It is the Wall Street equivalent of a coroner’s report — a 2,200-page document that lays out, in new and startling detail, how Lehman Brothers used accounting sleight of hand to conceal the bad investments that led to its undoing.

The report, compiled by an examiner for the bank, now bankrupt, hit Wall Street with a thud late Thursday. The 158-year-old company, it concluded, died from multiple causes. Among them were bad mortgage holdings and, less directly, demands by rivals like JPMorgan Chase and Citigroup, that the foundering bank post collateral against loans it desperately needed.

But the examiner, Anton R. Valukas, also for the first time, laid out what the report characterized as “materially misleading” accounting gimmicks that Lehman used to mask the perilous state of its finances. The bank’s bankruptcy, the largest in American history, shook the financial world. Fears that other banks might topple in a cascade of failures eventually led Washington to arrange a sweeping rescue for the nation’s financial system.

According to the report, Lehman used what amounted to financial engineering to temporarily shuffle $50 billion of troubled assets off its books in the months before its collapse in September 2008 to conceal its dependence on leverage, or borrowed money. Senior Lehman executives, as well as the bank’s accountants at Ernst & Young, were aware of the moves, according to Mr. Valukas, the chairman of the law firm Jenner & Block and a former federal prosecutor, who filed the report in connection with Lehman’s bankruptcy case.

Richard S. Fuld Jr., Lehman’s former chief executive, certified the misleading accounts, the report said.

“Unbeknownst to the investing public, rating agencies, government regulators, and Lehman’s board of directors, Lehman reverse engineered the firm’s net leverage ratio for public consumption,” Mr. Valukas wrote.

Mr. Fuld was “at least grossly negligent,” the report states, adding that Henry M. Paulson Jr., who was then the Treasury secretary, warned Mr. Fuld that Lehman might fail unless it stabilized its finances or found a buyer.

Lehman executives engaged in what the report characterized as “actionable balance sheet manipulation,” and “nonculpable errors of business judgment.”

The report draws no conclusions as to whether Lehman executives violated securities laws. But it does suggest that enough evidence exists for potential civil claims. Lehman executives are already defendants in civil suits, but have not been charged with any criminal wrongdoing.

A large portion of the nine-volume report centers on the accounting maneuvers, known inside Lehman as “Repo 105.”

First used in 2001, long before the crisis struck, Repo 105 involved transactions that secretly moved billions of dollars off Lehman’s books at a time when the bank was under heavy scrutiny.

According to Mr. Valukas, Mr. Fuld ordered Lehman executives to reduce the bank’s debt levels, and senior officials sought repeatedly to apply Repo 105 to dress up the firm’s results. Other executives named in the examiner’s report in connection with the use of the accounting tool include three former Lehman chief financial officers: Christopher O’Meara, Erin Callan and Ian Lowitt.

Patricia Hynes, a lawyer for Mr. Fuld, said in an e-mailed statement that Mr. Fuld “did not know what those transactions were — he didn’t structure or negotiate them, nor was he aware of their accounting treatment.”

Charles Perkins, a spokesman for Ernst & Young, said in an e-mailed statement: “Our last audit of the company was for the fiscal year ending Nov. 30, 2007. Our opinion indicated that Lehman’s financial statements for that year were fairly presented in accordance with Generally Accepted Accounting Principles (GAAP), and we remain of that view payday loans for self employed.”

Bryan Marsal, Lehman’s current chief executive, who is unwinding the firm, said in a statement that he was evaluating the report to assess how it might help in efforts to advance creditor interests.

Repos, short for repurchase agreements, are a standard practice on Wall Street, representing short-term loans that provide sometimes crucial financing. In them, firms essentially lend assets to other firms in exchange for money for short periods of time, sometimes overnight.

But Lehman used aggressive accounting in its Repo 105 transactions: it appears to have structured transactions such that they sold securities at the end of the quarter, but planned to buy them back again days later. These assets were mostly illiquid real estate holdings, meaning that they were hard to sell in normal transactions.

The effect of the accounting was to artificially and temporarily lower the firm’s debt levels to hit certain targets, making the firm look healthier than it really was.

