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Cisco sees "unusual uncertainty," sales disappoint. The results from the world's biggest network equipment maker disappointed investors who had thought that growing Internet traffic would have spurred stronger sales of routers and switches, even amid concerns about the economic recovery. "We are seeing a large number of mixed signals in both the market and from our customers' expectations, and we think the words 'unusual uncertainty' are an accurate description of what is occurring," Chambers said on a conference call on Wednesday. "The Federal Reserve's comments yesterday that the pace and output of the recovery has slowed in recent months, and that the recovery is likely to be more modest in the near term than had been anticipated just a few months ago, are comments that most of our large customers that I have talked with recently would agree with." Cisco forecast its revenue this quarter would grow 18 percent to 20 percent from a year earlier, while the average analyst estimate had been for 21 percent growth to $10.95 billion. Revenue in its fiscal fourth quarter ended July 31 rose 27 percent from a year earlier to $10.8 billion, Cisco said. That was also below the average analyst forecast of $10.9 billion, according to Thomson Reuters I/B/E/S. Cisco is one of the technology sector's prime bellwethers due to its broad, global operations. Since Cisco's latest results are for the full month of July, instead of June for many of its peers, they are also seen as an early indicator of industry trends. While its quarterly earnings per share beat expectations by a penny at 43 cents a share, investors have been used to a bigger beat from the company, of 3 cents to 5 cents in recent quarters. Another concern was a decline in gross margin to 64.1 percent from 65.2 percent in the previous quarter. The company said the global shortage in components also affected margins, although conditions were improving. Some analysts have said profitability could continue to decline as Cisco enters more competitive markets like consumer electronics and data center servers. In addition to selling network equipment, the company has been expanding into new areas such as data center servers, and acquiring companies like Norwegian videoconference company Tandberg, to bolster its product line and maintain double-digit sales growth. Cisco also faces tough competition from Juniper Networks Inc, Alcatel-Lucent SA and Huawei Technologies Co Ltd. The company forecast gross margins in the current quarter of around 64 percent. The stock fell 8 percent to $21.82 in extended trading. Cisco shares have fallen nearly 9 percent so far this year, due to worries that slower growth in Europe and China could hurt a nascent recovery in technology spending. (Reporting by Ritsuko Ando; Editing by Richard Chang )

Markets close lower for year, Cisco down late. All three major indexes posted their worst percentage drop since July 16 following the Federal Reserve's bleaker assessment of the economy on Tuesday. The U.S. central bank said it would take steps to hold down borrowing costs. However, some traders questioned how effective these measures would be. "Adding liquidity to the system by saying they would buy Treasuries isn't helping the average man on the street," said Robert Pavlik, chief market strategist at Banyan Partners LLC in New York. "This isn't going to be creating jobs or helping the housing market." There were more than five times as many declining stocks as advancing ones on the New York Stock Exchange while on the Nasdaq, more than eight stocks fell for each that rose. Only five of the S&P's 500 stocks ended higher. All 10 major S&P sectors were down more than 1 percent, led lower by the industrials .GSPI, down 3.9 percent, and the financials .GSPF, off 3.6 percent. Diversified manufacturer 3M Co ( MMM.N ) was the biggest drag on the Dow, off 3.5 percent. A report on soft factory data in China added to the worries about a global slowdown, pressuring equities and commodities and lifting the prices of Treasuries. The two-year note's yield fell to an all-time low overnight. "Some market participants had hoped Asia would bail us out of our dilemma," said Len Blum, managing partner at Westwood Capital LLC in New York. "If China isn't growing fast, then we can't hitch our wagon to that star, which will hurt commodities and stocks while people flee to the dollar." The Dow Jones industrial average .DJI was down 265.42 points, or 2.49 percent, at 10,378.83. The Standard & Poor's 500 Index .SPX was down 31.59 points, or 2.82 percent, at 1,089.47. The Nasdaq Composite Index .IXIC was down 68.54 points, or 3.01 percent, at 2,208.63. The Nasdaq was down 2.7 percent for the year, while the S&P 500 was down 2.3 percent and the Dow was down 0.5 percent. The CBOE Volatility Index .VIX surged 13 percent, suggesting investors see further choppiness in the market. Among the Nasdaq's top decliners was Cisco Systems Inc ( CSCO.O ), which fell 2 percent to $23.73 during the session, then slumped a further 7.9 percent to $21.85 in extended trading after the company reported weaker-than-expected revenues. John Chambers, the chief executive, said that while supply chain constraints were improving, challenges remained. He also affirmed the company's long-term annual revenue growth target of 12 percent to 17 percent. Pressured by Cisco, the stock market selloff was expected to continue into Thursday's session. S&P 500 futures were down 0.8 percent and Nasdaq futures fell 1.2 percent. Semiconductor company Cree Inc ( CREE.O ) fell 13 percent to $59.81 a day after it gave a revenue outlook for the current quarter below analyst estimates. Macy's Inc ( M.N ) was a rare bit of positive news, rising 5.9 percent to $20.52 after it reported second-quarter earnings that beat expectations and forecast strong full-year same-store sales growth. Dow component Walt Disney Co ( DIS.N ) fell 3 percent to $34.22 despite reporting better-than-expected third-quarter earnings and revenue late on Tuesday. After briefly piercing its July upward trendline on Tuesday, the S&P 500 traded below it during Wednesday's session and opened the door to testing the July 30 low of 1,088, which provided support. A breach of that 1,088 level takes near-term support down to 1,057, the July 20 low and roughly 3 percent below the benchmark's current level. Volume was light, with about 8.52 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below last year's estimated daily average of 9.65 billion. (Reporting by Ryan Vlastelica; Additional reporting by Rodrigo Campos ; Editing by Kenneth Barry)

Job openings flat at 2.9 million in June. The Labor Department said there were 2.9 million job openings in June, almost identical to May's tally. With some 14.6 million people unemployed in June, the figures indicate there were five job seekers for every available position. The sluggish pace of job growth remains one of the biggest threats to the fragile economic recovery. As long as unemployment remains high, demand will be tepid which means companies have little need to hire more workers. In the year before the December 2007 start of the recession, job openings were typically around 4.5 million, which shows just how far job creation has fallen. Hires totaled 4.3 million in June, down from 4.6 million in the previous month. Separations, which includes people who quit, retired, or were laid off, rose to 4.4 million from 4.2 million a month earlier. The hires rate, a measure of how many people were added to payrolls in the month, dipped to 3.3 percent in June from 3.5 percent, while the separations rate edged up to 3.3 percent from 3.2 percent.

Panel urges big thinking in "flash crash" response. A regulatory advisory committee is still probing exactly what went wrong during the May 6 crash, which sent the stock market plunging 700 points within minutes and is weighing adjustments that aim to prevent a repeat. The committee -- a joint effort of the Securities and Exchange Commission and the Commodity Futures Trading Commission -- brought together money managers, brokers and academics at a hearing on Wednesday to get their views on what happened and how to fix it. "We don't have a rule here that was broken that caused this," said CFTC Commissioner Michael Dunn after the hearing, urging the advisory panel to recommend "rules of the road" to prevent a repeat performance. "One thing really struck me today ... was hearing from these panel members that what happened on May 6 can happen again. In fact they expect it to happen again," So far, the SEC has taken a targeted approach to reforms with stock-trading pauses called circuit breakers and better auditing of all buy and sell orders. SEC Chairman Mary Schapiro said a fast fix that calmed the market was needed. She also listed some technical areas that may yet need changes, including the use of market orders, "stub quotes," price collars, and self-help rules used by the dozen U.S. exchanges where today's high-speed trading is done. The agency is determining whether to deter or regulate stub quotes, in which market makers quote well off the public price of stocks, and placing collars on market orders to keep them relatively close to a reference price. Chris Nagy, TD Ameritrade Holding Corp's managing director of order routing, said collars would hurt his brokers' individual clients. "What we need to look at is addressing the structure of the markets more," he said. "There was a complete evaporation of liquidity in the marketplace" during the crash. Others at the CFTC-hosted meeting said fragmented markets and the explosion of high-frequency algorithmic trading may warrant a more sweeping revamp of the marketplace. "We believe a more fundamental consideration is warranted, and this is whether the current market structure has become too focused on the speed of execution over all other factors," said Kevin Cronin, director of equity trading at money manager Invesco Ltd. "At some point, we believe that speed and price discovery have an inverse relationship, and this dynamic needs to be well-understood." SEPTEMBER FOLLOW-UP REPORT In early September, regulatory staff will issue a "follow-up report" on the crash, CFTC Chairman Gary Gensler said. The advisory committee will consider the report and make recommendations, perhaps in October, he said. Regulators and exchanges have thus far pointed to a rare alignment of events on May 6 in the high-speed, electronic marketplace in which stocks, futures and exchange-traded funds traded simultaneously on dozens of venues at record volumes. Disparate exchange rules, a lack of liquidity and market jitters over Europe's escalating debt crisis are believed to have played a role in the flash crash. Schapiro said the process of breaking thousands of erroneous trades after the crash was "neither clear nor transparent" and has created uncertainty for investors about how such trades would be handled in the future. The SEC has proposed rules for trade-breaking. Although exchanges canceled thousands of trades after markets closed, the crash brought steep losses to some. Goldman Sachs Group Inc this week cited the flash crash as a factor in why it had 10 days of trading losses in the second quarter. Invesco's Cronin told the committee that the prospect of trade breaking likely exacerbated the plunge that afternoon. Charles Rotblut, vice president of the American Association of Individual Investors, said one of the crash's biggest impacts was on investor confidence. Trading volumes have dropped precipitously from the record highs reached in May, and worries have grown that whipsawed investors, particularly individuals, have retreated from the sharp volatility. David Ruder, joint committee member and a former SEC chairman, said it seems that these type of events will continue. "I just don't know what we can do to avoid this kind of computer-generated loss of confidence." (Reporting by Jonathan Spicer and Roberta Rampton; Editing by Derek Caney , Maureen Bavdek, Gunna Dickson and Steve Orlofsky)

U.S. review of Toyota recorders finds no new defects. Findings presented to Congress on the agency's review of selected Toyota electronic data recorders are preliminary and could end up bolstering the automaker's contention that mechanical and equipment problems behind huge recalls and possible driver error are to blame, not vehicle electronics. The National Highway Traffic Safety Administration (NHTSA) said it drew no conclusions from the examination of 58 recorders as part of its multi-layered investigation to see if electronic throttles may have a glitches that in rare cases can cause unexpected surges or even wild acceleration. In more than half of the "black boxes" examined, there was no indication that drivers even applied brakes and in other cases partial braking was noted. "Reviewing event data recorders is one small part" of the government's "effort to get to the bottom of unintended acceleration in Toyota vehicles," said Transportation Department spokeswoman Olivia Alair. "At this early stage period in the investigation, engineers have not identified any new safety defects," Alair said. Toyota, which recalled more than 8 million cars worldwide this year and last over unintended acceleration related to sticking gas pedals and loose floormats that can jam the accelerator, has said its throttle systems are sound. Toyota had no immediate comment on the findings. Congressional committees are conducting parallel investigations and Toyota faces lawsuits, including an amended federal case in California that alleges the Japanese automaker ignored evidence of acceleration problems for most of the past decade and failed to remedy the problem. Toyota was fined $16 million this year for failing to disclose the so-called "sticky pedal" problem to regulators. In the data recorder examination, NHTSA examined recorders from vehicles involved in crashes whose drivers had alleged unintended acceleration or raised the possibility of unwanted acceleration. Of the 58 recorders studied, 35 showed no braking -- which could indicate driver error. Others revealed partial braking and there was no measurable data in five cases. Since 2000, electronic throttle control was cited in complaints associated with 52 Toyota crashes that reportedly killed 62 people, government auto safety records show. Additional findings from the government-led investigation of Toyota, that also includes U.S. space agency experts, are not due until later this year. A comprehensive report involving an independent scientific panel is not expected until 2011. (Reporting by John Crawley; editing by Andre Grenon and Carol Bishopric.)

Japan debt safer than U.S. debt: China economist. Investing in Japanese bonds is safer because so much of the country's debt is held domestically, and the yen is on course to strengthen further, said Zhang Ming, an economist with the Chinese Academy of Social Sciences, a top government think-tank. "Even though the difference in yields is big, China has been abandoning U.S. debt and picking up Japanese debt. This definitely shows that it believes the risks of U.S. debt far exceed those of Japanese debt," Zhang said in a report issued by his research institute. The report was issued a day after the Federal Reserve said it would buy more U.S. government debt in a form of mild quantitative easing to counter economic weakness. Top Chinese leaders have previously registered their concerns about lax U.S. fiscal policies eroding the value of their investments in the United States. A source familiar with China's strategy for investing its foreign exchange reserves said the Fed's decision might, in fact, be well-received in Beijing. "The purpose for the Fed in buying Treasuries is to support U.S. economic growth, which is positive," he said. Chinese has already bought more than a net 1.7 trillion yen ($19.9 billion) of Japanese debt in 2010, far surpassing its record of 255.7 billion yen in 2005. At the same time, China has pared back its vast holdings of U.S. debt from $894.8 billion at the start of this year to $867.7 billion as of May, the most recent data shows. The two-year U.S. Treasury note yield fell to a record low of 0.493 percent on Wednesday. Japan's two-year notes are yielding around 0.135 percent, but all eyes are on the yen, which hit a 15-year high against the ailing dollar. But Ben Simpfenforder, an economist with Royal Bank of Scotland in Hong Kong, warned against reading too much into China's shift toward Japanese debt. "China's foreign exchange policy is constantly evolving in response to local and external conditions, and today's trends may reverse tomorrow," he said in a note this week. BETTER RETURNS IN JAPAN China has long said that it wants to diversify its foreign exchange reserves, the biggest in the world at $2.45 trillion. Analysts estimate that about two-thirds are invested in dollar-denominated assets. Along with diversification, China's reserve managers say they want to invest in liquid and safe assets and earn a reasonable return. Japanese debt is a good choice for now on all of these counts, said Zhang from CASS, the government think-tank. Foreigners hold a third of U.S. debt but only 5 percent of Japanese debt, making the Japanese market structure more stable, he said. Moreover, Japan's current account surplus and the unwinding of yen carry trades put on before the global financial crisis should continue to push the yen up in the short term, he added. But Zhang stopped short of calling this a decisive change in China's foreign exchange investment strategy. "The yield on holding Japanese debt is very low, and Japan has a series of systemic problems -- an aging population, high government debt, a liquidity trap -- which influence the mid- to long-term sustainability of Japan's debt," he said. "Whether China can continue to invest in Japanese debt will require closer observation," he said. Zhang also pointed out that China had not turned its back on the United States. While it cut about $161 billion of its short-term U.S. debt holdings in the 10 months to May, it actually added $88.5 billion of longer-term debt. The fundamental problem is that China should not be in a situation where it must buy either U.S. or Japanese debt, he said. "The choice between Japanese and U.S. debt is not a choice between good and bad. Rather, it is being compelled to pick between bad and worse," he said. If China slowed its accumulation of foreign exchange reserves by working to cut its trade surplus and allowing its exchange rate to appreciate, it would not need to invest so much in foreign debt. "This is the only way to get at the root of the problem," he said. ($1=85.34 Yen) (Editing by Kim Coghill)

Macy's shares rise after results. (Reporting by Leah Schnurr )

Dollar drop as data prod Japan closer to policy action. Market speculation that the Bank of Japan (BOJ) will have to relax its already loose monetary policy has increased as policymakers have raised the alarm over a fall in the dollar against the yen, which they fear could hurt exports. The dollar dropped below 85 yen on Wednesday and while the finance minister said he was watching the market extremely carefully, he declined to comment on the possibility of currency intervention. If the dollar slips below November's low of 84.82 yen, it would mark the currency's weakest level in 15 years. "A rapid yen rise would boost deflationary factors, so the government and the BOJ must act as one in considering what to do given our commitment to act against deflation," Kohei Otsuka, the vice banking minister told Reuters in an interview. This week the BOJ avoided fresh policy action over the yen's rise, which some policymakers worry will undermine the exports that have pulled Japan out of the global downturn. A faltering U.S. recovery -- which prompted the Federal Reserve to take a fresh step on Tuesday to support the economy -- and a slowdown in China could further undermine Japan's recovery given its reliance on overseas demand. "Given the weak developments in the U.S. economy, the Japanese economy will probably suffer later this year, so the BOJ wants to save its measures until then," said Seiji Shiraishi, chief economist for Japan at HSBC. The BOJ slashed its policy rate to just 0.1 percent in the downturn and has set up a bank lending operation to support the recovery. "Ideally, central banks should be forward looking, but the BOJ has almost no measures left. It isn't good for a central bank to be backward looking, but for the BOJ it can't be helped," Shiraishi said. Indeed, BOJ inaction could backfire, analysts say, because the U.S. Federal Reserve's decision to keep buying government bonds will increase the allure of the yen against the dollar. Japanese policymakers showed further signs of uncertainty over how to tackle the yen and the economy. Otsuka, a former BOJ official and now a key policymaker in Prime Minister Naoto Kan's Democratic Party, warned that the yen was at a critical juncture. But Trade Minister Masayuki Naoshima adopted a more cautious tone, suggesting fresh action was not needed yet. Officials should monitor the economy further before considering extra stimulus, he was reported as saying by Jiji news agency. RECOVERY WEAKENING? Data showed that core private-sector machinery orders, a highly volatile series regarded as an indicator of capital spending, rose 1.6 percent in June, much less than a forecast for a 5.5 percent increase. Manufacturers surveyed in the data from the Cabinet Office forecast that core orders, which exclude those for ships and machinery at electric power firms, will rise just 0.8 percent in the July-September quarter over the previous quarter. Orders rose in April-June by 0.3 percent. Other figures showed wholesale prices fell 0.1 percent in the year to July, against a forecast for a 0.1 percent rise and underlining the stubborn deflation plaguing the country. Consumer prices have fallen from a year earlier for 16 straight months. "Many companies just don't expect Japan's economic growth to accelerate rapidly, so it's difficult for the corporate sector to boost spending," said Kiichi Murashima, economist at Citigroup Global Markets in Tokyo. "The BOJ has made it clear that they would need to see a lot more evidence of weaker growth before they would consider a move," he said. In addition, the ruling Democratic Party is preoccupied with a party leadership election in September, he added. The Fed's policy committee, the Federal Open Market Committee (FOMC), said on Tuesday it would use cash from maturing mortgage bonds it holds to buy more government debt in a step to support the economy. The BOJ held off on new policy steps to combat a stronger yen, saving its limited firepower in case the yen rallies more significantly. "The FOMC made an announcement and after that the market moves have become a little one-sided," Finance Minister Yoshihiko Noda told reporters before the dollar fell below 85 yen. "In any case, excessive and disorderly moves in the currency market would negatively affect the stability of the economy and financial markets. Therefore, I am watching market moves with utmost attention." A Reuters survey showed that data on August 16 is expected to show that Japan's economic growth halved in the second quarter to 0.6 percent from 1.2 percent in the previous quarter, as export growth and private consumption slowed. (Editing by Neil Fullick)

GM results to show gain over first quarter. GM, now 61 percent-owned by the U.S. government, is counting on the momentum from its quarterly results to help it clinch a $5 billion bank credit facility as it prepares a stock offering expected to be the largest ever for the U.S. market. GM has substantially completed work needed to register the IPO with the SEC but needs to complete negotiations with banks for its credit facility before that filing, the sources said. As part of that process, GM has been reaching out to financial institutions and investors in an outreach spearheaded by Chief Financial Officer Chris Liddell and intended to give them confidence in the automaker's outlook, according to people with knowledge of those private discussions. GM Chief Executive Ed Whitacre, appointed by the Obama administration to oversee the automaker's turnaround, said last week he expected the automaker's second-quarter result would be viewed positively by both potential investors and creditors. "It will be good. It will be impressive," said Whitacre, who has also said his top priority is shedding the automaker's ties to the U.S. government and the label "Government Motors" used by critics of its bailout. A GM spokeswoman said the automaker was not providing financial forecasts and would not comment. GM will report second-quarter results on Thursday. GM could finalize its bank credit facility by the end of August, allowing it to press ahead with its stock offering by the end of the year, the sources said. Meanwhile, GM's second-quarter results this week will show higher earnings than the first quarter's $865 million profit, its first quarterly profit since 2007, they said. For 2011, GM is projecting that it could generate $16 billion in earnings before interest, taxes, depreciation and amortization, one of the sources said. JPMorgan debt analyst Eric Selle has forecast GM's 2010 EBITDA at $11.4 billion. That measure of cash generation is important because it is one of the key measurements that bankers and investors will use to estimate how much the restructured automaker should be worth when it reemerges as a publicly traded company. RUNNING THE NUMBERS The U.S. government converted $43 billion of aid to GM into an equity stake in the automaker through a 2009 bankruptcy process that allowed GM to slash costs and return to profit even at sharply reduced sales rates. "We aren't seeing huge sales volumes for GM but we are seeing profit," said analyst Aaron Bragman with IHS Global Insight. "They have restructured to be profitable in a much weaker market." One key number for the U.S. Treasury is the $70 billion valuation mark for GM since that would allow U.S. taxpayers to break even on the still controversial bailout of 2009. Achieving EBITDA of $16 billion in 2011 would value GM at just over $70 billion applying the multiple of its nearest U.S. competitor by sales, Ford Motor Co. On another measure -- price-to-earnings -- GM would have to earn almost $10 billion in 2011 to justify a $70 billion value if investors applied Ford's multiple to its larger rival. GM's advisers for its upcoming IPO have said they believe the automaker could be valued at over $80 billion after accounting for its stake in supplier Delphi -- expected to IPO in 2011 -- and Ally Financial, formerly GMAC. Ron Bloom, the White House adviser overseeing the government's investment in GM and Chrysler, said he believed GM was still on track for a stock sale by the end of the year. A successful GM IPO would provide the Obama administration with a piece of evidence it could use in its argument that the unprecedented intervention in the U.S. auto industry in 2009 has been a financial success even as it saved jobs. Since GM remains privately held, Wall Street analysts have not prepared or released earnings forecasts. GM was helped in the second quarter by a 27 percent gain in U.S. sales compared with the first quarter and a shift in the market toward more expensive trucks and newer models that carry lower discounts. GM also scrambled to add production capacity in Canada for its hot-selling Chevrolet Equinox and GMC Terrain crossovers, moves that will boost revenue. Despite GM's progress, analysts say the automaker faces a continued challenge in Europe where industry-wide sales are sliding and it is restructuring its Opel unit. In addition, GM has struggled with its marketing since bankruptcy and has not yet reversed consumer perceptions of its main brand, Chevy, in the way that Ford has done under Chief Executive Alan Mulally, analysts say. "To get from where they've been to here is a tremendous accomplishment," Bernie McGinn -- president of McGinn Investment Management, who holds Ford shares -- said of GM. "But they are still behind Ford, and Ford is starting to fire on all cylinders," he said. (Reporting by Soyoung Kim and Kevin Krolicki, additional reporting by Philipp Halstrick in Frankfurt; Editing by Gary Hill )

Stocks plunge, dollar rallies on growth fears. Despite the dollar's broad gains, the Japanese yen hit a 15-year high against the greenback as declining yields on U.S. government debt prompted Japanese funds, heavily invested in dollar-denominated Treasuries, to repatriate profits. Commodity prices fell, with oil prices sliding 2.8 percent, on fears that a global economic slowdown led by the United States and China would reduce demand for raw materials. U.S. gold futures ended only slightly higher as gold's initial sharp gains faded during the stock market's steep slide. The three major U.S. stock indexes ended the session with losses of 2.5 percent to 3 percent, turning negative once more for the year so far. Fears about the sustainability of the global economic recovery increased after the U.S. Federal Reserve announced on Tuesday it would use cash from maturing mortgage bonds it holds to buy more government debt, maintaining the current level of monetary stimulus. U.S. Treasury debt prices rallied, with the 10-year note's yield near 16-month lows, in response to the Fed's expected re-entry into the bond market and stocks' sharp sell-off. Some investors saw the measure as a sign that policy- makers want to support financial markets while the economy goes through a possible pause in growth. "I don't think that we are in for a major correction for the equity market," said Klaus Wiener, head of research at Generali Investments in London. "The Fed is willing to support the economy. If the economy slows but does not fall into recession as I expect, then market confidence in the economy could improve again," he added. But that strategy, at least for now, seemed to have backfired. "If one of the Fed's goals in yesterday's statement was to instill confidence in the market that they will do anything to make things better, they accomplished the exact opposite in that today we are even more worried about economic growth," Peter Boockvar, equity strategist at Miller Tabak & Co in New York, said in a note to clients. NASDAQ DOWN 2.7 PCT FOR YEAR Adding to investors' woes was data showing a slowdown in Chinese investment and factory output growth, coupled with a Bank of England's downgrade of its growth forecast and a dovish tone from its governor, Mervyn King. Chinese annual factory output growth slowed to 13.4 percent last month from 13.7 percent in June ,but beat forecasts of a 13.2 percent rise. Year-to-date growth in fixed-asset investments slowed to 24.9 percent from 25.5 percent. "If China's economy slows down, industries worldwide will likely feel it in their revenue. That could darken the jobs picture in this country even further than it already is," said Keith Bliss, senior vice president at Cuttone & Co in New York. The MSCI All-Country World index fell 2.7 percent, while the FTSEurofirst 300 index of top European shares tumbled 2 percent to end at 1,040.87 -- a three-week closing low. Banking and commodity shares led European markets lower, with the STOXX Europe 600 banking index .SX7P falling 3.4 percent. On Wall Street, the Dow Jones industrial average .DJI lost 265.42 points, or 2.49 percent, to end at 10,378.83, while the Standard & Poor's 500 Index .SPX sank 31.59 points, or 2.82 percent, to 1,089.47. The Nasdaq Composite Index .IXIC tumbled 68.54 points, or 3.01 percent, to close at 2,208.63. For the year, the Dow was down 0.5 percent, while the S&P 500 was off 2.3 percent and the Nasdaq was down 2.7 percent. U.S. Treasuries rallied, with the two-year note's yield touching a record low of 0.493 percent earlier in the session. The benchmark 10-year note shot up 26/32 in price, with the yield at 2.68 percent, a 16-month low. "The fall in U.S. yields is a barometer of the cyclical position of the U.S. economy," said Adam Cole, head of currency strategy at RBC Capital Markets. "The market's reaction is that if the U.S. economy is slowing materially, it will not be in isolation, and it has therefore responded by selling risk." DANCE OF THE RISING YEN The dollar gained against a basket of major currencies as investors became more averse to risk, with the U.S. Dollar Index .DXY up 2.11 percent, its biggest one-day rise since October 2008. The euro was down 2.32 percent at $1.2871. The greenback was practically flat against the Japanese yen, however, after touching a 15-year low around 84.72 yen earlier in the session. Appetite for the yen increased as Treasuries' yield spreads over Japanese government debt narrowed, prompting the Japanese Finance Minister Yoshihiko Noda to say he was closely watching forex markets. Analysts said, however, his rhetoric was unlikely to escalate into currency intervention to weaken the yen. U.S. crude oil fell $2.23, or 2.78 percent, to settle at $78.02 a barrel. Crude oil futures prices were also pressured by a government inventory report showing refined products stockpiles rose more than expected last week, even though refiners reduced capacity more than 3 percent. In New York, U.S. gold futures gained $1.20 to settle at $1,199.20 an ounce, off an intraday high at $1,210.20. (Reporting and writing by Walter Brandimarte; Additional reporting by Chris Reese , Ryan Vlastelica and Steven C. Johnson ; Editing by Jan Paschal )

