WORLD ECONOMY HOT NEWS

The purchase gives Geely a European luxury car brand with a reputation for safety and quality at a time when China, which last year surpassed the U.S. as the world's largest car market, is eager to improve its competitiveness by acquiring foreign automotive brands that might help it improve its technology and expand into overseas markets.

The price, which includes a $200 million note with the remainder to be paid out in cash, is far less than the $6.45 billion Ford paid for the Swedish automaker in 1999. The U.S. automaker has been trying to sell Volvo since late 2008 to focus its resources on managing its core Ford, Lincoln and Mercury brands.

"We think it's a fair price for a good business, and yes, we're happy with the deal we've achieved with Geely," said Ford Chief Financial Officer Lewis Booth on Sunday at a news conference at Volvo Cars headquarters in Goteborg, on Sweden's west coast. Booth added that his company believes that, under Geely, "Volvo can continue to build its business and return to profitability."

The agreement was signed by Booth and Geely's chairman, Li Shufu, and witnessed by Li Yizhong, the Chinese minister of industry and information technology, as well as Swedish Minister for Enterprise and Energy Maud Olofsson.

In a statement, Geely said it has secured all the financing necessary to complete the deal, as well as "significant working capital facilities to fund Volvo Cars' ongoing business." The sale is expected to be completed in the third quarter, subject to regulatory approvals.

The deal also covers further agreements on intellectual property rights, supply, and research and development arrangements between Volvo Cars, Geely and Ford. The U.S. automaker has committed to provide engineering support, information technology, access to tooling for common parts and certain other services for a transition period to smooth the separation.

Li, whose comments were translated by an interpreter, described the deal as "a milestone" for both Geely and Volvo, adding that his group will make a Volvo CEO public "in due course."

Geely said it aims to keep Volvo's existing manufacturing facilities in Sweden and Belgium, but that it also will explore manufacturing opportunities in China. Volvo Cars will remain separate from Geely's other operations, with its own Sweden-based management team and a new board of directors, the company said.

"China, the largest car market in the world, will become Volvo's second home market. Volvo will be uniquely positioned as a world-leading premium brand, tapping into the opportunities in the fast-growing China market," Li said.

As Western automakers unload unprofitable assets, they are finding keen buyers in Asia.

In 2008, Ford sold its Jaguar and Land Rover brands to India's Tata Motors Ltd. for $1.7 billion, a third of what it paid for them. In addition, General Motors Co. attempted to sell its rugged Hummer brand to a Chinese heavy equipment maker, but is now winding that brand down as the deal collapsed. China's Beijing Automotive Industry Holdings has also agreed to buy some powertrain technology from GM's Swedish Saab unit.

Geely, an independent automaker that has struggled to upgrade its image in overseas markets, has long coveted a bigger foothold in Europe and has earlier been rumored to be bidding for Opel and Saab. The long-awaited Volvo acquisition is therefore important for the company, which has gradually built its business with little government support.

Analyst Zhang Xin, with Guotai Junan Securities in Beijing, said Geely's pledge to keep Volvo's factory and business teams in Sweden after the takeover limits its leeway to cut costs.

"Reality is always much crueler than what people would wish. Geely wants to build itself as a new 'international Geely,' so they sought a strong foreign brand like Volvo," Zhang said. "Geely should foresee many difficulties. How will it manage to run Volvo well? How will it deal with the factory and employees? How much more will Geely have to spend to operate Volvo?"

Volvo, whose first car left its Swedish factory in 1927, employs nearly 20,000 workers, most of them based in Sweden. The group, initially a subsidiary of ballbearing maker SKF, was listed on the stock exchange in 1935. In 2009, it sold 334,808 cars. It currently has 10 models on the global market, with its crossover XC60 being the best-seller. The United States, Sweden and Britain account for its three biggest markets.

In a statement Sunday, Volvo Cars CEO Stephen Odell said Volvo managers fully endorse the sale to Geely.

"We believe this is the right outcome for the business, and will provide Volvo Cars with the necessary resources, including the capital investment, to strengthen the business and to continue to move it forward in the future," he said.

