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Japan unveiled a stimulus package with $18 billion in fresh spending to shore up its flagging economy on Friday as figures showed that inflation has spiked to its highest in nearly 11 years, denting consumer spending.

Measures in the package span discounts on expressway tolls to assistance to farms and help for part-time workers to find better jobs. Funds are also earmarked for better medical care, ecological technology, housing loans and education, according to the Cabinet Office.

Economists are skeptical that the package will help revive Japan’s economy, which shrank 2.4% at an annual pace in the second quarter.

And critics call it a publicity stunt to lift Prime Minister Yasuo Fukuda’s dismal approval ratings.

"This is just reckless spending," Yukio Hatoyama, leader of the main opposition Democratic Party, said on nationally televised news. "The package is aimed at getting voters’ attention in anticipation of the next election."

All told, the value of the programs involved comes to $107.5 billion. Aside from the $18 billion cash infusion, most of the package consists of non-spending measures such as lower road tolls and loans to businesses.

Friday’s package did not include tax breaks, but cuts will be considered in the future, the government said.

Masamichi Adachi, senior economist for JP Morgan Securities in Tokyo, called the new spending a "drop in the bucket" compared to Japan’s total gross domestic product of about $4.6 trillion.

"It’s definitely positive, but to what extent (is the question)," he said.

July economic figures released Friday painted a mixed picture of the Japanese economy. Industrial production rose modestly, but the outlook is choppy. The jobless rate fell and retail sales rose. Household spending declined but not as steeply as expected.

The rapid acceleration in inflation was the most alarming of all the indicators released.

Japan’s core consumer price index, which excludes fresh food prices but includes energy, rose 2.4% in July, the quickest pace in almost 11 years, the Ministry of Internal Affairs said.

While Japan’s economy is indeed slowing, many economists see the downturn as mild, with little risk of the sort of deep recession that crippled the country in the 1990s.

"We’ve been calling this a ’shallow recession,’ and the data today tend to support that view," Adachi said low fee cash advance. "But that doesn’t mean they point toward a quicker recovery either."

The Bank of Japan, meanwhile, is unlikely to tighten monetary policy in response to inflation, even though July’s figure surpasses the central bank’s inflation target range of 0-2 percent. Last week, policy board members kept the key interest rate unchanged at 0.5%.

So-called core-core inflation excluding food and energy rose a modest 0.2%, indicating that huge price gains have yet to permeate all sectors.

Merrill Lynch (MER, Fortune 500) economists Takuji Okubo and Masayuki Kichikawa said earlier this week that current inflation appears to be a short-term trend.

"Going forward, whether core measures of CPI excluding food and energy would show signs of inflation would be the key factor in determining (the Bank of Japan’s) actions," they said.

Overall CPI was up 2.3% in July, while core CPI for the Tokyo area rose 1.5% in August.

Among other key economic data, Japan’s industrial production in July was up 0.9% from the previous month on a seasonally adjusted basis, posting the first rise in two months on higher output by makers of cars and electronics.

"Improved external demand for products of those industries in July seemed to be in the background of their industrial production gains," said UBS (UBS) economist Akira Maekawa in a research memo.

The news cheered investors, who helped push the benchmark Nikkei 225 stock index up 2.9% Friday. Stronger-than-expected economic growth figures in the U.S. in the second quarter - up 3.3% at an annual pace - also lifted sentiment.

The outlook for industrial production looks uneven. The Ministry of Economy, Trade and Industry said it expects production to fall 2.9% in August before increasing 3.4% in September.

Japan’s unemployment rate fell from 4.1% to 4% in July.

Meanwhile, spending by Japanese households slipped 0.5% from a year earlier but was more robust than anticipated. Hotter weather spurred sales in items like air conditioners and certain types of food, Maekawa said.

Retail sales in the country rose 1.9% in July from the previous year, the government said. 

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Several major U.S. refiners said early checks on Monday showed their facilities were unharmed by Hurricane Gustav, but at least two others were said to be considering dipping into the U.S. Strategic Petroleum Reserve to keep operations going after the storm shut down key waterways.

Gustav weakened to Category 2 before roaring ashore near Port Fourchon, Louisiana, on Monday, potentially sparing the kind of damage that the region’s platforms, rigs and refineries suffered at the hands of more powerful Katrina three years ago.

