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CORRECTED-(OFFICIAL)-UPDATE 1-Dubai Group sees $10 bln restructuring in six weeks

Written By Unknown on Kamis, 09 Mei 2013 | 18.12

Thu May 9, 2013 6:26am EDT

(Removes reference to creditors taking equity stake after company corrects earlier statement, and says creditors will not receive any equity)

* Expects to sign debt deal in six weeks - parent's CEO

* Company to be independent from parent

* Dubai Group not expecting to sell assets in 2013

* Company owes parent $4 bln

* Post-restructuring board to include creditors

By Mirna Sleiman

DUBAI, May 9 (Reuters) - Dubai Group, an investment vehicle owned by the emirate's ruler, will become an independent company after its planned $10 billion debt restructuring, a top official said.

The company, which is a unit of Dubai Holding, the investment arm of Sheikh Mohammed bin Rashid al-Maktoum, expects to sign an agreement with its creditors on the restructuring in six weeks, said Ahmad Bin Byat, chief executive of Dubai Holding.

"We expect the deal to be signed within six weeks. The term sheet is now approved by the core creditors committee and is being circulated to the credit committee," Bin Byat told Reuters on Thursday.

The proposed Dubai Group deal is the last big debt restructuring related to the emirate's 2008-2009 financial crisis that has not yet been agreed. Complex talks on the deal have dragged on for over three years.

On Wednesday, sources familiar with the matter told Reuters that unsecured creditors had been sent final restructuring documents, and that agreement was expected to be reached between banks and Dubai Group by June 6.

After the restructuring, Dubai Group's board will include representatives from creditor banks and shareholders, as well as independent members, Bin Byat said.

The proposal includes asset sales, though Dubai Group does not expect to dispose of any of its major assets this year, he said. Assets include a 14.7 percent stake in Oman's top lender, Bank Muscat, and 18 percent of Egypt's EFG Hermes . Dubai Group also owns part of Borse Dubai, which holds 20.6 percent of the London Stock Exchange.

Dubai Group's creditors are being asked to extend their obligations for between 3.5 and 12 years, depending on the assets secured against their exposure, to allow the company's assets to recover in value before divestment.

For unsecured creditors, who have been offered a 12-year extension, there is an option to be repaid after five years, albeit at a discount.

The restructuring would see Dubai Group's debt removed from the balance sheet of parent Dubai Holding.

"As of yesterday, the debt was on Dubai Holding's books. But once the agreement is signed, I can say as of today, $10 billion debt is off our books and will be carried by the owners of Dubai Group," Bin Byat said.

"Dubai Group still has to pay Dubai Holding $4 billion of internal debt, and that's why we will be sitting on the board along with creditors. Dubai Group will remain at arm's length." (Writing by Dinesh Nair; Editing by Andrew Torchia)

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Update-Moody's:Prime Money Market Funds' profiles weaken in first quarter

Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.

NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.


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RPT-Fitch Assigns Nqaba Finance 1 Expected Ratings; Affirms Existing Notes

Thu May 9, 2013 6:44am EDT

May 9 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned Nqaba Finance 1 (RF) Limited's (Nqaba Finance 1) additional floating-rate notes (FRN) National Long-term expected ratings, as follows:

ZAR200m class A16 FRN: 'AAA(zaf)(EXP)'; Outlook Stable

ZAR302m class A17 FRN: 'AAA(zaf)(EXP)'; Outlook Stable

ZAR40m class B15 FRN: 'AA(zaf)(EXP)'; Outlook Stable

ZAR25m class C15 FRN: 'A+(zaf)(EXP)'; Outlook Stable

ZAR30m class D7 FRN: 'A-(zaf)(EXP)'; Outlook Stable

The new notes will be issued to refinance the existing class A9, A14, B9, B13 C9, C13 and D4 notes, all with a scheduled maturity of 22 May 2013. All other notes will remain after the refinance date of 22 May 2013. Fitch has also affirmed the currently outstanding notes, as follows:

ZAR127m class A9 FRN, affirmed at 'AAA(zaf)'; Outlook Stable

ZAR115m class A10 fixed-rate notes, affirmed at 'AAA(zaf)'; Outlook Stable

ZAR205m class A11 FRN, affirmed at 'AAA(zaf)'; Outlook Stable

ZAR318m class A12 FRN, affirmed at 'AAA(zaf)'; Outlook Stable

ZAR375m class A14 FRN, affirmed at 'AAA(zaf)'; Outlook Stable

ZAR303m class A15 FRN, affirmed at 'AAA(zaf)'; Outlook Stable

ZAR30m class B9 FRN, affirmed at 'AA(zaf)'; Outlook Stable

ZAR11m class B10 fixed-rate notes, affirmed at 'AA(zaf)'; Outlook Stable

ZAR32m class B11 FRN, affirmed at 'AA(zaf)'; Outlook Stable

ZAR10m class B13 FRN, affirmed at 'AA(zaf)'; Outlook Stable

ZAR8m class B14 FRN, affirmed at 'AA(zaf)'; Outlook Stable

ZAR12m class C9 FRN, affirmed at 'A+(zaf)'; Outlook Stable

ZAR5m class C10 fixed-rate notes, affirmed at 'A+(zaf)'; Outlook Stable

ZAR32m class C11 FRN, affirmed at 'A+(zaf)'; Outlook Stable

ZAR13m class C13 FRN, affirmed at 'A+(zaf)'; Outlook Stable

ZAR5m class C14 FRN, affirmed at 'A+(zaf)'; Outlook Stable

ZAR30m class D4 FRN, affirmed at 'A-(zaf)'; Outlook Stable

ZAR5m class D5 FRN, affirmed at 'A-(zaf)'; Outlook Stable

ZAR24m class D6 FRN, affirmed at 'A-(zaf)'; Outlook Stable

Credit enhancement is provided by overcollateralisation and totals 26.00% for the class A notes, 21.33% for the class B notes, 17.90% for the class C notes and 14.87% for the class D notes. In addition, the transaction features significant overcollateralisation of interest, resulting from the junior position of the interest payable under the subordinated loan in the priority of payments.

KEY RATING DRIVERS

Asset Performance:

The historical performance of the assets is strong relative to the rest of the South African mortgage market, with rates of delinquency of 90 days of 0.7% as of February 2013. This is due to the borrowers' stable employment background and the collection of mortgage payments through payroll deduction.

Revolving:

The transaction is "evergreen" revolving, since the purchase of new loans is allowed until the breach of certain performance triggers. It is also subject to certain covenants on the portfolio features. In addition, many borrowers also have the ability to draw their loans further.

Eskom Dependency:

The transaction's performance is strongly dependent on that of Eskom as (i) the large majority of borrowers are employed by Eskom and pay the instalments by salary deduction; (ii) Eskom provides support to borrowers in the form of subsidies; and (iii) as there is some operational dependency on Eskom or its subsidiary EFC. Fitch therefore maintains a limited differential between the rating of the notes and that of Eskom.

Overcollateralisation of Interest:

The interest due on the subordinated loan, which funds part of the mortgage portfolio purchase price, is paid junior to the principal note allocations. This provides significant overcollateralisation of interest and supports the senior notes.

Planned Sale of EFC:

Eskom would be committed to maintaining payroll deductions and subsidy payments to the borrowers despite the sale of EFC, as requested by the South African government. However, the termination of the back-up servicing agreement with ABSA, which will result from the sale of EFC, will further increase the transaction's reliance on EFC to perform as a servicer.

RATING SENSITIVITIES

Material increases in the frequency of defaults and loss severity on defaulted receivables could produce loss levels higher than Fitch's base case expectations, which in turn may result in potential rating actions on the notes. The agency stressed its 'AAA' assumptions by 30% for both weighted average foreclosure frequency and recovery rate. The stresses did not result in a downgrade of the class A notes.

The percentage below which the proportion of loans serviced by payroll deduction may not fall as a result of a purchase of new loans will be decreased to 92% from 93% as of the date of the new notes issuance. However, this has no impact in Fitch's existing analysis, as the agency already assumes a higher proportion of borrowers leaving their employment with Eskom.