In a series of e-mail messages cited by the examiner, one Lehman executive writes of Repo 105: “It’s basically window-dressing.” Another responds: “I see … so it’s legally do-able but doesn’t look good when we actually do it? Does the rest of the street do it? Also is that why we have so much BS [balance sheet] to Rates Europe?” The first executive replies: “Yes, No and yes. :)”

Mr. Valukas was appointed by the United States Trustee in the case in January 2009 to investigate the causes of the Lehman bankruptcy, as well as to find out if any fraud or misconduct took place.

Mr. Valukas writes in the report that “colorable claims” could be made against some former Lehman executives and Ernst & Young, meaning that enough evidence existed that could lead to the awarding of damages in a trial. He added that Lehman’s directors were not aware of the accounting engineering.

By his reckoning, Lehman managed to “shed” about $39 billion from its balance sheet at the end of the fourth quarter of 2007, $49 billion in the first quarter of 2008 and $50 billion in the second quarter. At that time, Lehman sought to reassure the public that its finances were fine — despite pressure from short-sellers like the hedge fund manager David Einhorn.

Executives, including Herbert McDade, who was known internally as the firm’s “balance sheet czar,” seemed aware that repeatedly using Repo 105 was disguising the true health of the investment bank. “I am very aware … it is another drug we r on,” he wrote in an April 2008 e-mail cited by the examiner’s report. At other times, he is described as calling for a limit to the number of Repo 105 transactions.

By May and June of 2008, a Lehman senior vice president, Matthew Lee, wrote to senior management and the firm’s auditors at Ernst & Young flagging “accounting improprieties.” Neither Lehman executives nor Ernst & Young alerted the firm’s board about Mr. Lee’s allegations, according to the report.

Mr. Fuld is described in the examiner’s report as denying having knowledge of the Repo 105 transactions, and there is no evidence that he directed subordinates to make use of that aggressive accounting. (He did recall issuing several directives to reduce the firm’s debt levels.) But Mr. McDade is reported as telling Mr. Fuld about using Repo 105 to achieve that goal.

Lehman Brothers Hid Borrowing, Examiner Says

NEW YORK – A hotel has opened on the edge of ground zero, and executives say the view it offers on the World Trade Center site rebuilding is a selling point.

The World Center Hotel is still under construction on some floors but began taking reservations last month. Its Web site features photographs of a memorial and the construction.

The hotel offers some rooms with floor-to-ceiling windows that open directly onto the work site. Guests and members will have access to the restaurant patio with views of giant cranes, jackhammers and metal scaffolding auto loan rates.

Australian tourist Josh Rowlands says he would like to stay at a hotel with a view of the rebuilding, especially because it’s so hard to see into the pit from the street.

But German tourist Michael Meindorfer says he thinks staying there would be too sad.

Ground zero hotel wants to attract WTC tourists

Hot News: Canadian Markets: Canadian stocks rise as commodity prices gain

BRUSSELS – European Union leaders on Thursday offered Greece moral support but no money to help it weather a debt crisis — vague assurances that didn’t calm the market fear that has shaken the entire EU and undermined the shared euro currency.

The 16 countries that use the euro said only that they “will take determined and coordinated action, if needed, to safeguard financial stability in the euro as a whole.”

But no money or loan guarantees were put on the table in the statement from a summit meeting in Brussels.

Markets appeared disappointed at not seeing a concrete backstop to ward off a potential default by Greece, which needs to borrow euro54 billion this year to cover its outsized budget deficit.

The Greek crisis is the leading edge of the debt troubles that have hit governments in the developed world during the world’s three years of economic turbulence, as they run up deficits bailing out banks and stimulating their economies.

A default would be a serious blow to Europe’s monetary union, and fears that Athens might not be able to pay its debts have already led markets demanding higher borrowing costs for Greece.

There are also concerns that the contagion could spread to other financially wobbly countries, such as Portugal and Spain, and that other governments will have to pay more to borrow.

The leaders said Greece had not requested financial support and called on Athens to push through “in a rigorous and determined manner” its budget cuts that have already triggered protests and strikes — and to prepare bigger cuts if needed.

