Portugal yields rise on worries over Banco Espirito Santo probe

LONDON, June 30 Mon Jun 30, 2014 5:38am EDT

LONDON, June 30 (Reuters) - Portuguese government bond yields rose on Monday after Luxembourg's justice authorities said they had begun an investigation into three holding companies of Portugal's largest listed bank.

Shares of Banco Espirito Santo plunged on Monday. Finance Minister Maria Luis Albuquerque said the bank was well-capitalised and the government saw no threat to financial stability and public accounts.

"Some could be selling as a hedge because they cannot sell the bank's bonds if the market is too illiquid," one trader said.

Portuguese 10-year bond yields rose 9 basis points to 3.68 percent. (Reporting by Marius Zaharia, editing by Nigel Stephenson)

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RPT-GRAPHIC-Peripheral bonds, frontier stocks top first-half investment league

Mon Jun 30, 2014 5:26am EDT

(Repeats, without changes, story first published on Friday)

LONDON, June 26 (Reuters) - Frontier stocks and bonds from the euro zone's weaker government debtors yielded 20-30 percent returns in the first six months of 2014, while Chinese shares and copper languished at the bottom of the investment leagues.

Tentative economic improvements and support from the European Central Bank has buoyed relatively high-yielding peripheral debt this year, with Greek and Portuguese 10-year bonds returning 27 and 23 percent respectively, outgunning German and U.S. counterparts, according to the following graphic on global asset performance in dollars:

link.reuters.com/mun32w

For a graphic on government bond returns click:

link.reuters.com/gev78t

While gains in the second quarter slowed versus the first three months of 2014, peripheral markets also benefited from the ECB move to cut deposit rates into negative territory in order to yank the euro bloc away from deflation.

Frontier stocks from African or Middle Eastern markets were also the best performers in the second quarter of 2014, building on the first quarter's 7.2 percent gain. These markets tend to be less correlated with broader world markets.

The Reuters-Jefferies CRB commodity index, made up of 19 key commodities, is up more than 11 percent.

Gold is up 9 percent after a 28 percent fall last year but the lion's share of the gains came in the first quarter when the Russia-Ukraine tensions brought in safe-haven buying.

The hunt for yield has supported emerging debt, with the EMBI Global index of sovereign dollar bonds up just over 9 percent while local debt has yielded 5.6 percent.

However, concerns over China have weighed on sectors geared towards the world's second biggest economy while Shanghai-listed shares have lost 6 percent so far this year. Copper is down more than 5 percent though it has recovered after losing around 10 percent in the first quarter.

One of the top investments of 2013, Tokyo's Nikkei is down around 2 percent this year, though it gained 5.7 percent on the quarter. The yen is down over 3 percent to the greenback. (Reporting by Sujata Rao; Editing by Ruth Pitchford)

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Fitch: Georgia-EU Deal Long-Term Positive but not a Game Changer

Mon Jun 30, 2014 6:20am EDT

(The following statement was released by the rating agency) LONDON, June 30 (Fitch) The signing of an EU Association Agreement will be a positive long-term development for Georgia's sovereign credit profile, Fitch Ratings says. But it does not have an immediate impact on our ratings assessment, which remains focused on the nearer-term prospects for external finances and economic growth. In time, the Association Agreement, which includes a Deep and Comprehensive Free Trade Area (DCFTA) agreement covering trade in goods including energy and services, will open up EU markets for Georgia's exporters, potentially boosting growth. In 2012, an EU-commissioned study said that, if implemented and sustained, the DCFTA could increase exports to the EU by 12%, and imports by 7.5%. In the long run, it could boost national income by EUR292m. We already factor strong growth potential into our assessment of Georgia's creditworthiness. The country's GDP growth rate slowed sharply in 2013 due to under-execution of large public investment programmes, but renewed investment growth should help growth to average 5% in 2014 and 5.5% in 2015. Better relations with Russia boosted exports in 2H13, which combined with the slowdown in import-intensive investment helped Georgia's current account deficit (CAD) to narrow sharply. But we think structural weaknesses of the export base and the need to import essential goods will keep the CAD well above the 'BB' category median, although it should shrink gradually from 2014. The government forecasts the CAD to remain above 7% of GDP until 2017. While the lifting of Russian embargoes on some products such as wine boosted exports last year, the long-term benefits may be limited as Russia receives a small share of Georgia's goods exports, and accounted for just 3% of net FDI in 2009-2013. This should, however, limit the impact of a Russian economic slowdown on Georgia's growth prospects. It is not yet clear what action if any Russia will take in response to the Association Agreement, but relations have improved under the Georgian governments of Bidzina Ivanishvili and Irakli Garibashvili. The chief driver of FDI in the near term is likely to be the recent launch of the Georgia Co-Investment Fund, in which billionaire and former Prime Minister Ivanishvili is the main shareholder. This could see FDI grow substantially. Further improvements in the CAD and in FDI inflows should boost foreign-exchange reserves, reducing external vulnerability and supporting exchange rate stability. The Association Agreement is also positive in providing a policy anchor for structural reform. Georgia has already adopted a new competition law and the authorities are planning labour market reform to meet EU requirements. The experience of other countries that have signed Association Agreements suggests that they do promote structural reform, although this can be uneven - it may be more focused on institutional than economic reforms, for example. We affirmed Georgia's sovereign rating 'BB-' with Stable Outlook on 9 May. Our next scheduled review is on 17 October. Contact: Vincent Forest Associate Director Sovereigns +44 20 3530 1080 Fitch Ratings Limited 30 North Colonnade London E14 5GN Mark Brown Senior Director Fitch Wire +44 20 3530 1588 Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email: peter.fitzpatrick@fitchratings.com. The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings. Applicable Criteria and Related Research: Georgia here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

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UPDATE 2-BNP Paribas CEO tells employees bank facing heavy U.S. penalties

Sat Jun 28, 2014 1:26pm EDT

(Updates with wording from bank's English version of letter)

By Matthias Blamont and Maya Nikolaeva

PARIS, June 28 (Reuters) - BNP Paribas Chief Executive Officer Jean-Laurent Bonnafe in a message to employees seen by Reuters has warned that the French bank is facing heavy penalties following a U.S. investigation into breaking sanctions which should end "very soon".

BNP Paribas declined to comment but sources have said the French bank is expected to plead guilty to a federal criminal charge and pay nearly $9 billion as part of a larger settlement with multiple enforcement authorities.

An announcement by U.S. authorities on the settlement is expected on Monday, a source familiar with the matter said on Friday.

"I want to say it clearly here: we will receive a heavy penalty," Bonnafe said in an internal message sent on June 27 and seen by Reuters on Saturday.

"However, the difficulties that we are currently experiencing must not affect our plans for the future."

U.S. authorities are examining whether BNP Paribas evaded U.S. sanctions relating primarily to Sudan between 2002 and 2009 and whether it stripped identifying information from wire transfers so they could pass through the U.S. financial system without raising red flags, sources have said.

"This is good news for all staff and for our clients," Bonnafe says in the letter.

"It will enable us to remove the current uncertainties that are weighing on our group. We will be able to put behind us these occurrences, which belong to the past."

BNP Paribas is likely to be suspended from converting foreign currencies to dollars on behalf of clients in some businesses for as long as a year, sources familiar with the matter said this week.

TURNING THE PAGE

Bonnafe took over a bank in December 2011 that had emerged a winner from the financial crisis and sought to raise revenues outside its traditional European markets, while tougher financial regulation made banking a less profitable business.

BNP has only said publicly that it is in discussions with U.S. authorities about "certain U.S. dollar payments involving countries, persons and entities that could have been subject to economic sanctions".

It has set aside $1.1 billion for the fine but told shareholders it could be far higher than that. Last month it also said it had improved control processes to ensure such mistakes did not occur again.

BNP plans to lower its dividend and raise funds by selling billions of euros of bonds next week, the Wall Street Journal reported on Friday.

Analysts have already bet on a cut in BNP's dividends and some, such as Deutsche Bank, factored in a zero dividend payout for 2014 in their forecasts for BNP, based on a $9 billion fine.

That would help the French bank maintain its core equity Tier 1 ratio at close to 10 percent.

"When the announcement is made, I will again be in contact with all of you," Bonnafe said.

"It is my responsibility to explain to you what has happened, the lessons that we have learned and, most importantly, how we plan to go forward in the future".