Wider trade gap trims growth estimates. The monthly deficit jumped to $49.9 billion, the highest since October 2008, as imports rose 3.0 percent to $200.3 billion, the Commerce Department reported on Wednesday. U.S. exports, which President Barack Obama has hoped would help drive economic recovery and job growth, fell 1.3 percent in June to $150.5 billion. In financial markets, U.S. stocks erased the year's gains, the dollar rose the most in nearly two years and benchmark Treasury yields hit 16-month lows as a gloomy U.S. outlook and weak Chinese data suggested the world economy was slowing and led investors into safe-haven assets. The much-wider-than-expected gap prompted economists to scale back estimates of second-quarter U.S. economic growth, and reignited calls by some business and labor groups for Congress to get tough with China over its currency policy. "June's U.S. international trade figures suggest that the U.S. economy cannot rely on a boost from overseas demand to offset the current domestic weakness. In fact, overseas effects are exacerbating the domestic downturn," said Paul Dales, U.S. economist with Capital Economics in Toronto. In its first estimate of second-quarter gross domestic product growth late last month, the Commerce Department said the economy grew at a 2.4 percent annual rate in the April to June period. On Tuesday, the Federal Reserve said the pace of U.S. economic recovery has slowed in recent months, resulting in the Fed -- the U.S. central bank -- outlining a plan to nurture growth by using cash from maturing mortgage bonds to buy more U.S. government debt. The U.S. trade data was "spectacularly terrible" said Ian Shepherdson, chief economist with High Frequency Economics in Valhalla, New York, and he said it knocked 0.4 percentage point off their second-quarter growth estimate. Others were even more glum. Harm Bandholz, chief U.S. economist at Unicredit Research, ratcheted his second-quarter GDP forecast down to just 1.0 percent based on the trade data, weaker construction spending and less inventory build-up. U.S. stocks slumped on the gloomier Fed outlook and slower manufacturing growth in China that underscored the lackluster global economic recovery. The three major stock indexes .DJI .SPX .IXIC fell from about 2.5 percent to 3.0 percent. The U.S. dollar tumbled to a 15-year low against the yen . But it had its biggest daily gain in nearly two years against other major currencies .DXY as stocks fell and bond prices rose in a flight to safety. MOVE TO BOOST EXPORTS Obama appeared to take note of the wider trade gap at a White House ceremony on Wednesday to sign a bipartisan bill temporarily suspending duties on a long list of raw materials U.S. manufacturers use to make finished goods. "Our economy has fallen into the habit of buying from overseas and not selling the way it needs to, but it is vitally important that we reverse that trend," said Obama, who set a goal early this year of doubling exports. The National Association of Manufacturers, a top industry group, has said the Manufacturing Enhancement Act of 2010 signed by Obama would boost U.S. manufacturing output by $4.6 billion and support about 90,000 jobs. Senator Charles Grassley, an Iowa Republican, urged Obama to build on today's signing by pushing "without delay" for congressional approval of long-stalled free-trade agreements with South Korea, Colombia and Panama. U.S. imports of goods and services in June were the highest since October 2008, fueled by record imports of consumer goods and an uptick in imports of other nonpetroleum products. But that sign of higher U.S. demand was tempered by the drop in U.S. exports. Imports from China soared to $32.9 billion, the highest since October 2008. The closely watched U.S. trade deficit with the major East Asian manufacturer widened to $26.2 billion, also the highest since October 2008, while U.S. exports to China fell slightly. The big jump in the U.S. trade deficit followed Chinese government data on Tuesday that showed China's trade surplus surged to $28.7 billion in July, an 18-month high. Senator Charles Schumer, a New York Democrat, seized on that report to renew calls for legislation threatening China with duties on some of its exports to the United States. Pressure on lawmakers to act could intensify in the run-up to the November congressional elections. "The House and Senate must now step in and pass strong legislation to penalize China's currency manipulation and bring down our trade deficit," said Scott Paul, executive director of the Alliance for American Manufacturing. However, some analysts said the June surge in imports from China was due to manufacturers and exporters there trying to ship as many goods as possible before July 15, when government export rebates were reduced. China loosened its yuan currency from a nearly two-year peg to the dollar in June, but it has barely risen since then. Many lawmakers believe it is undervalued by at least 25 percent. U.S. imports from Germany and the 27-nation European Union also had their strongest showing since October 2008. Although U.S. automotive exports were the highest since October 2008, other important export categories such as capital goods, industrial supplies and materials, and food, feeds and beverages posted declines. A separate report showed U.S. home loan demand climbed last week but record low mortgage rates failed to light a fire in a market constrained by unemployment and tight lending. Mortgage purchase and refinancing applications rose less than 1 percent in the first week of August, even as 30-year loan rates fell to 4.57 percent, the lowest in 20 years of record keeping by the Mortgage Bankers Association. (Additional reporting by Emily Kaiser ; Editing by James Dalgleish and Philip Barbara )

U.S. prelim August consumer sentiment seen up vs July. WHEN: Friday at 9:55 a.m. (1355 GMT) REUTERS FORECAST: * Sentiment index is expected to inch up to 69.3 in August from 67.8 in July. Forecasts range from 64.0 to 74.0. * Current economic conditions gauge is seen unchanged from July at 76.5. Forecasts range from 75.0 to 78.0. * Barometer of consumer expectations is seen up at 63.7. It ended July at 62.3. Forecasts range from 59.8 to 68.0. FACTORS TO WATCH: While expectations are for a slight pickup in sentiment from the previous month, sentiment sagged in July to its lowest level since November on bleak prospects for jobs and income. The survey's final July reading on the overall index on consumer sentiment dropped to 67.8 from 76.O in June. Analysts say those employment concerns likely remain for consumers as July data on monthly payrolls from the U.S. government was weaker than expected. It also added to a slew of other data that underscored the view the recovery is slowing. Employment levels are considered significant to boosting consumer spending, which accounts for more than two-thirds of U.S. economic activity. The Federal Reserve, too, on Tuesday gave a gloomier economic outlook. "(Sentiment) has been steadily weak, and I think with the (stock) market down in May and June, I don't see much in terms of an uptick in prospects for consumer confidence. Obviously, 70 percent of (the economy's) growth is based on the consumer so that's another definite headwind," said Alan Lancz, president, Alan B. Lancz & Associates Inc., an investment advisory firm, based in Toledo, Ohio. The Standard & Poor's 500 index .SPX was down 8.2 percent in May and down 5.4 percent in June. The index jumped 6.9 percent in July, but is down more than 1 percent so far for August. In another reading of sentiment, the Conference Board, an industry group, said late last month its index of consumer attitudes fell to 50.4 in July from a revised 54.3 in June The June reading was revised up from an original 52.9.. MARKET IMPACT: A better-than-expected consumer sentiment number could lift stocks, which were in negative territory for the year on Wednesday amid increased worries about the recovery, while it would hurt the safe-haven demand for U.S. government bonds. An above-forecast report would likely be supportive for the U.S. dollar. (Reporting by Caroline Valetkevitch , Editing by Chizu Nomiyama)

Philanthropy becoming new status symbol for wealthy. Being wealthy may no longer be about how many properties or fast cars a millionaire owns -- it could be about how much money they are giving away -- bringing hope to charities that Warren Buffett and Bill Gates' philanthropic push inspires others. "It will be something that's very important to the wealthy -- to be able to say: 'I give my money away as much as I spend it in all these other exciting ways,'" said Stacy Palmer, editor of the Chronicle of Philanthropy. "Clearly pressure on the elite is high right now to say that they are giving money away and that will make it trendy," she said. "People who have enough money to give away but maybe haven't thought about that ... those folks will want to do what Warren Buffett and Bill Gates are doing." Investor Buffett and Microsoft founder Gates are urging American billionaires to give away at least half their wealth during their lifetime or upon their death by signing the Giving Pledge, which so far has 40 members. While experts in philanthropy say recognition is not a key motivation for people to give, some say it would not be a bad thing if philanthropy became a greater badge of honor among the rich. "It would be naive to think that nobody cares about the attention because otherwise there wouldn't be any names on buildings," said Patrick Rooney, executive director of the Center on Philanthropy at Indiana University. "But it would not be a terrible thing if philanthropy became a more important status symbol than the car you drive or the street address and how many square feet you live in or how many residences you own," he said. Based on Forbes magazine's estimates of the wealth of the 40 members of the Giving Pledge, at least $150 billion could be given away. Gates and Buffett are the second and third richest people in the world, behind Mexican tycoon Carlos Slim, with fortunes of $53 billion and $47 billion respectively. GIVING BY RICH AN EXPECTATION The true measure of the wealthy should be their generosity, said Bradford Smith, president of the Foundation Center. "If philanthropy is indeed becoming the new status symbol of the wealthy it will do a lot more to change the world than buying Gucci bags," he said. But Paul Schervish, director of the Center on Wealth and Philanthropy at Boston College, said it was important that philanthropy as a status symbol was just a reflection of giving and not a motivation. "Philanthropy is becoming a regular part of the financial life of wealth holders in a substantial way," he said, adding that anything that is the right thing to do morally can become status symbols. But, he cautioned, the risk is that if giving is seen as the purview of the rich then it may devalue charity endeavors of regular Americans. Individual Americans gave more than $227 billion in 2009, according to a the Giving USA report by the Center on Philanthropy at Indiana University, down just 0.4 percent from the previous year despite the U.S. recession. Melissa Berman, president and chief executive of Rockefeller Philanthropy Advisors, said there was a growing expectation on wealthy families to not only give their money away but be actively involved in their philanthropy. "(The Giving Pledge) is going to have a tremendous impact and it's impact may be greater outside the United States ... because (China and India) are countries where there is less of a tradition of that kind of scale of philanthropy," she said. Gates and Buffett and planning to travel to China in September and India in March to speak to wealthy families about the Giving Pledge in the hope that it will drive a similar growth in philanthropy there. Wall Street Journal wealth columnist Robert Frank, author of "Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich," said the recession had helped spur America's rich to search for new status symbols. "Yachts, private jets, seaside mansions are so 2007," Frank wrote recently. "But being wealthy enough and generous enough to get on the Giving Pledge list may quickly become the ultimate badge of status -- both in the U.S. and abroad." (Editing by Mark Egan and Jackie Frank )

Nestle and CSM caution over higher input costs. Switzerland's Nestle, the world's largest food group, cautioned on Wednesday of a more challenging input cost environment during the second half, while Dutch group CSM says it expects cost increases in a number of its raw materials. But Vevey-based Nestle still raised its underlying sales growth target for 2010 and saw its profit margin rising, while the world's largest bakery supplies group, CSM, saw a rise in second-half profits after saying it will have to raise prices. World wheat prices have risen sharply since the end of June due to drought in Russia, the world's third-largest exporter, hitting CSM's input costs while other commodities key to Nestle like coffee and cocoa are at high levels. Despite rising costs, Nestle reported a 5.7 percent increase in first-half food and beverage underlying sales, just short of a company-compiled consensus of 5.9 percent. It upgraded its 2010 target to see growth of around 5 percent, while previously it aimed to beat 2009's 3.9 percent increase. "While Nestle should face commodity inflation in H2, we consider that some pricing and ongoing cost savings will more than offset this," said food industry analyst Andrew Wood at Sanford Bernstein. The maker of Nescafe coffee, Kitkat chocolate bars and Buitoni sauces said price hikes and strong demand in emerging markets, particularly Latin America, helped boost sales in the first half, prompting it to raise its target. "This is an excellent set of figures....The company's portfolio means it can raise prices while others are cutting theirs," said Jon Cox, an analyst at Kepler Capital Markets. Nestle Chief Financial Officer Jim Singh told an analysts briefing, "For the second half we continue to see volatility in some raw materials and increased cost pressures." He kept his overall estimate that input costs will rise 2-3 percent in 2010. Nestle shares rose 0.6 percent to 51.8 francs by 0930 GMT after gaining 2.6 percent this year and underperforming a 6.5 percent rise in the STOXX Euro food and beverage index .SX3P. Overall group net profits rose 7.5 percent to 5.5 billion Swiss francs ($5.22 billion), with earnings per share up 13.5 percent to 1.6 francs. Food industry rival like Unilever ( ULVR.L ) ( UNc.AS ) and Danone ( DANO.PA ) have also cautioned that higher raw material prices and weak demand in Europe would hit the second half of 2010 but Nestle said its savings program should more than compensate for input cost pressures. Dutch CSM, which makes muffins and pastries for European and U.S. retailers, said it will raise its prices to offset higher raw material costs while it forecast higher second-half operating profit after first-half earnings beat estimates. "We remain cautiously optimistic for the second half of 2010...We expect to see a continuing challenging economic environment. In addition, we expect to see cost increases in a number of our raw materials," the group said in a statement. But the company was upbeat on its ability to cope with raw materials prices, saying it was able to mitigate volatility in costs with its forward buying policy. "They've had a pretty good first half... but the outlook is cautious. There remains some uncertainty about input costs. You don't know where volumes are going if you pass on too many higher prices," SNS Securities analyst Richard Withagen said. CSM shares dipped 1.5 percent to 20.89 euros. They have fallen more than 12 percent in the past month on concern about raw materials prices, especially wheat, but analysts have said CSM's history suggests the company should be able to pass on the higher commodity prices to its customers. CSM reported first-half earnings before interest, tax and amortization (EBITA) before exceptional items of 102.5 million euros ($133.4 million) compared with the average estimate of 96.5 million from a Reuters poll of seven analysts. (Additional reporting by David Jones ; Editing by Michael Shields )

Google to handle some ad sales on DirecTV. The Google TV Ads system will handle the sales of commercial spots for such networks as Bloomberg, Fox Business and TV Guide. Google TV Ads, which was launched in 2008, is a marketplace where advertisers can buy national advertising inventory on networks carried by Dish Network Corp and now also DirecTV. Satellite and cable operators typically sell a limited number of commercial spots themselves, alongside spots sold by cable networks and their advertising agencies. Terms of the new partnership were not disclosed. Separately Google announced in May its plans for GoogleTV -- an on-screen search box that allows viewers to look through live programs, DVR recordings and the Web. Shares of DirecTV fell 1.5 percent to $38.82 but fared better than the 2 percent decline in the broader market. (Reporting by Jennifer Saba ; Editing by Derek Caney.)

Prudential Financial payouts to veterans OK in NJ: report. The insurer's payout method drew wide attention after investigators began probing whether life insurers are defrauding families of deceased military personnel by siphoning millions of dollars of death benefits for themselves. At issue is whether insurers keep money in potentially risky "retained asset accounts" that they control and pay out low yields to survivors, rather than pay out lump sums when policyholders die. Following an article in Bloomberg Markets magazine about the practice, the U.S. Department of Veterans Affairs said it began a review, and New York Attorney General Andrew Cuomo subpoenaed eight insurers, including Prudential and MetLife Inc. The article featured the mother of the killed soldier who complained about the accounts, including that two retailers had rejected her checks. According to the Journal, in a response to a request from New Jersey insurance regulators, Prudential detailed in an August 4 letter that 25 checks from the mother's account were cleared from October 2008 through April 2010, with most of the proceeds withdrawn at that point. "This letter satisfies the department that Prudential acted properly and further reassures this department of the value of 'retained asset accounts,'" Thomas Considine, New Jersey's commissioner of banking and insurance, told the newspaper in an interview. A Prudential spokesman told the newspaper it processed 84,000 drafts for its retained-assets account program in 2009, with "few people reporting any problems." Prudential is based in Newark, New Jersey. Neither it nor Considine's office immediately returned requests for comment by Reuters. (Reporting by Jonathan Stempel in New York; Editing by Dhara Ranasinghe)

U.S. posts $165 billion July deficit, spending ebbs. So far in the first 10 months of fiscal 2010, which ends on September 30, the shortfall between the government's income and its spending totaled $1.169 trillion, smaller than last year's record 10-month deficit of $1.267 trillion. Late last month, the Obama administration trimmed its full year fiscal 2010 deficit forecast by $84 billion to $1.471 trillion -- a level that still represents a record. And in a sign that deficits will remain stubbornly high for some time, the White House raised its fiscal 2011 deficit forecast by $149 billion to $1.42 trillion. July's deficit marked a 22nd straight month of red ink for the U.S. government, the longest string on record, due to heavy spending aimed at pushing the economy out of a prolonged slump, coupled with weak tax revenues. The latest data "kind of shows the modest improving trend we've seen this year -- a decline in TARP spending and a little bit of help on the revenue front," said Kim Rupert, head of fixed income analysis at Action Economics LLC in San Francisco. "Whether it is sustainable is largely dependent on how the economy goes." July is typically a deficit month, with the Treasury reporting only two July surpluses in the past 56 years, in 2000 and 2001. The July 2009 deficit of $180.68 billion was the largest ever for that month. The Treasury said spending outlays for July 2010 fell 3.5 percent to $320.59 billion from $332.16 billion in July 2009, which was a record for any month. A Treasury official attributed the decline largely to lower spending on economic stimulus programs and the Troubled Asset Relief Program. Meanwhile, receipts rose 2.7 percent to $155.55 billion from $151.48 billion a year earlier, due to higher corporate income tax collections and higher Federal Reserve earnings on investment securities. Individual income tax collections declined slightly. (Reporting by David Lawder; Editing by Chizu Nomiyama )

Bulls crave calm as Fed in focus. The coming week has a slew of economic indicators, including July existing home sales and preliminary figures on second-quarter gross domestic product, which should shed more light on the economy's health. But paramount to Wall Street will be what the data says about the prospects for a cut in the fed funds rate as the housing slump fuels worries that the sector's slowdown could tip the world's largest economy into a recession. "Wall Street is banking on a mid-cycle slowdown that was expected but could get worse, suggesting that the Fed may want to lower the fed funds rate," said Rob Goodman, director of investments for Fairport Asset Management, in Cleveland. "A cut," he said, "is not out of the realm of possibilities ... and I don't expect Wall Street to be too negative going forward." But even with the burgeoning calm, money managers and analysts say a sense that there could yet be more upheaval due to weakness in the housing industry still pervades the market and could make for cautious trading ahead of the Labor Day holiday on Monday, September 3. Volume is likely to be lighter than normal with many of Wall Street's denizens on vacation or cutting the week short for the last long weekend of summer. Lots of economic numbers and exceptionally light volume often is a recipe for volatility. The Chicago Board Options Exchange Volatility Index .VIX, also known as Wall Street's fear gauge, ended Friday at 20.72, down 8.4 percent. The VIX is down almost 45 percent from August 16, when it climbed to 37.50, a five-year high. DOW UP 7 PERCENT FOR THE YEAR More worrisome, analysts and money managers said would be any news that pointed to further turmoil in the subprime mortgage sector. Last week, several mortgage providers, including Accredited Home Lenders Holding Co LEND.O, said they were cutting hundreds of jobs as the lending squeeze and lingering jitters in the credit markets take their toll. Still, the clamor for a cut in the fed funds rate is providing a cushion for stocks as shown by Friday's stock market advance. Surprisingly strong data on July new home sales and durable goods orders contributed to the market's calmer tone. Friday's gains sent the Dow Jones industrial average .DJI up 2.3 percent for the week, its best weekly advance since April 22. Both the Nasdaq Composite Index .IXIC and the S&P 500 .SPX notched their biggest weekly gains in five months, with the Nasdaq rising 2.9 percent and the S&P gaining 2.3 percent. For the year, the Dow is up 7.35 percent, while the S&P 500 is up 4.31 percent and the Nasdaq is up 6.68 percent. Before the latest turmoil, data showing the economy's pace of growth was stronger than expected would have rattled investors, quashing the oft-repeated view of a "Goldilocks" scenario -- an economy that's neither too hot nor too cold. But with investors still uncertain about the extent of the impact of the faltering housing market and losses from subprime mortgages, Wall Street is set to latch on to any news showing that the economy is weathering the real estate downturn, albeit with bumps along the way. "If the consumer can come out of subprime OK, then the market will come out of subprime OK," said Jim Fehrenbach, head of Nasdaq trading at Piper Jaffray, in Minneapolis. He said the jobs report, due before the Fed's policy-setters meet on September 18 to decide on interest rates, is among the pieces of data that may seal the market's fate in the days ahead, along with reports on housing. "If those numbers turn south, that's going to really increase recession fears," Fehrenbach said. But the August jobs report is still a ways off. The nonfarm payrolls report for August will be released on September 7. HOUSING, FED MINUTES AND GDP Looking at this week, however, the economic calendar promises plenty of numbers to crunch and there could be some surprises. Among the week's highlights will be data on existing home sales on Monday; the S&P/Case-Shiller Home Price Index on Tuesday, along with the Conference Board's August consumer confidence index and weekly store sales. The minutes from the Fed's most recent policy meeting on August 7, at which the Fed left its benchmark fed funds rate unchanged at 5.25 percent, are also due on Tuesday. The Federal Open Market Committee's August minutes could be particularly illuminating on the central bank's thinking before its surprise cut in the discount rate on August 17 and its statement afterward saying "tighter credit conditions and increased uncertainty have the potential to restrain economic growth going forward." Weekly data on mortgage applications will be released on Wednesday, while the government's preliminary report on second-quarter GDP is due out on Thursday, along with weekly data on initial jobless claims. This will be the second look at gross domestic product, which measures the output of all goods and services within U.S. borders, for the second quarter. The advance estimates of GDP were released on July 27. Friday's data features a reading on July personal income and spending, a report that includes one of the Fed's favored consumer price inflation gauges, the core PCE price index. (PCE refers to "personal consumption expenditures." The core PCE price index excludes volatile food and energy prices.) Also on tap for Friday is the release of the August reading of business activity in the U.S. Midwest from the National Association of Purchasing Management-Chicago and data on U.S. factory orders for July. The corporate earnings agenda is thin, with tax preparer H&R Block Inc ( HRB.N ) and computer maker Dell Inc DELL.O set to release quarterly results on Thursday. (Additional reporting by Caroline Valetkevitch ) (Wall St Week Ahead runs weekly. Questions or comments on this column can be e-mailed to: ellis.mnyandu(at)reuters.com)

Median price of homes seen falling: report. The Office of Federal Housing Enterprise Oversight is scheduled to release the home-price index on Thursday, and research firm Global Insight expects it to show a decline of about 1 percent between the first and second quarter, according to the newspaper. Global Insight also expects the decline of U.S. home prices to peak at 4 percent between their highest point in 2007 and the projected low point in 2009, the New York Times said. The New York Times said other forecasters expect the index to climb slightly in the second quarter before falling later this year. "For most people, this is not a disaster," Global Insight economist Nigel Gault told the newspaper. "But it's enough to cause them to pull back." Last week, Countrywide Financial Corp Chief Executive Angelo Mozilo said the U.S. housing downturn was likely to lead the country into a recession. (Reporting by Justin Grant )

Saxony state sells SachsenLB to LBBW. The bank was battered by heavy losses from U.S. subprime mortgages and other risky debt amid credit turmoil which has roiled world financial markets. Germany has borne the brunt of the European fallout so far from problems stemming from subprime home loans as two of the country's banks have almost collapsed, requiring high-profile industry bailouts. "The cabinet unanimously decided to sell the state's share in SachsenLB," Saxony spokesman Andreas Beese told reporters in the state capital Dresden. "Representatives of the state have been asked to act accordingly in a meeting of Sachsen LB owners tonight. The government assumes the meeting will approve the sale," he said. State premier Georg Milbradt earlier said SachsenLB had come under so much pressure that it could not continue its activities without a partner. SachsenLB would be run by LBBW as a subsidiary and LBBW had secured the right to return it to its owners -- Saxony state and local community savings banks -- if more unacceptable risks emerged, Milbradt said. LBBW owners were due to meet later on Sunday in Stuttgart. A source close to the company said LBBW was taking over 100 percent of SachsenLB at a price of 300 million euros ($407 million). Another source close to the negotiations said SachsenLB needed between 250 and 300 million euros immediately, which LBBW would inject in cash. SachsenLB is the second German casualty after the near collapse of small-company lender IKB IKBG.DE which was saved by a group of banks including state-owned KfW KFW.UL. In return for a 17 billion euro ($23.1 billion) credit line to keep it afloat, the owners were forced into agreeing to its sale, a milestone in Germany, where few state-owned banks are ever put up for auction. REFORM DEBATE The events are speeding long-running discussions about how to reform Germany's banking sector, where analysts have long been saying the country could function with fewer institutions and that the state should loosen its dominance of the industry. North-Rhine Westphalia state premier Juergen Ruettgers favours creating a northern and a southern group of state banks, according to an advance extract of a Focus magazine article. Ruettgers favored selling the state's 38-percent share in WestLB to Commerzbank ( CBKG.DE ), Focus also said. The SachsenLB debacle has also prompted calls for the reform of financial market supervision, especially the role of financial watchdog BaFin. BaFin said on Saturday that SachsenLB's Irish subsidiary had already been investigated in 2005 and problems with its risk exposure had been found. BaFin at the time had asked the Dublin subsidiary to make changes. A Finance Ministry spokesman said on Sunday the government was permanently examining the efficacy of banking supervision and that adjustments could be made if necessary. He added: "A functioning banking oversight is no insurance against wrong decisions being made -- which are often only seen as wrong decisions afterwards," he said. (additional reporting by Dave Graham, Patricia Nann, Hendrik Sackmann)

Comcast stock may soar on cash flow: Barron's. "What excites me is that this company has so much money to spend on its own future. They will have $4 billion to spend between now and 2009 on operations that offer a very high return," Tom Russo, who manages money at investment fund Gardner Russo & Gardner, told Barron's. "The potential is staggering and largely ignored in the stock." Russo's firm owns 10 million Comcast shares, the newspaper said. On Friday, Comcast's shares closed at $25.48 on the Nasdaq Composite Index. The stock is trading down about 15.6 percent from its 52-week high of $30.18 reached January 18. According to Barron's, the stock could climb to as high as $40 within the next 12 months. Philadelphia-based Comcast is leading the charge by U.S. cable operators to win subscribers from telephone companies by aggressively marketing its bundled television, high-speed Internet and phone services. Last month, Chief Executive Brian Roberts said he anticipates cable growth accelerating over the second half of 2007. (Reporting by Justin Grant )

Rio Tinto says receives approval to buy Alcan. The U.S. approval follows Canada's Quebec province government approval for the takeover earlier this month. Rio formally launched a pre-agreed offer for Montreal-based Alcan in July, trumping an earlier hostile offer by U.S. rival Alcoa ( AA.N ).

