

Trichet has been forced to fend off questions about the survival of the euro as investors doubt Greece’s ability to cut its deficit from 12.7 percent of gross domestic product to below the European Union’s 3 percent limit. As concern spreads to Spain and Portugal’s rising debt burdens, Trichet will try to stress the need for fiscal prudence without inflaming skepticism that it can be achieved.

“Something has to happen to turn credibility around,” said Paul Mortimer-Lee, head of Market Economics at BNP Paribas in London. “The market’s just saying it’s not believable. It might have to get worse before it gets better.”

Markets Shudder

Spanish stocks dropped the most in 15 months yesterday and Portugal led declines in government bonds. The euro fell to $1.3728, its lowest level against the dollar since last May. It has dropped more than 9 percent since Nov. 25.

Greek bonds have tumbled in the past two months, pushing the yield on the country’s 10-year debt above 7 percent, the highest since 1999, the year the euro was introduced. The premium investors charge to hold Greek 10-year bonds over the benchmark German bund has widened to 356 basis points, about 10 times what it was two years ago.

The ECB yesterday left its benchmark rate at a record low of 1 percent and Trichet signaled the bank is in no rush to raise borrowing costs as the economy recovers gradually from its worst recession since World War II.

Still, Trichet said the “solidity” of the euro area “is not necessarily very well known” and its situation compares “very flatteringly with a number of other industrialized countries.”

Gradual Recovery

The euro-area economy will grow 0.8 percent this year and 1.2 percent in 2011, according to the ECB’s December forecasts. It contracted 4 percent last year, the European Commission estimates.

“Trichet is still trying to persuade markets that they should be looking at the euro area as a whole, which does not look that bad, rather than at individual countries, some of which look extremely fragile,” said Marco Annunziata, chief economist at UniCredit SpA in London.

Spain’s public debt will rise to 74 percent of GDP by 2011 from 54 percent last year, according to European Commission forecasts. Greece’s debt will increase to 135 percent of GDP from 113 percent, and Portugal’s will increase to 91 percent from 77 percent, the EU estimates.

Greece’s consolidation plans, which call for about 10 billion euros ($13.7 billion) of spending cuts and revenue increases this year, are more ambitious than any budget reduction achieved by euro-region countries since the 1970s, according to ING Group.

Greece’s biggest union yesterday approved a second mass strike this month to protest the spending cuts and tax collectors began a 48-hour walkout, illustrating the difficulty Prime Minister George Papandreou faces in implementing his plan.

“We expect and we are confident that the Greek government will take all the decisions that will permit them to reach that goal,” Trichet said. Additional proposals announced by Greece this week to freeze public-sector wages and revamp the pension system “are steps in the right direction,” he said.

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Spending by U.S. consumers increased in December for a third consecutive month, signaling the biggest part of the economy will contribute more to growth in coming months.

The 0.2 percent increase in purchases was less than anticipated and followed a 0.7 percent gain in November that was larger than previously estimated, Commerce Department figures showed today in Washington. Incomes climbed 0.4 percent, exceeding expectations.

Retailers such as Amazon.com Inc. are posting profits on increased sales as Americans spent more this past holiday season than the year before. Employment is key to propelling bigger gains in spending, one reason the Obama administration is proposing a fiscal 2011 budget today that calls for $100 billion in additional stimulus focusing on jobs.

“Consumers have the wherewithal to support good spending, however they are going to be reticent until they see a few good months of job gains,” said Craig Thomas, a senior economist at PNC Financial Services Group Inc. in Pittsburgh, who correctly forecast the gain in spending. “2010 is lined up to be a moderately good year.”

Stock-index futures held earlier gains following the report. The contract on the Standard & Poor’s 500 Index rose 0.6 percent to 1,076.5 at 9:10 a.m. in New York. Treasury securities fell.

The median estimate of 65 economists surveyed called for a 0.3 percent increase in spending, after an originally reported gain of 0.5 percent the prior month. Projections ranged from no change to 0.7 percent.

Income Gains

The gain in incomes followed a 0.5 percent increase in November and exceeded the 0.3 percent median estimate in the Bloomberg survey. Wages and salaries climbed 0.1 percent in December after increasing 0.4 percent the prior month.

Today’s report showed prices were stabilizing. The inflation gauge tied to spending patterns rose 2.1 percent from December 2008, less than the survey median forecast.