BNP struck a confident tone on its outlook earlier in March, promising a double-digit percentage net earnings per share rise over the next three years and an increase in dividend payout to 45 percent of earnings by 2016 from 41 percent in 2013. (Additional reporting by Jean-Baptiste Vey; Editing by Sybille de La Hamaide, Jason Neely and Sophie Hares)

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Rise of asset managers may create new risks - BIS report

By Huw Jones

LONDON, June 29 Sun Jun 29, 2014 6:30am EDT

LONDON, June 29 (Reuters) - While banks are dumping risky assets as regulation bites, asset managers are plugging the funding gap and using their growing clout in ways that could harm markets, the Bank for International Settlements says.

Nearly six years after the financial crisis forced taxpayers to bail out lenders, the global forum for central banks said in its annual report on Sunday that the financial system is at a crossroads.

Banks are reconfiguring their business by ditching risky assets to limit how much extra capital they must hold under tougher new rules aimed at avoiding bailouts in future crises.

"In the advanced economies most affected by the crisis, bank credit to corporates has ceded ground to market-based financing," the BIS report said.

The asset management sector's growth to more than $60 trillion under management has coincided with an increase in the market share of the biggest players, with the top 20 managers representing over a quarter of the sector.

The global Financial Stability Board (FSB), based in the same building as the BIS in Basel, Switzerland, is facing opposition from big asset managers to its plans to impose tougher supervision on them.

The BIS acknowledges benefits in market-based finance.

The European Union is encouraging funds to put money into infrastructure as about 70 percent of funding for the economy in the 28-country bloc comes from banks.

But the BIS cautioned that asset managers can hurt market dynamics and funding costs.

"Portfolio managers are evaluated on the basis of short-term performance, and revenues are linked to fluctuations in customer fund flows," the report said.

"Single firms in charge of large asset portfolios may at times exert disproportionate influence on market dynamics. Another concern arising from concentration is that operational or legal problems at a large asset management company may have disproportionate systemic effects," the report said.

RATIO DOUBTS

The BIS said there are still doubts over the core capital ratios - the main measure of a bank's health - being published by lenders. There are variations in how banks calculate ratios by assigning risk weightings to their assets.

"The combined effect of these varying practices suggest that there is scope for inconsistency in risk assessments and hence in regulatory ratios," the report said.

A key driver of the variations is in the way banks set aside capital, if at all, to cover possible default on the sovereign debt they hold.

But the report stops short of backing some policymakers who want an end to the "zero" risk weighting assigned to more than half of the sovereign debt held by banks. The need to bail out several EU countries showed that sovereign debt can lose its value sharply.

The BIS also stops short of backing the calls from hawkish regulators in Britain and the United States who want radical changes to the models big banks use to assign risk weightings.

The report said models used by banks permit a "natural and welcome diversity of risk assessments among banks".

More objective measurement of underlying risks was needed, along with better supervisory safeguards on the use of models, the BIS report said.

Introducing a single regulatory model, such as a unique set of risk weights that all banks must use, could encourage risk concentration, the report added.

(Reporting by Huw Jones; Editing by Ruth Pitchford)

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BIS detects early 'worrying signals' from credit booms

Sun Jun 29, 2014 6:30am EDT

* Early warning indicators show "worrying" signs - BIS

* Credit-to-GDP gap points to risks in many countries

ZURICH, June 29 (Reuters) - Regulators should not dismiss "worrying" early signs of unsustainable property price and credit growth, which could leave borrowers vulnerable to interest rate rises or sharp downturns, the BIS said on Sunday.

The Bank for International Settlements, the global forum for central banks, said rock-bottom official interest rates, slashed to revive sluggish economies, have contributed to a boom in lending and real estate prices in some countries.

While the ECB has cut rates to record lows and decided to pump money into the euro zone economy, the U.S. Federal Reserve has hinted at interest rate hikes starting next year.

"Several early warning indicators signal that vulnerabilities have been building up in the financial systems of several countries," the BIS said in its annual report.

While no early warning indicator is completely reliable, dismissing such readings as inappropriate would be too easy, it said.

In many emerging market economies and Switzerland the credit-to-GDP gap, measuring the current ratio against its long-term trend, is "well above the threshold that indicates trouble", the Basel-based bank said.

The gap between real residential property prices and their long-term trend also suggests risks are accumulating in the housing sector, it said.

Swiss banks will tighten requirements for mortgage loans after repeated warnings from Switzerland's central bank and the International Monetary Fund that ultra-low interest rates, immigration and the country's safe-haven appeal for financial investors is feeding a property bubble.

Switzerland became the first country to activate a counter-cyclical capital buffer last year, forcing banks to hold extra capital against their mortgage books.

A combination of interest rate policy and macro-prudential tools would help countries tackle rising property prices more effectively than using just one approach, BIS chief economist Hyun Song Shin told Reuters in an interview.

Rising rates would push the debt service ratios - the share of income used to service debt - of several countries into critical territory, the BIS said, adding that borrowers in China were currently seen as most vulnerable.

(Reporting by Alice Baghdjian; Editing by Ruth Pitchford)

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UPDATE 1-Russia's Putin calls for long-term Ukraine ceasefire, peace talks

Fri Jun 27, 2014 6:21am EDT

(Adds quotes, detail, background)

MOSCOW, June 27 (Reuters) - Russian President Vladimir Putin called on Friday for a long-term ceasefire in Ukraine to allow talks between representatives of Kiev and eastern regions where rebels are waging an armed insurgency.

Ukrainian President Petro Poroshenko has warned a ceasefire now in place may not be extended beyond Friday night when it is due to expire if peace talks with pro-Russian separatists fail to yield a favourable outcome.

"Most important is the securing of a long-term ceasefire as a necessary condition for substantive talks between the authorities in Kiev and representatives of the southeastern regions," Putin said.

"We sincerely strive to help the peace process," he told delegates at a diplomatic ceremony in the Kremlin.

Western governments have piled pressure on Putin to take steps to disarm the rebels who Kiev accuses of numerous breaches of the truce aimed at giving the two sides time to find a political solution to the crisis.

Putin also said that the violence in Ukraine had forced tens of thousands of Ukrainians to seek refuge abroad, including in Russia.

Other Russian officials speaking elsewhere on Friday threatened Ukraine with "grave consequences" and economic measures after Kiev signed an agreement with the European Union. (Reporting by Maria Tsvetkova; Writing by Thomas Grove; Editing by Louise Ireland)

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UPDATE 1-Germany's FMC takes $600 mln stake in Sound Physicians

Fri Jun 27, 2014 6:27am EDT

* FMC takes majority stake in Sound Physicians

* FMC seeks to expand services linked to core dialysis ops

* Says deal to be operating earnings accretive in first year

* Says also acquired MedSpring Urgent Care Centers (Adds source on size of stake, MedSpring acquisition, analyst comment)

FRANKFURT, June 27 (Reuters) - Germany's Fresenius Medical Care (FMC) agreed to buy a majority stake in U.S.-based Sound Inpatient Physicians Inc for about $600 million in its drive to offer additional services linked to its core business of kidney dialysis.

FMC is to become a majority shareholder as part of a recapitalisation of Sound, alongside existing investor TowerBrook Capital Partners and Sound's senior management team, the company said in a statement on Friday.

A person familiar with the matter told Reuters the company's stake in Sound would be above 80 percent.

FMC also said it was buying MedSpring Urgent Care Centers with operations in the U.S. states of Illinois and Texas, without providing financial details.

Dialysis specialist FMC said at its investor day in April it aimed to expand its services to medical fields related to kidney failure in a push to almost double group sales to $28 billion by 2020.

Analysts at Berenberg said the acquisitions should take FMC's annual revenues from so-called total care coordination to more than $1 billion, compared with a goal to reach $5 billion euros a year by 2020.

"To put this in context, FMC will shortly be 20 percent of the way to its goal three months into a six-year programme. The market wanted progress, and that is what it appears FMC is making," they said.

Sound Physicians employs and manages physicians working at more than 100 hospitals across the United States. It provides medical staff to hospitals, also offering services such as billing, accounting and purchasing management.

Medical insurers in the United States are gradually moving towards a system of lump sum payments per chronically ill patient rather than reimbursing individual drugs and services.

Insurers hope to cut costs because the system, called disease management or care coordination, encourages healthcare providers to work more diligently, reduce side effects and increase patients' compliance with the treatment regimens.

FMC said it expects Sound to generate about $500 million in revenue in the next 12 months and sees it adding to its own operating earnings, adjusted for transaction costs, within the first year after closing. Closing is due in the next 10 days.

