SAN FRANCISCO, April 8 (Reuters) – A gradual U.S. economic recovery marked by high unemployment and tame inflation will require interest rates to remain very low for an “extended period,” Federal Reserve Vice Chairman Donald Kohn said on Thursday.

The Fed’s promise to keep rates low, however, is contingent on economic conditions, such as an absence of strong private demand and a reluctance by businesses to hire, Kohn indicated.

“We cannot provide a precise timetable for when short-term interest rates will begin to return to normal because that depends on the evolution of actual and projected activity and inflation,” Kohn said in prepared remarks to a luncheon sponsored by the Federal Reserve Bank of San Francisco.

For now, Kohn said conditions do appear to warrant the central bank’s highly accommodative stance, undertaken as a response to the worst financial crisis since the Great Depression.

In particular, Kohn focused on the labor market, which he characterized as “extremely weak.”

“The most likely scenario is a gradual pickup in economic activity,” he said.

Against that backdrop, Kohn believes inflation will not become a problem any time soon. He said the high jobless rate, which came in at 9.7 percent in March, suggested the economy was not operating anywhere near its maximum productive capacity.

SAN FRANCISCO (Reuters) – Should California’s treasurer put more state general obligation debt up for sale in April, he would have no problem selling it — even as the U.S. municipal debt market awaits a better view of the state’s troubled financial landscape.

Governor Arnold Schwarzenegger is putting together his “May revise,” an updated spending plan due soon that will give new details on state revenue to guide final budget talks with lawmakers. Meanwhile, State Treasurer Bill Lockyer is mulling whether to put about $1 billion in GO bonds out to market ahead of the revised budget plan’s “blackout” period.

Lockyer spokesman Tom Dresslar said the sale, if it proceeds, would round out plans in the treasurer’s office to sell about $7 billion of GO debt in the first half of the year.

Lockyer’s office sold nearly $6 billion of tax-exempt and taxable GO debt in two sales this month marked by torrid demand, so analysts expect another $1 billion of the bonds in very near term would be eagerly snapped even with investors fully aware of the $20 billion budget gap facing the state and lengthy partisan wrangling in the legislature over balancing the state’s books all but certain.

“There seems to be adequate demand to absorb California paper,” said Dick Larkin, director of credit analysis at Herbert J. Sims Co Inc in Iselin, New Jersey.

That in part reflects the fat yields California, which has the lowest credit rating of any state, is paying on its GO debt — 1.17 percent for the 2012 maturity to 5.65 percent for the 2040 maturity of its $2.5 billion tax-exempt GOs sold earlier this month.

“Investors know there are some tough decisions that still need to be made … (but) people are looking for yield and this is one of the states that’s providing pretty good yield,” said David Blair, a credit analyst at PIMCO, which oversees $27 billion in municipal bonds.

WASHINGTON/SAN FRANCISCO (Reuters) – New battles are erupting over recently passed U.S. healthcare reforms, this time within the states, where leaders from both parties are clashing on whether to sue the U.S. government.

Only hours after President Barack Obama signed the healthcare plan into law this week, more than a dozen Republican attorneys general of U.S. states — and one Democrat — filed lawsuits saying it violated state and individual rights. Others began investigating possible lawsuits.

The reforms, which mandate that each citizen has health insurance, were pushed through by Democrats in the U.S. Congress after months of rancorous partisan fighting.

Wisconsin’s Democratic Governor Jim Doyle in a letter on Thursday rebuked the attorney general of his state, J. B. Van Hollen, for threatening to sue, calling a suit “a frivolous and political attempt to thwart the actions of Congress and the law of the country.”

Wisconsin requires the state’s governor or legislature to approve legal actions.

In a request for approval Van Hollen sent on Thursday, he said that the healthcare plan “upsets the proper balance of power between the federal government and the states.”

While some legal scholars think the suits will reach the Supreme Court, many agree that the supremacy clause of the Constitution, which puts the powers of the U.S. government above those of the states, will trump the states’ arguments.

