EMERGING MARKETS-Russian stocks set for 4th month in red, emerging index to end April flat

Wed Apr 30, 2014 6:14am EDT

* Investors waiting for outcome of Fed meeting

* Emerging markets weighed down by Ukraine-Russia dispute

* Markets taking breather before May Day holiday

By Sujata Rao

LONDON, April 30 (Reuters) - Russian stocks were headed on Wednesday for their fourth straight month of losses as separatist activity escalated in Ukraine, while broader emerging stocks also fell half a percent.

U.S. 30-year and 10-year bond yields held near one-week highs as data and robust company earnings paint a picture of a recovering economy. Higher yields on "safe" assets can make emerging markets less attractive.

Investors will wait to see what the U.S. Federal Reserve says at the conclusion of its two-day policy meeting later in the day. The bank is seen on track to withdraw another $10 billion from its monthly bond-buying programme.

Emerging markets are also weighed down by events in Ukraine and Russia, with armed pro-Moscow separatists storming government buildings in eastern Ukrainian towns, despite new U.S., European and Japanese sanctions on Russia.

Russian stocks initially fell 1 percent but later clawed back some losses, after a Western sanctions list that was less harsh than expected. But they are down 4.5 percent on the month and have lost more than 13 percent so far in 2014.

The rouble fell 0.3 percent to the dollar and five-year credit default swaps rose 5 basis points to 261 bps.

"We had a correction in dollar/rouble and a rebound in equities after sanctions turned out to be fairly mild but the fundamental story didn't change," said Luis Costa, head of CEEMEA FX and debt strategy at Citi.

"We are seeing a break-up in Russia's growth model, we will probably see economic contraction and all the channels of financing to Russia are being disrupted. Plus we are heading for a holiday and that's another reason to be long dollar."

The International Monetary Fund has cut its 2014 growth forecast for Russia and expects capital outflow of $100 billion this year, the Fund's mission chief to Moscow said on Wednesday.

Markets in Russia and much of Europe and Asia are shut on Thursday.

PORTFOLIO INFLOWS

Broader emerging stocks weakened and are flat on the month after posting gains in February and March while sovereign dollar bond yield spreads tightened 4 bps, outperforming underlying U.S. Treasuries.

Investors have been returning to emerging markets in recent weeks, with the Institute of International Finance estimating $25 billion in portfolio inflows over April adding to $55 billion received in the previous two months.

April has seen more than $60 billion in emerging hard currency bond issuance despite the absence of Russian borrowers.

Analysts say that despite the latest move up in U.S. yields, Treasuries, the underlying benchmark asset for emerging bonds, have stayed remarkably steady with the 10-year/30-year curve gradually flattening - a positive for emerging bond issuance.

"Markets are taking a breather today, knowing we are heading towards another Fed statement but in general people are less scared of a huge super-spike in U.S. rates," Costa added.

Elsewhere the Turkish lira rose 0.2 percent to the dollar while two-year benchmark bond yields fell to 9.22 percent, its lowest rate so far this year after the Central Bank Governor Erdem Basci hinted at the possibility of a rate cut.

He gave no timing but analysts said it would be a mistake for Turkey to reverse rate rises from January, given political risks before a presidential election and still-high inflation.

"I don't think we can say definitively that Turkey is out of the woods yet ... Any quick move now to cut rates would just be seen as the central bank responding to government pressure. Central bank credibility is absolutely on the line in Turkey at present," Standard Bank analyst Tim Ash said.

In central Europe, shares in Hungary's OTP Bank fell 1 percent just before a European Court ruling in a lawsuit that could impact the bottom line of OTP and other local banks.

Central European currencies rose against the euro after the single currency was dragged higher versus the dollar following inflation data that was seen as unlikely to spur the European Central Bank into pumping more money into the economy.

For GRAPHIC on emerging market FX performance 2014, see link.reuters.com/jus35t

For GRAPHIC on MSCI emerging index performance 2014, see link.reuters.com/weh36s

For GRAPHIC on MSCI emerging Europe performance 2014, see link.reuters.com/jun28s

For GRAPHIC on MSCI frontier index performance 2014, see link.reuters.com/zyh97s

For CENTRAL EUROPE market report, see

For TURKISH market report, see

For RUSSIAN market report, see ) (Editing by Alison Williams)

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INSIGHT-Russian firms turn to Asia for finance as Western funds demur

Wed Apr 30, 2014 6:21am EDT

* Russian firms look to Chinese, Singapore bonds

* Bond issuance down due to sanctions fears

* Asian investors could prove a tough sell

By Sujata Rao and Michelle Chen

LONDON/HONG KONG April 30 (Reuters) - Russian companies shut out of Western markets as a result of the Ukraine crisis are scouting the possibility of raising cash via Chinese or Singapore bonds instead, even if a large scale funding switch to Asia is likely to be a tall order.

Asian investors, eyeing the risks associated with Western sanctions, could prove a hard sell.

Usually prolific borrowers, Russian firms' bond and loan issuance this year has languished as lenders fear getting caught up in U.S. and EU sanctions imposed on Russian individuals in retaliation for Moscow's annexation of Crimea and support for separatists in eastern Ukraine.

But with $150 billion or so owed in debt payments this year, the scramble for funds is driving firms to Asia, a region with cash-rich investors and governments that are less critical of the Kremlin's actions.

"We may see some developments in Asia in exotic currencies such as the 'dim sum' market or in Singapore dollars. We are seeing Russian issuers expressing interest in those segments of the market," said Cecile Camilli, managing director for CEEMEA debt capital markets at Societe Generale.

'Dim sum' bonds refers to debt denominated in China's yuan but sold outside China, most commonly in Hong Kong.

"At the moment it's non-deal related, but they are preparing themselves," Camilli added.

Russia's state-run Sberbank last week held a so-called 'non-deal' roadshow in Singapore and Hong Kong - setting out its stall for investors to test potential interest in lending to the bank. Another government entity, Gazprom, will meet Asian investors next week following news it is close to a crucial gas supply deal with China.

Gazprom, Russia's top natural gas producer, plans to supply China with 38 billion cubic metres of gas per year - around a quarter of the company's exports to Europe - from 2018, and President Vladimir Putin has urged companies to boost exposure to Asia.

Officials at banks' syndicated loan desks said Gazprom was in the market to extend an existing loan maturing in July.

One Hong Kong banker told Reuters that a dim sum bond will soon be issued by an unnamed Russian bank, adding that several other Russian firms had approached his bank with an eye on that particular market.

So far, Russia's Asian borrowing remains modest. It includes just over $1 billion worth of yuan bonds since 2004, and just shy of that amount in Singapore dollars, according to data from Thomson Reuters. There have been 11 issues in total, the data shows.

PUSH EAST

The push for Eastern finance is part of a broader plan to diversify Russia's economy away from Europe and towards Asia.

Putin will visit China next month while Igor Sechin, the CEO of state-run oil firm Rosneft and who is on the latest U.S. sanctions list, last month travelled through Asia to shore up ties with eastern allies.

"(Asia) is a large market and we have been looking at it for quite a long time ... Over the long term, these markets may supplant the European and American markets for us, but it won't be quick," Alexander Ivanov, deputy head of state-run bank VEB, told reporters earlier this month after Western banks declined to syndicate a new loan to replace a maturing facility.

Dim sum bonds currently make sense for issuers because the cost of swapping future payments from one currency to another via cross-currency swaps between offshore yuan and the dollar - - has become progressively cheaper since late February when the yuan weakened sharply.

That means it is relatively cheap to swap bond proceeds into dollars if that is the currency the issuer ultimately needs.

There are difficulties however. One is size - the whole dim sum market is worth around $110 billion, less than half of what Russian companies have borrowed in euro- and dollar bond markets in the past decade. Second, the market cannot provide longer-term funding, with 2-3 year maturities the most common.

"Asian markets cannot replace the volume the Russians have in dollars, it's a question of getting some money in and posturing to show they don't need U.S. investors," said Apostolos Bantis, a corporate debt strategist at Commerzbank.

"Asian investors may feel more comfortable with Russian risk than Western investors. And if China and Russia do get closer, that market is going to grow."

RISKS

But it remains to be seen whether Asian fund managers will be willing to handle Russian risk. U.S., European and Japanese sanctions are less harsh than expected but investors and bankers, even outside these regions, may look carefully at the reputational risks associated with a Russian deal at the moment

Bankers in Asia note that some syndicate desks could be reluctant to handle such deals, fearing U.S. fines in future of the sort imposed on institutions for dealing with Iran.