Offshore operators said remote sensors indicated that major platforms remained where they were moored before the storm, although Shell, the region’s largest producer, said it may take three to five days to restore production.

Energy companies had to shut in all 1.3 million barrels of U.S. offshore oil production — a quarter of U.S. output — as well as 7.06 billion cubic feet per day in natural gas supply, or nearly all of the 15 percent of national production the Gulf provides, as Gustav ploughed through the region.

By late Monday night, Gustav had subsided to a tropical storm, with winds of 60 miles per hour (96.5 kph), as it moved inland across Louisiana.

U.S fast cash advance loan. crude stood at $111.07 a barrel by 12:15 a.m. EDT, about 33 cents below trading levels late on Monday, when prices slumped $4 on easing concerns about Gustav, which had been called the biggest threat to the sector since 2005’s devastation.

Thirteen refineries with a combined capacity of 2.67 million barrels per day (bpd) — 15 percent of the country’s total — were shut by late Monday, but early signs suggested many had been spared.

Valero Energy Corp said an initial check of its 250,000 barrels per day (bpd) refinery at St Charles, Louisiana, refinery showed no significant structural damage from Gustav, and that the plant had electrical power. 

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Waste Management, the nation’s largest trash hauler, is boosting its buyout offer for rival Republic Services by 9% to $37 per share.

Houston-based Waste Management (WMI, Fortune 500) says it is willing to pay about $6.99 billion, for the Ft. Lauderdale, Fla.-based Republic Services Inc (RSG)., which rejected a $34 per share, or $6.19 billion, offer in July.

The new offer, represents a 32.6% premium to Republic’s closing stock price on July 11, the last trading day prior to the public disclosure of Waste Management’s proposal.

Under the new deal, Waste Management would pay Republic $250 million if the companies were unable to close the deal because of antitrust issues payday loans. Waste Management said any deal between the companies could close by early 2009. 

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The Federal Reserve’s proposed rules for credit card lenders could lead the banking industry to lose at least $10.6 billion in interest annually, JPMorgan Chase & Co. said in a letter to regulators, citing a study.

In May, the Federal Reserve and other regulators proposed steps to end what they called "unfair and deceptive" practices in the credit card industry. The rules aim to protect people from having their interest rates raised arbitrarily, among other practices.

In a letter sent Monday to the Fed’s board of governors, the Office of Thrift Supervision and National Credit Union Administration, JPMorgan’s Chase Bank subsidiary said the proposed regulation, if finalized, "is likely to have profound effects on Chase’s operations and financial results."

The bank also said the proposal will negatively affect the credit card asset-backed securities market by reducing the amount of secondary market capital, and make credit less available to customers.

Chase cited data collected from a group of banks, including Chase itself, on a confidential basis by the law firm Morrison & Foerster LLP. Morrison & Foerster could not comment on the data Tuesday, or on how many banks participated.

The cumulative impact for the participating banks would be at least $10.6 billion in lost annualized interest, Chase said in its letter, signed by Associate General Counsel Andrew T. Semmelman.

The bank said those industry losses would likely result in a nearly 12% increase in annual percentage rates to an average of 16.58%; a $1.1 trillion reduction in total credit lines to consumers; and tighter standards that would stop $11 billion in new accounts from being booked each year.

In addition to restricting rate hikes on cards in certain situations, the Fed’s proposed rules aim to limit the imposition of inadequate time restraints on consumers, and the practice of allocating all payments to balances with lower interest rates when a borrower has balances with different rates.

On Monday, the chairman of the Senate’s investigations subcommittee said he supports the Federal Reserve’s proposed restrictions on credit card practices - but that he believes there should be more.

Sen cash advance. Carl Levin, D-Mich., wrote in a 13-page letter to the Fed that it should expand its rules to end or restrict such practices as charging interest for debt paid on time; interest on transaction fees; fees levied on consumers paying their bills on time; and billing amounts that force consumers to pay four or five times their original debt.

Back in March, JPMorgan Chase (JPM, Fortune 500), at the behest of the U.S. government, bought the ailing investment bank Bear Stearns Cos. when it appeared to be near collapse. 

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Money sent home by Mexican migrants declined by 2.2% in the first six months of 2008, the first sustained drop in more than a decade, Mexico’s Central Bank reported Wednesday.

The downturn in U.S. housing construction and stepped-up U.S. immigration raids have made it tougher for migrants to find jobs, and less able to send home money.