NBC in talks to buy Sparrowhawk Media: paper. Sparrowhawk's owners -- 3i ( III.L ) and Providence -- are close to concluding talks with NBC to sell the business, the Sunday Telegraph said in an unsourced report. The move will help NBC, controlled by General Electric ( GE.N ), to achieve its target of increasing the proportion of international revenues to its overall income to 30 percent from 20, it said.

Home Depot cuts unit sale price by $1.8 bln: source. The source said a tentative new agreement has been reached for the private equity buyers to purchase the division for $8.5 billion. The original purchase price was $10.3 billion. Home Depot will also take a 10 percent equity stake in the division after the sale, the source said. The reduced price comes as the credit market crunch has forced banks to reel in loose lending practices that came to define the private equity deal frenzy of the last two years. The private equity buyers are Bain Capital, Carlyle Group CYL.UL and Clayton, Dubilier & Rice. The New York Times first reported the lowered sale price on its Web site on Sunday.

Airbus to cut plants and 10,000 jobs in overhaul. Airbus Chief Executive Louis Gallois gave a stark vision of a Franco-German company needing to find billions of euros in savings and end nationalist infighting he deemed "poison". "We need to be interested in the future of Airbus and for that we need to be one integrated company," he said of a firm whose push for reforms dominated a recent Franco-German summit. Gallois told reporters Airbus will cut 5,000 staff and 5,000 workers contracted from other firms over the next four years. Some 4,300 jobs in France, 3,700 in Germany, 1,600 in Britain and 400 in Spain are expected to go. Shedding 5,000 of its staff would cut the Airbus workforce of 55,000 by 9 percent. This does not include some 3,000 staff at sites due to be sold at St. Nazaire in France and Varel and Laupheim in Germany. There were protests at Airbus factories in France at Meaulte and St. Nazaire and unions warned of wider walkouts. Several hundred assembly workers also downed tools at the Toulouse headquarters. German Airbus workers expressed a mixture of disbelief and fear as they left the Varel plant, where they walked off the job along with workers at Laupheim. "Before Friday, nothing is going to happen here," said Michael Eilers, head of the workers' council at Airbus in Nordenham, announcing a spontaneous walk-out at the factory. Shares in parent firm EADS closed up 1.8 percent as investors welcomed the plans to cut 2.1 billion euros in annual operating cost from 2010 and a further 5 billion cash. Gallois said Meaulte as well as Filton in England and Nordenham in Germany were sites where Airbus will look for investors to take partial stakes, although GKN Plc, mooted as a possible investor in Filton, declined to comment. GOVERNMENTS REACT The shake-up comes after a two-year delay in delivering the A380 superjumbo put a 5-billion-euro ($6.61 billion) hole in expected earnings at EADS. It also needs to speed up work on the A350, which is already lagging rival Boeing's development of its 787 model by five years. Power8, as the restructuring is known, was first mooted in October and sparked a split between France and Germany over the distribution of job losses, and the placement of future ones. The restructuring had "ensured a balanced distribution of risks and opportunities," German Chancellor Angela Merkel told journalists in Berlin, adding she regretted that workers in Germany, France and Spain would lose their jobs. British Prime Minister Tony Blair hailed a victory for the Filton plant, one of two in Britain, citing coveted carbon fiber composites work for the wing of the A350. Gallois said the Toulouse headquarters would assemble the A350 in return for letting the plant in Hamburg, Germany, assemble the successor to the smaller A320 airliner. Hamburg will also get more work on the current A320 series. But the most crucial part of a deal which unblocked negotiations in the past week concerned Germany's share of the workload on larger, higher-margin and wide-bodied aircraft. Talks broke down 10 days ago when German co-Chairman Manfred Bischoff and co-CEO Tom Enders refused to back the overall restructuring package without a "clear role" for Germany in high technology, a source familiar with the talks told Reuters. That piece of the puzzle fell into place on Monday when they lifted their veto in return for broad management control of fuselages and highly customized cabins. Not only did the delay allow board tempers to cool it also made room for French and German leaders to bless the accord and, importantly for Airbus, invest some political capital in it at a time when job cuts threaten a storm in France and Germany. With French elections in April and May, Prime Minister Dominique de Villepin had urged the company to avoid forced sackings. Socialist candidate Segolene Royal pledged to call for a freeze on job cuts if she is elected, while her center-right rival Nicolas Sakozy said the state should stand aside. (Additional reporting by Kerstin Doerr, Marcel Michelson , Nicolas Fichot, Jason Neely , Rodolphe Landais, Dan Lalor, Madeline Chambers , Paul Hughes and Chris Bockman)

Dollar Tree reports higher quarterly results. The discount retailer said fourth-quarter net income rose to $97.6 million, or 96 cents per share, from $86.5 million, or 81 cents per share, a year earlier. Analysts, on average, had expected earnings of 95 cents a share, according to Reuters Estimates. In-store promotions like "build-a-wreath" and "build-a-gift basket," a wider variety of frozen and refrigerated items, and gift cards helped boost sales in the holiday season, Chief Executive Bob Sasser said in a conference call. Quarterly sales grew more than 22 percent to $1.32 billion. The company said in January that quarterly sales had reached $1.31 billion. Dollar Tree, which operates more than 3,200 stores in the United States, said it expects earnings of 32 cents to 35 cents per share in the first quarter. For the full year, it expects to earn $1.96 to $2.10 a share on sales of $4.2 billion to $4.3 billion.

Charter Communications posts wider quarterly loss. The company reported a fourth-quarter net loss of $396 million, or $1.08 per share, compared with a loss of $336 million, or $1.06 per share, a year earlier. Revenue rose 9.8 percent to $1.4 billion, while costs and expenses climbed 10.8 percent to $910 million. Charter said it boosted spending on advertising and other efforts to sign up new customers and retain existing ones in the quarter. Higher programming expenses also contributed to the cost increases, it said. Adjusted for acquisitions and asset sales, revenue rose 11.7 percent, it said.

Sprint posts higher profit, sees subscriber growth. The No. 3 U.S. wireless service provider has been losing customers in recent quarters, so investors were relieved that it reiterated its forecast for a net gain in postpaid customers, who pay monthly bills, in the second quarter. SurTerre Research analyst Todd Rethemeier said that while he would like to see more concrete signs that Sprint could turn the corner, some investors were glad the company had repeated the expectations it expressed in early January. "Maybe people are saying 'We're a month and half past that and they're still saying it, so that's a good thing,'" he said. Sprint shares, which fell 5 percent on Tuesday amid the widespread stock market weakness, rose $1.11 in morning trade to $19.56 on the New York Stock Exchange. The stock has fallen about 25 percent in the last year as the company reported disappointing customer growth and lost market share to rivals while it struggled to integrate its August 2005 acquisition of Nextel Communications. Earnings in the fourth quarter rose to $261 million, or 9 cents per share, from $195 million, or 7 cents per share, a year earlier, as the company added subscribers to the Sprint network, which mostly serves consumers. Sprint said it earned 29 cents per share before amortization charges, in line with average analyst expectations, according to Reuters Estimates. Net operating revenue rose to $10.44 billion from $9.79 billion. Analysts, on average, had expected $10.36 billion, according to Reuters Estimates. The Nextel network, which mainly serves business customers and has suffered from technical problems, reported net losses in postpaid customers. Stanford Group analyst Michael Nelson said Sprint's long distance fixed-line business performed better than expected. "It looks like they made up for some of the weakness in wireless in their long distance business," he said, pointing to long distance operating income before depreciation and amortization of $259 million, versus his $186 million forecast. Nelson also said he was impressed that Sprint outlined a clear strategy for winning back subscribers. CHURN ROSE Sprint said customer cancellations, known in the industry as churn, rose to 2.3 percent in the fourth quarter from 2.1 percent a year before, citing steeper cancellations by customers using its Nextel iDen network, which combines walkie-talkie and cellular technology. Sprint in January set itself a goal to reduce churn to below 2 percent over the course of 2007. The company hopes to improve its iDen numbers by selling phones from Motorola Inc. MOT.N which work on both the Nextel network and the Sprint network, based on CDMA technology. Chief Executive Gary Forsee told analysts that Sprint had sold 200,000 of these phones by the end of February and hopes to sell 2 million to 3 million combination phones in 2007. Chief Financial Officer Paul Saleh said he expected Sprint to post another net loss in postpaid subscribers in the first quarter, before posting net additions in the second quarter. Sprint had said in January that it added a net 742,000 customers in the fourth quarter, including 876,000 wholesale customer additions and net losses of 306,000 postpaid subscribers. It ended 2006 with 53.1 million customers. Analysts have said Sprint lost market share to rivals such as AT&T Inc.'s ( T.N ) Cingular Wireless and Verizon Wireless, a venture of Verizon Communications Inc. ( VZ.N ) and Vodafone Group Plc. ( VOD.L ). Forsee told analysts that Sprint was not interested in participating in the government auction for wireless airwaves in the 700 Megahertz band expected to take place this year. The company lowered its capital spending budget for the year to $8 billion from its previous target of $8.5 billion.

January new home sales fall 16.6 percent. The monthly decline was the sharpest in 13 years, since a 23.8 percent drop-off in January 1994. New single-family home sales fell to an annualized rate of 937,000 units from an upwardly revised rate of 1.123 million units in December, the Commerce Department said. Analysts polled by Reuters were expecting January sales to dip to 1.080 million from the previously reported rate of 1.120 million units in December. In January, the median sales price of a new home rose $400 to $239,800 from $239,400 in December. At the current sales pace, the supply of new homes available for sale rose to 6.8 months' worth from the 5.7 months' worth in December, which represents a 19.3 percent increase. There were a total of 536,000 new homes available for sale at the end of January, down 0.2 percent from December. The Commerce Department's data comes a day after a Realtor trade group reported a stronger-than-expected month of existing home sales. The sales pace of previously owned homes rose 3.0 percent in January, the biggest jump in two years, the National Association of Realtors said. Home resales, which represent 85 percent of the housing market, climbed to a 6.46 million-unit annual rate. Across the regions, the West saw the sharpest decline in new home sales with a 37.4 percent drop. In the Northeast, new home sales fell 18.7 percent while they decreased 8.1 percent in the Midwest and 9.7 percent in the South.

Station Casinos fourth-quarter profit falls. Station, which operates casinos that cater to Las Vegas residents, said net income fell to $23.1 million, or 41 cents per share, from $41.7 million, or 61 cents per share, a year earlier.

Wyeth maintains 2007 earnings forecast. The company reaffirmed its full-year earnings forecast of $3.40 to $3.50 per share, excluding items such as potential restructuring charges. That represents an increase of 8 percent to 11 percent over 2006. Wyeth also said that the U.S. Food and Drug Administration's re-inspection of a manufacturing plant in Puerto Rico, which began in late January, is expected to take at least several more weeks to complete. The company received an FDA warning letter last May regarding concerns about the plant in Guayama, Puerto Rico.

CHRONOLOGY-Major one-day percentage falls on the NYSE. Following is a timeline of some major one-day percentage drops on the New York Stock Exchange (NYSE): * October 29, 1929: The Dow Jones Industrial Average, falls more than 11 percent on "Black Tuesday", with a record volume of 16 million shares traded. It does not surpass the 1929 average again until 1954. * October 19, 1987: The Dow Jones index drops 22.6 percent, falling 508 points to 1,738.74 on "Black Monday", the biggest one-day drop in stock market history. Volume surges to an unprecedented 604 million shares, reaching 608 million shares the next day. * October 27 1997: The Asian financial crash spurs a global selloff; the Dow Jones index slumps 7.2 percent, or 554 points, in its biggest single-day points drop. The NYSE's "circuit-breaker" is triggered for the first time to halt trading at 3:30 p.m. * April 14, 2000: The Dow drops 5.6 percent, or 617 points -- a new steepest point decline in a single day. * September 17, 2001: The Dow falls 6.9 percent when trading resumes after a four-day halt following the September 11 attacks. It slides 659.62 points, with a record volume of 2.37 billion shares traded. * February 27, 2007: The Dow index falls 3.3 percent, or 416 points, spooked by a collapse in Chinese stocks and weak U.S. manufacturing data. Investors pour money into less-risky bonds as the index experiences its worst points slide since the aftermath of the September 11, 2001 attacks. Sources: Reuters data for market performance from 1987 onwards, The New York Stock Exchange Group Timeline (www.nyse.com/about/history/timeline_chronology_index.html)

U.S. stocks seen opening higher. Standard & Poor's 500 Index futures were up 2.7 points, while Dow Jones industrial average futures were up 17 points. Nasdaq 100 futures were unchanged, despite deep declines in a broad range of Asian markets. The Dow Jones Industrial Average posted its worst decline on a points basis since the aftermath of September 11, 2001, attacks on Tuesday, dropping 3.3 percent as a mainland share slump triggered concerns that equity prices are overheated. Shanghai's benchmark index fell 9 percent on Tuesday, its highest decline in a decade. There was no hard news behind the stock drop, but rumors had swirled that Beijing may take serious measures to cool market speculation or raise interest rates ahead of China's National People's Congress annual meeting next week. Shanghai shares rose on Wednesday by 0.73 percent, but stock markets from Seoul to Singapore fell as much as 5.6 percent on the Chinese share decline and weak U.S. manufacturing data. Hong Kong's Hang Seng Index dropped 2.9 percent, South Korea's KOSPI was down 3.3 percent and the Singapore Straits Times Index sunk 5.6 percent.

Applebee's same-store sales down in February. The casual dining chain said same-store sales fell 3.9 percent at franchised locations and dropped 4.3 percent at company-owned outlets.

Liz Claiborne posts lower quarterly profit. Net income for the fourth quarter fell to $73.2 million, or 71 cents per share, from $78.3 million, or 74 cents per share, a year earlier. The company incurred a charge of 23 cents per share for restructuring expenses. Excluding the charge, it earned 94 cents per share. Analysts, on average, had expected 97 cents per share excluding special items, according to Reuters Estimates.

Wal-Mart says NYSE finds no violations. The secretary-treasurer of the AFL-CIO trade union confederation made the request in a letter dated February 23 to NYSE Regulation Inc. Chief of Enforcement Susan Merrill, citing an NYSE rule that says compensation consultants should answer solely to corporate directors, not to management. The AFL-CIO said it believed that Wal-Mart's compensation, nominating and corporate governance committee "may not be solely responsible" for choosing compensation consultants and determining their fees and terms of their retention, possibly violating NYSE listing standards. The Wall Street Journal reported on the letter early on Wednesday. In the letter, the AFL-CIO asked NYSE Regulation to open a formal investigation to confirm that Wal-Mart complies with the exchange's listing standards. "The New York Stock Exchange has indicated that we are not in violation of its rules," Wal-Mart spokesman John Simley said. The NYSE declined to comment and the AFL-CIO said on Wednesday afternoon it had not yet heard back from the NYSE. GE, HOME DEPOT MADE CHANGES Wal-Mart said it had asked the U.S. Securities and Exchange Commission for permission to omit a shareholder proposal submitted by the AFL-CIO, which asks for disclosure on how the company uses compensation consultants, from the proxy for its upcoming annual meeting. The company said it intends to substantially implement that proposal. Dan Pedrotty, director of the AFL-CIO office of investment, said his group also contacted the SEC about its shareholder proposal, and has not heard yet whether Wal-Mart will have to include the proposal in the proxy. Pedrotty said the AFL-CIO filed similar proposals at other companies including General Electric Co. ( GE.N ) and Home Depot Inc. ( HD.N ). The group then withdrew its proposals at both companies after each said it would implement the disclosure about consultants that the AFL-CIO was seeking. Wal-Mart said its board is evaluating whether to hire an independent compensation consultant to advise it on executive compensation. Shares of Wal-Mart, a component of the Dow Jones industrial average .DJI , were up 3 cents at $48.23 on the NYSE. (Additional reporting by Karen Jacobs in Atlanta)

Jittery gold hit again, seen recovering. Spot gold traded in a wide $19 range, hitting the high for the day early at $679 as the sharp overnight drop attracted buyers in Asia and then Europe. But further jitters set in later in the day, hacking about $7 off prices in minutes before the price steadied again. It was quoted at $669.60/670.30 an ounce by 2:48 p.m. EST (1948 GMT), up from Tuesday's late quote in New York by $661.00/662.00. Most-active gold for April delivery on the COMEX division of the New York Mercantile Exchange settled down $14.70, or 2.1 percent, at $672.50 an ounce, traded in a range between $664.00 and $680.50. "It has all the signs of a market that is very jittery," said Peter Hillyard, head of precious metal sales at ANZ Investment Bank. "This is a nervous reaction to yesterday's move." On Wednesday, stock markets trimmed losses triggered a day earlier by a sudden plunge in China stocks that rippled through all markets and saw Wall Street record its biggest drop since the September 11, 2001 attacks. The Dow Jones industrial average and the Standard & Poor's 500 Index both rebounded but were up less than 1 percent in Wednesday afternoon trading. Although gold is often seen as a safe haven when other markets flounder, the precious metal was also hit as investors scrabbled to unwind investments elsewhere to meet their equity margin calls. Gold and other commodities saw a similar sell-off in May 2006 when a growing aversion to risk rippled through markets. Although analysts were not expecting the liquidation to be that severe, further selling pressure in stock markets could trigger more losses in gold. Base metals fell around three percent on Wednesday as fears of economic slowdown and falling demand in China cast a shadow over the market. $700 COMPROMISED Yesterday's volatile trade has damaged gold's attempt to get back above $700 in the near term, although analysts said fundamentally nothing had changed. Gold rallied to a nine-month high of $689 on Monday on safe-haven buying on the back of firm crude oil, tensions between Iran and the United States and a softer dollar, raising hopes the metal would eventually hit $700. Prices hit a 26-year high of $730 in May 2006. "In my view, we haven't killed this market yet," Hillyard said. "We may have knocked it about a bit, but it's recovering from the punches. But it may take a day or two before it's strong enough to resume its upward trend." Traders were bracing for more volatility. "With all that has happened and the dollar and oil where they are, gold is a bargain price here," one trader said. "It needs to break $778/79 to advance...it is only $25 away (from $700) and we have seen that range up, down and back up in the past few sessions. "But I think we need some sideways trade to let people recover and lick their wounds." Silver followed gold to trade lower. It dropped to $14.14/14.19 an ounce, down from $14.24/14.34 late in New York on Tuesday. Platinum was last quoted at $1,247/1,254, up from its previous close of $1,238/1,243, having earlier bounced to a fresh three-month high of $1,253. Palladium rebounded to trade higher at $350/355 from $348.50/353.00 an ounce late on Tuesday in New York. (Additional reporting by Frank Tang in New York)

U.S. stocks recover a bit, others sag. U.S. investors appeared to be taking advantage of cheap equity prices, helping to push all three major indexes higher. But trading remained fairly volatile after Tuesday's equity-led sell-off. The Dow Jones industrial has traded in a range exceeding 160 points over the day.. The equity market's rebound hit its stride after Federal Reserve Chairman Ben Bernanke told Congress there didn't appear to be a single trigger for the global stock slump on Tuesday. Bernanke also said he expects moderate U.S. economic growth to continue. Those remarks weighed on U.S. Treasury debt prices, already lower on the day as investors took a breather after bidding bonds up to their biggest daily gains in two years on Tuesday. "I think the majority of people viewed yesterday's move as not surprising but a little overdone, and some of the comments from the Fed chairman are certainly helping to restore confidence in the markets today," said Michael James, senior trader at regional investment bank Wedbush Morgan in Los Angeles. Lou Brien, strategist with DRW Trading Group in Chicago, said, "you are seeing some of the safe-haven trade being taken out of the long end of the Treasury market." The Dow Jones industrial average .DJI was up 55.68 points, or 0.46 percent, at 12,271.92. The Standard & Poor's 500 Index .SPX was up 8.45 points, or 0.60 percent, at 1,407.49. The Nasdaq Composite Index .IXIC was up 9.25 points, or 0.38 percent, at 2,417.11. Benchmark U.S. 10 year Treasury notes were down 14/32 in price to yield 4.57 percent. China's main Shanghai stock index .SSEC , whose 9 percent dive on Tuesday on regulatory concerns was cited by some as sparking the global selloff, bounced back almost 4 percent, but it stood alone among Asian markets. Currency markets also steadied after one of the most volatile sessions in years, with the yen trading modestly lower against the dollar. The previous session the Japanese currency had staged a lightning rally to 10-week highs versus the dollar when investors unwound yield-dependent yen carry trades in a bid to avert risk. The dollar was up 0.4 percent to 118.40 yen after falling below 118 a day ago. Bernanke's remarks also helped it shake off data showing a decline in January new home sales, sending the euro down to $1.3220 compared with $1.3240 late Tuesday. But a report on Wednesday showing the U.S. economy expanded at a weaker-than-expected 2.2 percent rate in the final three months of last year may keep investors wary of the dollar. "The truth is that weakening in the currency will probably continue. Good data is clearly becoming more sparse and today's reports, if anything, just reinforce the view the Fed is done tightening," said Mark Meadows, currency strategist at Tempus Consulting in Washington D.C. U.S. crude oil also fell amid anxiety about growth in the world's biggest oil consumer, slipping 83 cents, or 1.35 percent, to $60.63 per barrel. Gold for April delivery on the COMEX division of the New York Mercantile Exchange was down $17.40, or 2.6 percent, at $669.80 an ounce. ASIAN, EUROPEAN EQUITIES STILL HURTING European stocks fell for a second straight day, with oil majors and mining shares among the top decliners. The FTSEurofirst 300 index .FTEU3 of top European shares unofficially closed down 1.36 percent at 1,485.58 points, its lowest close since January 10, although it was above an intraday low of 1,473.66. The two-day sell-off around the world saw the MSCI world stock market .MSCIWD index -- which had risen more than 4 percent this year as recently as Monday -- lose all its gains for the year. Tuesday's equities sell off also catapulted a key measure of equity market volatility .VIX -- known as the "fear index" and a closely-watched gauge of market risk aversion -- more than 64 percent higher. With nerves more settled by Wednesday, however, the VIX was more subdued, dropping by nearly 20 percent in midday trading. Emerging stock markets continued to weaken. After falling 3.07 percent on Tuesday, the MSCI emerging markets stock index .MSCIEF lost 1.79 percent to hit its lowest since January 19. It hit a record high as recently as February 22. Earlier, Asian stock indexes mirrored the decline in the U.S., with Hong Kong's Hang Seng Index .HSI down 2.1 percent and the H-share index .HSCE of Chinese shares listed in Hong Kong off 3 percent, well above the lows. Japan's Nikkei average .N225 lost 2.9 percent, Australia's benchmark S&P/ASX 200 index .AXJO fell 2.7 percent and Seoul's KOSPI .KS11 shed 2.6 percent. (Additional reporting by Dan Burns, Emily Chasan , David McMahon, Lucia Mutikani and Robert Gibbons in New York and Sitaraman Shankar, Richard Barley and Mike Dolan in London)

Airbus chief: Japan, China, U.S. play weak FX game. Airbus chief Louis Gallois told reporters that those countries were "playing a game of weak currency." Gallois was speaking as Airbus unveiled widespread job losses as part of a restructuring plan. He said Airbus' restructuring plan assumed a euro to U.S. dollar currency conversion rate of 1.35.

Stunned Airbus workers walk out over job cuts. Airbus said it would shut two plants in Germany and seek a partner for another. Workers at the affected plants retaliated by walking out in protest over job cuts they said will hit local communities hard. "I couldn't believe the news. I just couldn't believe it," Joachim Gramberg said as he walked off his shift at the Varel Airbus plant -- one of three in Europe set to be closed down. "We used to build 200 planes a year when we were doing great and now we are even making 438 a year and it's still the end." Around 3,700 Airbus workers at plants in Germany stand to lose their jobs as part of the restructuring measures, with Varel and Laupheim, another factory in the southwest of the country, set to be shut. A third plant, in St Nazaire, France, will also close while Airbus will seek partners for three more factories -- one in France, one in Britain and another in Nordenham, Germany, which is destined to remain an Airbus supplier. "Before Friday, nothing is going to happen here," said Michael Eilers, head of the workers' council at Airbus in Nordenham, announcing a spontaneous walk-out at the factory. Workers also downed tools at Varel and Laupheim. The impact of the job cuts -- fewer than the 10,000 some feared -- should be absorbed by an improving labor market in Germany, where unemployment fell to a five-year low this month. But local regions already depressed by the economy's shift away heavy engineering and industry, could suffer. "A lot of people have built homes here and are uncertain about what is going to happen next," Airbus worker Lothar Bredemaier told Reuters Television in Varel. Monika Boettcher, the 53-year-old owner of a snack booth outside one of the factories, said those who had been drawn to work there years ago now faced a difficult future. "Families are going to be made to suffer just because the individual doesn't count for anything any more," she said.

