Austerity clobbers Portugal's ruling party in local votes

By Andrei Khalip

LISBON, Sept 30 | Mon Sep 30, 2013 5:05am EDT

LISBON, Sept 30 (Reuters) - Portugal's ruling Social Democrats took a heavy beating in Sunday's local elections as voters passed their verdict on national austerity measures accompanying the country's 2011 bailout by international lenders.

The elections, for 308 municipal mayors, took place during a review visit by officials from the lenders, the European Union and International Monetary Fund, during which they are expected to demand more spending cuts.

Preliminary election results released early on Monday showed the vote boosting the main opposition Socialists, with 36.3 percent of votes counted so far, while the Social Democrats (PSD) had polled 26.5 percent.

Independent candidates also advanced, winning the country's second-largest city of Porto and its industrial satellite city of Matosinhos, a traditional Socialist bastion.

Prime Minister Pedro Passos Coelho acknowledged that the centre-right government was taking a hit for its austerity measures, which have contributed to Portugal's worst economic crisis since the 1970s, with two and a half years of recession and record unemployment.

"We know there's always a price to pay in politics," said Passos Coelho. "But we also know that this path will give us the chance to end our bailout programme and recover our opportunity to grow and give more social justice and prosperity for all."

With 25 of the 308 results still to be declared, the Socialists were already up five at 137 mayors elected against 100 for the PSD, down from 137. The PSD's worst previous record was a haul of 114 mayors in 1989.

The PSD's coalition partner, the CDS, had five, the Communist-Greens alliance had 30, while 11 independents were elected, up from seven, after a record 80 stood.

Full election results will not be ready until later in the day, the interior ministry said. Officials had predicted delays because of a new vote counting system following the merging of many local councils.

Socialist leader Antonio Jose Seguro said the results showed "an enormous will for change" among the Portuguese, while analysts put it down to voter fatigue with the waves of spending cuts and the biggest tax hikes in living memory.

The local results have no direct bearing on national government.

Passos Coelho, whose government nearly collapsed in July over a dispute about austerity, said he would continue policies to complete the bailout plan as scheduled in mid-2014.

The government has promised spending cuts of more than 4 billion euros by the end of 2014 in order to meet its budget deficit goals, but has been facing growing resistance at home from business groups, unions and the opposition, which want it to negotiate a new easing of the targets.

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GLOBAL MARKETS-Political strife in U.S. and Italy sparks search for safety

Mon Sep 30, 2013 6:24am EDT

* Political crisis in Italy adds to U.S. shutdown worries

* Dollar falls to 1-mth low on yen as deadline looms

* Italian bond yields jump, euro touches 3-week low

* World shares weakened but set to end quarter with solid gains

By Richard Hubbard

LONDON, Sept 30 (Reuters) - Jitters over political fights in Washington and Rome rattled investors on Monday, sending world shares and the dollar lower while lifting safe haven assets such as the Swiss franc and Japanese yen.

Deadlock in the U.S. Congress has made it increasingly possible the government will run out of money from midnight, while a split in Italy's ruling coalition has heightened the prospects of fresh elections that could delay economic reforms.

Ten-year Italian government bond yields jumped 31 basis points to 4.73 percent.

"We have a bit of a nasty combination of U.S. and Italian political problems," said Arne Lohmann Rasmussen, head of FX research at Danske Bank.

Adding to market worries was a surprise downward revision to activity in China's factory sector for September, suggesting Asia's economic powerhouse is still struggling to stabilise after a period of slower growth.

Combined with month-end and quarter-end caution among big investors, the end result was a shift out of equities and oil. MSCI's world equity index was down 0.8 percent and Brent oil fell to less than $108 a barrel.

MSCI's global index, which tracks shares in 45 countries, still remains on course for its best quarter since March 2012 and its best month since January as the loose monetary policies of major central banks and signs of modest global economic recovery favour equities over alternative investments.

However, the hunt for safety on Monday saw low-risk German bond yields drop 3 basis points to 1.69 percent. U.S. Treasuries also benefited from a view that the economic damage from a government shutdown would be yet another reason for the Federal Reserve to keep interest rates low for longer.

ITALY DIVIDES

The euro touched a three-week low against the yen at 131.38 yen and was down 0.2 percent versus the Swiss franc at 1.2225 on concern political shifts in Rome would lead to new elections just seven months after the last inconclusive vote.

The worries have grown following Silvio Berlusconi's move to pull his ministers out of the ruling coalition at the weekend forcing Prime Minister Enrico Letta to go before parliament on Wednesday to hold a confidence vote.

"It seems like they're going to try their best to work out a new coalition government and if that doesn't happen its new elections, and if there's new elections there's going to be a lot of worries in the market," said Ishaq Siddiqi, market strategist at ETX Capital.

Investors are concerned that another extended period of political uncertainty in the euro zone's heavily-indebted, third-largest economy would delay much needed reforms and reignite the region's debt crisis.

"Markets have grown accustomed to Italy's dysfunctional politics, but there's a sense that things are now spinning out of control, with potentially dangerous consequences for both Italy and the euro zone," said Nicholas Spiro, who runs specialised consultancy Spiro Sovereign Strategy.

The political instability led Milan's blue-chip FTSE MIB index to fall 2.5 percent in early trade.

But the selloff was largely contained within the Italian markets as other peripheral euro zone bond yields only edged slightly higher. The broader FTSEurofirst 300 index index was down a modest 0.6 percent though bank shares were being particularly hit.

US DEADLINE DAY

U.S. lawmakers hardened their positions over the weekend making passage of a stop-gap spending bill for the new fiscal year by midnight on Monday, less likely.

The growing likelihood of a shutdown was reflected in U.S. stock futures, where the S&P 500 contract shed 0.8 percent as political deadlock also raises fears over successful outcome to the debt ceiling deadline in October, which could lead to the U.S. government defaulting on its debt.

Earlier Asian stocks took a big hit from the U.S. fears with MSCI's broadest index of shares outside Japan down 1.2 percent at a two-week low. Still, this index has gained 5.7 percent for the month of September, and had its best month since January 2012. Japan's Nikkei fell 1.5 percent.

The tension also took a toll on emerging market currencies, with the Indonesian rupiah and Malaysian ringgit both weakening.

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Spain budgets 1.2 bln euros to finance tariff deficit in 2013

MADRID, Sept 30 | Mon Sep 30, 2013 6:25am EDT

MADRID, Sept 30 (Reuters) - Spain's government said 1.2 billion euros ($1.62 billion) would be needed in 2013 to finance the country's energy tariff deficit, the difference between the cost of generating power and the price paid by consumers.

The 2014 budget proposal, passed to Parliament for approval on Monday, included the estimate which was down from a previous forecast of 2.2 billion euros.

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UPDATE 1-Economy minister sees subdued market reaction to Italian govt chaos

Sun Sep 29, 2013 5:48am EDT

ROME, Sept 29 (Reuters) - Italy's economy minister played down the risk that financial markets will punish Italy when they open on Monday, after Silvio Berlusconi pulled his ministers out of the cabinet and provoked a crisis that has increased the risk of early elections.

The centre-right leader's dramatic move on Saturday effectively brought down the government of Prime Minister Enrico Letta.

"I think the uncertainty connected to the government's instability has been to a large extent already factored in during the last few weeks," Economy Minister Fabrizio Saccomanni told business daily Il Sole 24 Ore.

Letta meets President Giorgio Napolitano on Sunday to discuss the next step and will address parliament early next week. Napolitano has made clear he is against the idea of new elections just seven months after the last vote, but it is not clear if a new parliamentary majority can be found.

Even before Berlusconi's shock move coalition infighting had thwarted efforts to push through important reforms Italy needs to emerge from a two-year recession, a decade-long economic stagnation, a 2-trillion-euro public debt and youth unemployment of around 40 percent.

The resignations will delay those reforms even further.

Friction between the two sides had been rising for weeks following moves to expel Berlusconi from parliament after his conviction for tax fraud last month.

The political tensions have increasingly worried investors, with Italy's borrowing costs hitting a three-month high at an auction of 10-year bonds on Friday.

Saccomanni said markets knew Italy had already got its public finances into line and the economy was improving.

"I hope that on Monday this trust (by the markets) will be confirmed," he said.

A cabinet meeting on Friday had been intended to find funding to avert an increase in sales tax from 21 percent to 22 percent. That increase, which has been fiercely opposed by Berlusconi's party, will now kick in from Tuesday.

The level of hostility between within the coalition has reached a point that makes any kind of reconciliation appear unlikely.