Jesus Cervantes, director of economic measurement for the bank, said year-end figures are expected to continue this trend — the first sustained drop since 1995, when Mexico’s central bank began keeping a tally.

Money sent home by Mexican migrants — also known as remittances — is the country’s second-largest legal source of foreign income, after oil exports. And for years, it contributed to a growing Mexican economy: Annual remittances nearly tripled from about $9 billion in 2001 to almost $24 billion in 2007, amid improved reporting methods and an exodus of migrants from Mexico.

Now, businesses in many Mexican towns that came to rely on the cash flow are now being forced to scale back — also because of the decline of the U.S free credit report and score. dollar, which has lost almost 8% of its value against the Mexican peso this year.

Agustin Escobar, an analyst with the Center for Investigations and Superior Studies in Social Anthropology, said Mexico’s overall economy should withstand these pressures, but some families will be hit hard.

"It depends on the type of household," Escobar said. "For households that are largely dependent on remittances, their poverty is going to be felt sharply." 

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The Senate on Saturday overwhelmingly passed a landmark housing bill that will offer up to $300 billion in loans for troubled homeowners and establish a government rescue plan for mortgage finance giants Fannie Mae and Freddie Mac.

The House passed the bill on Wednesday just hours after President Bush reversed his long-standing vow to veto the bill. Bush is expected to sign it soon.

The legislation, one of the most far-reaching on housing in decades, marks the centerpiece of Washington’s efforts to address the nation’s housing meltdown.

"This legislation won’t perform miracles. But as others have said, it’s a step - and I hope an important step - to putting our nation on the road to economic recovery," said Sen. Christopher Dodd, D-Conn., chairman of the Senate Banking Committee and a principal author of the bill.

Following the vote, Dodd said he will meet on Tuesday with representatives from the Treasury, the Federal Reserve, the FDIC and the Department of Housing and Urban Development to discuss how the legislation can be implemented as quickly as possible. "I’m not going to tolerate a slow walk," he said.

Though the Senate vote was 72 to 13, the bill was not without its staunch opponents.

Sen. Charles Grassley, R-Iowa, the leading Republican taxwriter, had supported earlier versions of the legislation but objected to the rescue plan for Fannie and Freddie. "This bill has fallen prey to the special interests on Wall Street and K Street at an unjustifiable expense to taxpayers and homeowners on Main Street," Grassley said.

The White House also objected to parts of the bill, including aid to states to buy foreclosed properties. But White House Press Secretary Tony Fratto said the measures concerning Fannie and Freddie are "urgently needed now … President Bush will sign this bill when he receives it, despite our concerns with some provisions."

The bill has two principal objectives: to offer affordable government-backed mortgages to homeowners at risk of foreclosure, and to bolster Fannie and Freddie with a temporary rescue plan and a new, more stringent regulator.

Provisions in the 700-page bill that would most directly affect consumers and communities include:

Increase the Federal Housing Administration’s role. The FHA will be allowed to insure up to $300 billion in new 30-year fixed-rate mortgages for at-risk borrowers in owner-occupied homes if their lenders agree to write down loan balances to 90% of the homes’ current appraised value.

The cost of the new FHA program - which would begin on Oct. 1 and be in place for just a few years - would be funded by fees from Fannie and Freddie, along with fees paid by both lenders and borrowers.

While the bill authorizes the FHA to insure up to $300 billion in loans, the CBO estimates that the agency is only likely to insure up to $68 billion and help keep roughly 325,000 people in their homes. Those estimates were based on the CBO’s assessment of who is likely to qualify under the program and accounts for a certain number likely to default anyway.

(Here are more details on this provision.)

Establish a stronger regulator for the GSEs. The new regulator will have a greater say over how well funded the two government sponsered enterprises (GSEs) are - a major concern in the markets that has sent stocks in both companies plunging.

Permanently increase "conforming loan" limits pay day loans. The bill would permanently increase the cap on the size of mortgages guaranteed by Fannie and Freddie to a maximum of $625,500 from $417,000.

The FHA maximum loan limits for high-cost areas would also increase to $625,500. Higher loan limits will make it easier for borrowers to get mortgages, because they’re more likely to be traded if they are considered conforming.

Create home-buyer credit. The bill includes a tax refund for first-time home buyers worth up to 10% of a home’s purchase price but no more than $7,500.

