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Stocks rallied Friday, with investors starting off a new year on the right foot, after an abysmal 2008, and the Dow closing above 9,000 for the first time since November.

The Dow Jones industrial average (INDU) rose 258 points, or 2.9%. It was the second-best start of the year on a point basis, according to Dow Jones. On a percentage basis, it was the sixth best start of the year.

The Standard & Poor’s 500 (SPX) index gained 3.2% and the Nasdaq composite (COMP) rose 3.5%.

"It’s the classic Santa Claus rally and people don’t want to miss the boat, although the volume is pretty light," said Joseph Saluzzi, co-head of equity trading at Themis Trading.

According to the Stock Trader’s Almanac, a combination of the last five trading days of the previous year and the first two of the next have yielded an average return of 1.5% for the S&P 500 since 1950. The S&P is up 7.3% as of Friday’s close.

"It’s a nice start to the year, but we’re not going to get too excited about it until we see a sustained advance on higher volume," said Matt King, chief investment officer at Bell Investment Advisors.

Saluzzi, King and other analysts are cautiously optimistic that Wall Street will recover some in 2009. However, the extent of any market recovery will depend on a variety of factors, including what kind of economic stimulus package the new Congress approves - and the depth of the recession.

Saluzzi said that investors need to be careful to not assume that the trend is now going to be up for most of 2009, as there is no reason why stocks couldn’t rally for a bit and then retreat, making new bear market lows.

Wednesday brought a positive end to one of the worst years on record. The Dow lost 33.8% in the year, the third worst in its history, following a drop of 52.7% in 1931.

The S&P declined nearly 38.5% - its worst yearly performance since an earlier version of the broad stock index lost 47% in 1931. The earlier incarnation had 90 U.S. stocks in it.

For the Nasdaq, 2008’s loss of 40.5% is the tech-fueled index’s worst ever, going back to its inception in 1971.

All financial markets were closed Thursday for New Year’s Day.

In the week ended Wed. Dec. 31, investors pulled roughly $1.2 billion out of equity mutual funds, according to tracking firm Trim Tabs. In the previous week, investors pulled $15.5 billion out of funds.

Economy: The manufacturing sector continues to weaken, according to the latest reports faxless cash advance. The Institute for Supply Management’s manufacturing index fell to a 28-year low in December, declining more than what economists had been expecting.

Next week brings a slew of economic reports, covering retail sales, auto sales, factory orders and construction spending ahead of the big December employment report due Friday.

Company news: Time Warner Cable and Viacom (VIA.B) have reached a new programming deal that will keep 19 Viacom cable channels on TWC’s network. TWC is a unit of Time Warner, which also owns CNNMoney.com.

In other news, Bank of America (BAC, Fortune 500) has completed its acquisition of Merrill Lynch. Wells Fargo (WFC, Fortune 500) has completed its purchase of Wachovia.

A variety of oil services stocks rose in tune with the price of oil, including Halliburton (HAL, Fortune 500), ConocoPhilips (COP, Fortune 500) and Schlumberger (SLB).

General Motors (GM, Fortune 500) rallied on news that the government on Wednesday paid the first $4 billion in emergency loans to the troubled automaker. Additionally, on Friday it was reported that lender GMAC LLC had changed its pact with the company to give it more freedom in offering loans.

Market breadth was positive. On the New York Stock Exchange, winners topped losers five to one on volume of 1.04 billion shares. On the Nasdaq, advancers beat decliners nearly three to one on volume of almost 1.47 billion shares.

Bonds: Treasury prices tumbled, raising the corresponding yield on the benchmark 10-year note to 2.37% from 2.24% Wednesday. Treasury prices and yields move in opposite direction. Yields on the 2-year, 10-year and 30-year Treasurys all hit record lows last month.

Lending rates were mixed. The 3-month Libor rate slipped to a 4-1/2-year low of 1.41% Friday from 1.42% Wednesday, according to Dow Jones. Overnight Libor slipped to 0.12% from 0.14%. Libor is a key bank lending rate.