The Fed’s preferred price measure, which excludes food and fuel, climbed 0.1 percent in December from the previous month and was up 1.5 percent from a year earlier.

Adjusted for inflation, spending climbed 0.1 percent following a 0.4 percent rise the prior month.

Because the increase in spending was smaller than the gain in incomes, the savings rate rose to 4.8 percent from 4.5 percent the prior month.

Disposable income, or the money left over after taxes, increased 0.4 percent.

Better Sales

Amazon, the world’s largest Internet retailer, posted profit and sales that beat analysts’ estimates and said revenue growth may accelerate this quarter as consumers start spending more following the recession. Sales may rise as much as 43 percent to $7 billion in the first quarter, more than last year’s 18 percent growth, the Seattle-based company said last week in a statement. Analysts surveyed by Bloomberg had estimated sales of $6.42 billion.

Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, climbed 0.2 percent in December after rising 2.3 percent the prior month.

Purchases of non-durable goods decreased 0.8 percent, and spending on services, which account for almost 60 percent of all outlays, increased 0.4 percent.

The economy grew at a 5.7 percent annual rate in the fourth quarter, exceeding the median forecast of economists surveyed, figures from the Commerce Department showed last week. Consumer spending, which accounts for 70 percent of the economy, climbed at a 2 percent pace, also exceeding expectations.

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OTTAWA–The good old days of booming economic growth are not coming back in the years ahead, Bank of Canada governor Mark Carney warned in a gloomy assessment of the long-term strength of the Canadian economy.

Economic growth, which achieved a robust average rate of nearly 3.5 per cent in the late 1990s and early 2000s, won’t be much greater than 2 per cent beyond 2011, Carney said Thursday.

He put it down to an aging workforce and low growth in productivity, a measure of worker output that determines a society’s standard of living.

"Until we see evidence of an uptick in productivity, at least at this stage, looking for growth – real growth – much north of 2 per cent is not yet a realistic prospect," Carney told reporters after releasing the central bank’s quarterly outlook. "We have a productivity performance that has been relatively disappointing in recent years."

Economists said this means that, over the long term, Canadians will face declining living standards, reduced household incomes and mediocre employment prospects.

United Steelworkers economist Erin Weir said Carney’s long-term growth forecast will probably not be enough to significantly reduce unemployment, now running at 8.5 per cent.

"You’ve got this stock of unemployed workers and the bank is projecting enough economic growth to employ what you might call the new flow of workers into the labour market each year," he said. "But the bank is not actually projecting enough economic growth to bring down that stock of unemployed."

In the short term, Carney was cautiously optimistic, saying a global recovery is underway and economic and financial developments have been "slightly more favourable" than the central bank expected in its October report.

Economic output in Canada contracted by 2.5 per cent in 2009. But the country will return to growth of 2.9 per cent this year and 3 fast cash now.5 per cent in 2011, Carney said. Quarterly growth will begin to drop to the 2-per-cent range in the second half of 2011 and stay that way into the foreseeable future, Carney noted.

Carney gave no indication that the bank will stray from its commitment to maintain its key overnight rate at the current 0.25 per cent until mid-2010. Carney repeated that, barring a burst of inflation, he would maintain the record-low rate to spur economic activity and offset the recession.

But even his relatively upbeat forecast for 2010 was hedged with uncertainties. The higher-valued Canadian dollar and the possibility that the global recession will linger longer than expected are raising questions about the strength of the recovery, the bank said.

"There is a risk that persistent strength of the Canadian dollar could act as a significant further drag on growth," according to the quarterly Monetary Policy Report.

"Another important downside risk is that the global recovery could be even more protracted than projected."

The Canadian dollar, which has been trading in the 95-cent (U.S.) range on exchange markets, has climbed steadily over the past two years. As the loonie rises, it makes it harder for Canadian exporters to compete abroad, particularly in the key United States market.

The central bank said global economic growth will pick up over the next two years as the recovery takes hold, but the rebound in advanced industrial nations will be moderate.

In the U.S., the recovery will remain relatively weak, the bank said, although it predicted it would be a bit better than forecast due to stronger-than-expected growth in domestic consumption and exports. Carney forecast U.S. growth this year at 2.5 per cent, up from the 1.8 per cent predicted in October.

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Stocks ended a choppy session barely higher Wednesday, with the Dow and Nasdaq eking out fresh 2009 highs as investors mulled a stronger dollar and opted to play it cautious at the end of a tumultuous year.