The refund, however, serves more as an interest-free loan, since it would have to be paid back over 15 years in equal installments.

Bar down-payment assistance for FHA loans. The bill eliminates a program that has allowed sellers to provide down payment assistance.

The bill would also increase to 3.5% from 3% the down payment requirement for borrowers getting FHA loans.

Create an affordable housing trust fund. The bill establishes a permanent fund to promote affordable housing. The fund would be paid for by fees from Fannie and Freddie.

Give grants to states to buy foreclosed properties. The bill would grant $4 billion to states to buy up and rehabilitate foreclosed properties. The funding had been opposed by the White House, which said it would benefit lenders and not homeowners.

Concerns over whether Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) will have enough money to weather future losses in the housing market sent shares plummeting in recent weeks. Since the beginning of June, Fannie’s stock price has dropped 57% and Freddie’s plummeted 66%. For the past year, they’re both down roughly 85% as of the end of trade on Friday.

Fannie and Freddie guarantee the purchase and trade of mortgages and own or back $5.2 trillion in mortgages.

To help stabilize markets, Treasury Secretary Henry Paulson asked Congress to temporarily empower Treasury to offer the companies a backstop if needed. Consequently the housing bill now includes provisions that let Treasury over the next 18 months offer Fannie and Freddie an unlimited line of credit and the authority to buy stock in the companies.

Both critics and supporters of the Paulson plan have expressed concern that loaning or investing money in the companies could leave taxpayers with a fat bill to pay.

The Congressional Budget Office on Tuesday estimated the potential cost of a rescue could be $25 billion. CBO said there is probably a better than 50% chance that Treasury would not need to step in. It also said there is a 5% chance that Freddie’s and Fannie’s losses could cost the government $100 billion. 

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Washington’s plan to rescue the housing market may help shore up the U.S. economy as it copes with the worst slump in the housing market since the Great Depression, but don’t look for a swift recovery.

Investor confidence has been bolstered by the government’s recent proposals, driving stock price higher since last week, and economists agree the move to provide extra funding for mortgage giants Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz) is vital.

One unintended consequence, however, has been rising interest rates as the bond market has sold off sharply since the plan was unveiled last week. That risks muting, at least in part, the broader benefit of supporting the two mortgage finance firms.

The U.S. House of Representatives approved the housing plan on Wednesday afternoon, with the Senate expected to vote on it later.

Policy-makers and economists see the government sponsored enterprises as crucial to keeping the housing market open for business since they own or have guaranteed almost half of the $12 trillion in U.S payday advance. mortgage debt outstanding.

Financial markets’ recent loss of confidence in the GSEs led many economists to contemplate the consequences if they were to collapse, convincing many that measures being taken by Congress were necessary.

“It’s necessary and it will have positive benefits to the U.S. economy for a period while we’re in such difficult straits,” Brian Fabbri, managing director of economic research at BNP Paribas, said about the rescue package, which has also been supported by the U.S. Treasury.

“If there is no GSE Treasury help, the housing market wouldn’t just be in recession or declining, it would plunge. We wouldn’t begin to estimate how low it might go if GSEs were not able to fulfill their mission.”  

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Record gas and higher food prices drove inflation to the biggest annual jump since 1991 and fanned fears about growing pressures on consumers.

The Labor Department reading on Wednesday is another sign, along with mounting job losses and declining home prices, of the economic pain suffered by Americans as prices outstrip increases in paychecks.

The latest reading came as Federal Reserve Chairman Ben Bernanke, in testimony on Capitol Hill, was warning that inflation could pose a major drag on the economy for the rest of this year.

Retail prices were up 5% annually in June, the biggest 12-month change since May 1991 - an annual figure that was skewed by the surge in gasoline prices related to the first Gulf War.

A separate Labor Department report showed the average hourly wage up only 3.4% over the same 12-month period, meaning the typical American is having trouble keeping up with the price increases.

"The government report confirms what every consumer in America has known for months now: inflation is soaring and it’s having an adverse impact on the economy," said Rich Yamarone, director of economic research at Argus Research.

On a monthly basis, the Consumer Price Index was up 1.1% in June, after a 0.6% rise in May. Economists surveyed by Briefing.com had been looking for only a 0.7% rise.

Energy prices were up 6.6% in the month, led by a 10.1% jump in gas prices. That left gasoline prices up nearly a third from a year earlier.