Other markets: In global trading, Asian and European markets ended higher.

The dollar gained versus the euro and yen.

U.S. light crude oil for February delivery rose $1.47, or 3.9%, to $46.15 a barrel on the New York Mercantile Exchange.

COMEX gold for February delivery fell $4.80 to settle at $880 an ounce.

Gasoline prices rose 0.8 cents to a national average of $1.626 a gallon, according to a survey of credit-card swipes released Friday by motorist group AAA.  

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The 2008 holiday sales season is one of the worst for retailers in decades, as consumers’ concerns about the economy and job losses crushed the typical year-end shopping exuberance.

‘I don’t see any reason for retailers to be rejoicing at all," said Britt Beemer, chairman and founder of America’s Research Group.

Among the early sales tallies, new estimates from MasterCard Inc.’s SpendingPulse Data service indicated that total store sales fell about 3% in November and December combined.

That would be significantly worse than the original forecast from the National Retail Federation (NRF), which anticipated a 2.2% gain for the period.

The NRF’s projection would still be the weakest holiday sales gain in six years. That is, if it makes it to that level - NRF spokesman Scott Krugman said Friday that "it is going to be very difficult to hit that number."

"It’s really three things that hammered retailers," he said. "There were fewer holiday shopping days versus last year. We had bad winter weather in the final week before Christmas."

The third thing that hurt retailers, according to Krugman, was deep discounting. Even though the big sales were designed to boost store traffic and sales, and "minimize the damage," he said that level of discounting will ultimately hurt merchants’ bottom line.

The trade group will release its final holiday sales number in mid-January. Beemer of America’s Research Group expects a 2.8% sales decline for the season.

The fourth-quarter shopping period is critical for merchants since it can account for as much as 50% of their annual profit and sales.

And since consumer spending also fuels two-thirds of economic activity, any signals of a severe pullback in discretionary buying also doesn’t bode well for the overall economy.

"A difficult economic environment combined with unfavorable weather during the last week of shopping made 2008 one of the most challenging holiday shopping seasons in decades," Michael McNamara, vice president of research and analysis for SpendingPulse, said in the report.

SpendingPulse’s estimates are based on aggregate sales activity in the MasterCard payments network, combined with estimates for all other payment options, including cash and check payday cash loans.

Based on those numbers, the firm said total clothing purchases in November and December dropped by as much as 21% over last year while purchases of electronics tumbled by 26% over last year.

"Sales above $1,000 have been a consistent drag on this sector throughout the season," McNamara said.

The report said luxury sales showed the largest year-over-year decline, down by more than 34% over last year.

Even online purchases, which had shown year-over-year sales growth since the advent of the Internet in the 1990s, took a hit this year as consumers curtailed their spending in all retail channels.

SpendingPulse numbers showed overall Web-based holiday sales fell 2.3% versus a year ago. Separately, a report last week from sales tracker ComScore said Web-based holiday shopping fell for the first time in seven years.

One retail analyst fears that although the holiday shopping season is winding down, the worst isn’t yet over for merchants .

"January [sales] will just collapse," said Richard Hastings, consumer strategist with Global Hunter Securities.

Hastings had forecast a 6% to 8% sales decline for the three months of November through January.

He said January has become an important sales month over the past few years because retailers look to clear leftover merchandise and redeem the gift cards given over the holiday season.

But not this year, according to Hastings. The NRF forecasted a 6% drop in holiday gift card sales as a shaky retail environment, accented by a rising number of bankruptcies, made consumers nervous about whether a merchant would still be around in 2009 to make good on the cards. .

What’s more, Hastings said there’s no enthusiasm to shop if you really don’t need anything.

"The layoffs will continue into 2009. People realize that and it’s making them nervous about spending money," he said.

All news is bad news in real estate right now. Have you recently bought a house anyway? Send your story and photos to realstories@cnnmoney.com and you could be featured in an upcoming article. 

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A proposed Internet filter dubbed the "Great Aussie Firewall" is promising to make Australia one of the strictest Internet regulators among democratic countries.