Berlusconi said he was withdrawing his ministers because of the government's failure to suspend the sales tax hike, but Letta dismissed this as a "huge lie," by the media tycoon, used to justify his "mad and irresponsible action.".

Other ministers did not share Saccomanni's sanguine view of the market's likely reaction.

"On Monday our borrowing costs are going to rise by many points," Labour Minister Enrico Giovannini said on Saturday, while Deputy Economy Minister Stefano Fassina warned on Sunday that borrowing costs would shoot up if new elections were called.

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UPDATE 1-Egypt received $7 bln of promised $12 bln in Gulf aid -c.bank

Sun Sep 29, 2013 6:37am EDT

ABU DHABI, Sept 29 (Reuters) - Egypt has received $7 billion out of the $12 billion in aid pledged by Gulf countries, its central bank governor said on Sunday, adding that he expected further support from the United Arab Emirates, Saudi Arabia and Kuwait.

Gulf Arab oil producers showered Egypt with aid pledges after the overthrow of President Mohamed Mursi in July. Egypt has struggled to pay for imports since the 2011 uprising that ousted Hosni Mubarak drove away tourists and foreign investors, two of its main sources of foreign currency.

Of the $7 billion now received, $3 billion was from the UAE, with a further $2 billion each from Saudi Arabia and Kuwait, Hisham Ramez told reporters on the sidelines of a meeting of Arab central bankers in Abu Dhabi.

Egypt returned $2 billion of financial support from Qatar earlier this month after talks to convert the funds into three-year bonds broke down, a move interpreted as a sign of growing tensions between the two countries.

Unlike the other Gulf states, whose hereditary rulers saw the success of Mursi's Muslim Brotherhood as a dangerous precedent that could embolden Islamists at home, Qatar had close ties with Mursi and lent or gave Egypt $7.5 billion during the year he was in power.

But Ramez said on Sunday that the repayment had nothing to do with politics.

"The decision was not politically driven. It was a technical decision by the central bank," Ramez said, adding that his central bank disagreed with Qatar's proposed timing for the conversion.

"We don't need a back-up plan," he said when asked if there was an alternative plan to replace the $2 billion.

Ramez said he expected that oil-rich Gulf nations would provide more aid and, more importantly, that Egypt's economy and financial markets would stabilise.

"Yes, I see more support from them," he said, referring to the UAE, Saudi Arabia and Kuwait. But he added, "We can't keep depending on this (aid)."

"Confidence is slowly coming back to the market. Credit growth is at 9 percent," Ramez said without clarifying to which period the figure referred.

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Italy's Napolitano says will see if elections can be avoided

ROME, Sept 29 | Sun Sep 29, 2013 6:37am EDT

ROME, Sept 29 (Reuters) - Italian President Giorgio Napolitano said on Sunday he would call new elections only if it was impossible to find a majority in parliament, following Silvio Berlusconi's decision to withdraw his party's ministers from the government.

"It is tradition for the president to dissolve parliament early when it isn't possible to create a majority and a government for the good of the country," Napolitano told reporters.

Later on Sunday Napolitano is due to meet with Prime Minister Enrico Letta to try to chart a way out of the political crisis.

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Greece says no risk of political instability after Golden Dawn arrests

ATHENS, Sept 28 | Sat Sep 28, 2013 5:53am EDT

ATHENS, Sept 28 (Reuters) - Greece's finance minister played down the risk of political instability after police arrested the leader of the far-right Golden Dawn party, two of its lawmakers and party members on Saturday.

"There is no risk of destabilisation," Yannis Stournaras told reporters after a meeting in which Prime Minister Antonis Samaras briefed Greece's European Union and International Monetary Fund lenders on the crackdown against the party.

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House conservatives hold firm as U.S. government shutdown looms

Sat Sep 28, 2013 5:59am EDT

* Next move comes in the Republican-controlled House

* Conservatives vow to continue "Obamacare" delay push

By Thomas Ferraro

WASHINGTON, Sept 28 (Reuters) - With conservative House Republicans promising not to back down on an emergency spending bill in a push to defund President Barack Obama's healthcare reform law, the U.S. government edged closer on Saturday to its first shutdown since 1996.

Although a last-minute temporary solution including a possible 10-day extension of government funding had been raised on Friday, there were no signs Democrats and Republicans could reach a deal before the Oct. 1 deadline.

No negotiations appeared to be underway between the two sides.

The Senate, as expected, passed on Friday a straight-forward emergency-funding measure to keep the government running through Nov. 15, after stripping out Republican language to end funding for the 2010 healthcare law known as Obamacare.

Republicans who control the House of Representatives must now decide how to respond, a move that could come as early as Saturday.

Representative Tom Graves of Georgia announced on Friday that he and 61 of his colleagues would insist on a one-year delay of "Obamacare," which is set to launch on October 1, as a condition of funding the government and averting a shutdown.

The push to make a stand on the healthcare restructuring, which Republicans view as a massive government intrusion that will cause premiums to skyrocket, has been bolstered by the conservative, anti-Washington Tea Party wing of the party.

Rejection of the funding measure would throw the ball back to the Democratic-controlled Senate, perhaps as late as Sunday or early Monday, with little time remaining to continue the political ping-pong.

All indications are that Republicans will tack on a new measure to that bill, which likely would be rejected by the Senate and make a shutdown all the more likely.

If Congress does not act before midnight on Monday, the government's legal authority to spend money for routine activities runs out.

Spending for functions considered essential, related to national security or public safety, would continue along with benefit programs such as Medicare health insurance and Social Security retirement benefits for seniors.

But hundreds of thousands of civilian federal employees -from people who process forms and handle regulatory proceedings to workers at national parks and museums in Washington - would be furloughed.

Obama, in his regular Saturday address, accused Republicans of "appeasing an extreme faction of their party" bent on creating "a crisis that will hurt people for the sole purpose of advancing their ideological agenda."

The Republican response, delivered by Representative Cathy McMorris Rodgers, focused not on a possible shutdown but on the next fight, over raising the government's borrowing authority, which runs out in mid-October.

Republicans are likely to demand concessions-including the scuttling of "Obamacare" in exchange for raising the debt ceiling as well. While failure to do so could lead to a market-rattling default by the government, McMorris Rodgers defended the Republican tactic.

"By an overwhelming margin, Americans believe any debt ceiling increase should be coupled with solutions that help solve our debt and grow our economy," she said.

While diehard conservative Republicans in the House remained determined in their pursuit to kill "Obamacare," other members of the divided Republican caucus were despairing, privately and publicly.

Representative Shelley Moore Capito, a seven-term West Virginia Republican, told Reuters she had "no idea what's going to happen."

Capito said, "I gave up trying to make predictions a few years ago" after scores of lawmakers backed by the Tea Party movement helped Republicans win back the House from Obama's Democrats.

"There's a lot of exasperation by those of us who want to move the ball forward and in a rational way," Capito said. "By rational, I mean trying to achieve the achievable."

"There is a lot of frustration because there is absolutely no way to please certain members. That's frustrating to all of us become it becomes an internal battle. Some of us feel we are in a circular firing squad," Capito said.

The last government shutdown ran from Dec. 16, 1995 to Jan. 6, 1996 and was the product of a budget battle between Democratic President Bill Clinton and Republicans, led by then-Speaker of the House Newt Gingrich.

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Greece says all Golden Dawn members assured of fair trial

ATHENS, Sept 28 | Sat Sep 28, 2013 6:14am EDT

ATHENS, Sept 28 (Reuters) - Lawmakers and members of the far-right Golden Dawn party arrested on Saturday on charges of being part of a criminal organisation will get a fair trial, Greek Justice Minister Haralambos Athanassiou said.

"Democracy in Greece is strong," the minister said after meeting Prime Minister Antonis Samaras and Public Order Minister Nikos Dendias. "All those arrested will have a fair trial."

Senior Golden Dawn members, including its leader, were arrested on Saturday in the biggest crackdown against a political party in Greece since the fall of a military junta in 1974.

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Last minute issuance rush raises hopes for the final quarter

Fri Sep 27, 2013 6:39am EDT

* Investment-grade issuance slowest since Q2 2012

* Fed decision boosts September numbers

* 2013 floating rate note volumes outpace 2012 by 40%

By Helene Durand

LONDON, Sept 27 (IFR) - Market participants are hoping that the strong primary market volumes in the past weeks will continue until the end of the year, countering a sharp drop in global bond issuance in the third quarter.

