UPDATE 1-Euro zone inflation slows in Sept, weakens euro vs dollar

Tue Sep 30, 2014 6:28am EDT

* Monthly headline rate down to 0.3 percent year-on-year

* Core inflation 0.7 pct vs 0.9 in August

* Euro falls against dollar after release (Adds economists' comments)

By Jan Strupczewski

BRUSSELS, Sept 30 (Reuters) - Euro zone inflation slowed further in September on falling prices of unprocessed food and energy, a first estimate showed on Tuesday, sending the euro lower against the dollar on expectations of further European Central Bank policy easing.

Eurostat said consumer prices in the 18 countries sharing the euro rose 0.3 percent year-on-year, slowing from 0.4 percent year-on-year increases in August and July. The September was in line with market expectations, according to polling data.

The ECB wants to keep headline inflation below, but close to, 2 percent over the medium term. The persistently low rate underscores the difficulty of hitting that target in a stagnating euro zone economy.

By 1025 GMT, the euro had fallen against the dollar to 1.2609 from 1.2662 before the release. The FTSE Eurofirst 300 share index of leading companies was up 0.56 percent at 1,378.81.

"With actual output below potential and weak wage growth in many euro zone countries, inflation will remain subdued," said Tomas Holinka, economist at Moody's Analytics.

"The euro area economy stalled in the second quarter and the recovery prospects are fading. With tougher sanctions against Russia, risks are weighted to the downside. The euro zone's weaker than expected performance fuels uncertainty about economic recovery and fears about the threat of deflation," he said.

Unprocessed food prices fell 0.9 percent year-on-year in September and energy was 2.4 percent cheaper.

What the European Central Bank calls core inflation - a measure stripping out these two volatile components - was 0.7 percent year-on-year, slowing down from 0.9 percent in August.

To accelerate price growth, the ECB has cut the cost of borrowing to almost zero and pledged further cheap loans to banks and to buy repackaged debt. ECB President Mario Draghi has emphasised that it could do even more.

But going for full-blown quantitative easing, by adding government bonds to the ECB's shopping list, would be politically difficult because of stiff opposition in Germany.

Draghi is expected to give further details of ECB plans to buy reparcelled debt, known as asset-backed securities, when the bank's governing council meets in Naples on Thursday. Investors do not expect new policy decisions yet, after the bank cut all three of its main interest rates in early September.

Draghi has, in the meantime, sought to put the ball back in the court of governments, saying that the central bank cannot single-handedly turn around the bloc's economy, and countries need to make reforms.

The ECB's job may be made easier by a weakening euro, which has broken below its 2013 lows and is down almost 9 percent from the peak it hit against the dollar in May. (Additional reporting by John O'Donnell in Frankfurt; Editing by Alastair Macdonald and Mark Trevelyan)

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EMERGING MARKETS-Stocks, currencies set for quarterly loss as dollar dominates

By Karin Strohecker

LONDON, Sept 30 Tue Sep 30, 2014 6:03am EDT

LONDON, Sept 30 (Reuters) - Emerging equities were set for their biggest quarterly loss in more than a year and currencies traded at multi-months low against a rising dollar, with Russian stocks and the rouble among the worst performers of the past three months.

On the debt front, emerging bond spreads were at their widest since March, having blown out 50 basis points over the quarter on the EMBI Global index.

With the dollar scaling new heights and volatility ticking up, there was little to cheer emerging market investors going forward said Erste Bank's Henning Esskuchen.

"What we are seeing is a change from the summer when markets were just starting to get uneasy about central bank action. That rally evaporated because of new negative top-down themes that wiped out any positives," said Vienna-based Esskuchen, an emerging equity strategist.

Emerging market stocks hit a four-month low, dipping 0.2 percent, and are now up just 0.5 percent this year.

The biggest drag came from Russia, where the dollar-denominated RTS index clocked up a loss of 18.59 percent since January. The rouble meanwhile has weakened 16.47 percent against the dollar in this period.

"We had worsening newsflow from Ukraine, a stronger dollar and weaker growth performance - all of which is adding to bearish sentiment," Esskuchen said.

Ukraine's state-owned gas company Naftogaz has a $1.67 billion bond maturing today, a debt it has pledged to honour.

Markets are also edgy over unrest in Hong Kong, where thousands of pro-democracy protesters are staging demonstrations. That pushed Hong Kong stocks to its biggest monthly fall since May 2012, down more than 7 percent.

Chinese credit default swaps hit new six-month highs around 90 basis points, Markit said.

However, the two main Chinese indexes in Shanghai and Shenzhen had their best quarter in four years, gaining 13 and 15 percent respectively .