It said it would fund the acquisition through available cash and committed credit facilities as well as additional debt financing. (Reporting by Ludwig Burger; Editing by Maria Sheahan; Editing by Elaine Hardcastle)

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UPDATE 1-Euro zone economic sentiment slumps in June

Fri Jun 27, 2014 6:33am EDT

(Recasts with economists' comments)

By Jan Strupczewski

BRUSSELS, June 27 (Reuters) - Euro zone economic sentiment fell unexpectedly in June on fears that fighting in Iraq would push up oil prices and that any escalation of the Ukraine crisis could drag on euro zone growth.

The European Commission's economic sentiment index (ESI) for the 18 countries that share the euro fell to 102.0 from a revised 102.6 in May. Economists had forecast a rise to 103.0.

The decline was mainly due to a drop in optimism in the industry and construction sectors, and among consumers.

"Because this loss in momentum spreads across a large number of member states ... a common cause, ie geopolitical risks, seems likely," said Evelyn Herrmann, economist at BNP Paribas.

"Indeed, the potential of unexpected rises in oil prices driven by uncertainty in Iraq are a downside risk to growth. The potential for further sanctions on Russia is also a looming risk to the euro zone growth outlook."

The Commission's survey is typically carried out in the first half of the month, since when tensions have eased between Moscow and western countries over Ukraine, where an uprising by pro-Russian separatists has claimed hundreds of lives.

Oil prices have dropped nearly $3 from a nine-month high of $115.71 hit on June 19 as output from Iraq's major southern oilfields remained unaffected by fighting in the north and west.

The decline in economic sentiment confirms earlier poor data such as the Purchasing Managers Indexes (PMIs) and adds urgency to European Union leaders' attempts to accelerate growth.

"The good news from the euro zone is that the economy is growing again. The bad news is that growth is excruciatingly slow," said Christoph Weil, economist at Commerzbank.

Euro zone gross domestic product growth slowed to 0.2 percent quarter-on-quarter in the first three months of the year from 0.3 percent in the previous quarter.

Herrmann said that at current levels, the index still pointed to an acceleration of growth in the April-June period in the euro zone, although risks of a slowdown were growing.

"The ESI's Q2 average edged up 0.5 points q/q to 102.2, in line with our GDP growth forecast of 0.4 percent q/q. With surveys drifting slightly lower towards the end of Q2, however, the risks for a slower momentum in Q3 are rising," she said.

The Commission survey showed too that consumer inflation expectations 12 months ahead fell to 8.6 in June from 9.6 in May, continuing a trend started last October when the reading was at 16.8 and inflation started slowing sharply.

In contrast, inflation expectations among manufacturers improved to -0.1 in June from -1.3 in May.

Euro zone consumer inflation slowed to 0.5 percent year-on-year in May from 0.7 percent in April, prompting the European Central Bank to further ease monetary policy to bring price growth closer to its goal of just below 2 percent. (Reporting by Jan Strupczewski; Editing by Catherine Evans)

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RPT-Fitch Rates China Overseas Land's USD Notes Final 'BBB+'

Wed Jun 25, 2014 6:06am EDT

(Repeat for additional subscribers)

June 25 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned China Overseas Land & Investment Ltd.'s (COLI; BBB+/Stable) USD250m retap of its 4.25% senior unsecured notes due 2019, USD250m retap of its 5.95% senior unsecured notes due 2024 and issuance of USD500m 6.45% senior unsecured notes due 2034 final ratings of 'BBB+'. The notes, which are issued by China Overseas Finance (Cayman) VI Limited, are unconditionally and irrevocably guaranteed by COLI.

The notes are rated at the same level as COLI's senior unsecured debt rating as they represent direct, unconditional, unsecured and unsubordinated obligations of the company.

The assignment of the final rating follows the receipt of documents conforming to information already received. The final rating is in line with the expected rating assigned on 3 June 2014.

KEY RATINGS DRIVERS

Leading Homebuilder: COLI has been one of the top homebuilders in China since it started operations in 1984. It has consistently generated high profit margins - EBITDA margin of 30% in 2013 - that reflect its premium prices and effective cost management. Its strong brand is supported by its nationwide presence and focus on first-time homebuyers and "upgraders" who seek better homes than their existing residences. COLI ranked among the top three largest home sellers in 10 major cities in 2013.

Slower Contracted Sales Growth: COLI expects contracted sales in 2014 of HKD140bn, unchanged from 2013, when its contracted sales rose 66%. This is due to the strong growth in the whole property market in 2013, resulting in a higher base of comparison. COLI's background as a construction company gives it valuable insight into construction costs, leading to higher-quality products and stronger pricing power. COLI will continue to use its brand reputation, and focus on first-time homebuyers and upgraders who demand better quality at affordable prices. We expect this strategy to help COLI to meet its 20% net profit growth target in 2014.

Well-Established Track Record: COLI has established itself as a nationwide homebuilder with operations around the Pearl River Delta, Yangtze River Delta, Bohai Rim, and the northern and western regions. It has displayed resilience through several industry downturns during its 29-year operating history, with high profitability relative to its peers and broad funding diversity.

Diversified Funding Enhances Liquidity: COLI also has one of the lowest borrowing costs among homebuilders. Its weighted average borrowing cost was at 3.7% in 2013. Its low funding costs are the result of access to the offshore bond and loan markets, and its state-owned enterprise (SOE) status, which aids access to domestic funding. COLI continues to maintain a strong liquidity position and had HKD9.6bn in undrawn committed bank facilities and cash balance of HKD25.3bn at end-March 2013.

Outlook Stable: Fitch expects that COLI will maintain its leadership position in the Chinese residential homebuilding market, with a clear focus on first-time homebuyers and upgraders; leverage its operational and financial flexibility; and continue to grow at a moderate pace in the highly competitive and cyclical Chinese property market.

RATING SENSITIVITIES:

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

- Unfavourable changes to China's regulation or economy leading to a decline in contracted sales; or

- Decline in EBITDA margin to below 25%; or

-Deterioration in net debt/adjusted inventory to above 30% over a sustained period (2013: 23%); or

- Significant change from its current focus on first-time homebuyers and upgraders.

Positive: Positive rating action is not expected over the next 12 to 18 months due to the high cyclicality as well as the high regulatory risks in the Chinese property sector.

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German Bund yields near 2014 lows on Iraq worries

Wed Jun 25, 2014 6:43am EDT

* Iraq tensions keep oil prices around $114 a barrel

* Bund yields just above 2014 lows on safe haven buying

* Periphery yields edge up as Italy sells debt (Updates prices, adds fresh quotes)

By Marius Zaharia

LONDON, June 25 (Reuters) - German government bond yields fell towards their lowest levels this year on Wednesday as worries over violence in Iraq pushed investors towards assets perceived as safe havens.

Fears that a further rise in oil prices on the back of fighting in Iraq could pose a risk to the global growth outlook, kept oil prices close to $114 per barrel.

"Geopolitical risk has re-entered investors' mind. The events overnight had begun to trouble investors with respect to global growth," Investec chief economist Philip Shaw said.

German 10-year Bund yields fell 3 basis points to 1.29 percent, just above this year's low of 1.28 percent. Bund futures were 35 ticks higher at 146.46, having risen by almost two points in the past two weeks.

Concerns related to conflicts in Iraq and Ukraine, as well as the European Central Bank's ultra-easy monetary policy in response to stubbornly low inflation have led to an unexpected fall in Bund yields this year.

Bund yields started 2014 at roughly 2 percent and polls of bond investors predicted at the time they would rise further by the end of the year as the global economy recovered and the Federal Reserve moved to end its unprecedented stimulus programme that had boosted financial assets worldwide.

"We have been surprised, as have many other investors, by long-term core government bond yields continuously scoring new lows," Pioneer Investments CIO Giordano Lombardo said.

"It seems to us that today there is a strong consensus in the market that short- and long-term interest rates are going to stay low for a long time, as a result of permanent low growth."

Lombardo said, however, that he believed economic conditions were slowly normalising and this should in time lead to higher yields.

ITALY SALES

Yields on the euro zone's lowest-rated bonds edged higher as investors made room in their books for Italy's debt sales.

The Treasury sold 3.5 billion euros of inflation-linked debt and zero-coupon bonds and plans to offer up to 8 billion of bonds on Friday.