Volvo dealers in the U.S. said Sunday that Geely's assurance that the cars will still be made in Sweden has allayed customers' concerns about quality control. Chinese automakers seeking to expand into U.S. markets have faced quality questions from consumers concerned about defects and problems with a number of Chinese exports ranging from drugs and foods to furniture and appliances.

"They do show concern, but we are assuring them the quality of the car is still going to be there," said Chris Gastmeyer, sales manager at Volvo of Orange County in Santa Ana, California, on Sunday.

He said customers are comforted by the fact that the cars are still made in Sweden and that it's business as usual at this point.

Mike Kessler, new car sales manager at Volvo of Santa Monica, said he isn't seeing much worry from shoppers as it appears the manufacturing will remain the same. But staff are eager to see what changes are in store after the transfer in ownership.

"We are dying to see what happens because we need a jump-start," he said.

The sales staff hasn't received any information yet about the plans of its new owners but Kessler hopes Geely has plans to help build new car sales and leases.

"We are basically on hold," he said. "I'm hoping it gets exciting."

AP Business Writers Elaine Kurtenbach in Shanghai and Sarah Skidmore in Portland, Oregon, contributed to this report.

"We have never had negative equity like this at the national level in as many different regions as we have now," Humphries says. To get a better sense of the cities with the greatest concentrations of negative equity, Zillow provided U.S. News with data that detail the percentage of mortgage borrowers who are underwater in 142 distinct markets throughout the country. Based on this research, we compiled the following list of America's most underwater housing markets. (Please note: We chose no more than one city per state.)

1. Las Vegas
Las Vegas was ground zero for the housing market's historic boom and bust. Loose lending standards and speculative fervor helped send home prices surging more than 104 percent from 2002 to their 2006 peaks, according to Moody's Economy.com.

"We all knew in our hearts it was unsustainable and there had to be a correction," says Larry Murphy, the president of SalesTraq. That correction came as the housing bubble popped and the economy tanked: Home prices in Las Vegas fell more than 56 percent from 2006 to the third quarter of 2009. This steep decline has pulled a vast swath of mortgage borrowers underwater.

"If you bought a home in Las Vegas since 2004 up to about 2007, whatever you bought--I don't care if you bought a big house or a little house, in a great neighborhood or a crummy neighborhood--it's worth about half what you paid for it," Murphy says.

More than 81 percent of single-family home mortgages in Las Vegas had negative equity in the fourth quarter of 2009, according to Zillow. And it may take 20 years for some of these home values to climb back to the levels they hit at the peak of the housing boom, Murphy says.

2. Merced, Calif
The housing crisis that has rocked Merced, Calf., was initially linked to rising property values in relatively nearby metropolitan areas like San Francisco. As real estate became increasingly unaffordable in the bigger cities, many would-be home buyers started exploring options in smaller markets, such as Merced.

"A number of people said, 'Hey, I have got a couple of choices: I can get a 1,000-foot condo in San Francisco, or I can move east and I can get myself a fairly significant home for the same price,' " says John Walsh, the president of DataQuick. Although this trend increased real estate demand in Merced, prices appreciated even faster as exotic mortgage products and investor interest hit the market.

Area home prices jumped nearly 129 percent from 2002 to 2006. But after the euphoria subsided, home prices crashed more than 72 percent through the third quarter of 2009. This rapid deflation dragged about 64 percent of single-family home mortgages underwater by the fourth quarter of 2009, according to Zillow. Walsh says it could be 10 to 20 years before Merced home prices reach former peak levels.

3. Phoenix
As exotic mortgage loans and investor demand swept through the market, home prices in Phoenix jumped more than 101 percent from 2002 to their 2006 peaks. Jay Butler, an associate professor of real estate at Arizona State University, says many people who purchased property in Phoenix during the boom felt pressure to get in on the action. "You had [real estate] seminars all over the place, you had 'flip this' shows," Butler says.

"You were constantly being fed a barrage that if you weren't actively participating in this thing, you were not only denying yourself a great bit of wealth but your kids [and] your grandkids." But once the music stopped, the housing market in Phoenix was clobbered. Home prices dropped more than 52 percent from their peaks through the third quarter of 2009. And as of the fourth quarter of last year, nearly 62 percent of single-family home mortgages were underwater, according to Zillow.