According to Thomson Reuters data, investment-grade issuance in the last three months was down 14% to $557.8bn versus Q2, the slowest pace of investment-grade issuance since the second quarter of 2012.

Global debt issuance year-to-date was also down 3% from the first nine months of last year at $1,094bn.

The third quarter started under a cloud as the prospect of the Fed reducing monetary stimulus sent markets reeling at the end of May. This, added to the usual seasonal slowdown, kept a lid on issuance.

"The last five weeks of the second quarter were quite challenging with issuers having to pay substantial new issue premiums. However, the picture has changed. New issue concessions have moderated, and credit investors have enjoyed a very good total return quarter," said Chris Whitman, head of global risk syndicate at Deutsche Bank.

"We are ending the quarter in a very good place. Just like in golf, the view on some holes looking backward from the putting green isn't nearly as onerous as the view from the tee box."

A deluge of investment-grade deals in the U.S. made September the biggest new issuance month ever, with $143.9bn tallied.

A $48.9bn transaction for Verizon, the largest corporate bond since records began, clearly helped boost numbers.

Borrowers, whipped into an issuance frenzy by the Fed's non-taper surprise last week, are now pulling forward deals that were scheduled as far away as next year, fearing this might be the last time they see Treasury yields at current levels.

It remains to be seen whether this continues, however.

"What is noticeable is the lack of issuers available or bridge loans that need to be refinanced in the market more generally," said Jonathan Brown, head of European fixed income syndicate and head of emerging market syndicate at Barclays.

"It feels relatively empty in terms of visible pipeline, including high-yield where most of the refinancings have been done. One bright spot is that there continues to be flow of issuers deciding to pre-fund, especially as they see a future where rates are likely to go higher."

The macro backdrop will also play a part. Brown said the US budget discussion and tapering will be some of the main issues the market is focused on, as well as political events in Italy.

"The main risk in Europe is whether we continue to see growth or whether the last quarter was just a blip," said Jean-Marc Mercier, global head of debt syndicate at HSBC. "However, I don't think we will be staring into the abyss."

September was also a good month for European corporate investment-grade issuance, already over $40bn-equivalent, easily beating July and August combined issuance of around $35bn. Bankers are pinning hopes on a bulging pipeline that new names are joining on an almost daily basis.

"There are borrowers that were thinking of accessing the market next year but are looking at the current conditions and could move forward their issuance plans," added Mercier.

Deutsche's Whitman added that in most sectors, from financials to corporates, spreads are at their tightest year-to-date, while emerging markets spreads were significantly tighter than where they had been at the end of the second quarter.

The iTraxx S19 Main was at 91bp on Friday morning, having ended the second quarter at 119.25bp.

Despite tighter spreads, the issuance picture for banks is not as rosy with year-to-date issuance down 10% from the first nine months of 2012, according to Thomson Reuters.

But capital issuance is expected to accelerate from here as banks seek to replace old style instruments.

Although 10-year US Treasury yields rose from 2.48% to 2.655% in the third quarter, Thomson Reuters data showed that the average investment-grade coupon had fallen to 3.84% during the same period.

It also showed that issuance of floating rate product was up 40% over 2012 with $290bn issued so far in 2013.

EMERGING RECOVERY

Meanwhile, emerging markets began the quarter recovering from the sell-off triggered by tapering fears after the release of the FOMC minutes on May 22, and it was not until July that calmer conditions encouraged a broad mix of issuers to market.

Nigeria, Gazprom, Bahrain, AngloGold and Eskom all raised $1bn-equivalent or bigger trades, though all needed healthy concessions to get their deals away.

Russia's $7bn bond in September was the biggest emerging markets deal of the year, and proved that despite fund outflows, investors have cash to deploy for the right names.

Despite the Fed's decision to hold off tapering for now, there is still plenty of uncertainty in the sector about what the near-term future holds.

"We have seen modest inflows into emerging markets for three weeks in a row after a tough summer for the sector," said Brown. "It's encouraging that with the right new issue premium, deals can get done. There is more of a backlog there and investors' perception is that they can pick and choose a bit more."

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UPDATE 1-Fed can have some flexibility with inflation goal: Evans

Fri Sep 27, 2013 6:33am EDT

* Inflation overshoot possible

* Inflation OK below 3 pct

* Forward guidance helped growth

OSLO, Sept 27 (Reuters) - The U.S Federal Reserve can be flexible with its inflation objective and there is a risk it would overshoot its goal, but this is not an issue as long as price growth remains below three percent, a top Fed official said on Friday.

Charles Evans, President of the Chicago Federal Reserve Bank, said the Fed should have symmetry around its 2 percent inflation objective, which should be seen as a target not a ceiling.

The Fed's current monetary policy "admits the possibility of overshooting our inflation objectives," Evans told a conference at the Norwegian central bank in Oslo. "That's not a goal but it could a feature, in order to have accommodate conditions that support maximum employment, so that's really very helpful."

"We could even do this as long as inflation was below 3 pct because I think symmetry around inflation target is incredibly important," he added.

The Fed targets inflation to be no more than a half a percentage point above its 2 percent long-term target.

Evans added that better than expected growth in U.S. gross domestic product between 2009 and 2010 could be attributed to "favourable forward guidance shocks".

While GDP growth from 2011 to 2013 fell short of forecasts because of "massive headwinds," Evans said it would have done even worse but for the Fed's promise to keep interest rates close to zero for an extended period.

Evans also said that "degrading" monetary policy by using it to fight financial instability would lead to inflation that is below the Fed's 2 percent target and to more resource slack.

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Fed can accommodate if inflation "reasonably within" target - Evans

OSLO, Sept 27 | Fri Sep 27, 2013 6:35am EDT

OSLO, Sept 27 (Reuters) - The U.S. Federal Reserve can maintain an accommodating monetary policy as long as inflation stays "reasonably within" its inflation objective, Charles Evans, president of the Chicago Federal Reserve Bank said in Oslo on Friday.

The Fed targets inflation at no more than a half a percentage point above its 2 percent goal but Evans earlier said inflation below 3 percent was acceptable.

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UPDATE 1-Political uncertainty in Italy deepens over Berlusconi threats

Thu Sep 26, 2013 6:33am EDT

* Former prime minister's allies renew threat to resign

* Senate committee to decide on Berlusconi future on Oct. 4

* Pressure rises as PM Letta seeks to reassure foreign investors

By Paolo Biondi

ROME, Sept 26 (Reuters) - Italian President Giorgio Napolitano cancelled his attendance at a conference on Thursday because of what he called disturbing political developments after centre-right supporters of Silvio Berlusconi threatened to walk out of parliament.

Italy has lurched closer to a crisis since Berlusconi, a partner in Prime Minister Enrico Letta's coalition government, was sentenced last month to four years in prison, commuted to a year under house arrest or in community service, for tax fraud.

Late on Wednesday, Berlusconi's allies made their latest threat to bring down the government, saying they would resign if a special Senate committee meeting on Oct. 4 voted to strip the 76-year-old media tycoon of his seat in the upper house.

Letta has said that Italy needs political stability while it struggles to emerge from more than two years of recession, rein in a 2-trillion-euro ($2.7-trillion) public debt, and bring its budget deficit under control.

As the latest bout of political brinkmanship preoccupied Rome, rumours swirled that Italy faced a renewed downgrade of its government debt, sending the Milan bourse lower and pushing up borrowing costs on benchmark 10-year bonds.

Napolitano, who had been due to attend a conference on post-war premier Alcide De Gaspari, sent a message to organisers excusing himself and saying that "a sudden political development that is institutionally disturbing" required his attention.

How serious a threat the latest move presents is difficult to assess given a series of contradictory signals from Berlusconi's allies in parliament, who are divided between a faction of hardliners and more conciliatory doves.

On Thursday, Transport Minister Maurizio Lupi, a member of Berlusconi's Forza Italia (FI) party, said the centre-right had no joint commitment to stand down. "The resignation of the parliamentarians is a decision which will depend on the conscience of each individual," he told RAI state radio.

"IF THIS MESS CONTINUES, I COULD RESIGN"

But Letta's centre-left Democratic Party (PD) said the threats could undermine the government as it grapples with problems ranging from strained public finances to the fate of big Italian firms including Telecom Italia and national carrier Alitalia, both embroiled in complex takeovers.

"Unfortunately, this back and forth with threats weakens an equilibrium which is already very delicate," Luigi Zanda, Senate floor leader of the PD, told the daily Corriere della Sera.

PD leader Guglielmo Epifani accused the centre-right of "blackmail" but said his party would not change its approach and would vote to strip Berlusconi of his seat.