More detailed model implied ratings sensitivity can be found in the presale report, which will shortly be available at www.fitchratings.com. For its ratings analysis, Fitch received a data template with most fields fully completed. To analyse the CE levels, Fitch evaluated the collateral using its default model, details of which can be found in the reports entitled 'EMEA RMBS Master Rating Criteria', dated 7 June 2012 and 'EMEA Criteria Addendum - South Africa' dated 21 February 2013', at www.fitchratings.com. The agency assessed the transaction cash flows using default and loss severity assumptions under various structural stresses including prepayment speeds and interest rate scenarios. The cash flow tests showed that each class of notes could withstand loan losses at a level corresponding to the related stress scenario without incurring any principal loss or interest shortfall and can retire principal by the legal final maturity.

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RPT-Euro rises after German industry data, Bunds pare gains

Written By Unknown on Rabu, 08 Mei 2013 | 18.12

Wed May 8, 2013 6:12am EDT

LONDON May 8 (Reuters) - The euro rose to a session high against the dollar and Bund futures paired gains on Wednesday after German industrial output rose more than expected in March.

The euro rose to $1.3145 from $1.3123 before the data was released with stop-loss buy orders cited above $1.3150. Near term resistance is at its 100-day moving average of $1.31564.

German Bund futures pared gains, last trading 10 ticks higher on the day at 145.53, having risen as high as 145.72 earlier in the session.


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Update-Moody's changes Eco-Bat's outlook to negative from stable

Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.

NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays, please click here.


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WRAPUP 1-China opens new front in war as yuan speculation distorts export data

Wed May 8, 2013 6:46am EDT

* Economists suspect trade data conceals speculative inflows

* PBOC signals it will intensify mop up of speculative funds

* C.bank to issue 3-month bills for first time since 2011

* Investors trying to cash in on long-running yuan rally

* Regulators worry money not being routed into real economy

By Pete Sweeney

SHANGHAI, May 8 (Reuters) - China's central bank signalled on Wednesday it was prepared to change its monetary strategy to fend off inflows of speculative capital, as Beijing struggles to control a tide of cash washing in from overseas markets.

The move came as April exports blew past expectations, which appeared on the surface to indicate that both China's economy and global demand were on the mend. But economists were quick to suspect the figures were artificially inflated by investors who were disguising speculative bets on the yuan currency as trade payments.

Faced with the risk that such inflows could cause the yuan to appreciate so quickly that it destabilises exports and the broader economy, the People's Bank of China (PBOC) has begun intervening heavily in the domestic currency market this year, buying up dollars and selling yuan.

This leaves the question of how to keep the yuan it has sold from distorting domestic markets.

On Wednesday morning, during a routine call to primary dealers in China's interbank market, dealers told Reuters that regulators had queried them for demand for three-month bills.

Hours later, after markets had closed, the PBOC said it would auction 10 billion yuan ($1.6 billion) of three-month bills on Thursday.

While a relatively small amount, the central bank has not issued bills - which drain liquidity in tenors between three months and three years - since 2011. It has instead relied on short-tenor bond repurchase agreements to move money rapidly in and out of the market, much as central banks in developed economies do.

The move suggests that the PBOC is preparing to make systematic longer-term cash drains from the money supply to blunt the impact of hot money flows, with a potential knock-on impact on interest rates, market sentiment and economic growth.

The announcement came days after the country's foreign exchange regulator released new rules to crack down on inflows of hot money disguised as trade payments.

Calls to the PBOC for comment were not answered.

The last time the government made technical adjustments to its money management methods in February, domestic equity markets swooned as investors bailed out of stocks, worried that the changes heralded a wider monetary tightening that would constrict growth.

But the PBOC must balance the risk that the change will negatively impact markets against the distorting effect the inflows are having on the wider economy, in particular on exports, and by signs that capital is once again being misrouted internally into speculative channels like property instead of the real economy.

A Reuters estimate of hot money flows based on official data indicates that as much as $181 billion in speculative cash may have entered China in the first quarter, fueled in part by loose monetary policy from the United States and Europe. (GRAPHIC:)

And that estimate likely understates the true figure, since it doesn't account for inflows disguised as trade payments.

These inflows have helped push the yuan to new highs against the dollar on a near-daily basis, attracting even more speculation. On Wednesday, it closed at a record 6.1410 per dollar, up 1.5 percent for the year so far after rising slightly over 1 percent in 2012.

POLICY HEADACHE

While China's capital account is tightly restricted, it is not hermetically sealed, and some of the speculative inflows are conducted through legal channels.

But there are two major points of concern. One is that domestic trading companies are betting too much on further yuan appreciation, to the extent that they are borrowing the dollars they need for trade with foreign companies in order to increase their yuan stockpiles, which most economists see as unsustainable.

The other is that companies are falsifying trade transactions to get their hands on even more yuan, muddying macroeconomic indicators and embarrassing regulators.

Official data showed that April exports grew by 14.7 percent from a year earlier, well above expectations of 10.3 percent, but the numbers only fueled scepticism that financial manoeuvring by exporters and speculative inflows are masking weakness in real demand.

Particularly suspicious were figures in both March and April showing explosive growth in exports to Hong Kong and bonded trading zones, that appeared completely disconnected from export growth to ultimate destination markets in the U.S. and Europe - and from tepid export figures for neighboring Asian economies.

Louis Kuijs and Tiffany Qiu, economists at RBS in Hong Kong, estimated that actual April export growth was only 5.7 percent, implying that the other 9 percent was actually comprised of falsified invoices created to allow trading companies to increase their yuan holdings.

"It's creating a big headache for policymakers," said Wei Yao, economist at Societe Generale.

DON'T PANIC

However, interbank dealers who spoke to Reuters did not expect a resumption of bill issuance to panic the markets this time around, as investors are well aware of the hot money issue after repeated regulatory warnings and crackdowns.

Both equity and money markets were relatively bullish on Wednesday, and money rates eased on expectations that the central bank will actually allow more funds, not less, to flow into the market through scheduled open market operations on Thursday.

Liu Junyu, a bond and money market analyst at China Merchants Bank in Shenzhen, said that the market did not read the PBOC's move as a portent of more drastic tightening measures like interest rate hikes or increases to reserve requirement ratios at banks, both of which would make more profound and durable adjustments to base money supply that might choke off China's economic recovery.

"Given so much weak economic data and recent dubious trade data, the PBOC will probably keep monetary policy unchanged and neutral," he said.

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IMF's Lagarde urges all euro members to push for banking union

Written By Unknown on Selasa, 07 Mei 2013 | 18.12

AMSTERDAM | Tue May 7, 2013 6:21am EDT

AMSTERDAM May 7 (Reuters) - For European banking union to succeed, all EU member countries need to be in agreement, Christine Lagarde, managing director of the International Monetary Fund, said on Tuesday.

"You need to have all the players at the table," Lagarde, managing director of the IMF, told students at the University of Amsterdam when asked about Germany's concerns.

The banking union is one of the key projects to improve the economy of the 17 countries sharing the euro. It would help eliminate many of the problems that now hold back the flow of credit needed to finance a euro zone economic recovery.

Germany has shown some reluctance, but Finance Minister Wolfgang Schaeuble signalled a softening of his stance earlier on, saying the euro zone should press ahead on the basis of current law


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UPDATE 1-German FinMin softens stance on EU banking union

Tue May 7, 2013 5:56am EDT

By Stephen Brown

BERLIN May 7 (Reuters) - German Finance Minister Wolfgang Schaeuble signalled a softening of his stance on a European banking union on Tuesday, saying the euro zone should press ahead on the basis of current law without waiting for a controversial overhaul of the EU's Lisbon treaty.

The banking union is a crucial part of Europe's drive to overcome its financial and sovereign debt crisis. In a first step, it involves the creation of a Europe-wide banking supervisor under the hood of the European Central Bank. This is to be followed by a so-called resolution scheme to close or salvage struggling banks.

Just last month, Schaeuble appeared to slam on the brakes by saying the European Union needed to consider treaty change before proceeding, due to the "doubtful legal basis" on which the project rested. Those comments sparked a backlash from EU officials and German partners like France.

On Tuesday however, at a Berlin university event with his French counterpart Pierre Moscovici, Schaeuble struck a more conciliatory tone, calling banking union a "priority project" and promising to press ahead with it "quickly".

He said that while Europe needed institutional changes in the medium-term, it should not wait for this to solve its current problems.

"We must make the best of it on the basis of the current treaties, and where we do not manage to achieve things institutionally, then we will work inter-governmentally or even bilaterally," he said.