Most emerging currencies were also on track to weaken over the quarter and are down since the start of the year, with the exception of Romania and India. Currencies in Asia hit multi-month lows, with the Indonesian rupiah at eight-month lows and the won at six-month troughs.

The currency losses threaten to erode gains in asset classes such as equities and domestic bonds. The latter is down 5 percent on average in September on the GBI-EM index, erasing all year-to-date returns, according to JPMorgan.

"We reiterate our view to be underweight emerging currencies, while our recommendation to be selectively overweight bonds is coming under pressure," JPMorgan analysts said in a note to clients.

Romania's leu traded flat on the day though it has gained 1.2 percent against the euro since the start of the year.

Romania's central bank is widely expected to cut interest rates by 25 basis points on Tuesday. It could also say how it plans to end a liquidity shortage in domestic markets that have put upward pressure on money market and debt interest rates.

In India, the Reserve Bank held interest rates steady and signalled it would refrain from cutting until it is confident consumer inflation can be reduced to its target.

Elsewhere, Kenya changed the base for calulating gross domestic product to 2009 from 2001, adding 25 percent in the process and sending the east and sending the nation into the top 10 of Africa's largest economies.

Argentina's bond yield spreads versus U.S. Treasuries widened 15 bps after a U.S. judge held the country in contempt late on Monday, saying it was taking "illegal" steps to evade his orders in its dispute with hedge funds.

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 Sujata Rao; Editing by Louise Ireland)

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Kuwait starting to cut subsidies, IMF report says

By Martin Dokoupil

DUBAI, Sept 30 Tue Sep 30, 2014 6:41am EDT

DUBAI, Sept 30 (Reuters) - Kuwait's government has started reducing some state subsidy payments and is an advanced stage of preparing a plan to cut subsidies for kerosene and electricity, the International Monetary Fund said.

Subsidy cuts are an important economic reform for Kuwait because lavish subsidies, mostly on energy, swallow about 5.1 billion dinars ($17.7 billion) annually, or roughly a quarter of the government's projected spending this fiscal year, according to government figures.

Despite Kuwait's vast oil wealth, such spending threatens to push the state budget into deficit later this decade, the IMF has warned.

So far, the government - like other governments in the Gulf Arab region - has shied away from major reform of its subsidy system because of political sensitivities.

But in a report released this week after regular consultations with Kuwaiti authorities, the IMF said some reforms had now started.

"Subsidies have been eliminated for diesel (with potential saving of 0.5 percent of GDP), and the government is in advanced stages of sending a proposal to the cabinet for reducing subsidies for kerosene and electricity," the report said.

"Moreover, the government recently rationalised some allowances for Kuwaitis traveling for healthcare abroad," it added.

The IMF did not give details of the reforms and government officials were not available for comment. Plans for subsidy cuts have received little publicity in the Kuwaiti media, perhaps because of their political sensitivity.

The IMF has been urging Kuwait to restrain spending on public wages and subsidies to make its finances more sustainable in the long term.

The government said in June that it had decided in principle to remove subsidies on diesel fuel, pending a study on how to deal with the negative impact on consumers, according to state news agency KUNA. That measure was expected to save around $1 billion a year.

Kuwait has posted budget surpluses since 1995 but rising government spending is projected to slash the surplus to around 12.1 percent of gross domestic product in 2019, the IMF estimated in April. It expects a surplus of 26.3 percent of GDP in 2014, the report showed.

"Staff's analysis shows that a $20 decline in oil prices relative to the baseline would result in reversing of the fiscal position - excluding investment income - from a surplus to a deficit in the medium term," the IMF said in its latest report.

"Fiscal restraint in the medium term is...needed to help reduce fiscal vulnerabilities and bring the fiscal stance closer to benchmark sustainability level."

The budget surplus edged up to 12.9 billion dinars in the last fiscal year to March as government spending fell, largely because of a drop in capital expenditure.

In its latest report, the IMF slashed its GDP growth forecasts for Kuwait to 1.3 percent this year and 1.7 percent next year, from 2.6 percent and 3.0 percent predicted in April.

It also estimated that Kuwait's economy shrank 0.2 percent in 2013, its first contraction since 2010, compared with its previous estimate of 0.8 percent growth.

The downturn was mainly due to a 1.8 percent drop in oil-related GDP as growth in the non-hydrocarbon sector accelerated to 2.8 percent, the report showed.

The figures suggest Kuwait underperformed other Gulf Arab oil exporters by a large margin last year; businessmen blame red tape, slow progress in building infrastructure and domestic political tensions for the economy's weakness. (Additional reporting by Ahmed Hagagy in Kuwait; Editing by Andrew Torchia)

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Euro zone sentiment worsens in Sept, inflation expectations fall

BRUSSELS, Sept 29 Mon Sep 29, 2014 5:03am EDT

BRUSSELS, Sept 29 (Reuters) - Euro zone economic sentiment deteriorated in September to levels last seen in late 2013 and inflation expectations among households and producers alike continued to fall.