Berlusconi's political fate has hung in the balance since the tax fraud conviction opened the way to his expulsion from parliament under legislation passed last year that bans politicians with criminal convictions from holding seats.

He says the sentence, which is likely to remove his parliamentary immunity from arrest over other cases, is unjust and accuses what he calls left-wing magistrates of plotting to drive him out of politics.

Pressure on the coalition from Forza Italia rose hours after Letta sought to reassure international investors in New York that Italy was a stable and reliable partner.

Without citing its sources, the Corriere della Sera daily said that Letta had informed Angelino Alfano, the deputy prime minister and party secretary of Forza Italia: "Angelino, if this mess keeps up, I could resign from here."

Napolitano, who would have to decide whether to call new elections or seek to build a new coalition if the centre-right bows out of the government, has said he does not want a vote.

But the constant tension within the coalition has hobbled reform efforts and wasted weeks in wrangling over issues including tax cuts and Berlusconi's political future.

Financial markets have shown none of the panic seen during previous government crises in 2012 or at the height of the euro zone debt crisis in 2011. But borrowing costs have ticked up during the latest bout of uncertainty. On Thursday, yields on Italy's 10-year bonds rose by six basis points.

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EMERGING MARKETS-Stocks lose post-Fed gloss, S.Africa at record high

LONDON, Sept 26 | Thu Sep 26, 2013 6:17am EDT

LONDON, Sept 26 (Reuters) - Emerging stocks lost the last of their post-Fed gains on Thursday, hitting eight-day lows as attention switched to a battle over the U.S. budget, though South African stocks hit a record high for a second day.

Profit-taking in Chinese stocks ahead of the quarter-end and a week-long holiday that begins on Tuesday also dragged the broader emerging stock index lower.

The U.S. Congress, struggling to avert a government shutdown next week, was warned by the Obama administration on Wednesday that the Treasury was quickly running out of funds to pay government bills and could soon face a damaging debt default.

The MSCI emerging equities index dipped 0.2 percent and has fallen nearly two percent from four-month highs hit last week after the Federal Reserve maintained its bond-buying programme, a boon for risky assets.

South African stocks hit a record high, however, with recent rand weakness helping commodity firms which receive revenues in dollars.

Emerging sovereign debt spreads widened by 3 basis points to 342 bps over U.S. Treasuries, and emerging European currencies were generally softer.

Ukrainian debt insurance costs remained at elevated levels above 1,000 bps in the 5-year credit default swap market, according to Markit, a threshold that indicates distressed debt, following a rating downgrade by Moody's last week.

One-year CDS were even higher at a closing price above 1,200 bps, reflecting strong expectations of a restructuring or default by Ukraine in the next year.

Ukraine will meet its foreign debt repayment obligations on time despite the decrease in the levels of its foreign exchange reserves, a senior central bank official said on Thursday.

The Czech crown held steady as the central bank is not expected to change rates on Thursday and market players generally think it will again hold off on intervention to weaken the currency and help a struggling economy.

But SocGen analysts said the central bank would welcome a weaker crown from the current 25.58 per euro.

"In our estimates, the central bank would like to see the EUR/CZK exchange rate at 26.00-26.50 for the rest of the year," they said in a note.

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see )

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UPDATE 1-China unveils new steps to free up interest rates

Thu Sep 26, 2013 6:38am EDT

BEIJING, Sept 26 (Reuters) - China will allow banks to price loans based on market-based benchmark rates and will allow banks to launch certificates of deposit soon to pave the way for liberalising bank deposit rates, the central bank said on Thursday.

Chinese leaders are seeking to steer the world's second-latest economy towards a growth model that relies more on domestic consumption and want to gradually allow market forces to play a greater role.

"We will steadily push forward market-oriented interest rate reforms," Hu Xiaolian, a vice governor of the People's Bank of China, said in a speech published on the central bank's website, www.pbc.gov.cn.

Hu said these are near-term tasks but did not give a timeframe.

The central bank will expand market-oriented benchmark rates from the money market to credit markets and organise big banks to offer lending rates to their high-quality clients to set the benchmark borrwing costs for the industry.

In July, the PBOC scrapped the floor on lending rates but banks still price their loans based on the benchmark rates when they make loans. The one-year official rate stands at 6 percent.

The decision to remove the floor on bank lending rates was seen as a largely symbolic prelude to eventually removing caps on deposit rates, a much more difficult task that will take time.

The issuance of certificates of deposit on the interbank market and expansion of market-based pricing of debt products, will "create conditions for steady and orderly liberalisation of deposit rates", Hu said.

The central bank, under the helm of reform-minded Zhou Xiaochuan, has been trying to promote the role of the Shanghai interbank offered rate (SHIBOR) as the benchmark for short-term borrowing costs, now that money-market rate are largely determined by market supply and demand.

Sources told Reuters in August that China's top banks are expected to win approval for the issuance of tens of billions of yuan in negotiable certificates of deposit (NCD).

NCDs would enable banks to access large amounts of funds at relatively stable costs, providing some alternative to borrowing from the inter-bank market, where the cost of funds can be volatile, as seen in June when a liquidity squeeze briefly sent short-term money market rates to nearly 30 percent.

The central bank has said that more preparations, including a deposit insurance scheme, are needed before a move on deposits. Analysts said its caution also reflected concerns that freeing up deposit rates would squeeze banks' profits.

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Fed's Dudley 'wouldn't rule out' QE cut this year -CNBC

NEW YORK, Sept 24 | Tue Sep 24, 2013 6:27am EDT

NEW YORK, Sept 24 (Reuters) - An influential Federal Reserve policymaker said he "certainty wouldn't want to rule out" a reduction in the U.S. central bank's bond-buying program later this year, adding the Fed expected slower economic growth now than it did in June.

The decision "depends on the data," New York Fed President William Dudley said in a Monday interview aired on CNBC Tuesday. "The thing that we really want to emphasize is that it's driven by data, not by time."

Dudley, a close ally of Fed Chairman Ben Bernanke, repeated, however, that a plan that Bernanke articulated in June to wind down the quantitative easing program remained "intact." The plan was to reduce QE later this year and to end it by about mid-2014 as long as the economy keeps improving as expected.

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Central bank caution buoys euro zone debt

Tue Sep 24, 2013 6:36am EDT

* Euro zone bonds rise one day after Draghi flags LTRO

* German business morale below forecast but at 17-mo high

* ECB sounds dovish despite improvement in euro zone data

By Ana Nicolaci da Costa

LONDON, Sept 24 (Reuters) - Signs that major central banks will keep monetary policies loose pushed euro zone government bonds higher on Tuesday even as fresh data pointed to strong growth in Germany.

European Central Bank President Mario Draghi said on Monday the bank was ready to offer another round of cheap loans to banks to anchor money market rates.

Coming on the back of the U.S. Federal Reserve's surprise decision last week to maintain the pace of its massive bond-buying programme, market participants see bond yields staying low for an extended period.

Draghi's message was reinforced by ECB Governing Council member Ewald Nowotny on Tuesday who said it was too early for the ECB to exit its crisis measures and that unconventional policy remains important.

German business morale came in below expectations but it improved slightly to its highest level in 17 months in September, suggesting Europe's largest economy is staging a firm recovery.

"We had Draghi yesterday suggesting the door is still open for a further LTRO and we are really seeing follow-through from yesterday's price action," ICAP strategist Philip Tyson said.

"(The Ifo) was marginally weaker (than expected), which has meant that the rally that we saw yesterday ... can continue."

German Bund futures jumped 45 ticks to 139.23, pushing 10-year government bond yields 3.6 basis points lower to 1.83 percent.

Euro zone bonds rose across the credit spectrum. Ten-year Italian yields eased 4 bps to 4.23 percent and the Spanish equivalent fell 3 bps to 4.25 percent. French 10-year borrowing costs fell 3.2 bps to 2.40 percent.

Some analysts have said central banks are keeping policy loose so as not to threaten a still fragile global economic rebound.

One influential Fed policymaker said on Monday it must for now continue to push hard against threats to the U.S. recovery, but should still be able to reduce its support for the economy later this year.

ING senior rates strategist Alessandro Giansanti said the central bank comments had focused investor attention on valuations.

"In the euro zone and in the U.S. you have 10-year yields that were trading almost in line with the fair value so that's why there was less pressure for having higher yields and then with the dovish central bank statement, it triggered a rally in core bonds," he said.