And the market in existing Russian dim sum debt has more or less dried up, with prices marked sharply lower. Yields on a 1 billion-yuan bond from a Gazprombank arm and on VTB's 500 million-yuan issue are up 200 basis points this year, rising far more than non-Russian bonds.

"Fund managers are reluctant to buy Russian paper currently and our conversations with some of them show they are adopting a wait-and-watch approach," said a banker at the syndicate desk of a big Chinese institution in Hong Kong.

"The secondary market for Russian paper in yuan is all but closed. Some Russian paper may come around in second half but for now the yuan market is closed for them." (Additional reporting by Saikat Chatterjee in Hong Kong; Christopher Langner of IFR; Tessa Walsh and Sandrine Bradley of Thomson Reuters Loan Pricing Corp.; Editing by Giles Elgood)

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Carlyle profit falls as compensation costs rise

April 30 Wed Apr 30, 2014 6:30am EDT

April 30 (Reuters) - Private equity firm Carlyle Group LP reported an 18 percent fall in quarterly profit as compensation costs rose.

First-quarter economic net income, a measure of profitability that takes into account the market value of assets, fell to $321.9 million, from $393.9 million a year earlier.

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Energy Future unit Texas Competitive Electric files for bankruptcy

April 29 Tue Apr 29, 2014 6:37am EDT

April 29 (Reuters) - A unit of Texas power company Energy Future Holdings, Texas Competitive Electric Holdings Co LLC, filed for bankruptcy on Tuesday, seven years after Energy Future's record leveraged buyout stacked it with debt just as electricity prices plunged.

The unit listed assets and liabilities in excess of $1 billion in court documents filed in the U.S. Bankruptcy Court in Wilmington, Delaware.

Energy Future was created in 2007 by the $45 billion leveraged buyout of TXU Corp, a deal led by KKR & Co, Goldman Sachs Group Inc's private equity arm and TPG Capital Management. (Reporting by Tanya Agrawal in Bangalore; Editing by Rodney Joyce)

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Itaú Unibanco slightly misses profit forecast in weak quarter

SAO PAULO, April 29 Tue Apr 29, 2014 6:32am EDT

SAO PAULO, April 29 (Reuters) - Itaú Unibanco Holding SA , Brazil's largest bank by market value, posted first-quarter recurring net income of 4.529 billion reais ($2.02 billion), slightly below expectations, as interest income fell for the first quarter in four quarters.

The São Paulo-based bank was expected to post recurring profit, or profit excluding one-time items, of 4.544 billion reais, according to the average estimate of seven analysts in a Reuters poll. Recurring return on equity, or a gauge of profitability in the banking industry, reached 22.6 pct, the bank said in a securities filing. The number was above the poll's 21.8 percent estimate.

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CIT profit falls 33 pct on lower interest income, fees

April 29 Tue Apr 29, 2014 6:40am EDT

April 29 (Reuters) - CIT Group Inc reported a 33 percent fall in quarterly profit as the small-business lender earned lower interest and fees on loans.

The lender's net income fell to $109.1 million, or 55 cents per share, for the first quarter ended March 31, from $162.6 million, or 81 cents per share, a year earlier.

Total interest income fell about 9.4 percent to $323.3 million. (Reporting by Avik Das in Bangalore; Editing by Saumyadeb Chakrabarty)

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MOVES- Schroders, BofA, Kuwait Finance House

April 28 Mon Apr 28, 2014 6:22am EDT

April 28 (Reuters) - The following financial services industry appointments were announced on Monday. To inform us of other job changes, email to moves@thomsonreuters.com.

SCHRODERS PLC

The investment manager said it appointed Alex Tedder as head of global equities to focus on business development and strategy.

BANK OF AMERICA CORP

The bank's Asia head of equity syndicate, Nicholas Lee, has resigned after a tenure of nearly 14 years with the bank, a Hong Kong-based spokesman confirmed on Monday.

KUWAIT FINANCE HOUSE

The chief executive of Kuwait's largest Islamic lender will step down from May 1, the company said on Sunday.

RIVER AND MERCANTILE GROUP

The company said it appointed Kevin Hayes as chief financial officer. Hayes was previously finance director at Man Group Plc and has held senior positions with Lehman Brothers.

INTERACTIVE INVESTOR

The online, execution-only stockbroker said it named Linda Summers as chief marketing officer. Summers joins from Skype, where she was director of product and partner marketing.

NASDAQ OMX NLX

The London-based market for trading interest rate derivatives said it appointed Anthony Belchambers, Rod Banus and Andrew Chart as non-executive directors.

OCTOPUS INVESTMENTS

The retail fund management firm specializing in smaller company investing named Alex Miller as chief operating officer. Miller was previously director of strategy and operational performance at Lloyds Banking Group Plc. (Compiled by Avik Das in Bangalore)

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Russia, Germany discuss OSCE observers' detention in Ukraine

MOSCOW, April 28 Mon Apr 28, 2014 6:33am EDT

MOSCOW, April 28 (Reuters) - Russian Foreign Minister Sergei Lavrov and his German counterpart Frank-Walter Steinmeier discussed on Monday the detention in Ukraine of observers from the Organisation for Security and Cooperation in Europe (OSCE), the Russian Foreign Ministry said.

The ministry gave no further details of the call, which it said was a German initiative.

Earlier on Monday, Germany urged Moscow to use its influence on pro-Russian separatists in eastern Ukraine to secure the release of observers from the OSCE who are being held in the city of Slaviansk. (Reporting by Vladimir Soldatkin, editing by Nigel Stephenson)

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WRAPUP 3-Obama announces new U.S. sanctions on Russia over Ukraine

Mon Apr 28, 2014 6:44am EDT

(Adds EU ambassadors meeting, sanctions expected)

* Sanctions aimed at changing Putin's "calculus"

* Broader measures against Russian economy still held in reserve

By Matt Spetalnick and Thomas Grove

MANILA/SLAVIANSK, Ukraine, April 28 (Reuters) - U.S. President Barack Obama announced new sanctions against some Russians on Monday to stop President Vladimir Putin from fomenting the rebellion in eastern Ukraine, but said he was holding broader measures against Russia's economy "in reserve".

On the ground, pro-Moscow rebels showed no sign of curbing their uprising, seizing public buildings in another town in the east. Interfax news agency reported that the mayor of a further major eastern city, Kharkiv, had been shot and was undergoing an operation. It gave no details of the shooting.

Germany demanded Russia act to help secure the release of seven unarmed European military monitors, including four Germans, who have been held by the rebels since Friday.

The new U.S. sanctions, to be outlined in detail later on Monday, will add more people and firms to a list announced last month of figures whose assets are frozen and who are denied visas to travel to the United States.

The European Union is also expected to add targets to its Russia sanctions list on Monday. Ambassadors from the 28 EU states met in Brussels and an EU diplomat said they were expected to add around 15 new names.

Washington will also target some high tech exports, Obama said. But the measures do not yet include the wider sanctions, such as curbs on the Russian financial and energy sectors, that would do the most serious damage to Russia's economy.

"We are keeping in reserve additional steps that we could take should the situation escalate further," Obama said, acknowledging that he did not know if the measures he has ordered so far will work.

U.S. officials have said the new list would include Putin's "cronies" in the hope of changing his behaviour.

"The goal is not to go after Mr. Putin personally. The goal is to change his calculus with respect to how the current actions that he's engaging in in Ukraine could have an adverse impact on the Russian economy over the long haul," Obama said in Manila during a trip to Asia.

"To encourage him to actually walk the walk and not just talk the talk when it comes to diplomatically resolving the crisis in Ukraine."

Nevertheless, such measures have done nothing so far to deter Putin, who overturned decades of post-Cold War diplomacy last month to seize and annex Ukraine's Crimea peninsula and has since massed tens of thousands of troops on the frontier. He acted after Ukraine's pro-Russian president was ousted in February by protesters demanding closer links with Europe.

Moscow has in the past shrugged off targeted sanctions like those Obama announced on Monday as pointless.

Washington says armed rebels - who have captured towns and government buildings across eastern Ukraine - are operating under the direction of Kremlin agents.

Russia denies it is involved and says the uprising is a spontaneous response to oppression of Russian speakers by Kiev.

REBELS TAKE TOWN

The rebels took another town on Monday morning, seizing the police headquarters and municipal administration building in Kostyantynivka, an industrial city in the eastern Donetsk region. Separatists in the province have proclaimed an independent "People's Republic of Donetsk".

A Reuters photographer at the scene saw about 20 gunmen controlling the administration building.