Centro to buy New Plan Excel for $3.4 bln in cash. This marks Centro Properties' third U.S. purchase and it said in a statement that directors of New Plan had unanimously recommended the offer. Last year, Centro concluded the purchases of Kramont and Heritage real estate investment trusts. The latest acquisition would also make Centro Watt -- Centro's U.S. property management joint venture -- the third-biggest U.S. shopping centers owner, behind Developers Diversified Realty Group and Kimco Realty Corp, according to Centro. The deal values New Plan at $33.15 per share, a 13 percent premium over its Tuesday closing price of $29.34 on the New York Stock Exchange. New Plan valued the transaction at $6.2 billion including assumed debt and preferred stock. ING Investment Management's property and infrastructure director Justin Blaess said the acquisition would propel Centro's share price higher and should silence critics of the group's complex capital structure. "With this the management team continues to deliver," he said. Centro Properties is making the acquisition with its subsidiary Centro Retail Trust ( CER.AX ) and shares in both companies were placed on a trading halt. Earlier on Wednesday, source familiar with the matter had told Reuters that Centro Retail Trust was planning to raise A$1 billion ($794 million) through a share sale and non-renounceable entitlement issue to part-fund the acquisition. Centro Properties will undertake an institutional placement of A$250 million to help complete the acquisition. JP Morgan is the underwriter to the share sale. The acquisition, which the company said would provide a 10 percent uplift for earnings, should underpin a substantial rise in the share price once the stock reopened, Blaess said. "The stock has had a pretty good run but we would expect to see further gains after this. "If you're a long-term holder you'll easily get another 10 percent," he said. Centro Properties, which has a market value of A$8.1 billion, has about A$15.6 billion funds under management. New Plan expects the transaction to close in the second quarter, subject to customary closing conditions. The company's portfolio includes 467 properties, including 453 shopping centers in 38 U.S. states and 14 other real estate assets. The $3.4 billion value is based on New Plan's reported shares outstanding as of February 21. "The quality portfolio of U.S. convenience shopping centers fulfils Centro's desire to access appropriate assets for its Australian co-investors," Centro Properties Chief Executive Andrew Scott said in a statement. Meanwhile, Galileo Shopping Group GSA.AX -- which counts New Plan Excel as its joint venture partner -- said Centro's proposed acquisition would trigger certain rights under the joint venture management agreements with New Plan. Galileo said it was seeking advice on what rights were triggered and was considering what course of action to take. (Additional reporting by Jane Williams)

Factbox-Airbus statement details cost cuts, job losses. EADS: * The plan will make Airbus better prepared to face the challenge of U.S. Dollar weakness, increased competitive pressure, the financial burden related to the A380 delays as well as to meet its other future investment needs. * The transformation will happen over several years. * The Airbus management will implement strong cost reduction and cash generating efforts leading to EBIT contributions of 2.1 billion euros from 2010 onwards and additional 5 billion of cumulative cash flow from 2007 to 2010. * The measures to reduce overhead cost, and specifically headcount, require a provision of 680 million euros to be taken in the first quarter of 2007. * To ensure full and sustainable implementation of Power8, Airbus has put in place a robust tracking system with tangible metrics regarding cost, and cash impact up to their materialization in the financial statements. * "The core objective of Power8 is to make Airbus more efficient and competitive, so as to produce the most advanced and profitable products, and to serve its customers better in the future", said EADS CEOs Tom Enders and Louis Gallois. * "Without establishing Power8 quickly, profitability will drift significantly short of industry standards and of reasonable expectations. This is an unsustainable and unacceptable situation. Power8 is designed to reduce that gap," said EADS and Airbus CFO Hans Peter Ring. * The objective of a lighter and cost efficient management will be addressed by several Power8 program modules and in particular by the reduction of overhead cost. * The Airbus management proposes a progressive headcount reduction of 10,000 ... positions over four years, thereof 3,200 in France, 3,700 in Germany, 400 in Spain, 1,600 in the UK and 1,100 in the Airbus Central Entity in Toulouse. 5,000 of these positions are temporary or on-site subcontractors, where reductions will begin immediately. * The other 5,000 positions affected will be Airbus employees. Priority is given to achieve reductions through attrition, the negotiated voluntary severance processes and schemes in each country concerned. * At this stage, Airbus management does not propose forced redundancies. * A number of measures are being implemented to further increase the efficiency of the Final Assembly Lines (FAL). Toulouse will see a further capacity enhancement of the long-range Final Assembly Line (FAL) as the A350XWB will be assembled and receive its interior furnishing in Toulouse. * In Hamburg, a third A320 Family FAL will be set up immediately. It will have full type flexibility, so as to also cope with the demand for additional A320s when the demand for A320s exceeds the rate of 14 per month. * Hamburg will also perform final assembly of the New Single Aisle Family. Furthermore, in order to allow parts to be fitted in the most logical place to optimize the overall cycle time, some upstream preparatory cabin installation work for the A380 and the A320 assembled in Toulouse will be transferred from Hamburg to Toulouse. * Nevertheless, cabin installation remains in Hamburg and A380 deliveries will be performed both from Hamburg and Toulouse. * On the engineering and manufacturing side, Airbus will Focus on Core Business activities which are critical for the integrity and safety of the aircraft or vital for technological and commercial differentiation. * Airbus is considering industrial partnerships at its plants in Filton, Meaulte and Nordenham, in order to facilitate their development from metallic to composite design and manufacturing technology. * The company has already received unsolicited proposals by potential industrial partners ready to invest in these sites. * The sites in Laupheim, St. Nazaire-Ville and Varel will continue to perform long-term substantial workloads on the current Airbus aircraft programs, such as the A380, the A320, the A330/A340 Families, and theA400M. * Airbus is committed to seeking viable opportunities for these sites in the years to come. This includes the options to sell these sites to key suppliers, management buy-outs or the gathering with sites nearby. * The A350XWB will be the first program benefiting strongly from the very beginning from the Power8 initiative. * Airbus will assign large work packages to Tier 1 suppliers in return for a better distribution of future investment, risks and opportunities. * Fifty percent of aerostructure work will be outsourced to risksharing partners ( 1.8 billion euros non-recurring cost and 600 million euros associated capital expenditures). * This is about twice as much as in earlier programs. Further Power8 modules are designed to streamline Airbus' processes and support the Company's transition * Airbus will replace the current organization of eight nationally structured centers of excellence by four transnational centers of excellence: Fuselage & Cabin (based in Germany), Wing (based in the UK), Rear End (based in Spain), and Aerostructures (based in France), the latter being in charge of fuselage subassembly and interior furnishing activities.

Home Depot sees lower '07 profit. The world's largest home improvement chain said at its analyst meeting in Atlanta that earnings per share would decline 4 percent to 9 percent this year. Total sales may rise up to 2 percent in 2007. Sales at stores open at least a year, an important retail measure known as same-store sales, are expected to fall in the mid-single-digit percentage range. "We've got to invest more to get back share," Chairman and Chief Executive Frank Blake told a media briefing after the meeting. He said the retailer had lost market share in categories including flooring and bath. Analysts on average expected Home Depot to post a per-share profit of $2.78 for 2007, which would represent a decline of about 3 percent from $2.86 a year earlier, according to Reuters Estimates. Total sales are expected to rise 3 percent to $93.8 billion. The outlook "should reassure investors that management is willing to sacrifice near-term earnings for strategic reinvestment," Sanford Bernstein analyst Colin McGranahan said in a research note. Home Depot, under pressure as rival Lowe's Cos. ( LOW.N ) expands to bigger U.S. cities and Canada, plans to increase capital spending 29 percent to $4.5 billion to recruit skilled trade workers, maintain stores and lure professional customers. It plans to open 115 new stores over the next year. Much of the funds will be spent on enhancing the shopping experience with store maintenance, more staff and customer loyalty programs, Home Depot said. ROOM FOR IMPROVEMENT Home Depot's "perception in the public's eye in terms of customer service has suffered over the past five years, so there is a need to improve in that area," said Peter Jankovskis, director of research with Oakbrook Investments in Lisle, Illinois, which holds Home Depot and Lowe's stock. "In many ways, Home Depot is trying to talk down expectations," Jankovskis added. Blake, named CEO in January after Robert Nardelli resigned amid an uproar over his compensation, said the retailer doesn't expect the U.S. housing market to improve until late in the second half of this year or 2008. Home Depot posted its first-ever yearly drop in net earnings for 2006 as declining home sales and construction hurt demand. "2007 will also be a difficult year, but it will be a year of focus, simplification and investment and hopefully less noise," Blake said. Longer term, Home Depot expects yearly sales growth of 5 percent, earnings growth of better than 5 percent, and per-share profit growth of 10 percent or more as its retail business matures. "The market is not expecting from us double-digit sales growth," Blake said. The supply unit, which provides building materials and other products to contractors, is expected to grow to about 15 percent of total sales in 2007 from 13 percent currently. Home Depot is considering selling the unit. The new CEO said Home Depot was closing its two floor stores and is evaluating other store concepts to determine whether to keep them going, including the Landscape Supply stores, which sell plants and fuel centers. Blake took the reins as Home Depot had come under pressure because of weakening profits and sales, a regulatory probe over its stock options practices, and criticism of its corporate governance policies. Nardelli, who spent six years at Home Depot, was assailed by shareholders for his compensation package and management style. He left with a severance package of $210 million. Last week, Lowe's said it expects same-store sales to show improvement this year, helped by easier comparisons. Lowe's executives "seem to be more optimistic than us just on the market," Home Depot's Blake said. "I hope they are right." Home Depot's shares eased 22 cents, or 0.6 percent, to close at $39.60 on the New York Stock Exchange, while Lowe's was off 71 cents, or 2.1 percent, at $32.55 on the NYSE. Home Depot's shares have fallen 1 percent this year, while Lowe's are up 5 percent.

Stocks rebound on Bernanke assurance. But even with the bounce, the Dow recovered with a 52-point gain -- or only about one-eighth of Tuesday's 416-point loss -- as weak U.S. economic data kept some investors on edge. Investors snapped up defensive stocks seen better positioned to withstand moderating economic growth. Shares of consumer products maker Procter & Gamble Co. and those of Altria Inc., the parent of cigarette maker Philip Morris, were among the session's biggest advancers. Health-care stocks also rose, with shares of Merck & Co. ending up 2.3 percent, after the drug maker increased its 2007 earnings outlook. The stock was the Dow's fifth-biggest gainer. "Bernanke did a good job of not being panicked," said Christopher Zook, chairman and chief investment officer at CAZ Investments in Houston, Texas. But he added that investors may again have turned complacent as market corrections were never a one-day event. "The psychology has been damaged enough and people could continue to take money off the table. To me, the market still probably has room for another 4 to 6 percent on the downside before I would consider it to be pretty attractive." The Dow Jones industrial average gained 52.39 points, or 0.43 percent, to end at 12,268.63. The Standard & Poor's 500 Index rose 7.78 points, or 0.56 percent, to close at 1,406.82. The Nasdaq Composite Index added 8.29 points, or 0.34 percent, to finish at 2,416.15. STOCKS SLIDE FOR THE MONTH For the month of February, the blue-chip Dow average lost 2.8 percent, while the broad S&P 500 declined 2.2 percent and the Nasdaq dropped 1.9 percent. Based on Wednesday's close, the S&P 500 broke an 8-month winning streak, while the Dow snapped a 7-month-long string of gains. February also marked the S&P 500's worst monthly decline in nine months. Testifying before the House Budget Committee, Bernanke said Tuesday's sharp stock market drop had not changed the Fed's view that the U.S. economy was sound. In addition, he said there did not seem to be any single trigger for the drop. Stocks' steep slide on Tuesday wiped out the market's gains for 2007. But with Wednesday's rebound, the Nasdaq recovered to just above break-even for the year, while both the S&P 500 and the Dow Jones industrial average remained in the red. BETTING ON P&G AND MICROSOFT Procter & Gamble's stock climbed 3.7 percent, or $2.24, to close at $63.49 on the New York Stock Exchange. The company, whose brands include Tide detergent and Crest toothpaste, said it withdrew a euro bond issue. The stock was the biggest advancer in both the Dow and the S&P 500. Altria shares gained nearly 2 percent, or $1.61, to $84.28, also on the NYSE. Merck's stock jumped 2.3 percent, or 98 cents, to finish at $44.16. On the Nasdaq, shares of software maker Microsoft Corp. rose 1.1 percent, or 30 cents, to $28.17 as investors snapped up some of the tech sector's worst performers in Tuesday's rout. Microsoft ranked No. 1 among the gainers in the Nasdaq 100 on Wednesday. Shares of telecom companies also rose after Sprint Nextel Corp.'s stock shot up 4.5 percent, or 83 cents, to $19.28 on the NYSE. Sprint's stock advanced after the No. 3 U.S. wireless service provider reported a higher quarterly profit. SLOWER GDP GROWTH AND HOME SALES Besides Bernanke, investors also drew support from an overnight recovery in China's stock market. On Tuesday, China's benchmark stock index fell nearly 9 percent on concerns about a possible government crackdown on speculation leading to overinflated stock valuations and that sell-off triggered a global plunge in equity markets. However, weak economic data limited Wednesday's gains in the U.S. stock market. The U.S. Commerce Department reported sales of new single-family homes dropped to a slower-than-expected pace in January and the National Association of Purchasing Management-Chicago said its index of Midwest manufacturing was at its lowest level since October 2002. In addition, the government's revision of data on gross domestic product showed that the U.S. economy grew at a weaker-than-expected rate in the final three months of last year as businesses built fewer inventories and consumers spent less. Volume was heavy on the NYSE, where about 2.26 billion shares changed hands, above last year's estimated daily average of 1.84 billion. On the Nasdaq, about 2.73 billion shares traded, above last year's daily average of 2.02 billion. Advancers outnumbered decliners by a ratio of about 9 to 5 on the NYSE and on the Nasdaq, by about 8 to 7.

Liberty Media posts higher profit at Starz, QVC. Liberty posted separate operating results for its two tracking stocks -- Liberty Interactive Group ( LINTA.O ), home to QVC, and Liberty Capital Group LCAPA.O, which includes Starz. Liberty Interactive revenue rose 11 percent and operating cash flow rose 21 percent. QVC revenue rose 7 percent to $2.24 billion in the fourth quarter, while operating cash flow rose 19 percent to $557 million. Liberty Capital's Starz revenue rose 4 percent to $257 million and operating cash flow rose 72 percent to $50 million. Liberty said it plans to buy back up to $1 billion of its Liberty Capital Series A shares and Series B common stock at a range of $105 to $113 per share.

Sprint posts higher quarterly profit, revenue. Earnings rose to $261 million, or 9 cents per share, from $195 million, or 7 cents per share, a year earlier. Net operating revenue rose to $10.44 billion from $9.79 billion. Analysts on average expected revenue of $10.36 billion, according to Reuters Estimates. Sprint shares have fallen about 25 percent in the last year as the company has reported disappointing customer growth and lost market share to rivals as it struggles to integrate its August 2005 acquisition of Nextel Communications.

CHRONOLOGY-Airbus grapples with restructuring after A380 woes. Some 10,000 jobs across four European countries may go including many contractors, industry sources said, as Airbus looks to regain ground it is losing to surging U.S. archrival Boeing Co. Following is a chronology of key events since cost overruns on the A380 superjumbo emerged more than two years ago which have forced Airbus to face restructuring: Dec 2004 - Airbus parent company EADS announces that the A380 superjumbo project is running 1.45 billion euros over budget. Jan 18, 2005 - French President Jacques Chirac, German Chancellor Gerhard Schroeder and British Prime Minister Tony Blair are among the more than 5,000 guests invited to Toulouse for a ceremony to "reveal" the A380. April 27, 2005 - The A380 completes a maiden flight lasting nearly four hours. June 1, 2005 - Airbus delays initial deliveries of the A380 by up to six months. June 13, 2006 - Airbus announces a second six-month delay in A380 deliveries and says the setback is expected to hit operating profit at EADS from 2007 until 2010. July 2, 2006 - EADS co-Chief Executive Noel Forgeard and Gustav Humbert, the man who had replaced him as CEO of Airbus a year earlier, resign over the second A380 delay. Sept 4, 2006 - Charles Champion, the head of the A380 program, is replaced by Mario Heinen, former head of the profitable A320 series. Sept 21, 2006 - EADS acknowledges that further delay of the Airbus A380 is expected. It blames wiring installation problems which have already delayed the project by a year. Oct 3, 2006 - EADS delays A380 deliveries by an additional year, putting the program two years behind schedule, and says Airbus will not see an operating profit on the A380 until 2010. Oct 3, 2006 - EADS announces 'Power8' restructuring program aimed at annual costs savings of least 2 billion euros from 2010 onwards and around 5 billion euros in cash savings by 2010. Oct 9, 2006 - Airbus CEO Christian Streiff quits after 100 days on the job. Oct 19, 2006 - Airbus says A380 program breakeven point has risen to 420 aircraft from earlier estimate of 270. Some analysts note the new figure fails to take into account the impact of a weakened dollar since 2000, arguing the real figure could be higher. Nov 7, 2006 - FedEx Corp. cancels a $2.5 billion order for the A380 and switches to Boeing planes instead. Jan 17, 2007 - Airbus concedes the annual new plane orders crown to Boeing CO. for the first time since 2000, failing to retain its minimum target of 40 percent market share by value and losing to its U.S. rival in every model range. Feb 2, 2007 - Some 24,000 Airbus and supplier employees in Germany and 100 in France stage protests over feared job cuts. Feb 19, 2007 - Airbus cancels planned February 20 announcement of Power8 details. Company cites differences over where its newest model, the A350 XWB, will be manufactured. Feb 23 - German Chancellor Angela Merkel says at a joint news conference with French President Jacques Chirac that Germany and France will continue to support Airbus politically. Feb 27 - Airbus shakeup is approved by the board at parent EADS. Feb 28 - Airbus management enter talks with unions as they confirm the sale of three sites in Europe while another three would get outside partners.

Edison International profit rises. Edison -- parent of Southern California Edison, the second biggest utility in California -- said net income was $288 million, or 87 cents a share, compared with $272 million, or 83 cents a share, a year before. Excluding special items, core earnings were 65 cents per share. The company reiterated its 2007 earnings forecast of $3.05 per share to $3.45 per share.

China stocks open down but quickly recover. The benchmark Shanghai Composite Index .SSEC opened down 1.34 percent, but after five minutes stood 1.18 percent higher at 2,804.454 points. On Tuesday the market plunged 8.84 percent, its biggest fall in a decade, in a sell-off that jolted global financial markets. Analysts said Chinese investors remained nervous after Tuesday's rout but recently created funds had entered the market to accumulate shares for long-term investment. Officials denied various rumors that fueled Tuesday's tumble, including talk that China might impose a stock capital gains tax and that the head of the securities regulator might step down. In addition, investors believe the government, which wants to list big state firms on the market this year, will not permit a collapse that could endanger those plans, traders said. Many see good technical support for the index at the February low of 2,541, from which it bounced sharply early in the month. "The situation is not too bad. The market should stay in a range of 2,500 to 3,000 for a while," said Zhang Qi, analyst at Haitong Securities, adding that Tuesday's drop was probably not the start of a bear market.

Australia's Flight Center buyout plan rejected. Flight Center spokesman Haydn Long said the plan did not receive the required 75 percent of shares eligible to vote. "It was not approved," he said. Company management, backed by investment firm Pacific Equity Partners, offered A$17.20 per share for the company last October. Analysts said the offer was high for a company with limited growth prospects as more people book flights and holidays directly on the Internet. Institutional investor Lazard Asset Management, which holds 12.5 percent of Flight Center, considered the A$17.20 offer too low, according to a report in the Australian Financial Review. Flight Center shares have been suspended from trading. The stock closed on Monday at A$16.89. ($1=A$1.27)

Calibrating the retirement account. Ha ha! Not bloody likely! A recent New York Times article raised the possibility that some workers were unnecessarily constraining their youth so they could throw all of their money at their 401(k) accounts. There might be a grain of truth in that. Academic research from the University of Wisconsin found that more than 80 percent of Americans have adequate retirement savings, and the remaining few who are undersaving have close to enough. That's kind of shocking, when considered against the drumbeat of all those "workers-are-woefully-unprepared" messages out there. Still, having just enough is a far cry from saving too much. There's virtually no downside risk to oversaving, unless you're so devoted to your IRA that your kids are going to bed hungry and going to school shoeless. If you save too much -- oh, well! -- you'll be able to drive a nicer car, travel more or give more help to your grandchildren during your golden years. Doesn't sound like much of a problem. Retirees, when interviewed, almost universally say they wished they'd saved more or are spending way more than they expected to. So, yes, keep up the saving. But here's a thought to take away from this new research: You may never actually save too much; but you may not be saving too little either. There are huge problems with most of the research that harps on the inadequacy of our national retirement savings. Many of those studies, for instance, assume workers will spend as much in their last year of retirement as in their first, when in fact their spending is likely to tail off completely. They assume that retirees will never sell their homes or downsize their life styles or situations. They project that workers will have the same or higher tax rates in retirement, though taxes tend to decline for retirees along with their incomes and/or if they move to lower tax states. They look at "average" 401k balances when many of those figures include workers just embarking on their careers. Many of these studies also seem to suggest that future retirees will run out of money, or be miserable if their savings are too low. It's more likely that, to make the money last, they will make small adjustments around the edges -- eating out less, traveling less, keeping the car longer, moving to a less expensive place. And, it's also extremely unlikely that they will allow tight funds in retirement to make them miserable, as long as they have enough for the necessities of life and a few extras. So, how do you know if you have enough and not too much? Continue to save, but don't let worry about insufficient savings paralyze you. Take a serious look at your monthly budget and strip away everything you won't have to spend on when you retire: commuting, the kids, college, work clothes, etc. Add in a healthy chunk for health care. Subtract your estimated monthly Social Security benefits (you can get a rough estimate at ssa.gov), and any other pension income you expect to get. What's left is the monthly income you have to raise from your savings. Multiply it by 20 percent (if you're willing to invest more aggressively and leave a smaller nest egg) or 25 percent (for a more conservative estimate), and that's the amount you should have in retirement savings when you retire. That amount, incidentally, is likely to take you through a lengthy retirement and still leave something for the kids. You can double check your math with some online retirement calculators, but remember that these may be more conservative than necessary. A couple to try are the ballpark calculator at www.choosetosave.org and the retirement calculator at www.thriveq.com .

Washington Post quarterly profit falls on charges. Fourth-quarter net income fell to $95.5 million, or $9.97 a share, compared with $102.4 million, or $10.65 a share, in the fourth quarter a year earlier. Revenue rose 10 percent to $1.04 billion.

European stocks languish amid global sell-off. Banks and resources led the drop in Europe, where shares have nearly wiped out their gains for the year-to-date. Utilities were also in the spotlight as E.ON's bid for Spain's Endesa was threatened by Italy's Enel. "Is this the start of the long-awaited correction in equity markets? Probably not," said ING strategist Simon Goodfellow. "Is this a dress rehearsal for the correction we expect in the second quarter? Almost certainly, yes." By 1129 GMT, the FTSEurofirst 300 index of leading European shares had rebounded to be down 0.2 percent at 1,493.78 points, its lowest level since January 11. The index earlier fell as much as 2.2 percent. The slide follows a 3.3 percent fall in the Dow Jones industrial average and a 2.9 percent Nikkei drop. U.S. stock index futures pointed to a gain of around 1 percent for the Dow at the start of Wednesday trade. While traders said there was little fresh news driving markets on Wednesday, a build-up of worries this week -- from Iranian nuclear tensions to U.S. mortgage market worries to China's sudden stock market plunge -- have all been sufficient to dramatically alter market sentiment. China's main stock index bounced up 4 percent on Wednesday after falling 8.8 percent on Tuesday. "There's a very sharp turnaround in the pricing of risk," said Michael O'Sullivan, strategist at State Street Global Markets. "It's a case where something small triggers a shift in risk appetite -- there are always risks in the real world, the issue is how your price them. Now prices better reflect risk." BANKS SLIDE Banks ranked as the worst performing sector in Europe, with HBOS down 4 percent as worries over its margins spooked investors despite the mortgage lender beating market forecasts with a 14-percent rise in earnings. Elsewhere in the sector, Barclays fell 2.1 percent while Credit Suisse was down 2.7 percent. Miners languished, with Anglo American down 2.5 percent, while Xstrata fell 2.5 percent and BHP Billiton sank 1.5 percent despite stronger copper prices. Among utilities, E.ON was down 4.2 percent after Enel, its rival for Endesa, bought a 9.99 percent stake in the Spanish utility and said it could raise its holding to 24.99 percent. Enel shares fell 2.2 percent. On the upside, Volkswagen gained 4.4 percent after it raised its stake in MAN to 29.9 percent. Its Audi unit also upped its sales target. France's Carrefour added 2.8 percent on renewed speculation of a leveraged buyout, while software maker SAP gained 1.4 percent on talk the company was buying back shares. Elsewhere, shares in Sonaecom jumped 6.8 percent after it promised Portugal Telecom shareholders a payment package as part of its 11.8-billion-euro bid campaign.

Subprime guidance to be issued Thursday. The guidance will be issued by agencies including the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency. The guidance is likely to allow the public to comment for at least 60 days on controversial mortgages provided to consumers with poor credit histories, the sources said, speaking on condition of anonymity.

INSTANT VIEW: Bernanke comments help U.S. stocks. "My view is that taking all the new data into account, that there is really no material change in our expectations for the U.S. economy since I last reported to Congress a couple weeks ago," Bernanke said in response to questions from the House Budget Committee. However, the U.S. central bank has some concerns about the domestic subprime mortgage market and is monitoring it closely, Bernanke said. Bernanke also said foreign central banks are neither expected to, nor would it be in their interests to dump U.S. Treasuries on global debt markets. In his prepared speech to the Committee though Bernanke did not address the outlook for U.S. interest-rate policy or Tuesday's sharp fall in global stock markets. COMMENTARY: STEVE GALLAGHER, CHIEF U.S. ECONOMIST, SOCIETE-GENERALE, NEW YORK: "Bernanke has done the right job. He is holding to his earlier testimony -- more specific on the short-term scenario -- which is looking for a more moderate growth going forward. "He is also looking for some pick-up in the economy as the U.S. housing slowdown winds down. Overall, he hasn't changed his view on the economy despite some of the recent events and data." FRANK HSU, DIRECTOR OF GLOBAL FIXED INCOME AT FIMAT IN NEW YORK: "The market was hoping he would say something more positive. What he has just said is an interpretation that there is a natural correction process and we may have more to go. The market is gradually selling off." MICHAEL JAMES, SENIOR TRADER, WEDBUSH MORGAN, LOS ANGELES: "The Bernanke comments are helping (stocks) significantly. "I think the majority of people viewed yesterday's move as not surprising but a little overdone, and some of the comments from the Fed chairman are certainly helping to restore confidence in the markets today." TONY CRESCENZI, CHIEF BOND MARKET STRATEGIST WITH MILLER, TABAK & CO IN NEW YORK: "Bernanke responded in a way one would expect to financial events." "Some will say he passed with flying colors: he sounded reassuring." "He said the Fed was closely monitoring the situation and talked about the economy and how it is expected to continue growing. The stock market rallied and the bond market fell." "The Fed is still confident in this situation. it is his first real test after a financial event." MARKET REACTION: - U.S. Treasury debt prices were lower midsession Wednesday, after three days of gains, with the benchmark ten year note yield around 4.56 percent, after falling to a low of 4.4520 on Tuesday; - The dollar was slightly higher midsession Wednesday, after Tuesday's slump, with the euro quoted around $1.3218 and the dollar quoted around 118.44 yen, following Tuesday's jump in the Japanese currency; pared gains, pushing the euro to $1.3215 - U.S. stocks were higher midsession Wednesday, with the benchmark S&P500 index around 1,409 after a 3.47 percent fall on Tuesday;