Consumers, civil rights activists, engineers, Internet providers and politicians from opposition parties are among the critics of a mandatory Internet filter that would block at least 1,300 websites prohibited by the government — mostly those said to involve child pornography, excessive violence, instructions in crime or drug use and advocacy of terrorism cash advance.

The list of prohibited sites, which the government isn’t making public, is arbitrary and not subject to legal scrutiny, critics said, leaving it to the government or lawmakers to pursue their own online agendas.

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Good news: Lenders are ramping up their attempts to help troubled home borrowers.

Now for the bad: Most of the mortgage fixes being deployed are destined to fail.

Hope Now, the coalition put together to fight foreclosures, boasts that it has helped 3 million families stay in their homes since the housing crisis began in July 2007.

But a recent report issued by the U.S. Comptroller of the Currency (OCC) found that 53% of borrowers who had their mortgages modified in the first half of 2008 were already at least two months delinquent again. The report covered 60% of the outstanding primary mortgages.

Meanwhile, foreclosures remain on the rise: More than a million homes have been repossessed since the start of the meltdown.

Michael Van Zalingen has witnessed the problem first hand as director of home ownership services for Neighborhood Housing Services of Chicago, a non-profit group that provides foreclosure-prevention counseling.

Lenders and servicers take two approaches to working out mortgage problems: repayment plans and mortgage modifications. Repayment plans allow borrowers some time to make up missed payments. Modifications actually rewrite the terms of loans by freezing or lowering interest rates, extending the life of the loan, or reducing the amount owed.

Mortgage modifications are meant to be more effective. The problem, Van Zalingen said, is that they too often fail to reduce a borrower’s monthly house payment.

The lenders often don’t change the interest rates but merely freeze them at a high, unaffordable level, and then add missed payments into the balance, which increases it, according to Van Zalingen.

He said that one-third of his 121 clients granted modifications between January 2007 and June 2008 wound up with housing payments equal to a whopping 50% or more of their gross incomes.

"The modifications did not put any breathing room into their budgets at all," he said.

Before the housing bubble began, underwriters generally wouldn’t approve mortgages that required monthly payments of more than 28% of a borrower’s gross income.

Modifications that include interest rate reductions that result in lower payments perform much better. A recent Credit Suisse study reported redefault rates of only 15% for this kind of modification.

Chris and Cherita Barnes got a mortgage modification from their servicer, Ocwen Financial Corp., in March 2008.

But they’re already behind again. The loan workout froze the 8.75% interest rate on their adjustable rate loan, but added their missed payments, interest and late fees back into the mortgage balance, raising it to $354,000 from $329,000.

The Barnes’ new monthly bill came to $3,167, up from $2,890. That was better than it would have been had their interest rate continued to reset higher but it still pushed their mortgage payments, including taxes and insurance, to about 53% of their income.

The couple, who both work and have three kids, are now trying to figure out what to do next payday loan.

The Barnes’ predicament is not unusual, according to James Jones, a foreclosure-prevention counselor with the East Side Organizing Project in Cleveland.

"I see quite a few of these [unmanageable modifications]," said Jones. "When we get offered them by lenders, we challenge them."

But many borrowers are terrified of losing their homes and, in that vulnerable state, will accept whatever lenders offer them — especially if they don’t have an experienced advocate helping them.

Van Zalingen said his counselors try to negotiate better workouts, but the modification offers are often presented on a take-it-or-leave-it basis, and many desperate homeowners take them.

Geoffrey Bagley is another borrower who received an unsustainable mortgage modification. After the monthly payment on his adjustable rate mortgage jumped to $2,400 from $1,300, he got a workout with the help of the National Community Reinvestment Coalition, a community advocacy group that offers mortgage-prevention counseling.

That workout may have pushed his payment down to $2,000, but it still represented more than 50% of the gross income he and his wife earn.

"That’s because the lender based the modification on the Bagley’s income with overtime," said Jesse Van Tol, a spokesman for the coalition. "But in a recession, that overtime often disappears."

