Russia's VTB says ready to borrow in other markets after Western sanctions

MOSCOW, July 30 Wed Jul 30, 2014 6:29am EDT

MOSCOW, July 30 (Reuters) - Russia's second-largest bank, VTB, said on Wednesday it was ready to borrow on financial markets outside the European Union and United States after it was included in new Western sanctions over the Ukraine crisis.

"VTB Group is ready to borrow in other currencies and on other markets," the bank said in a statement, adding that it did not see any threat to its overseas business from the sanctions. (Reporting by Oksana Kobzeva and Alexander Winning, editing by Elizabeth Piper)

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Russia says confused by Obama's accusations over Malaysian jet crash probe

MOSCOW, July 30 Wed Jul 30, 2014 6:34am EDT

MOSCOW, July 30 (Reuters) - Russia is puzzled by U.S. President Barack Obama's suggestion that Moscow was not cooperating with an international investigation into what downed a Malaysian Airline's jet earlier this month, the Foreign Ministry said on Wednesday.

"The words of U.S. President B. Obama that Russia is not cooperating with an international investigation into the catastrophe of the Malaysian Boeing cause confusion," the ministry said in a statement.

Obama has said Russia has a direct responsibility to compel pro-Russian separatists to cooperate with the investigation and that the burden is now on Moscow to force pro-Russian separatists to stop blocking the investigation. (Reporting by Thomas Grove, editing by Elizabeth Piper)

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Spain's Acciona close to mandating advisors on yieldco listing

MADRID, July 30 Wed Jul 30, 2014 6:38am EDT

MADRID, July 30 (Reuters) - Span's infrastructure and energy firm Acciona is close to mandating advisors on a potential listing of a yieldco vehicle that will hold all or part of its international energy assets, management said on Wednesday.

On a conference call, management said the size of the listing would not be below $250 million, though the final amount would depend on market conditions and pricing.

Acciona also plans to sell its Transmediterranea shipping business this year, it said, as part of a drive to sell non-core assets and reduce debt. (Reporting by Tracy Rucinski; Editing by Julien Toyer)

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UPDATE 1-Russian shares fall further as market awaits EU sanctions decision

Tue Jul 29, 2014 4:51am EDT

(Adds comments, detail, updates prices)

MOSCOW, July 29 (Reuters) - Russian stocks dipped in volatile trade on Tuesday, extending the previous day's huge losses as investors awaited a broad round of economic sanctions the European Union is preparing to impose on Russia over the Ukraine crisis.

The dollar-denominated RTS index was down 0.6 percent at 1,201.2 points at 0840 GMT after falling 3 percent on Monday. The rouble-traded MICEX fell 0.2 percent to 1,359.2 points.

"At the moment we don't know what the sanctions will be and which companies they will effect. If they are real sectoral sanctions as promised, then we will see a completely different valuation for all companies in those sectors. They will not look cheap at current levels," said Geldy Soyunov, senior analyst at Alfa Bank in Moscow.

EU diplomats reached a preliminary agreement on Monday on a list of associates of Russian President Vladimir Putin and companies that will face sanctions as part of tougher measures over Moscow's actions in Ukraine, EU sources said.

Diplomats will hold more talks on Tuesday to try to forge agreement on broader economic sanctions on Russia, targeting capital markets, defence and sensitive technology, provided all 28 EU member states can agree.

"Until we know how the sanctions will look, we will see high volatility. Volumes are very low, they have fallen on the MICEX by about a third since June," Soyunov said, citing the summer holiday period.

Shares in Russia's two largest banks, Sberbank and VTB, underperformed the broader market on fears that they could be included in the expanded EU sanctions. VTB slipped 1 percent by 0840 GMT, while Sberbank traded 0.8 percent lower on the MICEX.

"If Sberbank or VTB are blocked from accessing European capital markets, then their net interest margin will collapse and we will see a different valuation by price to book," Soyunov said.

The rouble extended its losses, slipping 0.30 percent against the dollar to 35.65. Against the euro, the Russian currency fell 0.38 percent to 47.89.

That left the rouble 0.32 percent weaker at 41.16 versus the dollar-euro basket the central bank uses to guide the rouble's nominal exchange rate after earlier on Tuesday touching its lowest since mid-May.

For rouble poll data see

For Russian equities guide see

For Russian treasury bonds see

Russia in graphics: link.reuters.com/dun63s (Reporting Alexander Winning and Lidia Kelly; Editing by Hugh Lawson)

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Russia says latest U.N. human rights report "hypocritical"

MOSCOW, July 29 Tue Jul 29, 2014 5:46am EDT

MOSCOW, July 29 (Reuters) - Russia said on Tuesday the latest U.N. human rights report on fighting between Ukrainian forces and pro-Russian separatists in eastern Ukraine was "hypocritical".

"The report is unobjective and even hypocritical," the Foreign Ministry said in a statement, adding the report had failed to mention the detentions of Russian journalists in eastern Ukraine and the reported use of heavy rockets by the Ukrainian army against civilians. (Reporting by Lidia Kelly, writing by Thomas Grove, editing by Elizabeth Piper)

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Spain to revise economic growth forecasts for 2014, 2015

MADRID, July 29 Tue Jul 29, 2014 6:15am EDT

MADRID, July 29 (Reuters) - Spain's Economy Minister Luis de Guindos said on Tuesday the government would revise its current economic growth forecasts to around 1.5 percent growth this year and to around 2 percent next year.

The government currently sees the economy expanding by 1.2 percent in 2014 and 1.8 percent in 2015 and the new guidance on official forecasts, to be finalised in September, comes after a similar update by the Bank of Spain last week. (Reporting by Carlos Ruano, Writing by Paul Day, Editing by Sarah Morris)

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REFILE-INSIGHT-Far behind Merkel, German left leader plots party revival

Sun Jul 27, 2014 4:29am EDT

(Corrects typo in paragraph 2)

By Noah Barkin and Holger Hansen

BERLIN, July 27 (Reuters) - The German political landscape is strewn with men who tried to take on Angela Merkel and failed. Sigmar Gabriel, the leader of the centre-left Social Democrats (SPD), is working hard to avoid the same fate.

Since the SPD's crushing defeat at the hands of Merkel's conservatives in an election last September, no German politician has racked up as many political wins as the 54-year-old economy minister with keen political instincts and a knack for rousing speeches.

Gabriel's importance lies in the fact that he is holding his party together in the face of Merkel's enduring popularity, a necessary first step towards giving the SPD another crack at power even though it still faces a long haul before voters will buy into that.

In the aftermath of September's loss, he went out on a limb to convince his fractious party to join forces with the chancellor in a right-left "grand coalition", ultimately winning over his colleagues and securing policy concessions from Merkel.

Since the coalition government took power seven months ago, the SPD has dominated the domestic policy agenda, with Gabriel as vice chancellor and minister for economic and energy issues.

He has overseen a reform of Germany's complex renewable energy law, a task that eluded Merkel's previous centre-right government. His party has also delivered on policy promises on a minimum wage and pensions.

For the first time in over a decade, SPD officials say, infighting over the party's direction and who should lead it has subsided. In November, Gabriel will become the longest serving SPD leader since party great Willy Brandt - though at five years so far it is a far cry from Brandt's 23-year reign.

"In the party it's clear now, he's the number one," said Jan Stoess, leader of the Berlin branch of the SPD. "With the policies of the new government, he has pacified the SPD. The party is relatively happy now and relatively calm."

ANOTHER LEAGUE

This is no mean feat. Ever since former SPD Chancellor Gerhard Schroeder pushed through welfare reforms a decade ago, the party has endured rows between its left and right wings.

It has switched leaders five times since 2004. In the 2009 election, support for the SPD crashed to a post-war low of 23 percent. In September it didn't do much better, with 26 percent.

Gabriel, who was born in the northern town of Goslar and became one of Germany's youngest state premiers at the age of 40 when he took over Lower Saxony in 1999, is a pragmatist who can bridge the gap between left and right.

"You should neither bury (Schroeder's reform) nor treat it like a monument to lay wreaths at every day," he said in 2008.

However, to have a chance of reclaiming the chancellery in 2017 - when he could face Merkel or her successor as leader of the conservative Christian Democrats (CDU) - Gabriel must vault the party back above the 30 percent mark and improve on his personal popularity ratings, pollsters say.

So far, despite his policy triumphs and the newfound party harmony, that hasn't happened. Support for the SPD has barely budged since the vote.