The European Commission said on Monday that economic sentiment in the 18 countries sharing the euro fell to 99.9 this month from 100.6 in August. Economists polled by Reuters had expected a decline to 100.0.

The index was weighed down by less optimistic consumers, retailers and industry. The only sectors where sentiment improved slightly in September were services and construction.

The declining optimism was mirrored by a fall in the business climate indicator for the euro zone, which the Commission said stood at 0.07 in September, down from 0.16 in August, the lowest level since October 2013.

Consumer inflation expectations, measured as anticipated consumer price trends over the next 12 months, fell to 4.0 this month from 6.6 in August, continuing a steady decline since December 2013, when they stood at 15.1.

Selling price expectations among manufacturers, the equivalent of producer price inflation expectations, also fell to -1.8 from -0.7 in August.

The declining inflation expectations underline the very low inflationary pressures in the stagnating euro zone economy that the European Central Bank wants to prevent from turning into deflation by flooding the market with ultra-cheap cash.

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

For a GRAPHIC: link.reuters.com/bas36s

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Reporting By Jan Strupczewski; editing by Robin Emmott)

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Hong Kong de facto central bank says banking disruptions increase on Monday

HONG KONG, Sept 29 Mon Sep 29, 2014 5:20am EDT

HONG KONG, Sept 29 (Reuters) - Hong Kong's de facto central bank said that 44 branches, offices or ATMs of 23 banks had temporarily shut as of 3 p.m. on Monday amid growing civil unrest in the city.

The Hong Kong Monetary Authority (HKMA) said the figures were higher than the morning due to additional suspensions in the Mong Kok and Causeway Bay areas beyond the main financial district.

The HKMA also said that the interbank lending market was not affected by the unrest on Monday. (Reporting by Michelle Price; Editing by Miral Fahmy)

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Russian Energy Ministry says govt to support projects with foreign capital - news agency

MOSCOW, Sept 29 Mon Sep 29, 2014 5:24am EDT

MOSCOW, Sept 29 (Reuters) - Russia's Energy Ministry said on Monday the government was ready to support projects with foreign investment, Interfax news agency reported.

It added that the government would support oil exploration at the Kara Sea offshore Arctic field, where Russian state energy company Rosneft was working alongside U.S. oil giant ExxonMobil.

Earlier, Russian newspaper Kommersant said ExxonMobil was suspending cooperation at the field due to Western sanctions over Ukraine. (Reporting by Lidia Kelly, editing by Elizabeth Piper)

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UPDATE 1-Catalonia leader calls referendum on independence from Spain

By Elena Gyldenkerne

BARCELONA, Spain, Sept 27 Sat Sep 27, 2014 5:52am EDT

BARCELONA, Spain, Sept 27 (Reuters) - The president of Spain's Catalonia region signed a decree on Saturday calling an independence referendum on Nov. 9, putting him on a collision course with the central government which says such a vote is illegal.

The wealthy north-eastern region, which accounts for around a fifth of Spain's economy, has its own language and distinct culture and has long fought for self-rule. A large majority of Catalans want to hold a referendum on independence, polls show.

The region's president, Artur Mas, signed the decree in a solemn ceremony in the Catalan government offices in Barcelona - the gothic Generalitat Palace - surrounded by his government and political allies in his campaign for independence.

"Catalonia wants to speak. Wants to be heard. Wants to vote. Now is the right time and we have the right legal framework to do so," Mas said in a speech in Catalan, Spanish and English immediately after the signing ceremony.

Madrid has vowed to block a referendum. On Friday, Spanish Deputy Prime Minister Soraya Saenz de Santamaria said the cabinet would meet on Monday to formalise the appeal against the vote.

The objection would then be handed to the Constitutional Court, suspending the vote until a final ruling on its legality, which could take years.

Spain's central government says a Catalan independence referendum would violate the country's 1978 constitution, drawn up on Spain's transition to democracy.

Political analysts expect the Catalan leader to call early elections after Madrid blocks the vote. He would then use the elections as a way to give Catalans a chance to vote on independence from Spain.

Mas is under pressure from separatist coalition partners to go ahead with a referendum even if it is declared illegal, although he has himself said he would not do anything that is against the law.