Lately, the couple has lost hours at work and they started missing payments. They’re trying to apply for another, more affordable modification, but it looks like they’ll probably lose their Maryland home.

Modifications that don’t involve some kind of principal reduction or somehow lower payments substantially "just don’t work very well," said Mark Zandi, chief economist for Moody’s Economy.com. But, he added, many lenders have recently gotten much more aggressive when it comes to loan modifications.

The attitude among lenders seems to be evolving. In just the past couple of months, JPMorgan Chase (JPM, Fortune 500), Bank of America (BAC, Fortune 500) and Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) announced more comprehensive foreclosure-prevention programs.

According to Paul Koches, an executive vice president at Ocwen, it makes no sense to modify a loan if it results in an unaffordable payment. The mortgage will simply default again, resulting in even wider losses.

Ocwen is now considering reworking that Barnes’ loan.

"I got a call from Ocwen out of the blue," said Chris Barnes. "They now want to work with me to resolve my situation."

Have you bought a house recently? If so, send your story and photos to realstories@cnnmoney.com. You could be featured in an upcoming article. 

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Toyota Motor Corp forecast a first-ever annual operating loss, blaming a relentless sales slide and a crippling rise in the yen in what it said was an emergency unprecedented in its 70-year history.

Toyota, the world’s biggest automaker, had been expected to issue its second profit warning in less than seven weeks after domestic rival Honda Motor Co also cut its outlook again last week, but the downward revision was bigger than predicted.

“This is very, very, very bad,” said Koichi Ogawa, chief portfolio manager at Daiwa SB Investments. “There’s a chance they could fall into the red in the next business year as well.

“This is also not just a problem for Toyota. What is good for Toyota is good for the Japanese economy.”

Automakers around the world face their toughest business environment in recent memory, caught in a sharp reversal of demand as the financial crisis spreads, squeezing credit and consumer sentiment.

Toyota cut its group operating forecast to a loss of 150 billion yen ($1.7 billion) for the year to end-March, after shocking financial markets last month by slashing its group operating profit forecast by 1 trillion yen to 600 billion yen.

It made a record profit of 2 health insurance companies.27 trillion yen last year.

Analyst forecasts on Reuters Estimates ranged from a loss of 150 billion yen to a profit of 800 billion yen for figures not updated since conditions deteriorated in the past month.

Toyota now expects group net profit of 50 billion yen instead of 550 billion yen.

Toyota shares closed down 0.2 percent ahead of the announcement in a firmer Tokyo market. Its Frankfurt-listed shares fell 2.4 percent in light trade.

For a Graphic on Toyota earnings, click:

https://customers.reuters.com/d/graphics/JP_TYTFY1208.gif

BIG STEP BACK

Like the rest of the industry, Toyota has idled factories, slowed assembly lines and delayed manufacturing projects, such as the start of a Mississippi plant under construction to build the Prius hybrid model, and said it would continue those moves until the tide turned.

“We are facing an unprecedented emergency,” President Katsuaki Watanabe told a year-end news conference. “This is a crisis unlike the crises of the past.” 

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The plunging price of jet fuel has airline passengers wondering why fares haven’t plunged accordingly.

But even with lower fuel costs, the recession has put further pressure on hard-hit airlines, and that’s why analysts say they’re resistant to cut ticket prices or rescind fees for services that once came for free.

"When fuel prices started dropping, [airlines] were all dancing in the streets," said Tom Parsons, travel expert at BestFares.com, a fare comparison Web site. "But then in October, they got smacked by the worst recession we’ve ever seen."

"The airlines basically traded a fuel crisis for a global economic crisis," said Rick Seaney, Chief Executive of FareCompare.com.

Most airlines reeled this summer as jet fuel soared to $4.35 per gallon in July, which was nearly triple its price of $1.49 in January of 2007, according to Peter Beutel of energy risk management firm Cameron Hanover. Now the price is back down around $1.49, but many have yet to rescind fuel surcharges.