The Dow Jones industrial average (INDU) added a few points, ending at the highest point since Oct. 1, 2008. The S&P 500 index (SPX) ended just above the unchanged line, closing just shy of 15-month highs hit two days ago.

The Nasdaq composite (COMP) added a few points, ending at the highest point since Oct. 3, 2008.

Stocks ended a volatile session modestly lower Tuesday, with the three major indexes breaking a six-session winning streak that had left the market at 15-month highs. That weakness spread into Wednesday’s session, the second-to-last trading day of the year.

A stronger U.S. dollar put some pressure on the market as well, dragging on commodity prices and stocks, and pulling down shares of companies that do a lot of business overseas and therefore benefit from a weaker dollar. After sliding for most of the year versus the euro and yen, the dollar has gained over the last few weeks as investors have bet that the economy is improving.

Trading volume has been low this week, with many market pros and individual investors on vacation. Lighter trading volume can cause increased volatility. All financial markets are closed Friday for the New Year’s Day holiday.

Year-to-date, the Dow has risen 20%, the S&P 500 has climbed almost 25% and the Nasdaq has gained 45%, as of Tuesday’s close. All three indexes have posted more substantial gains since falling to multi-year lows on March 9 amid the height of the financial crisis.

"I think the market seems to have ended the year on a slightly positive note, with many investors happy to lock in their profits and look ahead to the new year," said Michael Sheldon, chief market strategist at RDM Financial Group.

Any stock market gains accrued next year are expected to be a lot milder, analysts say, as the government stimulus fades at the same time the slow-growing economy struggles to create jobs. Meanwhile, the consumer spending environment is expected to stay weak, the dollar could firm up and the Federal Reserve is expected to begin raising interest rates in the second half of 2010.

Sheldon said that 2010 could end up looking something like 2004, which proved to be a leveling year after the massive gains of 2003. 2003’s gains followed a three-year bear market.

The S&P 500 rose 26% in 2003, seesawed for the first nine months of 2004 and then managed a big run in the last quarter, ending the year up around 9%.

Sheldon said it wouldn’t be surprising to see the market churn or even selloff a bit in the first half of the year but eventually move back up to end the year with gains of 10% to 15%.

Other analysts are concerned that a bigger selloff could take hold, particularly if economists have been overly-optimistic about the economy’s ability to recharge once the fiscal and monetary stimulus starts to fade out.

"Right now the sentiment in the stock market is at bullish levels that haven’t been seen since 2007," said Matt Havens, wealth advisor at Global Vision Advisors. In October 2007, the S&P 500 and Dow industrials closed at all-time highs and the Nasdaq composite at the highest point since 2000.

"The underlying strength of the economy is uncertain going into the next year and the longer stocks keep moving higher, the greater the potential for a significant pullback," Havens said.

Economy: The Chicago PMI, a regional read on manufacturing, rose to 60 in December from 56.1 previously. The improvement was a surprise, with economists surveyed by Briefing.com expecting it to drop to 55.1.

Financials: Troubled auto and mortgage financing firm GMAC Financial Services is expected to receive a third round of bailout funds, according to a published report. GMAC is expected to get an additional $3.8 billion on top of the $13.5 billion it has already received since Dec. 2008.

World markets: Asian markets mostly ended lower. In Europe, London’s FTSE 100 lost 0.7%, Germany’s DAX lost 0.9% and France’s CAC 40 lost 0.6%.

Commodities and the dollar: COMEX gold for February delivery fell $5.60 to settle at $1,092.50 an ounce. Gold closed at an all-time high of $1,218.30 an ounce earlier this month.

U.S. light crude oil for February delivery rose 41 cents to settle at $79.28 a barrel on the New York Mercantile Exchange.

Bonds: Treasury prices rose, lowering the yield on the 10-year note to 3.79% from 3.80% late Tuesday. Treasury prices and yields move in opposite directions.

Market breadth was negative. On the New York Stock Exchange, losers beat winners by eight to seven on volume of 645 million shares. On the Nasdaq, advancers topped decliners seven to six on volume of 1.31 billion shares. 

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Mid-cap stocks have been anything but middling in 2009.

They’ve been the sweet spot for investors still leery of the large-cap stocks that burned them in the recent past. Too many big-name companies also seem to be offering only downsizing as a strategy these days.