Madrid's refusal to allow a vote has angered many Catalans, even those who favour continued union with Spain. Hundreds of thousands of people marched in the streets of Barcelona earlier this month for the right to hold a referendum. (Additional reporting and writing by Paul Day; Editing by Pravin Char)

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UPDATE 3-Secret tapes of Fed meetings on Goldman prompt call for U.S. hearings

Fri Sep 26, 2014 9:25pm EDT

* Former New York Fed bank examiner recorded conversations

* Warren calls for hearings on coziness of relationship (Adds comment from source)

By Jonathan Spicer and Emily Stephenson

NEW YORK/WASHINGTON, Sept 26 (Reuters) - An influential U.S. senator wants to hold hearings into "disturbing" issues raised by secretly taped conversations between Federal Reserve supervisors and officials at Goldman Sachs Group Inc, a bank the Fed was tasked with policing.

Elizabeth Warren, a Democrat on the Senate Banking Committee, on Friday called for hearings after portions of the recordings from 2011 and 2012 were made public. Fellow Democrat Sherrod Brown, also a committee member, called for a "full and thorough investigation" into the allegations they raised.

Carmen Segarra, a former New York Fed bank examiner who brought a wrongful termination lawsuit against her former employer, recorded the conversations and provided them to the investigative news outlet ProPublica and the public radio show "This American Life" to illustrate what she saw as an inappropriately close relationship between regulator and bank.

The tapes appear to show an unwillingness among some Fed supervisors to both demand specific information from Goldman about a transaction with Banco Santander and to strongly criticize what Segarra concluded was the lack of an appropriate conflict-of-interest policy at Goldman.

Political interest in the recordings could feed suspicion among Americans that little has changed on Wall Street since bank regulators failed to identify and stop the risk-taking that led to the 2007-2009 financial crisis and deep U.S. recession.

"When regulators care more about protecting big banks from accountability than they do about protecting the American people from risky and illegal behavior on Wall Street, it threatens our whole economy," Warren said in an emailed statement. "Congress must hold oversight hearings on the disturbing issues raised by today's whistleblower report when it returns in November."

Brown, in an email, said: "For too long, too many financial regulators have been too cozy towards the very industry that they are meant to police."

Segarra was fired after nearly seven months at the New York Fed as a so-called embedded supervisor at Goldman. She later sued the branch of the U.S. central bank for $7 million but the suit was dismissed in April for failing to state a claim that merited whistleblower protection, a decision she is appealing.

"The New York Fed categorically rejects the allegations being made about the integrity of its supervision of financial institutions," it said in a statement on its website.

On Friday, Goldman tightened rules on investments its bankers can make in individual stocks and bonds, a company spokesman told Reuters.

A source familiar with the situation said the bank's new conflict-of-interest rules on Friday were in the works for some time and were unrelated to the Segarra case.

Asked about the possibility of hearings, both the New York Fed and Goldman Sachs declined to comment.

Segarra stands by her allegations against the Fed, said Linda Stengle, her lawyer. "The audio on the tapes speaks for itself. Regardless of whether our case proceeds on appeal, we are gratified that Carmen is vindicated by the recorded words of employees of Goldman Sachs and the New York Fed," she said.

Segarra filed the wrongful termination suit in October, claiming she was fired after refusing to alter a critical examination of Goldman's legal and compliance units. In claims she repeated in Friday's media reports, she said superiors were too deferential to the bank and they pressured her to back down.

Some 46 hours of meetings and conversations were recorded, according to ProPublica.

In one conversation said to be among Fed examiners following a meeting with Goldman officials, one participant appeared concerned about pushing the bank too hard for details on the Santander deal.

"I think we don't want to discourage Goldman from disclosing these types of things in the future, and therefore maybe you know some comment that says don't mistake our inquisitiveness, and our desire to understand more about the marketplace in general, as a criticism of you as a firm necessarily," the unidentified examiner told his colleagues, according to a transcript provided by This American Life. (Reporting by Jonathan Spicer and Emily Stephenson; Additional reporting by Amrutha Gayathri in Bangalore and Lauren LaCapra in New York; Editing by David Gregorio and Lisa Shumaker)

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Afghanistan will delay paying civil servants - finance ministry official

KABUL, Sept 27 Sat Sep 27, 2014 8:33am EDT

KABUL, Sept 27 (Reuters) - Afghanistan will delay paying salaries to hundreds of thousands of civil servants next month because it does not have enough money, a finance ministry official said Saturday.

The government treasury now holds less than the 6.5 billion Afghanis ($116 million) needed to begin processing monthly salaries, said Alhaj Mohammad Aqa, director-general of treasury in the ministry.

