A day after European leaders agreed on a $900 billion rescue package, credit rating agency Moody’s cautioned investors that two of the euro zone’s hardest hit countries aren’t out of the woods just yet.

In the last month, Moody’s has said several times that debt-strapped Greece and Portugal are under review for future downgrades to their credit ratings. But in a report to investors Monday, the agency said those downgrades could occur within a month.

Greece’s downgrade would probably be more “substantial” than previously indicated, with cuts to the Baa range, or just above junk status, the report said.

“This will depend on developments in the Greek economy once the fog of financial panic, support-mobilisation and street demonstrations dissipates,” Moody’s wrote. “The country’s debt is large but not unbearable; however, the required adjustment is obviously very painful, and short-term economic prospects are clearly dismal.”

Portugal’s possible downgrade is less severe than that of Greece, as Moody’s said it is considering a one-notch cut to Aa3 from Aa2. Both ratings are so-called investment grade and considered relatively low risk.

Both reviews will be decided on within the next four weeks, Moody’s said.

Last month, Moody’s cut the rating on Greece’s government bonds down one notch to A3 — still an investment grade, although not an entirely high-quality, level. At the time, Moody’s cautioned that further downgrades were possible as it continues to review Greece’s economic outlook.

Credit ratings are used by investors to evaluate the risk of a default on government bonds. The yield on Greek bonds recently soared to record highs, as investors worried that the country could default on its debt. Another cut to Greece’s credit rating could fan the flames of investors’ fears, making it even more difficult for the country to sell bonds.

In its report on Monday, Moody’s said it also has a negative outlook for Ireland, which is struggling with debt but has greater economic and institutional strength than some of the beleaguered countries in Europe’s “southern periphery.”

On April 27, another credit rating agency, S&P slashed Greece’s rating to junk status and a day later, it cut Spain’s rating to a low-rung investment grade. To top of page

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Hewlett-Packard announced Wednesday that it would buy struggling smart phone maker Palm for $1.2 billion.

HP which is known more for its computers, notebooks and printers than its smart phones — will buy Palm (PALM) for $5.70 a share in cash, a 23% premium over Palm’s closing price of $4.64 on Wednesday. After hours, shares of Palm soared 28%, while shares of HP fell less than 1%.

“Palm’s innovative operating system provides an ideal platform to expand HP’s mobility strategy and create a unique HP experience spanning multiple mobile connected devices,” Todd Bradley, vice president of HP, said in a prepared statement.

On a conference call with analysts, Bradley said HP is looking to increase its market share in the rapidly growing smart phone market. He said the deal represents a “significant opportunity for profitable growth.”

“HP and Palm will make a powerful combination,” said Bradley. “Palm has a deep bench of engineering talent … but Palm is operating at a loss right now, so we have some work to do.”

Palm was the subject of takeover rumors for months, as the company has struggled to sell its Pre and Pixi smart phones. Taiwan’s HTC had been a rumored favorite to take over the company, because Palm’s patents could possibly have aided HTC in its legal dispute with Apple. But HTC reportedly said last week it was not interested in buying the company.

Palm debuted its Pre smart phone in January 2009 amid great expectations that it might pose the first real challenge to Apple’s iPhone. But a bizarre marketing campaign, an exclusive contract with lower-profile wireless carrier Sprint, few apps, and the surprising success of Google’s Android mobile platform overshadowed analysts’ praise for the Pre’s WebOS operating system.

Sales disappointed, even after the Pre and its smaller sister, the Pixi, came to No. 1 mobile carrier Verizon (VZ, Fortune 500) Wireless. In February, Palm Chief Executive Jon Rubinstein said that 2010 sales would be “well below” its forecasts, and investors responded by cutting the stock’s value by half in less than a month.

“We look forward to working with HP to continue to deliver industry-leading mobile experiences to our customers and business partners,” Rubinstein said Wednesday in a statement.

HP said it expects Rubinstein to remain with the company and for the deal to close by July.

Intriguing combination

Buying Palm presents some interesting questions for HP’s smart phone line. Most HP smart phones run Microsoft’s Windows Mobile operating system, and the company has committed to launching phones in the fall with the soon-to-be-released and much-hyped Windows Phone 7 OS.

Though the company wouldn’t say what its specific plans were in the smart phone market, Bradley said Palm will be a “business unit” of HP, and noted that “Microsoft is a very important partner and will continue to be so.”

In addition to smart phones, HP said it plans to “aggressively create a new platform” for Palm’s WebOS operating system. HP said it plans to use the operating system in non-smart phone devices, like tablets and perhaps television sets.

“This acquisition combines HP’s financial and global strength with Palm’s innovative OS and appears to be a winning combination,” said James Brehm, analyst with Frost & Sullivan.

Brehm, like most analysts, said he thinks Palm’s value is in its WebOS operating system, not in its physical smart phones. Though it’s unclear whether HP will choose to license out WebOS to other handset makers, HP will likely opt to sell Palm-branded WebOS phones side-by-side with Windows Phone 7 phones.

HP also noted that the company is interested in Palm’s patents. Palm had been making handheld devices for a decade before smart phones came to the market, and analysts say its patents could help a company that buys Palm to fight off any potential legal disputes with other smart phone makers.

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Royal Dutch Shell, the oil and gas group, has welcomed signs of an improving economic outlook as it reported a 60 per cent rise in underlying post-tax profits, exceeding analysts’ expectations.

Earnings on a current cost of supply basis, which strips out the effect of commodity price movements on inventories, were $4.9bn for the first quarter, up 49 per cent from $3.3bn in the equivalent period of 2009.

Stripping out one-off items gives a rise of 60 per cent to $4.8bn, which, as with BP’s first quarter results on Tuesday, was well ahead of the average of analysts’ expectations, which had been for a rise of about 30 per cent.

Peter Voser, the company’s chief executive, said he was very pleased with the results, “which were largely driven by our own actions”.

Shell cut 5,000 jobs last year, and expects to cut a further 2,000 in 2010-11.

However, the results have also benefited from a sharp rise in oil prices compared with the first quarter of 2009, and a more modest recovery in natural gas prices and refining margins compared to the fourth quarter of that year.

Mr Voser warned: “Although there are signs of an improving economic outlook, we are not relying on it, we are continuing with our focus on cash flow growth, underpinned by new project start-ups and lower costs.”

Earnings per share were up 48 per cent at 80 cents, and the dividend was left unchanged at 42 cents.

In spite of the improvement in Shell’s fortunes, its gearing is continuing to rise as it continues its heavy investment programme, one of the largest of any company in the world.

Net debt as a proportion of capital employed rose from 15.5 per cent at the end of 2009 to 17.1 per cent at the end of March 2010.

The recovery in group earnings was driven by the oil and gas exploration and production business, which reported profits of $4.415bn, twice as much as in the first quarter of 2009.

The chemicals business has also been recovering strongly, making $313m in the first quarter; nearly as much as its profit for the whole of 2009. Refining and selling oil products made $430m; less than half the $1.077bn reported for the equivalent period of 2009, but still an improvement on the lossmaking second half of that year.

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