The Interfax news agency quoted a spokeswoman for the mayor of Kharkiv, another large city in the east, as saying he was undergoing an operation for a gunshot wound in the back. It said no further details of the incident were available.

On Sunday the separatists paraded eight unarmed European military monitors before journalists. One, a Swede who is diabetic, was freed for medical reasons but four Germans, a Czech, a Dane and a Pole are still being held, described by the rebel leader as "prisoners of war" and NATO spies.

German Chancellor Angela Merkel's spokesman Steffen Siebert said they were held "against the law and without justification".

"We ask the Russian government to act publicly and internally for their release, to distance itself clearly from such acts and to use its influence on pro-Russian perpetrators and forces in eastern Ukraine to secure their release."

Armed rebels also occupied Donetsk television on Sunday and ordered it to start broadcasting Russian state TV.

Obama is under pressure from opposition Republicans at home to move faster on sanctions. But in taking what he described as "calibrated steps", he has emphasised the need to act in concert with European countries, which have more at stake economically and a more cumbersome process for taking decisions.

The EU does more than 10 times as much trade with Russia as the United States and buys a quarter of its natural gas from Moscow. Most EU decisions require unanimity among member states.

Western countries say the targeted sanctions are already having an effect on Russia by scaring investors into pulling out capital. The central bank has been forced to hike interest rates to prop up the rouble and Russian firms are finding it more difficult and costly to raise funds.

Russian shares dropped on anticipation of the impact of new sanctions. The rouble-denominated MICEX index was down 1.3 percent early on Monday. The cost of insuring Russia's debt against default rose to its highest level since November 2011.

Monday's sanctions build on those imposed over Crimea last month, which were deliberately designed to punish individuals close to Putin without having wider impact on Russia's economy or its trade with the West.

The new sanctions could still have a greater impact by widening the net to include personal transactions by the heads of big Russian companies, and the prospect of sectoral sanctions continues to hover over Russian business more generally.

"The heads of Rosneft and Gazprom are rumoured to be on the list of targets," Uralsib bank analysts wrote in a morning note, referring to Russia's two biggest firms, its state oil major and natural gas export monopoly.

"Entire sectors of the economy could be targeted as well. Further sanctions for the energy and banking sectors could continue to harm sentiment if announced this week," they wrote, while adding that it was impossible to assess the impact until measures were announced. (Writing Peter Graff; Editing by Giles Elgood)

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RPT-WRAPUP 5-Ukraine blames Moscow for 'human shield' detentions in east

Sat Apr 26, 2014 4:49pm EDT

(Repeats to additional subscribers with no changes)

* International observers held in separatist-controlled town

* Separatists accuse observers of spying for NATO

* U.S., EU could unveil sanctions as early as Monday

* They will target Kremlin "cronies" - U.S. officials

By Thomas Grove

SLAVIANSK, Ukraine, April 26 (Reuters) - Pro-Russian separatists in eastern Ukraine offered on Saturday to release eight captive international observers in a prisoner exchange, as Western governments prepared new sanctions against Moscow.

The pro-Western government in Kiev blamed Russia for what it called the kidnapping on Friday of the monitors from the Organisation for Security and Cooperation in Europe (OSCE).

The separatists said they suspected the observers of spying; Ukraine said they were being used as human shields.

Since Ukrainians toppled their pro-Russian president in February, Russia has annexed Ukraine's Crimean peninsula and massed tens of thousands of troops on the country's eastern border. NATO has responded by sending reinforcements to eastern Europe, in the gravest East-West crisis since the Cold War.

Earlier on Saturday the Group of Seven major economies announced they had agreed to impose more sanctions on Russia, which they believe is bent on destabilising its former Soviet neighbour and possibly grabbing more territory. Diplomats said the United States and the European Union were expected to unveil new punitive action against Russian individuals from Monday.

Russia denies orchestrating a campaign by pro-Moscow militants who have seized control of public buildings across eastern Ukraine. It accuses the Kiev government of whipping up tensions by sending troops to root out the separatists.

The OSCE sent more monitors on Saturday to seek the release of those detained in Slaviansk, a city under the separatists' control. Those being held are from Germany, Sweden, Denmark, Poland and the Czech Republic.

"COINS TO EXCHANGE"

Vyacheslav Ponomaryov, de facto mayor of Slaviansk, told reporters: "They were soldiers on our territory without our permission. Of course they are prisoners."

He said the separatists were ready to exchange the captured monitors for fellow rebels now in the custody of the Ukrainian authorities.

"Prisoners have always been coins to exchange during times of war. It's an international practice," he said.

Ukraine's state security service said the OSCE observers - part of a German-led military verification mission deployed since early March at Kiev's request - were being held "in inhuman conditions" and that one needed medical help.

A spokeswoman for the Vienna-based organisation, of which Russia is a member, said the OSCE had been in contact with "all sides" since late on Friday but had had no direct contact with the observers.

The Russian foreign ministry said it was working to resolve the crisis, but blamed Kiev for failing to ensure the OSCE mission's safety in "areas where the authorities do not control the situation and where a military operation against residents of their own country has been unleashed."

Russia's Komsomolskaya Pravda newspaper released a video interview with a man it identified as Ivan Strelkov, a militia leader in Slaviansk, accused by Ukraine's security services of being an employee of Russian intelligence.

He suggested the monitors might have been using their diplomatic status "to carry out reconnaissance of the resistance positions, for the benefit of the Ukrainian army."

It is standard practice for serving military officers to be seconded to OSCE missions.

DIPLOMATIC MOVES

German Foreign Minister Frank-Walter Steinmeier discussed the Ukraine situation with his Russian counterpart Sergei Lavrov by telephone on Saturday "with an accent on possible steps to de-escalate the situation," the Russian ministry said.

Steinmeier said Lavrov had offered his backing, which he welcomed.

In a separate call with U.S. Secretary of State John Kerry, the Russian minister said Ukraine must halt military operations in the southeast of the country in order to defuse the crisis.

Kerry called on Russia to publicly support Ukraine's efforts rather than denigrate them, said a senior U.S. State Department official. Kerry told Lavrov that Russia's provocative troop movements on Ukraine's border, its support for separatists and its inflammatory rhetoric are undermining security in Ukraine, the source said.

Ukrainian Prime Minister Arseny Yatseniuk said Russian military aircraft entered Ukrainian airspace seven times overnight.

"The only reason is to provoke Ukraine ... and to accuse Ukraine of waging war against Russia," the prime minister told reporters before cutting short a visit to Rome.

Washington deployed 150 paratroopers to Lithuania on Saturday. A total of 600 U.S. troops have now arrived in Poland and the former Soviet Baltic states in a bid to reassure nervous NATO allies.

"As threats emerged, we see who our real friends are," Lithuanian President Dalia Grybauskaite said as she greeted the troops at the Siauliai air base.

Without mentioning Russia, she said the presence of U.S. troops would "repel those who encroach on stability in Europe and peace in the region".

"The numbers are not important. If just one of our guests is harmed, this would mean an open confrontation, not with Lithuania but with the United States of America."

"DOOR REMAINS OPEN"

U.S. officials said new sanctions targeting "cronies" of President Vladimir Putin could be unveiled as early as Monday unless Russia moved fast to defuse the crisis.

In a joint statement, G7 leaders said Russia had not taken any concrete steps to implement an accord, signed earlier this month in Geneva, intended to rein in illegal armed groups.

"Instead, it has continued to escalate tensions by increasingly concerning rhetoric and ongoing threatening military manoeuvres on Ukraine's border," it said.

"We have now agreed that we will move swiftly to impose additional sanctions on Russia."

But it added: "We underscore that the door remains open to a diplomatic resolution of this crisis."

Senior EU diplomats will meet on Monday to discuss the next steps and are expected to add 15 more names to a list of Russians subject to asset freezes and a travel ban.

"You can expect there will be more entities named and some individuals," said a source in a G7 government. The entities would include one or more financial institutions, the source said. "This is about hitting people's pocketbooks."

Putin acknowledged for the first time this week that sanctions were causing difficulties for Russia, though he said the impact was not "critical."

Standard & Poor's cut Russia's sovereign long-term debt rating on Friday, making it more expensive for the government to borrow money. That forced the central bank to raise its key interest rate to limit a fall in the rouble.

Russian banks have been moving funds out of foreign accounts in anticipation of sanctions.

Russia has threatened to cut off gas to Ukraine, which would have a knock-on effect on customers further west because many pipelines transit the country.