"Airlines were not able to keep up with the fuel price increases, so it is logical that they try to hold fares even with lower fuel prices," said Calyon Securities airline analyst Ray Neidl in an e-mail to CNNMoney.com. "Even with lower fuel prices, they are still not making money."

Overall domestic ticket prices rose 1.2% year-over-year through November, according to industry group the Air Transport Association. Other analysts agree that they rose slightly. But fuel prices in 2008 jumped 43%, and when you take discounts into account, many ticket prices went down, leaving the carriers with a lot of catching up to do.

Airlines eliminated their least fuel-efficient flights to save money, but given the economic slowdown, they’re still having a hard time filling seats. In recent months the industry has slashed capacity by 10%, according to analysts, but that’s been matched by a slowdown in passenger travel, which is most noticeable during the holidays. The ATA projects a 9% year-over-year decrease in the number of air travelers during the three weeks between Dec. 18 and Jan. 7.

"You’re seeing softness out there that they didn’t expect, and it’s strictly related to economic meltdown," said Seaney of FareCompare.com. "Starting in late October, we started seeing holiday sales, which I didn’t expect to see at all this year, because I expected planes to be packed after their drawdown on seats pay day loan lenders."

Seaney said discounts that have been "flooding the market since Halloween" brought down some fares by 30% to 40%. The discounts are "targeted" to specific flights and destinations, he said, unlike industrywide fare cuts.

"That’s the only way you’re going to see a fare decrease - through sales," said Parsons of BestFares.com, noting that the last-minute sales to fill planes gives passengers good reason to hold out for a deal, rather than buy their ticket months ahead of time. "Hold on to your cash and let them blink first."

The airlines’ capacity-cutting, which was intended to alleviate the pressure of high fuel prices, had a side-benefit of softening the unexpected blow of the recession, according to Neidl of Calyon Securities.

For this reason, Neidl said he is "cautiously optimistic" about the industry’s ability to achieve a profit in 2009. In an analyst note from Dec. 11, he projected that the industry will lose $4 billion in 2008 but will earn $5 billion in 2009.

"[Capacity cuts] combined with continuing lower fuel price expectations, should enable carriers to get through the economic downturn and slow winter season for a mid-year 2009 recovery," Neidl wrote.

This could also result in lower fares, said Carl Schwartz of Cheapflights.com.

"Many [airlines] are still locked into term fuel contracts based on 2008 prices [and] this is the number one reason they cannot bring air fares down," wrote Schwartz, in an e-mail to CNNMoney.com. "Once 2009 comes and new fuel contracts are negotiated, we will start to see some of the cost savings passed on to the traveler. We are already seeing it today."

Schwartz referred to the Wednesday announcements from British Airways and Virgin Atlantic Airways, which said they will reduce their surcharges to reflect reductions in the price of oil.

"This is the start of the fuel corrections," he said. 

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As the clock ticks for U.S. mall owner General Growth Properties Inc GGP.N to renegotiate loans, the possibility that it or other large landlords may seek bankruptcy protection is threatening to complicate turnarounds for retailers who also go bankrupt.

A sharp decline in consumer spending and an inability to access credit markets has hurt both mall owners and retailers this year — forcing many stores to close for good. Store closings have hurt rents for landlords, and many struggling retailers are renegotiating their leases as they try to stay afloat.

But if both landlords and their tenants are forced to seek bankruptcy protection at the same time, it may create a complex legal web that both would have to tread through before they can reorganize, industry experts said.

“This just complicates the entire process,” said Frank Conrad, a retired U.S. bankruptcy judge who is now a partner in the restructuring group at Weiser LLP in New York.

“There’s an interesting interplay between a landlord and a tenant when they file bankruptcy … It will be interesting to see who actually wins.”

At issue, the experts said, is a protection called the “automatic stay” that companies receive to protect them from creditors when they file for bankruptcy. While the automatic stay is meant to protect the company, some have found that it can also get in the way when two bankrupt entities have to negotiate.