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RPT-Central bank caution buoys euro zone debt

Tue Sep 24, 2013 6:39am EDT

* Euro zone bonds rise one day after Draghi flags LTRO

* German business morale below forecast but at 17-mo high

* ECB sounds dovish despite improvement in euro zone data

By Ana Nicolaci da Costa

LONDON, Sept 24 (Reuters) - Signs that major central banks will keep monetary policies loose pushed euro zone government bonds higher on Tuesday even as fresh data pointed to strong growth in Germany.

European Central Bank President Mario Draghi said on Monday the bank was ready to offer another round of cheap loans to banks to anchor money market rates.

Coming on the back of the U.S. Federal Reserve's surprise decision last week to maintain the pace of its massive bond-buying programme, market participants see bond yields staying low for an extended period.

Draghi's message was reinforced by ECB Governing Council member Ewald Nowotny on Tuesday who said it was too early for the ECB to exit its crisis measures and that unconventional policy remains important.

German business morale came in below expectations but it improved slightly to its highest level in 17 months in September, suggesting Europe's largest economy is staging a firm recovery.

"We had Draghi yesterday suggesting the door is still open for a further LTRO and we are really seeing follow-through from yesterday's price action," ICAP strategist Philip Tyson said.

"(The Ifo) was marginally weaker (than expected), which has meant that the rally that we saw yesterday ... can continue."

German Bund futures jumped 45 ticks to 139.23, pushing 10-year government bond yields 3.6 basis points lower to 1.83 percent.

Euro zone bonds rose across the credit spectrum. Ten-year Italian yields eased 4 bps to 4.23 percent and the Spanish equivalent fell 3 bps to 4.25 percent. French 10-year borrowing costs fell 3.2 bps to 2.40 percent.

Some analysts have said central banks are keeping policy loose so as not to threaten a still fragile global economic rebound.

One influential Fed policymaker said on Monday it must for now continue to push hard against threats to the U.S. recovery, but should still be able to reduce its support for the economy later this year.

ING senior rates strategist Alessandro Giansanti said the central bank comments had focused investor attention on valuations.

"In the euro zone and in the U.S. you have 10-year yields that were trading almost in line with the fair value so that's why there was less pressure for having higher yields and then with the dovish central bank statement, it triggered a rally in core bonds," he said.

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Euro zone debt inches up after German's Merkel wins vote

Mon Sep 23, 2013 3:47am EDT

By Emelia Sithole-Matarise

LONDON, Sept 23 (Reuters) - Euro zone government bonds edged up on Monday, with investors seeing little change in German's supportive policy towards the region's weaker economies after Chancellor Angela Merkel won a third term.

Market reaction was, however, muted as investors were reluctant to put on big positions before preliminary euro zone manufacturing data due at 0758 GMT.

Investors were keen to see the shape of the new government in euro zone paymaster Germany. Merkel won a landslide personal victory on Sunday although her conservatives appeared just short of the votes needed to rule on their own.

Merkel's party may have to convince leftist rivals to join a coalition after their current allies, the Free Democrats (FDP) suffered a humiliating exit from parliament.

"It's somewhat positive for peripheral markets which have done quite well in recent days but we don't expect big moves as this was expected," said KBC strategist Piet Lammens.

"It might start to get things moving again in Europe... Maybe we can get some breakthroughs on the banking union or another aid package for Greece."

Italian 10-year yields were down 0.7 basis points down at 4.29 percent while Spanish equivalents were 1.1 bps lower at 4.32 percent.

Italian yields have fallen since last week on easing tensions after former premier Silvio Berlusconi stepped back from threats to torpedo the government as lawmakers moved closer to banning him from parliament after his tax fraud conviction.

IRISH GAINS

Underpinning the firmer tone in peripheral markets, Moody's on Friday moved closer to upgrading Ireland's credit rating to investment grade by moving its outlook to stable from negative. But it warned the government against easing off on austerity.

It is the last of the three main rating firms to class Irish government debt "junk", rating it Ba1, and the outlook change may fuel expectations of an upgrade before the country exits its 85 billion euro EU/IMF bailout later this year.

Data last week showed Ireland emerged from its second recession in five years in the second quarter. Irish yields were last 2.3 bps lower at 3.87 percent, their lowest in nearly six weeks.

German Bund futures were last 24 ticks up at 138.56 with cash 10-year yields 2.1 bps lower at 1.88 percent.

While many saw little change in German policies towards the euro zone resulting from a coalition between the conservatives and either the Social Democrats or the Greens, some in the market said lengthy talks could unsettle markets.

"A grand coalition may also become unstable in the long run, as the SPD will likely try to avoid the same fate as in 2005-09 when it lost substantial voter support following its participation in a Merkel-led grand coalition government," Citi strategists said in a note.

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GLOBAL MARKETS-Shares, Bunds creep up after Merkel election win

Mon Sep 23, 2013 5:00am EDT

* China PMI rises to 6-mth high of 51.2, beats expectations

* Euro gets fleeting rise on Merkel victory, coalition still needed

* European shares edge higher after choppy start, data boosts

* Three Fed officials to speak, including influential Dudley

By Marc Jones

LONDON, Sept 23 (Reuters) - Shares and core euro zone bonds carved out minor gains on Monday as fresh concerns about the Federal Reserve's policy stance took the shine off an election triumph for Angela Merkel and some upbeat euro zone data.

Merkel's resounding win in Sunday's German elections, seen as a strong vote of support for her efforts in keeping the euro together, was followed by forward-looking euro zone PMI data showing the bloc's economy continuing to pick up pace.

Markit's September Flash Composite Purchasing Managers' Index (PMI) jumped to 52.1 from last month's 51.5, its highest since June 2011 and beating expectations for 51.9. New orders were at their fastest pace in over two years.

Stock markets finally found direction after a choppy start with gains of 0.2 and 0.3 percent on Germany's DAX and France's CAC 40 helping lift the FTSEurofirst 300 0.2 percent.

European stocks hit a five-year high last week and Nick Beecroft, chairman and senior market analyst for Saxo Bank capital markets, said Merkel's election win was "a ringing endorsement" to ensure the euro survives.

"The positive thing for the euro is that it is 99 percent certain we will have grand coalition that will be able to change the (German) constitution if needed to allow euro bonds. This won't happen overnight but I expect it to gradually come on to the agenda."

Merkel's victory gave the euro only the briefest of lifts, however, as she will still need a new coalition partner to rule.

Having initially gained a quarter of a U.S. cent to $1.3555 , it quickly faded to $1.3516. Against the yen, the common currency eased to 133.67, from an early 134.56 while against sterling it inched down to 1.1867 per pound.

That left the dollar index little changed at 80.382, not far from a seven-month trough of 80.060 plumbed last week.

German Bund futures were last 18 ticks up at 138.32 with cash 10-year bond yields 2.1 bps lower at 1.88 percent.

CHINA

Earlier, MSCI's broadest index of Asia-Pacific shares outside Japan had dipped 0.1 percent. U.S. futures pointed to a slightly firmer open on Wall Street.

Some Asian markets had started the week with significant gains, thanks to a survey that showed a promising pick up in Chinese export orders, another sign of stabilisation in the world's second biggest economy.

The preliminary HSBC Purchasing Managers' Index (PMI) for China climbed to 51.2 in September, from August's 50.1, with 10 out of 11 sub-indices up in the month. Dealers had looked for a reading of around 50.9.

New export orders jumped to a 10-month peak of 50.8, the first time in six months that exports have grown. Readings on manufacturing across Europe are due later on Monday.

Shares in Shanghai gained 1.0 percent and Taiwan's main index was up 0.9 percent. Australian shares were down 0.5 percent and Japanese markets were closed for a holiday.

The upbeat China survey sent the Australian dollar a quarter of a U.S. cent higher to $0.9422. China alone takes around one-third of all Australia's exports, chiefly commodities such as iron ore.

REAL POLITICS

While Merkel won by a landslide, her conservatives appeared just short of the votes needed to rule on their own.

That left open the possibility of a "grand coalition" with the centre-left Social Democrats (SPD), who came a distant second. In the past, establishing a coalition accord has taken between four and eight weeks.

"The formation of a grand coalition could be a positive outcome for the euro zone," said Peter Dragicevich, a currency strategist at Commonwealth Bank of Australia.

"The SPD is in favour of further euro zone integration. As such, a grand coalition may be more willing to work with the ECB and euro zone governments to find a sustainable solution to the issues plaguing the euro zone periphery."

He noted one of the SPD's 2013 election policy proposals was the creation of a European debt redemption fund funded by euro zone bonds.