4. Orlando

Like other cities in Florida, the Orlando market saw tremendous demand from investors during the first half of the previous decade. Some were looking to cash in on the appreciating market through short-term property flipping, while others were buying properties for vacation homes. Although the market attracted interest from buyers in the Midwest and Northeast, condo developers also marketed developments specifically to foreign buyers, particularly in the United Kingdom, says Jack McCabe, CEO of McCabe Research & Consulting.

"It's almost like [the British] were setting up another colony in the United States," McCabe says. Abetted by easy credit, such demand helped send home prices surging by more than 102 percent from 2002 to the market's peak in 2006. But the subsequent crash has been painful. The nearly 48 percent drop from the peak through the third quarter of 2009 has pulled 58 percent of single-family home mortgages in Orlando underwater, according to Zillow. And McCabe isn't optimistic about a quick rebound. "For the condo or condo conversion owner, literally they may carry them out feet first before they ever see that property reach 2006 values," he says.

5. Greeley, Colo

With 45 percent of single-family mortgages underwater, the Greeley, Colo., market has among the higher concentrations of negative equity in the nation. The predicament is rooted in an increase in smaller homes built during the first half of the previous decade that were purchased with risky, subprime mortgages, says Randy Moser, the president of the Greeley Area Realtor Association.

"If you had a 550 credit score, you could maybe even get 110 percent financing [and] roll in your closing costs," he says. But after many of these buyers began falling behind on their payments, area foreclosures surged, and home prices fell about 15 percent through the third quarter of 2009. "We were probably one of the first counties in the United States that went into the foreclosure mess," Moser says.

6. Bend, Ore
From 2002 to early 2007, home prices in Bend, Ore., jumped by 99 percent, as second-home buyers and retirees were drawn to this community. But after the housing bubble popped and economy eroded, home prices have slumped some 32 percent through the third quarter of 2009. "We are seeing homes that people bought for $2.5 million now selling for under $1 million," says Kathy Ragsdale, the CEO of the Central Oregon Association of Realtors.

Ragsdale says the initial phase of the downturn was triggered by evaporating demand from second-home buyers. But more recently, as unemployment has surged, many residents have found themselves unable to make their mortgage payments. Today, more than half of the residential property transactions in Bend are distressed sales, Ragsdale says.

"It's huge when somebody stands up in a meeting and says, 'I have a home for sale, and by the way, it's not a short sale,' " she says. As of the fourth quarter of last year, roughly 41 percent of single-family home mortgages were underwater, according to Zillow.

7. Minneapolis-St. Paul

Although this area is far removed from the cities most closely associated with the housing bubble, home prices in Minneapolis-St. Paul inflated significantly in the early part of the previous decade. Real estate values increased nearly 34 percent from 2002 to 2006. Brad Fisher, the president of the Minneapolis Area Association of Realtors, says subprime lending played a key role.

"Outside of the coasts, the Minneapolis-St. Paul area was one of the higher areas [of] subprime loans," Fisher says. "We have paid a price because of that." The subsequent 29 percent price decline through the third quarter of 2009 pulled nearly 39 percent of single-family home mortgages underwater by the fourth quarter of 2009, according to Zillow.

8. Memphis
Home prices in Memphis didn't surge as aggressively as other markets during the boom. But pockets of subprime mortgages--coupled with a modest slump in prices over the past three years--have created a notable concentration of negative equity. Real estate values increased about 12 percent from 2002 to 2006, but prices then fell nearly 18 percent through the third quarter of 2009.

And as of the fourth quarter of last year, roughly a third of all single-family home mortgages were underwater, according to Zillow. Glenn Moore, the president of the Memphis Area Association of Realtors, argues that the negative equity is concentrated in a small part of the overall market. "It is limited to mostly suburban areas and maybe some areas where there was maybe some predatory lending going on," Moore says.

9. Cleveland

Home prices in Cleveland increased 13 percent from 2002 to 2006 but then fell nearly 16 percent through the third quarter of 2009. "There was a little bit of overinvestment in housing, and the economy started weakening," says Celia Chen of Moody's Economy.com. "[Cleveland] entered recession before the rest of the U.S., and I think weak economic conditions have pulled down home prices." Exposure to subprime lending has also played a role in the real estate market's decline. Roughly 32 percent of single-family home mortgages were underwater as of the fourth quarter of last year, according to Zillow.

