Business Highlights

Fed cuts key rate by a quarter-point

WASHINGTON (AP) _ The Federal Reserve cut a key interest rate by a quarter-point Wednesday, a smaller move than the aggressive easing it undertook earlier this year. There were signs the Fed may believe it has done enough to prevent a deep recession.

The Fed action, after a two-day meeting, pushed the federal funds rate down to 2 percent, the lowest level since late 2004. It marked the seventh rate cut by the central bank since it began easing credit conditions last September to combat the growing threat of a recession brought on by a severe housing slump and credit crisis.

Commercial banks immediately announced that they were cutting their prime lending rate to 5 percent. That will mean cheaper credit for the millions of business and consumer loans tied to the prime.

The Fed move, which was in line with expectations, sent the Dow Jones industrial average momentarily soaring above 13,000 for the first time since January. But the Dow quickly gave up those gains as traders began to wonder whether the Fed was closing the door to further rate cuts.

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Economy grows by only 0.6 percent in first quarter

WASHINGTON (AP) _The bruised economy limped through the first quarter, growing at just a 0.6 percent pace as housing and credit problems forced people and businesses alike to hunker down.

The country's economic growth during January through March was the same as in the final three months of last year, the Commerce Department reported Wednesday. The statistic did not meet what economists consider a definition of a recession _ which is a contraction of the economy. This means that although the economy is stuck in a rut, it is still managing to grow, even if slightly.

Many analysts were predicting the gross domestic product (GDP) would weaken a bit more _ to a pace of just 0.5 percent _ in the first quarter. Earlier this year, some thought the economy would actually lurch into reverse during the opening quarter. Now, they say they believe that will likely happen during the current April-to-June period.

Gross domestic product measures the value of all goods and services produced within the United States and is the best measure of the country's economic health. Voters are keenly worried about the country's economic problems and so are politicians _ in Congress, in the White House and on the campaign trail.

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Stocks dip with investors flummoxed over Fed

NEW YORK (AP) _ Wall Street gave up sharp gains and closed lower Wednesday after the Federal Reserve cut interest rates by a quarter point but left investors guessing about the central bank's next move. The Dow Jones industrial average, momentarily soaring above 13,000 for the first time since early January, ended the session with a modest loss.

With economic data in recent weeks coming in anemic but not as bad as expected, inflation has appeared to Wall Street to be the growing threat, due to rising food prices, crude oil near $120 a barrel and U.S. roadside gasoline prices surging above $3.60 a gallon.

The stock market had rallied in the hours before the Fed decision thanks to stronger-than-anticipated economic and corporate reports _ a weeks long trend that has helped the three major indexes post their first monthly gain after five straight months of losses.

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GM loses $3.3 billion in 1Q, lowers sales outlook

DETROIT (AP) _ Bowing to grim reality, General Motors Corp. followed Ford's lead and cut its U.S. sales forecast Wednesday after a tough first quarter that saw a $3.3 billion loss.

But unlike Ford, GM faces more unknowns that could complicate its North American turnaround and drag down strong results overseas, including a strike at supplier American Axle, the protracted bankruptcy case of its former parts division, Delphi Corp., and unresolved labor talks in Canada.

GM's loss for the January-March period amounted to $5.74 per share, reflecting $2.9 billion in one-time charges. That compares with a profit of $62 million, or 11 cents per share, in the first quarter of 2007.

Without the one-time charges, GM lost $350 million, or 62 cents per share, handily beating Wall Street's expectations. On that news, investors sent GM's shares up 9.4 percent, or $2, to close at $23.20. Analysts surveyed by Thomson Financial had expected a loss of $1.60 per share.

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FDA warns Merck to fix vaccine plant problems

TRENTON, N.J. (AP) _ The Food and Drug Administration has ordered Merck & Co. to correct numerous manufacturing deficiencies at its main vaccine plant, the latest in a string of setbacks for the drug maker.