In a Forsa poll this week, 62 percent of voters said they preferred Merkel in a theoretical two-way race for chancellor, compared to just 11 percent for Gabriel, who was dismissively referred to as "Siggi Pop" in the early 2000s when he briefly became the SPD's representative for pop culture.

"Overall, his image has improved," said pollster Matthias Jung of Forschungsgruppe Wahlen. "But Merkel is in another league."

Merkel and Gabriel worked together in her first coalition with the SPD from 2005-2009, when he was environment minister. The 2010 leak of a confidential text message from Gabriel, then leader of the opposition, to Merkel about a candidate for the presidency caused tension, but they have patched things up.

To address what even SPD members describe as a "seriousness deficit", Gabriel, has taken a page out of Merkel's book, by hunkering down, working hard and keeping quiet.

He gets up at 5-6 a.m. and regularly puts in 17-18 hour days, according to his colleagues. He gives fewer interviews.

To soften his image, he has opened up about his personal life, talking about his estrangement from a Nazi father and taking Wednesday afternoons off to pick up his daughter from nursery.

MINISTRY SHAKE-UP

Gabriel, who declined a request to be interviewed for this story, is also shaking things up at the economy ministry, a staid bureaucracy whose influence has waned.

He took over responsibility for Germany's high-profile switch to renewable energy, hiring Rainer Baake from the Greens to lead the reform while he wooed industry by defending it against criticism from Brussels.

Keenly aware that a sound record on economic management will be crucial for success in the next election, the SPD leader has implemented other changes at his ministry.

He has recruited Jeromin Zettelmeyer, a Spanish-born, MIT-educated economist who was director of research at the London-based European Bank for Reconstruction and Development, to run the important economic policy section.

In a sign of Gabriel's desire to have a say in European policy, Zettelmeyer has begun attending preparatory sessions for euro zone finance ministers' meetings previously reserved for chancellery and finance ministry officials.

Gabriel even weighed in on a debate about European Union deficit rules during a visit to France last month.

He is also looking into ways to boost investment in infrastructure and get capital flowing to start-ups, as part of a push to bolster the SPD's image as a guardian of the economy and defender of the middle class. During last year's election, polls showed this was one of the SPD's big weaknesses.

Joerg Asmussen, who moved to the SPD-run labour ministry from a top job at the European Central Bank when the coalition was formed, argues in party newspaper "Berliner Republik" that the SPD must move to the centre to win new supporters.

"To emerge from the 25 percent ghetto we need a broader new agenda aimed at the middle class," he wrote. "This is the only way we Social Democrats can hope to claim the Chancellery again at some point in future."

But if Merkel does run for a fourth term in 2017, Gabriel's chances of becoming chancellor may be slim. The "Mutti" (Mummy) of the nation is riding a wave of popularity that is unprecedented in post-war German history. (Additional reporting by Andreas Rinke, Gernot Heller and Madeline Chambers; Writing by Noah Barkin; Editing by Giles Elgood)

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GLOBAL ECONOMY WEEKAHEAD-Investors pin growth hopes on U.S. as Ukraine crisis casts shadow on Europe

Sun Jul 27, 2014 5:00am EDT

* Economic sanctions loom for Russia

* Investors eye US for growth amid Europe's gloom

* China's economy keeps up pace

By John O'Donnell

FRANKFURT, July 27 (Reuters) - With the prospect of stiffer sanctions against Russia rattling confidence in Europe, investors will be looking to the United States and China to underpin the global economy.

Wednesday's U.S. gross domestic product (GDP) reading and jobs data on Friday will help markets to judge the strength of the economy's rebound and the likely speed of the Federal Reserve's return to more conventional monetary policy. The Fed meets on Tuesday and Wednesday.

"The U.S.-China story is looking more encouraging," said James Knightley, an economist with ING. "With the European Central Bank's moves, that should allow the euro zone economy to swing upwards but with a good six- to 12-month lag."

In Europe, the downing of a Malaysia Airlines airliner over eastern Ukraine has left countries such as Germany with little choice but to change their long-passive stance and impose tougher sanctions on Moscow over the role of pro-Russian separatists.

Early this week, European Union ambassadors are expected to meet to finalise sanctions that could include closing EU capital markets to state-owned Russian banks, placing an embargo on arms sales and restricting supply of energy technology.

Globally, such sanctions would bite hardest in Europe, where Russia does most trade, compounding economic problems not only for Russia but throughout the region.

The International Monetary Fund has already flagged the 'chilling effect' on investment in Russia of sanctions as it pared back its forecast for global economic growth last week.

Confidence amongst businesses in Germany, which accounts for more than one quarter of all exports across the European Union, has dipped further since the plane crash.

"The situation is very dangerous," said Michael Heise, chief economist of Allianz, one of the globe's largest fund investors.

"An escalation carries large risks for the economy," he said, cautioning in particular of the knock to confidence. "There is a big risk from further sanctions although one has to accept that clear (diplomatic) signals are needed."

BOUNCE-BACK

The crisis comes at a delicate moment for the 18 countries using the euro, where a fledgling recovery is losing pace. Investors will get a snapshot of the bloc's inflation rate, which has sunk well below the European Central Bank's target, on Thursday.

With Britain, one of the stronger European economies, caught up in the push for mutually painful sanctions against Russia, economic growth prospects hinge on the United States and China.

"We think there is going to be a bounce-back in (U.S.) gross domestic product," said ING's Knightley. The Reuters consensus shows annualised growth picking up to 3 percent in the April-June quarter.

Data from Beijing is expected to confirm China's economy picked up in July after government moves to boost lending to business, such as reducing the amount of cash banks must hold in reserve.

China's economy grew at 7.5 percent in the second quarter. But the drags on growth, including a downturn in property prices and high local government debts, are similar to those in Europe.

Analysts believe that deeper reforms, such as overhauling giant state companies, will be needed in the long term to keep the economy growing at the pace the authorities want.

That keeps the focus on U.S. Federal Reserve and how fast it will run down the stimulus that has pumped cheap money around the world, prompting investors to take increasing risks.

The Fed gathers on Tuesday for its two-day meeting but no change of course is expected yet.

Earlier this month, Federal Reserve Chair Janet Yellen signalled that she would keep the central bank's purse strings loose until the effects of the financial crisis are "completely gone."

But some analysts say the central bank may be forced to take a stricter approach to avoid pumping up market bubbles.

"People worry that the Fed may raise interest rates earlier than expected," Nie Wen, an analyst with Hwabao Trust in Shanghai, told Reuters. He predicts a rise in interest rates as soon as early next year.

Michael Heise of Allianz warns that keeping money too cheap for too long carries a major risk.

"If the central banks stay too accommodative for too long, you can have a boom ... and it can come to a massive correction."

In a reminder of the delicate balance facing financial policymakers, Argentina will seek next week to reach agreement with investors suing the country for full repayment of their bonds.

President Cristina's Fernandez's unflinching stance would appear to indicate that the country will go down to the wire. If talks fail, Argentina faces its second default in 12 years. (Additional reporting by Kevin Yao in Beijing, Adrian Croft in Brussels and David Chance in Washington; Editing by Ruth Pitchford)

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Many investors face Scotland exit risk unprotected

Sun Jul 27, 2014 5:39am EDT

* UK break-up seen as outside chance

* Many experts do not expect much volatility

* Insurance choices prove tricky, costly

By John Geddie and Jemima Kelly

LONDON, July 27 (Reuters) - Less than two months before an independence vote that could ultimately tear apart a G7 country, investors in financial markets seem largely unmoved.

Last week saw the first glimmer of action in currency markets to protect against the possibility of Scotland voting on Sept. 18 to break away from the United Kingdom.

But against the backdrop of ultra-low volatility in financial markets that barely stirs even in major geopolitical crises, such moves have been small.

Reasons for leaving financial positions uncovered heading into the vote range from the complexity, the costs and expectations of interest rate rises which muddy the waters. Generally, it's just not considered worth it.

"Investors are completely not positioning themselves for the potential of a vote in favour of independence," said Insight Investment's head of currency Paul Lambert.

Opinion polls that show a lead of around 20 points for the 'No' voters, excluding the undecided, are enough to convince many investors that anything else is too remote a possibility to worry about.

Bookmakers see a 'No' vote as highly likely, offering odds of just 1/8. One Surrey-based businessman staked 400,000 pounds ($680,000) on this bet - the biggest political gamble that bookmaker William Hill has ever received - last month when the odds were 1/4, standing to win 100,000 pounds if he is right.

But even for those slightly perturbed by some polls that show nearly 30 percent of voters are still undecided, finding how best to protect financial assets is no simple task.