“In this case, they both have protection from the automatic stay, so if one wished to take action against the other, they would have to seek relief from the automatic stay,” said Marcia Goldstein, chair of the Business, Finance and Restructuring group at New York bankruptcy law firm Weil, Gotshal & Manges.

That means retailers and landlords that are both bankrupt may have to seek approval from the courts overseeing both cases in order to complete certain transactions, Goldstein said no faxing pay day loans.

General Growth, a Chicago-based real estate investment trust that runs more than 200 malls throughout the United States, said last week it has refinanced or managed to pay down about $872 million in debt. But the company is still negotiating with lenders over another $900 million in loans that have left its fate hanging in the balance.

It said on Thursday it received an extension on the payment deadline until February 12.

The company said last month that if it cannot come to final agreements with its lenders, it may be forced to file for bankruptcy protection. It has hired law firm Sidley Austin as bankruptcy counsel.

This is occurring just as bankruptcy experts are predicting a wave of retailers may be forced to file for bankruptcy protection after weak holiday sales, joining dozens, like Circuit City, The Sharper Image and Linens ‘n Things, which have already filed this year.

The bankruptcy laws also uniquely affect the way retailers and landlords decide to reject, sell or continue with their leases in bankruptcy court.

“The strategic benefit of bankruptcy to a retailer is the ability to reject leases,” said William Henrich, vice chairman of turnaround firm Getzler Henrich.

While each situation is different, retailers are already under enormous pressure to decide within the first 120 days of a bankruptcy case which leases they want to keep, said David Carlson, a bankruptcy professor at Cardozo School of Law in New York. 

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Manufacturers are ending a bruising year with a new round of bad news and grim outlooks for 2009.

Industrial production fell 0.6 percent in November as the country’s output of cars, automotive goods, home electronics, appliances and furniture tumbled in the face of declining orders, the Federal Reserve reported Monday. Consumers and commercial buyers reduced their spending in the face of the worst economic slowdown in two decades. Industrial production had risen 1.5 percent in October, revised up from an initial increase of 1.3 percent.

The Fed’s manufacturing report did list some bright spots. The output of mines and electric and natural gas utilities increased despite slumping energy prices as drilling and extraction recovered from shutdowns after Hurricanes Gustav and Ike raked the Gulf Coast. And the output of transit equipment surged 40 percent in November after Boeing restarted factories that had been idle during a monthlong Machinists’ strike.

The disturbing message behind the data was that even a rebound from rare events such as hurricanes and labor strikes could not buoy the country’s overall industrial output for November, said Stephen Stanley, chief United States economist at RBS Greenwich.

"I think it’s an indication of extreme contraction in the manufacturing sector," he said guaranteed payday loans. "Right now, I think people are sitting on their hands."

Capacity utilization, the percentage of plants in use, fell to 75.4 percent from 76 percent in October.

The Empire State Manufacturing Survey, a closely watched gauge of production in New York state, slid to a record low in December as sales deteriorated, new orders and shipments continued to slump and the number of unfilled orders dropped to record lows.

Nearly half of the manufacturers interviewed for the monthly survey said that business conditions worsened in December and said they were scaling back their work forces.

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Bank of America said Thursday it plans to slash up to 35,000 jobs over the next three years as it absorbs Merrill Lynch and contends with the deepening recession.

The Charlotte, N.C.-based bank, which will be the nation’s largest financial services firm when the Merrill Lynch (MER, Fortune 500) deal closes in coming weeks, said it will announce a final job reduction plan in early 2009.

The cuts will come from both companies and will affect all lines of business. Bank of America had 247,000 employees, as of Sept. 30, while Merrill Lynch had 60,900 at the end of the third quarter.

While Bank of America had not announced any large-scale job cuts so far this year, Merrill Lynch eliminated about 3,300 employees since the fall of 2007, mainly in its global markets and investment banking division and in support areas.

"The reductions are designed to eliminate redundancies created as a result of the merger with Merrill Lynch and to reflect the current recessionary environment," Bank of America (BAC, Fortune 500) said in a statement.