Italy has completed more than 60 percent of its 2014 funding programme, while Spain has completed more than 70 percent of its plan as the bloc's most indebted governments try to exploit record low borrowing costs to build financing buffers.

Debt managers in Spain, Italy and Portugal said on Tuesday they planned to push ahead with measures to raise the average life of their debt and manage redemptions in a bid to quell concerns about a large refinancing hump.

Italian and Spanish 10-year yields were last 1-2 bps higher at 2.78 percent and 2.68 percent, respectively. Both have fallen sharply this week as weak euro zone activity data rekindled speculation the ECB could launch a programme of large-scale asset purchases - or quantitative easing (QE).

The ECB cut its key interest rates last month and promised more liquidity to banks via long-term loans called targeted long-term refinancing operations or TLTROs. It has signalled it would take a wait-and-see approach in the near term.

"The grand scepticism is that TLTROs are not going to work so you'd think they'll do QE," one trader said. "They're not going to do it this year, but the carry trade still rules." (Editing by Louise Ireland)

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GLOBAL MARKETS-Iraq jitters hit European shares, German bond yields slip

Wed Jun 25, 2014 6:47am EDT

* Global stocks slip on Iraq concerns

* German government bond yields fall

* Dollar eases against yen

By Atul Prakash

LONDON, June 25 (Reuters) - Europe's top share index slipped to a three-week low on Wednesday as concerns that violence in Iraq could escalate further prompted investors to take refuge in safer assets such as German bonds.

The FTSEurofirst 300 index of top European shares fell 0.7 percent to its lowest since early June, while Germany's DAX share index dropped 0.5 percent by 1015 GMT. The MSCI world equity index, which tracks shares in 45 countries, fell 0.3 percent to a one-week low.

"Iraq tensions have overshadowed relatively good economic data this week," said Lorne Baring, managing director of B Capital Wealth Management in Geneva.

"Investors are still concerned about American foreign policy and what will be the next step in terms of any military intervention as opposed to diplomacy in the Middle East region."

Militants attacked one of Iraq's largest air bases as the first U.S. teams arrived to assess the Iraqi security forces and decide how to help counter a mounting Sunni insurgency. Advances by militants have threatened to rupture the country two-and-a-half years after the withdrawal of U.S. troops.

The weakness in European stocks followed a sell-off in overseas markets. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.4 percent, while Japan's Nikkei ended 0.7 percent lower. In volatile U.S. trading, the S&P 500 closed 0.6 percent weaker after hitting a fourth record high following upbeat U.S. data.

Risk-averse investors turned their attention to relatively safer assets. Yields of German government bonds, perceived as safe havens, fell towards their lowest this year. German 10-year yields were 3 basis point lower at 1.29 pct

"It's a volatile situation in Iraq and Treasuries and Bunds benefit from flight to quality," said Nick Stamenkovic, bond strategist at RIA Capital Markets in Edinburgh.

Oil markets were mixed as traders weighed the likelihood of supply disruptions from Iraq. Analysts said lingering worries that continued violence in Iraq would dent supplies from OPEC's second-largest producer kept a floor under prices.

U.S. crude for August delivery advanced 0.6 percent, while Brent crude for August fell 0.5 percent.

"Oil prices have been unusually stable in recent years, but events in Iraq are causing a reassessment of medium-term oil market fundamentals that we expect to translate into a phase of higher long-term prices and more volatile trading conditions," strategists at Barclays said in a note to clients.

In the currency market, the dollar slipped against the yen, with some investors cautious ahead of the final reading of first-quarter U.S. GDP.

It is forecast to be revised down and is likely to boost expectations that the Federal Reserve is in no hurry to tighten policy. The dollar was down 0.1 percent versus the yen at 101.90 . (Additional reporting by Blaise Robinson in Paris, Marius Zaharia and Anirban Nag in London and Lisa Twaronite in Tokyo; Editing by Catherine Evans)

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GLOBAL MARKETS-German Ifo hits stocks, Carney knocks sterling

Tue Jun 24, 2014 6:27am EDT

  By Jamie McGeever      LONDON, June 24 (Reuters) - European stocks fell on Tuesday  after a survey found German business morale was flagging,  raising concern over growth in Europe's largest economy.  Sterling weakened after dovish remarks by the head of the Bank  of England.      Germany's Ifo index of business sentiment fell more than  expected in June to its lowest this year, leading shares to give  up gains they had scored on talk of mergers and acquisitions.         The FTSEurofirst 300 index of leading shares dropped 0.2  percent to 1385 points, Germany's DAX was down 0.1  percent at 9912 points and France's CAC 40 was  up 0.1 percent at 4520 points. Britain's FTSE 100 fell  0.25 percent to 6783 points.      "You are seeing economic statistics in Europe that are  disappointing," said Francois Savary, chief investment officer  at Swiss bank Reyl. "There is nothing major, but I think it is  time for a period of some consolidation on the markets."      Economists at Barclays said the Ifo data and Monday's  surprisingly soft manufacturing PMI figures suggest German  growth in the current cycle has peaked.      The losses offset renewed talk on Tuesday of merger and  acquisition activity. Agrochemicals company Syngenta   surged as much as 6.5 percent on a media report that Monsanto   had considered buying it in a deal worth $40 billion.  Syngenta shares were last up 4.5 percent.      "Our outlook for equity markets for the remainder of the  year is positive. M&A has made a welcome return in recent  months," said Mark Burgess, the chief investment officer at  Threadneedle Investments.      Earlier, the majority of markets in Asia edged higher after  a sluggish start. The MSCI broadest index of Asia-Pacific shares  outside Japan rose 0.3 percent. Japan's Nikkei   added a slender 0.05 percent.            CARNEY KNOCKS STERLING      The biggest mover in currency markets was sterling, which  fell below $1.70 and from its recent five-year highs. The pound  weakened after Bank of England Governor Mark Carney told UK  lawmakers the UK economy was seeing little wage or inflationary  pressure. He also said spare capacity will need to be absorbed  before interest rates rise.      That appeared to cool expectations UK interest rates would  be raised this year - expectations that were fueled by comments  from Carney himself earlier this month.      "An early rate hike may not be a done deal as yet," said  Valentin Marinov, the head of G10 currency strategy at Citi.         Sterling was last down 0.2 percent at $1.6995. It had  earlier fallen more than half a cent, to as low as $1.6971.       The euro was up slightly at $1.3617 and the dollar  down against the yen at 101.85 yen, leaving the dollar  index a little lower at 80.212. That was well within the  narrow 80.000-81.000 range seen since May.      In commodity markets, oil eased down from recent nine-month  highs after data on Monday showed that Iraq's oil exports neared  record levels in June, around 2.53 million barrels a day,  despite the Sunni Islamist insurgency sweeping through the  country.       Brent crude oil futures dipped below $114 a barrel,  on track for the third straight day of decline, something not  seen for a month. U.S. oil futures were down 0.2 percent  at $105.90 a barrel.      "The supply news isn't really supporting oil prices. The  only thing supporting them is the fear factor," said Carsten  Fritsch, an oil analyst at Commerzbank in Frankfurt.      Spot gold rose to its highest in more than two  months, to $1,325 an ounce, for gains so far this month of  around $75. Silver rose to its highest since March, above $21 an  ounce.      U.S. Treasury bonds rose, pushing the 10-year benchmark  yield down almost three basis points to 2.59 percent  .      (Reporting by Jamie McGeever, additional reporting by Sudip  Kar-Gupta; Editing by Larry King; To read Reuters Global  Investing Blog click here;   for the MacroScope Blog click on blogs.reuters.com/macroscope;   for Hedge Fund Blog Hub click on blogs.reuters.com/hedgehub)  

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MOVES- Mercer, Julius Baer, Peak Reinsurance Co

June 24 Tue Jun 24, 2014 5:55am EDT

June 24 (Reuters) - The following financial services industry appointments were announced on Tuesday. To inform us of other job changes, email to moves@thomsonreuters.com.

The pensions and employee benefits consultancy and a subsidiary of Marsh & McLennan Companies appointed Jane Ralph, a Birmingham-based partner, and Jonathan Repp and Suthan Rajagopalan, both principals, under its new financial strategy group team in the Midlands region. The newly formed team of seven specialists will predominantly be based in Mercer's Birmingham office and will service clients across the Midlands.

Paul Arni, former region head Zurich and head private banking region Zurich at Credit Suisse, will join Julius Baer on 1 July and take over the function of market head Zurich from Daniel Aegerter. Aegerter will assume the newly created role of head key clients region Switzerland and remain deputy region head Switzerland. Julius Baer is a Swiss private banking group.