"It's very difficult to factor in the risk of Scottish independence. At the moment Scottish assets are so embedded in UK assets, so how do you pick them off? What would you sell?" said Rabobank currency strategist, Jane Foley.

"UNTRADEABLE"

Morgan Stanley's strategy team has been rare among banks to put a figure on the chances of a 'Yes' vote - 25 percent. It, among others, is certain that sterling and UK government bonds would come under some pressure if Scottish leader Alex Salmond's nationalists won the vote.

It says the volatility it would cause could discourage the Bank of England from raising interest rates in support of a rebounding UK economy - an eventuality that money markets have fully priced in for December.

Investors can decide to take out an option to insure against this outcome while retaining their existing positions.

The question is whether the price of protection is worth paying to cover the potential losses which, in the currency markets, some have predicted could shave up to 10 percent of the pound's value versus the dollar.

Many are unconvinced.

One money markets broker, who wished to remain anonymous, said "the ramifications of a 'Yes' vote could kneejerk sterling money markets higher, but not enough in my view to pay for the hedge."

"My conclusion is that the Scottish independence vote is untradeable."

Citi is one of the few banks to have stuck its neck out and advised clients to try to offset any potential losses by buying credit default swaps on UK government bonds.

With the costs of five-year CDS contracts at their cheapest level since 2008 - less than higher-rated German equivalents - there is potential for their value to rise amid referendum-related volatility.

However, very few people are bothering to buy them.

The net notional for five-year UK CDS - a broad measure of the market's exposure to this contract - fell to its lowest since 2008 this month, according to Creditviews data.

SLEEP EASY

The underlying message from strategists and researchers to equity investors is "don't worry".

Morgan Stanley predicts there will be no repeat of the jitters that gripped Canadian stocks when one of its most productive provinces, Quebec, nearly seceded in the mid 1990s.

"A large and sustained move is unlikely given the small impact we expect on UK profits from a Scottish exit," it said.

Investors holding any of the 100 Scottish-based companies listed on UK bourses can also sleep easy, concluded a paper by Paul Marsh of the London Business School and Scott Evans of Walbrook Economics.

"To some extent, they are protected by the fact that both companies and individuals can redomicile if necessary," said the paper. "There will also be a period of at least 18 months during which the terms of separation are negotiated. They can thus afford to 'wait and see' and then make plans."

There has so far been no evidence that equity investors are bracing for a shock. There are those, though, who fear this ambivalence, which they say also surrounds UK plans to hold a referendum on membership of the EU, could come back to bite.

"The most mismanaged country risk I have ever seen in my career is the UK," said Beltran Lastra, a senior equities fund manager at JPMorgan Asset Management. "The Scotland case is another example of that happening."

($1 = 0.5892 British Pounds) (Writing by John Geddie; additional reporting by EMEA markets team; editing by Philippa Fletcher)

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GLOBAL MARKETS-Euro, shares sag as Ukraine woes hit German confidence

Fri Jul 25, 2014 6:27am EDT

  * Euro dips, European shares subdued after downbeat German  Ifo survey      * U.S. jobless claims data, record S&P close keep shares  near highs      * Rouble rises as Russian central bank surprises with rate  hike      * Chinese shares post strongest week since September     (Adds prices, comment, context)      By Marc Jones      LONDON, July 25 (Reuters) - Signs that tensions between the  West and Russia are starting to hurt confidence in Europe's  dominant economy Germany left the euro near an eight-month low  on Friday and lifted the region's government bonds.      Germany's Ifo survey revealed a hefty fall in business  confidence over the last few weeks, prompting concerns the  region's growth engine and driver of its recovery could be  stuttering.       It was the third consecutive fall in an index which monitors  the mood of thousands of German firms, and Ifo's economists  admitted the scale of the decline this month had come as a  surprise.       "Geopolitical tensions are taking their toll on the German  economy," Ifo said. "Companies were also less optimistic about  future business developments."      The euro fell back towards Thursday's eight-month low  of 1.34 and bonds from Germany to Greece made  ground as traders wagered the downbeat data upped the likelihood  the European Central Bank will need to provide the economy with  further support.      Shares also clawed back some of their early losses.  keeping them on course for a second week of gains. It is a rise  that has helped world stocks gradually push back  towards the all-time highs they reached last month.      Some encouraging U.S. company earnings, reassuring data from  China, and still record-low global borrowing costs have  persuaded investors to look past the rise in tensions in Ukraine  and Gaza this week.      Chinese shares rose another 1 percent on Friday to  secure their biggest weekly gain - 5.6 percent - since September  last year.      A survey on Thursday showed factory activity in the country  expanded at its fastest in 18 months, dovetailing with hopes  that Chinese authorities will drive through beneficial reforms  in the coming months and years.              At the opposite end of the spectrum, dollar-traded Russian  stocks fell over 1 percent to take their losses over the  last two weeks to 12 percent, though the rouble rose as  the country's central bank unexpectedly raised interest rates.         European officials are to continue talks later over plans to  squeeze Russia over Ukraine with further sanctions following the  downing of a Malaysian Airlines that killed almost 300 people.      A deal is not expected to be struck until next week but  options being discussed include curbing Russian access to  capital markets and arms and energy technology that could hurt  both Russian banks and its huge oil industry.             GROWTH PROSPECTS      As the week drew to a close in Asia, MSCI's broadest index  of Asia-Pacific shares outside Japan was down  about 0.3 percent but on track for solid weekly gain of more  than 1 percent. Hong Kong's benchmark index hovered around its  highest in more than three years after its best week since May.      "The prospect for the global economy has not been too bad  thanks to recently strong U.S. shares and China data, but we  should not be overly optimistic," said Norihiro Fujito, senior  investment strategist at Mitsubishi UFJ Morgan Stanley  Securities in Tokyo.      Fujito said that long-only investors have stayed on the  sidelines as events in Gaza and Ukraine have curbed their  appetite for risk. He also said many are also waiting for more  positive trading cues, after the International Monetary Fund cut  its 2014 forecast for global economic growth.       On Wall Street overnight, the S&P 500 eked out a  slight gain to its second record closing high in a row, even  after earnings painted a mixed picture of the economy.       After a run of solid tech sector results this week, Amazon   reported a much bigger loss than expected. The biggest  U.S. online retailer's shares tumbled 10.6 percent in  after-hours trade, wiping more than $17 billion from its market  valuation.       Wall Street was expected to reopen around 1 percent lower  according to European-traded futures.            EURO NEAR 8-MONTH LOW      The downbeat Ifo survey pushed the euro back towards  Thursday's eight-month low of $1.3438 as another albeit  smaller-than-expected fall in lending to firms in new ECB data  further underscored the bloc's struggles.       The dollar, the dominant force in currency markets again  this week, was up slightly against the yen at a 2-week high of  101.90 aided by a rise in U.S. government bond yields.         The yen showed little reaction to Friday's Japanese consumer  price data that was in line with forecasts and did not do much  to stir expectations for further monetary easing by the Bank of  Japan. Core consumer prices rose 3.3 percent in June from a year  earlier, matching forecasts.        Gold was steady at $1,292.74 an ounce after dropping  to a one-month low overnight. U.S. crude edged down  slightly to $102.05 a barrel, while Chinese growth-attuned  copper headed for its fifth weekly rise in six.      Unrest in the Middle East and Ukraine continued to keep  investors alert for any developments that could have a wider  impact on risk sentiment and markets.      U.S. Secretary of State John Kerry pressed regional proxies  to nail down a Gaza ceasefire on Friday as the civilian death  toll soared, threatening to spread Israeli-Palestinian bloodshed  to the occupied West Bank and Jerusalem.      (Additional reporting by Lisa Twaronite in Tokyo, editing by  John Stonestreet)  

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UPDATE 1-China's bad loan ratio rises, adding to bank sector worries

Fri Jul 25, 2014 6:31am EDT

* China end-June NPL ratio rises to 1.08 pct

* Bank regulator warns of credit risks in property (Adds details, quote)

BEIJING, July 25 (Reuters) - Chinese banks' bad loan ratio rose to 1.08 percent at the end of June from 1.04 percent in March, the banking regulator said on Friday, adding to concerns a slow economy and cooling property market could weigh on banks and brew up financial risks.

The rise in the ratio across the whole banking sector is in line with anecdotal evidence of an increase in bad loans seen recently in some provinces plagued by industry overcapacity. Some independent economists believe the ratio is far higher.

Chinese media reported on Thursday that the value of bad loans in China's eastern Shandong province surged 25.8 percent between January and June this year.