10. Grand Rapids, Mich.

Real estate values in Grand Rapids, Mich., increased 15 percent from 2002 to 2005 and then fell about 13 percent through the third quarter of last year. As of the fourth quarter of 2009, roughly 29 percent of single-family home mortgages were underwater, according to Zillow. The weakness in the housing market is linked to the area's deteriorating economy, Chen says.

The report was released prior to the upcoming European Union where it is expected the topic of emergency funding for Greece will take center stage. Last week, Greece hinted that it could turn to the International Monetary Fund for assistance if a favorable deal with the EU government is not imminent.

Before John Edwards plummeted into a flaming spiral of his own making like a doomed Cessna, tiny gremlins resembling Andrew Young ripping at the fuel lines, he was a legitimate, though outside-shot candidate for the Democratic presidential nomination--and the only one to make health care his signature issue early on.

Edwards beat the drum for health care when no one else really cared to.

In 2007, he was making stump speeches on health care when the public cared more about the economy and Iraq. It was a play to get union endorsements in early primary states: behind the Employee Free Choice Act, health care was a top issue for labor, and labor endorsements mean something in Democratic primaries. With Hillary Clinton expected to win the Democratic nomination in a cinch, Edwards needed to give unions a reason to support someone other than the frontrunner.

So he went out and talked about health care louder, and more frequently, than anyone else. Most significantly, he proposed ideas to the left of what the mainstream--Clinton included--would endorse, forcing labor to pay attention and vaulting his status as a serious '08 contender.

Visiting the John Edwards '08 website is a bit like walking into a ghost town, but it contains such nuggets as this one: the press release announcing Edwards' health care plan, which he released long before either Clinton or Obama did, in February 2007. Obama would release his plan in May of that year; Clinton, not until mid-September.

Edwards talked about the plan, and the fact that he had one. And he talked about it a lot.

"If you're looking for heroes, don't look to me. Don't look to Elizabeth. We have support. We have health care. We have the American people behind us," Edwards said in the TV ad that introduced him to Iowa caucus-goers--another relic to be found on the old Edwards site. It was a line he used repeatedly throughout the campaign, in stump speeches in Iowa and in Democratic debates.

"Elizabeth and I decided in the quiet of a hospital room , after 12 hours of tests and after getting very bad news, what we were gonna spend our lives doing," Edwards said in that ad.

Partly because of Edwards, the 2008 Democratic primary was a story of fierce debate on health care--a debate that continued between Clinton and Obama after Edwards dropped out. He forced his opponents to talk more about health care, to engage him in his push.

Would it have played out that way had Edwards not set the tone? It's hard to say.

In early November 2007, a Newsweek poll showed health care raking third as a concern for the overall public, independent voters, and Democrats alike: 17% of all respondents rated it as their most important concern, while 22% chose the economy. Among Democrats, the economy won out 30%, and health care again ranked behind Iraq with 22%. LA Times/Bloomberg placed the war in Iraq as the number-one concern for the public.

But by the 2008 election, CNN exit polling showed a full 73% of Obama voters rating it as a top concern--more than any other issue. (Voters could list more than one option: Iraq came in second with 59%; the economy, in third with 53%.) Polls in late 2008 showed the economy far outranking any other issue in importance to voters, but, by that time, two years of talk about skyrocketing health care costs--instigated, to some extent, by Edwards' fervent campaign to get ahead of his opponents on the issue--had made health care an economic concern, and it was reflected in those overlapping exit poll responses.

Would Obama have taken up health care as his first major initiative after the stimulus--instead of, say, education reform, an issue the president clearly is fond of--if his supporters hadn't listed it as their number-one voting issue in November? Again, it's hard to say.

But Obama entered office with a mandate to first fix the economy, then address health care. That's exactly what he did.

And, like it or not, John Edwards had something to do with it. Even if watching John and Elizabeth Edwards in those old ads makes you feel a little dirty, it's probably the truth.

Miron prefaced his presentation by acknowledging the Obama administration took control during an unstable economic period.

He doesn’t believe the economy was as bad as politicians let on or that the administration’s response will provide a long-term solution.

According to economist John Maynard Keynes, when an economy is in a recession, the government has two options.