The Hong Kong-based reinsurer has named Kathleen Koh as senior vice president to underwrite credit and surety business. Koh will be responsible for developing and growing Peak Re's credit book in Asia Pacific. (Compiled by Shailaja Sharma)

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EU budget rules will not be changed, says Juncker

BERLIN, June 24 Tue Jun 24, 2014 6:32am EDT

BERLIN, June 24 (Reuters) - The European Union's budget rules will not be changed but will be interpreted according to their current text, said potential next European Commission chief Jean-Claude Juncker on Tuesday, rebuffing talk of softening the Stability and Growth Pact.

"It will not be the case that the Stability Pact will be changed. It will be interpreted as is foreseen in the text version of the Stability Pact, like the amendment of the pact in 2005 made possible," Luxembourg's ex-premier said in Berlin. (Reporting by Andreas Rinke and Alexandra Hudson; Writing by Annika Breidthardt; Editing by Stephen Brown)

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EMERGING MARKETS-Sberbank back to bond markets, Russian assets gain

By Sujata Rao

LONDON, June 23 Mon Jun 23, 2014 6:24am EDT

LONDON, June 23 (Reuters) - Sberbank returned to global bond markets on Monday, the first Russian state-run firm to do so since February, while the rouble and stocks led gains on European emerging markets thanks to strong Chinese economic data.

Markets broadly shrugged off the oil price surge caused by a spreading insurgency in Iraq after a preliminary HSBC survey showed activity in China's factory sector expanded in June for the first time in six months as new orders surged.

U.S. Treasuries and the dollar have also eased off one-month highs hit last week, keeping alive appetite for emerging assets.

Russian equities rose 0.5 percent though they stayed off recent four-month highs and the rouble also firmed 0.4 percent after the Chinese data indicated continued support for commodity exports from Russia.

They outperformed broader emerging equities which were down 0.3 percent as the Chinese data failed to buoy local stocks though equities in eastern Europe and Turkey were firmer.

Russian coffers are also being bolstered by events in Iraq that have pushed crude futures to nine-month highs while strong global demand for yield encouraged Sberbank to announce a five-year euro-denominated issue, just weeks after fears of Western sanctions seemed to have shut capital markets for Russian firms.

The bank set initial guidance at 2.5-3.0 percentage points over mid-swaps, equating to a yield of 3.2-3.7 percent that one fund manager described as attractive.

He noted that the 2018 euro issue of state-run VEB was at 275 bps over Bunds, tighter than its dollar bond while Sberbank's own 5-year dollar bond is at 240 bps over Treasuries.

"Initial price talk is very attractive, it will create momentum and bring in people who want to make quick returns on secondary market," the fund manager said. "Then (Sberbank) will tighten the price to the last drop."

Bulgaria is also due to meet investors this week in London for a planned 1.5 billion-euro issue. The roadshow is going ahead despite a run on the country's fourth biggest lender, Corpbank, that forced the government to step in.

Bulgarian credit default swaps (CDS) closed on Friday at 123 bps, the highest since early-December 2013, accordig to Markit

"This is not good news in terms of selling the Bulgarian story. But they have had a positive fiscal and growth story despite the very challenging external environment," said Danske Bank analyst Lars Christensen, referring to the big role of Greek banks in Bulgaria's economy.

Greek stocks fell 1.7 percent but regional fallout on the rest of emerging Europe appears limited.

The Polish zloty firmed 0.2 percent to the euro after hitting a one-month low on Friday on back of domestic political turmoil caused by leaked tapes. The controversy continues as fresh transcripts appeared on the weekend.

"The situation on foreign markets is stable, which is taming moods in Poland a bit," a Warsaw-based dealer said.

Christensen agreed that the benign global backdrop was trumping domestic emerging market stories such as the Bulgarian bank problems, Polish politics and a looming Argentine default.

"The Chinese data was encouraging...and (Russian President Vladimir) Putin has not been wholehearted in his support for Ukrainian separatists and that's a positive," he added.

In the Middle East, the Iraq conflict was pressuring the forward markets in the Saudi riyal with one-year dollar-riyal forwards jumping to the highest since early 2011.

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 Toby Chopra)

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UPDATE 1-Tax cuts, dance hall deregulation aim to set Japan swinging

Mon Jun 23, 2014 5:37am EDT

* Japan PM expected to unveil latest instalment of "Third Arrow"

* Corporate tax cuts, reform of world's biggest public pension fund planned

* Difficult labour, agricultural market reforms watered down

* Market reaction likely to be muted as some see "Abenomics fatigue"

* Other measures include nightclub deregulation, robotic revolution (Adds comment by BOJ)

By Tetsushi Kajimoto and Linda Sieg

TOKYO, June 23 (Reuters) - Japanese Prime Minister Shinzo Abe is set to unveil measures ranging from phased corporate tax cuts and public pension reforms to proposed dance hall deregulation, but the latest salvo from his three-pronged strategy for economic revival may disappoint some investors urging more radical steps.

Abe, who took office 18 months ago pledging to end persistent deflation and generate sustainable growth with a trifecta of monetary, fiscal and reform steps, will on Tuesday deliver the latest instalment of his so-called "Third Arrow" of long-term economic policies.

The measures, many of which have already been leaked or announced by officials, are likely to receive muted applause from financial markets and experts, who say the package is a step in the right direction towards vital structural reforms but want to see how the measures are fleshed out and implemented.

"I'm starting to be almost a bit of a 'glass half-full' guy. Abe is continuing to talk the right talk," said one former U.S. official who has seen many past Japanese reform packages that promised much but failed to deliver.

"It isn't a 'Big Bang' but it is a lot better than some things I've seen in the past. But he still has to deliver."

Among the steps outlined so far is a future cut in Japan's effective corporate tax rate - among the highest in the world - to below 30 percent over the next several years, and a promise to reform the $1.26 trillion Government Pension Investment Fund in ways likely to reallocate more money to the stock market.

In a nod to the need to strike a balance between stimulating growth and reining in Japan's massive public debt, the tax plan will seek to offset the cuts by broadening the tax base.

Difficult but key details of many steps, such as the tax cuts, are likely to be left to be worked out later. Several bold but politically contentious proposals, such as for labour market and agriculture reforms, were watered down or omitted as a result of discussions among myriad and conflicting interests.

ABENOMICS FATIGUE?

Bank of Japan Governor Haruhiko Kuroda called for bolder efforts to raise the economy's growth potential, but said meeting the government pledge of boosting potential growth to 2 percent from around 0.5 now was "ambitious but not impossible".

"Coming up with growth strategies is a key challenge for Group of 20 members, so Japan must make further efforts on this," Haruhiko Kuroda told a meeting of business executives.

By dribbling out key elements of the package in recent weeks, the government hopes to avoid the disappointment that led to a sharp drop in Tokyo share prices when Abe announced the first tranche of his "Third Arrow" growth strategy last June.

Some market players appear to be suffering from what one expert called "Abenomics fatigue".

"I wonder how many third arrows they plant to shoot. Are they going to do this every year?", said Ayako Sera, a senior market analyst at Sumitomo Mitsui Trust Bank.

Crafted over a year through discussions in at least 20 advisory committees reporting to four main government panels, the package appears to contain something for everyone, but not enough for anyone. Even a likely amendment to a law regulating dancing in nightclubs has to be "studied" first.

Also included in the package are steps to boost the role of working women to address a shrinking workforce; raise the number of highly skilled foreign workers and expand a controversial foreign trainee programme; tackle agricultural reform; boost productivity through a "robotic revolution"; and target the healthcare sector for growth.

Discussions on easing labour market rigidities to boost productivity looked set to yield a plan to end paid overtime for workers earning the equivalent of at least $100,000 per year - only about 4 percent of the workforce. The touchy question of whether to make it easier to fire workers, a step advocates say is vital, is likely to be left for later debate.

"Bigger steps are needed such as facilitating labour turnover and boosting the sheer number of (people in the) workforce to cope with the issue of dwindling population," said Naoki Iizuka, an economist at Citigroup Global Markets Japan.