Neil Mackinnon, global macro strategist at VTB Capital said, “it just looks like a pledge of solidarity, but no actual details of a program which is why the euro is still in the doldrums.”

“They have to stop this right now…they are firefighting at the moment but they need to put out this fire right now,” said Neil Mellor, currency strategist at Bank of New York Mellon. “It won’t appease those looking for a bona fide rescue plan.”

The euro hit a new nine-month low of $1.3635, having been as high as $1.38 earlier in the day on hopes of more substantive Greek bailout news. It was $1.51 in December. German and French stocks were down, while shares in Britain, which doesn’t use the euro, rose.

Markets see Greece at risk of defaulting on its massive borrowings because it faces several years of sluggish growth and mounting debt that current austerity plans may not be able to stem payday loans guaranteed no fax.

Those fiscal problems have also exposed the vulnerability of Europe’s monetary union in times of crisis. Euro members countries agree to limit their budget deficits to 3 percent of gross domestic output because overspending can undermine their shared currency. But those deficit rules have been broken repeatedly and have not been prevented Greece and other countries from trouble.

The leaders may make more comments on Greece later in the day.

Luxembourg government spokesman Guy Schuller said no firm bailout figures are on the table at this point, but many options are under discussion. “Paris and Berlin are at the head” of efforts that would be shared by all 16 eurozone nations, he said.

Among possibilities for Greece that have been floated in recent days are EU member countries guaranteeing Greece’s debt, a special credit line for the Greek government, and bilateral loans.

But German Chancellor Angela Merkel talked down a full financial bailout, but said other European governments would not leave Greece in the lurch.

“We won’t let Greece be alone but there are rules and they have to be respected and based on that we’ll issue a statement and an explanation,” she said.

Greece needs to borrow euro54 billion (nearly $75 billion) from bond markets this year to plug its budget gap. So far it has been able to borrow from markets but is facing increasing interest costs as markets price in higher risk of a possible default.

Greek Prime Minister George Papandreou has promised to reduce Greece’s deficit to 8.7 percent of gross domestic product this year, from 12.7 percent last year, the highest in the EU and four times above an EU limit.

But markets doubt Greece’s credibility after it admitted falsifying statistics for years to make the deficit look smaller. They also worry that Greece can’t carry out any cuts because it risks social unrest.

Greek workers shut down schools, grounded flights and walked out of hospitals Wednesday to protest austerity measures, and a much broader strike is planned for Feb. 24.

___

Associated Press writers Pan Pylas, Angela Charlton and Leslie Patton in Brussels contributed to this report.

EU leaders offer Greece support, but no money

HONG KONG (Reuters) – Stocks in Asia tumbled on Friday, hurt by weak technology and resources shares and fresh worries about Greece's debt levels, which dragged the euro to a six-month low against the dollar.

However, leading European shares (.FTEU3) were expected to inch higher, halting the market's worst sell-off in a year, despite mounting worries about weak euro zone members.

U.S. stock futures pointed to a slightly weaker open after key Wall Street indexes fell by up to 1.9 percent overnight as poor earnings and outlooks from Motorola (MOT.N) and Qualcomm (QCOM.O) dented optimism in the tech sector. (.N)

A massive recall of millions of vehicles by the world's top automaker Toyota Motor Corp (7203.T) added to concerns about corporate earnings, while falling commodity prices hurt miners such as BHP Billiton Ltd (BHP.AX).

Samsung Electronics (005930.KS), the world's top maker of memory chips and LCD screens, failed to lift the gloom despite its forecast-beating earnings as Asian shares head for their worst monthly decline since January 2009.

Asia Pacific stocks outside Japan as measured by MSCI (.MIAPJ0000PUS) fell 2 percent to a 2-month low, with the materials index down 3.4 percent and the technology index off 1.8 percent.

Concerns over public finances in Greece and Portugal pulled the euro down to a six-month low against the dollar and a nine-month low versus the yen, a trend which has gained momentum as investors cut risky trades which had been funded by borrowing in the yen and dollar.

Investors have also been nagged this week by fears that the global economic recovery may be losing momentum, China's steps to cool its surging economy and political and regulatory wrangling in Washington.