SECOND-GUESSING THE FED

The Dow Jones industrial average lost 1.2 percent on Friday, while the S&P 500 Index eased 0.7 percent.

Some of Friday's dip was attributed to comments from St. Louis Federal Reserve Bank President James Bullard who said that a start to winding down the stimulus program was possible in October, depending on coming economic data.

That was a surprise to most analysts who had thought there would not be enough fresh economic news by the Oct. 29-30 meeting to swing the Fed from its accommodative course.

Some clarity might come later on Monday since no less than three Fed officials are speaking, headlined by New York Fed President William Dudley. He is thought to be close to Chairman Ben Bernanke and to speak for the dovish majority of voting members.

Even the thought the Fed might start tapering in October jolted commodity markets, leaving gold down at $1,321.81 an ounce, from Thursday's peak of $1,374.54. Copper futures were off 1.2 percent.

Brent crude oil was steady at $109.20 a barrel, while U.S. crude was also flat at $104.79.

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Talks to sell ThyssenKrupp's Brazil site could collapse-source

DUESSELDORF, Germany, Sept 23 | Mon Sep 23, 2013 5:40am EDT

DUESSELDORF, Germany, Sept 23 (Reuters) - German steelmaker ThyssenKrupp may walk away from talks over the sale of its Brazil plant, part of its loss-making Steel Americas business, a person familiar with the matter told Reuters on Monday.

Negotiations with prospective buyer Companhia Siderurgica Nacional (CSN) remain in a stalemate, the person added.

A spokeswoman ThyssenKrupp said the group was in "far advanced" talks with one bidder over the sale of the two plants that comprise Steel Americas.

She reiterated Thyssen's previous statement that the steelmaker was trying to strike a deal soon.

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Britain's Labour leader attacks Cameron over "cost of living crisis"

BRIGHTON, England, Sept 22 | Sun Sep 22, 2013 5:19am EDT

BRIGHTON, England, Sept 22 (Reuters) - Britain's opposition Labour leader Ed Miliband warned on Sunday that voters face a cost of living crisis as he sought to rebuild economic trust and overcome dire personal poll ratings before taking on Prime Minister David Cameron in the 2015 election.

Miliband said he will use his party's annual conference in Brighton, on England's south coast, to press his case that the recovery is helping the rich more than the poor and that Cameron's policies have squeezed millions of Britons.

Three years into his leadership, Miliband is under pressure to reassert his authority, lift party morale and convince sceptical voters that he has a clear vision for government.

"Polls go up and down, one thing that goes up and up is the cost of living of ordinary families, I think that's where their focus is," Miliband told the BBC. "I didn't take it on because I thought it would be an easy fight, I thought it would be a tough fight. I believe it's a fight we can win, and I'm up for that fight."

Labour's lead over Cameron's Conservatives has dwindled as the economy has picked up since the last election in 2010, with one poll this week putting them on level terms.

Miliband said his party would give families more help with childcare, consider raising the minimum wage in some sectors and scrap part of an unpopular welfare reform on public housing.

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UPDATE 2-Merkel eyes third term in tight German election

Sun Sep 22, 2013 5:28am EDT

* Germans hold first election since start of euro crisis

* Merkel on track for third term, but coalition unclear

* Anti-euro party could doom her hopes of centre-right majority

* Trailing SPD loath to enter another "grand coalition"

By Michelle Martin

BERLIN, Sept 22 (Reuters) - Germans voted on Sunday in an election expected to hand Chancellor Angela Merkel a third four-year term, but she may be forced into an awkward coalition with her leftist rivals following a surge in support for a new anti-euro party.

Europe is closely watching Germany's first national election since the eruption of the euro zone debt crisis in 2009. Some hope Merkel will take a softer stance on struggling euro states such as Greece if she is pushed into a so-called grand coalition with the Social Democrats (SPD).

But major policy shifts seem unlikely because the centre-left SPD, whose campaign stalled after a gaffe-prone start by its lead candidate Peer Steinbrueck, agrees with the thrust of Merkel's approach even as it accuses her of weak leadership.

The most recent opinion polls show support for Merkel's conservative bloc - her Christian Democratic Union (CDU) and the Bavarian Christian Social Union (CSU) - at around 39 percent, about 13 points ahead of the SPD, the second-biggest party.

That virtually guarantees that Merkel, whose staunch defence of German interests during the crisis has sent her approval ratings soaring over 60 percent, will stay on as chancellor.

"I voted for CDU because they're a serious party and in the last eight years they've really moved the country forward," said policeman Jochen Anders, 58, after casting his ballot in Berlin.

"They have reduced our debts significantly, brought us through the euro zone and financial crises successfully and the economy has recovered," he said.

Merkel, who grew up in communist East Germany, has presided over a robust economy and booming labour market. The 59-year-old's "step by step" leadership style is criticised abroad as too timid but applauded by many at home, where she was cheered as "Mutti", or Mum, on the campaign trail.

The SPD's Steinbrueck, a 66-year-old former finance minister, voted in the former West German capital Bonn.

"I feel very good ... Now it is finally time for the voters to decide," he told reporters.

The first exit polls will be published at 6 p.m. (1600 GMT). Of the 62 million Germans eligible to vote, out of a population of 80 million, about a third described themselves in the run-up to the election as undecided, adding to the uncertainty.

TOUGH COALITION TALKS

Merkel wants to continue the centre-right coalition with the business-friendly Free Democrats (FDP) she has led for the past four years, but they have seen their support slide from 14.6 percent in the 2009 vote to just 5 percent.

A poor FDP result would force Merkel to court the SPD, with whom she governed in a right-left coalition in 2005-09.

The SPD, which lost voters after that experiment, would exact a high price in such talks, including top cabinet posts such as the finance ministry and acceptance of key parts of its platform, such as a minimum wage and tax hikes for the wealthy.

"They will be the most difficult coalition talks ever," said Frank Decker, a political scientist at Bonn University.

The wild card in the election is the Alternative for Germany (AfD), a seven-month-old party that has seized on voter fears about the cost of euro zone bailouts, for which Germany, Europe's largest economy, underwrites the biggest share.

Led by a group of renegade academics, lawyers and journalists, the AfD wants an "orderly dismantling" of the euro and says Germans should consider returning to the Deutsche Mark.

Their tough stance on euro zone stragglers and on immigration has led some to reconsider their voting intentions.

"I like the SPD but I also like it that the AfD wants to get rid of the euro and expel foreigners who are lazy and just living off the state," said Jacqueline Preuss, 43, a car industry employee in Berlin.

If the AfD nudges above the 5 percent mark needed to enter parliament, it will be the first new party in the Bundestag since 1990 and the only one to favour a breakup of the euro, the currency created in 1999 and now shared by 17 countries.

"If the AfD enters parliament, it will change the euro debate in Germany," a close aide to Merkel told Reuters.

Should the party win seats, Merkel could be denied her centre-right government of choice.

Speaking to 4,000 supporters at the Tempodrom arena in Berlin on Saturday, she seemed to acknowledge that risk, departing from script to urge voters to stand by the euro.

"A stable euro is not only good for Europe, it is crucial for Germany as well," Merkel said. "It guarantees our well-being and our jobs."

Even if Merkel is able to preserve her centre-right government with the FDP, she will probably have to rule with a much smaller majority in the Bundestag and deal with an SPD-dominated upper house that could block major legislation,

Regardless of her coalition, she faces major challenges in a new term, from bedding down her shift from nuclear to renewable power to fending off a demographic crisis, and setting out a vision for Europe, which may be past the acute phase of its crisis but is still plagued by recession and unemployment.

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UPDATE 1-Britain's Labour leader attacks Cameron over "cost of living crisis"

Sun Sep 22, 2013 5:56am EDT

* Labour leader Ed Miliband says recovery is unequal, unfair

* Puts high cost of living at centre of election drive

* Leader under pressure to lift morale, boost own ratings

* Says will not match Cameron's EU referendum pledge now

BRIGHTON, England, Sept 22 (Reuters) - Britain's opposition Labour leader Ed Miliband warned on Sunday that voters face a cost of living crisis as he sought to rebuild economic trust and overcome dire personal poll ratings before taking on Prime Minister David Cameron in the 2015 election.

Miliband said he will use his party's annual conference in Brighton, a seaside resort on England's south coast, to argue that the recovery is helping the rich more than the poor and that Cameron's policies have squeezed millions of Britons.

Three years into his leadership, Miliband is under pressure to reassert his authority, lift party morale and convince sceptical voters that he has a clear vision for government.

"For generations in this country, when the economy grew the majority of people got better off," Miliband told the BBC.