"Abe is so far taking a step in the right direction but I don't give it a wholehearted thumbs-up," Iizuka said. "Abe's 'Third Arrow' growth strategy seems to me like a dart not an arrow. I hope he will come up with bolder plans ahead." (Additional reporting by Hideyuki Sano and Leika Kihara; Editing by Alex Richardson)

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MOVES- Citigroup, Rabobank, Moore Stephens, Gazprombank, Puma Investments

June 23 Mon Jun 23, 2014 6:14am EDT

June 23 (Reuters) - The following financial services industry appointments were announced on Monday. To inform us of other job changes, email to moves@thomsonreuters.com.

CITIGROUP INC

The financial group said on Friday that Edward "Ned" Kelly, a former chief financial officer who went on to advise as chairman of the company's investment bank, is retiring. Kelly, 61, will be replaced by Stephen Volk, who joined the bank in 2004 and will continue to be a vice chairman of Citigroup, a spokeswoman said.

GAZPROMBANK

The Russian bank said that Gazprombank Asset Management has appointed Igor Kan to the position of vice president and head of structured products portfolio management and trading.

RABOBANK INTERNATIONAL

The company has appointed Allard Voûte as manager for international desks Singapore and representative markets. Based in Singapore, Voûte will focus on servicing Dutch companies that are active in Singapore, Malaysia, Thailand, Vietnam, and the Philippines.

MOORE STEPHENS

The international accountancy firm has announced two senior appointments to support the growth of its financial services team. John Baker has been appointed counter fraud director where he will be responsible for developing counter-fraud and counter-bribery services. Mathew Ring has been appointed as IT audit director.

PUMA INVESTMENTS

The UK-based tax-efficient specialist has appointed Venetia Coleman to its business development team.

THE BRITISH COLUMBIA INVESTMENT MANAGEMENT CORP (BCIMC)

One of Canada's largest pension fund managers said on Friday its board has chosen Gordon Fyfe as its new head. Fyfe will become both chief executive officer and chief investment officer of BCIMC on July 7. (Compiled by Shailaja Sharma)

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MIDEAST STOCKS - Factors to watch - June 22

DUBAI, June 22 Sun Jun 22, 2014 12:47am EDT

DUBAI, June 22 (Reuters) - Here are some factors that may affect Middle East stock markets on Sunday. Reuters has not verified the press reports and does not vouch of their accuracy.

INTERNATIONAL/REGIONAL

* GLOBAL MARKETS-Wall St sets records on rates view; dollar rises

* U.S. crude hits nine-month high above $107 on short-covering

* Gold drops as S&P rises but posts big weekly gain

* MIDEAST STOCKS-Gulf mixed; UAE mkts rise despite Arabtec weakness

* Iraq militants take Syria border post in drive for caliphate

* Israel accepts 1st delivery of disputed Kurdish pipeline oil

* Iran rejects "excessive demands" in nuclear talks with 6 powers

* Renault seeks financial partner to resume business in Iran

* MIDEAST DEBT-Gulf premium may vanish as views of region shift

TURKEY

* Hundreds of Turkish army officers freed from jail in "coup plot" case

* Iraq risks knocking Turkey's economic rebalancing off kilter

* Kuveyt Turk sets final price guidance ahead of sukuk issue on Thurs

EGYPT

* Egypt investment minister projects $10 bln foreign investment next year

* Egypt upholds death sentence on brotherhood leader, nearly 200 supporters

* Saudi king stops in Cairo to visit Egypt's Sisi

SAUDI ARABIA

* Dutch companies hit by Saudi retaliation for Wilders' anti-Islam campaign - minister

* Saudi's Al Rajhi Capital to launch first sukuk fund

* Saudi Eelectricity Co says signs $13.2 bln interest-free govt loan

UNITED ARAB EMIRATES

* Abraaj group aims for Cairo Medical Center takeover

* Etihad airways denies talks with malaysian airlines over equity stake

* Former CEO of Dubai's Arabtec says will hold on to stake

OMAN

* Oman plans refinery maintenance in June for about a month -operator (Compiled by Dubai newsroom)

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Argentina's YPF says its assets can't be embargoed by country's creditors

BUENOS AIRES, June 21 Sat Jun 21, 2014 9:58pm EDT

BUENOS AIRES, June 21 (Reuters) - Argentina's state oil producer, YPF, said on Saturday that since it is an "independent" company its assets cannot be embargoed by so-called holdout investors who are demanding full payment following the country's massive 2002 bond default.

The 2nd U.S. Circuit Court of Appeals ruled on Wednesday that Argentina could not continue to pay creditors who agreed to restructure their bonds after its 2001-02 default on $100 billion in debt unless it also paid $1.33 billion to the holdouts demanding full payment.

"YPF is an independent company and is governed as such in accordance to law. Its assets don't belong to the Republic of Argentina, and as such cannot be embargoed by the Republic of Argentina's creditors," the oil firm told Reuters.

President Cristina Fernandez said on Friday her government would negotiate with all of Argentina's creditors in a bid to avoid a new debt default that would further weaken the country's ailing economy.

Her government had threatened on Wednesday that it could default on its debt, saying it could not afford to make its next bond payment, due June 30, if it had to pay the holdouts as well as the owners of its restructured bonds.

The holdout creditors are led by NML Capital Ltd, a division of billionaire Paul Singer's Elliott Management Corp, and Aurelius Capital Management, chaired by Mark Brodsky.

Argentina struck a $5 billion compensation deal this year with Spain's Repsol over the 2012 nationalization of its Argentine energy unit YPF, and agreed to pay $9.7 billion in overdue debt to the Paris Club of creditor nations. (Reporting by Jorge Otaola; Writing by Anthony Esposito; Editing by Peter Cooney)

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GLOBAL ECONOMY WEEKAHEAD-Oil price risks put inflation back in focus

Sun Jun 22, 2014 5:00am EDT

* Iraq violence oil price spikes weigh on policy

* Euro zone PMIs to give flavour of euro zone recovery

* U.S. 1st-qtr GDP reading to give clues to Fed's next move

* Britain's 1st-qtr data more hopeful; Japan CPI in focus

By Robin Emmott

BRUSSELS, June 22 (Reuters) - Iraq will be foremost in investors' minds in the coming week as oil price risk has returned to markets, complicating the task for central banks whose policies are beginning to diverge for the first time since the global financial crisis.

Oil prices neared nine-month highs late last week, touching $115 a barrel, and the rapid advance of militants in Iraq, the second-largest OPEC producer, is destabilising oil markets.

That has implications for inflation in the United States and Europe, as well as Asia's export-oriented economies that are large net importers of oil.

Investors will be watching a range of data, from German and Japanese consumer prices to first-quarter U.S. GDP, to see how the Federal Reserve, the European Central Bank (ECB), the Bank of England and the Bank of Japan respond.

"Just as oil prices had become increasingly stable, we reckon the risk for an oil price spike is now the highest since the global crisis," said Christian Keller, an economist at Barclays. "We think a further price spike of 10 to 15 percent from here is not implausible," he said.

Until now, falling energy prices have partly been responsible for the euro zone's low level of consumer price inflation, which the ECB considers to be in its "danger zone".

A rise in the inflation rate would be welcome but economists and the International Monetary Fund believe the ECB still needs to consider U.S.-style money printing to support the bloc.

Euro zone sentiment readings and preliminary purchasing managers' surveys for June on Monday may give the ECB a sense of how much more help the euro zone economy needs. The recovery from a two-year recession lost pace in April and manufacturing has lost momentum.

Germany's inflation reading on Friday will give a taste of the euro zone-wide reading that is due the following week.

"Although higher near-term inflation may reduce the likelihood of more ECB easing in the short term, lower economic growth and core inflation down the line would, in fact, support the case for further policy accommodation at a later date," Luigi Speranza and Gizem Kara of BNP Paribas said in a note.

EU leaders will discuss economic policy at a summit on Thursday and Friday in Brussels.

SOBERING WEEK TO COME?

In the United States, investors will be looking to the third and final reading of U.S. first-quarter GDP figures on Wednesday to see if there is a revision of the 1 percent contraction already printed and which followed disappointing March trade figures.

Federal Reserve chief Janet Yellen cited reasons for optimism about the world's biggest economy last week, including household spending and a better jobs market. Economists generally agree that the effects of unusually bad winter weather will fade later this year.

Core U.S. consumer prices have risen 2 percent over the last year. If the inflation rate went much higher, it would put pressure on the Fed to consider moving to raise rates.

For now though, the impact of events in Iraq and an oil-driven increase in inflation seem to be less pressing for the Fed.

Yellen said interest rates could stay "well below longer-run normal values at the end of 2016".