Slovakia said on Saturday it had reached an agreement with Ukraine on opening up limited reverse flow of natural gas from central Europe to Ukraine. (Additional reporting by Maria Tsvetkova in Donetsk, Ukraine, Pavel Polityuk in Kiev, Nigel Stephenson and Jason Bush in Moscow, James Mackenzie in Rome, Madeline Chambers and Sabine Siebold in Berlin and Arshad Mohammed in Washington; Writing by Christian Lowe and Robin Pomeroy; Editing by Mark Trevelyan and Lisa Shumaker)

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RPT-WRAPUP 5-Ukraine blames Moscow for 'human shield' detentions in east

Sat Apr 26, 2014 6:54pm EDT

(Repeats to additional subscribers with no changes)

* International observers held in separatist-controlled town

* Separatists accuse observers of spying for NATO

* U.S., EU could unveil sanctions as early as Monday

* They will target Kremlin "cronies" - U.S. officials

By Thomas Grove

SLAVIANSK, Ukraine, April 26 (Reuters) - Pro-Russian separatists in eastern Ukraine offered on Saturday to release eight captive international observers in a prisoner exchange, as Western governments prepared new sanctions against Moscow.

The pro-Western government in Kiev blamed Russia for what it called the kidnapping on Friday of the monitors from the Organisation for Security and Cooperation in Europe (OSCE).

The separatists said they suspected the observers of spying; Ukraine said they were being used as human shields.

Since Ukrainians toppled their pro-Russian president in February, Russia has annexed Ukraine's Crimean peninsula and massed tens of thousands of troops on the country's eastern border. NATO has responded by sending reinforcements to eastern Europe, in the gravest East-West crisis since the Cold War.

Earlier on Saturday the Group of Seven major economies announced they had agreed to impose more sanctions on Russia, which they believe is bent on destabilising its former Soviet neighbour and possibly grabbing more territory. Diplomats said the United States and the European Union were expected to unveil new punitive action against Russian individuals from Monday.

Russia denies orchestrating a campaign by pro-Moscow militants who have seized control of public buildings across eastern Ukraine. It accuses the Kiev government of whipping up tensions by sending troops to root out the separatists.

The OSCE sent more monitors on Saturday to seek the release of those detained in Slaviansk, a city under the separatists' control. Those being held are from Germany, Sweden, Denmark, Poland and the Czech Republic.

"COINS TO EXCHANGE"

Vyacheslav Ponomaryov, de facto mayor of Slaviansk, told reporters: "They were soldiers on our territory without our permission. Of course they are prisoners."

He said the separatists were ready to exchange the captured monitors for fellow rebels now in the custody of the Ukrainian authorities.

"Prisoners have always been coins to exchange during times of war. It's an international practice," he said.

Ukraine's state security service said the OSCE observers - part of a German-led military verification mission deployed since early March at Kiev's request - were being held "in inhuman conditions" and that one needed medical help.

A spokeswoman for the Vienna-based organisation, of which Russia is a member, said the OSCE had been in contact with "all sides" since late on Friday but had had no direct contact with the observers.

The Russian foreign ministry said it was working to resolve the crisis, but blamed Kiev for failing to ensure the OSCE mission's safety in "areas where the authorities do not control the situation and where a military operation against residents of their own country has been unleashed."

Russia's Komsomolskaya Pravda newspaper released a video interview with a man it identified as Ivan Strelkov, a militia leader in Slaviansk, accused by Ukraine's security services of being an employee of Russian intelligence.

He suggested the monitors might have been using their diplomatic status "to carry out reconnaissance of the resistance positions, for the benefit of the Ukrainian army."

It is standard practice for serving military officers to be seconded to OSCE missions.

DIPLOMATIC MOVES

German Foreign Minister Frank-Walter Steinmeier discussed the Ukraine situation with his Russian counterpart Sergei Lavrov by telephone on Saturday "with an accent on possible steps to de-escalate the situation," the Russian ministry said.

Steinmeier said Lavrov had offered his backing, which he welcomed.

In a separate call with U.S. Secretary of State John Kerry, the Russian minister said Ukraine must halt military operations in the southeast of the country in order to defuse the crisis.

Kerry called on Russia to publicly support Ukraine's efforts rather than denigrate them, said a senior U.S. State Department official. Kerry told Lavrov that Russia's provocative troop movements on Ukraine's border, its support for separatists and its inflammatory rhetoric are undermining security in Ukraine, the source said.

Ukrainian Prime Minister Arseny Yatseniuk said Russian military aircraft entered Ukrainian airspace seven times overnight.

"The only reason is to provoke Ukraine ... and to accuse Ukraine of waging war against Russia," the prime minister told reporters before cutting short a visit to Rome.

Washington deployed 150 paratroopers to Lithuania on Saturday. A total of 600 U.S. troops have now arrived in Poland and the former Soviet Baltic states in a bid to reassure nervous NATO allies.

"As threats emerged, we see who our real friends are," Lithuanian President Dalia Grybauskaite said as she greeted the troops at the Siauliai air base.

Without mentioning Russia, she said the presence of U.S. troops would "repel those who encroach on stability in Europe and peace in the region".

"The numbers are not important. If just one of our guests is harmed, this would mean an open confrontation, not with Lithuania but with the United States of America."

"DOOR REMAINS OPEN"

U.S. officials said new sanctions targeting "cronies" of President Vladimir Putin could be unveiled as early as Monday unless Russia moved fast to defuse the crisis.

In a joint statement, G7 leaders said Russia had not taken any concrete steps to implement an accord, signed earlier this month in Geneva, intended to rein in illegal armed groups.

"Instead, it has continued to escalate tensions by increasingly concerning rhetoric and ongoing threatening military manoeuvres on Ukraine's border," it said.

"We have now agreed that we will move swiftly to impose additional sanctions on Russia."

But it added: "We underscore that the door remains open to a diplomatic resolution of this crisis."

Senior EU diplomats will meet on Monday to discuss the next steps and are expected to add 15 more names to a list of Russians subject to asset freezes and a travel ban.

"You can expect there will be more entities named and some individuals," said a source in a G7 government. The entities would include one or more financial institutions, the source said. "This is about hitting people's pocketbooks."

Putin acknowledged for the first time this week that sanctions were causing difficulties for Russia, though he said the impact was not "critical."

Standard & Poor's cut Russia's sovereign long-term debt rating on Friday, making it more expensive for the government to borrow money. That forced the central bank to raise its key interest rate to limit a fall in the rouble.

Russian banks have been moving funds out of foreign accounts in anticipation of sanctions.

Russia has threatened to cut off gas to Ukraine, which would have a knock-on effect on customers further west because many pipelines transit the country.

Slovakia said on Saturday it had reached an agreement with Ukraine on opening up limited reverse flow of natural gas from central Europe to Ukraine. (Additional reporting by Maria Tsvetkova in Donetsk, Ukraine, Pavel Polityuk in Kiev, Nigel Stephenson and Jason Bush in Moscow, James Mackenzie in Rome, Madeline Chambers and Sabine Siebold in Berlin and Arshad Mohammed in Washington; Writing by Christian Lowe and Robin Pomeroy; Editing by Mark Trevelyan and Lisa Shumaker)

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WRAPUP 2-Obama urges united riposte to Russia for "destabilising" Ukraine

Sun Apr 27, 2014 6:33am EDT

(Adds Ukrainian officers captured, Hague comment)

* Obama: wider sanctions will only work if Europe plays part

* Cracks emerge between hawkish Washington, cautious Brussels

* International observers held in separatist-controlled town

* Separatists accuse observers of spying for NATO

By Matt Spetalnick and Thomas Grove

KUALA LUMPUR/SLAVIANSK, Ukraine, April 27 (Reuters) - U.S. President Barack Obama on Sunday said the United States and Europe must join forces to impose sanctions on Russia to stop it destabilising Ukraine, where armed pro-Russian separatists were for a third day holding eight international observers prisoner.

Washington and Brussels are expected, possibly as early as Monday, to name new people and firms close to Russian President Vladimir Putin who will be hit by punitive measures, but there is no consensus yet on wider economic sanctions.

Speaking during a visit to Malaysia, Obama said any decision on whether to slap sanctions on sectors of the Russian economy at a later time would depend on whether the United States and its allies could find a unified position on how to proceed.

"We're going to be in a stronger position to deter Mr. Putin when he sees that the world is unified and the United States and Europe is unified rather than this is just a U.S.-Russian conflict," Obama told reporters.

The stand-off over Ukraine, an ex-Soviet republic of about 45 million people, has dragged relations between Russia and the West to their lowest level since the end of the Cold War.

Obama said Russia had not "lifted a finger" to get pro-Russian separatist rebels in Ukraine to comply with an international agreement to defuse the crisis.