Germany, which holds an election in September, has in recent months stressed the need for caution and careful preparation in the drive for a banking union, anxious about exposing its citizens to the liabilities of Europe's weakened banking sector.

Chancellor Angela Merkel has insisted on tough austerity measures to cut the euro zone's public debt, but France's Moscovici urged Berlin to show more understanding for the plight of struggling southern countries.

FRANCE URGES FLEXIBILITY

"It is true that Germany is very attached traditionally to rules and discipline, which are things we need - but at the same time we have to be capable of flexibility, of understanding and of respecting our diversity," the French Socialist said.

He joked that Schaeuble "would perhaps not have spontaneously advised me to get an extension" to the French deficit goals from the European Commission, adding that his German colleague had expressed his understanding.

Last week, the Commission, the EU's executive body, granted France - the euro zone's second largest economy - two more years to cut its public deficit to below three percent of gross domestic product (GDP).

Unlike Germany, where the economy remains relatively robust and unemployment is near two decade lows, France has seen jobless numbers soar to record levels.

Moscovici said countries had to reduce their public debt but at an appropriate pace, adding that Paris did not see the Commission's decision as an excuse to neglect sorely needed structural reforms.

"We will continue our efforts to tackle the structural deficit," he said. "France is a serious country conducting a credible policy, we do not renounce (fiscal responsibility)."

But Moscovici stressed that the most pressing challenge for France and many of its euro zone peers was job creation.

"Of course, we have to make sure public finances are put right, but you have to carry out this exercise carefully, taking into account the national situations and defining the right rhythm for preserving growth prospects," he said.

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RPT-Fitch affirms Angola at 'BB-'; positive outlook

Tue May 7, 2013 6:53am EDT

May 7 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Angola's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'BB-' with a Positive Outlook. Fitch has also affirmed the Country Ceiling at 'BB-' and the Short-term IDR at 'B'.

KEY RATING DRIVERS

The decision to affirm Angola's rating with a Positive Outlook reflects the following factors:

- A reduction in external vulnerability, reflecting Angola's commitment to macroeconomic reform and prudent policies, which has helped to rebuild external buffers, reducing vulnerability to an oil price shock. A healthy current account surplus has supported reserve accumulation, which now stand at 6.8 months of current external payments (CXP) compared to 3.7 months in 2008.

- Strong growth, more recently in non-oil GDP, has supported economic diversification as well as rapid increases in per capita income - the fastest of Fitch-rated sub-Saharan African sovereigns. Fitch forecasts that the overall economy will expand by 8.2% and 7.8% in 2013 and 2014 respectively.

- Inflation has fallen to single digits for the first time in decades, reflecting exchange rate stability and improved monetary policy, a trend which is expected to continue.

- An improved fiscal position, following three years of large fiscal surpluses. Government debt as a percentage of GDP has fallen to 22% in 2012 from 36% in 2010, while rising deposits are expected to turn the country into a net domestic creditor in 2013. Debt ratios are expected to decline modestly in 2013, despite an expected Eurobond issue, due to strong nominal GDP growth. A new sovereign wealth fund, mainly domestically invested, will help sustain domestic spending through an oil downturn.

- The budgeting and debt management process have improved, enabling better management of revenue and expenditure. The authorities have projected a fiscal deficit for 2013. Encouragingly, this includes state oil company Sonangol's quasi-fiscal operations for the first time. Moreover, in Fitch's view, under-execution of planned investment and a higher than budgeted oil price will see the government maintain a modest surplus.

- A more dynamic oil sector in comparison with Nigeria or Gabon (both rated 'BB-'/Stable), reflecting continued exploration and a favourable regulatory environment. Oil production is expected to reach 2mn b/d by 2015, up from 1.75mn b/d in 2012. The start of Liquefied Natural Gas (LNG) production in 2013 will also provide a boost to the sector.

- The government's renewed commitment to policy reform following the latest elections which showed a slight decline in support for the ruling MPLA.

- Poor governance, with World Bank governance indicators below both the 'B' and 'BB' median, remains the major constraint on the rating. The weak business environment and low human development also pose concerns.

RATING SENSITIVITIES

The Positive Outlook reflects the following factors that may, individually or collectively, result in an upgrade of the ratings:

- A continued track record of improved economic management and strengthening external and fiscal buffers

- Further regulatory reforms being reflected in improvements in the business environment and per capita income as well as improvements in governance measures.

The current rating Outlook is Positive. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a material likelihood, individually or collectively, of leading to a rating downgrade. However, future developments that may, individually or collectively, lead to a stabilisation of the Outlook include:

- A severe and sustained fall in oil prices that materially eroded external and fiscal buffers and failed to bring an effective policy response

- A sustained weakening in public finances due to rapid increases in current expenditure, leading to large deficits and a sustained increase in debt.

KEY ASSUMPTIONS

The ratings and Outlooks are sensitive to a number of assumptions.

- Fitch assumes there will be no major fall in the price of crude oil, Angola's main export, in line with the agency's Global Economic Outlook. The Brent oil price is forecast to average USD105 and USD100 per barrel in 2013 and 2014 respectively, compared with USD112 per barrel in 2012.

- Fitch assumes that the pace of regulatory reform will continue, in addition to the authorities' commitment to prudent economic policies.

- A continuing stable political environment, with no significant challenge to the current ruling establishment

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GLOBAL MARKETS-Dollar firmer, stock rally pauses after U.S. data

Written By Unknown on Senin, 06 Mei 2013 | 18.12

Mon May 6, 2013 6:14am EDT

* Dollar gains vs yen on jobs data, test of 100 seen

* World share gains stall in holiday-affected trade

* Commodities stronger, oil gains on Syrian tension

By Richard Hubbard

LONDON, May 6 (Reuters) - The dollar edged up against the yen on Monday and stocks held near last week's multi-year highs as the global economic outlook, brightened by strong U.S. jobs data, buoyed sentiment.

Brent crude oil futures hit their highest level in nearly a month after Israeli air strikes on a Syrian military facility over the weekend stoked worries about the risk of disruption to Middle East supplies.

However, with Japanese and British markets closed for public holidays, trading volumes were thin across all major asset classes.

The main moves were in the dollar against the yen where Friday's U.S. jobs report eased fears of a slowdown in the world's largest economy, setting the stage for the greenback to re-test the 100 yen level.

"The U.S. does seem to be in a cyclical recovery. It is outperforming all the rest of the major (developed) economies globally, and that can't be ignored," said Greg Matwejev, director of FX, Hedge Fund Sales and Trading for Newedge.

"We've probably got a better chance at making a crack at 100 now and I wouldn't be surprised in the coming sessions that we do see that happen."

U.S. employment rose more than expected in April, with 165,000 jobs created, and hiring was much stronger than previously thought in the previous two months. This eased concerns raised by other data which had pointed to the economy losing steam.

The dollar was up 0.4 percent at 99.39 yen, extending Friday's 1 percent gain. The yen has fallen steadily since the Bank of Japan announced a massive plan last month to boost the economy.

The dollar's rise was being helped by U.S. Treasury bond yields which jumped in reaction to the jobs report. The 10-year note yield was at 1.74 percent on Monday, having posted its biggest single-day rise since Sept. 14 on Friday.

U.S. SHINES

Further evidence of the relative outperformance of the U.S economy emerged on Monday when a gauge of China's service sector, which accounted for 46 percent of gross domestic product in 2012, showed activity slowing in April.

An updated reading on business conditions across the euro zone last month suggested the region may be falling deeper into recession.

The Markit Eurozone Composite PMI, which gauges activity across thousands of companies, also showed Germany is now suffering a contraction in business activity that has long dogged France, Italy and Spain.

"The PMI suggests that, having eased in the first quarter of the year, the euro zone's economic downturn is likely to have gathered momentum again in the second quarter," said Chris Williamson, chief economist at Markit.

The euro was down 0.1 percent at $1.3106 after the data, well below last week's two-month high of $1.3243.

Analysts said the currency could drop further after the European Central Bank President Mario Draghi said last week that the bank was ready to cope with the consequences of cutting its deposit rate below the current zero percent.

Such a move would effectively mean charging banks to leave money overnight at the ECB, encouraging them to lend more and support the recession-hit euro zone.