Some of America's largest money managers interpreted her comments as signalling that rates will remain low throughout 2016.

A speech by Federal Reserve Bank of Philadelphia President Charles Plosser in New York on Tuesday will also be in focus.

"Following last week's Fed meeting and amid renewed concern over inflation, U.S. news flow might actually be rather sobering," said Rob Carnell, ING's chief international economist.

BRITAIN'S STRENGTH

There is also talk of additional stimulus in Japan in the coming months. Japan's annual exports declined for the first time in 15 months in May, hurting the world's third-biggest economy just as consumption is being crimped by an increase in national sales tax.

This week, much of the focus will be on core nationwide inflation for May and Toyko's core reading for June as well as the government's growth strategy, which is under discussion and may be formally decided by Friday.

The Bank of Japan's monetary stimulus helped weaken the yen by a fifth last year. But the currency has stabilised this year versus the dollar, limiting gains in the value of exports.

Among other big industrialised powers, first-quarter British GDP on Friday will show a different picture.

Economists polled by Reuters expect growth to be revised up to 0.8 percent due to a better showing from construction.

That would bring annual growth to 3.1 percent, the strongest since before the start of the global financial crisis.

The Bank of England could become the first major central bank to raise interest rates since the crisis.

"Markets now more or less fully price in a 25 basis point rate hike by year-end, consistent with our view," Michael Saunders and Ann O'Kelly at Citi said in a note. "We expect growth will remain strong even while rates rise." (Editing by Susan Fenton)

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UPDATE 1-Russia challenges U.S. at WTO over sanctions - PM Medvedev

Fri Jun 20, 2014 5:39pm EDT

(Adds U.S. Trade Representative spokesman's comment, paragraph 7-8)

MOSCOW, June 20 (Reuters) - Russia has filed a complaint with the World Trade Organisation against the United States for imposing sanctions over the Ukraine crisis, Prime Minister Dmitry Medvedev said on Friday.

Moscow had already told Washington it considered the sanctions, imposed in response to Russia's annexation of Ukraine's Crimea and its involvement in the Ukrainian crisis, to be illegal under WTO rules.

"When the United States imposed sanctions against Russia, which had a negative impact on our foreign trade, we decided to challenge these sanctions in the World Trade Organisation," Medvedev told a law conference in Russia's northern city of St Petersburg.

"We've sent a communique to the World Trade Organisation."

Washington and the European Union have imposed sanctions on several Russian and Ukrainian individuals, but Washington has also targeted a number of Russian firms and banks it says are linked to President Vladimir Putin or his close associates.

In particular, it accuses Russia of backing armed separatists fighting the government in eastern Ukraine.

A spokesman for the U.S. Trade Representative said the United States took its obligations under the WTO very seriously.

"Prior to instituting the sanctions against the Russian Federation, the United States carefully considered their consistency with WTO rules," he said.

But Medvedev said the sanctions violated WTO rules, arguing that banning service providers from another country constituted an infringement of the 'most favoured nation' status that WTO members accord each other.

Although it joined the WTO less than two years ago, Russia has already become embroiled in trade disputes with the European Union and Japan. A flurry of Russian threats and warnings suggest that more cases could soon follow.

He said challenging the United States may not be easy.

"The U.S. has both doctrinal and practical authority in the World Trade Organisation," he said. "The state is a leader in the raising of trade disputes with the WTO."

He also suggested that disputes between Russian and Ukraine companies could be solved in an arbitration court.

National security can be used as an argument to claim exemptions from WTO rules. The United States invoked national security as a member of the WTO's predecessor organisation to justify its economic embargo on Cuba. (Reporting by Lidia Kelly; Additional reporting by Krista Hughes in Washington; Editing by Tom Heneghan and Grant McCool)

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UPDATE 4-Argentina's Fernandez says willing to talk with all creditors

Fri Jun 20, 2014 7:04pm EDT

(Adds U.S. judge's prohibition of bond swap)

By Hugh Bronstein

BUENOS AIRES, June 20 (Reuters) - President Cristina Fernandez said on Friday her government would negotiate with all of Argentina's creditors in a bid to avoid a new debt default that would further weaken the country's ailing economy.

"We want to pay 100 percent of creditors," Fernandez said in a speech that boosted hopes of a settlement to the legal battle between her government and "holdout" investors who are demanding full payment following Argentina's massive 2002 bond default.

Argentina's financial markets were closed for a holiday, but international bond spreads, which measure default risk, tightened sharply after she spoke.

The country is locked in a 12-year-old fight in U.S. courts with the creditors who refused to accept a 2005 and 2010 revamp of debt securities.

More than 90 percent of creditors accepted the restructurings, which left them with less than a third of the original value of their bonds. But the holdouts demanded full payment and won a series of U.S. court rulings that have brought Argentina to the verge of a new default.

Until this week, Fernandez had refused to even consider negotiating with the holdouts. She portrayed them as "vultures" picking over the bones of the 2002 debt crisis, which thrust millions of middle-class Argentines into poverty.

But on Friday, gone was any harsh rhetoric in Fernandez's remarks.

"Argentina is willing to have a dialogue," she said.

The U.S. Supreme Court this week declined to hear an appeal by Argentina in its battle against the holdouts. That left intact a ruling by Judge Thomas Griesa, of U.S. District Court in New York, that bars the government from paying the holders of its restructured debt unless it also pays the holdouts.

The next payment on restructured debt is due June 30. If Argentina does not make that payment on time, it would have a 30-day grace period before falling into technical default.

"I have given instructions to our economy ministry for our lawyers to ask the judge (Griesa) to generate the conditions to be able to reach an accord that is beneficial and egalitarian for 100 percent of creditors," Fernandez said.

Argentine stocks trading in the United States surged on the news, with the Bank of New York Argentine ADR index rising more than 6.6 percent.

Argentine risk spreads were more than 100 basis points tighter at 715 over safe-haven U.S. Treasuries, according to the JP Morgan Emerging Markets Bond Index Plus, which as a whole stood at 284 basis points over Treasuries.

DWINDLING RESERVES

Settling the dispute would allow Fernandez to finish her remaining year and a half in office without the financial tumult that would accompany a default. She is constitutionally barred from seeking a third term at the next election in October 2015.

Leading candidates to succeed her say they would follow more investment-friendly policies than Fernandez, who has expanded the state's role in Latin America's No. 3 economy with heavy-handed currency controls, import barriers, high soybean export taxes and unpredictable curbs on corn and wheat shipments.

The impasse in the U.S. courts has kept the South American grains exporting powerhouse from accessing the global bond market.

Foreign financing is needed to improve Argentina's farm infrastructure and stimulate its faltering economy as inflation soars and central bank reserves slump to eight-year lows of about $28.5 billion.

The government faces nearly $6 billion in debt payments and nearly $10 billion in 2015, according to the economy ministry.

Argentine this year struck a $5 billion compensation deal with Spain's Repsol over the 2012 nationalization of its Argentine energy unit, YPF, and agreed to pay $9.7 billion in overdue debt to the Paris Club of creditor nations.

Economy Minister Axel Kicillof on Tuesday floated the idea of swapping bonds governed by New York law for those under local jurisdiction as a way out of the legal bind. Griesa on Friday entered an order against the exchange.

"The proposal of the economy minister is in violation of the rulings and procedures now in place in the Southern District of New York, and the Republic of Argentina is prohibited from carrying out the proposal," the order said.

Many of the funds holding restructured bonds are prohibited by their own bylaws from owning debt under foreign jurisdictions. (Additional reporting by Jorge Otaola and Sarah Marsh in Buenos Aires, Daniel Bases in New York; Editing by Chizu Nomiyama, Kieran Murray and Leslie Adler)

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QE part of ECB toolkit, but focus now on current stimulus -Draghi

Sat Jun 21, 2014 12:01am EDT

* QE would be answer to deteriorating inflation expectations

* QE can include government bonds, private sector loans

* But at the moment ECB focusing on current measures -Draghi

* ECB sees no sign of deflation in euro zone

* Interest rates "will remain low over a longer period"

FRANKFURT, June 21 (Reuters) - European Central Bank President Mario Draghi said large-scale asset purchases are part of the central bank's toolkit, but for now it would focus on its latest set of stimulus measures.

Draghi told Dutch newspaper De Telegraaf in an interview published on Saturday that the euro zone recovery was still weak, uneven and vulnerable and that interest rates would stay low over a longer period.

