Crude oil prices in New York surged above $40 per barrel for the first time in more than a month after the Department of Homeland Security signaled terrorists were scheming to disrupt U.S. elections. Light, sweet crude for August delivery closed at $40.33 on the New York Mercantile Exchange. A slimmer-than-expected rise in commercial oil inventories and the highest domestic gasoline demand in four weeks contributed to the rally.

HUD Challenges Fannie, Freddie

Fannie Mae and Freddie Mac fell short of their federal mission in 44 states to help low-income home buyers, the Department of Housing and Urban Development said. The government-chartered, shareholder-owned companies would have purchased 470,000 more single-family loans for low- and moderate-income families from 1999 until 2002 if they had matched market demand, HUD said. HUD, which is responsible for regulating the companies through its Office of Federal Housing Enterprise Oversight, wants the companies to increase the amount of funds they devote to low- and moderate-income home buyers to 57 percent from 50 percent by 2008. Freddie Mac spokesman Douglas Robinson and Fannie Mae spokeswoman Janice Daue said in response that their companies have met HUD goals for promoting affordable housing.

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Two national labor unions representing hospitality and textile workers agreed to merge, creating an organization with more than 800,000 active workers and retirees. About 1,500 delegates from the Union of Needletrades, Industrial and Textile Employees and the Hotel Employees and Restaurant Employees voted to combine the two labor groups at a meeting at a Chicago hotel.

Retailers reported generally weak sales for last month. Wal-Mart Stores said same-store sales rose 2.2 percent from a year ago, and the chain forecast that July same-store sales will be up 2 to 4 percent. Same-store sales rose 2.3 percent at Target and 6 percent at Costco. Gap sales were down 2 percent. The International Council of Shopping Centers-UBS tally of 71 retailers was up 2.9 percent.

The Labor Department said the number of new people signing up for jobless benefits dropped last week by a seasonally adjusted 39,000 to 310,000, the lowest level in more than three years. Economists had forecast that claims would decline to around 345,000. The number of people continuing to draw unemployment benefits fell by 85,000, to 2.87 million, for the week ending June 26, the most recent period for which this information is available. A year ago, the number stood at 3.7 million.

Consumer credit increased in May as Americans had more confidence to take on debt, the Federal Reserve said. Consumer credit increased at a seasonally adjusted annual rate of 4.9 percent in May, or by $8.19 billion, from the previous month. That pushed total consumer credit outstanding to a record $2.03 trillion in May.

Mortgage rates fell for a third straight week, reaching levels unseen since April, Freddie Mac said. Benchmark 30-year, fixed-rate mortgages fell to 6.01 percent, from 6.21 percent last week. Fifteen-year, fixed-rate mortgages dropped to 5.42 percent from 5.62 percent. One-year adjustable-rate mortgages fell to 4.05 percent from 4.19 percent.

Suzuki and Consumer Reports publisher Consumers Union settled an eight-year-old defamation suit over an article claiming the Samurai sport-utility vehicle could easily tip over. The parties agreed that neither the magazine's testing nor the suit would be used in any advertising or fundraising. Suzuki sought no money in the suit.

Ford and DaimlerChrysler will invest $100 million in a money-losing maker of automotive fuel cells in a move that could speed development of the clean technology. The companies will give Ballard Power Systems $58 million to develop new fuel cells and electronic drives, and will spend $42 million to gain control of a Ballard company that designs hydrogen delivery systems.

INTERNATIONAL

Philip Morris International and the European Union agreed to allow the cigarette maker to pay $1 billion, the largest financial settlement ever extracted by the E.U., to fight smuggling and counterfeits. Both sides lose hundreds of millions annually in lost taxes and sales, sources familiar with the matter said. A cooperation agreement is to be signed today, a source said. The E.U. accused U.S. tobacco giants of complicity in cigarette smuggling by intentionally oversupplying neighboring countries.

Russia's banking sector troubles spread to one of the largest banks as clients rushed to retrieve their savings, only to wait in long lines and pay a 10 percent penalty. The troubles began in May when the Central Bank revoked Sodbiznesbank's license because it was allegedly laundering money.

Ryanair Holdings plans to stop checking baggage in a move that could cut the European low-cost airline's costs by as much as $185.4 million, or $9.26 per passenger, chief executive Michael O'Leary said. Passengers would be encouraged to buy any essentials that they can't bring on board at their destinations, he said.

Total's Nigerian subsidiary resumed oil and gas production in the African nation after an unprecedented six-day shutdown over fears of violence in simmering labor unrest. Elf Nigeria expected to return to full daily production of 235,000 barrels of oil and 187 million cubic feet of natural gas in 12 to 14 hours after reaching an accord with labor officials. Nigeria is the world's seventh-largest oil exporter and the fifth-biggest source of U.S. oil imports.

Marks & Spencer rejected a sweetened $16.7 billion takeover offer from retail entrepreneur Philip Green, but left the door open for discussion as it asked for more information from its suitor. The British retail chain rejected two earlier bids by Green, who said that his latest offer, which was 8 percent more than his second bid, was his "final proposal."

European Union regulators challenged nine leading French banks over suspicions that they collaborated to shut out competitors in the credit card market. The European Commission said the banks had a secret agreement to limit competition. The banks have three months to reply and request a hearing.

LOCAL BUSINESS

Team, a Washington-based television production and management company, has laid off 219 employees in Silver Spring, according to the Maryland Department of Labor, Licensing and Regulation. The company attributed the layoffs, which occurred last month, to the end of a contract to provide post-production services for Discovery Communications. A Team spokesperson declined to comment further. Discovery spokesman David Leavy said the company switched to another vendor.

Independence Air was sued for trademark infringement less than one month after beginning service. At issue is the airline's use of "Ijet," which the Dulles-based discount carrier uses to describe its fleet of planes. Ijet Travel Risk Management of Annapolis said the name is confusing its customers and threatening its image. Former National Security Agency employees founded Ijet in 1997 to provide travel risk and security information to airlines, travel agents and individuals. An airline spokesman contends its use of the term does not represent a challenge to any services provided by Ijet Travel.

Compiled from reports by the Associated Press, Bloomberg News, Dow Jones News Service and Washington Post staff writers.

Indian Finance Minister Palaniappan Chidambaram arrives at the parliament house in New Delhi to present the annual budget for the year 2004-2005. Chidambaram said the government is raising the cap on foreign equity investment in telecommunications, aviation and insurance businesses, a step designed to show investors it is committed to market-opening policies.