NEW YORK — Wall Street bounced back Wednesday from its sharp decline a day earlier, boosted by takeover activity ahead of second-quarter earnings reports.

Investors shaken by profit warnings earlier in the week appeared to be cautiously optimistic as they awaited quarterly earnings reports.

Meanwhile, new merger and acquisition activity encouraged buying. Steelmaker Gerdau Ameristeel Corp. said late Tuesday it was buying Chaparral Steel Co. for $4.22 billion, while speculation mounted Wednesday that Colgate-Palmolive Co. was interested in buying all or part of Unilever.

Giving the stock market an extra lift, Fed officials alleviated some jitters about problems involving subprime lending. Philadelphia Federal Reserve President Charles Plosser said the financial system is well-equipped to handle home loan risks, and Fed Governor Kevin Warsh said that while subprime exposure troubles may not be over, they are not spilling into the broader economy.

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Liz Claiborne to slash jobs

NEW YORK — Liz Claiborne Inc. plans to cut 600 to 800 jobs and is considering whether to sell 16 brands in an effort to cut costs and focus on profitable fashion lines.

Under the restructuring plan announced Wednesday, the apparel designer and marketer expects to save $100 million in 2008 and an additional $90 million over the following two years.

It plans to cut 600 to 800 jobs, or 7 percent to 9 percent of its non-retail based global work force, including cutting senior positions.

The brands under review account for about $800 million of its projected annual sales of $5 billion.

The company will separate its brands into two operating segments.

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Offshore growth powers Yum Brands

LOUISVILLE, Ky. — Fast-food giant Yum Brands Inc. said Wednesday that its second-quarter profit rose by 12 percent, beating Wall Street projections, amid ongoing growth in its international business that offset an essentially flat U.S. performance.

The operator of KFC, Taco Bell and Pizza Hut reported 7 percent same-store sales growth in mainland China and a 5 percent upswing in its international division.

For the three months ended June 16, Yum posted net income of $214 million, or 39 cents per share, compared to $192 million, or 34 cents a share, in the year-ago period.

Revenue grew 9 percent to $2.37 billion from nearly $2.18 billion a year earlier.

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Genentech earnings soar

NEW YORK — Genentech Inc., one of the world's largest biotechnology companies, continued a positive earnings streak, posting a 41 percent boost in second-quarter profit Wednesday on sales of its blockbuster cancer drugs.

The company earned $747 million, or 70 cents per share, compared with profit of $531 million, or 49 cents per share, during the year-ago period.

Revenue rose to $3 billion from $2.2 billion.

The results topped Wall Street expectations. Excluding 6 cents per share for stock-based compensation costs and 2 cents per share related to the redemption of Genentech stock by Roche Holdings Inc. and litigation costs, Genentech earned 78 cents per share.

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Budget deficit will shrink

WASHINGTON — The nation's budget deficit will drop to $205 billion in the fiscal year that ends in September, even as a worsening deficit picture for future years makes it more difficult for President Bush to meet his pledge of a surplus by 2012.

The deficits figures released Wednesday by the White House show red ink less than half of what it was at its peak in 2004. It's also a gain over the $244 billion that Bush predicted in February, but not as great an improvement as anticipated by other forecasters.

Nonetheless, the deficit picture remains worse than it was when Bush took office six years ago. Then, both White House and congressional forecasters projected cumulative surpluses of $5.6 trillion over the subsequent decade.

And the new figures Wednesday show that, instead of continuing to fall, the deficit next year will be on the rise again, to $258 billion.

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Dollar trades mixed

NEW YORK — The dollar traded mixed Wednesday after hitting a record low against the euro overnight on concerns about the struggling U.S. housing market.

The 13-nation euro traded as high as $1.3784 before settling back to $1.3761 in late New York trading, up from $1.3729 late Tuesday.

The British pound hit a fresh 26-year high against the dollar, rising to $2.0362 — its highest level since June 1981 — before retreating to $2.0334. The pound traded at $2.0267 late Tuesday.

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Gas prices surge overnight

NEW YORK — Gas prices jumped 2.5 cents at the pump overnight as the closure of two refineries in the Midwest continued to curb gasoline supplies in the Midwest and Plains states.

Oil and gasoline futures, meanwhile, settled lower after a government inventory report presented a mixed picture of the domestic refining industry.

The closure of a refinery in Coffeyville, Kan., due to flooding and the shutdown of a huge piece of oil processing equipment at a BP PLC refinery in Whiting, Ind., have pushed gas prices in the center of the country higher in recent days, in turn forcing the national average up, analysts say.

Retail prices jumped another 2.5 cents overnight to a national average of $3 a gallon, according to AAA and the Oil Price Information Service.

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Sallie Mae buyout threatened

NEW YORK — A planned $25 billion buyout of the nation's largest student loan lender, Sallie Mae, could fail because of legislation pending in Congress, the potential buyers have said.

SLM Corp., more commonly know as Sallie Mae, said in a statement Wednesday that it disagreed with the investment group's assertion and it would proceed with the deal as swiftly as possible to protect its investors.

The group, headed by J.C. Flowers and includes Bank of America Corp. and JPMorgan Chase & Co., informed Sallie Mae that legislative proposals pending before Congress "could result in a failure of the conditions to the closing of the merger to be satisfied."

The legislation before the House Wednesday would cut in half the interest rate on government-backed student loans — a move that would be paid for by a roughly $19 billion reduction in federal subsidies to student lenders like Sallie Mae.

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China closes in on Germany

BEIJING — China's sizzling economy grew even faster in 2006 than previously reported, bringing it closer to overtaking Germany as the world's third-biggest, and its export-fueled foreign reserves have risen to a new high of $1.33 trillion, according to official figures released Wednesday.

The announcements reflect China's stunning success but could fuel fears of overheating and prompt Beijing to boost interest rates or tighten economic controls to cool the boom.

The National Bureau of Statistics raised its estimate of China's 2006 growth rate from 10.7 percent to 11.1 percent. It nudged up its estimate of total output to 21.1 trillion yuan ($2.705 trillion), bringing China closer to overtaking Germany as the world's third-largest economy after the United States and Japan.

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Wal-Mart to prosecute young thieves

UNDATED — Wal-Mart is recommending its stores prosecute shoplifters at a younger age, tightening guidelines for store managers as it seeks to put a cap on rising theft that has eroded its profit.

Wal-Mart Stores Inc. said Wednesday it issued new guidelines to its U.S. stores this week lowering the age at which it recommends they prosecute first-time shoplifters to 16 from 18.

The change comes two months after Wal-Mart said an increase in shoplifting, employee theft and other inventory loss was among factors hurting profitability in the first quarter. A year ago, Wal-Mart relaxed its policy by recommending stores only prosecute first-time offenders when the items stolen are worth $25 or more, a guideline that remains in force.

Wal-Mart spokesman John Simley said the latest guidelines were not a response to the company's May statement of concern about theft.

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Dow, S&P and Nasdaq rise

According to preliminary calculations, the Dow rose 76.17, or 0.56 percent, to 13,577.87.

The Standard & Poor's 500 index gained 8.64, or 0.57 percent, to 1,518.76, and the Nasdaq composite index advanced 12.63, or 0.48 percent, to 2,651.79.

Light, sweet crude for August delivery on the New York Mercantile Exchange slipped 25 cents to settle at $72.56 a barrel, while gasoline for August fell 6.31 cents to settle at $2.3063 a gallon.

August Brent crude fell 96 cents to settle at $75.44 a barrel on the ICE Futures exchange in London.