"The risks are now tilted to the downside for euro/dollar and it could test $1.30," said Arne Lohmann Rasmussen, head of FX research at Danske Bank.

The prospect of further ECB rate cuts was supporting European stock markets though the UK holiday limited activity.

The euro zone's blue chip Euro STOXX 50 index was down 0.3 percent at 2,755 points, edging away from a near-two year peak of 2,764.17 hit after the U.S. jobs data.

A rise in MSCI's broadest index of Asia-Pacific shares outside Japan of nearly one percent, led by gains in Australia's main share index, left the MSCI world equity index virtually unchanged.

Strong gains in U.S. stock index futures did point to sharp rise Wall Street later when trading resumes, even though the Dow Jones Industrials index and S&P 500 were already at all-time closing highs on Friday.

OIL TENSION

Commodities were mostly adding to their recent gains on the U.S. jobs report but oil gained added momentum from developments in the Middle East.

Brent crude was up 0.4 percent to $104.65 a barrel, its highest in nearly a month after intelligence sources said Israel attacked Iranian-supplied missiles stored near the Syrian capital of Damascus on Friday and Sunday.

Israeli officials have said the raids were aimed at stopping Lebanon's Hezbollah, an ally of Iran, from acquiring weapons that could be used to strike Tel Aviv. Iran has denied its missiles were destined for Hezbollah and urged the region to unite against Israel.

U.S. oil traded up 61 cents at $96.22, after ending Friday with gains of around 1.7 percent.

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Bankers whisper: Spain's bailout bill could rise

By Sarah White

MADRID | Mon May 6, 2013 6:19am EDT

MADRID May 6 (Reuters) - Spain's bill to bail out its banks may yet rise, some bankers and analysts fear, as a worsening economy hampers the government's early attempts to sell off nationalised lenders and threatens the "bad bank" housing their rotten property deals.

Spanish banks say the worst is behind them after steep losses last year and they are now recovering - a view broadly shared by authorities such as the European Commission, backer of a 41 billion euro ($54 billion) rescue of ailing lenders.

But while Madrid is on schedule with demanded industry reforms and banks are better protected against losses from a sunken real estate market, a growing number of bankers argue in private that more state funds may still be needed to help sell rescued lenders and keep "bad bank" Sareb ticking over.

Sareb was used to clean the balance sheets of state-rescued banks by taking on 50.7 billion euros worth of foreclosed properties and troubled loans to real estate developers.

The assets are matched by 50.7 billion euros in senior debt and backed by 4.8 billion euros in capital, more than half of which was contributed by Spain's healthy lenders to reduce the burden on state books.

The 8 percent capital cushion may however be too thin to withstand losses without a top-up, which could be hard to source from the private sector, said several senior Spanish bankers and investment bankers who have worked with the government.

"It was a big mistake. The government is going to have to take over the entire vehicle sooner or later," said a Spanish banking executive, on condition of anonymity, echoing a view from three other senior bankers.

Spain took 41 billion euros of a 100-billion-euro European credit line to bail out its banks last year. The bill added the equivalent of 3.5 percent of gross domestic product to a deficit that was already higher than allowed under EU rules.

The bailout came after several failed government efforts to clean up the financial sector, crippled by more than 300 billion euros in bad loans after a housing bubble burst in 2008.

If the liabilities of the bad bank, known by its Spanish-language acronym Sareb, were to be put on the state's balance sheet, it could add up to another 5 percentage points of GDP to the country's debt, pushing it to more than 100 percent of annual output. Spain's economy ministry declined to comment.

WORRIES AT THE BAD BANK

The real estate parked with Sareb was already written down by an average of 63.1 percent and the loans by 45.6 when the assets were transferred to the bad bank, but four bankers argued that further losses could still deplete its capital.

Of its loans, only 22 percent are considered "normal"; 34 percent are rated "substandard" and 45 percent "doubtful".

Most of the loans are linked to finished properties, for which it might be easier to find a buyer, but 4.3 percent are for unfinished developments and nearly 10 percent are for empty lots, for which there is little or no demand.

Nearly all of the foreclosed properties in its portfolio are empty, including apartment blocks far outside big cities. Only 6,000 of nearly 83,000 housing units have tenants.

Bankruptcies and defaults are on the rise in Spain, and the fall in housing prices accelerated in the first quarter. The bankruptcy of property developer Reyal Urbis, which now counts Sareb as one of its major creditors, underlined the problem.

Meanwhile, Sareb is just beginning to comb through its assets.

"This (structure) could be a problem if the vehicle starts making losses and needs more equity, something very likely to happen in our view once it reappraises its assets," JPMorgan analyst Jaime Becerril said in a recent note.

One source familiar with Sareb said it was aware of the risk it might need more capital, but believed "that would only happen under an extremely distressed economic scenario."

A stress test of Spanish banks last year by consultant Oliver Wyman, which served as the basis for some of Sareb's calculations, defined a worst case scenario as a 2.1 percent economic drop in 2013 and a 0.3 percent contraction in 2014.

Spain expects its economy to shrink 1.3 percent in 2013, further than initially forecast, while growing 0.5 percent in 2014.

Sareb does have a contingency plan for shoring up capital, which involves restricting eventual dividend payments to shareholders, the source said. Otherwise fresh capital will have to come from investors - the state, or sound banks, some of whom had came under pressure from the government to invest.

A spokeswoman for Sareb said "the contingency plan is the sales plan", which entails selling almost half of assets over the next five years and paying down half of the debt.

That would bolster Sareb's capital position, she said, adding that the vehicle had enough capital at present to see its strategy through and relative to the assets it has.

CAPITAL CONUNDRUM

Spain has already had to fork out more funds to help sell rescued banks.

After failing to sell nationalised lender CatalunyaBanc in February as bidders demanded greater guarantees against future losses, the government was forced last month to pump 245 million euros of extra capital into small nationalised Banco Gallego to clinch its sale to Sabadell for one euro.

While a small amount relative to the billions already poured into the system, the need for a capital hike exposed worries about the risks still attached to bailed-out lenders.

Spain still fully owns three banks, including Bankia , controls another, Banco Mare Nostrum, and could yet end up controlling a fifth, Banco CEISS, if its sale to Unicaja falls through.

These banks and healthy ones alike are increasingly vulnerable to rising bad loans, especially among small company borrowers, as the Spanish economy worsens. For now, that is mainly seen as a threat to earnings.

While most banks maintain they have stocked up on enough capital to counter growing provisions for losses, a handful of analysts still believe some will have to do more to ward off problems outside the real estate realm.

The Bank of Spain on Tuesday tightened the rules on how banks classify bad debt in cases of refinancing, in a move that could force lenders to recognise more bad debt.

Ratings agency Moody's had forecast last October that banks had a 100 billion euro capital gap, rather than the 54 billion euros projected by Oliver Wyman in its stress test.

"Despite all the developments, it's difficult to see that all of that 100 billion euros is cancelled out," Alberto Postigo, analyst at Moody's, said.

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BRIEF-Buffett says U.S. economy gradually improving, helped by Bernanke--CNBC

Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.

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Audi needs clarity on laws before decision on Brazil plant-CEO

Written By Unknown on Minggu, 05 Mei 2013 | 18.12

PUEBLA CITY, Mexico | Sat May 4, 2013 9:19pm EDT

PUEBLA CITY, Mexico May 4 (Reuters) - Volkswagen AG's Audi premium brand will not build a vehicle assembly plant in Brazil until the laws governing what exactly is required to ensure a car is considered locally built are clarified, the unit's chief executive said on Saturday.

"We are studying now some details, but even the government is not really clear when it comes to localization, what type of parts do they mean?" Rupert Stadler told reporters in Puebla City, Mexico after Audi celebrated the laying of the foundation stone in a nearby town for a $1.3 billion plant that will open in mid-2016.

"The whole framework of laws and regulations is not transparent," he added. "So you cannot now say, 'I'm going to Brazil' because you don't know the details."

Brazil is the world's fourth largest automotive market and many automakers are opening plants there to avoid tariffs on imported vehicles. Audi officials have said in the past the company might add a plant in Brazil.

VW officials said in March that they saw the Brazil industry sales slowing this year and the pace of investments in local factories would hinge on demand. Audi rival BMW has said it plans to open a factory in Brazil in late 2014.

While Audi has the necessary government approvals to proceed if it wanted, Stadler said he won't invest without more clarity.