SAN FRANCISCO (Reuters) – California’s economy faces yet more hardship this year marked by high unemployment as its labor market struggles to recover from steep job losses, the UCLA Anderson forecast unit said on Wednesday.

“Overall, the outlook for the balance of the year is for little to no growth,” the unit said in a report. “The economy will begin to pick up slightly in the beginning of 2011 and by the middle of 2011, begin to grow at more normal levels.”

Californians looking for work may still be searching throughout this year as total employment in the state will shrink by 0.7 percent before recovering next year and growing faster than the labor force at a rate of 2.3 percent.

“You’ll see slow improvement,” said Jerry Nickelsburg, a senior economist with the UCLA Anderson Forecast unit. “It’s still going to feel like we have not climbed up from the bottom that we hit in the recession.”

California’s jobless rate has peaked at 12.5 percent and will decline slowly and average 11.8 percent this year, the report said — adding that the rate will not fall below double digits until 2012.

California is not producing sufficient jobs for new entrants to the labor force which means elevated unemployment levels will persist once job layoffs cease, the report said.

‘FITS AND STARTS’

PALO ALTO, California, March 12 (Reuters) – JPMorgan Chase & Co <JPM.N> Chief Executive Jamie Dimon said on Friday that U.S. banks agree with 70 to 80 percent of proposed financial regulatory reform and he hopes a bill passes this year.

Dimon, sounding a conciliatory note as Democrats move to sculpt legislation after efforts at a bipartisan compromise collapsed, also insisted that he and other banks support consumer protection although they oppose a standalone agency.

“Banks recognize, almost all of them, that the regulatory system failed and that we need to simplify it and strengthen it,” he told an audience at Stanford University. “We agree with most of the proposals out there, I’d say 70 or 80 percent.”

But he insisted that the industry’s views should be taken into account in crafting the legislation as well.

“We may be right about the other 30 percent and we are entitled to be part of the conversation,” he said.

While “we agree on the need for better oversight and transparency” in the derivatives markets, JPMorgan believes that there is a place for some derivatives trades to take place outside of clearinghouses, Dimon said.

Dimon, who runs the No. 2 U.S. bank by assets and the one which best weathered the financial crisis, also said he sees some positives in the economy going forward and that he does not expect real estate problems to torpedo the recovery. (Additional reporting by Christian Plumb; Editing by Derek Caney)

SAN FRANCISCO (Reuters) – As California officials grapple with closing a $20 billion state budget gap, their local counterparts fear cuts in state financial aid — just as they slash spending to tackle budget woes of their own.

Budget axes are swinging across the most populous U.S. state, as the Great Recession has tightened its grip and triggered a revenue slump. Officials are not only trying to balance local spending plans, but also trying to ease concerns of rating agencies.

Credit rating agencies have been increasingly aggressive in probing local finances and are growing concerned about those in California, where sales and property taxes are expected to continue to slide, opening shortfalls and forcing even the most prudent of local governments to raid and potentially exhaust reserves.

“There are a lot of challenges ahead,” said Amy Doppelt, a Fitch Ratings managing director.

California’s local governments have used up the least painful of budget options and now must make difficult choices, almost surely centered on spending cuts, Doppelt added.

“For many municipalities in California we’re at a point where cuts will impact service delivery,” she said, noting they may not be enough to stave off warnings on credit ratings.

Downgrades may follow if reserves are drawn down sharply, raising the borrowing costs of local governments and adding to financial strain.

SAN FRANCISCO, Feb 17 (Reuters) – A small airplane crashed and killed three Tesla Motors employees in northern California on Wednesday, the electric car maker’s chief executive said.

A Cessna 310 struck an electrical tower after taking off on Wednesday morning, crashed into a residential neighborhood and killed all three people on board, according to local police. Tesla confirmed all had worked at the car company.

Tesla is withholding the employees’ names while it works with authorities to notify their families, Chief Executive Elon Musk said.

“Tesla is a small, tightly-knit company, and this is a tragic day for us,” Musk said.

Tesla, a six-year-old start-up, is one of the best-known companies in the emerging electric car industry, which is growing as more people seek “clean energy” alternatives in their daily lives.