Economy ends '06 on slower note. Adding to that dreary picture, business activity in the Midwest -- the epicenter of U.S. manufacturing -- slumped in February after contracting in January. Even with the softer economic data, Federal Reserve Chairman Ben Bernanke reassured markets that the economy was still well positioned for moderate growth. "We are looking for moderate growth in the U.S. economy," Bernanke told the House Budget Committee on Wednesday. "The downward revision of the fourth-quarter GDP numbers we got this morning is actually more consistent with our overall view of the economy than were the original numbers." Gross domestic product, the broadest measure of overall economic activity within U.S. borders, expanded at an annual rate of 2.2 percent in the fourth quarter of 2006. That was revised down from the 3.5 percent advance in the government's prior estimate. Still, the soft economic picture painted by Wednesday's data added to expectations that the Fed is done raising interest rates in its battle over inflation. "Good data is clearly becoming more sparse and today's reports, if anything, just reinforce the view the Fed is done tightening," said Mark Meadows, currency strategist at Tempus Consulting. The Commerce Department's latest GDP estimate was slightly weaker than the 2.4 percent increase that economists polled by Reuters were expecting and also suggested there was less risk of inflationary pressures mounting. As expected, a wider trade deficit also weighed on GDP, as more goods than first estimated were imported. On the inflation front, the closely watched personal consumption expenditures price index declined by a 0.9 percent rate, the biggest fall since 1954, as energy prices dropped. The core PCE price index, which strips out volatile food and energy prices and is closely watched at the Fed, rose 1.9 percent, a bit below the 2.1 percent gain first estimated. "That's a recipe to provide further traction to the notion the Federal Reserve will not need to raise rates further and that its next move is a rate cut," said Alex Beuzelin, senior market analyst at Ruesch International in Washington. The central bank has held its benchmark official rate steady at 5.25 percent since June. Market expectations were that the Fed will cut the rate by August. The updated reading on the health of the U.S. economy and the January new home sales data came one day after a global stock market rout in which the blue-chip Dow Jones industrial average .DJI notched its biggest one-day point drop since just after the September 11, 2001, attacks. U.S. stock markets recovered some of those losses on Wednesday, ending up modestly after Bernanke said there appeared to be no special factors triggering Tuesday's sell-off and that officials were closely monitoring the markets. Bond prices fell and the dollar regained some footing. For the year, the economy grew 3.3 percent, down from the 3.4 percent earlier estimated. In a sign that businesses are becoming wary about the economy's health, nonresidential investment spending fell by 2.4 percent during the quarter. It was the first decline since the first quarter of 2003, and was much weaker than the government's initial estimate of a 0.4 percent fall. WEAK HOUSING Adding to evidence of a troubled housing market, spending on new home building tumbled 19.1 percent during the quarter, the worst quarterly reading since a 21.7 percent decline in the first three months of 1991. A separate Commerce Department report showed a 16.6 percent decline in sales of new homes in January, the largest decrease since January 1994. Prices were little changed, as the number of new homes on the market decreased slightly. The median sales price of a new home inched up by $400 to $239,800 from $239,400 in December. On the consumer front, personal spending during the final three months of 2006 was weaker than first estimated. Personal spending advanced at a 4.2 percent annual rate, down from the prior 4.4 percent estimate. For the year, spending advanced 3.2 percent, slightly less than the 3.5 percent gain in 2005. Business activity in the U.S. Midwest slumped again in February, continuing a contraction begun in January, the National Association of Purchasing Management-Chicago's report showed. The group said its business barometer slid to 47.9 from 48.8 in January. A reading below 50 indicates contraction. The index had been above that mark since mid-2003 until January's fall. (Additional reporting by Burton Frierson in New York and Patrick Rucker in Washington)

Merck boosts '07 earnings forecast; shares rise. The news sent Merck's shares 2.6 percent in mid-morning trading. "While we had always seen Merck's 2007 guidance as conservative and had expected the company to revise this, we had not anticipated an upward revision so early in the year," Jami Rubin, an analyst at Morgan Stanley, said in a research report. Merck said it expects first-quarter earnings of 63 cents to 67 cents a share, excluding restructuring charges related to site closures and job cuts. Analysts' average forecast was 60 cents a share, according to Reuters Estimates. "On face value, this is a modest plosive, in our view, but is not surprising," Chris Shibutani, an analyst at JP Morgan, said in a research report. Amy Rose, a spokeswoman for Whitehouse Station, New Jersey-based Merck, said newer products are performing better than expected, and several of the company's older products are also exceeding expectations, though she declined to give specifics on the older drugs. "With it being the end of February, we can better analyze the early revenue trends for some of the established products as well as the newly launched products," she said. Gardasil was approved last year as the first vaccine to prevent human papillomavirus (HPV), which causes cervical cancer. GlaxoSmithKline Plc ( GSK.L ) has a rival product called Cervarix in development. A potential rival to Merck's newly-launched diabetes drug Januvia received a blow recently after U.S. regulators asked for more data. The U.S. Food and Drug Administration requested a further clinical study of Novartis AG's ( NOVN.VX ) Galvus, potentially delaying approval of the drug by a year. Merck forecast 2007 earnings of $2.55 to $2.65 per share excluding special items, up from a January forecast of $2.51 to $2.59. The average Wall Street estimate is $2.63, according to Reuters Estimates. The company said its new forecast does not include any reserves for litigation related to lawsuits over the withdrawn painkiller Vioxx. It forecast 2007 net earnings of $2.40 to $2.55 a share. In its January forecast, Merck said it was on track to deliver double-digit compound annual earnings growth by 2010, excluding one-time items and restructuring charges. Merck shares were up $1.13 to $44.31 in mid-morning trade on the New York Stock Exchange. (Additional reporting by Kim Dixon in Chicago)

Stocks plunge, bonds surge. The equities slide set off a flight from risky assets and emerging markets and into the relative safety of government bonds. Story: <ID:nN27390992> COMMENTARY: KEN FISHER, FOUNDER CHAIRMAN AND CEO FISHER INVESTMENTS, SAN FRANCISCO: "This is not the beginning of the bear market because bull markets roll over. It might be a correction. Sometimes you have big down days. All markets die with a wimper not a bang. "This was due to some form of freak-out factor. I don't think there's any reality to it. I am an optimist. I don't think this is any more than a few days, or a correction. "Alan Greenspan is no longer the head of the Fed so now he is the grumpy old man. Octagenarians are always pessimistic." ROBERT MORRIS, PARTNER AND CHIEF INVESTMENT OFFICER, LORD, ABBETT & CO. LLC: "Our view going in is that we felt that the market was headed higher this year. I don't think anything has occurred in last 24 hours that changed our view of that. "But one data point we're worried about is capital goods orders. I think the market reaction to Greenspan's comments in Australia and the sell-off in China were incidental. I think it over-reacted to the capital goods orders numbers. The market reaction was pretty extreme." THOMAS METZOLD, VICE PRESIDENT AND PORTFOLIO MANAGER, EATON VANCE, BOSTON: "Only time will tell if this is a correction or more. But I feel we had gotten the point of feeling that risk was nonexistent and maybe people have finally gotten a wake-up call. I feel this must have something to do with the subprime mortgage market and some major banks like HSBC and Citi and JPMorgan Chase have some pretty substantial exposure and I'm not sure that anyone has gotten their hands around this. I would not be surprised it a hedge fund or two got into trouble." HUGH JOHNSON, CHIEF INVESTMENT OFFICER, JOHNSON ILLINGTON ADVISORS, ALBANY, NEW YORK: "It's everything. It's subprime mortgages, China. Those are the two big things. It's hard to figure out which is more important. But both of them are pretty darn important. And both of them carry with them negative implications for the U.S. economy and earnings. I think the markets have overstated the outcome, but there's no question that the markets at long last are reflecting some concerns, legitimate concerns." GARY LISENBEE, PRESIDENT, METROPOLITAN WEST CAPITAL LLC, NEWPORT BEACH, CALIFORNIA ($8 BILLION UNDER MANAGEMENT): "Obviously things were kicked off by what happened in Asia, and there's some volatile markets over there. I think the market was a little vulnerable to sell-off here. Personally, I think the underlying fundamentals are strong. I've been a long believer of this global growth theme. I think we're going to continue to see strong growth globally... "It wouldn't surprise me if the market has some kind of correction, maybe 5 percent to 8 percent, just to throw some numbers out there. I don't see it as the beginning of the end or of any sustained bear market or downturn because there is still a tremendous amount of liquidity out there. The supply-demand situation is positive for the equity markets. At some point investors will become opportunistic and we'll see the buying come in. Whether it's tomorrow it's tough to say, or if we get a little more sell-off before that happens." CHRIS LOW, ECONOMIST, FTN FINANCIAL, NEW YORK: "What is striking to us is not the big move in Chinese stocks, but the contagion driving stocks down around the world. For the past couple of years, contagion was a thing of the past. Several emerging markets sold off hard last year after Japan started to raise rates, for instance, purportedly due to the unwinding of the carry trade ... Still, a synchronous drop in equities worldwide is noteworthy, especially since we have escaped this sort of thing for so long. Like the events in the subprime market in the past couple of months, and the fact that we no longer think of homes as a suitable part of a financial portfolio, this looks to be one more sign that the global liquidity glut is drying up." TIM HARTZELL, SENIOR VICE PRESIDENT AND CHIEF INVESTMENT OFFICERS, KANALY TRUST CO., HOUSTON, TEXAS: "The sell-off is indicative of the restrictive monetary policies you see around the world. You see Japan raising rates slightly. A couple of weeks ago, China changed the reserve requirement. "Slowly but surely on the margin, liquidity is starting to be pulled back off the table. "So the first thing investors would do is go into their most risky assets and start bringing down their risk profiles. There's going to be a little more of a flight to quality. So you still see bigger cap names do a little bit better." ANDRE BAKHOS, PRESIDENT OF PRINCETON FINANCIAL GROUP IN PRINCETON, NEW JERSEY: "The theme seems to be the chatter about the yen carry trade unwinding. There's a lot of bewilderment out there. As the afternoon has progressed there seems to be a sense of panic among some professional investors....There's talk about margin calls. "There seems to be just an air of nothing is safe anymore--there's nowhere to go and people are rotating into bonds as a safe haven....No one right now wants to be in equities. " "With the velocity and magnitude of the afternoon's fall, it makes one stop and think that there may be more spillover tomorrow." TODGER ANDERSON, CHAIRMAN, DENVER INVESTMENT ADVISORS LLC, DENVER: "In a nutshell, this is a healthy correction. In other words, we all know the markets run hard and fast. This is just a correction reminding people something they know, that stocks don't go to the sky. It's time for the heavily leveraged and momentum players to get scared a little bit."

White House says U.S. economic fundamentals strong. White House spokesman Tony Snow would not comment on volatility in the markets, saying "it's a very dangerous thing to do." But he said based on a reading of public opinion polls that "American public confidence continues to grow in the U.S. economy." He added: "The fundamentals are very strong." He noted that markets in China, where the stock market rout began on Tuesday, appeared to have rebounded on Wednesday. Asked what advice President George W. Bush has for investors, Snow replied: "The president does not give advice to investors in the stock market." Bush was briefed on Tuesday by Treasury Secretary Henry Paulson on the market drop. Snow said Bush asked Paulson, "'What do you think's going on,'" but would not describe the conversation further.

Mortgage applications up, housing signals mixed. Stock and bond market turbulence on Tuesday yanked some Treasury yields to two-month lows, signaling a further slide infixed mortgage rates that should fuel home sales in coming weeks, analysts said. It remains unclear how close the U.S. housing industry is to its trough, however, after varied signals on winter home sales that likely were distorted by a warm December and stormy January. The Mortgage Bankers Association's seasonally adjusted index of mortgage applications increased 3.2 percent to 626.1 in the week ended February 23, up from this year's low of 606.6 in the prior week. Borrowing costs on 30-year fixed-rate mortgages, excluding fees, declined 0.03 percentage point to average 6.16 percent, the lowest since it was 6.13 percent in the year's first week, according to the association. Other indicators this week showed the biggest gain in existing home sales in January in two years and the steepest monthly drop in new home sales in 13 years. Home prices were steady to lower. A sustained upturn in the housing market is considered unlikely with a glut of homes on the market. The supply of unsold new and existing homes grew in January. "The troubling news with the home sales report is that months' supply started to rise again, and that suggests we may have not seen the last of the subtraction from housing construction on GDP," said Matthew Moore, economic strategist at Banc of America Securities. The Mortgage Bankers Association's seasonally adjusted purchase index, seen as a timely gauge of home sales, rose 5.2 percent to 401.3 in the latest week, it said. The group's seasonally adjusted refinancing index advanced 1.2 percent to 1,943.5. Last week's results were adjusted for the Presidents Day holiday. On a four-week moving average, which smooths out volatility, the seasonally adjusted market index is down 0.2 percent to 625.6 and the purchase index is off 0.4 percent at 397.0, the MBA said. The refinance measure is flat at 1,959.9 compared with 1,959.1. MIXED SIGNALS "The purchase application index is down 6.7 percent in February compared to its January average. However, if even part of yesterday's decline in rates holds, we think purchase applications will increase in the weeks ahead," said Nancy Vanden Houten, analyst at Stone & McCarthy Research Associates in Princeton, New Jersey. "Otherwise, we would look for the purchase application index to hover around recent levels." The state of the U.S. housing sector is critical for determining the health of the economy, most economists agree. Some economists suggest the swift slump following a record five-year surge in home sales and prices is near its end while others say the correction has not yet been deep enough. Sales of existing homes in January staged their biggest gain in two years, boosted by unusually warm weather, the National Association of Realtors said on Tuesday. Builders for months have been slicing prices and offering incentives to lure buyers and pare inventory. Still, inventories of unsold existing homes in January remained high at a 6.6 months' supply based on the current sales pace while overall sales rose 3 percent. Existing homes represent 85 percent of the housing market. New home sales, in contrast, fell 16.6 percent in January and homes available for sale rose to 6.8 months' worth from 5.7 months' supply, the Commerce Department said on Wednesday. Construction should subtract from economic growth through the first half of 2007 before starting to ramp up, Moore said. "In the second half of the year, we could see construction come back," he said. "The question is whether consumer spending will continue to hold up in the face of this continued weak housing data."

Hertz to cut 1,350 jobs, sees 1st-quarter charge. The cuts will be primarily in the company's car-rental operations in the United States, Hertz said. Smaller reductions will be made in its U.S. equipment rental business, its corporate headquarters in Park Ridge, New Jersey, and the U.S. service center in Oklahoma City, Oklahoma. The company said it expects to book a charge of $9 million to $11 million in the first quarter to pay for the job cuts.

FTSE sinks further. Global equity indexes fell after China's main index, the Shanghai Composite, plunged on Tuesday amid fears authorities would crack down on stock market speculation. Across the Atlantic, Wall Street's Dow Jones Industrial Average experienced its worst slide since the aftermath of the September 11, 2001 attacks in Tuesday's session, after global economic concerns raised by China's fall were exacerbated by a disappointing U.S. durable goods orders report. "It's going to be a case of riding out this correction before a new level is established," said Matt Buckland, a trader at CMC Markets. By 0850 GMT the FTSE 100 was 116.1 points, or 1.85 percent lower at 6,170, with all but one its stocks in negative territory. The index ended down 148.6 points in the previous session. Among a raft of companies reporting, Britain's biggest mortgage lender HBOS dropped more than 4 percent despite beating analysts' forecasts with a 14 percent rise in annual underlying profit as it kept a tight rein on costs and bad debts came in below expectations. Other banks also extended the previous day's heavy losses, with Standard Chartered down about 4 percent, and Barclays falling 2.6 percent. Miners extended losses from the previous session, with Xstrata and Antofagasta losing about 4 percent, and BHP Billiton dropping 3.8 percent.

Bernanke: Fed economic view unfazed by stocks drop. "My view is that taking all the new data into account, that there is really no material change in our expectations for the U.S. economy since I last reported to Congress a couple weeks ago," Bernanke told a congressional panel. His remarks came a day after the U.S. stock market suffered its worst slide since 2001, as a sell-off in China's stock market raised fears equity valuations were too high. The stock market plunge had driven investors into the safe-haven of U.S. government debt and raised expectations the U.S. central bank would cut interest rates by August. Some of those bets, however, reversed on Bernanke's soothing words to the House of Representatives' Budget Committee, which suggested the U.S. central bank was still focused on the risk inflation might not move down as hoped. Two weeks ago, the Fed chief told Congress inflation looked set to ease, but reminded lawmakers that the Fed would act if it did not. The Fed has held overnight interest rates steady at 5.25 percent since June. The U.S. stock market regained its footing on Wednesday, aided by Bernanke's faith in the health of the U.S. economy. In early afternoon, the blue chip Dow Jones industrial average .DJI was up more than 80 points. At the same time, the dollar rose against major currencies and bond prices slipped. MARKETS FUNCTIONING FINE Bernanke said there appeared to be no single trigger to what he termed Tuesday's "market correction," and he declined to pick apart different elements that may have contributed to the movement in stocks. The Fed chairman said a group composed of the Fed, the Treasury Department and other top financial regulators had been closely monitoring the markets, and he pronounced them in good health. "They seem to be working well, normally," he said. Bernanke said a downward revision on Wednesday in the government's estimate of fourth-quarter economic growth -- to a 2.2 percent annual pace from an initial 3.5 percent reading -- was in keeping with the Fed's view of the economy. "The downward revision of the fourth-quarter GDP numbers we got this morning is actually more consistent with our overall view of the economy than were the original numbers," he said. "We expect moderate growth going forward," he added. Bernanke was not asked to address two other reports issued on Wednesday: one showing the biggest drop in new home sales in 13 years last month and another showing a slump in business activity in the Midwest in February. Bernanke said there was a "reasonable possibility" that the economy would regain strength some time during the middle of the year if the downtrodden housing sector stabilizes and if manufacturers finish trimming a backlog of inventories. RENEWS BUDGET WARNING Addressing the U.S. budget situation, the Fed chairman renewed his caution that failure by lawmakers to take action soon to prepare for the retirement of aging Baby Boomers could lead to serious economic harm. "A vicious cycle may develop in which large (budget) deficits lead to rapid growth in debt and interest payments, which in turn adds to subsequent deficits," Bernanke said in testimony nearly identical to remarks he delivered last month. Bernanke said again on Wednesday that the United States needed to move toward fiscal policies that were sustainable and that would promote more saving to support the Social Security retirement program without imposing undue costs on taxpayers. However, he offered no specific policy prescriptions. "Crucially, whatever size of government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run," Bernanke said. Bernanke said advocates of lower taxes would have to accept lower spending on entitlement programs. Likewise, proponents of more-expansive government programs must recognize the need for higher taxes to fund higher spending, he added. (Additional reporting by Glenn Somerville )

INSTANT VIEW 2-U.S. Jan new home sales, Feb Chicago PMI. New single-family home sales fell to an annualized rate of 937,000 units from an upwardly revised rate of 1.123 million units in December, the Commerce Department said. Analysts polled by Reuters were expecting January sales to dip to 1.080 million from the previously reported rate of 1.120 million units in December. KEY POINTS: - The monthly decline in new home sales was the sharpest in 13 years, since a 23.8 percent drop-off in January 1994. - The National Association of Purchasing Management-Chicago said its business barometer slid to 47.9 from 48.8 in January. Economists surveyed by Reuters had forecast the index would come in at 50.0. The 64 estimates ranged from 47.5 to 52.0. COMMENTARY: PIERRE ELLIS, SENIOR ECONOMIST, DECISION ECONOMICS, NEW YORK: "The whole picture presented by the January new home sales drop is that housing is unexpectedly soft. Sales fell more than expected and that effectively offsets the drop in housing starts so that the inventory of unsold homes was virtually unchanged. If sales declines are offsetting production declines, that means that inventories cannot be brought under control. That will keep downward pressure on new home prices and new home prices are probably very poorly measured by this report because there are many unseen discounts going on. The housing market rebalancing is not proceeding as directly as would be best for the economy and downside risks remain." SHAUN OSBORNE, CHIEF CURRENCY STRATEGIST, TD SECURITIES, TORONTO: "Fundamentals are not looking too brilliant for the U.S. dollar at this point. Interestingly though, despite the bad news, the dollar has not lost that much ground. Obviously, we've got a big fundamental shift in the market -- a big drop in the dollar on Tuesday and a narrowing in the 2-year interest rate spreads with the euro. The problem at this point is that we've got significant short dollar base already." JOHN MCCARTHY, DIRECTOR OF FOREIGN EXCHANGE, ING CAPITAL MARKETS, NEW YORK: "Given the housing data, the equity market performance and durable goods yesterday, I'd have thought the euro would be higher. My gut tells me that the market is still long a lot of euros, because we've had a lot of bad U.S. data but the euro can't get much above 1.3250. All the dollar bearish news has produced one thing, and that's a stronger yen, as people will liquidate carry trades to offset losses elsewhere, particularly in equities. Essentially, we are still looking at the equity market." MARK MEADOWS, CURRENCY STRATEGIST, TEMPUS CONSULTING, WASHINGTON, D.C.: "The dollar is somewhat supported today after yesterday's big move. But the truth is that weakening in the currency will probably continue. Good data is clearly becoming more sparse and today's reports, if anything, just reinforce the view the Fed is done tightening." MARKET REACTION: - U.S. Treasury debt prices pare losses after weaker-than-expected Jan U.S. new home sales. - The dollar pared gains, pushing the euro to $1.3215 after the U.S. data from $1.3205 EUR= . Against the yen, the dollar was still up at 118.13 yen JPY= .

Sprint sees first quarter postpaid net sub losses. "Sequentially, we expect to report a similar number of postpaid subscriber losses in the first quarter of 2007 and postpaid net adds are expected to be positive in the second quarter and ramp up for the remainder of the year as our sale initiatives begin to take root," Saleh said during the company's fourth quarter earnings conference call. Sprint said it lost 306,000 postpaid customers in the fourth quarter.

Wall Street set to open up, calmer after sell-off. Tuesday's sell-off wiped out the year's gains on all three major U.S stock indexes, but the markets look set to strengthen as investors reassess the factors behind the move, "Futures are looking up, I guess the markets look like they are going to get back some of yesterday's losses after the Chinese made some calming remarks," said Ben Rogoff, senior fund manager at Polar Capital Partners Ltd. The Shanghai benchmark gained nearly 4 percent on Wednesday as Chinese Premier Wen Jiabao said the government would make a priority of guarding the safety and stability of the country's financial markets. The Shanghai Composite Index dived nearly 9 percent on Tuesday, triggering the fall in global stock markets. Rogoff added: "I don't want to say yesterday was a storm in a teacup, but it looked like a fairly exaggerated move." He suggested that technical factors may also have been at play. U.S stock futures indicated that all three major indexes would open stronger. At 1100 GMT S&P 500 futures, Dow Jones industrial average futures and Nasdaq futures were up between 0.8-1.0 percent. A flurry of macroeconomic indicators will also be in focus. Analysts are expecting that preliminary GDP figures for the fourth quarter, due for release at 1330 GMT, will be revised down to 2.4 pct annual growth from 3.5 in the first estimate. "The mood the market is in, GDP is going to obviously be a very big deal," Rogoff said, adding that he would be focusing on figures for core PCE. The Chicago Purchasing Managers Index for February will also be of note at 1445 GMT, with a Reuters forecast of 50.0 versus 48.8 in January. U.S new home sales for January, a gauge of consumer confidence, are due at 1500 GMT. Federal Reserve Chairman Ben Bernanke will be testifying on long-term fiscal challenges and the economy before the House Budget Committee at 1500 GMT, and is expected to allay concerns about a slowdown in the economy. While attention will be turned to macroeconomic indicators, several companies are due to report fourth quarter earnings, including Barr Pharmaceuticals and Liz Claiborne. Retailer Home Depot said on Wednesday that it expected per-share profit to decline this year. The Dow Jones industrial average was down 3.29 percent to 12,216.24, while the S&P 500 fell 3.47 percent and the Nasdaq slid 3.86 percent.

INSTANT VIEW-Bernanke comments help US stocks. "My view is that taking all the new data into account, that there is really no material change in our expectations for the U.S. economy since I last reported to Congress a couple weeks ago," Bernanke said in response to questions from the House Budget Committee. However, the U.S. central bank has some concerns about the domestic subprime mortgage market and is monitoring it closely, Bernanke said. Bernanke also said foreign central banks are neither expected to, nor would it be in their interests to dump U.S. Treasuries on global debt markets. In his prepared speech to the Committee though Bernanke did not address the outlook for U.S. interest-rate policy or Tuesday's sharp fall in global stock markets. COMMENTARY: MICHAEL JAMES, SENIOR TRADER, WEDBUSH MORGAN, LOS ANGELES: "The Bernanke comments are helping (stocks) significantly. "I think the majority of people viewed yesterday's move as not surprising but a little overdone, and some of the comments from the Fed chairman are certainly helping to restore confidence in the markets today." TONY CRESCENZI, CHIEF BOND MARKET STRATEGIST WITH MILLER, TABAK & CO IN NEW YORK: "Bernanke responded in a way one would expect to financial events." "Some will say he passed with flying colors: he sounded reassuring." "He said the Fed was closely monitoring the situation and talked about the economy and how it is expected to continue growing. The stock market rallied and the bond market fell." "The Fed is still confident in this situation. it is his first real test after a financial event." MARKET REACTION: - U.S. Treasury debt prices were lower midsession Wednesday, after three days of gains, with the benchmark ten year note yield around 4.56 percent, after falling to a low of 4.4520 on Tuesday; - The dollar was slightly higher midsession Wednesday, after Tuesday's slump, with the euro quoted around $1.3218 and the dollar quoted around 118.44 yen, following Tuesday's jump in the Japanese currency; pared gains, pushing the euro to $1.3215 - U.S. stocks were higher midsession Wednesday, with the benchmark S&P500 index around 1,409 after a 3.47 percent fall on Tuesday;

Goodyear to freeze U.S. salaried worker pensions. Goodyear, the largest U.S. tire maker, said it would phase in those and other changes over two years, freezing the pension plan at the end of 2008 and replacing it with enhanced 401(k) savings accounts with company contributions. The company, whose shares were up slightly, plans to record a first-quarter charge of $65 million for those actions, which it expects to reduce the pension obligation by about $100 million and other post-retirement benefits by $525 million. The changes follow Goodyear's agreement with the United Steelworkers union late last year to finance a trust fund to cover union retiree health care, eliminating the need for further company contributions. The company, which is in the middle of a three-year restructuring plan that includes cutting costs by more than $1 billion, said earlier in February it expected to raise that cost-cutting target later in 2007 after making substantial progress. Goodyear expects after-tax savings of $80 million to $90 million in 2007, $100 million to $110 million in 2008, and $80 million to $90 million in 2009 and beyond from the various changes. About 14,000 active salaried workers will be affected by the pension and health care changes and 17,000 retirees by the changes to the health programs, Goodyear said. The Akron, Ohio-based company has salaried employees in offices, factories and retail stores. J.P. Morgan analyst Himanshu Patel said the actions would reduce Goodyear's nonpension post-retirement obligations by about $775 million, with a modest reduction in pension liability. "We had expected an announcement on this front for the past few months, but the magnitude of the savings appears about twice what we originally thought," Patel said in a note. Goodyear's announcement came one day after FedEx Corp. ( FDX.N ) said it would cap its traditional pension plan at the end of May 2008 in favor of offering employees what it calls a portable pension account. AT Goodyear, most health care benefit plan changes take effect in 2008. Besides increasing the retirees' contribution to health care coverage, the company plans to redesign the plans to minimize the impact on premiums, close its Medicare supplement plan to new entrants and discontinue life insurance it has paid for salaried retirees. Goodyear shares were up 10 cents at $24.51 in morning New York Stock Exchange trade after rising as high as $25 earlier in the session.