With large caps and small caps garnering all the attention, mid caps usually fall between the cracks.

Yet mid-cap growth funds are up 34 percent and mid-cap value funds up 31 percent this year, according to Lipper Inc. Both have surpassed the 26 percent increase of the average diversified stock fund.

"Mid-cap stocks are a neglected part of the market, a well-kept secret not a lot of investors know about," said Patrick Dunkerley, portfolio manager for Scout Mid Cap Fund, which is up 40 percent this year. "It’s no surprise they’re outperforming this year, since half the time coming out of an economic downturn mid caps outperform and half the time small caps outperform."

Mid-cap (which stands for middle capitalization) stocks are loosely defined as those of companies with capitalizations between $2 billion and $10 billion. It is a squishy term whose parameters can vary considerably from investment firm to investment firm. It basically encompasses companies that aren’t either big or small, and that concept is in the eye of the beholder.

"Mid-cap companies can still be nimble like their small-cap counterparts and aren’t as bloated as the larger companies," said Scott Grittinger, principal in McCarthy Grittinger Weil Financial Group LLC in Milwaukee. "They have the ability to grow but aren’t considered risky start-ups anymore."

With money now heading to more aggressive investments such as junk bonds; emerging market stocks and bonds; and smaller stocks, noted Grittinger, mid-cap stocks offer a modestly aggressive possibility. A mid-cap company typically has a better management team, more financial liquidity and greater opportunity to raise capital through loans and initial public offerings than the small-cap counterparts.

"Mid-cap companies have had good strong earnings, and many have beaten the estimates," observed Tom Roseen, senior research analyst with Lipper Inc. in Denver. "Investors are reaching for larger capitalizations but don’t seem interested in reaching for the biggest of the big."

Mid-cap portfolio managers sometimes have a blend of mid-cap and small-cap stocks but won’t venture into large-cap territory, Roseen said. Only if a portfolio manager has a strong buy-and-hold philosophy will a mid cap that has grown into a large cap be kept.

Here are some mid-cap stocks priced right and worthy of investment, according to Scout Mid Cap’s Dunkerley:

— Cimarex Energy Co., a producer of natural gas and oil whose stock is inexpensive, has a long runway ahead of it as it drills its properties, expands production and increases earnings.

— Priceline.com Inc., a global phenomenon with about 70 percent of its profits coming from Europe, has been increasing revenue at a 30 percent annual clip while taking market share from online sites and travel agents.

— Terex Corp., a maker of road pavers, construction machinery and mining equipment, is a cheap stock that will benefit whenever the world’s economy perks up and infrastructure needs are being met.

— Allegheny Technologies Inc., a fabricator of high-strength metals used in the oil and gas industries, deepwater drilling and jet planes, is out of favor now but well-positioned for the long haul.

Scout Mid Cap Fund has 66 stock holdings with average market capitalization of $6.2 billion. This "no-load" (no sales charge) fund requires a $1,000 minimum initial investment and has an annual expense ratio of 1.4 percent.

"We do rigorous fundamental research on companies, and we like a strong liquidity position, strong cash flow, strong balance sheet, good valuation and a strong catalyst to drive growth," said Dunkerley. "We really don’t like ‘gotchas’ like bad management or litigation."

Roseen sees a number of mid caps positioned to do well. In technology, he points out Salesforce.com Inc. and Adobe Systems Inc.. Among retailers, he notes Urban Outfitters Inc., Tiffany & Co. and Abercrombie & Fitch.

Turning to mid-cap funds, Grittinger especially likes T. Rowe Price Mid Cap Growth Fund, up 39 percent this year, because of proven portfolio manager Brian Berghuis who has been with it since 1992. The fund was closed to new investors in 2003 because of rapid asset growth but reopened in 2008 after the market drop had reduced its size.

"Unlike many mid-cap growth mangers, Berghuis does pay attention to valuations, and that appeals to us," said Grittinger, also noting that solid balance sheets and diversity of industries are hallmarks of that fund’s holdings. "Growth at any price is a loser’s game."

The largest holdings in its 141-stock portfolio include Agnico-Eagle Mines, Global Payments Inc., Marriott International Inc., The Western Union Co., Expedia Inc. and Juniper Networks Inc.. T. Rowe Price Mid Cap Growth is a no-load fund with a $2,500 minimum initial investment and an annual expense ratio of 0.82 percent.

