Merrill Lynch downgraded Credit Suisse (NYSE:CS) to Underpeform from Neutral, according to MarketWatch.

Deutsche Bank downgraded China Netcom (NYSE:CN) to Hold from Buy, according to Briefing.com. The news services also reports that Citigroup downgraded McDermott (NYSE:MDR) to Hold from Buy.

Citigroup (NYSE:C) was cut to Underperform from Neutral at Merrill Lynch, according to 24/7 Wall St. The financial website also reports that Goldman Sachs (NYSE:GS) was cut to Underperform from Buy at Merrill Lynch.

Douglas A. McIntyre

MOST NOTEWORTHY: BP Plc, Tenet Healthcare Franklin Resources were today's noteworthy upgrades:

• Lehman upgraded shares of BP Plc (NYSE:BP) to Equal Weight from Underweight on valuation and positive benefits from the company's TNK joint venture in Russia.
  
• Lehman also upgraded Tenet Healthcare (NYSE:THC) to Overweight from Equal Weight, citing increased confidence the company can meet guidance following the company's analyst day.
  
• Keefe Bruyette upgraded shares of Franklin Resources (NYSE:BEN) to Outperform from Market Perform as they believe flow trends have improved.

OTHER UPGRADES:

• Goldman added Allied Waste (NYSE:AW) to its Conviction Buy List.
  
• China Unicom (NYSE:CHU) and China Netcom (NYSE:CN) were raised to Hold from Sell at Deutsche Bank.
  
• UBS upgraded Ryland (NYSE:RYL) to Buy from Neutral.

As China increased the amount of money that banks need to keep in reserves as a way to reduce lending and curb inflation, the Shanghai Composite fell 7.7% to 3,073. The Hang Seng was down 4.2% to 23,382.

A number of stocks were off over 10%. Some of the shares in China's largest companies suffered significant losses. China Life (NYSE: LFC) was down 5.2% to 29.15 yuan. China Netcom (NYSE: CN) was off 8.9% to 20.95. China Petroleum (NYSE: SNP) was down 7.8% to 7.61.

Data from Reuters.

Douglas A. McIntyre is an editor at 247wallst.com and author of the Ten Stocks Under $10 letter.

MOST NOTEWORTHY: Hotels, Continental AG and VNUS Medical were today's noteworthy downgrades:

• Oppenheimer downgraded shares of Marriott International (NYSE: MAR), Intercontinental Hotels (NYSE: IHG) and Choice Hotels (NYSE: CHH) to Perform from Outperform to reflect recent weakness in the leisure segment and expectations for weakening transient business travel.
  
• Societe Generale downgraded shares of Continental AG (OTC: CTTAY) to Sell from Buy on valuation, as they recommend taking profits following the recent rally.
  
• Piper downgraded shares of VNUS Medical (NASDAQ: VNUS) to Neutral from Buy on valuation following the company's patent victory.

OTHER DOWNGRADES:

• Goldman removed China Netcom (NYSE: CN) from the Conviction Buy List.
  
• RBC Capital downgraded Crown Castle (NYSE: CCI) and American Tower (NYSE: AMT) to Sector Perform from Outperform.
  
• Trimble Navigation (NASDAQ: TRMB) was cut to Neutral from Overweight at JP Morgan.

MAJOR PAPERS:

• Chip suppliers for cellphones including Qualcomm Incorporated (NASDAQ: QCOM), Texas Instruments Incorporated (NYSE: TXN) and Nvidia Corporation (NASDAQ: NVDA) are moving aggressively to make products for Intel Corporation's (NASDAQ: INTC) new breed of pocket-size portable devices, called MIDs, the Wall Street Journal reported.

OTHER PAPERS:

• According to the UK Times, Barclays Plc (NYSE: BCS) and The Royal Bank of Scotland Group Plc (NYSE: RBS) were raided by the Office of Fair Trading as part of the investigation into price fixing loans to professional services firms.

WEB SITES:

• Almost three dozen of the largest U.S. companies may have to slash their dividends, since the dividends greatly exceed their cash flow, Bloomberg reported. Large companies in this situation include General Motors Corporation (NYSE: GM), Motorola Inc (NYSE: MOT), and The New York Times Company (NYSE: NYT).
• China Telecom Corporation Limited (NYSE: CHA) may announce today that it has bought the mobile phone assets of China Unicom Limited (NYSE: CHU) and its parent company for more than $14.4B, Bloomberg reported, citing the South China Morning Post. China Unicom could say that it is merging with China Netcom Group Corporation (NYSE: CN) as early as today, the newspaper added.