Pfizer says maraviroc suppresses AIDS virus. If approved by regulators, maraviroc would be the first in a new class of oral HIV drugs since the introduction of protease inhibitors about 10 years ago, said Dr. Howard Mayer, a Pfizer executive in charge of the drug's development. Maraviroc is designed to block the human immunodeficiency virus from taking up residence in T cells, a type of white blood cell vital to the immune system, by jamming receptors -- or docking stations -- that dot the surface of T cells and act as doorways in. If HIV cannot enter, it cannot replicate. As the receptors are made of a protein called CCR5, maraviroc and others in this new crop of drugs are called CCR5 inhibitors. About 80 percent of recently infected HIV patients and 50 percent of treatment-experienced patients have so-called CCR5-tropic virus, said Chris Petropoulos, chief scientific officer at Monogram Biosciences, which makes a CCR5 test. Over time, the virus in most patients develops the ability to use an alternate pathway known as CXCR4, he explained. Pfizer, the world's top drugmaker, unveiled 24-week results of two Phase III trials involving patients with CCR5-tropic HIV who had stopped responding to other treatments at the 14th Conference on Retroviruses and Opportunistic Infections. The first trial of 601 patients showed 60.4 percent of those who took maraviroc twice a day along with a background regimen of current HIV drugs achieved a level of less than 400 HIV copies per milliliter of blood, compared to 54.7 percent on a once-daily dose and 31.4 percent on just background therapy. The second trial, involving 475 patients, found that 61.3 percent of twice-daily maraviroc patients achieved target HIV levels, compared with 55.5 percent on once-daily therapy and 23.1 percent treated only with other drugs. Mayer said even though maraviroc patients were on therapy for longer -- because most did not become resistant -- side effect profiles were similar between both arms of the trials. "We are not seeing any evidence of hepatotoxicity ... there has been no evidence of increased risk of lymphoma or other malignancies," he said, referring to side effects such as liver damage seen with other CCR5 inhibitors under development. The Pfizer executive said the company has not observed any increased infection risk in patients treated with maraviroc. Because CCR5 inhibitors do not attack the virus itself, as with existing HIV treatment classes, Mayer said HIV might be less likely to develop ways of resisting their effects. The virus that causes AIDS infects more than 1 million people in the United States and nearly 40 million worldwide. Resistance is a problem as HIV can mutate, particularly if patients fail to rigorously follow complicated drug regimens. About a tenth of newly diagnosed HIV patients are infected with a virus resistant to at least one of the three main types of AIDS drugs, the U.S. Centers for Disease Control and Prevention said on Monday. The Food and Drug Administration has convened for April 24 an advisory panel to review Pfizer's maraviroc application. Mayer said the trials in heavily treated patients are ongoing and the company expects to have results later this year of the drug's effectiveness in newly diagnosed AIDS patients.

Metals stay down on China fears; grains up. sell-off analysts called overdone. Energy prices, down earlier in the day, recovered just before the close. Agricultural products like corn, wheat and soybeans notched sharp gains with funds buying back most of what was sold Tuesday. Gold for April delivery closed down 2 percent at $672.50 an ounce in New York futures trade. The spot price of gold touched a session bottom of $660, against Tuesday's close of $661.00/$662.00 in New York. Traders said investors have been selling gold to cover losses on global equity markets, which tumbled Tuesday amid talk that China could embark on a major credit tightening. China's benchmark Shanghai Composite Index .SSEC plunged nearly 9 percent Tuesday, its biggest drop in a decade. U.S. January durable goods orders also saw a sharp decline. Both developments rekindled worries about global economic growth, sending the Dow Jones industrial average .DJI on Tuesday to its biggest nosedive since the attacks of September 11, 2001. The Dow edged higher on Wednesday. "If China stops growing then that ripples out across the world," said Saleem Siddiqi a partner at U.S.-based hedge fund firm Tapestry Asset Management. "The fear is the sluice gates may be closing," Siddiqi said. "If the Chinese start to withdraw, and slow their economy down, demand for assets like commodities pay the price." Some said high-flying commodity markets were ripe for a correction. Active U.S. copper for May hit a two-month high of $2.90 a lb on Monday, before diving on Tuesday and falling again on Wednesday to close down 2.6 percent at $2.7520. Crude oil on the New York Mercantile Exchange had risen to $61.44 a barrel two sessions ago, the highest since late December. It fell below $61 a barrel on Tuesday and slid more than 1 percent Wednesday to below $60 before closing at $61.79, up 33 cents. Some analysts said investors had overreacted. They said China was among the world's largest consumers and importers of oil and base metals and such commodities were subject to dynamics like producer supply and consumer demand -- as opposed to the financial flows that dominated stocks. They also said China may raise interest rates, but that will do little lasting damage to its economic growth. It also would not be likely to curb China's huge infrastructure spending, which requires commodities. "The Chinese situation has been largely misunderstood and China should continue to show economic growth ahead of expectations," said John Meyer at Numis Securities. "We see the current market correction as symptomatic of investors desire to lock in profits and to adjust portfolios. Oil prices at close to $61 a barrel are a greater concern as higher oil prices tend to raise inflation and dampen global growth," he said.

Analysis: From builders to managers: educating China's leadership. For the world's biggest grain grower and consumer, this type of research is crucial for improving yields. But it was an unlikely qualification for political leadership in China where engineers have traditionally held many of the top posts. Sun represents one of the more far reaching changes in Chinese politics. Highly educated leaders in a broad range of disciplines are rising to the top of the ruling Communist Party, according to data from Connected China, a Reuters database application that tracks the connections and careers of China's leaders. Sun, 49, who joined the Politburo at November's Communist Party Congress, is one of five PhD holders in a body in which all 25 members have at least a junior college education. Some education experts explain the rise of this more highly educated leadership class as a product of the increasing complexity of China's economy and society. It also reflects an evolution in the Party. A generation of revolutionary soldiers gave way to technocratic engineers who guided the following period of industrialization. The engineers are now handing over to leaders better qualified to run the world's second-biggest economy. "As the society matures, it is always beneficial to have a leadership with diverse backgrounds," said Gong Peng, a Professor at Tsinghua University's Center for Earth System Science. "They bring different thinking and skills to the administration." The data from Connected China shows far more Politburo members now hold PhDs and graduate degrees than earlier leadership generations. It also shows that education is not necessarily the only path to power: loyalties forged during political posts in the provinces, and family ties to former leaders also matter a great deal. DR XI AND DR LI The other PhD holders in the current Politburo are party leader and incoming President Xi Jinping, who studied China's rural markets at Tsinghua University. Li Keqiang, expected to become Premier after the National People's Congress in March, has a PhD in economics from Peking University. Liu Yandong studied China's political development at Jilin University, and fellow Politburo member Li Yuanchao explored socialist art and culture in his thesis at the Central Party School. The current Politburo also features nine members with masters degrees and three with other higher degrees. That stands in stark contrast with members of the 14th Politburo formed in 1992. Only Hu Jintao and Wen Jiabao, who became China's top leadership duo a decade later, had graduate degrees in that group. The change in the breadth of education has also been dramatic. Ten years ago, 15 of the 20 college-educated members of the Politburo were trained in engineering or the physical sciences. At the very top of China's hierarchy, engineers were even more heavily represented. In the nine-member Politburo Standing Committee appointed in 2002, eight members of the party's top decision-making body were engineers and one was a geologist. Of these, four were engineering graduates of Tsinghua. The current Politburo has only four engineers. They are outnumbered by colleagues with training in economics, finance and business management. It also shows a sharp increase in members educated in law, humanities and social sciences. The seven-member Standing Committee has only two engineers; Xi Jinping, who has an undergraduate degree in chemical engineering and Yu Zhengsheng who worked in missile guidance. For some Chinese educators, the presence of fewer engineers at the top is a welcome development after decades in which technocratic leaders, often Soviet trained, dominated decision-making in Beijing. "Engineers who do not learn about management may not be good managers and eventually good administrators," says Tsinghua's Gong. "I think it will improve the governing quality in China." WORLDY LEADERS In the early 1980s, then paramount leader Deng Xiaoping directed the party to foster a generation of better educated cadres who could accelerate China's market reforms. China's subsequent rise as a major trading nation and growing military power is also increasing pressure on the party to select better educated and more worldly leaders, political analysts and education experts say. "Because the country is changing and the world is changing, it requires a more sophisticated understanding of the issues," says Yu Maochun, an expert on Chinese politics and a professor at the Annapolis, Maryland-based United States Naval Academy. Some experts question whether academic qualifications are as important as loyalty and family ties in a political system where many senior leaders, including Xi Jinping, are "princelings", children of senior party veterans. EXPERIENCE IN PROVINCES Data from Connected China shows an increasing emphasis on provincial-level party leadership experience for Politburo members. In 1992, only nine of 23 Politburo members served as a provincial or municipal-level party chief. In the current Politburo, 19 of the 25 have held or currently hold a provincial post at this level, including Sun Zhengcai who is party secretary in Chongqing. Many of the engineers who held top posts, including President Hu Jintao, spent long periods working in unrelated fields. "They are not really engineers in the Western sense," says Yu. "They are really political hacks. Their career paths were not devoted to science but concentrated on the political system." Despite the increasing diversity of education at the upper levels of the party, one feature of China's leadership remains virtually unchanged since the revolutionary period - the domination of men. Only two women are in the current Politburo, Liu Yandong and Sun Chunlan, and none are in the Politburo Standing Committee. (Reporting by Irene Jay Liu and David Lague; Editing by Bill Tarrant )

Allianz German unit focuses on growth without mergers. Allianz last year put out feelers toward public sector insurer Provinzial Nordwest, with sources close to Provinzial Nordwest's owners saying Allianz was prepared to pay the insurer's book value of 2.25 billion euros ($2.95 billion). The approach ran into the sand, however, after Provinzial Nordwest said it would explore a merger with fellow public sector insurer Provinzial Rheinland instead. ($1 = 0.7628 euros) (Reporting by Alexander Huebner, writing by Jonathan Gould)

Analysis: Cuts unlikely to deliver promised budget savings. In reality, the so-called "sequester" is likely to yield less than half that much in the short term. In part, that has to do with the complex way the government handles its money. But it also reflects the probability that the spending cuts will hurt the economy, which in turn will lower tax revenue and drive up the costs of social safety-net programs like unemployment insurance. On top of that, federal agencies - especially the Pentagon - will have to pay penalties to suppliers if the sequester forced them to cancel contracts. Add it up, and the actual savings could be a lot less than budget hawks envision. "There is a possibility that we'd save virtually nothing in outlays," said Steve Bell, a former Republican congressional aide now with the Bipartisan Policy Center, a Washington think tank. Even a relatively small decline in spending would be magnified over the coming years as it would reduce debt-servicing costs. But the sequester would do little to restrain federal debt over the long term because it fails to tackle health costs, which are projected to balloon as the population ages. If the sequester were not to take effect, federal debt would equal the size of the economy by 2031, according to the Bipartisan Policy Center. With the sequester in place, it will hit that dubious milestone in 2033. The sequester was not supposed to happen. Republicans and Democrats in 2011 set up the deep cuts to military and domestic spending as a worst-case scenario that would force them to reach tough decisions on taxes and spending in order to set U.S. finances on a sustainable course. But they have been unable to reach an agreement. Absent a last-minute deal, spending cuts of about 13 percent for defense programs and 9 percent for domestic programs will kick in just before Friday night. CRUNCHING THE NUMBERS The $85 billion cut to budget authority amounts to about 2.4 percent of the $3.6 trillion the U.S. government is expected to spend in the fiscal year that ends on September 30. The actual amount of savings is much less - $43 billion in the current fiscal year, according to the Congressional Budget Office. That's because federal agencies don't spend all of the money they are allocated in any given fiscal year. A $1 billion aircraft carrier, for example, may take years to build. Even at that lower level, the effects are likely to ripple across the world's largest economy in a way that will work against deficit-reduction efforts. The nonpartisan CBO estimates gross domestic product will grow by 1.4 percent this year, compared to 2.0 percent if the sequester was not in place. The Bipartisan Policy Center estimates the sequester will lead to 1 million lost jobs in 2013 and 2014. Slower economic growth means the government will collect less tax revenue as businesses and workers earn less than they would otherwise - a fact that Federal Reserve Chairman Ben Bernanke highlighted in congressional testimony on Wednesday. "Besides having adverse effects on jobs and incomes, a slower recovery would lead to less actual deficit reduction in the short run for any given set of fiscal actions," Bernanke told the House of Representatives Financial Services Committee. The CBO estimated last year that a 0.1-percentage-point drop in GDP growth translates into $1 billion less in tax revenue. That would indicate the government will take in $6 billion less this year if the sequester takes hold. The sequester could impact government revenue in other ways as well. The Internal Revenue Service has warned that it could be forced to scale back its enforcement, letting more tax cheats get away. The government could lose more money to health-care fraud as well if the administrators of the Medicare and Medicaid health plans are forced to scale back their reward programs for whistle blowers. Slower economic growth also forces the government to spend more on food stamps, unemployment aid and other social programs. The budget impact of these "automatic stabilizers" - so called because they kick in without requiring new government action - can be dramatic. According to CBO, they added $367 billion to the deficit in the 2011 fiscal year, while they reduced the deficit by $44 billion in fiscal 2007, before the recession hit. CBO projected last year that these social programs would widen budget deficits further because of the impact of the sequester and steep tax increases that were due to take effect on January 1. Most of those tax hikes have been averted, but budget experts said the sequester will still drive up their costs. "It seems pretty clear that some of the deficit reduction you achieve by allowing sequester to occur would be dissipated," said Joe Minarik, a former budget official under President Bill Clinton. (Reporting by Andy Sullivan; Editing by Xavier Briand )

Ryanair to cut Stansted capacity by 9 percent. The Irish low-cost carrier, which accounted for about 70 percent of Stansted's traffic in 2011, said that it will cut more than 170 flights a week - a 9 percent reduction. Single-runway Stansted, based 50 kilometers northeast of central London, is Britain's fourth-busiest airport and handled nearly 18 million passengers last year. The news came as Heathrow Airport Holdings ( FER.MC ), formerly the British airports operator BAA, completed the 1.5 billion pound ($2.28 billion) sale of Stansted to Manchester Airports Group (MAG) on Thursday. Ryanair called on the Civil Aviation Authority (CAA) to investigate Stansted's higher increase in charges. "Ryanair and other Stansted airlines now must ask was this surprise price increase part of a sweetener package to persuade MAG to pay 1.5 billion pounds for Stansted," Ryanair spokesman Robin Kiely said in a statement. A spokesman for Heathrow Airport Holdings said that, as the sale of Stansted had gone through on Thursday, it was no longer in charge of the airport and would not comment. MAG was not immediately able to comment. Ryanair has been in a long-running pricing dispute with Stansted. In 2011 it filed a complaint with Britain's CAA and Competition Commission about charges levied by the airport. (Reporting by Conor Humphries and Neil Maidment in London; Editing by David Goodman)

Groupon shares crumple after dismal outlook, take-rate cut. The cut in its "take rate", which some analysts had said was needed to revive flagging interest among merchants in its Internet offers, was a blow to fourth-quarter results. And a sharper-than-expected post-holiday slowdown in its new e-commerce business contributed to a disappointing first-quarter sales forecast. The stream of bad numbers, which included a surprise loss in the fourth quarter, drove Groupon's stock down 26 percent to $4.43 in after hours trade. Overall, the company has shed more than three-quarters of its value since debuting at $20 in November of 2011. "This raises questions about how these guys are going to be able to scale the business," said Tom White, an analyst at Macquarie. "The forecast is underwhelming." Groupon is among a group of consumer-focused Internet startups that went public to much fanfare in 2011 - before losing massive chunks of market value as investors realized they had over-rated their prospects. Within a year, Groupon had run into problems dealing with European merchants and sustaining interest among users as deals fever receded. In 2012, analysts speculated that Chief Executive Andrew Mason, known for a quirky sense of humor, may have fallen out of favor with the board. A company spokesman said Mason remained in charge and the CEO addressed analysts on Wednesday's post-results call. Groupon reported fourth-quarter revenue rose 30 percent to $638.3 million from $492.2 million in the year-ago period. But it slid into the red with a 1 cent per share loss excluding items, versus expectations for a slim profit of 3 cents a share. It forecast first-quarter revenue of $560 million to $610 million, sharply below the $650 million average estimate of analysts polled by Thomson Reuters I/B/E/S. Chief Financial Officer Jason Child told Reuters that Groupon began sharing more money from its deals with merchants early in the fourth quarter, to persuade them to come onboard and run an offer for the first time, or work on another. This was done selectively in the United States and in Europe, he added. Historically, Groupon has kept about 40 percent of the money generated by daily deals. That declined to about 35 percent in the fourth quarter. Groupon then "fine tuned" take rates later in the quarter and Child said the company expects profitability to improve as a result. "We are focused on driving growth," he said in an interview. "We will make the investments we feel we need to optimize for growth and merchant profitability." THE GOODS ON EUROPE Merchants have complained that Groupon takes too large a cut of online offers. Groupon executives forecast long-term take rates of 30 percent to 40 percent for the daily deals business, during a conference call with analysts. One of the reasons Groupon reduced take rates was to create more daily deals for a new business called Local Marketplace, which launched in November. Groupon has mostly focused on sending daily emails to customers offering vouchers for activities in their area. Local Marketplace relies instead on people searching for something to do or buy nearby, such as an oil change or a massage. By the end of the third quarter, before the launch, Groupon had amassed an online store of more than 27,000 deals for the new marketplace. Analysts have said the move has potential because Groupon's deals may be more likely to show up in Google searches. By the end of 2012, Groupon claimed almost 37,000 active deals running in North America, and many were longer-term offers for Local Marketplace. For now, Groupon Goods, the company's discounted product sales business, generated a lot of the fourth-quarter revenue growth, though it's seasonally volatile and generates lower margins than daily deals. Groupon's limp outlook revived fears its business model may be in jeopardy. Chief among their concerns have been intensifying competition in e-commerce, and a struggling European division walloped by the recession there. Executives warned a turnaround effort there would take time, and signaled that cost cuts are coming for the company's International business. Groupon is trying to fix it by reducing the size of discounts on deals there and testing faster payments to higher-quality merchants. Technology used to automate its U.S. operations and sales efforts is being rolled out in Europe now. Kal Raman, chief operating officer, said more than the twice the number of people are needed to handle and process an International division deal, than in the United States. A Groupon spokesman said there are no "definite" plans for International job cuts, but there were staff reductions in the United States when the company automated. "That is an enormous opportunity to organize Groupon's operations to be both more efficient," Raman told analysts during the conference call. (Reporting by Alistair Barr; Editing by David Gregorio , Richard Chang and Tim Dobbyn )

Domino's profit rises, boosted by new pan pizzas. The results from Domino's landed at a time when a bevy of U.S. operators, including Burger King Worldwide Inc ( BKW.N ) and Olive Garden parent Darden Restaurants Inc ( DRI.N ), have warned that the U.S. payroll tax increase, higher gas prices and delayed federal tax returns are taking a bite out of spending on meals away from home. Net income at Domino's rose 22 percent to $37.6 million, or 64 cents per share during the fourth quarter. Analysts, on average, had expected Domino's to report a profit of 60 cents per share, according to Thomson Reuters I/B/E/S. Revenue increased almost 8 percent to $539.7 million. Sales at stores open at least one year rose 4.7 percent in the United States - more than expected and helped by the introduction of pan pizza. International same-restaurant sales increased 5.2 percent. Domino's competes with Yum Brands Inc's ( YUM.N ) Pizza Hut chain and Papa John's International Inc ( PZZA.O ). Shares in the company, which also announced a quarterly dividend on Thursday, were up 2.2 percent to $47.88 in midday trading. (Reporting By Lisa Baertlein in Los Angeles; Editing by Kenneth Barry)

Pershing Square's Bill Ackman has a two aspirin kind of day. The day started with news that the shares of retailer J.C Penney Co Inc ( JCP.N ), in which Pershing Square is the largest investor, tumbled as much as 22 percent in the wake of disappointing earnings news. The shares closed down about 17 percent at $17.57. The second blow came hours later when Herbalife Ltd ( HLF.N ) - in which Ackman made a $1 billion bet its shares would fall to zero - invited two representatives of arch enemy Carl Icahn onto its board. The company's shares ended the day 7.6 percent higher at $40.29 after the announcement. The one-two punch of bad news is particularly punishing for Ackman because Pershing Square manages a very concentrated portfolio with only a handful of stocks, far less than the average hedge fund. To be sure, Ackman has other strong performers in his portfolio, including mall operator General Growth Properties Inc ( GGP.N ) and Canadian Pacific Railway Ltd ( CP.TO ). But Herbalife and JCP are the names Ackman spends most of his time explaining and defending at public conferences and behind closed doors to his own investors. Coming at the month's end, the surging and swooning surely took a bite out of his fund's performance just as competitors were tallying their final numbers. Like his rivals, Ackman started 2013 on a strong note with a roughly 4 percent gain in January topped off by a roughly 0.9 percent rise in February, people familiar with his numbers said. Clearly, the day's developments were not something the usually chatty Ackman was ready to discuss - at least in public. Telephone calls and emails, which the manager often returns immediately, went ignored as a day one associate described as "crazy" dragged on. So far, Ackman's own investors have shown no signs of abandoning the fund manager, even as some have expressed concern in private that he has been so public about Herbalife. However, the day's price moves are bound to rankle the ultra competitive manager just as he is trying to raise new capital. (Reporting By Svea Herbst-Bayliss. Editing by Andre Grenon)

IMF set to cut growth forecasts if U.S. spending is cut. IMF spokesman William Murray said that if the cuts are fully implemented, the IMF would likely shave at least 0.5 percentage point off its current forecast of 2 percent growth for the U.S. in 2013. "We will see what happens on Friday, but everybody is assuming that sequestration is going to take effect," Murray said at a regular news briefing. "What it means is that we are going to have to reevaluate our growth forecasts for the United States and other forecasts." The IMF's warning about the impact of the spending cuts on the U.S. and the rest of the world comes as Europe continues to struggle with the effects of a debt crisis and as growth has slowed in emerging economies like China, India and Brazil. President Barack Obama and Republican congressional leaders have yet to reach a deal to avert $85 billion worth of spending cuts. The revised IMF forecasts will be reflected in the Fund's World Economic Outlook due out in mid-April. The IMF's last batch of forecasts in January put global growth at 3.5 percent this year, increasing to 4.1 percent next year. The Fund has long urged the United States, the world's biggest economy and a key trading partner of other economic giants, to reach a deal to avoid sharp spending cuts that could destabilize a fragile global economic recovery and possibly disrupt financial markets. "Certainly 2013 will be affected," Murray said, "We have to see how far this sequestration is implemented, I don't think that is clear to anybody ... because it isn't an immediate implementation of all spending cuts and we have to see how that political process plays out." (Reporting by Lesley Wroughton ; Editing by James Dalgleish and Bernadette Baum )

Cities, counties say U.S. municipal bond tax changes would cost them billions. The interest income that bondholders receive on the $3.7 trillion municipal bond market is not subject to federal income tax, allowing local issuers to tap capital markets more cheaply. For more than two years, President Barack Obama has suggested limiting that exemption to increase federal tax revenues. The idea gained traction at the end of 2012, when the "fiscal cliff" crisis sent the U.S. government scrambling to bring in money without raising taxes. Even though the deal in December on averting the "fiscal cliff" did not include capping the exemption and one of the most powerful Republicans in the House of Representatives, Dave Camp, has said he would not support a cap, those who sell the debt across the country are now taking their fight to the public. They say that any change will make funding of infrastructure more expensive. "The focus has been that somehow this is some great tax dodge when in reality it is a great financing mechanism," said Scott Smith, mayor of Mesa, Arizona, at a media briefing Wednesday. "Frankly we're concerned that it's coming from all sides because of the search for an easy solution to satisfy the demand for more revenue." Civic officials visited lawmakers on Capitol Hill, members of Obama's administration and Treasury officials to press their point Wednesday. They also released studies of the costs of limiting the exemption, saying higher interest payments would ultimately hurt taxpayers and utility customers and could slow down construction on projects that provide jobs. From 2003 through 2012, $1.65 trillion in municipal bonds were sold for infrastructure projects. If the exemption did not exist, issuers would have paid $495.3 billion more in interest, according to the National Association of Counties. Buyers in the U.S. municipal bond market are usually willing to take lower interest payments because they will not have to pay taxes. That keeps financing costs low for the cities, states, and authorities who sell the bonds to pay for road, school, airport, transit, sewer, utility, housing and hospital construction. Obama in 2011 included the exemption among items subject to his proposed 28-percent cap on deductions and other tax breaks for individuals earning more than $200,000 or couples above $250,000, down from 35 percent currently. Some in the markets feared that the tax-exemption could be eliminated altogether as a way to boost federal revenues. In 2012 alone the increased interest payments would have totaled $53.8 billion if the tax exemption were totally removed, according to the U.S. Conference of Mayors. Interest costs would rise $18.8 billion if the exemption were capped at 28 percent. Without the exemption, Chicago, for example, would have paid 42 percent more in interest in 2012. Virginia's Fairfax County paid $98.1 million in interest last year. It would have paid $14.6 million more under the cap and $41.8 million if the exemption were eliminated, the mayors' report. HIGH COSTS COULD HURT TAXPAYERS The tax exemption for municipal bonds has been in existence as long as the federal income tax - 100 years. Critics of the exemption say it is inefficient and rewards states and local governments for racking up debt while lowering revenues for the U.S. Treasury. A subsidy for states and localities, the muni exemption cost U.S. taxpayers about $26.2 billion in 2011. Moreover, they say it benefits the highest earners the most, essentially giving large tax breaks to those in the top income brackets. But local government officials dispute that notion. "This is not about the person at the top of the chain. It's about the people at the lower part of the chain," said Chris Rodgers, a commissioner of Douglas County, Nebraska. Higher interest costs could force utility customers to pay more in rates or fees or could even lead to higher local taxes, he said, forcing lower earners to pay more. City Controller Ronald Green of Houston said the threat to the tax exemption has not been made "tangible" for many citizens. He said that if his city had to make higher interest payments it would undertake fewer infrastructure projects, which in turn would lead to fewer jobs in the city. It would also have fewer funds available for basic services, he said. The Chief Administrative Officer of Maryland's Montgomery County Timothy Firestine, meanwhile, contended the tax exemption is not a tax break for the wealthy. Most bondholders are over the age of 65, and using fixed income investments to fund their retirement, he said. Meanwhile, 52 percent of individual municipal bond holders make less than $250,000, and only 30 percent of the debt is held by large institutional investors, he said. (Reporting by Lisa Lambert ; Editing by Tiziana Barghini and Cynthia Osterman )

Consumer debt rises in fourth quarter for first time in 4 years: NY Fed. Total consumer debt rose 0.3 percent to $11.34 trillion in the fourth quarter of last year compared to the previous quarter, the New York Fed said in its quarterly household debt and credit report. Consumer debt peaked in the third quarter of 2008 as the global financial crisis was taking hold. Since then, debt has fallen by about by 10 percent, or $1.3 trillion, in large part due to a drop in outstanding mortgages as Americans modified or defaulted on their loans. With consumer activity accounting for about two-thirds of the economy, signs of more appetite for debt could bode well for the overall recovery. "The data provides early evidence that consumers may be reaching the end of the four year deleveraging cycle, though we'll need to see if this is sustained in upcoming quarters," Andrew Haughwout, vice president and economist at the New York Fed, said in a statement. Delinquency rates continued to improve with 8.6 percent of debt in some stage of delinquency, down from 8.9 percent in the third quarter. As well, fewer Americans were delinquent on their home loans, with 5.6 percent of mortgages 90 days or more behind on payments, down from 5.9 percent. Mortgage balances were roughly unchanged at $8.03 trillion, though the amount of new loans made in the fourth quarter rose to $533 billion. Originations have been increasing since hitting a bottom in the third quarter of 2011. As Americans have been paring back on housing debt, student loans have been on the rise. Outstanding student loans rose by $10 billion to $966 billion last quarter. The amount of student loans that were 90 days or more past due rose to 11.7 percent. (Reporting by Leah Schnurr ; Editing by Chizu Nomiyama )