"There is a general adjustment going on in risk appetite and risk sensitivity," said Peter Redward, head of Emerging Asia Research, Barclays Capital.

But he said the recent drop has been orderly and the sell-off has been notable because of the absence of panic.

"It shows there hasn't been a lot of large option-related, speculative position building. There isn't a lot of gamma floating around in terms of equities or fx," he added, referring to derivatives instruments which when triggered can lead to accelerated selling.

According to data from fund tracker EPFR Global, emerging markets equity funds saw their first week of net outflows in the period ended January 27 after 11 weeks of inflows as investors pared back their exposure amid fears of slowing growth in China, where authorities are reining in bank lending.

U.S. equity funds saw their biggest weekly outflow since late June while European equity finds suffered net redemptions for the third week in five, the data showed same day payday loans. But bond funds saw inflows, particularly emerging market local currency-denominated bonds.

The recent strength of the yen currency also hammered Japanese stocks, which received a further setback after Toyota announced it would extend to Europe and China a recall of millions of vehicles due to faulty accelerator pedals and floor mats.

Japan's Nikkei average (.N225) fell 2 percent to a six-week closing low, hurt by negative earnings surprise from chip equipment maker Advantest Corp (6857.T) which came after Nippon Steel Corp's (5401.T) warned of a first annual net loss in seven years. Advantest shares tumbled more than 10 percent.

Toyota fell 2 percent, bringing its losses this week to around 14 percent.

But analysts said broader market selling appeared to be largely driven by short-term investors, and funds with a longer-term horizon remained upbeat on the region's fundamentals.

"Some markets are quite oversold at the moment — the 12 month fundamentals for economies and earning are likely to be reasonably good," said Khiem Do, head of the Asia multi-asset group at Baring Asset Management, which oversees $50 billion.

"Prices are getting cheaper as a result of the liquidation of trading position. Our view is positive over next 6-12 months."

CURRENCIES

Currencies linked to global growth such as the Australian dollar and the New Zealand dollar fell to multi-week lows as investors moved out of higher-risk assets and on caution ahead of U.S. fourth-quarter GDP data to be released later on Friday at 8:30 a.m. EST.

Even though data on Thursday showed U.S. durable goods orders rose and jobless claims fell in the world's largest economy, analysts are wary it is not a strong recovery.

Mixed economic data from the world's other leading economies also continues to keep investors cautious.

After Japan's better-than-expected export growth earlier this week, data released on Friday showed the economy was in the grips of deflation with core consumer prices marking their tenth straight month of decline.

In commodities markets, crude oil looked set for a possible fourth day of losses sparked by forecasts of tepid oil demand in rich industrialized nations. U.S. crude futures eased 20 cents to $73.44 a barrel.

A firm dollar and concern over the pace and scope of credit tightening in China drove Shanghai copper down 3.5 percent, following a drop in London prices in the previous session.

(Editing by Kim Coghill)

Asia shares slide on resources, euro zone woes

NEW YORK – A former senior managing director at New Castle Partners hedge fund has pleaded guilty to securities fraud charges, admitting making $900,000 through insider trading.

The plea was entered in federal court in Manhattan Wednesday by Mark Kurland. Kurland pleaded guilty to conspiracy to commit securities fraud and securities fraud.

In doing so, he admitted a role in what prosecutors have described as the largest hedge fund insider trading case in history.

Kurland is the eighth person to plead guilty in a case that has resulted in charges against 21 people so far fast payday loans. They are accused of making tens of millions of dollars through inside trades.

Among those charged is Raj Rajaratnam (RAHJ rah-juh-RUHT’-nuhm), a portfolio manager and one of America’s richest people.

Plea entered in NY in massive insider trading case

NEW YORK (MarketWatch) — Citigroup Inc. said Tuesday that it posted a fourth-quarter loss of $7.6 billion, in line with analysts’ estimates, accounting for more than $6 billion in expenses associated with the payback of some government investments.

The $7.6 billion loss amounted to 33 cents a share, compared with a loss of $17.24 billion, or $3.40 a share, in the year-ago quarter.