He would not say exactly how much money the government had in its coffers, only that it was not enough to meet the payroll. (Reporting by Kay Johnson; Editing by Pravin Char)

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UPDATE 3-Secret tapes of Fed meetings on Goldman prompt call for U.S. hearings

Fri Sep 26, 2014 9:25pm EDT

* Former New York Fed bank examiner recorded conversations

* Warren calls for hearings on coziness of relationship (Adds comment from source)

By Jonathan Spicer and Emily Stephenson

NEW YORK/WASHINGTON, Sept 26 (Reuters) - An influential U.S. senator wants to hold hearings into "disturbing" issues raised by secretly taped conversations between Federal Reserve supervisors and officials at Goldman Sachs Group Inc, a bank the Fed was tasked with policing.

Elizabeth Warren, a Democrat on the Senate Banking Committee, on Friday called for hearings after portions of the recordings from 2011 and 2012 were made public. Fellow Democrat Sherrod Brown, also a committee member, called for a "full and thorough investigation" into the allegations they raised.

Carmen Segarra, a former New York Fed bank examiner who brought a wrongful termination lawsuit against her former employer, recorded the conversations and provided them to the investigative news outlet ProPublica and the public radio show "This American Life" to illustrate what she saw as an inappropriately close relationship between regulator and bank.

The tapes appear to show an unwillingness among some Fed supervisors to both demand specific information from Goldman about a transaction with Banco Santander and to strongly criticize what Segarra concluded was the lack of an appropriate conflict-of-interest policy at Goldman.

Political interest in the recordings could feed suspicion among Americans that little has changed on Wall Street since bank regulators failed to identify and stop the risk-taking that led to the 2007-2009 financial crisis and deep U.S. recession.

"When regulators care more about protecting big banks from accountability than they do about protecting the American people from risky and illegal behavior on Wall Street, it threatens our whole economy," Warren said in an emailed statement. "Congress must hold oversight hearings on the disturbing issues raised by today's whistleblower report when it returns in November."

Brown, in an email, said: "For too long, too many financial regulators have been too cozy towards the very industry that they are meant to police."

Segarra was fired after nearly seven months at the New York Fed as a so-called embedded supervisor at Goldman. She later sued the branch of the U.S. central bank for $7 million but the suit was dismissed in April for failing to state a claim that merited whistleblower protection, a decision she is appealing.

"The New York Fed categorically rejects the allegations being made about the integrity of its supervision of financial institutions," it said in a statement on its website.

On Friday, Goldman tightened rules on investments its bankers can make in individual stocks and bonds, a company spokesman told Reuters.

A source familiar with the situation said the bank's new conflict-of-interest rules on Friday were in the works for some time and were unrelated to the Segarra case.

Asked about the possibility of hearings, both the New York Fed and Goldman Sachs declined to comment.

Segarra stands by her allegations against the Fed, said Linda Stengle, her lawyer. "The audio on the tapes speaks for itself. Regardless of whether our case proceeds on appeal, we are gratified that Carmen is vindicated by the recorded words of employees of Goldman Sachs and the New York Fed," she said.

Segarra filed the wrongful termination suit in October, claiming she was fired after refusing to alter a critical examination of Goldman's legal and compliance units. In claims she repeated in Friday's media reports, she said superiors were too deferential to the bank and they pressured her to back down.

Some 46 hours of meetings and conversations were recorded, according to ProPublica.

In one conversation said to be among Fed examiners following a meeting with Goldman officials, one participant appeared concerned about pushing the bank too hard for details on the Santander deal.

"I think we don't want to discourage Goldman from disclosing these types of things in the future, and therefore maybe you know some comment that says don't mistake our inquisitiveness, and our desire to understand more about the marketplace in general, as a criticism of you as a firm necessarily," the unidentified examiner told his colleagues, according to a transcript provided by This American Life. (Reporting by Jonathan Spicer and Emily Stephenson; Additional reporting by Amrutha Gayathri in Bangalore and Lauren LaCapra in New York; Editing by David Gregorio and Lisa Shumaker)

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UPDATE 6-'Bond King' Bill Gross quits Pimco for Janus

Fri Sep 26, 2014 6:46pm EDT

(Adds Pimco statement, graphic link, updates details on treasuries reaction, shares)

By Paritosh Bansal and Jennifer Ablan

NEW YORK, Sept 26 (Reuters) - Bill Gross, the bond market's most renowned investor, quit Pimco for distant rival Janus Capital Group Inc on Friday, the day before he was expected to be fired from the huge investment firm he co-founded more than 40 years ago.

Gross, 70, had been clashing with the firm's executive committee and had threatened to resign multiple times, a source familiar with the situation said. The committee had planned to accept his latest resignation from the post of chief investment officer on Saturday.

The surprise development, which rattled the U.S. bond market, came the day before Pimco and its parent, German insurer Allianz SE, planned to dismiss Gross, the source said.