As China continues its massive economic expansion, the country is in a continuous state of flux. According to the New York Times, China has requested its six telecommunication firms to consolidate their assets, effectively paving the way for fixed-line operators to get into the mobile arena.

According to the same Times article, "the parent of China Telecom will buy a mobile phone network from the parent of China Unicom (NYSE: CHU), which in turn will merge with the company that controls the China Netcom Group (NYSE: CN) ... China will issue three third-generation wireless licenses after the overhaul is completed."

The big short-term loser of this directive appears to be China Mobile (NYSE: CHL). The stock was down about 7% Monday off the news. The firm's stronghold on the mobile telecom market in China is now effectively weakened as China Telecom and Netcom can gear up to compete against China Mobile.

Why should this interest investors? Again, according to the Times, China had almost 600 million mobile phone users at the end of April, exceeding the combined populations of the United States and Japan. In the world's largest mobile market in terms of users, the $100 billion market is poised to ramp up given that just over half of all Chinese own mobile phones and a lot less than that have Internet connections.

Zack Miller is the lead equity analyst for America Israel Investment Associates, LLC., the managing editor of IsraelNewsletter.com an d a former equity analyst for a leading multinational hedge fund.

In a reorganization of China's telecom industry, which will change the face of the wireless industry, the country plans to merge two of its largest mobile companies, China Netcom (NYSE: CN) and China Unicom (NYSE: CHU). The new firm will be issued on of the three high-speed wireless licenses that the government plans to grant.

China's two largest phone companies, China Mobile (NYSE: CHL) and China Telecom, will receive the other two contracts.

According to Reuters, the 3G development will "unleash billions of dollars in spending for network gearmakers." Those companies would include Nokia (NYSE: NOK), Nortel (NYSE: NT), Ericsson (NASDAQ: ERIC),and Motorola (NYSE: MOT).

The news may also be a benefit to handset makers as they rush to offer products for the new 3G networks. Apple (NASDAQ: AAPL) has still not found a home for the iPhone in China.

More competition among carriers will give it a greater chance to strike a good deal. A new market could also give some aid to Motorola's flagging handset sales and to rivals Samsung and Sony Ericsson.

Douglas A. McIntyre is an editor at 247wallst.com.

Most markets in Asia sold off sharply.

The Nikkei fell 4.5% to 12,992. Canon was down 5.2% to 4570 yen. Honda (NYSE:HMC) was down 5.8% to 3070. Toyota (NYSE:TM) was down 3.3% to 5560.

The Hang Seng dropped 3.1% to 23,585. China Netcom (NYSE:CN) fell 23.5 yuan. PetroChina (NYSE:PTR) fell 4.9% to 11.26.

The Shanghai Composite moved up 2.1% to 4,438.

Data from Reuters.

Douglas A. McIntyre is an editor at 247wallst.com.

The Nikkei index rose more than it has at any time in the last five years. It moved up 4.3% to 13,626. Sony (NYSE: SNE) rose 4% to 4820. Toppan Printing rose 10.1% to 1111. Toshiba rose 7.1% to 782.

The Hang Seng rose 3.7% to 24,022. China Netcom (NYSE: CN) rose 8.2% to 25. China Petroleum (NYSE: SNP) rose 5.1% to 9.09.

The Shanghai Composite was up 1.4% to 4,552.

Data from Reuters.

Asia markets fell sharply.

The Nikkei was off 5.7% to 12,573. Docomo (NYSE: DCM) was down 8.5% to 151,000 yen. Sony (NYSE: SNE) was down 6.5% to 5,110 yen. Toyota (NYSE: TM) was down 7.2% to 4,880 yen.

The Hang Seng dropped 8.7% to 21,578. China Life (NYSE: LFC) was off 16% to HK$27.60. China Netcom (NYSE: CN) was off 15% to HK$19.96. PetroChina (NYSE: PTR) was off 15% to HK$9.62.

The Shanghai Composite was off 7.2% to 4,560.

Data from Reuters.

MOST NOTEWORTHY: Penske Automotive, CarMax, Towerstream, Solera and Northstar were today's noteworthy initiations:

• Kevin Dann initiated shares of Penske Automotive Group Inc (NYSE: PAG) with a Buy rating and $25 target. The firm believes shares deserve a higher multiple given the company's reduced exposure to slower growing domestic brands combined with the increased penetration o luxury as a percentage of industry sales.
  