The agency on Wednesday released a warning letter sent to Merck's chief executive, Richard T. Clark, that states FDA inspectors determined manufacturing rules are not being followed at the plant in West Point, Pa., just outside Philadelphia.

The plant, which recalled two vaccines in December over sterility problems, makes a number of children's vaccines and four for adults.

The nine-page letter states FDA found "significant objectionable conditions" in the manufacture of vaccines and drug ingredients during repeated inspections from Nov. 26 to Jan. 17.

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Energy futures drop on unexpected jump in crude supplies

NEW YORK (AP) _ Oil prices fell Wednesday after the government reported U.S. fuel supplies unexpectedly fell last week and the Federal Reserve cut interest rates but gave no clues about further reductions.

But the pain at the pump continued. Retail gas prices set still another record, rising to a national average of nearly $3.62 a gallon.

Oil prices were already down sharply earlier in the session after the government reported a surprising jump in crude oil and distillate fuel inventories last week.

In its weekly inventory report, the Energy Department's Energy Information Administration said crude oil inventories rose by 3.8 million barrels, more than double the increase that analysts surveyed by energy research firm Platts had expected.

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Time Warner to shed rest of its cable TV business

NEW YORK (AP) _ Time Warner Inc. said Wednesday it plans to spin off the rest of its cable TV business, answering investor pleas to further simplify the media conglomerate's sprawling corporate structure.

The news came as Time Warner, which also owns Warner Bros., CNN, AOL and Time magazine, reported a 36 percent decline in first-quarter earnings from a year ago, when it had a gain from the sale of AOL's Internet access business in Germany. The results were mainly in line with expectations.

Time Warner didn't offer details on how or when the split with its largest operating division would occur, but said it was close to an agreement with the board of Time Warner Cable and expected to make an announcement soon.

The split had been widely anticipated on Wall Street. Incoming CEO Jeff Bewkes, in his first earnings presentation to investors in February, had promised to announce a final decision on the matter this month.

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Food, consumer goods makers results mixed amid higher costs

CINCINNATI (AP) _ Makers of household consumer and food products reported mixed results amid the slumping economy Wednesday as they raised prices on everything from hot dogs to toothpaste to try to offset soaring energy and ingredient costs.

Procter & Gamble Co., the maker of Pampers diapers and Gillette razors, said that higher retail prices, cost controls and strong growth in emerging markets helped lift its fiscal third-quarter profit 8 percent. P&G also raised its full-year outlook, sending its shares up 3 percent.

A.G. Lafley, the company's chairman and chief executive, said it remains optimistic about sustaining its growth because of daily uses for its many household brands such as Charmin toilet paper, Crest toothpaste and Tide detergent.

But rival Colgate-Palmolive Co., whose products include its namesake toothpaste and dish soap, said first-quarter earnings fell 4 percent as the company took restructuring charges and a higher provision for income taxes. Colgate said rising materials costs were offset by raising prices, but that margins would be pressured as the cost of raw materials kept rising.

By The Associated Press

The Dow Jones industrial average fell 11.81, or 0.09 percent, to 12,820.13, after trading up 178 points shortly after the Fed's announcement.

Broader stock indicators also closed down, having given up steep gains. The Standard & Poor's 500 index fell 5.35, or 0.38 percent, to 1,385.59, and the Nasdaq composite index fell 13.30, or 0.55 percent, to 2,412.80.

Light, sweet crude for June delivery fell $2.17 to settle at $113.46 on the New York Mercantile Exchange after the central bank said it would cut the federal funds rate by a quarter percentage point to 2 percent.

In other Nymex trading Wednesday, May gasoline futures fell 0.8 cents to settle at $2.9312 a gallon and May heating oil futures fell 5.15 cents to $3.195 a gallon. June natural gas futures rose 5.5 cents to $10.897 per 1,000 cubic feet.

In London, Brent crude futures fell $1.05 cents to $112.38 a barrel on the ICE Futures exchange.