But there was also pain at the grocery store for many Americans, as food prices jumped 0.8% compared to May, led by a 2.8% jump in fruits and vegetables, and a 1.6% rise in dairy and related products.

The rise left grocery prices up 6.1% compared to a year ago, with cereals and bakery products posting one of the biggest year-over-year gains, up 10.4%.

Yamarone said that he believes inflation could remain at elevated levels for the next six to nine months, even if oil prices retreat from current levels.

"I wouldn’t be surprised if we creep up to 6, 7 even 8%," he said.

The so-called core CPI, which excludes volatile food and energy prices, rose 0.3%, after a 0.2% rise guaranteed cash advance loan. Economists had been looking for another 0.2% rise. The higher than expected core reading was also troubling because that could tie the Fed’s hands in its effort to help the struggling economy.

The 12-month rise in core CPI is now up 2.4%, up from a 2.3% rise in that reading in May.

Bernanke warned lawmakers on Tuesday and again on Wednesday that inflation poses a risk for the economy.

"Rapid increases in the prices of energy and other commodities … have sapped household purchasing power even as they have boosted inflation," he said in testimony.

He also warned that spending by consumer spending, which provides nearly three-quarters of the nation’s economic activity, "seems likely to be restrained over coming quarters" and that price increases could also make businesses cautious about their own spending plans.

One measure of the economic stress on households is the so-called economic misery index - calculated by adding the 12-month inflation rate and the unemployment rate. With the jump in inflation to 5% in June from 4.2% in May, the misery index is now at 10.5, the first time it has hit double digits since 1993.

While the Federal Reserve responded to economic pain earlier this year by approving deep interest rate cuts, it’s not clear the central bank will be providing any more help to help households in the foreseeable future.

The Fed generally wants to see core inflation measures up between 1% and 2%, so the new core reading was well outside the so-called comfort zone.

Bernanke said in his congressional testimony that despite the weak outlook for economic growth, the Fed could not ignore signs of rising inflation. The Fed’s strongest measure to spur economic growth, interest rate cuts, are seen as adding to inflation pressure. 

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The Federal Reserve unanimously approved new mortgage lending rules Monday in a crackdown on shady practices - particularly those involving subprime loans made to borrowers with weak credit.

The agency made several substantial revisions to the proposed regulations it unveiled in December. Many of the changes acknowledged consumer advocates’ concerns that the rules still contained too many loopholes that would allow shady lending practices to continue.

But the Fed also made some concessions to industry executives, who feared increasing oversight would lead to less lending.

The new rules will apply to all mortgage lenders, not just those supervised and examined by the Fed. All but one requirement will take effect Oct. 1, 2009. However, board members said they will continue to work on further oversight of the mortgage industry.

"The proposed final rules are intended to protect consumers from unfair or deceptive acts and practices in mortgage lending, while keeping credit available to qualified borrowers and supporting sustainable homeownership," said Fed Chairman Ben Bernanke. "Besides offering broader protection for consumers, a uniform set of rules will level the playing field for lenders and increase competition in the mortgage market, to the ultimate benefit of borrowers."

The proposals won’t help the millions of homeowners who’ve already fallen behind in their mortgages, but the Fed is aiming to prevent another such crisis by tightening lending standards, particularly for subprime mortgages.

Many critics have charged that under former Fed Chairman Alan Greenspan, there were few restraints during the real estate boom. They say the agency should have flexed its muscles several years ago, clamping down on unscrupulous lenders and protecting borrowers.

Consumer advocates said they were pleased with the changes, but stressed that the Fed’s action is just one in a series of steps needed to better protect borrowers from shady lenders. Industry executives, meanwhile, applauded the Fed for attempting to protect consumers while keeping in mind the need for low-cost mortgage loans.

The rules

The new rules governing "higher-priced," or subprime, loans will:

• Prohibit creditors from extending credit without regard to a consumer’s ability to repay the loan from income and assets other than the home’s value. The lender complies, in part, by assessing repayment ability based on the highest scheduled payment in the first seven years of the loan.
• Require creditors to verify income and assets they rely upon to determine repayment ability
• Ban any prepayment penalty if the payment can change in the initial four years. For other higher-priced loans, a prepayment penalty period cannot last for more than two years.
• Require creditors to establish escrow account for property taxes and homeowner’s insurance. This rule will be phased in during 2010.