"It has to be clear," he said. "What are the conditions? What is the requirement for localization? This is very complicated, so it needs some time."

Stadler also said the opening of the Mexican assembly plant in three years does not close the door on the brand some day building vehicles in the United States.

"That's absolutely open in the future because it always depends what car do you discuss, where is the main market and is the framework the right one," he said.

VW builds VW-branded cars at its plant in Chattanooga, Tennessee, but does not assemble Audi vehicles in the United States.

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INSIGHT-Egypt opposition can't harvest Brotherhood unpopularity

Sun May 5, 2013 3:50am EDT

* Secular parties split on Mursi, elections, IMF

* Salafi Nour party gaining on anger at Brotherhood

* Some Egyptians look to army

By Paul Taylor and Yasmine Saleh

CAIRO, May 5 (Reuters) - It's harvest time in Egypt but the secular opposition is reaping scant benefit from the Muslim Brotherhood's difficulties in government, two years after an Arab Spring uprising swept away President Hosni Mubarak.

Many Egyptians are looking to the army, or to more radical Salafi Muslim groups, rather than to liberal or leftist parties as Islamist President Mohamed Mursi and his cabinet struggle to revive a sick economy, restore security and build institutions.

Perhaps the greatest threat to Egypt's faltering transition to democracy may come not from what the Brotherhood's critics regard as its attempts to grab as many powers as possible, but from the inability of a weak and fragmented secular opposition to offer a coherent alternative.

"I recognise that the opposition has not lived up to the expectation of the people," said Amr Moussa, 76, a former Arab League secretary-general, who is one of the leaders of the opposition National Salvation Front (NSF).

"But I also recognise that there are lots of possibilities for the opposition to rise to the challenge, especially as the government is not really offering much," the conservative told Reuters in an interview.

Six secular parties and a cluster of democracy activists and intellectuals are loosely allied in the Front, created last November to resist a decree issued by Mursi under which he temporarily took sweeping powers to push through an Islamist-tinged constitution.

Like the battered vehicles on Egypt's roads, the NSF often seems held together by desperation alone. "What keeps us together is the dire situation of Egypt," said Moussa, a foreign minister under Mubarak for 10 years.

Mohamed ElBaradei, leader of the liberal Constitution party, said the Front "doesn't really have the luxury right now to say 'this is the left, and this is the centre-left or centre-right' because what we are opposing is... almost a fascist system".

He sees the NSF as representing a silent majority of 60 to 70 percent of Egyptians who reject Brotherhood rule and are in "a national state of depression".

"BATTLE OF THE EGOS"

Yet the opposition alliance is hobbled by what one NSF aide calls a "battle of the egos" among its leaders, and its component parties agree on few policies.

Should the opposition engage and compromise with Mursi for the sake of national unity, or boycott and try to weaken him to make it harder for the Brotherhood to control the country?

Should they participate in parliamentary elections that many believe will be skewed towards the Brotherhood, as they say all post-revolution votes have been, or stay away at the risk of being marginalised and looking like bad losers?

And should they back a proposed loan from the International Monetary Fund as essential to pull the economy out of crisis despite the tough terms that would be attached, or oppose it on grounds of national sovereignty and social justice - or just sit on the fence?

Each time it looks as if the Front is about to break up over one of these issues, the Brotherhood makes another move that reunites the opposition in shared indignation.

The latest was a clumsy attempt in April to purge the judiciary, which Islamists believe is riddled with corrupt former Mubarak loyalists bent on obstructing elections and laws put forward by elected bodies that the Brotherhood dominates.

By trying to force more than 3,000 judges into retirement at a stroke, the Brotherhood galvanised the judiciary, the NSF, the Salafis and most of the media against itself, prompting Mursi to beat a tactical retreat and seek a compromise.

Political analysts say the president could pick the secular opposition apart if only he accepted some of its demands to appoint a national unity government, replace a widely reviled prosecutor general and pass a more even-handed election law.

"That would pose a real dilemma for the opposition. But mutual suspicion and the Brotherhood's feeling of being under siege are so strong that I don't expect Mursi will do that," a senior European diplomat said.

BETRAYED

Many opposition activists feel they gave Mursi decisive help to win the presidency by backing him in a run-off against former Mubarak Prime Minister Ahmed Shafik last June, only to be shut out of influence by the Brotherhood.

They feel betrayed on issues such as the constitution, the rights of women and religious minorities, judicial independence, and laws regulating elections, demonstrations and non-government organisations.

"We were betrayed by the Muslim Brotherhood, we were cheated by the Muslim Brotherhood. Now they make the same propaganda against us as the old regime did," said Khaled Dawoud, a spokesman for the NSF and ElBaradei's Constitution Party.

Aside from the NSF, the opposition also features a range of Islamist parties of different shades, including two ultra-conservative Salafi groups, as well as rebranded survivors of Mubarak's outlawed former National Democratic Party (NDP).

The Salafi Nour Party appears to be the fastest growing, although its claim to 800,000 members - more than the entire membership of all political parties in Britain or France - sounds optimistic. Nour led an alliance of Islamic purists that won 27.3 percent of the vote in 2011-12 parliamentary elections and has the second largest bloc of lawmakers.

Nader Bakkar, 29, the party's spokesman who has an MBA degree from Alexandria University, says Egyptians are flocking to Nour because, while it has strict Islamic principles, it does not seek to monopolise power or behave like a closed family.

It is also untainted by the burdens of trying to make government work in a chaotic post-revolutionary environment.

Like the Brotherhood, Nour activists run social and medical services for the poor, distributing free or cheap food. That could pay off at election time in a nation where 40 percent of the population lives on less than $2 a day.

But unlike the Brotherhood's Freedom and Justice Party, which propelled Mursi to power, Nour supports a national unity government that would include liberal opposition figures.

The party has its headquarters in a refurbished Nile-side apartment that could be home to an advertising agency but for the Koranic chanting coming from a TV screen on a wall in the soft pink spotlit reception area.

"The most likely probability is that we will run in the elections alone. It is almost decided that we will not ally with the Freedom and Justice Party," Bakkar said in an interview.

He said Nour wanted to avoid a dangerous polarisation on Egyptian streets into Islamists and non-Islamists, and left the door slightly ajar to a pact with some secular parties, although such a marriage of convenience looks improbable.

While the Nour party eschews strict public enforcement of Islamic behaviour as contrary to Egyptian tradition, Bakkar drew the line at wishing Coptic Christians a happy Easter. The Copts, who comprise up to 15 percent of the 84 million population, celebrate the most important festival of the Christian calendar on May 5 this year.

AMBIGUITY

The NSF's leaders meet weekly on Wednesdays to try to thrash out their many differences and take joint positions that are sometimes a tortured lowest common denominator.

On April 18, the Front said in a statement it was getting ready to take part in parliamentary elections while pursuing "the struggle" to create the right atmosphere for a free and fair vote. This ambiguity rapidly backfired on its authors.

The reality, according to two officials in the NSF who asked to remain anonymous, is that at least two of its parties, the Social Democrats and the veteran nationalist Wafd, are likely to contest the polls, even if the others decide to boycott them.

Leftist firebrand Hamdeen Sabahi, 58, head of the Popular Current party, told Reuters that if Mursi met the conditions for a fair poll, including the replacement of Prime Minister Hisham Kandil, the Salvation Front would run one joint list.

While most other NSF groups regard the long-delayed IMF loan as essential to revive the economy, Sabahi said Egypt should reject it because the conditions would further impoverish the poor and could provoke a revolution of the hungry.

Sabahi said the NSF's weakness was exposed by those Egyptians who want a return of the military, which ruled directly through the Supreme Council of the Armed Forces between Mubarak's fall and Mursi's election last year.

"The rise of calls for the Egyptian army (to take power) reflects the fact that there is no hope in the Brotherhood on the one hand, and no trust in the Salvation Front to save us from the Brotherhood on the other," he said.

Ahmed Fawzy, general secretary of the rival Social Democratic Party, admitted his group is divided about whether to run in the elections expected to be held later this year, but said each movement would stand on its own.

Interviewed in the party's drab office in central Cairo, the 41-year-old lawyer said the Social Democrats had 10,000 members, and were among the few groups to have struck roots in southern Upper Egypt since the revolution that began on Jan. 25, 2011.