The China Banking Regulatory Commission (CBRC), in a statement reviewing its work in the first half, urged lenders to control risks.

"Chinese banks must particularly monitor credit risks in the property sector, local government financial vehicles and industries that are suffering from overcapacity problems," CBRC Chairman Shang Fulin said at an internal meeting, according to the statement.

The CBRC also promised to step up efforts to expand a pilot scheme to develop private banks as part of efforts to open up the financial sector.

Separately, the regulator announced on Friday it had approved the setting-up of three news banks wholly funded with capital from private firms, a step that introduces the first private lenders into a sector dominated by state giants.

(Reporting by Aileen Wang; Editing by Kim Coghill and Alan Raybould)

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Update-Moody's places BSkyB's Baa1 ratings on review for downgrade following the announced European acquisitions

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EU wants to stop Russian state-owned banks from raising capital in EU

BRUSSELS, July 24 Thu Jul 24, 2014 6:29am EDT

BRUSSELS, July 24 (Reuters) - The possible European Union ban on purchases of new shares or bonds issued by Russian banks would apply only to institutions in which the Russian government has more than 50 percent, EU diplomats said on Thursday.

The ban, which would include also the possibility of listing of any new instruments of Russian state-owned banks on EU stock exchanges, would be part of a list of new sanctions on Moscow over its role in the conflict in eastern Ukraine.

"Restricting access to capital markets for Russian state-owned financial institutions would increase their cost of raising funds and constrain their ability to finance the Russian economy," one EU diplomat, who spoke on condition of anonymity, said.

"It would also foster a climate of market uncertainty that is likely to affect the business environment in Russia and accelerate capital outflows," the diplomat said.

The ban, if agreed by ambassadors of EU countries on Thursday, would apply to Russian state-owned bank debt and equity with maturities longer than 90 days and cover both primary and secondary market purchases of instruments issued after ban enters into force.

EU diplomats said that last year 47 percent of the bonds issued by Russian public financial institutions were issued in EU financial markets, amounting to 7.5 billion euros ($10.10 billion) out of the total 15.8 billion euros issued.

Diplomats said that in a proposal submitted to the EU ambassadors as the basis for their discussions on Thursday, the European Commission proposed an embargo on arms trade with Russia.

Russian arms exports to the EU are worth 3.2 billion euros while EU arms exports to Russia are worth around 300 million euros, diplomats said. The embargo would be reversible.

Under consideration is also an embargo exports to Russia of dual-use goods for military use, military end users or mixed end-users that amounts to 20 billion euros a year, diplomats said. That measure would be reversible and scalable, they said.

The EU is also considering a ban on energy technology, but only for long-term production not to disrupt current supply, diplomats said. ($1 = 0.7422 Euros) (Reporting By Justyna Pawlak, writing by Jan Strupczewski)

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Russia says will cooperate with MH17 probe led by Netherlands

By Al-Zaquan Amer Hamzah and Siva Govindasamy

KUALA LUMPUR, July 24 Thu Jul 24, 2014 6:33am EDT

KUALA LUMPUR, July 24 (Reuters) - Russia will cooperate with the investigation into the downing of a Malaysian airliner a week ago and is satisfied that the Netherlands, rather than Ukraine, is leading the effort, the country's ambassador to Malaysia said on Thursday.

Liudmila Vorobyeva also rejected suggestions that the pro-Russian separatists blamed by Western governments for shooting down Flight MH17 possessed a Russian-made anti-aircraft missile, and said the rebels lacked the training to use such a system.

Nearly 300 people, 193 of them Dutch citizens, were killed when the Malaysia Airlines plane en route from Amsterdam to Kuala Lumpur was brought down in eastern Ukraine, where separatists are battling government forces, on July 17.

The norm under rules set down by the United Nation's civil aviation body (ICAO) is that an air investigation is led by the state in whose territory the plane crash, but Russia had said that Ukraine should not take charge because the rebels who control the crash site did not trust the authorities in Kiev.

"We want an international investigation led by ICAO. Any country part of ICAO may take part. Netherlands has the right to lead this," the ambassador told Reuters in an interview in Kuala Lumpur. "We are members of ICAO, we will cooperate with the investigation."

Vorobyeva said Russian experts were already participating in the investigation, although she did not say what role they were playing.

"As soon as experts from ICAO and international experts have a part, we think it could lead to authentic results and the truth will come out," she said.

"REBELS ARE COOPERATING"

Russia has not been asked to act as an intermediary with the rebels, who the United States and Ukraine's pro-Western government says are armed by Moscow, Vorobyeva said.

"We haven't been asked to do that and for the time being there's no need for an intermediary, because, as we know, the rebels have cooperated with the experts," she said. "We have to see how the situation develops, its hard to have any forecast now."

Western governments have threatened Russia with broader sanctions for what they say is its backing of the militia and called on Moscow to do more to stop the fighting.

A powerful rebel leader told Reuters on Wednesday that separatists did possess the BUK missile system that Washington says was probably used to shoot down MH17, and that it could have originated in Russia.

"I don't know the reason why he gave such a statement," said Vorobyeva. "It was clearly stated by our ministry of defence that we never provided any BUK air defence systems to the so-called pro-Russian rebels. We are pretty sure they don't have this kind of system."

The first bodies of victims began arriving in the Netherlands on Wednesday, after several days of delay in recovering remains that drew angry complaints that the separatists were hindering access to the crash site.

The plane's black boxes, which hold vital clues to exactly what brought it down, were handed over to Malaysian authorities after four days, following an agreement with the rebels brokered by the Malaysian government.

"The rebels were accused of not handing over the black boxes. The reason was not because they wanted to hide anything, but they were not trusting of the Ukrainian side," said Vorobyeva. "On the contrary, they trusted Malaysians." (Editing By Alex Richardson)

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Euro zone bonds yields rise on strong data, dulling QE prospects

Thu Jul 24, 2014 6:34am EDT

* Better-than-expected PMIs send yields higher

* Strategists say rebound takes onus off ECB policy

* Italy outperforms after summer supply cancelled

* Cash drop lifts money markets, short-term yields eyed

By John Geddie

LONDON, July 24 (Reuters) - Euro zone bond yields edged up on Thursday as investors saw better-than-expected economic data as quelling the need for the European Central Bank to loosen monetary policy further.

Germany - the bloc's economic engine room - was set to record the fastest growth rate for three years in its services sector, preliminary data showed, seen fuelling an impressive expansion in the euro area's private sector.

The data pointed to an upturn in the health of the euro zone economy, which has been propped up in recent months by ultra-easy ECB policy that has in turn pinned government borrowing costs at record lows.

Strategists said that without signs of recovery, markets had expected the ECB to embark on quantitative easing via a programme of asset purchases - a prospect that has now diminished.

"The data came against the trend," said Piet Lammens, a strategist at KBC.

"The market had discounted too much a situation where there is no quantitative easing, so you would expect yields to go higher."

German 10-year yields edged 2 bps higher on Thursday to 1.17 percent, while all other euro zone bond yields edged higher by between 0.2 and 2.2 bps.

Italian 10-year bonds reversed earlier gains but were still some of the best performing assets relative to their peers, with yields up just 0.2 bps at 2.74 percent.

Traders said Italy's decision to cancel scheduled bond auctions in mid-August had created more demand for peripheral bonds in the secondary market.

MONEY MARKET PRESSURE

Euro zone money market rates edged higher on Thursday and were expected to rise further in coming days, potentially driving up short-term government bond yields, after a drop in excess cash in the bloc's banking system.

The euro overnight interbank lending rate moved back up to the top end of its recent trading range on Wednesday, analysts said, while forward rates imply it will almost double by the European Central Bank meeting in September.

"The market is pricing in this scenario we have been expecting all along - one with downside risks to liquidity and upside risks to rates for most of this summer," said Christoph Rieger, a strategist at Commerzbank.

The spare cash in the euro zone banking system dropped to 104 billion euros on Thursday, its lowest in over a month, after a bumper 21 billion euros of long-term loan repayments by banks on Wednesday.

"This will have an upwards pressure on Eonia. From currently around about 5 (basis points), I could see it move up to 8, maybe 9," said RBC's head of European rates strategy Peter Schaffrik.

A push higher in money market rates should also see short-dated bond yields rise more than those on longer-term bonds, strategists said.

Commerzbank's Rieger said German bond futures already show this trend with two-year Schatz futures close to their lowest in a month and 10-year Bund futures at one-month highs .