Gross will manage the Janus Global Unconstrained Bond Fund beginning on Monday, Janus said in a statement. The fund, started in May, has just $13 million in assets.

Dan Ivascyn, one of Pimco's deputy chief investment officers, was named late Friday as Group Chief Investment Officer to replace Gross, who according to Forbes has a net wealth of $2.3 billion.

In addition, Pimco promoted the existing deputy CIOs to Chief Investment Officer positions: Andrew Balls, CIO Global; Mark Kiesel, CIO Global Credit; Virginie Maisonneuve, CIO Equities; Scott Mather, CIO U.S. Core Strategies; and Mihir Worah, CIO Real Return and Asset Allocation.

Douglas Hodge, Pimco's Chief Executive Officer, and Lew "Jay" Jacobs, president, will continue to serve as the firm's senior executive leadership team, spearheading Pimco's business strategy, client service and the firm's operations.

"Pimco and Bill Gross are synonymous," said Todd Rosenbluth, director of mutual fund research at S&P Capital IQ. "It will be extremely hard to think of Pimco and Bill Gross as separate, and it will take time for investors to realize that he no longer is going to play a role at one of the world's largest fixed income managers."

PERIOD OF UPHEAVAL

The departure is the latest twist in a tumultuous year for Gross, long dubbed "the bond king" for his prowess in fixed-income investing, and for the firm he helped build into a $2 trillion powerhouse since co-founding it in 1971.

Earlier this year, his co-chief investment officer, Mohamed El-Erian, left Pimco, causing a highly public falling out between the two long-time colleagues. El-Erian remains at Allianz.

Gross' flagship Pimco Total Return Fund, the world's largest bond fund, with more than $220 billion in assets, has suffered nearly $70 billion of investor withdrawals over the past 16 months, while its performance has lagged its peers and the wider bond market.

His departure could lead investors to pull hundreds of billions of dollars in assets from Pimco and invest it with Janus, a Morningstar analyst said.

Pimco said Kiesel, Mather and Worah were named portfolio managers for the Pimco Total Return Fund.

Pimco had prepared investors for the possibility of succession as recently as two weeks ago, said Karissa McDonough, a fixed income strategist at People's United Wealth Management.

"They were trying to reassure us by driving home the point that they're not so dependent on Bill Gross anymore," McDonough said.

The departure also comes within days of news that the U.S. Securities and Exchange Commission was investigating whether a popular Pimco exchange-traded fund that Gross ran and that was launched to mimic the strategy of the much larger Pimco Total Return Fund, had artificially inflated returns.

The probe is not related to Gross' resignation, a spokeswoman for Allianz said.

Shares of Allianz fell 8.5 percent in German trading.

Short- and intermediate-dated U.S. Treasuries prices dipped as concerns were spurred that Pimco may have to sell Treasuries if investor redemptions at the firm increase.

The impact was also felt in the niche market of inflation linked bonds known as Treasury Inflation Protected Securities (TIPS), where breakevens - the difference in yield between TIPS and a comparable maturity treasury - were narrower across the curve, denoting an underperformance of TIPS.

According to the latest public data, PIMCO owned $79.8 bln of TIPS and was the largest holder in 25 of the 38 outstanding issues, according to Thomson Reuters publication IFR.

JANUS' TRIUMPH

Gross' move was seen as a huge coup for Janus, which has less than $180 billion in assets under management, less than the Total Return Fund and a fraction of Pimco's total assets.

Janus shares closed up 43 percent at $15.89 on the New York Stock Exchange.

"I look forward to returning my full focus to the fixed income markets and investing, giving up many of the complexities that go with managing a large, complicated organization," Gross said in a statement.

Gross said he had chosen Janus because of his longstanding relationship with Chief Executive Richard Weil, who spent 15 years at Pimco before taking his current job in 2010.

Gross had also considered joining DoubleLine Capital. The investment firm's head, Jeffrey Gundlach, said he had met with Gross last week to discuss a possible role there.

Gross will be based in a new Janus office to be set up in Newport Beach, California, where Pimco is based.

(Reporting by Paritosh Bansal, Jennifer Ablan, Luciana Lopez, Jonathan Gould, David Randall and Sam Forgione; Writing by Dan Burns and Megan Davies; Editing by Lisa Von Ahn, Steve Orlofsky and Andrew Hay)

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UPDATE 1-Catalonia leader calls referendum on independence from Spain

By Elena Gyldenkerne

BARCELONA, Spain, Sept 27 Sat Sep 27, 2014 5:52am EDT

BARCELONA, Spain, Sept 27 (Reuters) - The president of Spain's Catalonia region signed a decree on Saturday calling an independence referendum on Nov. 9, putting him on a collision course with the central government which says such a vote is illegal.