Hollywood stars drive its stylish sports cars, and investors are eager to cash in on its Silicon Valley cachet.

Tesla filed for an initial public offering of up to $100 million last month. The company was co-founded by and is currently run by Musk, an entrepreneur who made his fortune as co-founder of online payments service provider PayPal.

SAN FRANCISCO, Jan 19 (Reuters) – Home sales in Southern California rose 16.4 percent in December from November and the median price also rose, bolstered by gains in high-end and mid-priced markets, MDA DataQuick said on Tuesday.

December marked only the second time since August 2007 that the median price increased from the year-earlier level, as a greater percentage of homes priced over $500,000 sold, MDA DataQuick, a real estate information service, said.

A total of 22,328 new and resale homes sold in Los Angeles, Orange, San Diego, Riverside, San Bernardino and Ventura counties last month, up 12.1 percent from a year earlier. The median home price was $289,000, up 1.4 percent from November and 4 percent from a year earlier, the MDA DataQuick report said.

December’s sales tally was the highest for the month since 2006, the report said.

“Several forces have pulled the region’s median sale price out of its nose-dive and given it lift,” John Walsh, MDA DataQuick’s president, said.

“We’ve seen the reselling of foreclosed homes fall off its peak in newer, lower-cost inland areas, while at the same time sales have started to pick up in some of the more established expensive areas. That simple shift in what’s selling, and what’s not selling, puts upward pressure on the median,” Walsh said.

Many markets in Southern California, the state’s most populous region, have been hit hard by foreclosures in recent years, dragging down home prices that had soared through much of the last decade.

SAN FRANCISCO/NEW YORK, Jan 14 (Reuters) – Investment firms paid placement agents more than $125 million in fees to win business at Calpers, including nearly $59 million to a firm led by a former board member of the pension fund, Calpers said on Thursday.

The biggest U.S. public pension fund, reporting the findings of its review of the role of the middlemen, said the data made the case for more regulation of placement agents.

Calpers got information from more than 600 placement agent disclosures. Agents’ activities at Calpers and other public pension funds have raised concerns about conflicts of interest potentially influencing investment decisions.

Placement agents act as middlemen between pension funds looking for places to put their money and private equity funds seeking investments. Agents typically take a percentage of the funds they raise as a fee.

Interest in these arrangements has increased as a result of a pay-to-play probe in New York that uncovered a web of connections between politically connected placement agents, investment firms and public retirement systems, notably ones in New Mexico and California.

With more than $200 billion in assets and a penchant for private equity investing, Calpers, the California Public Employees’ Retirement System, drew attention from authorities tracking placement agent activity across the nation.

A probe by New York Attorney General Andrew Cuomo has resulted in five guilty pleas. California Attorney General Jerry Brown and the U.S. Securities and Exchange Commission are also looking into the activities of placement agents.

SAN FRANCISCO (Reuters) – California’s main debt rating was cut on Wednesday by Standard & Poor’s, which said the government of the most populous U.S. state could nearly run out of cash in March — and another rating cut might follow.

The state government’s budget gap of nearly $20 billion over the next year and a half leaves it in a precarious situation, requiring tax increases or spending cuts, either of which may slow economic recovery, the agency said in a statement.

“If economic or revenue trends substantially falter, we could lower the state rating during the next six to 12 months,” S&P said after cutting the rating on $63.9 billion of California’s general obligation debt one notch to A- from A.

The new level is four notches above “junk” status, a level at which many investors refuse to buy debt.

“The big question is, is there any fear they will get downgraded out of investment grade (so) you may have to sell … that’s where I think it would get interesting or hairy,” said Eaton Vance portfolio manager Evan Rourke.

Bond prices did not move much, though, since many expected the downgrade, he said.

S&P’s downgrade was overdue because the state’s revenues have been so weak, said Dick Larkin, director of credit analysis at Herbert J. Sims Co Inc in Iselin, New Jersey. “Frankly I can’t understood why it took S&P so long,” he said. “They could have made that decision back in September.”