Nevertheless, it was tough going, Fawzy said. "This is a community that was banned from organising for about 60 years when there were no real parties, trade unions or NGOs," he said.

"We now have our infant party born after Jan. 25 that has since then been in dispute either with the Military Council or the Muslim Brotherhood and is trying to build itself in tough economic and social circumstances, and Egyptians are not yet used to organised group work."

REVOLUTIONARIES

Sabahi, a former student leader who spent years in jail under Mubarak and earlier, was third in last year's presidential election. During the campaign, he branded Moussa "feloul", a pejorative term for a "remnant" of the old regime.

Moussa in turn regards Sabahi as a "Nasserite crazy", according to sources in the NSF, because of his statist economic views inspired by President Gamal Abdel Nasser who overthrew Egypt's monarchy in 1952 and nationalised swathes of industry.

But Dawoud, the NSF spokesman, says the Front's ideological diversity and personal tensions mask a common purpose.

"We disagree about economic policy, we disagree about the IMF, we may disagree about how to deal with Mursi, but we share the same purpose that we want to defend the democratic, modern, civil nature of the Egyptian state," he said.

The main divide in the NSF, Dawoud said, is between those who see it as a revolutionary movement and those who see it as a political coalition, adding that in his view, it is obviously a political umbrella and not a group of revolutionaries.

One proponent of the revolutionary line is novelist Alaa Al Aswany, author of "The Yacoubian Building", a satire of corruption in the Mubarak era, who was prominent in the Tahrir Square protests that toppled the former ruler.

"What is going on now is not so much a political conflict between the government and the opposition as popular resistance against a group that reached power via elections, yet is desperately carrying on with plans to get hold of the state," Aswany wrote in his column in opposition daily Al-Masry Al-Youm.

Rejecting any compromise with Mursi, Aswany called for the president and his interior minister to be put on trial over the alleged killing and torture of opposition activists.

Such talk infuriates politicians in the NSF who are trying to position themselves as a constructive opposition and believe the way forward is through the ballot box, not the street.

CAIRO-CENTRIC

Few secular opposition parties appear to have much of an organisation outside Cairo and a handful of other cities, although Sabahi's Popular Current has built support networks among workers and students.

The Wafd has historic roots older than the Brotherhood's but is seen by younger Egyptians as a tame Mubarak-made opposition that never challenged him in nearly 30 years in power.

The state newspaper Al-Ahram reported that pupils at one school in the coastal city of Alexandria were last month given the exam essay topic: "What is your view of the alliance of losers and thieves who are counting on a corrupt mass media to spoil the efforts of President Mohamed Mursi?"

The subject betrayed the examiners' political slant but it also reflected a broad disenchantment that the opposition has failed to offer a credible alternative to Brotherhood rule.

"I don't trust the Brotherhood, but I'm even angrier at the opposition for not putting forward any vision for Egypt," said Randa Hamlawi, a Cairo office worker.

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Kuwait March bank lending growth picks up slightly

Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.

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GLOBAL MARKETS-Shares pause as U.S jobs report looms, euro gains

Written By Unknown on Jumat, 03 Mei 2013 | 18.12

Fri May 3, 2013 5:19am EDT

* World shares flat as investors await U.S. jobs report

* Euro recovers from ECB rate cut sell-off

* Euro zone bond yields ease as ECB move boosts demand

* Central bank action supports commodities

By Richard Hubbard

LONDON, May 3 (Reuters) - A rally in global share markets halted on Friday as investors braced for monthly jobs data from the United States, while the euro recovered slightly from losses driven by the European Central Bank's decision to cut rates.

Analysts expect the April nonfarm payrolls report, due at 1230 GMT, to show American employers hired 145,000 people last month, up from March's dismal pace of 88,000 but not enough to erase fears the world's biggest economy is losing steam.

"I think we will see a weak payrolls number," said Fred Goodwin, cross-asset strategist at State Street.

"But we'll have to wait and see if that is a bad-news-is-good-news situation, or if the market will, at some point, begin to really take on board the fact that the data is weakening much more than they thought and it will be an adverse reaction."

The jobs data caps a big week for financial markets that has seen the U.S. Federal Reserve recommit to its aggressive monetary policy easing and the ECB cut rates to record lows and signal further policy easing may lie ahead.

The moves come just a month after the Bank of Japan promised to inject about $1.4 trillion into its economy to spur growth and end decades of deflation.

By increasing liquidity, three of the world's major central banks have fuelled a rally in share and bond markets that has driven many benchmark indexes back up to levels last seen before the financial crisis began, though their actions come in response to signs the global economic recovery is faltering.

MSCI's world equity index, which tracks prices in 45 countries, has risen to levels last seen in June 2008 and was holding steady around this peak on Friday.

Europe's broad FTSEurofirst 300 index of leading shares dipped slightly but at 1,204.40 points was close to March's closing high of 1,207.83, which was its highest finish since August 2008.

However, Europe's STOXX 50 Volatility Index, which gauges investors appetite for equities, hit a six-week low on Friday, signalling that demand is likely to pick up following the ECB decision.

London's FTSE 100, Paris's CAC-40 and Frankfurt's DAX were all little changed on the day.

Earlier in Asia, MSCI's broadest index of Asia-Pacific shares outside Japan edged up to end the week with gains of just over 1 percent, though trading was subdued with Tokyo closed for holidays.

EURO STEADIES

The euro was up against the dollar after a broad sell-off on Thursday when the ECB cut its main rate by a quarter percentage point to a record low of 0.5 percent, the first cut in 10 months. The bank also pledged to provide as much liquidity as the region's banks need well into next year.

The sell-off was closely linked to statements from ECB President Mario Draghi who said the bank could cope with the consequences of cutting its deposit rate below the current zero percent. Such a move would effectively charge banks to hold their money overnight, in a bid to encourage them to lend money and support the recession-hit euro area.

The single currency's gains on Friday came when an ECB policymaker, Ewald Nowotny, said the markets might have over-interpreted those comments about negative interest rates.

The euro was trading around $1.3125, up about 0.5 percent for the day, but well down on a two-month high of $1.3243 set on Wednesday.

The dollar meanwhile was weaker against a basket of major currencies as investors focused on whether the upcoming jobs report will add to concerns about the U.S. economy and boost bets on more monetary easing.

"If we have a weak number, expectations will grow for the Fed to act," said Geoffrey Yu, currency strategist at UBS.

The dollar index was down 0.1 percent at 82.15, though the greenback was steady against the yen at 98.05 yen due to the holiday in Japan.

DEBT DEMAND

Most euro zone bond yields were lower as the ECB decision to take action to improve the outlook for the region lifted demand for bonds offering higher returns than safe-haven German debt.

French, Austrian and Belgian 10-year yields fell to new record lows of 1.65 percent, 1.436 percent and 1.905 percent, respectively, while Spain's fell below 4 percent for the first time since October 2010.

The premium demanded by investors to hold 10-year Italian bonds compared with German bonds narrowed to its tightest since July 2011 at 251 basis points.

German 10-year yields were 2 bps higher at 1.18 percent, just above last July's record low of 1.126 percent.

"Inflation fears are basically vanishing, and investors are buying the whole euro zone fixed income," said Christian Lenk, rate strategist at DZ Bank in Frankfurt.

COMMODITIES

The proof provided by the ECB that the world's big central banks remain firmly committed to supporting their respective economies helped lift commodity markets.

Cooper was the standout performer, with a jump of more than 2 percent - its biggest rise in four months - while oil settled back to $102 a barrel.

However, commodities continue to heavily underperform the boom in stock markets. Analysts say that while stocks are being propelled by cheap central bank money, assets underpinned by raw materials remain linked to the weak economic data.

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EU sees deeper euro zone recession in 2013, slower deficit cuts

Fri May 3, 2013 5:02am EDT

* France seen in small recession in 2013

* Greek economic contraction seen marginally smaller

* France, Portugal, Italy to cut deficits more slowly

By Jan Strupczewski

BRUSSELS, May 3 (Reuters) - The euro zone economy will contract by more than expected this year and budget deficits will decline more slowly, the European Commission said on Friday as it set out forecasts for the next two years.

France, Spain, Italy and the Netherlands - four of the five largest euro zone economies - will be in recession through 2013, the Commission's forecasts showed, with only Germany, the largest euro zone economy, managing to eke out growth.