Citigroup Chief Financial Officer John Gerspach in the company’s fourth-quarter earnings release Tuesday said that although Citi remains “cautious and continues to monitor the future impacts of our current loss mitigation efforts, we continue to see indications that credit may be stabilizing or improving, particularly in Asia and Latin America.”

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The CFO said the company had made “significant progress” in 2009. “While the environment continues to be challenging, we have a strong capital base and client franchise.”

“Provisions and charge-offs were lower than we expected, suggesting that Citi’s outlook for its loan book has improved, particularly in corporate and international portfolios,” Standard & Poor’s analysts said in a Tuesday report prepared for clients. “We think the pace of reserve building will continue to slow, allowing for an earnings improvement in 2010.”

The S&P analysts raised their Citi earnings estimate 2010 by 7 cents, to breakeven, but kept their share-price target price at $4.50, labeling that level “a premium to projected tangible book value, but a discounted multiple to peers.”

Citigroup shares responded initially by retreating 3% in early trades Tuesday. Read more about share price in MarketWatch First Take.

On an adjusted basis, excluding the $6 no fax needed payday loans.2 billion after-tax loss associated with TARP repayment and exiting a loss-sharing agreement, the fourth-quarter net loss was $1.4 billion, or 6 cents a share, the company said. Analysts polled by Thomson Financial had, on average, had expected the company to lose 33 cents a share in the quarter.

Citi said fourth-quarter net credit losses fell by about $800 million from the third quarter to $7.1 billion, marking a second straight quarter of improvement.

It said it added $700 million to its loan-loss reserve, down from roughly $800 million in the prior quarter.

Grooming the ‘dogs’ for a comeback

Despite lackluster recent performance, the Dogs of the Dow investment strategy still has fans. And this year’s roster may be kinder to investors.

The total allowance for loan losses at the end of 2009 was $36 billion, or 6.1% of total loans, compared with $36.4 billion, or 5.9% of total loans, in the third quarter, the bank said.

At year-end, the Tier 1 capital ratio was 11.7%. Tier 1 common ratio was 9.6%, up from 2.3% a year ago. Tier 1 common was $104.6 billion, up from $22.9 billion a year ago.

Citi sees higher credit costs in first quarter of 2010

Citigroup forecast higher credit costs in the first quarter of 2010 as loan losses continue in its the mortgage and credit-card businesses.

However, the financial-services heavyweight said that there could be improvement after the first quarter, depending on the direction of the U.S. economy. The company was also optimistic about its overseas businesses.

Citi shares went on to reverse their morning losses, and then some, climbing 3.2% to $3.54.

“Credit looks much better than we expected,” Jeff Harte, an analyst at Sandler O’Neill, wrote in a note to investors. “Credit improvement seems more pronounced in Citi’s international businesses.”

Citi’s $7.6 bln loss hits Wall Street target

Stock prices fell sharply on Friday, the worst day of trading this year, as worries over the strength of the American consumer eclipsed a round of mostly positive earnings reports.

On its surface, the news that JPMorgan Chase had doubled its 2009 profits from 2008 might seem reason for elation among investors. But on Friday, Wall Street traders took one look at the results and began to sell.

By the end of trading, the three major indexes were down about 1 percent, with the Dow Jones industrial average falling nearly 101 points. The dollar strengthened, and bond yields fell.

Traders saw promise and peril in JPMorgan Chase’s financial report. The bank said it earned $11.7 billion last year and that its profit quadrupled in the fourth quarter, beating expectations. But the firm’s chief executive noted that losses on consumer loans remained high and would remain an issue in 2010.

“It does continue to bring up old fears,” said James W. Paulsen, chief investment strategist for Wells Capital Management.

The Dow Jones industrial average declined 0.94 percent, or 100.90 points, to 10,609.65. The Standard & Poor’s 500-stock index fell 1.08 percent, or 12.43 points, to 1,136.03. The Nasdaq composite index dropped 1.24 percent, or 28.75 points, to 2,287.99.

For the week, the Dow industrials slipped 0.1 percent, the S.& P. 500 index lost 0.8 percent and the Nasdaq fell 1.3 percent.

All sectors posted losses, with shares of banks leading the retreat. JPMorgan Chase declined 2.26 percent, and Bank of America fell 3.33 percent. Many banks will report earnings next week.