"In fact, there's strong evidence that they've been encouraging the activities in eastern and southern Ukraine," he said.

Washington is more hawkish on further sanctions than Brussels, and this has caused a degree of impatience among some U.S. officials with the European response.

Many European countries are worried about the risks of imposing tougher sanctions, not least because Europe has extensive business ties with Moscow and imports about a quarter of its natural gas from Russia.

British Foreign Secretary William Hague said that in the coming days there would be "an expansion of existing sanctions, measures against individuals or entities in Russia".

PRISONERS

Since Ukrainians demanding closer links with Europe toppled their pro-Russian president in February, Russia has annexed Ukraine's Crimean peninsula and massed tens of thousands of troops on the country's eastern border. NATO has responded by sending reinforcements to eastern Europe.

The Western-backed government in Kiev accuses the Kremlin of planning to invade the east of Ukraine, and of preparing the ground by training and supporting the armed separatists who have seized about a dozen public buildings around the region.

Moscow denies interfering. It says Ukraine's east is rising up in a spontaneous protest against what it calls an illegitimate government in Kiev which is mounting a "criminal" operation to suppress dissent.

Separatists who control the eastern Ukrainian city of Slaviansk are holding eight European observers who were in the area under the auspices of the Vienna-based Organisation for Security and Cooperation in Europe (OSCE).

The observers, from Germany, Sweden, Denmark, Poland and the Czech Republic, are accused by their captors of spying for NATO and using the OSCE mission as a cover.

Vyacheslav Ponomaryov, de facto mayor of Slaviansk, told reporters on Saturday: "They were soldiers on our territory without our permission. Of course they are prisoners."

He said the separatists were ready to exchange the captured monitors for fellow rebels now in the custody of the Ukrainian authorities.

"Prisoners have always been coins to exchange during times of war. It's an international practice," he said.

European capitals condemned the detention of the observers and issued demands for them to be released immediately. In Kiev, the government said one of the group was ill and needed urgent medical attention. An OSCE delegation was due to meet Ponomaryov on Sunday.

Russia, an OSCE member, said it would do what it could to help get the observers released.

Ponomaryov said he had not been in contact with the Russian authorities about the observers. He said they were being provided with food and medicine, and that all their needs were being taken care of.

He said his men had overnight captured three officers with Ukraine's state security service who, he said, had been mounting an operation against separatists in the nearby town of Horlivka.

The Russian television station Rossiya 24 showed footage it said was of a colonel, a major and a captain. They were shown seated, with their hands behind their backs, blindfolded, and wearing no trousers. At least two had bruises on their faces.

Ukraine's State Security Service said the three had been part of a unit which went to Horlivka to arrest a suspect in the murder of Volodymyr Rybak, a pro-Kiev councillor whose body was found last week in a river near Slaviansk.

DIPLOMACY AND TROOPS

On Saturday, German Foreign Minister Frank-Walter Steinmeier spoke by telephone with Sergei Lavrov, his Russian opposite number, about possible diplomatic steps to defuse the crisis.

There was no word what these might be. Two previous attempts to negotiate a way out of the stand-off - in Kiev in February and in Geneva earlier this month - produced fragile deals which were then overtaken by events on the ground.

The diplomatic discussions were taking place against a backdrop of growing military tensions.

Ukrainian Prime Minister Arseny Yatseniuk said Russian military aircraft entered Ukrainian airspace seven times between Friday night and Saturday morning.

"The only reason is to provoke Ukraine ... and to accuse Ukraine of waging war against Russia," the prime minister told reporters before cutting short a visit to Rome, where he met Pope Francis and asked him to pray for Ukraine.

In a bid to reassure nervous NATO allies on Russia's western flank, Washington deployed 150 paratroopers to Lithuania on Saturday. A total of 600 U.S. troops have now arrived in Poland and the former Soviet Baltic states.

"As threats emerged, we see who our real friends are," Lithuanian President Dalia Grybauskaite said as she greeted the troops at the Siauliai air base. (Additional reporting by Maria Tsvetkova in Donetsk, Ukraine, Natalia Zinets in Kiev, Nigel Stephenson and Lidia Kelly in Moscow, Kylie MacLellan in London and Andrius Sytas in Vilnius; Writing by Christian Lowe; Editing by Giles Elgood)

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TEXT-G7 statement on further sanctions against Russia

April 25 Sat Apr 26, 2014 3:47am EDT

April 25 (Reuters) - The leaders of the Group of Seven major economies agreed on Saturday to swiftly impose further sanctions on Russia over the Ukraine crisis, and the United States could unveil its new punitive measures as early as Monday.

Following is the full statement.

We, the leaders of Canada, France, Germany, Italy, Japan, the United Kingdom, the United States, the President of the European Council and the President of the European Commission, join in expressing our deep concern at the continued efforts by separatists backed by Russia to destabilize eastern Ukraine and our commitment to taking further steps to ensure a peaceful and stable environment for the May 25 presidential election.

We welcomed the positive steps taken by Ukraine to meet its commitments under the Geneva accord of April 17 by Ukraine, Russia, the European Union, and the United States.

These actions include working towards constitutional reform and decentralization, proposing an amnesty law for those who will peacefully leave the buildings they have seized in eastern Ukraine, and supporting the work of the Organization for Security and Cooperation in Europe (OSCE).

We also note that the Government of Ukraine has acted with restraint in dealing with the armed bands illegally occupying government buildings and forming illegal checkpoints.

In contrast, Russia has taken no concrete actions in support of the Geneva accord. It has not publicly supported the accord, nor condemned the acts of pro-separatists seeking to destabilize Ukraine, nor called on armed militants to leave peacefully the government buildings they've occupied and put down their arms.

Instead, it has continued to escalate tensions by increasingly concerning rhetoric and ongoing threatening military maneuvers on Ukraine's border.

We reiterate our strong condemnation of Russia's illegal attempt to annex Crimea and Sevastopol, which we do not recognize. We will now follow through on the full legal and practical consequences of this illegal annexation, including but not limited to the economic, trade and financial areas.

We have now agreed that we will move swiftly to impose additional sanctions on Russia. Given the urgency of securing the opportunity for a successful and peaceful democratic vote next month in Ukraine's presidential elections, we have committed to act urgently to intensify targeted sanctions and measures to increase the costs of Russia's actions.

Russia's actions in Ukraine and the response from the international community already have imposed significant costs on its economy.

While we continue to prepare to move to broader, coordinated sanctions, including sectoral measures should circumstances warrant, as we committed to in The Hague on March 24, we underscore that the door remains open to a diplomatic resolution of this crisis, on the basis of the Geneva accord. We urge Russia to join us in committing to that path.

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Russia to take all possible steps to free OSCE observers -agencies

MOSCOW, April 26 Sat Apr 26, 2014 4:33am EDT

MOSCOW, April 26 (Reuters) - Russia will take all possible steps to free detained OSCE military observers in the Ukrainian town of Slaviansk, Russian news agencies reported on Saturday, citing Russia's envoy to the Vienna-based Organisation for Security and Co-operation in Europe.

"We think that these people need to be freed as soon as possible," Andrei Kelin said in comments cited by ITAR-TASS. "Russia as a member of the OSCE will undertake all possible steps in this matter." (Reporting By Jason Bush, editing by Nigel Stephenson)

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WRAPUP 2-Group of Seven agrees swift sanctions against Kremlin over Ukraine

Sat Apr 26, 2014 6:51am EDT

(Removes reference to any G7 meeting in third and fourth paragraph)

* Washington could unveil its sanctions as early as Monday

* They will target Kremlin "cronies" - U.S. officials

* International observers held in separatist-controlled town

* Separatists accuse observers of spying for NATO

By Thomas Grove and Matt Spetalnick

SLAVIANSK, Ukraine/SEOUL, April 26 (Reuters) - Leaders of the Group of Seven major economies agreed to impose extra sanctions on Russia over its intervention in Ukraine, where armed pro-Moscow separatists detained a group of international observers and accused them of being NATO spies.

The United States said its part of the new punitive measures, which U.S. officials said would target "cronies" of Russian President Vladimir Putin, could be unveiled as early as Monday unless Russia moved fast to defuse the Ukraine crisis.

In a joint statement, the G7 leaders said Russia had not taken any concrete steps to implement an accord, signed in Geneva, that was intended to rein in illegal armed groups.

"Instead, it has continued to escalate tensions by increasingly concerning rhetoric and ongoing threatening military manoeuvres on Ukraine's border," it said.