Strategists predict this trend will continue during the northern summer months, but that the liquidity squeeze is likely to ease in September when the European Central Bank offers its first round of targeted long-term loans to banks. (Editing by Nigel Stephenson and John Stonestreet)

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UPDATE 1-Ukraine to impose sanctions on Russian individuals, firms - PM

Wed Jul 23, 2014 6:07am EDT

KIEV, July 23 (Reuters) - Ukrainian Prime Minister Arseny Yatseniuk said on Wednesday Kiev would impose sanctions on Russian individuals and companies who directly or indirectly support "terrorists" fighting against government troops in the country's east.

Yatseniuk told a meeting of his ministers that he had set up a special committee to work on the punitive measures.

"I instruct the committee to propose for the government's consideration a list of individual and sector sanctions on Russian citizens and legal entities supporting and financing terrorism in Ukraine in 10 days," he said.

He did not give any details of what form the sanctions could take.

Kiev and the West accuse Russia of supporting separatist rebels in eastern Ukraine, a charge Moscow denies. The United States and the European Union have imposed several rounds of sanctions on Russian individuals and companies over Ukraine.

Some in the West have called for tougher sanctions on Russia after a Malaysian airliner was downed over rebel-held territory in eastern Ukraine last Thursday killing all 298 on board. (Reporting by Natalia Zinets, writing by Gabriela Baczynska, editing by Elizabeth Piper)

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Ukraine to impose sanctions on Russian individuals, firms - PM

KIEV, July 23 Wed Jul 23, 2014 5:38am EDT

KIEV, July 23 (Reuters) - Ukrainian Prime Minister Arseny Yatseniuk said on Wednesday Kiev would impose sanctions on Russian individuals and companies who support "terrorists" directly or indirectly.

He told a meeting of his ministers that he had set up a special committee which had 10 days to propose a list of individuals and companies to be covered by the punitive measures. He did not give details of what form the sanctions would take. (Reporting by Natalia Zinets, writing by Elizabeth Piper, editing by Gabriela Baczynska)

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RPT-U.S. SEC poised to adopt reforms for money market funds

Wed Jul 23, 2014 7:00am EDT

(Repeats story released earlier with no changes)

By Sarah N. Lynch

WASHINGTON, July 23 (Reuters) - U.S. regulators are expected to adopt rules on Wednesday that force "prime" money market funds used by large institutions to float their share price.

Proponents have suggested that moving from the current stable $1 per share net asset value (NAV) to a floating NAV would help prevent investors from getting spooked by the prospect of funds "breaking the buck," or falling lower than that amount.

The Securities and Exchange Commission is also likely to finalize a second provision that will permit fund boards to lower so-called redemption "gates" or charge fees in stressed market conditions, according to people familiar with the matter.

The reform will impact a wide variety of asset managers, from Blackrock Inc, Fidelity and Vanguard to Charles Schwab Corp, Pimco and Federated Investors Inc.

The two-pronged reform for the $2.6 trillion industry comes after a long battle between the SEC, the industry and federal banking regulators.

The industry and the U.S. Chamber of Commerce have warned that any rules that drastically change the structure of money market funds could cut off a major supply of short-term funding for corporations.

Wednesday's final rule is expected to carve out exemptions for a wide swath of money funds.

Funds used by retail investors, for instance, will still be permitted to maintain a stable $1 per share net asset value because they are considered less likely than institutional investors to run on a fund if the market deteriorates.

The U.S. Treasury Department, which has been working to devise a way to relieve investors in funds with a floating NAV from burdensome tax rules, is also expected to unveil its plan sometime on Wednesday, several people familiar with the matter said.

The Financial Stability Oversight Council, a panel of regulators charged with policing for risks, has been pressuring the SEC to bolster money market fund regulations since 2012.

In 2008, the Reserve Primary Fund's heavy exposure to Lehman Brothers led panicked investors to yank out their money, causing the fund to break the buck when its net asset value fell below $1 per share.

The Federal Reserve was ultimately forced to backstop the industry until the chaos subsided.

Former SEC Chair Mary Schapiro initially pushed two potential plans for money funds, including either a floating NAV or a capital buffer requirement.

The majority of the industry and three of the SEC's fellow commissioners, however, rejected the ideas, saying they could kill the product and that more study was needed to justify new rules.

After the SEC completed a study and the agency assumed new leadership, sentiment toward a floating NAV softened.

While some funds and industry groups are still opposed to requiring a floating NAV, others say they are fine with it as long as it only applies to prime funds and as long as all of the tax and accounting issues associated with a floating share price are resolved. (Reporting by Sarah N. Lynch. Editing by Andre Grenon)

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Ukraine votes to call up more military reserves to protect border

KIEV, July 22 Tue Jul 22, 2014 4:43am EDT

KIEV, July 22 (Reuters) - Ukraine's parliament approved a presidential decree on Tuesday to call up more military reserves and men under 50 to fight rebels in eastern Ukraine and defend the border against a concentration of troops in Russia.

Some 45 days after the latest call-up of additional reserves, which has now expired, Kiev repeated the decree to "declare and conduct partial mobilisation" to ensure the ranks of what Ukraine calls its "anti-terrorist operation" are filled.

After the vote, brief scuffles broke out between nationalist politicians and members of the party that was led by the former president, Viktor Yanukovich, who was overthrown in February.

Ukrainian troops have forced pro-Russian rebels back to their two main strongholds, the cities of Donetsk and Luhansk, slowly taking villages and city suburbs around them.

The army is under orders not to use air strikes and artillery in the cities, complicating operations to restore control despite Kiev's accusations that the rebels were responsible for the shooting down of a Malaysian airliner. The separatists deny the accusations.

"Russia continues its policy of escalating its armed confrontation," Ukraine's top security official, Andriy Paruby, told parliament before 232 deputies in the 450-seat parliament voted in favour of the decree.

Reiterating accusations levelled by Ukrainian officials against Moscow, he said: "Over the last week, close to the Ukrainian border, there has been a regrouping and build-up of forces of the Russian Federation."

Paruby put the numbers close to the border at 41,000 and said they were equipped with 150 tanks, 400 armoured vehicles and 500 other weapon systems.

He said some of the new Ukrainian recruits would join or support combat units and some of the others would support units to help defend the border.

Russia withdrew most of the 40,000 troops it had close to the border earlier this year, reducing them to fewer than 1,000 by mid-June. But since then, it has been building up its forces again, a NATO military officer said this month.

Paruby accused Russia of continuing to supply the rebels, who say they are fighting to win independence from Kiev for the Donbass coal mining region.

"Such actions are classified as aggression against our state," he said, adding that the .

Moscow denies supplying the rebels. (Reporting by Natalia Zinets, writing by Elizabeth Piper)

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GLOBAL MARKETS-Europe rebounds as Ukraine rebels hand over black boxes

Tue Jul 22, 2014 4:37am EDT

* European bourses rise as black boxes handed over

* Russian stocks see first rise in almost two weeks

* MSCI Asia hits 3-year peak, Nikkei up after Japan holiday

* U.S. stock futures edge higher, underpinned by earnings

* Dipping U.S. Treasury yields still hold back dollar

By Marc Jones

LONDON, July 22 (Reuters) - European markets rode a global rebound in risk appetite on Tuesday helped by the first signs of cooperation from Ukraine's pro-Russian separatists over the downed Malaysian Airlines plane.

After days of uncertainty, a train carrying the remains of some of the almost 300 victims was heading for Ukrainian government territory and flight recorders had been passed to Malaysian authorities by separatist leaders.

It helped settle the recent market nerves, lifting shares both in Europe and Asia and pushing back many safe-haven assets like the yen, gold and government bonds that have been in demand over the last week.

Europe's FTSEurofirst 300 index was up 0.7 percent as the main bourses in London, Frankfurt and Paris all climbed, while dollar-traded Russian stocks in Moscow saw their first rise in almost two weeks.

The rouble also firmed, trading 0.5 percent stronger against the dollar at 35.03 and the euro at 47.36 .

"The separatists have reportedly met several of the key demands coming from Malaysia and Western countries," Sberbank Investment Research analysts said.

The dollar crept up 0.1 percent to 101.48 yen, having pulled back from a low of 101.09 hit late last week, while gold dipped about two dollars to $1,305 an ounce.

The rebound in risk was also aided by more solid U.S. company earnings and merger activity in the previous session, though analysts remained wary about Ukraine and Russia given the delicate situation.

EU foreign ministers gather later in the day in Brussels to discuss the events and possibly recommend further sanctions against Russia. Russia's Security Council, headed by President Vladimir Putin, is also due to meet in Moscow.

U.S. DATA

In Asian trading, MSCI's broadest index of Asia-Pacific shares outside Japan rose about 0.7 percent to be at its highest since 2011.