One choice is to increase the purchasing of items through spending and the other is to cut taxes and allow people to spend their money.

“Both options assume that if people have extra income, they will spend some of it,” Miron said. “In the strict Keynesian logic, it actually doesn’t matter which way you go.”

Miron said if spending is the answer, it must be done efficiently and effectively.

Politicians are unable to execute this because they are too concerned with getting re-elected.

“We should always be looking at the cost-benefit analysis,” Miron said. “We should recognize that even if some [spending] is good, it doesn’t mean that more is always better. Before we undertook all this extra spending, we should have demanded convincing evidence that all the money spent was going to pass a cost-benefit analysis.”

He said the Obama administration never provided any evidence that proved all the initial spending would be good, simply because more government spending on these things is always good.

Another problem, he said, is it takes time to analyze the results of this spending.

“We have to choose good projects in a crisis,” Miron said. “Because in a crisis you have to move fast and that’s incredibly antithetical to doing it well.”

He referenced the administration’s handling of the housing crisis, the auto and banking bailouts and other issues as irrationally-quick decision making.

“We have missed the chance to engage in growing the pie as opposed to dividing it,” he said. “We are on a path to spend way more than we are receiving in tax revenues.”

He believes the United States has to either cut everything except Medicare and Medicaid or raise taxes, which would have an asphyxiating effect on the economy.

“President Obama had a chance to really fix it,” Miron said. “If anyone could have gotten re-elected after telling people that they wouldn’t receive their benefits until closer to age 75 as opposed to 65, President Obama could have.”

He said the politically gridlocked environment in Washington is good for Libertarians who he encouraged to vote for non-incumbents.

He thinks the Obama administration forced to compromise may prove to be similar to the last six years of the Clinton administration that, although not perfect, were certainly profitable.

“In a great world, you would have some libertarian benevolent dictator who would just repeal everything since the ’90s,” Miron said. “The 1790s.”

Is it possible to quantify how much of global demand for raw materials comes from China?

There is a significant amount of guesswork and estimation that goes into quantifying China's share of global demand for commodities. Moreover, information about demand from the rest of the world is imperfect, though U.S. and European data are often considered quite reliable and the data's shortcomings are relatively well-understood. Still, many analysts pour a great deal of work into trying to estimate how much China is consuming compared to the rest of the world. For instance, IHS Inc. says that China's share of global oil demand will be 10.6% in 2010, compared to 8% five years ago.

Why do the commodities markets pay such close attention to China's economic and monetary policy?

China's policies have the potential to speed up or slow down economic growth in the country, and government actions also can encourage consumption of some commodities and discourage others. Therefore, commodities traders and analysts look intently for signs of what China might be doing, and how that might affect the markets. That is likely to become even more true if China's share of global demand for commodities continues to grow.

Are certain commodities more apt to move on China policy changes than others?

Some commodities, such as oil and copper, are particularly sensitive to signs of faster or slower growth in China. Others, such as natural gas, are more susceptible to regional and seasonal factors, and not really driven by exports to China. Still, it's not unusual for a wide range of commodities to move up or down based on what is happening in China because its influence extends beyond simply what commodities it is producing or importing. For instance, Chinese policies can also affect the value of the U.S. dollar, which is another major force in commodities markets.

Is China's role likely to increase as its economy continues to modernize?

If all else remains the same, China's influence on commodities markets is likely to increase for years to come. But there are also risks to extrapolating too much from that assumption, particularly over time. For instance, China's demand for energy is likely to grow, but China and many other countries are searching for alternative energy sources and ways to conserve energy, which could tilt the balance of power among various sources of energy, e.g. oil and natural gas. Also, as China's economy matures, growth will eventually slow and other countries, such as India, could play a larger role themselves.

What are the risks to commodities prices this year emanating from China?

China is trying to strike a delicate balance between encouraging enough growth to promote domestic stability and social cohesion, and keeping the economy from overheating or inflating into a speculative bubble. One risk is that the Chinese government is unable to maintain that balance, which could cause short-term demand for commodities to contract sharply. Any contraction of Chinese demand, whether orderly or sudden, could provoke a disproportionate reaction in the commodities markets, precisely because traders have wagered so heavily on growth in China as far as the eye can see.