"We have now agreed that we will move swiftly to impose additional sanctions on Russia ... We have committed to act urgently to intensify targeted sanctions and measures to increase the costs of Russia's actions."

But it added: "We underscore that the door remains open to a diplomatic resolution of this crisis."

Russia denies it is to blame for the crisis in eastern Ukraine, where armed pro-Russian separatists have taken control of about a dozen officials buildings are defying the rule of the Western-backed government in the capital, Kiev.

The Kremlin argues that the crisis began when a new leadership took over in Kiev, in what Moscow calls a coup d'etat, and started persecuting the Russian-speaking community in the east for wanting closer ties with Russia.

The crisis has brought relations between Russia and the West to their lowest level since the Cold War, and is increasingly turning into a military stand-off.

Russia has massed troops and helicopters on the border with Ukraine where it says they are conducting exercises, while NATO has deployed extra forces in eastern Europe, saying they are needed to reassure its allies.

OBSERVERS HELD

The international observers were being held in the eastern city of Slaviansk, a flashpoint between the Moscow-backed separatists who control the city, and Kiev's forces who are trying to squeeze them out.

They were part of a German-led monitoring mission visiting the area under the aegis of the Organization for Security and Cooperation in Europe (OSCE), a Vienna-based body whose 57 member states include Russia.

The group was made up of eight observers, including nationals from Germany, Sweden, Denmark, Poland and the Czech Republic, along with several Ukrainian army officers who were accompanying them, the OSCE said.

On Saturday, the separatists invited journalists from Russian media into the building where the observers are being held, and showed military identification cards and military insignia they said were taken from the detainees.

That, the separatists said, was proof that they were not observers but were spying for NATO, according to reports in Russian media. It is standard practice for serving military officers to be seconded to OSCE missions.

"It is critical that we use all diplomatic channels to free this team immediately and unhurt," German Defence Minister Ursula von der Leyen said.

Russia's envoy to the OSCE said Moscow would take all steps to free the observers, Russian news agencies reported.

SANCTIONS IMPACT

The G7 communique did not give details of what form the new sanctions would take, but they appeared to mark a significant ratcheting up of the visa bans and asset freezes already imposed on individuals and entities associated with the Kremlin.

"We believe that these sanctions will have a significant impact," U.S. Deputy National Security Advisor for Strategic Communication Ben Rhodes said.

Putin this week for the first time acknowledged that the sanctions were causing difficulties for Russia, though he said the impact was not "critical."

The ratings agency Standard & Poor's cut Russia's sovereign long-term rating by one notch on Friday, effectively making it more expensive for Russia's government to borrow money. That forced the central bank to raise its key interest rate to limit a fall in the value of the rouble.

Russian banks have been moving funds out of foreign accounts in anticipation of sanctions.

However, upping the pressure on Moscow carries risks for the West too, and for Europe especially, because it depends on Russia for about a quarter of its gas needs.

Russia has threatened to cut off Ukraine, which would have a knock-on effect on customers further west because many of the pipelines go through Ukrainian territory.

Officials from the European Union, Ukraine, and Ukraine's EU neighbour Slovakia, met in Kiev on Saturday to discuss technical ways to reduce the impact of a cut-off.

U.S. officials said the new sanctions on Russia will likely target individuals or companies with influence in specific sectors of the Russian economy such as energy and banking.

Sources familiar with the matter said the U.S. list is expected to include "cronies" of Putin.

Meanwhile, the EU is expected to name 15 individuals to be placed under sanctions and would focus on those it considers responsible for the Ukraine unrest.

The sources said the one thing that might prevent the EU and the United States from moving ahead with the sanctions on Monday would be a sudden reversal of what they say are Russian-sponsored separatist movements in eastern Ukraine.

"BLOODY CRIME"

Ukraine sent in troops to try to dislodge the separatists for the first time on Thursday, killing up to five rebels around Slaviansk in what it said was a response to the kidnapping and torture of a politician found dead on Saturday.

Moscow said those actions violated the Geneva accord. Foreign Minister Sergei Lavrov accused authorities in Kiev of waging "war on their own people".

"This is a bloody crime, and those who pushed the army to do that will pay, I am sure, and will face justice," Lavrov said.

Russian forces on the border began military exercises on Thursday and Ukraine said they had approached to within 1 km (0.6 mile) of its border. It said it would treat any incursion as an invasion.

The Pentagon said that Russian aircraft had violated Ukraine's border, without giving details. The Ukrainian defence ministry said it was unable to confirm it.

Ukrainian special forces launched a second phase of their operation on Friday by mounting a full blockade of Slaviansk, the rebels' military stronghold, a presidential official said.

One of its military helicopters was hit by fire from a grenade launcher and exploded while on the ground at an airport near the city, the Defence Ministry said.

Pro-Western leaders in Kiev, who took power in February after Moscow-ally President Viktor Yanukovich fled following mass protests against him, say they fear Russia will try to take over eastern Ukraine.

Russian troops seized Ukraine's Crimean peninsula on the Black Sea soon after Yanukovich left for Russia in February. Moscow denies interfering in eastern Ukraine, as it did in Crimea before admitting its forces had gone in. (Additional reporting by Maria Tsvetkova in Donetsk, Ukraine, Pavel Polityuk in Kiev, Nigel Stephenson and Jason Bush in Moscow; Writing by Christian Lowe; Editing by Robin Pomeroy)

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UPDATE 1-S&P upgrades bailed-out Cyprus to B on "brighter prospects"

Fri Apr 25, 2014 6:40am EDT

* S&P raises rating on Cyprus by one notch, to 'B'

* Fitch revises outlook to "stable" from "negative"

* No change to bond market timetable - finance minister

* Any new Russia sanctions could temper Cyprus outlook (Adds finance minister, Russia impact, changes dateline)

NICOSIA, April 25 (Reuters) - Credit agency Standard and Poor's raised its rating on Cyprus to "B" from "B-" on Friday, saying the Mediterranean nation was faring better than expected after last year's tumultuous international bailout.

Cyprus was meeting terms set out by its foreign lenders and risks to its debt repayments were less, the ratings agency said.

It was Standard and Poor's second upgrade of Cyprus since it came to the brink of financial collapse in March 2013, with a banking system crippled by its exposure to debt-laden Greece and no access to international capital markets. It last upgraded Cyprus six months ago.

The upgrade did not alter Cyprus's timetable on returning to financial markets, anticipated towards the end of 2015, the Cypriot finance minister said.

"Despite the continued recession ... prospects are somewhat brighter than we had anticipated in our last review in November 2013," Standard and Poor's said.

The country had outperformed borrowers' expectations with a shallower recession than anticipated and better fiscal performance, likely to be repeated this year, it said.

The agency however said that the possibility of tighter EU sanctions on Russia, a close business partner and a major source of tourists, could temper the outlook. Standard and Poor's cut Russia's credit rating on Friday.

Cyprus, an EU member state, has already stated publicly it disagrees with further sanctions on Russia.

Standard and Poor's said it might raise Cyprus' rating again within the next 12 months if it continued to comply with the measures outlined in a bailout plan agreed with the EU and the International Monetary Fund (IMF).

Separately, Fitch ratings revised its outlook on Cyprus to stable from negative on Friday, citing better-than-expected economic performance and progress in reform implementation.

Fitch rates Cyprus B-, and Moody's Investors' Service at Caa3.

"We will remain down to earth and are continuing our efforts with confidence," Cypriot Finance Minister Harris Georgiades wrote on his Facebook account.

Just a year ago, Cyprus, one of the smallest countries in the euro zone, became the first nation in the history of the euro zone to impose capital controls to prevent the collapse of its banking system.

Cyprus signed up to a 10 billion euro ($14 billion) bailout programme with the EU and the IMF, on condition that it shut a major bank and recapitalised a second lender with its clients' deposits.

Cyprus may even test international markets earlier than anticipated to gauge appetite for Cypriot debt, Cypriot President Nicos Anastasiades told Reuters this month.

Asked if the upgrades were conducive to Cyprus returning to international markets earlier than envisaged in late 2015, Georgiades told Reuters there was "no change" in their plans. (Reporting by Renee Maltezou and Michele Kambas; Editing by Louise Ireland)

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Fitch boosts Italian bonds amid Ukraine tensions

Fri Apr 25, 2014 6:40am EDT

* Italy yields hover above record lows

* Lower-rated bonds, stocks struggle

* Market awaits Spain rating announcement (Adds fresh quotes, updates prices)

By John Geddie

LONDON, April 25 (Reuters) - Italian bond yields hovered just above record lows on Friday, underpinned by a ratings outlook lift from Fitch as concerns about Ukraine prompted investors to pull out of lower-rated paper.