"Investor sentiment has settled as the VIX has stayed calm," Amundi Japan equity research and strategy department chief economist, Akio Yoshino, said.

In the Gaza Strip the Palestinian death toll jumped to more than 500 and Israeli losses rose to 29. The United States stepped up efforts to secure a ceasefire but hopes remain slim.

The yield on the benchmark 10-year U.S. Treasury note stood at 2.478 percent in European trading, not far from its U.S. close of 2.475 percent.

The yield on the 30-year Treasury bond inched down to 3.262 percent from its U.S. close of 3.264 percent on Monday, when it fell as low as 3.249 percent, the lowest since June 2013.

Investors were also awaiting U.S. consumer prices data due at 1230 GMT for clues to the timing of monetary tightening by the Federal Reserve.

The Labor Department is expected to report that U.S. inflation eased slightly to 0.3 percent in June, after rising food prices pushed the index to its biggest increase in more than a year in May.

"It will be interesting to see how euro dollar trades into the CPI numbers," Saxo Bank head of FX strategy, John Hardy, said.

"If it's higher than expected, is it dollar positive on the view that it pulls the Fed guidance forward on the first rate hike? Or is dollar negative because the Fed is seen being complacent on inflation and behind the curve?"

The euro was largely steady at $1.3524, holding above a five-month low of $1.3491 touched on Friday. (Additional reporting by Lidia Kelly in Moscow and Lisa Twaronite in Tokyo; Editing by Louise Ireland)

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UPDATE 1-Train with remains of Malaysian plane crash victims arrives in Ukraine's Kharkiv

Tue Jul 22, 2014 5:45am EDT

(Adds detail)

KHARKIV, Ukraine, July 22 (Reuters) - A train carrying the remains of victims of a Malaysian plane downed over rebel-held territory in eastern Ukraine arrived in the government-controlled city of Kharkiv, a Reuters witness said on Tuesday.

The train, which includes five grey refrigerated carriages, slowly rolled into the grounds of an arms industry plant in Kharkiv where the remains are due to be unloaded and then flown to the Netherlands.

A spokesowman for a Dutch team of forensic experts on site in Kharkiv said this was not expected to happen before Wednesday.

Almost 300 people were killed when the Malaysian airliner went down on Thursday, most of them were Dutch.

Earlier on Tuesday in Ukraine's city of Donetsk, some 300 kilometres south-east from Kharkiv, the separatists handed two black boxes from the downed Malaysia Airlines plane over to Malaysian experts.

Fighting flared up in Donetsk again on Monday around the city's train station and the sound of loud explosions from the site continued overnight and on Tuesday morning.

Windows in many nearby residential blocks were smashed and at least two buildings were hit by shelling with local residents quoting civilian casualties among their neighbours.

Donetsk, which had about one million citizens before many fled during the weeks of fighting, is now the rebels main stronghold in eastern Ukraine. (Reporting by Sergei Karazy and Andriy Perun in Kharkiv and Anton Zverev in Donetsk, Writing by Gabriela Baczynska; editing by Anna Willard)

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Yemen struggles towards fuel price reform as finances crumble

Mon Jul 21, 2014 6:19am EDT

* Fuel subsidy cuts vital to strengthen state finances

* Could allow government to ease fuel shortages

* Austerity announcement seeks public support for reform

* But public anger makes reform risky

* Opposition from entrenched interests, not just the poor

By Yara Bayoumy and Martin Dokoupil

SANAA/DUBAI, July 21 (Reuters) - A clampdown on state spending was an effort by Yemen's government this month to win public support before its biggest economic reform in years: higher fuel prices. But an angry public may not be won over.

In the capital Sanaa, where roads to petrol stations have been choked for months by queues of cars waiting for scarce fuel supplies, the frustration is palpable.

"I've been standing in line for six hours ... By the time I arrived at the front of the queue, they told me there was no fuel left," doctor Waddah Hashed said.

"Our lives have become hell."

Taxi driver Mohammed al-Heemi has organised a group of his colleagues to exchange information on which pumps in the city happened to have petrol.

"One day we work, the next day we stand in a queue. This has been our life for the past four months," he said. "It is obvious the government wants to persuade us of the need for the price rise, but the people cannot take this anymore."

"The people will go out ... to bring down the government if the price of fuel is raised."

The public mood is a big risk for the government as it tries to shore up its rickety finances. One of the poorest countries in the Arab world, Yemen's economy has always struggled, but political instability since the region's Arab Spring uprisings in 2011 have left it particularly vulnerable.

The government has been trying for more than a year to secure a loan of at least $560 million from the International Monetary Fund (IMF), which is pressing for reforms such as cuts in subsidies which keep down prices of petrol and other fuel.

In the long run, reducing the subsidies would be good news for the state budget; they cost about $3 billion last year, or a third of state revenue. Some of the money freed up by the reform could be used to increase fuel supplies, easing the shortages which anger the public.

But the immediate impact of the reform would be to raise fuel prices for Yemeni consumers - potentially, a politically explosive step. A previous attempt by the government to cut subsidies in 2005 led to unrest which left some 20 people dead and over 300 wounded. The reform was cancelled.

More civil unrest in the country of 27 million would feed into general instability which a range of anti-government forces could try to exploit, including al Qaeda-affiliated militants.

"With something like fuel subsidies, there's never a good time, so you have to look for the least bad time," Jane Marriott, Britain's ambassador to Yemen, told Reuters in May.

"From all the ministers, president and people I've spoken to, everyone knows that it needs to be done," she said. But for the plan to work, Yemen has to ensure there is enough fuel to satisfy demand at the higher prices, she said.

If people still have to queue after the subsidies are reduced, that will be a "recipe for disaster", Marriott said.

AUSTERITY

Pumps in Sanaa sell a litre of petrol - when they have it - at an official, subsidised price of 125 rials ($0.58), below roughly 300 rials charged on the black market, where prices have risen sharply because of the fuel supply crisis.

Yemeni officials refuse to say publicly when the subsidies will be cut, or how deep the reductions will be. But a senior oil ministry official, speaking on condition of anonymity because of the sensitivity of the issue, told Reuters that an announcement might be made as soon as the end of this week.

He said the government wanted to lift official prices of both petrol and diesel to 200 rials per litre. The price of diesel, widely used for generating electricity, is now 100 rials per litre officially and 250 rials on the black market.

The approach of the reform explains the timing of the austerity package ordered this month by Yemeni president Abd Rabbu Mansour Hadi. The steps include curbs on foreign travel by government officials, who must fly economy class, a freeze on recruitment and car purchases by ministries, and a review of the viability of state-owned firms.

"The aim of the measures ... based on President Hadi's orders was to convince people to accept the lifting of subsidies, by showing that the government has begun austerity on itself," Yemeni political scientist Ali Seif Hassan said.

The urgency of subsidy reform has increased in recent months as militant attacks on oil pipelines have hurt Yemen's export earnings. Sanaa earned a mere $671 million from exporting crude oil in January-May, down nearly 40 percent from a year earlier.

Foreign donors, who pledged $7.9 billion in aid in 2012, have hesitated to send the funds, discouraged by corruption and the poor security situation. Only a third of that aid package has arrived, an IMF official said in May.

The IMF, which forecast in April that the Yemeni government faced a 2014 budget deficit of 6.7 percent of gross domestic product, says it supports a gradual reduction of subsidies combined with welfare transfers to the poorest people.

Fuel subsidy reform would hurt not only Yemen's poor but also relatively affluent people. A July IMF report estimated 40 percent of fuel subsidies went to the richest 20 percent of households, while only 25 percent went to the bottom 40 percent.

The reform could also hurt some businessmen who have profited from the system, for example by obtaining fuel at subsidised prices to sell on the black market. A report by research institute Chatham House last year called fuel subsidies "a key source of corruption and patronage".

"There will be key people within the system who will lose a lot of money," said Marriott.

But she said that in the absence of reform, "the worst-case scenario is that salaries don't get paid, the economy starts to grind to a halt. Yemenis are incredibly resilient and resourceful. But everybody's got a breaking point." ($1 = 214.8 Yemen rials) (Additional reporting by Mohammed Ghobari; Editing by Andrew Torchia and Louise Ireland)

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EMERGING MARKETS-Russian stocks extend losses; Dubai volatile

By Sujata Rao

LONDON, July 21 Mon Jul 21, 2014 6:12am EDT

LONDON, July 21 (Reuters) - Russian markets, under the shadow of new sanctions, slumped 1.4 percent on Monday, extending last week's 5 percent slide, while UAE property stocks came under renewed pressure, hit by troubled building company Arabtec.