"Now that vital link between the growing wealth of the country and people's family finances has been broken and the question is, for the British people, is there a party that's going to tackle that?"

Labour's lead over Cameron's Conservatives has dwindled as the economy has returned to growth, with one poll this month putting them on level terms.

Worse for Miliband is the stark polling message that voters think the Conservatives will do a better job on the economy than Labour and see Cameron as a stronger, more capable leader.

Asked about his poor personal poll ratings, the 43-year-old Oxford-educated son of a Marxist intellectual said: "Polls go up and down, one thing that goes up and up is the cost of living of ordinary families.

"It's going to be a tough fight but I believe it's a fight we can win, and I'm up for that fight."

Miliband said his party would not borrow more for day-to-day spending, but repeatedly said it was too early to give details of Labour's plans on taxation and spending.

However, he said Labour was looking at raising the minimum wage in some sectors and wants to cut the number of low-skilled immigrants coming to Britain. He also pledged to give families more help with childcare and scrap part of an unpopular welfare reform on public housing.

On the European Union, Miliband said he would not match Cameron's promise to hold a referendum on Britain's membership of the 28-nation bloc by the end of 2017.

"We think it's wrong now to commit to an in/out referendum in four years' time... because the issue for the British people is about jobs and living standards," Miliband said.

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UPDATE 4-U.S. House taunts Democrats with anti-Obamacare spending bill

Fri Sep 20, 2013 7:53pm EDT

* House Republicans ram spending bill through House

* Senate Democrats to kill Obamacare defunding ploy

* Obama tells Boehner he won't negotiate on debt ceiling

By Richard Cowan and Thomas Ferraro

WASHINGTON, Sept 20 (Reuters) - A familiar Washington melodrama - will they or won't they shut down the government - took center stage on Friday when the Republican-controlled House of Representatives passed a bill to fund the government, but only if President Barack Obama's landmark healthcare law is ransacked.

Notching their 42nd vote against "Obamacare" and knowing full well the Democratic Senate will reject it, Republicans in the House cast their votes, staged a noisy celebration in front of a placard declaring: "SenateMustAct," and then left town for several days to give time for the Senate to demolish its work.

"The Senate will not pass any bill that defunds or delays Obamacare," Senate Majority Leader Harry Reid said flatly.

Later on Friday, Obama called House Speaker John Boehner, to reiterate he would not negotiate on another bill that will soon be before Congress: one to increase U.S. borrowing authority, which is rapidly approaching its $16.7 trillion limit.

House Republicans said they were considering a series of controversial initiatives to attach to that bill, which likely prompted Obama's phone call.

A White House official said Obama told Boehner in the call that the American people had worked long and hard to dig the country out of the financial crisis and the last thing they needed was another politically motivated, self-inflicted wound.

Obama, who would veto any bill that stripped funds from his healthcare law, hit the road too, as he has in past fiscal showdowns. "They're not focused on you," he said of the Republicans as he spoke at a Ford plant in Liberty, Missouri. "They're focused on politics. They're focused on how to mess with me."

Jeff Wright, a United Auto Workers officer waiting for Obama, commented, "They're completely dysfunctional."

If both houses fail to pass a bill funding the government, it could shut down on Oct. 1, although most Capitol Hill observers doubt it will come to that.

Without prompt agreement in Congress on a new funding bill, agencies including the FBI, Education Department, Defense Department and Environmental Protection Agency would have to curtail many non-essential operations on Oct. 1, the first day of the new fiscal year.

CALLING OUT DEMOCRATS

The Republican maneuver seemed equally designed to get members of Congress in both houses on the record on Obamacare in the run-up to the 2014 congressional elections.

After the vote on Friday, House Majority Leader Eric Cantor called out the names of potentially vulnerable Senate Democrats who will now be confronted with casting a vote on an issue Republicans see as a winner for them.

But even some Republicans, particularly in the Senate, have been dismissive of their House colleagues' tactics, calling them futile.

They were joined on Thursday by New York Republican Representative Peter King, who told CNN that the party was "carrying out a fraud with the people by somehow implying or even saying that this strategy is going to win."

He then voted in favor of the funding bill, complete with the Obamacare provision.

Representative Scott Rigell of Virginia, the lone Republican to vote against the House bill, was accused of a "betrayal" by the politically conservative advocacy group, Americans for Limited Government. The group's president, Nathan Mehrens, said Rigell "now owns it every bit as much as if he had voted for Obamacare's passage."

Rigell, who represents a district with a heavy military presence, defended his stance. He said the spending bill failed to address the steep automatic spending cuts on defense programs.

The measure passed on Friday on a largely partisan vote of 230-189. Only two centrist Democrats, Representatives Jim Matheson of Utah and Mike McIntyre of North Carolina, voted for the bill.

As Republicans celebrated its passage with a "rally" in the Capitol, some senior members of the party confided to Reuters that their leaders appeared to have no plan on how to both please conservatives, who push for smaller government, and ultimately get legislation enacted into law.

Asked what Boehner would do if the Senate, as expected, removes the Obamacare provision and sends a bill back to the House that simply continues government programs at their current rate of spending, one House Republican said: "We don't know what they (leadership) would do. ... I don't think they know what they would do."

'WOLF IN WOLF'S CLOTHING'

Against that backdrop, the debate over Obamacare and government spending raged on the House floor with neither Republicans nor Democrats showing any sign of compromise.

"Let's defund this law now and protect the American people from the economic calamity that we know Obamacare will create," Cantor said as he argued that employers were cutting back on their workers' hours in order to skirt requirements of the healthcare law.

Cantor's counterpart, House Democratic leader Nancy Pelosi, shot back at Republicans: "You know what that's about? That's simply about putting their friends, the insurance companies back in charge of medical decisions for your families."

Pelosi also called the bill "a wolf in wolf's clothing."

House Appropriations Committee Chairman Harold Rogers urged quick passage of the bill that he said "is absolutely necessary to keep the lights on" at government agencies.

Republican Representative Frank Wolf implored, "You can't shut down the federal prison system, FBI counterterrorism activities," weather forecasting and NASA space exploration.

Government spending was not the only cloud hovering over the Capitol.

Sometime in October or early November, the U.S. Treasury will hit its $16.7 trillion limit on borrowing. Without legislation to raise the "statutory debt ceiling," the United States, for the first time, would default on loans from bondholders such as the Chinese government.

Here again, House Republicans were in disarray as conservatives pressed to attach the destruction of Obamacare and other pet initiatives to a debt limit measure.

Veteran Representative Pete Sessions was swarmed by reporters as he left a closed-door meeting of his fellow Republicans.

Asked what would be attached to a debt limit bill that is supposed to come to the House floor next week, Sessions said: "What we're trying to do is come together as a team to understand what all might be in that. When we do that, we'll have an idea what we're going to do. There are options and ideas and potentials."

Sessions declined to elaborate.

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UPDATE 1-Senior U.S. Republican to target state, local tax deduction

Fri Sep 20, 2013 8:14pm EDT

By Kim Dixon

WASHINGTON, Sept 20 (Reuters) - The U.S. Congress' top Republican on tax policy is drawing up a plan to rewrite the tax code and is likely to recommend repeal of a popular and costly federal tax deduction for state and local taxes paid, congressional aides said.

House of Representatives Ways and Means Committee Chairman Dave Camp, who is expected to unveil his plan soon, is pushing forward with the idea of a tax code overhaul despite expectations that this Congress is too fractured to take on such a big project.

The provision, available only to the roughly one-third of federal taxpayers who itemize, allows taxpayers to deduct from their income the value of state and local property tax paid, as well as state and local income or sales tax paid.

Claimed by 46.6 million Americans in 2011, the deduction reduced U.S. tax revenues that year by an estimated $42 billion, making it one of the largest tax breaks in the code.

With lawmakers faced off across a deep partisan fiscal divide, Camp's determination to proceed reflects a personal conviction that the tax code badly needs work.

Future discussions on tax policy could begin with the plan Camp hatches and the lawmaker has said nothing is off-limits.

"Everything is on the table means everything is on the table," said Michelle Dimarob, a committee spokesperson.

Several bipartisan deficit-cutting panels have urged repeal of the deduction for state and local taxes paid, including the Simpson-Bowles commission appointed by President Barack Obama and Congress. "It is hard to go into (tax) reform and not go there," a top Senate Republican tax aide said.

The deduction will be significantly curtailed or axed in any proposal put forward by Camp, said an aide who works for him.