The Fed changed the definition of higher-priced loans to first mortgages with rates at least 1.5 percentage points above the average mortgage rate published by Freddie Mac. Also, second mortgages with rates at least 3.5 percentage points above the Freddie Mac rate will fall into this category.

With this change, the Fed is hoping to address industry complaints that the previous definition would capture non-subprime loans as well.

Additional rules will apply to all mortgages, regardless of rate.

• Creditors and mortgage brokers cannot coerce a real estate appraiser to misstate a home’s value.
• Companies that service mortgage loans are prohibited from engaging in certain practices, such as pyramiding late fees no fax payday loans. Also, they must credit consumers’ loan payments as of the date of receipt and provide a payoff statement within a reasonable time of request.
• Creditors must provide a good faith estimate of the loan costs, including a schedule of payments, within three days after a consumer applies for any mortgage loan, including home improvement loans or refinancings. Currently, these estimates are only required for home-purchase loans. Consumers cannot be charged any fee until after they receive the early disclosures, except a reasonable fee for obtaining the consumer’s credit history.
• In advertisements, companies must include additional information about rates, monthly payments and loan features. The rule also bans seven deceptive practices, such as saying a rate is fixed when it can change.

In a nod to the brokerage industry, the Fed withdrew a proposal requiring additional disclosure of the "yield-spread premium," which allows banks to pay brokers for steering homeowners into higher-priced loans. After testing consumers, the agency found that the rule would likely not be effective. But the Fed said it would continue reviewing the issue.

Advocates for consumers and industry generally pleased

Both consumer advocates and industry executives put a full-court press on the Fed in recent months, trying to get the agency to revise its proposed rules. More than 4,500 comments were filed since the agency announced its plan in late December.

After reviewing the final rules, advocates said they felt the changes did provide additional protections for the consumers. In particular, it’s important that the Fed eliminated the requirement that borrowers prove lenders engaged in a "pattern or practice" of originating unaffordable loans since that’s very hard to do, said Brenda Muniz, legislative director of Acorn, a housing advocacy group.

Still, the Fed could have done better by completely banning prepayment penalties, as several states have done, said Deborah Goldstein, executive vice president of the Center for Responsible Lending, a consumer rights organization. She noted that people in subprime fixed-rate loans are still subject to hefty fees if they try to refinance their loans within two years.

Also, some advocates wondered why the rules won’t take effect for 15 months, and why subprime borrowers can opt out of escrowing their property taxes and homeowner’s insurance after the first year.

"It’s the first step toward better protecting consumers in the mortgage market, but not the last step," said Jim Carr, chief operating officer of the National Community Reinvestment Coalition, an advocacy group.

Industry executives, meanwhile, endorsed the changes overall, but said there still may be some areas of concern in the 419-page document. For instance, the Mortgage Bankers Association said it plans to ask its members about the elimination of the "pattern or practice" rule.

Still, the new rules will help consumers, without placing such a burden on lenders that they will have to curtail credit, industry insiders said.

"This is just the right amount of regulation," said Marc Savitt, president of the National Association of Mortgage Brokers. 

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Time Warner Inc’s discussions to merge or sell its AOL Internet division with Microsoft Corp or Yahoo Inc have taken on new urgency ahead of Yahoo’s Aug 1 shareholders meeting, a source familiar with the discussions told Reuters on Tuesday.

The structure of any deal is not immediately clear, though a combination of any of the parties is expected to redraw the landscape for advertising on the Internet.

Sources had said earlier that a deal with Yahoo would likely involve merging AOL with the Web pioneer, with Time Warner taking a minority stake in the combined company. A deal with Microsoft would likely be a sale of AOL, the sources said.

Time Warner and Microsoft declined comment. A representatives of Yahoo was not immediately available.

Time Warner’s talks come after Microsoft’s buyout talks with Yahoo fell apart, with Microsoft withdrawing its $47.5 billion bid in May payday loans. Since then the two have waged a public war of words.

Discussions with Time Warner have accelerated as both Yahoo and Microsoft view AOL as potentially beneficial to leverage their positions in the Internet marketplace, where Google Inc dominates.

AOL plans to split its dial-up Internet business and has focused on building a one-stop online advertising shop over the past two years.

Yahoo’s interest in AOL is designed to show shareholders that it could grow without Microsoft. 

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