The increasingly deadly conflict between Israel and Gaza-based militants, fighting in eastern Ukraine and new sanctions on Russia over its perceived role in the Ukraine crisis were capping further advances in global equities, with MSCI's emerging index half percent off recent 16-month highs .

The shooting down of a passenger jet over Ukraine has significantly worsened Russia's relations with the West. The United States last week slapped new sanctions on Russia while Britain, Germany and France have agreed they should be ready to ratchet up sanctions over the downing of the Malaysian airliner.

European foreign ministers meet in Brussels on Tuesday.

Moscow-listed stocks fell 1.4 percent after last week's 5 percent slide to one-month lows with shares in Rosneft , one of the sanctioned companies, dipping to 2-1/2 month lows. Russian stocks are this year's worst performers among emerging market, having lost 12 percent in dollar terms, compared with 6 percent gains for the MSCI index as a whole.

On bond markets, Russia's sovereign 2030 dollar bond stabilised off six-week lows hit last week while Rosneft's 2022 dollar bond fell almost one cent, but stayed off recent 5-week lows.

The rouble meanwhile firmed 0.3 percent, rising off five-week lows versus the dollar.

"There is a bit of stability (in currency and bond prices) after significant selling pressure last week. Also the sanctions are targeting a limited number of companies which are not in urgent need of finance in the short-term," Sebastien Barbe, head of emerging FX strategy at Credit Agricole in Paris, said.

"There is also talk the central bank may hike rates this week and that's supporting the rouble," he said referring to the upcoming policy meeting on Friday.

Commerzbank analysts advised clients to stay underweight rouble debt and neutral on hard currency Russian bonds.

"Tomorrow's EU foreign minister meeting is obviously going to be the next dateline for markets ... Given all the events of the past weeks, as well as increasing U.S. sanctions, EU leaders are coming under heightened pressure to do something to make their point," Commerzbank told clients.

Five-year Russian credit default swaps (CDS) rose 8 basis points to 216 bps, up more than 40 bps since early last week, Markit data shows. Ukraine 5-year CDS rose 21 bps to 793 bps.

In the Gulf, markets stabilised after opening sharply lower as shares in builder Arabtec plunged for a second day after a weekend statement from key shareholder Aabar Investments appeared to dash expectations of support.

The Dubai index initially tumbled around 3 percent, adding to a 6 percent slide on Sunday. Nearby Abu Dhabi fell 1 percent, after losing 3 percent in the previous session. Both markets later traded firmer as some buyers crept in.

Foreign investors remain wary of the market however, dominated by local retail buyers and prone to wild swings.

"The renewed volatility is not going to do any favours for Arabatec and the market. With the lack of visibility, this is not one of those special situations where we would seek to pick up distressed stock at a discount," Daniel Broby, chief executive of Gemfonds in London, said.

Other big UAE real estate firms such as Aldar and Union Properties also slumped but recovered during the session. The Saudi and Qatari stock indexes also fell but losses were muted.

South Africa's rand touched three-week highs, holding on to gains from last week when the central bank raised rates. Central European currencies were stable.

"The market has not completely priced the re-emergence of political risk worldwide and we must be careful because of that," Barbe of Credit Agricole said.

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 ) (Additional reporting by Chris Vellacott. Editing by Jane Merriman)

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Ukrainian positions were fired on twice from Russia overnight - Ukraine

KIEV, July 20 Sun Jul 20, 2014 3:52am EDT

KIEV, July 20 (Reuters) - Ukrainian positions were fired on twice from across border with Russia overnight, the Ukrainian armed forces said on Sunday.

On the Facebook site for what the government calls its "anti-terrorist operations" which details fighting in eastern Ukraine, the army said mortar attacks from the direction of Russia aimed at Ukrainian posts were recorded just after midnight and again at almost 2 a.m. local time. (Reporting by Natalia Zinets, writing Elizabeth Piper, editing by Timothy Heritage)

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Rail workers say bodies from Ukraine crash site put in refrigerator trucks

TOREZ, Ukraine, July 20 Sun Jul 20, 2014 3:57am EDT

TOREZ, Ukraine, July 20 (Reuters) - Railway workers said on Sunday bodies from the site where the Malaysian airliner crashed in eastern Ukraine had been loaded into refrigerator wagons at a station in the town of Torez, 15 km (nine miles) away.

A Reuters witness could see five grey trucks at the station, one of which appeared to have the refrigeration switched on.

"Something was delivered and they told us to wait," one railway worker said on condition of anonymity, adding that the "something" were bodies.

"It's corpses. They brought the bodies overnight," a duty officer at the Torez station told Reuters.

The wagons, he said, were due to be transported "in the direction of Ilovaisk", a town further to the east towards the border with Russia. (Reporting by Anton Zverev, writing by Elizabeth Piper, editing by Timothy Heritage)

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UPDATE 1-Ukraine plane crash victims put in refrigerated wagons, workers say

Sun Jul 20, 2014 5:36am EDT

(Adds OSCE arrival)

TOREZ, Ukraine, July 20 (Reuters) - Dozens of bodies from the site where a Malaysian airliner crashed in eastern Ukraine were put into refrigerated rail wagons overnight at a station in a town 15 km (9 miles) from the scene, rail workers said on Sunday.

Monitors from the Organization for Security and Cooperation in Europe, accompanied by armed rebels, checked the wagons. A locomotive had been put at the head of the train, which one worker said would be sent southwest to an undisclosed location.

Western officials have voiced concern about the handling of the remains of the 298 people killed when the airliner crashed on Thursday and the Dutch foreign minister has said his country is "furious" to hear bodies were being "dragged around".

After lying there for two days in the summer heat, by Sunday the bodies had been removed from a large swathe of the crash site, leaving only bloodstained military stretchers along the side of the road.

Sergei Kavtaradze, a senior official of the pro-Russian rebels' self-proclaimed Donetsk People's republic, said all 196 of the bodies found so far had been loaded into the wagons in Torez, an eastern town in the Donetsk region.

"They will stay there for now, until the issue (of what to do with them) is resolved. We are waiting for the experts," he told Reuters, saying he did not understand why the experts had been delayed.

"We've been waiting for the experts for three days. From the very first day after this catastrophe, we have welcomed any experts. Ukrainian experts, international experts, Russian experts... We have always said we will offer the maximum guarantee of their safety in the territory we control."

Alexander Hug, deputy chief monitor of the OSCE special monitoring mission to Ukraine, said his team had seen body bags in the wagons but were unable to count them. He said he did not know where the bodies would be taken.

One railway worker said the bodies were brought in during the night and would be sent in the direction of the town of Ilovaisk, southwest from Torez.

"Something was delivered and they told us to wait," one railway worker said on condition of anonymity, adding that the "something" were bodies.

"It's corpses. They brought the bodies overnight," a duty officer at the Torez station told Reuters. (Reporting by Anton Zverev, writing by Elizabeth Piper; editing by Timothy Heritage and Tom Pfeiffer)

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MOVES-S&P revamping CMBS ratings group -WSJ

July 18 Fri Jul 18, 2014 7:44pm EDT

July 18 (Reuters) - Peter Eastham, who headed Standard & Poor's Ratings Services' New York-based commercial mortgage-backed securities (CMBS) rating group, will move to a senior position in Australia, the Wall Street Journal reported, citing people with knowledge of the matter.

About a third of the group has been let go, including Kurt Pollem, Barbara Hoeltz and analyst Brian Snow, the report added.(on.wsj.com/WjqTRZ)

S&P, once the top player in CMBS ratings, lost its grip on the market in 2011 after a disastrous ratings slip-up on a $1.5 billion deal led by Goldman Sachs and Citigroup. (reut.rs/1tfEZi1)

S&P, which is owned by McGraw Hill Financial Inc, has struggled to rebuild its once-dominant market share in the rating of commercial mortgage-backed securities.

The debacle badly eroded S&P's credibility and left it effectively frozen out the sector. It was kept out of so-called conduits, the multiple-borrower deals that make up the majority of CMBS transactions, for more than a year.

The rating agency plans to merge its CMBS ratings team with its analytics division that monitors bond performance, according to the Journal.

Eastham had succeeded Barbara Duka as the head of CMBS team in February 2012. (Editing by Lisa Shumaker)

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UPDATE 1-China lends Argentina $7.5 billion for power, rail projects

Fri Jul 18, 2014 9:27pm EDT

(Recasts after deals signed, adds president's comment)

By Eliana Raszewski

BUENOS AIRES, July 18 (Reuters) - Argentina signed deals on Friday to borrow $7.5 billion from China at a time when the Latin American country cannot tap global capital markets because of disputes over unpaid debt.