Fiat CEO sees 50 percent chance of Chrysler IPO, prefers buyout. Fiat shares ownership in the smallest U.S. automaker with a retiree trust fund affiliated with the United Auto Workers labor union. Marchionne said he would prefer that Italian automaker Fiat buy the trust fund's holdings. "My preference is to be one single company," Marchionne told reporters in Kokomo, Indiana, on Thursday. "We belong together." Over the last four years, the two automakers have been blending their operations as Fiat has increased its stake in Chrysler, said Marchionne, who has been CEO of both companies since Chrysler emerged from bankruptcy in 2009. Fiat, however, has been odds with the trust fund over Chrysler's worth. The fund is under pressure to squeeze as much value as possible from its Chrysler holding to pay for medical benefits. Marchionne was speaking at a plant in Kokomo, Indiana, where Chrysler announced it would invest $374 million in four Indiana plants to support production of its more fuel-efficient eight- and nine-speed transmissions by the end of the year. The move will create up to 1,250 jobs in Indiana, including as many as 850 jobs at the company's new Tipton Transmission Plant, Chrysler said on Thursday. Chrysler is spending $162 million to make a nine-speed transmission at Tipton. Production at Tipton is expected to start in the first quarter of 2014. About $212 million will be invested in the Kokomo Transmission, Kokomo Casting and Indiana Transmission I plants to make the eight- and nine-speed transmissions. The money will be used to install additional tooling and equipment needed to make Chrysler's eight- and nine-speed transmissions by the fourth quarter of 2013. (Reporting By Bernie Woodall in Kokomo, Indiana; Editing by Gerald E. McCormick, Sofina Mirza-Reid and Leslie Adler)

BAT benefits as emerging market smokers try top brands. The world's second-biggest cigarette maker, which generates almost 70 percent of its profits in emerging markets, met forecasts on Thursday with a 7 percent rise in 2012 adjusted earnings as higher profit margins made up for falling volumes. "The key lever is the price mix," Kingsley Wheaton, Director of Corporate and Regulatory Affairs, told Reuters, pointing to a move by some consumers towards its premium brands such as Kent and Dunhill Fine Cut. Tobacco firms are struggling with sluggish demand in western Europe and north America, but British American Tobacco (BAT) has fared better than most as it has the broadest global spread of the big cigarette makers. INDUSTRY CHALLENGES BAT, whose brands also include Lucky Strike and Pall Mall, sold 694 billion cigarettes in 2012, down 1.6 percent on 2011. Sales were affected by growth in black market trade, driven by excise taxes on cigarettes, particularly in Brazil and Mexico, and instability in Egypt. The black market, which BAT estimates accounts for around 12 percent of all global trade of cigarettes, has impacted other tobacco firms too. Imperial Tobacco ( IMT.L ), whose brands include Davidoff and Gauloises Blondes, said in January its profit would be hit by the rise in black market cigarettes as cash-strapped smokers in parts of the world try to save money. However, BAT reported a rise in adjusted earnings per share to 207.5 pence for last year, compared with a forecast of 206.6 pence, according to Thomson Reuters I/B/E/S estimates. Margins rose 160 basis points to 37.4 percent and while reported revenues fell 1 percent, they were up 4 percent stripping out the adverse impact of foreign exchange moves. BAT also said it would buy back 1.5 billion pounds ($2.3 billion) of shares in 2013, following a 1.25-billion-pound buyback last year. Analysts at Jefferies said the margins were a big surprise, well ahead of targets and consensus estimates. The buyback was also positive, they added. "We believe this (buyback) will be well received by the market and suggests a certain level of confidence behind the business looking into 2013," the brokers said. "We expect the higher buyback, better operating performance and weaker sterling to drive low single-digit consensus EPS upgrades." Shares in BAT, which have risen around 8 percent in 2013 to date, were up 0.3 percent at 3,426.5 pence at 1030 GMT. HEALTH CONCERNS Tobacco firms are also facing stricter rules on packaging and branding as governments seek to fight concerns over the long-term health costs of smoking. Tobacco kills up to half of its users, according to the World Health Organization. Russia became the latest country to say it would ban smoking in public places this week, a move opposed by BAT and other tobacco firms. Europe is planning larger health warnings on packets and a total ban on flavorings such as menthol, while Australia is forcing manufacturers to use drab-colored packaging with pictures of ill babies and diseased body parts. Wheaton said it was too early to tell the effect the closely-watched experiment in Australia, which began in December, has had on sales. "As far as we can tell, nothing has happened that is unduly different, but it's too early for numbers and percentages," he said. ($1 = 0.6608 British pounds) (Editing by Mark Potter )

UAW meets with Nissan Tennessee workers about organizing. The UAW is now active in trying to organize workers at two Nissan plants. The UAW since last spring has been talking with workers at Nissan's other major U.S. assembly plant, in Canton, Mississippi, outside of Jackson. Two Tuesday meetings in a hall owned by the Town of Smyrna included employees of Yates Services, the firm that hires workers for the plant who are paid less than Nissan workers, according to UAW officials. The "information" meetings are an early step in bringing about a vote among workers at the Nissan plant in Smyrna. Most union elections are held once a majority of workers agree to allow one. Many union organizing efforts fail before a vote is held. "Ultimately, the choice of who represents the employees is theirs to make," said Nissan spokesman Justin P. Saia. The Tennessean newspaper based in Nashville first reported the Tuesday meetings. There is no schedule for a vote in Canton at this time, either, the UAW said, but union officials said they are making progress toward convincing workers to allow a vote. The UAW has been unsuccessful in more than three decades of trying to organize a foreign automaker with a plant, most of which are in Southern states. Doing so is key to the future of the union, UAW President Bob King has said. The meetings in Smyrna attracted several hundred workers of Nissan and of Yates Services, said the UAW's top official in the U.S. South, Gary Casteel, who did not attend either of two meetings held on Tuesday. The meetings were the biggest for the UAW in Smyrna since 2001, Casteel said. While there has never been an election on whether to allow union representation at Nissan's Mississippi plant, workers in Smyrna have twice overwhelmingly voted against joining the UAW. A 1989 vote was 1,622 to 711. In 2001, in an organizing drive led by King when he was the union's chief organizer, Nissan workers rejected the UAW by a 2-to-1 margin. After the 2001 vote, King said Nissan had "won round two" and said that "there will be round three and four." (Reporting By Bernie Woodall; Editing by Bernard Orr )

RBS moves closer to UK government stake sale. The bank had to be rescued in a 45.5 billion pound ($68.9 billion) state bailout during 2008 but the government has begun looking at ways to sell off its holding as RBS starts to return to financial health. "The light at the end of the tunnel is coming closer," Chief Executive Stephen Hester said on Thursday. "Our job is to deliver a company that is doing its job well and that other investors will want to invest in." RBS made an operating profit of 3.5 billion pounds ($5.2 billion) last year, up from 1.8 billion the year before and the highest since its 2008 bailout. The bank paid out 607 million pounds in bonuses for 2012, down 23 percent from 2011. RBS has cut about 302 million pounds from bonuses, clawed back from past awards or to be cut from future payments to account for behavior related to the rigging of interest rates, for which the bank was fined $612 million. Bankers in Europe will have bonuses capped in future after agreement in Brussels on pay limits to try to curb financial sector excess. FURTHER SHRINKAGE Hester, brought in following the government rescue, has overseen what he describes as the largest turnaround in corporate history. RBS has shed around 900 billion pounds worth of assets while he has been in charge. Chairman Philip Hampton said the bank was "much closer now to being in the good financial health that would allow shareholders to receive a dividend and the government to start to sell its stake". Britain is considering a range of options for privatizing the bank including giving shares away or selling shares to the public at a discount. In the meantime, RBS will further reduce the scale and scope of its investment banking business. The bank plans to cut its risk-weighted assets by 20 percent to 80 billion pounds from 101 billion at the end of 2012. RBS and other big British banks are under pressure from the government to lend more to households and small businesses to help to revive the country's weak economy. Finance Minister George Osborne welcomed RBS's plans to shrink its investment bank further. "I want to see RBS as a British-based bank, focused on serving British businesses and consumers, with a smaller international investment bank to support that activity rather than to rival it," he said on Thursday. CITIZENS SALE RBS said it planned to sell part of its U.S. business Citizens in the next two years and would likely float a batch of 315 UK branches it has struggled to offload. Hester said RBS would probably sell about 25 percent of Citizens through a share sale in New York around two years from now. The bank said it also expected to float a batch of 315 branches in Britain that had been earmarked for a sale to Santander ( SAN.MC ), which pulled out of the deal in October. Hester said there were a lack of buyers for UK bank assets at present, so a share sale using the Williams & Glyn's brand was now its "baseline" plan. European competition authorities ordered RBS to sell the branches as a consequence of taking state aid. The bank said it expected to ask for an extension to an end-2013 deadline to shed the branches. RBS said it had set aside a further 450 million pounds to compensate customers mis-sold payment protection insurance, taking its total provision to 2.2 billion pounds. Some 1.3 billion pounds has already been paid out. The bank has also set aside 700 million pounds to compensate small businesses mis-sold complex interest rate hedging products. RBS made a pretax loss of 5.2 billion pounds, hit by a 4.6 billion charge for losses on the value of its own debt. Liberum Capital analyst Cormac Leech said the results were "on the weak side" despite good cost control. By 1045 GMT RBS shares were down 2.4 percent, underperforming a 0.5 percent rise by the EU bank index .SX7P. That leaves taxpayers currently sitting on a paper loss of 14.5 billion pounds. ($1 = 0.6608 British pounds) (Additional reporting by Tim Castle ; Editing by Mark Potter and Jane Merriman )

Peregrine boss Wasendorf moves to high-security federal prison. Wasendorf, who turned 65 on Monday, arrived on Wednesday at the U.S. Penitentiary in Terre Haute, Indiana, which was once the home of convicted Illinois Governor George Ryan, according to the Federal Bureau of Prisons. Now known as inmate #12191-029, Wasendorf had been locked in a county jail in Iowa, where Peregrine Financial was based, since he confessed in July to stealing from tens of thousands of clients over a period of two decades. A federal judge in January sentenced Wasendorf, who had tried to kill himself just before the fraud was uncovered last year, to 50 years behind bar, the maximum allowed by law. He pleaded guilty in September to embezzling more than $100 million, used to fund a life of luxury that included a private jet, extensive wine collection and lakefront condo in Chicago. Prosecutors said the amount stolen was more than $215 million. Prison officials considered the severity of Wasendorf's crimes, the length of his sentence, and geography when they assigned him to Terre Haute, said Chris Burke, a spokesman for the Federal Bureau of Prisons. Inmates with longer sentences are often jailed at high-security facilities because they are thought to present a greater risk for escape, he said. The government also tries to place convicts in prisons within 500 miles of the facilities in which they were previously being held. Wasendorf's life behind bars will be tightly controlled. He will wear prison-issued khaki-colored pants, a khaki-colored button-up shirt and prison-issued gym shoes and underwear. He will be expected to work during the day, with potential jobs ranging from cooking food in the kitchen to sweeping floors, Burke said. It's possible he will mix with violent offenders at Terre Haute, which counts 1,501 inmates in its high-security wing. "A high-security facility is just that. It's a high-security facility," Burke said. Wasendorf believes he will likely die behind bars, his pastor told Reuters last month. As regulators closed in on his fraud last year, Wasendorf made a botched suicide attempt outside his $24-million headquarters in Cedar Falls, Iowa, which investigators say was financed with money siphoned from customers. Peregrine Financial, known as PFGBest, quickly collapsed, and 24,000 former customers are still missing most of the money they had invested with the firm. (Reporting By Tom Polansek; editing by Andrew Hay)

New national disclosure rule to pressure EU bank tax, profits. Company taxation has become a heated issue with UK lawmakers criticizing coffee chain Starbucks after a Reuters report in October showed it paid no corporation or income tax in Britain in the past three years. The new requirement is part of a law to curb bank bonuses and force lenders to hold more capital. Representatives from the European Parliament and member states agreed late on Wednesday on country-by-country reporting for banks in the latest effort by governments to boost tax revenues at a time of high deficits and sluggish growth. "I believe it's in the interests of banks to tell people how much they are paying in tax," Vicky Ford, a British centre-right member of the European Parliament, told a news conference by lawmakers on Thursday to announce the reform. From January 2014 banks would report on a confidential basis to the European Commission how many people they employ in each country, along with profits, tax and subsidies. Othmar Karas, an Austrian centre-right lawmaker, said banks will publish country-by-country data from January 2015. EU sources said the European Commission will study the data next year to analyze if publication would harm investment by banks, their competitiveness, or how much credit they supply. Based on the findings, the EU executive could then delay or amend what banks should publish from 2015. CRUDE NUMBERS The European Banking Federation said the transparency rules were "understandable" but it "remains to be seen what effects that will have on the competitiveness of Europe's banks." Banking officials fear campaigners will "pluck crude numbers out of the sky" without acknowledging the complexity of taxation. This could lead to reputational damage and would likely change business practices, the officials say. "Country-by-country reporting is not of use to investors and should not be included in annual reports. It's a political debate for finance ministers over how much tax take each is getting relative to the others," said Iain Coke, head of the financial services faculty at the ICAEW accounting body. Accounting rules used in the EU do not require country-by-country breakdowns for profit and other key financial figures. The EU, under a reform of a separate accounting law reform, will require country-by-country reporting in the mining, minerals, oil and energy sectors, as is the United States. "Banks are not the worst sinners but it's very symbolic. It's absolutely essential that country-by-country reporting is extended to all sectors," Sharon Bowles, a UK Liberal member of the European Parliament said. Tax campaigners tried and failed to persuade the G20 to back country-by-country reporting when the financial crisis began, but since then sluggish growth has prompted countries to look at increasing their tax take to plug holes in budgets. Britain, France and Germany launched a joint initiative on February 16 at a G20 meeting in Moscow to crack down on tax avoidance by multinational companies. A report by the OECD showed cross-border firms shifting profits to lower tax countries. The G20 will be asked in July to take specific action. Chas Roy-Chowdhury, head of tax at the ACCA, an accounting body, said the new rules might not satisfy the appetite of fiscal authorities for greater tax revenues. "The danger is that we could end up with double taxation," he said. (Editing by David Cowell)

Global stocks index up on central bank hope, euro falls. The political stalemate in Italy, along with looming U.S. federal budget cuts, weighed on the euro. Pledges by the European Central Bank and U.S. Federal Reserve this week to sustain steps to inject liquidity into markets have propped up equities. U.S. stocks, however, ended the day down slightly after a two-day rally. Earlier in Thursday's session, the Dow Jones industrial average .DJI came within 50 points of its all-time intraday high. "To push through to new highs, you would have to see consistent positive economic data in the U.S. and have Europe stabilize - those are two pretty big requirements," said Jeff Morris, head of U.S. equities at Standard Life Investments in Boston. "It wouldn't surprise me to see us bounce around as we have the past couple of weeks," Morris added. A drop in new U.S. claims for jobless benefits last week and a sharp rise in factory activity in the Midwest in February added to recent data that suggests the U.S. economy is improving. The U.S. Commerce Department said gross domestic product rose 0.1 percent in the fourth quarter - reversing a previous reading showing a contraction, but less than the 0.5 percent gain forecast by analysts in a Reuters poll. MSCI's all-country world equity index .MIWD00000PUS rose 0.5 percent, while in Europe, the FTSEurofirst 300 index .FTEU3 of top regional shares rose 0.9 percent to close at 1,171.47. On Wall Street, the Dow fell 20.88 points, or 0.15 percent, to end at 14,054.49. The Standard & Poor's 500 Index .SPX was down 1.31 points, or 0.09 percent, at 1,514.68. The Nasdaq Composite Index .IXIC was down 2.07 points, or 0.07 percent, at 3,160.19. The Dow at one point in the session touched 14,149.15, within 50 points of its record intraday high. The Dow Jones Transportation Average .DJT, seen as a bet on future growth, is up 12.9 percent this year, and the 20-stock index hit a record intraday high earlier on Thursday. The euro declined against the dollar, last trading at $1.3062, down 0.57 percent on the day, but still above the session low $1.3054. The euro's upside is seen as limited by concerns that political instability will stall Italian economic reforms and reignite the euro-zone debt crisis. In the United States, automatic across-the-board spending cuts, known as sequestration, will be introduced on Friday. Many economists expect the budget cuts may reduce U.S. economic growth by around half a percentage point. CRUDE ENDS DOWN, U.S. BONDS UP In oil markets, Brent crude fell to a six-week low, capping a month-end sell-off in which prices have fallen by almost $8 in two weeks as concerns have resurfaced about the global economy and the strength of demand. Despite initially pushing higher early in the session, Brent eventually succumbed to another wave of selling. Brent crude for April delivery closed down 49 cents at $111.38 a barrel, having earlier touched a low of $110.87, the weakest level since January 18. For the month, Brent lost 3.6 percent in February. U.S. crude fell 71 cents to $92.05 a barrel. Gold fell more than 1 percent and ended February with its fifth straight monthly drop, the longest string of monthly declines since 1996. Spot gold fell 1.1 percent to $1,578.86 per ounce. U.S. Treasuries ended slightly higher in price as the potentially growth-damping impact of prospective U.S. government spending cuts fed the bid for safe-haven U.S. debt. The benchmark 10-year U.S. Treasury note gained 6/32 in price to yield 1.879 percent. (Additional reporting by Herbert Lash , Gabriel Debenedetti, Julie Haviv and Karen Brettell ; editing by James Dalgleish , Jan Paschal , Leslie Adler and Dan Grebler)

EU clinches deal to cap bankers' bonuses. Bankers in Europe could be barred from receiving bonuses equal to more than their base salaries as soon as next year, following agreement in Brussels on Thursday. Shareholders would be allowed to vote to raise the cap to double base pay, but no higher. The cap has been somewhat softened by allowing banks to discount future values of shares, options, bonds or other non-cash payments paid out over a number of years, but nevertheless amounts to the toughest limit of its kind in the world. The rules would apply to Europe-based employees of any bank, as well as to staff of European banks wherever they are based. That means a Deutsche Bank employee working in New York or Tokyo would be subject to the limits, as would a Goldman Sachs banker posted to London, although that provision may later be reviewed. "There will be no exceptions," said Othmar Karas, the Austrian lawmaker who helped negotiate the deal. "It goes for all banks inside and outside the European Union and for all foreign banks inside the European Union." The cap addresses public anger at what many European politicians describe as rampant greed in the financial sector. Many people on the continent blame huge bonuses for encouraging bankers to take outsized risks that caused the 2008 financial crisis, when banks had to be bailed out with public funds. Banks argue that without big bonuses they will be forced to increase base pay to keep staff, raising their fixed costs and making it more difficult to manage their businesses. "If the cap is implemented, it could result in significantly more complex pay structures within banks as they try to fall outside the restrictions to remain competitive globally," said Alex Beidas, a pay specialist with the law firm Linklaters. The cap could also deepen the rift between Britain - home to the EU's financial capital - and the EU at a time when Prime Minister David Cameron has accused Brussels of meddling too much in domestic affairs and promised a referendum on Britain's membership in the 27-member bloc. The backing of a majority of EU states is needed for the deal to be finalized, so Britain would not be able to block it alone. Still, one member of the European Parliament privately signaled that the deal could yet change, pointing to the "reservations" of some EU countries. The limit on bankers' pay, set to enter EU law as part of a wider overhaul of capital rules aimed at making banks more stable, will be popular on a continent struggling to emerge from the ruins of the financial crisis. But it represents a setback for the British government, which had long argued against such absolute limits. The City of London, with 144,000 banking staff and 700,000 people working in financial and professional services, will be hit hardest. "The United Kingdom is not happy," one European parliament lawmaker said privately. British officials did not immediately comment. In London's Canary Wharf, where many of the globe's biggest banks have offices, finance professionals were skeptical. "ANTI-CAPITALIST" "It's anti-capitalist," said Colin Ellis, who works in the technology division of a bank. "If you have a grocer and he sells loads of fruit, he gets to keep it (the money). When a guy on a trading desk makes loads of money, he deserves to have it." Some disagreed. "There is a huge disparity between what senior managers and junior members get and I don't see anything wrong with a cap," said Jose, a 25-year-old who works for a bank but declined to give his second name. Ireland, which holds the rotating EU presidency and helped negotiate the deal, will now present it to EU countries. Irish Finance Minister Michael Noonan said he would ask his peers to back it at an EU ministers' meeting on March 5 in Brussels. Other measures in the package, including moves to force banks to provide more information about the assets they own, remain unresolved. Thursday's agreement will also require banks to outline profits and other details of their operations on a country-by-country basis, and they face a 2019 deadline to raise their core capital levels. The change in the law is set to be introduced as part of a wider body of legislation, known as Basel III, which demands that banks set aside roughly three times more capital and build up cash buffers to cover the risk of unpaid loans. Some experts have criticized the EU for failing to stick to all the provisions set out in the Basel III agreement, which was drawn up by regulators after the financial crash. ANTI-EU HOSTILITY A ceiling on bonuses, the only one of its kind globally, is perhaps the most radical aspect of the new rules, and runs the risk of establishing an uneven global playing field that could put European banks at a disadvantage in attracting staff. Udo Bullmann, a German member of parliament involved in the negotiations, said the deal was "revolution in a sector that didn't have rules any more". But many think the reforms will do little to lower pay in finance, where headhunters say some annual packages in London approach 5 million pounds ($7.6 million). An earlier attempt to limit bankers' pay with an EU law forcing financiers to defer bonus payments over up to five years merely prompted lenders to increase base salaries. But supporters of the latest measure say it would be harder for banks to raise base pay this time around because of the higher capital standards that increase their costs and limit how much of their revenue they can pay out to staff. Hedge funds and private equity firms will be excluded from the curbs, although they face restrictions on pay later this year under another EU law. It could mean an end to the annual bonus frenzy in London, when newspapers are full of stories of bankers splurging on champagne, and it could affect the wider British economy. About 27 billion pounds ($41 billion) of bonuses have been spent over the past decade on real estate in the British capital, according to data compiled for Reuters by property firm Savills. "This could push British political opinion and opinion in the City of London several notches more hostile to the EU than it is already," said Charles Grant of the Centre for European Reform think-tank. The restrictions planned by Brussels may nonetheless be overtaken by events in an industry where slack activity has already driven down most bonuses to twice salary or lower. Having peaked in 2008 at 11.5 billion pounds ($17.4 billion), the bonus pool in London fell to 4.4 billion pounds last year, according to research by the Centre for Economics and Business Research. It predicts that pool will be just 1.5 billion pounds this year and fall further in the future. On Wall Street, by contrast, the securities industry's bonus pool was expected to total $20 billion last year, with the average cash bonus rising an estimated 9 percent to almost $121,900, New York state's comptroller said this week. A bonus cap there still looks unlikely. "There are some in the U.S. who will think it's a good idea to do the same," said Nicolas Veron, the Peterson Institute for International Economics think tank in Washington. "But the mainstream here would say that regulating pay is going to be circumvented by the banks and will ultimately hurt the economy." (Additional reporting by Dasha Afanasieva; Editing by Peter Graff )

China nears approval of $16 billion domestic jet-engine plan: Xinhua. China is determined to reduce its dependency on foreign companies like Boeing Co ( BA.N ), EADS-owned Airbus ( EAD.PA ), General Electric Co ( GE.N ) and Rolls Royce Plc ( RR.L ) for the country's soaring demand for planes and engines. So far the domestic aerospace industry has failed to build a reliable, high-performance jet engine to end its dependence on Russian and Western makers for equipping its military and commercial aircraft. Xinhua on Thursday quoted an unidentified professor at the Beijing University of Aeronautics and Astronautics (BUAA) with knowledge of the project as saying the investment would be used mainly for research on technology, designs and materials related to aircraft engine manufacturing. The project was going through approval procedures in the State Council and may be approved shortly, the professor was quoted as saying. Participants in the project include Shenyang Liming Aero-Engine Group Corp, AVIC Xi'an Aero-Engine (Group) Ltd ( 600893.SS ) and research institutes including the BUAA, Xinhua reported. Aviation Industry Corporation of China (AVIC), the country's dominant military and commercial aviation contractor, had lobbied the government to back a multi-billion dollar plan to build a high-performance jet engine. China's military and aerospace industries have suffered from bans on the sale of military equipment imposed by Western governments after the Tiananmen Square crackdown and foreign engine-makers are reluctant to transfer costly technology. Some Chinese aviation industry specialists forecast Beijing will eventually spend up to 300 billion yuan ($49 billion) on jet-engine development over the next two decades. ($1 = 6.2273 Chinese yuan) (Reporting by John Ruwitch ; Editing by Matt Driskill)

Japan likely to make exception to arms export ban for F-35 parts. Japan plans to buy 42 of the F-35 fighters with an initial batch of four planes scheduled for delivery by March 2017. A Japanese defense ministry spokesman said this week there was no change to that plan after this year's second grounding of the warplane over a crack found in a test aircraft engine. Japan picked the F-35 as its next mainstay fighter over rivals, reflecting Tokyo's desire to tighten U.S. ties in the face of regional uncertainties including China's rise. The defense ministry has said Mitsubishi Heavy Industries Ltd ( 7011.T ), IHI Corp ( 7013.T ) and Mitsubishi Electric Corp ( 6503.T ) would take part in the production and maintenance of the F-35. Japan has previously made exceptions to its decades-old ban on arms exports but extending those to F-35 parts had raised concern about the possible violation of the country's policy of not aggravating international conflicts, because Israel is expected to acquire the jets amid tensions in the Middle East. "Is it possible for Japan not to participate in the production of the F-35? This is a very important issue," Abe told a parliamentary panel on Thursday. He added it was possible Israel would use the jets in an armed conflict but that he was preparing a "realistic response" and a government statement on the issue. Japanese media have said the government was likely to say in the statement that participation in developing the F-35 would contribute to the country's national security. Japan said in February last year it had warned the United States against price rises in the fighter jet after U.S. and Lockheed officials noted delays would increase the total cost. (Reporting by Antoni Slodkowski; Editing by Linda Sieg and Dean Yates )