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China’s government-funded economic growth faces an “inevitable” slump because the nation’s export-led strategy isn’t sustainable, said Yu Yongding, a former adviser to the Chinese central bank.

“The investment rate cannot increase forever,” Yu, a member of the Chinese Academy of Social Sciences, said in a speech in Melbourne last night. “The growth rate of China’s exports cannot remain persistently higher than that of the global economy. Overcapacity will surface and correction is inevitable.”

China’s economy grew 8.9 percent in the third quarter, the fastest expansion in a year, spurred by an unprecedented $1.3 trillion of loans this year and a $586 billion stimulus package running through 2010. China’s leaders may highlight inflation concerns at a meeting this month to set economic priorities for 2010 without changing existing fiscal and monetary policies, economists said yesterday.

“Expansionary fiscal and monetary policies have succeeded in arresting a fall in growth,” Yu said. “However, the medium and long-term impacts of the expansionary policies are worrying.”

Those effects include overcapacity, a decline in investment efficiency that will weigh on long-term growth, poor infrastructure efficiency, an increase in non-performing loans, and loose monetary policy, he said.

“There is no need for China to drop the benchmark interest rate to such a low level,” he said. “If commercial banks had been allowed to make decisions based purely on economic considerations, growth of credit and money supply would not have been so fast. There would have been less need to worry about the possibility of a rising non-performing loan ratio, a worsening economic structure and resurgent asset bubbles.”

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Boxing Day deals in November?

As the economy continues to wobble, Canadian retailers are offering deeper discounts, keeping stores open longer, and using frequent and sometimes shorter sales to attract whatever holiday shoppers might be in the market this year.

Sears Canada said Thursday it is offering "Boxing Day" pricing on a wide range of items this weekend. For three days only.

Wal-Mart Canada said it’s dropping a "record number" of prices between now and Christmas to help Canadians stay on budget this holiday season.

The retailers cite specific discounts on everything from iPods to cooking sets and clothing.

While the idea of offering Boxing Day deals ahead of Christmas started a few years ago, this could be the first time the term has been used this early in the season, industry analysts said.

They say it’s an indication just how competitive holiday sales could become this year as unemployment remains stubbornly high and consumers worry about future job losses.

"For sure the consumer is very price sensitive and so those who offer the opening price points, the sense there will be good deals, are going to attract more traffic into the stores," said Wendy Evans, president of the retail consulting firm Evans and Company.

The idea is to grab consumers’ attention and an early share of the holiday market "by creating the perception of being very price oriented," Evans said.

Grocery stores, like Loblaw Cos. Ltd., which now sell clothing as well as food, are predicting price competition this holiday season will be fierce. That means department stores, like Sears, "are going to be dragged into the fray," Evans said.

Sears Canada’s chief executive officer Dene Rogers vowed earlier this week to use "aggressive marketing" strategies to boost sales, noting consumers are worried about future employment.

The retailer, which reported Wednesday that sales fell 7.6 per cent to $1.3 billion in the previous three months, wants "to convey to customers that we have the holiday season’s most wanted products at prices that can’t be beat," Rogers said.

Wal-Mart Canada, which said it expects to cut prices on 18,000 items this month, 20 per cent more than last year, said it’s trying to help Canadians make their dollars go further.

The price-cutting comes as a new survey suggests this will be the worst season for holiday shopping since 2005.

Just under six in 10 Canadians say they plan to spend the same amount as they did last year, about one-third plan to spend less and 8 per cent plan to spend more, according to TNS Canadian Facts.

"We often hear talk of so-called cautious optimism. But these results suggest now is a time for cautious negativism. Clearly, the floor hasn’t collapsed but it might be time to start looking for cracks," TNS vice-president and research director Michael Antecol said in a statement.

The Toronto-based research firm’s Consumer Confidence Index now stands at 95.5 points. That’s down 2.5 points since last month and down 3.7 points since August.

The numbers have slipped in all categories, TNS also said. Consumers are less confident about the present and the future and also say they’re less likely to make a big purchase at this time.

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Facebook Inc. stock's price on private exchanges has jumped up to 42 percent in the past four months as membership of the social networking site topped 300 million and the company turned cash flow positive, according to Bloomberg News.

Facebook shares are currently selling for about $21 each at SecondMarket, up from $14 .77 in July.

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