Bank of America is likely to keep many of Merrill Lynch’s financial advisers, who numbered 16,850 at the end of September, said Scott Rothbort, president of Lakeview Asset Management, which owns Merrill Lynch and plans to hold onto its Bank of America shares after the merger. It’s one of the main reasons why the bank bought the nation’s largest brokerage firm.

"Most of the brokers are going to stay," Rothbort said.

Those in the companies’ capital markets divisions - the traders, analysts and sales representatives - won’t be as lucky, he predicted.

The announcement comes just a week after shareholders at both companies approved the deal. The merger ends the independence of Merrill, the storied Wall Street investment bank founded in 1914 direct payday loan lenders.

The deal valued Merrill at $50 billion when it was announced on Sept. 14, the day before Lehman Brothers declared bankruptcy. Bank of America shares have fallen 46% since then, putting the value on the merger at just under $20 billion.

Since the merger was announced, both Bank of America and Merrill Lynch have received funds under the Treasury’s Troubled Asset Relief Program (TARP) established as part of the $700 billion bailout of the financial services industry. Bank of America received $15 billion, while Merrill Lynch got $10 billion.

Responding to criticism that banks haven’t used the bailout money to lend, Bank of America is running advertisements detailing their commitment. The bank says in the past three months it has funded more than $50 billion in home loans, financing more than 250,000 homes.

"The tightening mortgage market should not squeeze out qualified homebuyers," the ad reads. "That’s why we’re putting our capital where our mouth is."

Bank of America joins a growing list of financial services companies slashing staff amid the continuing credit crunch and downturn in consumer spending. Citigroup (C, Fortune 500) said last month it would cut more than 50,000 jobs, while Morgan Stanley (MS, Fortune 500) said it would slash 10% of its institutional securities division and 9% of its money management business. In October, American Express (AXP, Fortune 500) announced it would shed 7,000 jobs and Goldman Sachs (GS, Fortune 500) said it would cut 3,260 positions.

The financial sector overall has lost 142,000 jobs over the past year, according to the Bureau of Labor Statistics. 

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Five states, including Ohio, are in danger of running out of funds they use to pay unemployment benefits, meaning they may have no choice but to increase taxes on employers, cut benefits for laid-off workers or borrow the cash.

This comes at a time when job cuts are accelerating and states are facing huge deficits going into next year.

States with unemployment funds that are running low are mostly larger ones that are tied closely with manufacturing.

Michigan, Indiana, Ohio, New York and South Carolina all have reserves of less than three months to cover benefits.

States aren’t allowed to stop paying unemployment insurance benefits to out-of-work employees so they must come up with money.

Indiana is planning to borrow $330 million from the federal government to cover unemployment claims, something it hasn’t done in 25 years. State lawmakers also may be forced to tax businesses to rebuild the fund.

Some businesses in Michigan will pay an extra $67.50 per employee next year to make up a $473 million deficit in the state’s unemployment benefits trust fund. The state has borrowed money to keep the fund afloat the past two fiscal years.

Ohio Gov. Ted Strickland is asking Congress to replenish the state’s fund so that Ohio isn’t forced to borrow money and potentially face high interest rates and tax increases on employers free car insurance quotes.

Unemployment benefits are funded through a tax paid by employers.

Nineteen states — from Arkansas to Wisconsin — are at risk of running out of funds in less than a year unless they’re replenished as required under federal law, according to a Monday report by the National Conference of State Legislatures. The U.S. Department of Labor suggests that states keep enough money to cover benefits for one year.

Some of those states have gotten into trouble because they opted to cut taxes years ago instead of building up their unemployment benefits trust funds, said Rick McHugh, unemployment coordinator with the National Employment Law Project, an advocacy group for the unemployed based in New York.

"It takes years, if not decades, to work yourself into this situation," he said.

Some states, though, simply can’t keep up with the growing demand for benefits, he said.

A government report released last week showed the proportion of workers receiving jobless benefits has matched a level last reached in September 1992. 

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