• CarMax Inc (NYSE: KMX) was also initiated at Kevin Dann with a Buy rating and $28 target, as they expect the multiple expansion to continue as confidence builds in the company's sales and expense strategy.
  
• Think Equities started shares of Towerstream Corporation (NASDAQ: TWER) with a Buy rating and $5 target and said the company is rapidly growing given robust demand fro high bandwidth services, market expansion, sales force growth, and higher ARPU services.
  
• Barrington believes Solera Holdings Inc (NYSE: SLH) is positioned to capture growth through technology adoption in claims processing by insurance companies, starting shares off with an Outperform rating and $27 target.
  
• Jefferies resumed coverage of Northstar Neuroscience Inc (NASDAQ: NSTR) with a Buy rating and $21 target, as they expect the company's Phase III EVEREST trial to yield positive positives, setting the stage for an FDA approval by Q109.

OTHER INITIATIONS:

• Friedman Billings started shares of IPG Photonics Corporation (NASDAQ: IPGP) with an Outperform rating and $28 target and added shares to its Top Picks List.
  
• The firm also resumed coverage of Rofin-Sinar Technologies Inc (NASDAQ: RSTI) with an Outperform rating and $92 target.
  
• ABN Amro started China Netcom Group Corporation (NYSE: CN) with a Hold rating and China Mobile Limited (NYSE: CHL) and China Unicom Limited (NYSE: CHU) with Buy ratings.
  
• UBS started RSC Holdings Inc (NYSE: RRR) with a Neutral rating.

MOST NOTEWORTHY: Banco Santander, Solera, FTI Consulting and Blue Coat Systems were today's noteworthy initiations:

• Societe Generale expects the Banco Santander's (NYSE: STD) strong organic growth in earnings to continue with the purchase of ABN Amro's (NYSE: ABN) assets in Brazil and Italy, starting shares off with a Buy rating. Shares were started at Merrill Lynch with a Neutral rating.
  
• William Blair initiated Solera Holdings (NYSE: SLH) with an Outperform rating, as they believe underlying trends for auto insurance claims are favorable.
  
• FTI Consulting (NYSE: FCN) was initiated at Deutsche Bank, as they believe the company is positioned to sustain double-digit growth, and with a Buy rating and $65 target and at Goldman with a Neutral rating and $62 target.
  
• Pacific Crest initiated Blue Coat Systems (NASDAQ: BCSI) with a Sector Perform rating on valuation and estimates fair value at $50/share.

OTHER INITIATIONS:

• BNP Paribas started shares of China Netcom (NYSE: CN) and China Telecom (NYSE: CHA) with Buy ratings and China Mobile Limited (NYSE: CHL) with a Hold rating.
  
• Cosan Limited (NYSE: CZZ) was initiated with a Neutral rating at Goldman.
  
• Methanex Corporation (NASDAQ: MEOH) was started at HSBC with an Overweight rating.

MOST NOTEWORTHY: Countrywide Financial (CFC), Toll Brothers (TOL), United Parcel Service (UPS) and OSI Pharma (OSIP) were today's noteworthy upgrades:

• Both Friedman Billings and Wachovia upgraded Countrywide Financial (NYSE: CFC) to Market Perform from Underperform following the $2 billion investment by the Bank of America (BAC).

• JMP Securities upgraded Toll Brothers (NYSE: TOL) to Market Perform from Underperform and believes the worst news on housing is reflected and that fears over a disappearing jumbo loan market are overblown.

• Matrix upgraded United Parcel Service (NYSE: UPS) to Buy from Hold to reflect strong demand from overseas shipping.

• Wachovia raised OSI Pharma (NASDAQ: OSIP) to Market Perform from Underperform on valuation...

OTHER UPGRADES:

• UBS raised Joy Global (NASDAQ: JOYG) to Buy from Neutral.

• China Netcom (NYSE: CN) was raised to Neutral from Sell at UBS.

• Roth Capital upgraded IMAX Corp (NASDAQ: IMAX) to Buy from Hold.

• WedBush raised InfoSpace (NASDAQ: INSP) to Buy from Hold.

• Tyson Foods (NYSE: TSN) was upgraded to Hold from Sell.

Analyst summaries provided by TheFlyOnTheWall.com (subscription required).