Viewed as one of the riskiest investments at the height of the euro zone crisis, bonds issued by Rome have become an increasingly popular bet as the country's economy has started to recover and returns on core euro zone debt continue to flirt with historic lows.

Italian 10-year yields dipped 1 basis point to 3.11 percent in early trading, just above the record low of 3.07 percent hit last week.

"It is a reminder that the world has changed its mind about periphery," said Luca Jellinek, European head of fixed income at Credit Agricole.

Spanish debt - which tends to track its Italian equivalent - also held its own, as did euro zone benchmark German Bunds.

But lower-rated bonds, global stocks and currencies struggled after Ukrainian forces killed up to five pro-Russia separatists and Russia conducted military drills near the border, raising fears it was gearing up to invade.

VAST IMPROVEMENT

Emerging from recession at the end of last year, Italy has benefited from a vast improvement in financing conditions. Fitch pointed out that its average issuing yield in the first quarter or the year was 1.6 percent, a historic low.

Fitch, which already rates Italy one notch above the other two main agencies Standard and Poor's and Moody's, affirmed the country at BBB+, raising its outlook to stable from negative.

Italy sold 5 billion euros at auction on Thursday, hitting nearly 40 percent of its annual funding target.

"Italian bonds are not traded as a credit any more, but more on the (Central Bank) rates outlook like German Bunds," said one government bond trader.

Bunds rallied 3 bps to hit 1.51 percent, while yields on Greek bonds - the highest in the bloc - rose 14 bps to 6.30 percent.

With official interest rates already at historic lows, the European Central Bank has raised the prospect of loosening its monetary policy further, encouraging investors to buy peripheral debt.

Some think that yield levels are becoming too rich.

"We have been, and remain overweight in the euro periphery, though our sense is that we have now witnessed the majority of the rally," said Mark Dowding, a senior portfolio manager at BlueBay, one of Europe's largest bond funds.

But others see little resistance to more declines, especially with the ECB raising the possibility of a programme of asset purchases known as quantitative easing.

"We have been, and remain, in a clear tightening trend, and a lot of that is based on the assumption that any quantitative easing is favourable," said Jellinek at Credit Agricole.

Spanish yields dipped 1 bp to a day's low of 3.07 percent, as markets also awaited a scheduled ratings update from Fitch in Madrid.

Fitch has tended to announce ratings actions before the markets open, but also has the option of waiting until after the close.

Spain, like Italy, has enjoyed much improved market access in 2014. It has completed more than 40 percent of its funding programme already, paying record low costs to borrow 5.6 billion euros at auction on Thursday.

In further evidence of ratings agencies taking a more positive view on the periphery on Friday, both Fitch and Standard and Poor's lifted Cyprus less than a year after the country was bailed out.

S&P raised Cyprus' rating to B from B-, with a positive outlook. Fitch affirmed Cyprus' B- rating, raising its outlook to stable from negative. (Editing by Sonya Hepinstall, John Stonestreet)

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UPDATE 1-Longview Timber deal boosts Weyerhaeuser profit

Fri Apr 25, 2014 6:41am EDT

* 1st-qtr revenue rises 1.7 pct to $1.98 billion

* Profit $0.31/share vs. $0.26/share year earlier

* Adj profit $0.26/share vs est $0.24 (Adds details, background, outlook, shares)

April 25 (Reuters) - Timber conglomerate Weyerhaeuser Co reported a better-than-expected first-quarter profit as its acquisition of Longview Timber Holdings began paying off but said it expected low prices and higher costs to hurt timberland earnings in the current quarter.

Weyerhaeuser bought Longview Timber from Brookfield Asset Management Inc last June for $2.65 billion, including assumption of debt.

"Our Timberlands business is realizing increasing benefits from the Longview Timber acquisition and reported its highest quarterly earnings excluding land sales since 2006," Weyerhaeuser Chief Executive Doyle Simons said in a statement.

Weyerhaeuser, which manages 21 million acres of forests, said it expected earnings to rise in its wood products and cellulose fibers businesses in the second quarter.

Cellulose fibers are used in a wide range of products, from diapers and textiles to paper and plastics. The company said it expected higher price realizations and volumes for pulp and liquid packaging board in the current quarter.

Net profit rose 27 percent to $183 million, or 31 cents per share, in the quarter ended March 31 from $144 million, or 26 cents per share, a year earlier.

On an adjusted basis, the company earned 26 cents per share. Revenue rose 1.7 percent to $1.98 billion.

Analysts on average had expected a profit of 24 cents per share on revenue of $2.08 billion, according to Thomson Reuters I/B/E/S.

Federal Way, Washington-based Weyerhaeuser's shares closed up 0.49 percent at $28.74 on the New York Stock exchange on Thursday. (Reporting By Shubhankar Chakravorty and Arnab Sen in Bangalore; Editing by Gopakumar Warrier and Don Sebastian)

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Putin warns of consequences of Ukrainian use of army

ST PETERSBURG, April 24 Thu Apr 24, 2014 6:43am EDT

ST PETERSBURG, April 24 (Reuters) - Russian President Vladimir Putin said on Thursday that if Kiev authorities have used the army against pro-Russian activists in east Ukraine there will be consequences.

"If these people have advanced to the so called 'acute phase' (of confrontation with protesters), this is not an acute phase, it is just a punitive operation and it will of course incur consequences for the people making these decisions, including (an effect) on our interstate relations," Putin said in a televised meeting with regional media. (Reporting by Alexei Anishchuk; Writing by Alessandra Prentice and Lidia Kelly, editing by Nigel Stephenson)

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Indian monsoon rains seen just below average in 2014 - govt

NEW DELHI, April 24 Thu Apr 24, 2014 6:46am EDT

NEW DELHI, April 24 (Reuters) - India is likely to witness below-average rainall in 2014, the government's weather office said on Thursday, if El Nino hits the four-month-long rain season.

Rainfall is expected to be 95 percent of the long-term average, with a margin for error of plus or minus 5 percent, during the June-to-September season, it said in a statement.

The Meteorological Department defines average, or normal, rainfall as between 96 percent and 104 percent of a 50-year average of 89 cm for the entire season.

The first official monsoon forecast is in line with the latest outlook of the Geneva-based World Meteorological Organisation's (WMO) forum that predicted mostly below-average rains in much of South Asia including India. (Reporting by Ratnajyoti Dutta and Mayank Bhardwaj; Editing by Douglas Busvine)

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Update-Moody's affirms all ratings of Novartis, outlook 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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Seeking expert help, Detroit bankruptcy judge interviews applicants

By Cherie Curry

DETROIT, April 18 Fri Apr 18, 2014 9:22pm EDT

DETROIT, April 18 (Reuters) - Applicants ranging from New York municipal finance expert Richard Ravitch to a local law professor bid to help Judge Steven Rhodes evaluate Detroit's financial restructuring plan, but Rhodes ended the recruitment session on Friday without naming his choice.

Sitting in court without his customary judicial robe, Rhodes interviewed the four men and one woman, repeatedly reminding them that the expert's role would be limited to advising on the feasibility of the city's plans to exit bankruptcy.

"The expert witness will be my expert and is limited to an examination of the city's plan and the reasonableness of assumptions that go into it," Rhodes said.

Detroit, with $18 billion of debt and other obligations, filed the biggest municipal bankruptcy in U.S. history in July 2013 and in recent days has reached settlements with several major creditor groups.

Ravitch, who during the 1970s advised on New York City's successful effort to avoid bankruptcy, bemoaned Detroit's woeful financial circumstance. "Detroit's problem is more severe because the problem wasn't addressed earlier on when it would have been far less expensive to solve it," he said.

Rhodes warned Ravitch, a former New York lieutenant governor, that the Detroit job would be far smaller than the task he carried out during New York city's close brush with insolvency.

"History demonstrates the outstanding work you did for New York. This assignment is different in character - it is not to help the city to solve its problems," Rhodes said.

Ravitch offered to work without pay, though he proposed just under a $1 million budget for work by his non-profit firm, the Ravitch Group. The most costly bid, from William Brandt Jr. of Development Specialists, a Chicago firm, came in at $1.6 million.

Other applicants for the job included Peter Hammer, a law professor at Wayne State University; Martha Kopacz, of Phoenix Management Services LLC in Boston; and Dean Kaplan, managing director of PFM Group of Philadelphia, which has advised on financial restructuring in Philadelphia and Pittsburgh and also worked with the Detroit Public Schools.