Write to Liam Pleven at liam.pleven@wsj.com

The S&P/TSX composite index was four-tenths of a point higher to 11,948.3 in a volatile session that saw the market come back from a 104-point deficit as losses in the energy and mining sectors moderated. The TSX Venture Exchange was 10.41 points lower at 1,553.65.

The Greek debt crisis continued to attract investor attention after Germany’s chancellor said yesterday that a bailout for Greece won’t be discussed at a European summit this week.

Greece is running unsustainably high deficits and needs support from other European countries so it can borrow money at lower interest rates. And the government has said if it doesn’t get that support from Europe, it might turn to the International Monetary Fund for help.

Investors are worried about the effect on the global economic recovery if Greece and some other European countries that use the euro _ such as Spain and Portugal _ falter in their struggle to pay down their heavy debt.

The Canadian dollar lost ground as the U.S. dollar attracted nervous traders and gained strength against a number of currencies. The loonie was down 0.27 of a US cent to 98.12 cents US.

“The U.S. has its own issues (but) when compared to the European situation, and the uncertainty there, all of a sudden the U.S. dollar looks like a safe haven in relative terms,” said Uzielli.

Commodity prices were also volatile as the April crude contract on the New York Mercantile Exchange rose 27 cents to US$80.95 a barrel after falling as low as US$78.57 because of a stronger greenback. But the energy sector was still the leading decliner on the TSX, down 0.66 per cent and Canadian Natural Resources (TSX:CNQ) shed 82 cents to C$72.41.

The tepid performance in the energy sector came amid a report from the Conference Board of Canada predicting profits in the natural gas sector will increase in 2010. It added that higher prices will offset lower production. Nexen Inc. (TSX:NXY) moved down 23 cents to $24.18.

The base metals sector was down 0.47 per cent as May copper also recovered early losses and was unchanged at US$3.38 a pound. Sherritt International (TSX:S) fell 25 cents to C$8.45 and First Quantum Minerals (TSX:FM) fell $1.83 to C$87.45.

The gold sector faded 0.55 per cent with the April gold contract on the New York Mercantile Exchange down $7.60 to US$1,100 an ounce. Goldcorp Inc. (TSX:G) was off 42 cents at C$39.03.

The financials sector was weak, down 0.2 per cent with selling focused on insurers. Manulife Financial (TSX:MFC) was down 28 cents at $19.86.

The telecom sector was up 0.53 per cent with the Canadian Radio-television and Telecommunications Commission set to rule Monday on the so-called TV tax or fee for carriage. Cable companies say such a fee could add $10 a month to consumers’ bills if the regulator rules they have to pay broadcasters for their local signals. The decision is expected after the market close. Telus Corp. was the big gainer, up 58 cents at $37.06 while Rogers Communications (TSX:RCI.B) ticked 12 cents higher to $35.49.

Further weighing on investor sentiment Monday was the move by India’s central bank on Friday to raise interest rates. The quarter-point hike, intended to cool high inflation, unnerved investors who were concerned that growth and asset prices could sink once governments start winding down their stimulus measures.

The move by the Indian government to curb the economy comes at a time when the Chinese government has also made moves to slow down a hot economy, raising the reserve levels of banks.

“If those are the global economic growth engines and there are efforts being made to curb that growth, that obviously has implications for the global economy and producers of commodities for that global economy and that brings you back to Canada as well,” Uzielli said.

The picture was more positive in New York, where markets are not nearly as commodity-heavy as the TSX.

The Dow Jones industrial average was up 51.1 points to 10,793.1.

The Nasdaq composite index edged up 17.98 points to 2,392.39 while the S&P 500 index added 5.2 points to 1,165.1.

The health-care sector was one of the leading advancers on the NYSE following the passage of a sweeping package of U.S. health-care legislation over the weekend which will create near-universal medical coverage and extend benefits to 32 million currently uninsured Americans.

Pfizer gained 33 cents to US$17.24 while Merck improved 66 cents to US$38.72.

Traders focused on health stocks because the bill passed by the House will extend benefits to 32 million uninsured Americans. That means increased business for insurers and drug makers. Many of the key points of the bill will not go into effect for several years.

The TSX healthcare segment was also a major advancer, up 2.14 per cent with MDS Inc. (TSX:MDS) ahead nine cents to $8.49.