Among the deals signed, Argentine President Cristina Fernandez and her Chinese counterpart, Xi Jinping, agreed on a loan for $4.7 billion from the China Development Bank for the construction of two hydroelectric dams in Patagonia. China Gezhouba Group Corp and Argentina's Electroingenieria SA won contracts last year to build the two dams, which will have a combined generating capacity of 1,740 megawatts.

The Chinese bank also granted a $2.1 billion loan to help finance a long-delayed railway project that would make it more efficient to transport grains from Argentina's agricultural plains to its ports.

"It's a day we can define as foundational in the relations between our two countries," Fernandez said after signing the deals.

China is Argentina's second-largest trading partner after neighbor Brazil. In 2013, Argentina's trade deficit with the Asian country increased more than 20 percent to $5.8 billion.

Argentina is the world's third-largest exporter of soy and corn. China is the main buyer of its soybeans.

Xi, China's first president to visit Latin America's third-largest economy in a decade, arrived in the capital city of Buenos Aires on Friday after participating in a summit of emerging economies of the BRICS nations - Brazil, Russia, India, China and South Africa - in Fortaleza, Brazil, earlier this week.

He also signed a three-year agreement for an $11 billion swap operation between the central banks of Argentina and China that will let the Latin American country pay for Chinese imports with the yuan currency.

"The exchange will mainly serve to facilitate investments in the currency of the country providing the funds and to strengthen the level of international reserves," the Argentine central bank said in a statement.

Argentina signed a similar deal with China in 2009.

The central bank could ask for the total or partial disbursement of the 70 billion yuan in exchange for pesos to invest it, or to exchange it to dollars to fuel its reserves, said an Argentine central bank official, who spoke on condition of anonymity.

Fernandez's government has imposed stringent import and capital controls to safeguard dwindling foreign reserves, which it needs to pay its debts. It has been virtually shut out of global credit markets since staging a massive 2002 default.

Hopes that Argentina's government might access markets again soon hinge on the country reaching a deal with holdout creditors who rejected its debt restructuring in 2005 and 2010.

Fernandez said the deal between the two central banks could offer "stability in exchange rates at the moment we are, as a country, suffering speculative attacks by vulture funds."

($1 = 6.2075 Chinese Yuan) (Additional reporting by Sarah Marsh, Jorge Ataola and Richard Lough; Editing by Lisa Von Ahn, Richard Chang and Jan Paschal)

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Japan to cap new govt debt issuance at 41.3 trln yen next FY - Nikkei

TOKYO, July 19 Fri Jul 18, 2014 10:08pm EDT

TOKYO, July 19 (Reuters) - Japan's government will cap new bond issuance for next fiscal year's budget at 41.3 trillion yen ($407.62 billion), which is the same amount of new debt sold for the current fiscal year's budget, the Nikkei reported on Saturday.

The debt cap will help the government meet its fiscal discipline target, but it will have to cut spending as budget requests for next fiscal year are expected to rise to a record high above 100 trillion yen, the Nikkei reported without citing sources.

The cabinet will agree budget request guidelines on July 25 but is unlikely to set a limit on budget requests, the Nikkei said. This could worry some investors as Japan's debt burden is the largest in the world at more than twice the size of its $5 trillion economy.

For next fiscal year starting in April, the government is will set aside about 4 trillion yen for Prime Minister Shinzo Abe's growth strategy, which is known as the third arrow of his economic policy.

The government faces an important test because it needs to lower the primary budget deficit next fiscal year by 3 trillion yen to 15 trillion yen to meet an important fiscal discipline target.

A primary budget balance excludes debt servicing costs and income from bond sales. ($1 = 101.3200 yen) (Reporting by Stanley White; Editing by Robert Birsel)

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Ukraine says army has not used anti-aircraft missiles in east

KIEV, July 18 Fri Jul 18, 2014 6:49am EDT

KIEV, July 18 (Reuters) - Ukraine's army has not deployed missiles during fighting with pro-Russian rebels in eastern Ukraine and the Malaysian airliner that was brought down there was out of range of the systems it uses, Ukrainian officials said on Friday.

"All missiles that are in our armoury, not one of them has been used," Andriy Lysenko, spokesman for Ukraine's Security Council, said.

Bohdan Senyk, a spokesman for the Defence Ministry, said the airliner was out of range of the Ukrainian army's anti-aircraft missile systems: "Anti-aircraft missiles have not been deployed during the anti-terrorist operation ... they are all in place." (Reporting by Natalia Zinets, writing by Elizabeth Piper, editing by Timothy Heritage)

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RPT-DEALTALK-Murdoch is pouncing on Time Warner while rivals are distracted

Fri Jul 18, 2014 7:00am EDT

(For more Reuters DEALTALKS, double click on )

By Liana B. Baker

NEW YORK, July 18 (Reuters) - Rupert Murdoch looks to have been canny in his $80 billion takeover approach to Time Warner Inc, cornering the media giant at a time when potential "white knight" bidders are busy absorbing their own large deals.

The absence of potential counter-bidders leaves Time Warner's investors with a dilemma. They can either engage with Murdoch's Twenty-First Century Fox Inc to negotiate a higher price, or play for time and wait until there are more potential buyers available.

Time Warner, owner of many highly-prized assets from HBO to Warner Bros, has rejected Fox's initial cash-and-stock proposal of $85 per share. An eventual deal would transform the U.S. media landscape and cement Murdoch's status as the most powerful magnate in U.S. media and entertainment.

When Time Warner's board rebuffed the approach it indicated it believes now is the wrong time to sell because the environment isn't conducive to getting the best price, people familiar with Time Warner's thinking said on Wednesday. That is mainly because a range of major media, telecom and technology companies are for various reasons not in a position to make a rival offer.

Verizon Communications Inc, which last year paid $130 billion to buy Vodafone out of its U.S. wireless business Verizon Wireless, is hampered by the $140 billion debt load that it took on as a result.

Comcast Corp, which completed the acquisition of NBC Universal last year, has its hands tied while waiting for the government to approve its proposed $45 billion takeover of Time Warner Cable. Bidding for Time Warner while that is going on could scuttle the chances of getting the cable deal approved.

Elsewhere, AT&T Inc, another large telecom company that hardly produces any programming, is trying to close its $48.5 billion takeover of satellite TV company DirecTV, which is also awaiting regulatory approval.

As the media industry landscape evolves, technology companies such as Google, Apple or Amazon could also be tempted into bidding for Time Warner as opposed to trying to produce video content on their own, people familiar with Time Warner's thinking said.

Time Warner shareholder Mario Gabelli told Reuters Insider TV on Wednesday that he thought both Google and Apple were possible bidders.

But for now, Google's investment in content is focused on its YouTube unit while Amazon has spent money on original TV shows for its online video service. Apple's media bets have so far been on music, illustrated by its purchase of Beats Music in May for $3 billion.

"If I were Time Warner, I would wait. A year or two from now, they will have competition for the assets actually," said an industry banker who is not involved either with Time Warner or Fox.

"The only downside of waiting is if you believe that multiples are going to contract in the next year or two. Nobody assumes that the markets are going down," the banker said.

For Fox, stars seem to be aligned for a deal. Financing remains cheap, making it easy for Fox to borrow the cash it will need for the deal. Its stock, which Fox wants to use to finance 60 percent of its bid, is trading at a lofty multiple to earnings.

"In our experience, if Mr. Rupert Murdoch wants an asset, he will wait and pay to get it," ISI analyst Vijay Jayant said.

UNINTENDED CONSEQUENCE

Still, Time Warner shareholders have told Reuters that Murdoch will have to raise his bid and increase the cash component to stand a chance of succeeding.

Also companies don't always get to choose the place and time of a battle. Fox's overture could force another company to think hard about making a competing bid, and Murdoch could get trumped.

Investors in cable and media have seen this movie before. Earlier this year, Charter Communications went public in its pursuit of Time Warner Cable and ended up losing out to Comcast, which swooped in as a white knight with a surprise offer of its own in February.

People familiar with Comcast told Reuters at that time that while it had historically been intrigued by the idea of buying Time Warner Cable, such a deal was not high on its priority list until Charter started pursuing the company.

"By going public you could run into the unintended consequence that other people start to think it's important for them and they go after it," said a second industry banker. (Reporting by Liana B. Baker, Editing by Soyoung Kim and Martin Howell)

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