Two weeks into the new year, Wall Street finds itself searching for direction. Over the next few weeks, companies will continue to announce fourth-quarter earnings, and the results are expected to be mostly positive.

Expectations this quarter, however, have shifted, and investors are looking for indications that businesses have moved beyond cost-cutting and have started to bring in revenue.

After the market closed on Thursday, Intel reported a 28 percent increase in revenue and the largest gross profit margin in its history. Overnight, its shares climbed, but they closed down 3 free copy of my credit report.17 percent on Friday.

That seemingly irrational behavior, selling even as a company exceeds expectations, brought an adage to the minds of several investors: “Buy the rumor, sell the news.”

“It is an interesting juxtaposition,” said Hank B. Smith, chief investment officer for Haverford Investments. “These all beat expectations, but by the time all the news is disseminated, there’s concern this may be the peak for profit margins for these companies.”

Mr. Smith said he did not believe the worries were valid. But he said Wall Street’s negative reaction to the cheery reports could indicate that investors were using the earnings season as a selling opportunity.

“It would be healthy for the market to consolidate and pull back,” Mr. Smith said. “It’s very normal to have a correction — defined as 10 percent or more — in a bull market.”

After an energetic rebound in the stock market last year, equities are expected to rise modestly through 2010. The Dow is approaching a psychologically important milestone — 11,000 points, a level not seen since before the financial crisis — and the S.& P.’s 500-stock index is nearing 1,150 points.

Economic data released on Friday provided little relief from investors’ concerns over profits. A report said manufacturing activity fell slightly in December, and a barometer of consumer sentiment released by the University of Michigan rose slightly this month but fell short of expectations.

Still, there were signs that the near-zero interest rates may remain in place for some time, a boon for stocks. A Labor Department report suggested inflation was largely in check, with consumer prices increasing just 0.1 percent in December.

Interest rates were lower Friday. The Treasury’s 10-year note rose 15/32, to 97 16/32, and the yield fell to 3.68 percent from 3. 74 percent late Thursday.

United States markets are closed on Monday for Martin Luther King’s Birthday.

Dow Plunges 100 Points On JPMorgan’s News

NEW YORK – The following stocks were among those that moved substantially or traded heavily Tuesday on the New York Stock Exchange and the Nasdaq Stock Market:

NYSE:

Tiffany & Co., down 24 cents at $46.44

The luxury jeweler boosted its annual profit forecast and said strong worldwide sales during the holidays will likely help results.

KB Home, down 66 cents at $15.72

The homebuilder turned a profit in its fiscal fourth quarter, the first time since early 2007, as it benefited from a new tax rule.

Alcoa Inc., down $1.93 at $15.52

The world’s largest aluminum maker posted worse-than-expected earnings for the fourth quarter on soft demand.

Kraft Foods Inc., up 49 cents at $29.29

Cadbury PLC stepped up its defense against a hostile takeover bid from Kraft by announcing that 2009 results will beat expectations.

Great Atlantic & Pacific Co payday cash advance loans., down $2.66 at $10.22

The operator of A&P and other grocery chains said losses grew sharply due to drastic changes in shopping habits at supermarkets.

Gap Inc., down 66 cents at $19.96

A Goldman Sachs analyst downgraded the clothing retailers stock, saying few factors will boost its profit soon.

Salesforce.com Inc., down $5.36 at $68.29

The company said it plans to raise $500 million by offering convertible senior notes and received a downgrade from an analyst.

KKR Financial Holdings LLC, down 37 cents at $6.31

The investment firm said its fourth-quarter results will be hurt by non-cash charges on mortgage investments and corporate loans.

Tiffany, KB Home, Alcoa, Kraft are movers

SHANGHAI — On Dec. 31, Chinese regulators announced that they had arrested three executives and shut down a dairy company here for selling products contaminated with an industrial chemical called melamine.

It looked like another sign that regulators had stepped up their food safety campaign after 6 children died and 300,000 others were sickened in 2008 from drinking milk formula tainted with melamine.

But Wednesday, a government official here acknowledged that the arrests actually took place last April, and that the investigation into tainted dairy products at the Shanghai Panda Dairy Company had begun two months before that.