The founder of Biovail Corp (TSX:BVF), Eugene Melnyk, has sold “substantially all” of his holdings in the Toronto-area pharmaceutical company.

According to a regulatory filing with the U.S. Securities and Exchange Commission, Melnyk has sold about 9.6 million Biovail shares since Nov. 24. At that time, the stock stood at $14.99. On Monday, Biovail shares were up 25 cents at $16.36. Melnyk left Biovail several years ago and has been often at odds with its management and board of directors about Biovail’s strategy.

In other corporate news, Enbridge Inc. (TSX:ENB) said Monday that it plans to build a natural gas liquids pipeline from the Marcellus shale formation in the eastern United States to the Chicago area. Its shares climbed 17 cents to $48.65.

Osisko Mining Corp. (TSX:OSK) plans to acquire Hammond Reef gold project in Ontario through a takeover of Brett Resources Inc. of Vancouver (TSXV:BBR) in an all-stock deal valued at $372 million. Osisko stock was down 24 cents at $8.35.

But the World Bank on the weekend issued new and much more pessimistic forecasts. It expects the world economy will shrink by 2.9 percent and warned that a drop in investment in developing countries will increase poverty. The bank's previous forecast was for a 1.7 percent contraction.

With markets already braced for a sell-off following the springtime rally, the report led investors to take profits. The sharp overnight drop on Wall Street was another catalyst, analysts said.
"The markets have been overbought, and now the correction is beginning," said Peter Lai, investment manager at DBS Vickers in Hong Kong. "Investors are facing the reality again. People fear the liquidity and funds will start flowing out of the markets, so we're seeing profit taking."

Japan's Nikkei 225 stock average lost 283.46, or 2.9 percent, to 9,542.81 while Hong Kong's Hang Seng shed 550.13, or 3.1 percent, to 17,505.68.
South Korea's Kospi lost 2.4 percent, Australia's index was off 3 percent and Taiwan's benchmark dropped 1.9 percent. Shanghai's main stock measure traded lower by 1.4 percent.

U.S. investors, also unnerved by the World Bank report, dragged stocks to their largest declines in two months.

The Dow fell 200.72, or 2.4 percent, to 8,339.01, its lowest finish since May 27.
The Standard & Poor's 500 index fell 28.19, or 3.1 percent, to 893.04, also leaving the index with its biggest slide since April 20 and erasing its advance for the year.
Oil prices fell on expectations demand will remain weak. Benchmark crude for August delivery was down $1.04 at $66.80 in Asian trade.
In currencies, the dollar weakened to 95.21 yen from 95.48 yen. The euro was higher at $1.3861 from $1.3844.

The deal announced Friday is another example of how the cataclysm that hit Detroit's three carmakers is reshaping the global automotive landscape in profound ways, reducing their worldwide influence and — if Saturn turns out as Penske envisions — opening new markets to smaller companies.
"There's no doubt that the automotive deck chairs are changing," said Michael Robinet, vice president of CSM Worldwide, a Detroit-area auto industry consulting firm.

In the shake-up, well-known brands are changing flags quicker than an oil tanker in pirate-infested waters. Italy's Fiat SpA is waiting for U.S. courts to approve its acquisition of Chrysler LLC's assets. GM has worked deals to turn its German subsidiary Adam Opel GmbH over to a Canadian auto parts company with Russian backing. And Hummer may be going Chinese, although state media there reported Friday that the deal has hit regulatory hurdles.

Yet industry experts are doubtful that the flurry of mergers and alliances will be any more durable than failed marriages of the past, proving to be just one big distraction from the underlying issue that made them so vulnerable in the first place: making more cars than people can buy.

Still, Penske, who already runs Penske Automotive Group Inc., the second-largest U.S. dealer network, thinks his business model is different enough to be successful.

GM and Penske expect to close the Saturn deal in the third quarter, with the wounded Detroit automaker continuing to build three models for Saturn to distribute.
Key to its success, though, will be the ability to sign on other global manufacturers to make cars for Saturn, giving it a diverse portfolio of vehicles that will sell whether gasoline prices are high or low.