PAYING FOR LOWER RATES

Camp, like most Republicans, wants to slash tax rates. The cuts he envisions would sharply reduce U.S. tax revenues. Those reductions would have to be offset, at least in part, by new revenues, which could be found by ending some tax breaks.

The one for payment of state and local taxes tends to disproportionately benefit wealthy people in Democratic stronghold states. More than 30 percent of the total value of the deduction in 2011 was claimed by New Yorkers and Californians, according to congressional estimates.

If he targets the deduction, Camp will face stiff opposition from Democrats who control the Senate.

Lobbyists, particularly those for state and local governments, are not letting their guard down either.

Repealing the deduction "would fundamentally change a basic tenet of federalism in the United States - the notion that different levels of government don't tax each other," said Lars Etzkorn, a lobbyist with the National League of Cities.

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ECB says Ireland should stick to austerity target

Sept 21 | Sat Sep 21, 2013 6:18am EDT

Sept 21 (Reuters) - Ireland should not ease up on austerity in its annual budget next month but stick to a target of 3.1 billion euros worth of spending cuts and tax hikes, European Central Bank Executive Board member Joerg Asmussen said on Saturday.

Ireland last year beat the deficit target under its bailout, leading to calls by government ministers for a more modest fiscal adjustment than agreed with lenders the European Union, International Monetary Fund and European Central Bank.

"I would really suggest to stick to the budget plan for the next year and to stick to the figure of 3.1" billion euros Asmussen said in an interview with Irish state broadcaster RTE.

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Update-Moody's: Scaldis's ABCP rating unaffected by programme amendments

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Monte Paschi seeks to avert nationalisation with turnaround plan

Fri Sep 20, 2013 6:00am EDT

* Monte Paschi board to approve new plan on Sept. 24

* Bank needs to win EU green light for state bailout

* Failure of big capital increase could force nationalisation

By Silvia Aloisi and Stefano Bernabei

MILAN/ROME, Sept 20 (Reuters) - Italy's scandal-hit Monte dei Paschi di Siena will next week unveil a drastic turnaround plan for the bank to meet European Union demands and try to lure investors in a make-or-break attempt to avoid nationalisation.

Italy's third biggest lender was brought close to financial collapse by the euro zone debt crisis and is engulfed in a judicial probe over its costly purchase of a rival in 2007 and loss-making derivative trades it made in the deal's aftermath.

The bank, which took 4.1 billion euros ($5.5 billion) in state loans in February, has been told to beef up an already tough restructuring plan if it wants to win the European Union's approval for the bailout.

Brussels has also demanded that the Tuscan lender carries out a 2.5 billion euros capital increase in 2014. That is more than double the 1 billion euro originally planned by the bank and roughly equal to Monte dei Paschi's current market capitalisation, making it a very challenging goal.

"At the moment there seems to be little interest in Monte dei Paschi among investors, either from a strategic or financial view point," Societe Generale analyst Carlo Tommaselli said in a report this week. "The execution risk ... is high."

EU Competition Commissioner Joaquin Almunia has said that if the bank, the world's oldest still in business, cannot raise the funds in the market, the government would have to convert its loans into shares in the bank, thus taking it over.

The possibility that the Italian treasury could take a stake in the bank was already contemplated under the terms of the government's bailout scheme. This states that if Monte dei Paschi cannot pay its annual nine percent coupon on the state loans, it will issue shares to the treasury.

The sheer size of the capital increase demanded by the EU, the third cash call for the bank since 2008 excluding the bailout, makes the prospect of Monte dei Paschi falling under direct government control a lot more likely.

BIG LOSSES

Monte dei Paschi has lost nearly 8 billion euros in the past two years, and most analysts do not expect it to post a profit before 2015.

Without the bailout, its core Tier 1 ratio - a measure of a bank's financial strength - would fall to just 6.5 percent, well below a minimum of nine percent required by the European Banking Authority, analysts estimate.

The new restructuring plan is expected to include more cost cuts on top of the 4,600 jobs and 400 branches the bank is already shedding in a restructuring drive started by CEO Fabrizio Viola and Chairman Alessandro Profumo - brought in last year to turn its fortunes around.

The plan, to be approved on Tuesday, will also feature a gradual reduction in the bank's 29-billion euro Italian government bond portfolio, of which just under 30 percent expires by 2015, sources close to the matter told Reuters.

The bank is the only Italian lender among several European banks to have received state aid, but its woes have become a symbol of the deeper troubles of Italy's financial sector: an economy that has barely grown in more than a decade and opaque ownership structures often more focused on politics than business.

Known as "Daddy Monte" in Siena where it is the biggest private employer, the bank is controlled by a foundation at the centre of a web of local control and political patronage.

The foundation has had to cut its stake in Monte dei Paschi to 33.5 percent from 49 percent in the past 18 months to pay back creditors after running up big debts to keep a grip on the bank.

Two days after Monte dei Paschi approves its plan, three of the bank's former top managers will stand trial in Siena on charges they hid from regulators the true nature of a 2009 derivative trade with Japanese bank Nomura, which prosecutors allege was made to conceal losses.

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Not lifting U.S. debt ceiling would be "dumb" - Buffett

NEW YORK, Sept 20 | Fri Sep 20, 2013 6:34am EDT

NEW YORK, Sept 20 (Reuters) - Billionaire investor Warren Buffett said that politicians not lifting the U.S. debt ceiling would be "pretty damn dumb" and viewed a prolonged political standoff on the issue as "disturbing."

"The market is not going to fall apart," Buffett said in an interview aired on CNBC on Friday, because markets will only expect politicians to act irrationally for a certain length of time.

Some Republican legislators are calling for concessions such defunding President Barack Obama's signature health care law in exchange for lifting the debt ceiling.

Buffett's Berkshire Hathaway Inc owns more than 80 businesses in such areas as insurance, chemicals, railroads and clothing, and has well more than $130 billion of equity and fixed income investments.

U.S. politicians look headed for a prolonged squabble over raising the U.S. debt ceiling to allow the government to keep borrowing money to pay its bills. That decision is expected to come to a head later this year.

A similar impasse in 2011 cost the United States its triple-A credit rating from Standard and Poor's.

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GLOBAL MARKETS-Stocks, dollar dip as Fed to start meeting

Tue Sep 17, 2013 4:03am EDT

  * Asian, European shares trim recent lofty gains      * Dollar hovers above four-week low      * Oil extend drop as Syrian tensions further ease        By Blaise Robinson      PARIS, Sept 17 (Reuters) - Shares dipped and the dollar lost  ground on Tuesday as investors consolidated positions before a  U.S. Federal policy meeting at which the central bank is set to  start scaling back stimulus.      German Bunds also edged lower, with the 10-year yields   rising 1 basis point to 1.888 percent.       The FTSEurofirst 300 index of top European shares  was down 0.3 percent in early trade, retreating from a five-year  high hit in the previous session.      In Asia, the MSCI's broadest index of Asia-Pacific shares  outside Japan lost 0.3 percent, while Japan's  Nikkei stock average, which opened higher after a  holiday on Monday, changed gears and closed 0.7 percent lower.      The Fed's Open Market Committee begins its two-day meeting  on Tuesday, and despite a lacklustre August U.S. jobs report, it  is expected to trim its monthly asset purchases by about $10  billion from $85 billion.       "The start of the Fed's tapering has been priced in already,  and investors now realise that lowering stimulus measures means  that the U.S. economic recovery is gaining traction," said David  Thebault, head of quantitative sales trading, at Global Equities  in Paris.      "Now the question is: how big will be the first reduction in  the programme? Investors are pricing in $10 billion, but $20  billion or above could create waves, so people remain cautious  ahead of the decision."      The dollar was lower versus a basket of currencies,  at 81.193, after having set a four-week low of 80.968 the  previous day.      With the Fed looking set to take its first step to wind down  its stimulus, investors will also be focusing on the central  bank's guidance on its future policy stance on Wednesday.      "On top of the size of tapering, what's more important this  time is the Fed's forecast of interest rates in 2016, which will  give markets an idea on the pace of future rate hikes," said Sho  Aoyama, senior market analyst at Mizuho Securities.      Brent oil futures edged lower on Tuesday, extending the  previous day's steep losses, as easing worries over Syria calmed  fears that crude supply from the Middle East would be at risk.      Brent crude for delivery in November was down 23  cents at $109.84 a barrel, after touching a near one-month low  of $108.73 in the previous session.      Gold hovered just above a five-week low, while copper   edged higher on Tuesday but stayed close to five-week  lows in cautious trade ahead of the Fed.  

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