Asked what needed to happen before the ECB would start buying assets to give banks more money to lend, also known as quantitative easing, Draghi said "that would be the answer to a deterioration of inflation expectations over the medium term."

"At the moment, however, we are focusing on the measures announced on 5 June," Draghi was quoted as saying.

The ECB's target for medium-term inflation is below, but close to 2 percent, a far cry from the current level of 0.5 percent, which has sparked concern the euro zone could enter a Japan-style deflationary spiral of falling prices, slowing growth and waning consumption and investments.

At the June policy meeting, the ECB cut interest rates to record lows - the deposit rate below zero - and launched a series of steps to boost lending to companies. Draghi said after the meeting the ECB could still do more if necessary.

Buying government bonds "is indeed possible within our mandate, namely if the purchases are aimed at ensuring price stability," Draghi told the paper. "Quantitative easing can include not only government bonds, but also private sector loans. We will discuss that when the time comes," Draghi said.

But he emphasised that the ECB had not seen any deflation in the sense of prices declining across the whole spectrum in the euro zone, with households and firms postponing consumption and investment because they are waiting for lower prices.

The recovery was still vulnerable, however, and Draghi warned that disruptions in the global economy could "quickly change the situation." Persistently low inflation also made adjustments more difficult, Draghi added.

Asked how long interest rates would remain low, he said:

"We have prolonged banks' access to unlimited liquidity up to the end of 2016. That is a signal. Our programme in support of bank lending to businesses will continue for four years. That shows that interest rates will remain low over a longer period."

Thereafter rates would increase when the recovery firmed up.

PERFECT MONETARY UNION

A key step that took the sting out of the European debt crisis was Draghi's signature policy - the OMT bond-buy plan he launched in 2012 to back up his pledge to do "whatever it takes" to save the euro.

Even without deploying the tool, markets calmed down.

Draghi said he was, like many others, surprised by the magnitude of the effect the programme has had.

"We were all surprised," he said, adding that the programme despite not being used so far could be activated if needed.

"In order to be credible, we also had to be sure that we could actually use the instrument. We were not bluffing, most certainly not," he said.

Turning to euro zone politics, Draghi said "far more is necessary for a perfect monetary union" and suggested to subject structural reforms to union-wide discipline, too.

"In the case of the budget agreements, sovereignty has been shared among member states. That should also be done with respect to the labour market, competitiveness, bureaucracy, agreements on the internal market," Draghi said.

"You could grant greater powers to the European Commission, or to the member states within the European Council, or you could create new European institutions. That is not for me to decide," Draghi said.

(Reporting by Eva Taylor; Editing by Lisa Shumaker)

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Greek current account deficit widens in April

Fri Jun 20, 2014 4:18am EDT

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  ATHENS, June 20 (Reuters) - Greece's current account deficit  widened slightly in April from the same month last year,  according to balance of payments figures released by the central  bank on Friday.      The deficit stood at 1.167 billion euros ($1.58 billion)  from 1.151 billion euros in April 2013.      Tourism revenues rose to 411 million euros in April from 303  million euros in the same month in 2013.  ***************************************************************      KEY FIGURES (bln euros)        2014         2013      January                      -0.295       -0.314      February                     -0.709       -0.684      March                        -0.044       -1.241      April                        -1.167       -1.151      -------------------------------------------------      source: Bank of Greece     (Reporting by George Georgiopoulos, editing by Deepa Babington)  

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German ex-chancellor Schroeder urges more time for EU reforms

BERLIN, June 20 Fri Jun 20, 2014 3:20am EDT

BERLIN, June 20 (Reuters) - Former German Chancellor Gerhard Schroeder has warned indebted southern European states must be given more time to fix their budgets, otherwise voters will turn to extremes on the political right and left, endangering the entire European project.

Schroeder, who governed in a centre-left coalition from 1998-2005, threw his weight behind fellow Social Democrat Sigmar Gabriel, the economy minister, and his call this week for more flexibility from Brussels on budget consolidation. Schroeder said it was in Germany's interests to grant more time.

EU policymakers said while meeting in Luxembourg on Thursday that Brussels could be flexible but it must have proof that reform efforts are taking place.

Finance ministers agreed there was no need to change the EU Stability and Growth Pact, which limits budget deficits to 3 percent of gross domestic and public debt to 60 percent of GDP.

In an opinion piece published in Handelsblatt newspaper on Friday, Schroeder reminded readers Germany had undergone painful reforms during his tenure and was now feeling the benefits.

"We know from our own experience in Germany that it takes years for reforms to work. This time has to be bridged - with growth programmes and schemes to fight youth unemployment," he wrote. "States need room financially for this, which they should get under the condition that they really will reform."

Existing EU rules allow for slower budget consolidation if a country makes investments or undertakes structural reforms. But policymakers worry that more time for deficit cuts may not bring about the desired effects because reforms are postponed.

Their concerns were sparked by France, which was given more time to meet its targets but has fallen short of expectations in terms of reforms.

Germany under Angela Merkel has been an ardent defender of budget austerity, making Gabriel's remarks particularly striking. The coalition government of her conservatives and the SPD has since stressed that Gabriel was not implying that the rules needed to be changed. (Reporting by Alexandra Hudson; Editing by Stephen Brown)

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EMERGING MARKETS-Ukraine bonds recover; emerging stocks head for weekly loss

Fri Jun 20, 2014 6:58am EDT

(Refiles to clarify sourcing in 4th paragraph)

By Sujata Rao

LONDON, June 20 (Reuters) - Ukrainian bonds rose slightly on Friday, recovering from panic over possible debt restructuring though most emerging assets weakened against the backdrop of violence in oil exporter Iraq and a rise in U.S. bond yields.

Emerging stocks were set to snap two weeks of gains, falling 0.3 percent on the day despite record highs on the world equity index, and most currencies slipped, with energy importers facing the prospect of significantly higher oil prices.

The United States said it would send up to 300 U.S. military advisers to Iraq, raising the prospect of a broader military conflict. In Ukraine too, battles raged, with 300 separatist rebels reported to have been killed on Thursday.

Ukraine's dollar bonds steadied following a mid-session plunge on Thursday after an official from the Institute of International Finance told journalists on a conference call that Kiev was looking at the possibility of restructuring debt in future but on a voluntary basis and without imposing haircuts on investors.

The 2017 bond, which fell 2.5 cents on Thursday to 97 cents, recouped losses at the end of the day and firmed another quarter cent on Friday to 99.750 cents in the dollar.

Ukraine also paid the coupon on a $3 billion Eurobond.

Societe Generale strategist Regis Chatellier said that while Ukraine did not immediately need any debt restructuring the issue was likely to come up in future.

"I don't think it will happen now because Ukraine doesn't want to scare investors and also, the main issue at the moment is not debt but gas supply and economic recession," he said.

"But pressure on hard currency reserves is very high...Some years down the road they will be in a position where debt will become a problem and they will need some help with this."

But while bond markets calmed, Ukraine's 5-year credit default swaps have risen 35 basis points on the week, reflecting the ongoing fighting and gas supply tensions with Russia.

Russian assets failed to benefit from rising oil prices. Moscow stocks came off 4-1/2 month highs while the rouble eased from three-week highs to the dollar.

GEO-POLITICS, U.S. YIELDS

Chatellier said emerging assets had been supported in recent months by investors covering short positions. Emerging stocks for instance are up 15 percent from February lows, while dollar bond yield premia over Treasuries have snapped in 100 bps.

"Earlier it was technicals driving emerging markets. Now it's geo-politics, that will be the case for a while," he said.

However the lack of further sanction threats from the United States and Europe have emboldened Russian companies to approach bond markets with roadshows - Sberbank is meeting investors in London on Friday while Gazprombank is due to do so on Monday.

"There is good news in the fact that we see corporates return to hard currency issuance ... (But) it remains far from clear that Russian corporates and banks can return to rolling all external debt coming due ... given that sanctions remain in place," Unicredit analysts wrote.

The events in Iraq and the oil price surge were also hurting Turkey where stocks pulled back 0.25 percent XU100> and 5-year CDS rose 8 bps to a one-month high, according to Markit.

Emerging markets are also pressured by the U.S. recovery that could bring forward the date of interest rate rises. Strong data on Thursday took some of the edge off the Federal Reserve's dovish message, boosted the dollar and pushed up bond yields.

Earlier in the day, most Asian currencies eased versus the dollar and stocks fell. Chinese mainland shares posted their worst weekly loss in almost two months .

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 Ruth Pitchford)

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