"In view of the protracted recession, we must do whatever it takes to overcome the unemployment crisis in Europe. The EU's policy mix is focused on sustainable growth and job creation," EU Economic and Monetary Affairs Commissioner Olli Rehn said.

"Fiscal consolidation is continuing, but its pace is slowing down. In parallel, structural reforms must be intensified to unlock growth in Europe."

The Commission said the euro zone economy would shrink 0.4 percent this year and grow 1.2 percent next year, revising down its projections from last February of a 0.3 percent recession and 1.4 percent growth respectively.

The forecast is roughly in line with the mid-point of the -0.9 to -0.1 percent range forecast for 2013 by the ECB in March, and the 0.0 to 2.0 percent growth range seen for 2014.

The expectations underline a shift of focus in the 17 countries that share the euro from sharp fiscal consolidation in the first years of the sovereign debt crisis to economic growth as earlier radical deficit cuts and European Central Bank action restored some market trust in euro zone finances.

Economic growth will be slower than thought in all the biggest euro zone countries, with France even dipping into a recession of 0.1 percent, rather than growing 0.1 percent as forecast in February, the Commission said.

The only positive change against the February forecasts was Greece, where the economy is now seen contracting 4.2 percent this year, rather than the previous 4.4 percent.

To reduce the negative impact of fiscal consolidation on growth, the overall euro zone budget deficit reduction will be marginally slower this year and next compared with forecast from three months ago. Country differences are bigger.

The aggregate euro zone deficit is to fall to 2.9 percent of gross domestic product this year and to 2.8 percent next year from 3.7 percent last year -- only 0.1 percentage point for each year less than previously envisaged.

But the slower consolidation will be most pronounced in Italy, which is now seen reducing its budget shortfall only to 2.9 percent of GDP this year from 3 percent in 2012, rather than to the 2.1 percent forecast in February.

The main reason for that is a deeper than expected recession this year and a more modest economic rebound in 2014, when Rome is to bring the budget gap down to 2.5 percent, against the earlier forecast 2.1 percent.

France, also in recession, is to have a budget shortfall of 3.9 percent this year and 4.2 percent in 2014 unless policies change, against earlier forecasts of 3.7 percent and 3.9 percent respectively.

Portugal, on a euro zone financial lifeline, will cut its budget deficit this year only to 5.5 percent of GDP from 6.4 percent last year because the recession there will be deeper than expected. The 2013 target in February was 4.9 percent.

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Update-Moody's downgrades ratings on the two junior notes in Spanish Unicaja Banco ABS SME transaction

Thomson Reuters is the world's largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an Editorial Handbook which requires fair presentation and disclosure of relevant interests.

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RPT-Slovenia reopens books for crucial dollar bond issue

Written By Unknown on Kamis, 02 Mei 2013 | 18.12

Thu May 2, 2013 5:03am EDT

By Davide Scigliuzzo

LONDON May 2 (Reuters) - Slovenia returned to the bond market on Thursday, seeking offers for a dual-tranche U.S. dollar issue at a slightly higher premium than initially intended, following a delay prompted by a Moody's downgrade to junk earlier this week.

The tiny Alpine euro zone state of two million is struggling to avoid a bailout because of its weak banks, a rising budget gap and a declining economy.

It delayed the bond sale on Tuesday after a two-notch cut by Moody's rating agency to Ba1 from Baa2. However, on Wednesday it said it would proceeding with the issue.

Market sources told Thomson Reuters market service IFR that Slovenia has set initial price guidance of around 5.125 percent for a five-year tranche and around 6.25 percent on a 10-year tranche, the sources said. The figures represent a premium of 12.5 basis points over the initial price guidance Slovenia had released for both tranches before the Moody's downgrade.

A successful sale could buy Slovenia time, at least until the end of this year, to start clearing the portfolios of its state-owned banks, sell some state assets and take action to reduce the budget deficit.

BNP Paribas, Deutsche Bank and JP Morgan are the leads on the 144A/Reg S transaction, comprising both tranches, which are expected to launch and price today.

"The good news is that Slovenia still has access to the bond market, but a not so good news is that the yield is just too high," said Saso Stanovnik, an analyst at Ljubljana-based Alta Invest brokerage.

The Moody's downgrade followed weeks of criticism from investors, European Union officials and analysts that Prime Minister Alenka Bratusek's government had been too slow in revealing details of a bank clean up and austerity measures they say are required to shrink a budget gap swollen by recession.

The government would have done better to "put forward a reform plan and then raise money, not the other way round," Stanovnik said. "This way there is a risk that reforms might not be as fast as necessary as the government might not feel a strong enough pressure after having raised funds."

Another major rating agency, Standard & Poor's, told Reuters on Wednesday it still viewed Slovenia as an investment grade country and was "broadly confident" the government would implement reforms and overhaul public finances.

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EURO GOVT-French yields at record low as ECB rate cut eyed

Thu May 2, 2013 6:15am EDT

* ECB expected to cut refi rate to record low 0.5 pct

* Rate cut could prompt profit-taking in Bunds - traders

* Italy, Spanish bond yields fall

* Slovenia bond sale in focus after ratings cut

By Emelia Sithole-Matarise

LONDON, May 2 (Reuters) - French 10-year borrowing costs hit a record low on Thursday as expectations of an interest rate cut from the European Central Bank underpinned broad demand for euro zone government bonds.

The ECB's rate decision will come after the Federal Reserve said it would keep to its bond purchases, as anticipated, strengthening the view that monetary policy of major central banks will remain looser for longer than initially thought.

Euro zone bonds have rallied across the board in recent weeks on increased bets of further monetary easing from the ECB, which is widely expected to cut its main refinancing rate by 25 basis points to a record low of 0.5 percent on Thursday.

Lower-rated Italian and Spanish bonds, as well as slightly better-regarded French and Belgian paper, have benefited especially from investors hungry for higher returns than those offered by safe-haven German Bunds which were back near record lows.

Hours before the ECB decision, France sold a new benchmark 10-year bond at a record low interest rate of 1.81 percent at a solid auction of up to 7.93 billion euros of paper.

In the secondary market, French 10-year yields held around all-time lows of 1.70 percent hit on Tuesday.

"The auction went very well considering the rally heading into this sale with borrowing costs at new record lows and the periphery enjoying yet another positive session, in part emboldened by expectations that the ECB will cut rates," said Richard McGuire, a strategist at Rabobank.

"We think while that (rate cut) is unlikely to have much in the way of direct impact on growth it does signal that the ECB is willing to act in terms of shoring up growth within the region."

Italian 10-year yields were 6 basis points down at 3.84 percent while equivalent Spanish yields were 5 bps lower at 4.09 percent, both back at their lowest levels since October 2010.

SLOVENIA IN FOCUS

Safe-haven German Bund yields were 1 tick up at 1.21 percent, while the Bund future was 11 ticks lower at 146.47 as some investors booked profits after a rally this week lifted it near a record high of 146.89 reached in June 2012.

Traders said the Bund market already had largely priced in a quarter percentage point cut by the ECB, so Bunds, which were near their record highs, could fall even in the event of such a measure.

"A 25 basis point cut is probably fully priced to a degree so you may get a bit of profit-taking if they do cut rates," a trader said.

Traders were also paying more than usual attention to small euro zone member Slovenia as it reopened books on an offering of dollar-denominated bonds at a slightly higher yield after Moody's downgraded its credit rating to "junk'.

The country gained a bit of respite from Moody's rival Standard & Poor's which said on Wednesday it still viewed Slovenia as an investment grade country and was "broadly confident" the government would overhaul its finances.

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PRESS DIGEST-Canada-May 2

Thu May 2, 2013 6:19am EDT

May 2 (Reuters) - The following are the top stories from selected Canadian newspapers. Reuters has not verified these stories and does not vouch for their accuracy.