The wealthy north-eastern region, which accounts for around a fifth of Spain's economy, has its own language and distinct culture and has long fought for self-rule. A large majority of Catalans want to hold a referendum on independence, polls show.

The region's president, Artur Mas, signed the decree in a solemn ceremony in the Catalan government offices in Barcelona - the gothic Generalitat Palace - surrounded by his government and political allies in his campaign for independence.

"Catalonia wants to speak. Wants to be heard. Wants to vote. Now is the right time and we have the right legal framework to do so," Mas said in a speech in Catalan, Spanish and English immediately after the signing ceremony.

Madrid has vowed to block a referendum. On Friday, Spanish Deputy Prime Minister Soraya Saenz de Santamaria said the cabinet would meet on Monday to formalise the appeal against the vote.

The objection would then be handed to the Constitutional Court, suspending the vote until a final ruling on its legality, which could take years.

Spain's central government says a Catalan independence referendum would violate the country's 1978 constitution, drawn up on Spain's transition to democracy.

Political analysts expect the Catalan leader to call early elections after Madrid blocks the vote. He would then use the elections as a way to give Catalans a chance to vote on independence from Spain.

Mas is under pressure from separatist coalition partners to go ahead with a referendum even if it is declared illegal, although he has himself said he would not do anything that is against the law.

Madrid's refusal to allow a vote has angered many Catalans, even those who favour continued union with Spain. Hundreds of thousands of people marched in the streets of Barcelona earlier this month for the right to hold a referendum. (Additional reporting and writing by Paul Day; Editing by Pravin Char)

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EMERGING MARKETS-Dollar knocks emerging stocks to four-month low

By Karin Strohecker

LONDON, Sept 26 Fri Sep 26, 2014 5:39am EDT

LONDON, Sept 26 (Reuters) - Emerging stocks were on track for their third straight week of losses, hit by a broad equities sell-off and dollar strength, while the latest twist in the Sistema saga sent Russian shares down one percent.

The dollar scaled new four-year highs against a basket of major currencies late on Thursday, hitting oil and commodity prices and knocking stocks, with the S&P 500 suffering its biggest one-day loss since July.

Emerging market stocks fell 0.4 percent to a new four-month low. The index is now 7.5 percent off three-year highs hit in early September.

Data shows investors are opting to move out of emerging equities, with dedicated equity funds suffering $600 million in outflows for the week to Sept. 24. Emerging bond funds, however, saw a small inflow of $400 million, banks said, citing EPFR Global which releases data to clients late on Thursdays.

"Investors seem to be growing more nervous, likely on valuation and the growth narrative for (emerging markets)," Barclays analysts said in a note. "This caution - particularly on growth - seems warranted given the continued disappointing China cyclical data and soft commodity prices."

Russian stocks were among the biggest losers after a court seized shares in oil company Bashneft owned by Sistema , a conglomerate controlled by billionaire Vladimir Yevtushenkov.

Prosecutors said they had uncovered "significant violations" of the law in the sale of energy assets, including Bashneft.

"Sistema is a very negative development for the Russian market, and is hurting its reputation among foreign as well as domestic investors," Capital Economics economist, Liza Ermolenko, said.

"It just emphasises that in Russia's current political and economic situation there is no certainty that anyone is safe."

Sistema's dollar bonds fell 3.8 cents to 81.6 cents in the dollar.

The dollar-denominated RTS index fell 1.22 percent while the rouble-based MICEX traded flat. Sistema was the worst performer, chalking up a 11.67 percent fall, while Bashneft was down 2.91 percent.

The rouble hit another record low against the dollar at 38.97, putting it on track for a third week of losses against the greenback.

Meanwhile Ukraine's five-year credit default swaps hit a seven-month high of 1,298 basis points after Moscow accused Kiev of doing everything it could to not repay debt.

Moscow holds a $3 billion eurobond issued by former Ukrainian President Viktor Yanukovich, which entitles Russia to demand repayment should public debt ratios cross a certain threshold.

To add to Ukraine's woes, Hungary's gas pipeline operator suspended gas shipments to Ukraine.

Stocks in India jumped 0.4 percent and the rupee firmed 0.3 percent after Standard & Poor's raised the country's credit rating outlook to stable from negative.

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 Louise Ireland)

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UPDATE 1-Russia's VTB calls Ukraine claims on debt illegality "baseless"

Fri Sep 26, 2014 5:51am EDT

(Adds background, comment)

By Lidia Kelly and Alexander Winning

MOSCOW, Sept 26 (Reuters) - Ukraine's claims that a $3 billion Russian bailout was illegal are baseless, Russia's VTB bank said on Friday, as Russia warned that it may demand earlier repayment of the bonds in question, raising concerns of a broader Ukraine default.