But by opening the door to automakers not now in the U.S., such as France's Renault, Penske could alter the market here, allowing smaller automakers to compete against Detroit.
Penske, in an interview with The Associated Press, said foreign automakers would be key to his business model, but they will have to match GM quality standards before Saturn's 350-dealer network will distribute their products.
"As people around the world look at that, they have the opportunity to tap us on the shoulder and say 'we have product that we'd like to bring into the U.S.,'" he said.

Other foreign automakers who have succeeded in the U.S. began with a distribution network, then started manufacturing operations, he said.
Honda Motor Co., for example, started selling motorcycles at a few U.S. dealerships in 1959, then imported cars as its dealership ranks grew. But the Japanese company didn't build vehicles in the U.S. until 1979, when it opened a motorcycle plant in Marysville, Ohio, that later grew to build the popular Accord sedan.

Penske said he expects to begin making money immediately on Saturn, which has never been profitable for GM.
"I would expect that the model that we're putting together, the distribution model, will be profitable Day One," he said. "We'll have less costs. We'll not be in the manufacturing side of it."

Fiat's takeover of Chrysler, in its final stages, follows a more traditional logic. CEO Sergio Marchionne has been studying U.S. plants for ways to raise efficiency, and will retool one so he can start making the stylish compact Fiat 500 and a sporty Alfa Romeo or two. Under terms of Chrysler's bankruptcy plan, it will close five more U.S. plants.

In Europe, the Opel deal was reached under enormous political and union pressure to keep open all four German plants — which appeared to be one of the things that knocked Fiat out of political favor with early reports that it would close an engine factory. The winning bidder, Magna International Inc., has pledged to cut just 10,000 GM Europe jobs — a number eventually matched by Fiat.
But that deal is still not final. Fiat restated its interest Friday, although German officials downplayed prospects of Magna failing to complete the takeover.
Marchionne's aim had been to combine Chrysler and Fiat with GM's European business to create a world automotive powerhouse to produce up to 6 million cars a year, his threshold for surviving toughening world market conditions.

Such strategies have raised the obvious question among analysts: If the industry is being strangled by overproduction, why not just let the gasping giants expire?
For years, the U.S. auto manufacturing base has been too large for the market, forcing automakers to overproduce to keep plants running and flooding the market with vehicles. As a result, the Detroit Three especially have been forced to discount vehicles to sell burgeoning inventories.
But Penske said the continued restructuring by Chrysler, GM and Ford Motor Co. should solve that problem, at least in the U.S.

"I think there's no question that this re-engineering of the manufacturing base in the U.S. by the Big Three will take capacity out," he said. "But more important, the plants that will survive will be the ones that are most efficient."
Yet London-based Morgan Stanley analyst Adam Jonas said he does not expect worldwide capacity to be significantly changed a year from now. And he questioned the logic of gathering brands under one roof without real synergies.

"Did we just hook up five or six companies that don't mean anything? To get common distributors, development, common planning, common everything, it takes a lot of time, a lot more money and a lot of risk," Jonas said.
Worldwide, analysts say automakers have the capacity to produce 18 million to 20 million more cars than the market demands, leaving many plants grossly underutilized. To make money, automakers have to run their plants above 90 percent capacity, but few are doing that in a depressed global market.
Nearly 70 million cars and light trucks were produced worldwide in 2007, when the latest figures are available from the International Organization of Motor Vehicle Manufacturers.

Ferdinand Dudenhoeffer, director of the Center for Automotive Research in Gelsenkirchen, Germany, said capacity will need to shift to emerging markets such as India and China, not saturated markets like the United States and Europe, where most of the dealmaking is centered.

All the changes brings to mind past unhappy auto mergers: Ford with Land Rover and Jaguar, Chrysler with Germany's Daimler AG, and General Motors with Fiat.
A big exception, Dudenhoeffer said, is Volkswagen AG, which gathers multiple brands from Bentley to Lamborghini to Skoda under one roof. "But it took 20 years to bring them onto the same technical platforms," he said.

Analysts say bigger isn't always better, as evidenced by GM's efforts to shrink itself to become profitable.
"The story of consolidation is not the story which drives the car world," Dudenhoeffer said. "If you look at a company like Porsche, the most successful car companies in the world are small."
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Colleen Barry reported from Milan, Italy. AP Auto Writer Dan Strumpf in New York contributed to this report.