THE GLOBE AND MAIL

* Canadian banks and other financial institutions should be required to find out the beneficial owners of corporations or trusts that are transferring money overseas, according to recommendations in a new report on tax evasion by Parliament's finance committee. ()

* The Parti Québécois, which has come under attack in recent months for cutting social programs, says it will reconsider a commitment to eliminating Quebec's deficit. ()

Reports in the business section:

* Ottawa and Canadian dairy farmers have bowed to pressure from the fast-food industry and will let thousands of pizza restaurants buy heavily discounted mozzarella cheese. ()

* Tim Hortons Inc is under pressure from an activist investor that wants the company to pare back its U.S. growth and borrow billions to fund a share buyback. ()

* An Ontario Superior Court judge has sided with Chevron Corp and tossed out an attempt by lawyers for Amazonian villagers trying to use Canadian courts to collect on a controversial $19 billion judgment leveled against the company in Ecuador over oil pollution. ()

NATIONAL POST

* B.C.'s police watchdog on Wednesday officially cleared the Prince George RCMP of any criminal wrongdoing for shooting dead Gregory Matters, a 40-year-old Bosnia veteran suffering from post-traumatic stress, in an altercation at his rural home. ()

* Amid calls from one high ranking government official to develop the Toronto waterfront "faster and harder", the head of the agency in charge of revitalization signaled it wants the power to borrow money in the future. ()

FINANCIAL POST

* Canada's banks rank their prudential regulator, the Office of the Superintendent of Financial Institutions (OSFI), ahead of other regulators domestically and abroad when it comes to the relationship between the watchdog and the financial institutions, according to The Strategic Counsel, an independent research firm. ()

* The acquittal in January of three former Nortel Networks' executives on fraud charges prompted questions inside the RCMP about the force's ability to tackle future white-collar investigations. ()

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UPDATE 1-Thousands rally against European austerity in May Day protests

Written By Unknown on Rabu, 01 Mei 2013 | 18.12

Wed May 1, 2013 5:46am EDT

By Renee Maltezou and Clare Kane

ATHENS/MADRID May 1 (Reuters) - Trains and ferries were cancelled and hospital staff walked off the job in Greece on Wednesday and thousands were due to demonstrate across Spain as May Day triggered protests against harsh government spending cuts.

Separately, Turkish riot police fired water cannon and tear gas to disperse crowds gathering in central Istanbul for a rally on what has become a traditional labour holiday.

In Spain, where the unemployment rate stands at a record 27 percent, the two largest trade unions, CCOO and UGT, called on workers and the unemployed to join over 80 demonstrations across the country.

In a column in financial newspaper El Economista, CCOO Secretary General Igancio Fernandez Toxo criticised the government's "huge irresponsibility" in allowing unemployment to rise to such levels.

Candido Mendez, head of UGT, said having more than 6 million people unemployed meant there had "never been a May 1 with more reason to take to the streets".

In Athens, about 1,000 policemen were deployed to handle any violence during rallies and strikes called by public and private sector unions.

It is the latest in a long line of strikes and protests in the debt-laden country ravaged by its sixth year of recession and popular fury over wage and spending cuts.

"Our message today is very clear: Enough with these policies which hurt people and make the poor poorer," Ilias Iliopoulos, general secretary of public sector union ADEDY, told Reuters.

"The government must take back the austerity measures, people can't take it anymore."

Participation, however, was expected to be well below the levels of major protests last year when as many as 100,000 Greeks marched to the central Syntagma square chanting slogans.

Unions themselves expected turnout to be low in Greece with the traditional May 1 holiday falling just a few days before Greek Orthodox Easter, which meant public schools were shut and many workers had already left for vacation.

Public transport in Athens was disrupted with buses and subways halted, while ships and ferries stayed docked at ports after seamen also walked off the job. Bank and hospital workers also joined the one-day strike.

Greek Prime Minister Antonis Samaras has sought to maintain a hard line against striking workers in a bid to show European Union and International Monetary Fund lenders - as well as the public - that he is determined to push through unpopular reforms.

TURKEY, RUSSIA

In Istanbul, thousands of police were stationed across the city centre to block access to the main Taksim square as crowds of protesters converged in different parts of the city early in the morning attempting to storm police barricades.

The incidents followed the pattern of recent years, when May Day demonstrations in Turkey's largest city have often been marked by clashes between police and protesters.

Authorities often use force to prevent the rally happening in the centre of the city, having this year already denied large trade unions permission to march on Taksim, saying major construction work there would make it too dangerous.

Two officers were wounded by stones and metal objects thrown at police lines, state-run TRT television said, citing the Istanbul governor's office.

In Russia, around 1.5 million Russians were expected to participate in May 1 parades - a fraction of the millions that used to march in the Soviet times.

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UPDATE 1-Fund set to win stake in Greece's OPAP after higher bid

Wed May 1, 2013 6:00am EDT

* Emma Delta sole bidder for a 33 pct stake

* Czech-Greek fund initially offered 622 mln euro

* Had until May 1 to improve bid

* Privatisation agency to meet 1100 GMT to decide on offer

ATHENS, May 1 (Reuters) - Investment fund Emma Delta has met Athens' demand to raise its offer for a stake in gambling monopoly OPAP, sources said, meaning Greece could seal its first big privatisation as early as May 1.

Athens needs to wrap up the sale to show it is finally making good on long-promised efforts to sell off state assets and cut debt as demanded by its European Union/International Monetary Fund bailout.

The Czech-Greek fund, sole bidder in the race to buy a 33 percent stake and management rights in OPAP, raised its offer to 650 million euros, officials involved in the sale told Reuters.

Another official directly involved in the process said that Athens was now ready to close the deal.

"Barring any surprises, we'll clinch it today", the Greek official told Reuters on condition of anonymity.

The fund initially offered 622 million for Greece's most profitable firm but Athens gave it until Wednesday to improve its offer to at least 650 million as it sought to keep the sale process on track.

Emma Delta is controlled by Czech investor Jiri Smejc and Greek ship owner George Melisanidis. Other fund investors include Greek entrepreneur Christos Copelouzos, Russian investment firm ICT Group and Czech-based investment fund KKCG.

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RPT-Fitch: New Italian Government Faces Economic, Reform Challenges

Wed May 1, 2013 6:21am EDT

(Repeat for additional subscribers)

May 1 (Reuters) - (The following statement was released by the rating agency)

The formation of a new government is positive for Italy, but the sovereign has very limited fiscal headroom and the coalition government may not be strong enough, or last long enough, to deliver the structural economic reforms needed to increase trend growth, Fitch Ratings says.

The coalition's broad base and large majorities in confidence votes in both parliamentary chambers should enable a resumption of proactive policy making after a two-month hiatus. It draws support from the centre-left Democratic Party, the centre-right People of Freedom Party, and members of former Prime Minister Mario Monti's Civic Choice party.

But the fragility of the new left-right coalition limits the scope for meaningful reform that could raise Italy's low potential GDP growth. Prime Minister Enrico Letta has committed the new government to electoral reform and measures to tackle youth unemployment, but major structural economic reforms may prove elusive.

The recession in Italy is one of the deepest in the eurozone and so far there are hardly any signs of a recovery. Furthermore, the medium-term potential growth rate of the Italian economy is low even by European standards; Fitch estimates it to be around 1%.

Letta's first outline of his government's programme, in a speech to Parliament on Monday, lacked important detail on how major tax reductions will be funded. A planned suspension of June payments under the country's recently introduced housing tax ahead of a broader review of property taxes, combined with the abolition of a 1pp VAT increase in July, would reduce revenue by around EUR6bn this year.

Letta did not specify what, if any, measures would offset the lost revenue, but he did say the new government was committed to meeting its budget commitments and controlling the public finances. It will also be fiscally bound by the Fiscal Compact and last year's constitutional amendment requiring the government to achieve a balanced structural budget by 2013.

We would anticipate more detail in the coming weeks. Meanwhile, in its 2013 Stability Programme the previous government forecast a budget deficit of 2.9% of GDP in early April 2013, including around 0.5pp contributed by government arrears payments to boost domestic demand, while reiterating the commitment to keep the deficit below 3%. This illustrates that despite substantial progress on consolidation, Italy has very limited fiscal headroom. As we said when we downgraded Italy to 'BBB+' with a Negative Outlook on 8 March, economic and fiscal outturns that reduced confidence that public debt would be placed on a firm downward path from 2014 after peaking this year would increase pressure on the sovereign rating.

Letta's speech also outlined some initial reform proposals to boost employment and growth, such as reducing hiring tax for young employees. This emphasis on reform is encouraging, but making the Italian economy sufficiently flexible to boost trend growth remains challenging. On labour law, for example, it is not yet clear whether the previous administration's reforms have been effective, and Letta's speech did not refer to liberalising closed professions.

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