Rhodes' questions varied little from person to person and touched on topics ranging from their qualifications, to their understanding of the problems facing Detroit to their views on the city's plan to deal with its debt.

Hammer, the Wayne State professor, addressed issues such as the importance of race as Detroit seeks financial recovery. But Rhodes pointed out Hammer's lack of municipal finance experience and noted Hammer has publicly criticized the state law under which Detroit's emergency manager, Kevyn Orr, was appointed by Governor Rick Snyder, a Republican.

Brandt expressed optimism about Detroit's restructuring plan . "I think this plan, if it works, offers Detroit a future," said Brandt.

Rhodes is expected to make a decision regarding his expert witness not later than Monday. (Editing by David Greising and Mohammad Zargham)

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AMR loses bid to terminate retiree benefits

By Nate Raymond

NEW YORK, April 18 Fri Apr 18, 2014 7:59pm EDT

NEW YORK, April 18 (Reuters) - A U.S. bankruptcy judge largely declined on Friday to rule that former American Airlines parent company AMR Corp had a unilateral right to terminate benefits for nearly 47,000 retirees.

U.S. Bankruptcy Judge Sean Lane in New York rejected a motion AMR made in 2012 for a ruling holding that the health and welfare benefits it provided retirees had not vested and could be unilaterally modified.

Lane did rule for AMR with regard to some employees, but his ruling was a setback in AMR's bid to shift the program's costs from the company to the retirees, which included both union and non-union employees.

"American will review his ruling and consider next steps related to the retiree health and life insurance benefits," said Casey Norton, a spokesman for American Airlines. "We always remain open to productive discussions to finally resolve this matter."

AMR filed for Chapter 11 bankruptcy protection in 2011, seeking to cut more than $1 billion a year in labor costs.

The company emerged from bankruptcy in November 2013 through a merger with US Airways Group Inc. The combined company is now called American Airlines Group Inc.

As part of its reorganization, the company sought to renegotiate its collective bargaining agreements with various unions for American Airlines employees.

After having reached deals with unions for its current employees, AMR turned its focus toward benefits provided to its approximately 46,930 retirees.

Though Lane ruled in favor of AMR with regard to some retirees who were non-union or management, he largely declined to rule for the company.

"The relevant documents contain language reasonably susceptible to interpretation as a promise to vest benefits and lack language categorically reserving the plaintiffs' right to terminate their contributions to the retiree benefits," Lane said.

As a result of the ruling, AMR will now need to proceed to trial should it continue to seek a ruling holding that it has the right to terminate the retirees' benefits.

Catherine Steege, a lawyer with the law firm Jenner & Block representing the official committee for retirees, said she hoped in light of the ruling the company would "reconsider its efforts to try to take away benefits from the retirees."

The case is In re: AMR Corporation, U.S. Bankruptcy Court, Southern District of New York, No. 11-15463. (Reporting by Nate Raymond in New York; Editing by Leslie Adler)

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SEC weighs requiring brokers to identify where trades made -Bloomberg

April 19 Sat Apr 19, 2014 3:55pm EDT

April 19 (Reuters) - The U.S. Securities and Exchange Commission is weighing a proposal that would require brokers to tell investors exactly where their stock trades are executed, Bloomberg reported on Saturday.

The proposed requirement would give investors more clarity on whether they were getting the best prices for the buy and sell orders they entrust to brokers, who can choose from dozens of stock exchanges and private venues, the report said, citing three people familiar with the matter.

The SEC, which is the regulator in charge of analyzing the stock market's structure, is reviewing all aspects of how stocks are traded and seeking to identify changes that could quickly be implemented, the report said.

An SEC spokesman could not be reached on Saturday.

So-called high-frequency trading has faced fresh scrutiny by securities regulators in the wake of Michael Lewis' book "Flash Boys," which alleges markets are rigged in favor of tech-savvy traders.

"We've actually started this conversation about what can we do right now," SEC Commissioner Kara Stein said in an interview with Bloomberg. "All five commissioners are very focused on these issues and are committed to making sure the market is fair and efficient and promoting capital formation."

Requiring brokers to report every step in their orders could shed light on whether they were paying a fee or capturing a rebate by directing business to an exchange.

(Reporting by Michael Hirtzer in Chicago; Editing by Peter Cooney)

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Update-Moody's assigns A1 underlying rating Madison County School District No. 321, ID's G.O. bonds

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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Seat Pagine Gialle may shut for business due to "significant uncertainties" -PwC

MILAN, April 18 Fri Apr 18, 2014 3:11am EDT

MILAN, April 18 (Reuters) - Italian yellow pages company Seat Pagine Gialle may cease to operate as last year's accounts showed "significant uncertainties", its auditors PricewaterhouseCoopers (PwC) said.

Cash-strapped Seat, which has a market value of 26 million euros ($36 million), is caught up in a long drawn-out court restructuring, similar to Chapter 11 bankruptcy, that has already caused losses for its lenders.

Seat released a document late on Thursday from PwC saying that the company's 2013 accounts showed "certain factors that contribute in a decisive manner to the continued existence of significant uncertainties around the company's ability to continue to operate for the foreseeable future".

It said, however, that approval given for a restructuring plan by shareholders in March reduced the uncertainty around the company's future. (Reporting by Isla Binnie; Editing by Louise Ireland)

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Japan to shake up GPIF panel as Abe seeks bolder investment -sources

By Chikafumi Hodo and Takaya Yamaguchi

TOKYO, April 18 Fri Apr 18, 2014 5:49am EDT

TOKYO, April 18 (Reuters) - Japanese Prime Minister Shinzo Abe's government plans to shake up the world's biggest pension fund, replacing several key advisers in a sign that the premier wants public funds to invest more aggressively, sources with knowledge of the matter said.

At least three of the 10 members of the $1.26 trillion Government Pension Investment Fund's Investment Committee - including two considered cautious about Abe's call to shift from bonds to riskier investments like stocks - will soon depart from the panel, according to the sources.

Seki Obata, author of a book called, "Reflation is Dangerous"; Takeshige Komoda, who represents labour unions that want to protect their pensions; and long-serving member Masaharu Usuki will not have their terms on the committee renewed when they expire, the sources told Reuters.

Abe has been pressing GPIF to put relatively less money into low-yielding bonds and seek higher returns from riskier investments, in line with his policy of reviving the economy and breaking Japan's risk-averse, deflationary mindset.

Government officials and committee members declined to comment on the record about the closely guarded GPIF personnel decisions. Chief Cabinet Secretary Yoshihide Suga said on Friday that the matter is up to Health Minister Norihisa Tamura, who is expected to announce the reshuffle as soon as next week.

(Writing by William Mallard; Editing by Edmund Klamann)

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MOVES- Baring Asset Management

April 17 Thu Apr 17, 2014 6:24am EDT

April 17 (Reuters) - The following financial services industry appointment was announced on Thursday. To inform us of other job changes, email to moves@thomsonreuters.com.

The asset manager appointed Michael Annis as head of sales and business development, Canada. Annis joins from JP Morgan Asset Management (Canada) Inc. The firm also named Kieran Stover as vice president, sales and business development, based in Portland, Oregon. He joins from Kleinwort Benson Investors International Ltd, where he was a senior vice president, business development. (Compiled by Neha Dimri in Bangalore)

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Gazprom to base Kiev payment decision on Europe's response to Putin

MOSCOW, April 17 Thu Apr 17, 2014 6:29am EDT

MOSCOW, April 17 (Reuters) - Gazprom said on Thursday its decision on whether to demand upfront payments from Ukraine for natural gas deliveries would depend on how European leaders respond to a letter sent by Russian President Vladimir Putin last week.

Gazprom says it is owed more than $2 billion for gas already delivered to Ukraine and is considering insisting on advance payment for further supplies.

Such a move could increase the risk of Russia cutting off supply, which would affect not only Ukraine but European nations that receive their gas via Ukraine.

Putin has sent a letter to the leaders of 18 European countries that buy Russian gas warning that deliveries could be disrupted if state-controlled Gazprom cut supplies to Ukraine and calling for urgent talks to seek a solution.

Russia's annexation of Ukraine's Crimea region has set off the most serious East-West rift since the end of the Cold War.

"First of all, we would look at the reaction of European Union and other countries where Vladimir Vladimirovich (Putin) sent his letter. This is one of the issues which should be taken into account," Gazprom Chairman Viktor Zubkov told reporters.

"Then we would take the final decision."

Russia supplies 30 percent of Europe's total gas needs and pipes around half of the gas it sends to the EU via Ukraine. (Reporting by Olesya Astakhova; writing by Vladimir Soldatkin; editing by Jason Neely)

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