“In February 2009, the Shanghai Fengxian prosecutor found that these products were contaminated and started the investigation,” said Shen Weiping, an officer at the Fengxian prosecutor’s office, reading from a prepared statement. “On April 28, the three executives from Panda Dairy were arrested.”

Mr. Shen declined to comment on why the announcement was delayed so long and why the public was not alerted to the dangers of Shanghai Panda milk last year, before or shortly after the company was shut down. The lack of an alert was particularly surprising because in June, China passed a new food safety law that required food producers to alert consumers and other businesspeople of serious food safety problems.

The government did not say whether the contaminated milk from Shanghai Panda had sickened anyone, but said only that regulators believed that they had confiscated dangerous milk during the investigation.

The prosecutor’s office statement came a day after the 21st Century Business Herald, a Guangzhou-based newspaper, first reported that the investigation into Shanghai Panda may have been conducted months earlier.

Calls on Wednesday to Shanghai Panda went unanswered. The General Administration for Quality Supervision Inspection and Quarantine, the nation’s top quality watchdog, did not respond to requests for an interview on Wednesday.

Some legal experts called the delay in announcing the case troubling.

“If Shanghai Panda’s crime is confirmed, the quality supervision bureaus, both local and national, violated the law,” said Wang Xixin, a professor of constitutional law at Peking University allstate insurance. “The government hid the truth from the public and behaved extremely irresponsibly to public safety.”

Shanghai officials said Wednesday that executives at Shanghai Panda held a meeting in December 2008, after a nationwide recall of melamine-tainted milk powder, and decided to resell contaminated milk that had been returned to the company in the earlier recall of melamine-tainted goods.

“Panda Dairy decided to mix the contaminated, condensed milk with standard products and resell it,” said Mr. Shen, at the Shanghai prosecutor’s office, reading from a statement.

At the time, China’s state-run media were filled with stories about parents outraged over their children’s melamine-related ailments, which included kidney stones and urinary tract infections.

The government had just announced a nationwide crackdown on melamine-tainted milk and said that 22 of the country’s biggest dairy producers, including Shanghai Panda, had failed quality inspection tests and had milk containing high levels of melamine.

Shanghai Panda products were found to have some of the highest levels of contamination, regulators said.

Since then, Chinese regulators say they have stepped up their monitoring and arrested dozens of people involved in intentionally doctoring milk formula with melamine.

Melamine has often been used in China as a cheap additive to cheat on quality tests, because its nitrogen content can falsely inflate protein scores.

Last November, China executed two milk producers for selling millions of pounds of melamine-contaminated milk.

A few weeks ago, the police arrested three other people in north China’s Shaanxi Province for selling milk powder contaminated with melamine. In that case, regulators said they confiscated the tainted milk before it could reach stores.

Bao Beibei contributed research.

China Admits New Tainted-Milk Case Is Older

Filed at 7:32 p.m. ET

TOKYO, Jan 4 (Reuters) - Shares of Japan Airlines Corp <9205.T> jumped 30 percent, bouncing back from last week’s tumble after the government sought to boost the amount of funds available to the struggling carrier.

Shares of JAL were up 29.9 percent at 87 yen as of 0024 GMT after surging as high as 93 yen. The stock lost a quarter of its value on Wednesday, the last trading day of 2009, on expectations it would face bankruptcy as part of a state restructuring plan. [ID:nTOE5BT00R]

The state-owned Development Bank of Japan said the government had asked it to double its credit line for JAL to 200 billion yen ($2.15 billion) to provide it with funding while a state-backed turnaround fund decides whether to bail out the airline my credit score.

A spokesman for the DBJ said the bank was considering the government’s request.

The government-backed turnaround fund has told JAL’s main creditors it was leaning towards a bankruptcy proceeding as part of a rescue package for Asia’s largest carrier by revenue, sources with knowledge of the matter have told Reuters.

The fund is expected to make a decision whether to support JAL this month.

A bankruptcy could wipe out the value of JAL’s shares and trigger greater losses for creditors, which include the DBJ and the country’s three largest private banks.

Shares of Japan Airlines Corp Jump 30 Percent