Analysis: U.S. deal has Brazil's Embraer flying high in defense. The light attack plane that Embraer will supply for the United States in Afghanistan handily illustrates how the company, which is best known for the regional jets it supplies to airlines such as JetBlue Airways Corp ( JBLU.O ), is climbing the ranks of the world's top 100 arms dealers. A rugged design and low cost make Embraer's Super Tucano popular in counterinsurgency missions from Africa to South Asia, where resource wealth has spurred new defense spending amid austerity in Europe and the United States. The focus on frontier markets and expanding ambitions for Brazil's armed forces have made Embraer one of the few planemakers outside of China that are growing, thanks to the outperformance of its defense operations. "Is there anyone else this bullish on defense? Certainly nothing that a U.S. investor can bet on. Nothing in this hemisphere," Deutsche Bank defense analyst Myles Walton said in an interview. "Embraer is the foundation of the military industrial complex in Latin America, through a combination of execution, luck and being the right company at the right time." Embraer shares in Sao Paulo ( EMBR3.SA ) touched a five-year high on Thursday after the Pentagon awarded the contract late on Wednesday. The stock later retreated slightly as analysts said impending cuts to the U.S. defense budget would make the Air Force less likely to exercise options for more planes. Embraer's defense division expects to increase revenue by as much as one-third this year, compensating for slipping deliveries to commercial airlines and a string of canceled private jet orders. The Brazilian defense boom is also luring powerful partners for Embraer, from the helicopter unit of Italy's Finmeccanica SpA ( SIFI.MI ) and Israeli drone maker Elbit Systems Ltd ( ESLT.TA ) to Boeing Co. ( BA.N ), which has stepped up work with Embraer noticeably over the past year. BOEING BUOYED In fact, Boeing may have been the biggest winner from Wednesday's decision in sheer dollar terms. The goodwill between Washington and Brasilia will help its shot at a multibillion-dollar Brazilian fighter jets deal, a senior Brazilian official told Reuters, calling the Embraer deal a "very good development" for Boeing. Last year, President Dilma Rousseff iced the tender process for at least 36 fighter jets after the United States revoked an earlier deal with Embraer due to legal challenges from Kansas-based rival Beechcraft. Brazilian officials made clear to their U.S. counterparts earlier this year that an Embraer loss on the rebid would be awful for Boeing's chances at the Brazilian jets contract, according to a source with knowledge of the discussion. France's Dassault Aviation SA ( AVMD.PA ) and Sweden's Saab AB ( SAABb.ST ) are also in the running for the deal worth at least $4 billion. Reinforcing the diplomatic stakes of the Afghanistan deal, U.S. Deputy Defense Secretary Ashton Carter called within minutes of the Pentagon announcement to congratulate Brazilian Defense Minister Celso Amorim on the result. A Boeing spokeswoman said the collaboration with Embraer was a "natural partnership," but it considers the bidding in the two countries to be entirely separate procurement processes. "Of course, any opportunity for U.S.-Brazilian cooperation helps the bilateral relationship," said Ana Paula Ferreira, Boeing's communications director in Brazil. The head of Embraer's defense unit, Carlos Aguiar, applauded the contributions from U.S. partner Sierra Nevada and Boeing, which supplied weapons on Embraer's second Super Tucano bid. "There's no doubt the closer collaboration with Boeing clearly helped qualify our proposal even more," Aguiar said in a telephone interview after the decision. READY FOR TAKEOFF Even more important than Boeing's contribution to the Super Tucano will be its role as joint sales partner on Embraer's KC-390 military cargo plane under development. With Boeing's help on the sales front, Embraer is aiming for a bigger share of an estimated 700 new cargo planes by 2025. The market could be worth more than $50 billion as countries replace aging versions of Lockheed-Martin Corp's ( LMT.N ) C-130 Hercules. That could give another burst to Embraer's defense growth when it begins delivering the cargo plane in 2015. The defense division has already doubled its share of revenue over the past five years, due largely to a growing local defense budget. Brazil has made unprecedented efforts in recent years to secure borders deep in the Amazon, monitor vast offshore oil reserves and take on a more prominent role in regional and global politics. Embraer rose 14 places on a list of the world's 100 largest arms dealers in 2011, the Stockholm International Peace Research Institute (SIPRI) said this month, climbing to 85th place. Global defense sales fell 5 percent in the year, SIPRI said. Embraer was one of less than a dozen companies from emerging markets to make the list. Embraer's defense revenue likely climbed another 18 percent or more in 2012 - enough to lift it even higher in the rankings. (Additional reporting by Brian Winter; Editing by Kieran Murray and Kenneth Barry)

Wal-Mart's U.S. administrative chief to step down: WSJ. A Wal-Mart spokesman declined to provide a reason for his departure and Mars could not immediately be reached for comment, the paper said. He will leave the company on March 13, it added. As the retailer's general counsel from 2002 to 2009, Mars was involved in an investigation into bribery allegations regarding a Wal-Mart store built near the Mexican pyramids, according to company e-mails released earlier this year by members of Congress, the Journal said. ( link.reuters.com/buv36t ) Separately, U.S. shopping center operator Kimco Realty Corp ( KIM.N ) said it had received a subpoena from the Securities and Exchange Commission over an investigation involving Wal-Mart Stores and possible violations of the Foreign Corrupt Practices Act. Wal-Mart could not be immediately reached for comment by Reuters outside of regular U.S. business hours. (Reporting by Sakthi Prasad in Bangalore; Editing by Stephen Coates)

Shell abandons Alaska offshore drilling for this year. Both critics and supporters of Shell's controversial Arctic offshore foray welcomed its decision to give up on drilling there for 2013, while the company tries to get its drillships ready and answers to U.S. federal investigators. Michael LeVine, senior Pacific counsel for environmental group Oceana in Juneau, Alaska, said Shell and the government agencies regulating the company faced a "crisis of confidence." "The decisions to allow Shell to operate in the Arctic Ocean clearly were premature," LeVine said in a statement. "The company is not prepared and has absolutely no one but itself to blame for its failures." Few observers doubted that a postponement of Shell's drilling in the Chukchi and Beaufort Seas was coming after the company said earlier this month its two Arctic offshore rigs would head to Asia for repairs and upgrades. But ConocoPhillips ( COP.N ) reaffirmed on Wednesday that it will continue with its own plans to drill one or two exploration wells in the Chukchi Sea in 2014, and expected to submit more information on it to the federal regulator by the end of March. Analysts say the Arctic's allure for oil drillers remains strong given the complications of politics and violence they face in other parts of the world. Shell has spent more than $4.5 billion searching for oil in Alaska's Arctic seas since it won licences to drill in 2005. Yet its season last year was delayed by problems with equipment, and 2012 then ended dramatically with the grounding of the Kulluk drillship in a storm, while it was towed south for the winter. "Our decision to pause in 2013 will give us time to ensure the readiness of all our equipment and people," said Marvin Odum, director of Shell Upstream Americas. David Yarnold, of environmental group Audubon, said Shell had "come to its senses," since drilling amid ice floes near the nurseries of threatened wildlife was not "smart or safe." PAUSE, FOR NOW The Anglo-Dutch company's move into Alaska's Arctic waters - the first since the Macondo disaster of 2010 - was expected to face criticism, but technical problems with its rigs led to even deeper concerns. Senator Lisa Murkowski, an Alaska Republican, said in a statement she was a strong supporter of Shell's activities off her state's northern coast if it was done to the "highest safety standards." "This pause - and it is only a pause in a multiyear drilling program that will ultimately provide great benefits both to the state of Alaska and the nation as a whole - is necessary for Shell to repair its ships and make the necessary updates to its exploration plans," she said. Alaska Governor Sean Parnell said in a statement: "While Shell's decision to pause drilling in Alaska is a disappointment, I commend the company's commitment to safety and responsible development." "Much progress has been made toward developing the vast resources in Alaska's Outer Continental Shelf, and we recognize this is a long-term endeavor," the Republican governor added. "Taking the long view, we are at the early stage of a new era of oil exploration in the Arctic, one that will continue for decades in a measured and responsible way." Even before the Kulluk ran aground on December 31 after escaping its tow lines, Shell's 2012 drilling program was stalled by troubles with support vessels and regulatory scrutiny of the other rig, the Noble Discoverer, owned by Noble Corp ( NE.N ). After the Arctic drilling season closed at the end of October, a fire then broke out on the Discoverer. There were also engine failures on the Aiviq, the specially designed ship pulling the Kulluk, before it lost its tow connection. A U.S. congressman has put public pressure on Shell over the Discoverer safety violations as the Justice Department investigates them along with the Coast Guard. "Shell's managers have not been straight with the American public, and possibly even with its own investors, on how difficult its Arctic Ocean operations have been this past year," said Lois Epstein, Arctic program director for The Wilderness Society. Curtis Smith, Shell's Alaska spokesman, said the company would continue to do non-drilling work in the state in 2013, including data collection and possibly site-preparation and geotechnical work. "We haven't put a scope of work together yet," he said. About 1,500 seasonal jobs would not materialize this year, though there would be no layoffs within the company. The Kulluk, meanwhile, finally departed on Tuesday from the Kodiak Island bay where it spent the past seven weeks. It is on its way to the Aleutian port town of Unalaska, a trip that will take about 10 days. It will remain there for a few days while preparations are made to dry-tow it to Asia, Smith said. It would then take two to three weeks to get to Asia, where Shell is still searching for a shipyard, he added. (Reporting by Yereth Rosen in Anchorage, Brenton Cordeiro in Bangalore, Andrew Callus in London and Jim Christie in San Francisco, writing by Braden Reddall; editing by Saumyadeb Chakrabarty, Anthony Barker, Bernard Orr ; desking by G Crosse)

Hedge fund in "Whale" trade tried to poach JPM employees: sources. The New York-based hedge fund had targeted people in the trading and risk management divisions of JPMorgan's chief investment office, the same part of the bank where Bruno Iksil, the trader who became known as the 'London Whale' for his outsized positions in a small derivatives market, was working. None of JPMorgan's CIO employees left the bank for BlueMountain in 2011 or 2012 during the time the $12.5 billion hedge fund had sought to lure them away, said a person familiar with the situation. The sources who confirmed the recruiting attempt by BlueMountain did not suggest anything improper by the hedge fund. However, the development adds a new thread to the already tangled connection between BlueMountain and JPMorgan over the Whale losses. When losses from Iksil's trades began to mount as a group of hedge funds, including BlueMountain, bet against Iksil's positions, a complaint was raised by some inside the bank about BlueMountain's prior recruiting efforts, according to the sources. It's not clear what those bank employees complained about, however. "BlueMountain has no comment on recruiting efforts, out of respect for the confidential nature of their conversations with candidates," a spokesman for the hedge fund said. Months after the big trading loss became public, one JPMorgan employee would eventually leave for a post at BlueMountain: Jes Staley, the former CEO of JPMorgan's investment bank. Staley left for the hedge fund after being shifted to a lesser role at the bank last year in the wake of the 'Whale' losses. He announced his move to BlueMountain on January 8. Staley did not respond to requests for an interview. Reuters previously reported that traders inside the CIO were worried that they had come under a coordinated attack from hedge funds in the fairly illiquid market where positions in the CDX index are traded. The CDX index is an index representing the prices of selected corporate credit default swaps. Last spring, when prices in the CDX market started moving against them, causing large losses, Iksil and his boss accused JPMorgan's investment bank and its traders of deliberately trying to move the market against the CIO by leaking information on its position to hedge funds. The investment bank itself had taken a position opposite the CIO in the CDX market. A lawyer for Iksil declined to comment. After betting against the CIO positions, BlueMountain then helped JPMorgan unwind the CIO's trades once a public firestorm over the losses forced the bank to quickly exit the positions. (Reporting By Emily Flitter; editing by Matthew Goldstein and Andrew Hay)

Budget cuts could impair trade agenda: USTR. Tim Reif, general counsel with the U.S. Trade Representative's office, noted at a trade conference at the Georgetown University Law Center that the agency was conducting or preparing to launch three major trade negotiations. "The sequester cuts will add a significant hurdle to these and other efforts to support American jobs by opening markets, including through reduced staffing, reduced ability to engage with our trading partners," Reif said. "Additionally, USTR may no longer have the funding to initiate new legal disputes, which would result in reduced enforcement of trade agreements, so the sequester is an important issue for us," Reif said. It was the latest warning from President Barack Obama's administration of the negative impact of the automatic spending cuts set to begin on March 1 because the White House and Congress have not agreed on another plan to reduce the budget deficit. The United States is already involved in negotiations with 10 countries in the Asia-Pacific region on a free trade pact, and there are indications that Japan could join soon. Reif said the United States' welcomed the world's third largest economy's interest in joining the negotiations, which he said would be an important development if it occurs. U.S. trade officials are also preparing to launch trade negotiations with the 27-nation European Union and on another set of talks to forge an international agreement to tear down barriers to trade and investment in service sectors ranging from banking to insurance to telecommunications. The United States is also pursuing an initiative aimed at updating the 1996 Information Technology Agreement by eliminating tariffs on an expanded list of technology goods. (Reporting by Doug Palmer ; Editing by Andrea Ricci )

RBS feels pinch as UK regulator steps up pressure on banks. RBS will need more than 4 billion pounds ($6.1 billion) more capital to answer pressure from Britain's financial regulator for it to hold a bigger buffer against potential risks. The Bank of England's Financial Policy Committee (FPC) warned in November that it was assessing whether banks had set aside enough for potential losses and was concerned that banks could be "gaming" their risk calculations. RBS took steps to shore up its capital position when it presented its 2012 results on Thursday, saying it would sell part of its U.S. business Citizens and shrink its investment bank to improve capital in the next two years. "Clearly pressure from the FSA to shore up its capital buffers has forced RBS to announce more restructuring which is likely to further dilute the future returns potential at RBS," said Shailesh Raikundlia, analyst at Espirito Santo. RBS CEO Stephen Hester said RBS and other banks had worked with the Financial Services Authority on the FPC's concerns. "The FPC has concerns about provisioning across banks so we have put our thumbs on the scale and provisioned hopefully quite conservatively at the year-end to address that element of regulator concerns," Hester said. "We believe we have answered to their satisfaction." RBS said bad loan losses had continued to fall last year, but lifted its loan impairment provision to 21.3 billion pounds, from 19.9 billion a year before, to increase its coverage of risky loans to 52 percent from 49 percent. Another key focus of the FPC, which looks out for trouble spots in the financial system, is how banks assess the risk-weighting they attach to their assets amid concern that internal models are too complex so banks are underestimating how much capital they need. RBS said the tougher UK stance added 44 billion pounds to its risk-weighted assets (RWAs) in 2012, including a 12 billion increase due to higher estimates for corporate loans. It expects a further increase of 10 billion to 15 billion pounds early this year. That means RBS will need to hold 4.3 billion pounds more capital to cover the RWA increase since the start of 2012, based on an 8 percent capital ratio. Barclays ( BARC.L ) has already shown the impact of the stricter regulations and Lloyds ( LLOY.L ), HSBC ( HSBA.L ) and Standard Chartered ( STAN.L ) are expected to follow when they report results in coming days, before an FPC report late next month. RBS and Lloyds are under most scrutiny, as analysts say they have less of a capital cushion than rivals. RBS said despite the regulations it cut its RWAs by 58 billion pounds to 460 billion, helping its core Tier 1 capital ratio increase to 7.7 percent, based on Basel III capital standards. It expects that to rise to near 9 percent this year as it cuts another 20 billion pounds of RWAs from its investment bank. ($1 = 0.6608 British pounds) (Reporting by Steve Slater ; Editing by Helen Massy-Beresford)

London mayor says EU bank bonus cap helps New York, Singapore. Bankers in Europe face a cap on bonuses as early as next year, following a provisional agreement in Brussels to introduce what would be the world's strictest pay curbs. "People will wonder why we stay in the EU if it persists in such transparently self-defeating policies," Johnson said. "Brussels cannot control the global market for banking talent, Brussels cannot set pay for bankers around the world." "The most this measure can hope to achieve is a boost for Zurich and Singapore and New York at the expense of a struggling EU," he said. "This is possibly the most deluded measure to come from Europe since Diocletian tried to fix the price of groceries across the Roman empire." The provisional EU deal, announced by diplomats and officials after late-night talks between EU country representatives and the bloc's parliament, means bankers face an automatic bonus cap set at a par with their salaries. Britain is unhappy with the plan and fears it could hurt London's position as one of the world's most powerful financial centers. Prime Minister David Cameron indicated that Britain would review the provisional deal at an EU finance ministers' meeting next week in Brussels. "We do have in the UK, and not every other European country has this, we have major international banks that are based in the UK but have branches and activities all over the world," Cameron said during a trip to Latvia. "We need to make sure that regulation put in place in Brussels is flexible enough to allow those banks to continue competing and succeeding while being located in the UK. So we will look carefully at what the outcome of the negotiations was before working out the approach we will take at Ecofin (finance ministers' meeting) next week." London is home to over one third of the global foreign exchange market and is by far the biggest financial centre in the EU, though its 144,000 banking staff have been castigated by voters and politicians for causing the 2008 financial crisis. The bonus rules will apply to all banks - American, Asian, Russian or European - based in Europe, and to units of European banks located abroad, so a Deutsche Bank employee working in New York or Tokyo would be subject to the same limits. (Additional reporting by Tim Castle , Writing by Guy Faulconbridge; editing by William Schomberg )

Regulators move forward on foreclosure relief. Certain borrowers whose mortgages were serviced by one of the 13 banks can expect to receive between a few hundred dollars and $125,000, under settlements designed to end case-by-case reviews of past foreclosures. The Office of the Comptroller Currency and the Federal Reserve in 2011 ordered banks including Bank of America Corp, JPMorgan Chase & Co, and Wells Fargo to review individual loan files after widespread mistakes were discovered in the way mortgage servicers had processed home seizures. The reviews were initially expected to determine which borrowers were harmed and to compensate them based on their individual experiences. The process proved slow and expensive, though, with more than $1.5 billion going to consultants. In January regulators replaced the reviews with about $9.3 billion in settlements, including $3.6 billion in cash payments to foreclosed borrowers. Struggling borrowers will receive the rest of the money in the form of assistance, including loan modifications and forgiveness. By the end of March, regulators will provide information about the payments to borrowers who fall into one of 11 categories, including those eligible for protections under the Servicemembers Civil Relief Act, those who were not in default when foreclosed on, and those denied a loan modification, the OCC said. Regulators are still determining how many borrowers fall into each category, OCC Deputy Comptroller Morris Morgan said on a conference call with reporters. Once they have that figure, they can calculate how much money each borrower is likely to receive, he said. DECLINING ERROR RATE The OCC and the Fed have faced criticism from Congress over both the reviews and the settlement that ended them. Lawmakers have asked for more information about the consultants who conducted the reviews and what they turned up. Regulators initially said about 6.5 percent of the loans reviewed appeared to have some errors. On Thursday Morgan said that error rate had declined, but did not provide a specific figure. The banks are expected to try to keep borrowers in their homes, but the settlement does not mandate specific kinds of relief. The servicers will receive varying degrees of credit for modifying first and second loans, waiving deficiency judgments, offering short sales, and other types of relief. Three servicers subject to the original reviews, Everbank, OneWest and GMAC Mortgage, did not enter into the settlements and will continue their reviews, the OCC said. (Reporting by Aruna Viswanatha; Editing by Gerald E. McCormick and Lisa Von Ahn)

Spain's Bankia shows recovery signs after record loss. Bankia, at the heart of Spain's banking crisis since it requested a state bailout in mid-2012, said on Thursday it would return to profit this year, after deposits rose at the end of 2012 and it began cutting costs. But the bank faces a big challenge in a country gripped by recession and battling to reduce its government deficit, with even healthier peers fighting rising bad debts. "The clean-up has been very significant but Bankia's main business, like much of the banking sector, is in Spain and the outlook is complicated," BPI analyst Javier Barrio said. Bankia's relatively upbeat stance came as Spanish telecoms group Telefonica ( TEF.MC ) also showed signs of a domestic turnaround after a painful restructuring and thousands of layoffs. Undermined by a property market crash, Spain's banks drove the country to seek just over 40 billion euros from its European partners last year to help clean up its financial sector. Bankia was rescued less than a year after listing on the stock market, leaving tens of thousands of ordinary Spaniards who had invested out of pocket and furious. The bank took nearly 24 billion euros of provisions on soured property loans and assets last year in a bid to wipe the slate clean. It has dumped those assets into a government-backed "bad bank" set up as part of Spain's deal with Europe. "It will be a complex year, a year of challenges," Chief Executive Jose Ignacio Goirigolzarri told a news conference. Bankia shares were down 3.7 percent to 0.29 euros at 1500 GMT, 92 percent below the 3.75 euros at which the bank's listing was priced. A STABLE BASE Goirigolzarri said Bankia was now stable, cutting costs "at great speed" and aiming to give the government credible options to recover its money by the end of 2014 or 2015. The bank - in the midst of a fresh marketing campaign under the slogan "Let's start at the beginning" - is targeting a return on equity of over 10 percent for then and aims to post an 800 million euros profit for 2013. Non-performing loans (NPL) dipped to 13 percent of its loan portfolio in December, from 13.3 percent three months before. But Bankia's NPL ratio is still much higher than the average in Spain of 10.4 percent and does not include the troubled property deals now in the bad bank. Bankia said the high ratio, which could grow slightly in 2013, was down to a very prudent analysis of its loan portfolio, 90 percent of which was lending to individuals and small and medium-sized enterprises at the end of 2012. Executives also warned low interest rates would weigh on Bankia's income. Bankia will be around 70 percent government-owned once it completes a capital hike from European funds, while 350,000 small shareholders, many of whom participated in its 2011 listing, will end up with a 1 percent stake or less. The bank has yet to convert preference shares and subordinated debt into capital, as it imposes losses on holders of those securities as part of its rescue. That process is likely to keep the lender in the public eye as small investors campaign to get their money back, sparking demonstrations across Spain, while some angry clients try to take their cases to an arbitration panel for mis-selling cases. "They've managed to scare off clients and kill the golden goose," said Antonio Barahona, 75, who invested his life savings in 68,000 euros of Bankia preference shares. A 40-year client of the bank and its former incarnations, he now does no business with Bankia and is trying to take it to court. Bankia and its parent group BFA, which holds the firm's stakes in various Spanish companies, requested 18 billion euros in European aid last year. Bankia must now shrink its balance sheet by about 60 percent as a condition of the rescue. It is also cutting about 4,500 jobs and closing offices. The Bankia-BFA group posted a yearly loss of 21.2 billion euros, saying this would drop to 19.4 billion if gains from a pending exchange of hybrid securities were taken into account. ($1 = 0.7628 euros) (Additional reporting by Sonya Dowsett; Editing by Mark Potter and David Holmes )

Telefonica surprises with signs of Spanish turnaround. The carrier, which has been battling recession for over a year in its domestic market, boosted its Spanish operating cash flow for the first time in four years as it successfully targeted customers with value-for-money deals. In contrast to Deutsche Telekom ( DTEGn.DE ), the euro zone's second-biggest telecoms company - which disappointed investors with the scale of its investments to hang on to customers in its home market Germany - Telefonica has gone down a different path. Instead of spending furiously on subsidizing smartphones to keep its more affluent customers tied into multi-year contracts, Telefonica stopped smartphone subsidies last year and saved 500 million euros as a result, according to Telefonica Europe Chief Executive Eva Castillo. A new offering packaging fixed-line, mobile, broadband and TV services has attracted 1.5 million customers since its launch in October and is "a clear commercial success", Telefonica said. Many rivals in Europe's crowded and mature mobile markets are adopting a more defensive approach, hoping to squeeze more money out of the data services that smartphone users increasingly favor over their former cash cow, voice calls. Deutsche Telekom, whose German domestic market is the euro zone's strongest major economy, is stepping up investments to shore up its customer base in Germany, which accounts for 39 percent of its revenues. The company posted a drop in fourth-quarter core profit that missed analysts' expectations, although it said it still expected an increase in core profit this year. "We are going on the offensive - with extensive investments in networks and in the market," outgoing Chief Executive Rene Obermann said in a statement. Telekom Austria ( TELA.VI ), which reported better-than-feared results, has also said it will need to make substantial investments to defend its market share at home, despite a consolidation of the Austrian market to three in January. IRISH WRITEDOWN Europe remains a tough market, with three or four telecoms operators in most countries, a prolonged economic crisis and active pro-consumer regulation that has been forcing carriers to cut prices and fees. Telefonica's Latin American sales overtook its European sales for the first time last quarter, while the only two of Deutsche Telekom's European markets to grow, excluding its British joint venture, were Poland and Hungary. Telefonica reported lower-than-expected net profit due to a surprise writedown of 527 million euros ($691 million) on its Irish unit, earning 3.9 billion euros in 2012 instead of the expected 4.4 billion euros. Its overall operating income before depreciation and amortization (OIBDA) grew 5 percent to 21.2 billion euros and sales slipped 1 percent to 62.4 billion in 2012, broadly in line with estimates. The company reiterated it would pay a dividend of 0.75 euros per share for 2013 after scrapping it last year for the first time since the Spanish Civil War as part of a cash-raising drive as it grapples with net debt of 51.3 billion euros. Telefonica forecast revenue growth and lower operating margin erosion for 2013 and said it had scrapped plans to float its Latin American businesses, something it had previously considered as a way to raise up to 6 billion euros. "There is not going to be an IPO of Latin America...This is not a priority anymore," Chief Executive Cesar Alierta said, adding that the company had achieved sufficient "financial flexibility" through asset sales in 2012. Telefonica narrowly missed its net debt to operating income target ratio of 2.35 for 2012 - although not by enough to endanger its prized investment-grade rating - and said it targeted debt of under 47 billion euros in 2013. But investors focused on the faster-than-expected Spanish turnaround, sending Telefonica shares up 2 percent to 10 euros by market close, against a flat European telecoms sector .SXKP. "Spain comes as the big surprise, reinforces the credibility of Telefonica's domestic strategy and suggests stabilization could be closer than expected," BBVA analysts wrote in a note. In neighboring Portugal, also hit hard by the euro zone crisis, Portugal Telecom's ( PTC.LS ) fourth-quarter sales fell 7 percent amid a deepening recession. It posted a 10 percent rise in profit, beating forecasts, thanks to disposals and cost cuts. GERMAN INVESTMENTS Investors were less convinced by the strategy of Deutsche Telekom, whose earnings before interest, tax, depreciation and amortization (EBITDA) excluding special items fell 13 percent to 4.03 billion euros ($5.28 billion), missing an average forecast of 4.19 billion in a Reuters poll. The company said it still expected EBITDA to grow to around 18.4 billion euros this year, above the Reuters poll average estimate of 17.5 billion euros. But the scale of investments in Germany - although they had been flagged - combined with weakness in the United States worried some investors, and Deutsche Telekom shares closed flat having dropped 2 percent earlier. Jefferies analysts wrote: "Results now show this coming through... mainly in German mobile where market investments (opex) have been increased by 0.2 billion euros in 4Q alone. This remains the main reason for our caution on the stock." Telekom Austria ( TELA.VI ) also reported a drop in core profits as its two biggest markets, Austria and Bulgaria, struggled with competition and regulation. The company that is 26 percent owned by Carlos Slim and his America Movil group ( AMXL.MX ) said competition remained fierce. Still, quarterly core profit of 319 million euros and flat sales of 1.12 billion euros beat low expectations, sending its shares up 7 percent. Telekom Austria reiterated its forecast for 2013 sales to fall to about 4.1 billion euros from 4.4 billion. It continued to decline to provide a profit forecast. Outside of the euro zone, Russian operator MegaFon ( MFONq.L ) showed its domestic market is approaching that of mature European ones. MegaFon said revenue growth would likely slow this year and it would focus on mobile data rather than voice services to drive future growth. (Additional reporting and writing by Georgina Prodhan ; Editing by Sophie Walker)