On Thursday, the Ukrainian security service opened a criminal case over a Eurobond that Moscow purchased in December, alleging abuse of office by Ukraine's former finance minister and violation of the budget law in organising the sale.

Russian Finance Minister Anton Siluanov told Reuters that Kiev was trying to do everything either to invalidate the sale or not to repay its debts. He warned Moscow may ask for the cash soon if official data prove one of the bond's conditions is broken

This could threaten Ukraine's fiscal stability and hurt hopes of an improvement in relations between the two neighbours, now at their lowest point in post-Soviet history.

"This would be a major complication all around, and just underscores that Russia continues to be less than constructive in its approach towards Ukraine," Timothy Ash, head emerging markets strategist at Standard Bank in London, wrote in a note.

The sale took place before Ukraine's former President Viktor Yanukovich was ousted from office in February, spurring a violent conflict in the eastern part of Ukraine.

Kiev alleges as well that the placement of the bond includes an illegal transfer of a $450,000 fee to VTB Capital.

"Claims made by the Ukrainian authorities that the placement of USD 3 billion in bonds was carried out illegally are completely baseless," VTB, the mother company of VTB Capital, said in a statement on Friday.

"The placement was carried out in full accordance with English law and applicable Ukrainian legislation,"

CURIOUS CLAUSE

Investors in Ukraine's dollar debt have been worried for weeks that President Vladimir Putin could use a clause in the bond's conditions to trigger broad defaults across Kiev's sovereign Eurobonds..

The clause stipulates that the "total state debt and state-guaranteed debt should not at any time exceed an amount equal to 60 percent of the annual nominal gross domestic product (GDP) of Ukraine".

Siluanov said that based on unofficial statistics and the hryvnia's devaluation, the threshold has already been crossed, possibly giving Moscow the right to demand early repayment.

The hryvnia, according to calculations by Reuters, has lost almost 36 percent against the dollar since the start of the year.

But Siluanov said the ministry will wait until official data on government debt comes out before making a final decision on the course of action.

"This suggests that Russia might look to trigger the covenant earlier (than previously expected), hence trying to force a broader Ukrainian default due to cross default clauses." Ash said. (Reporting by Alexander Winning; Writing by Lidia Kelly, Editing by Jason Bush and Angus MacSwan)

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Willis Group places $250 mln California catastrophe-bond

LONDON, Sept 26 Fri Sep 26, 2014 6:13am EDT

LONDON, Sept 26 (Reuters) - Willis Capital Markets & Advisory (WCMA), part of Willis Group Holdings said on Friday it had structured and placed a $250 million catastrophe bond deal with California's largest provider of workplace insurance.

The bond, 'Golden State Re II', is the second time the State Compensation Insurance Fund has issued a cat-bond, Willis said in a statement.

The deal, which closed on Sept. 16, provides the fund with fully collateralised protection for workers' compensation against a California earthquake over slightly more than four years and three months.

Investor demand for the issue had been strong, Willis said, resulting in the size of the deal being increased to $250 million from an initial $150 million. It was priced at the bottom end of an initial 2.2 percent to 2.7 percent range. (Reporting by Simon Jessop; editing by Steve Slater)

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Russia says "disappointed" with Japan new sanctions

MOSCOW, Sept 24 Wed Sep 24, 2014 5:12am EDT

MOSCOW, Sept 24 (Reuters) - Russia's foreign ministry said on Wednesday it was disappointed with new sanctions imposed on the country by Japan, calling them an "unfriendly step".

"We see this unfriendly step as fresh evidence of the inability of the Japanese side to enforce an independent foreign policy line," the statement said.

Tokyo said on Wednesday it was imposing additional sanctions on Russia because of its involvement in the Ukraine conflict, and said it had also formally protested at the visit to a contested island off northern Japan by an aide to Russian President Vladimir Putin. (Reporting by Alexei Anishchuk; Editing by Vladimir Soldatkin)

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Russia sells 10 bln rbls ($261 mln) of 10-yr OFZs, avg yield 9.37 pct

MOSCOW Wed Sep 24, 2014 6:01am EDT

MOSCOW Sep 24 (Reuters) - The Russian Finance Ministry sold all 10 billion roubles ($261 million) of 10-year OFZ treasury bonds on offer at auction on Wednesday at an average yield of 9.37 percent.

The auction was the first to be held since mid-July. The ministry had cancelled nine straight weekly auctions of OFZ bonds due to "unfavourable market conditions". (Reporting by Kira Zavyalova, writing by Jason Bush, editing by Elizabeth Piper)

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UPDATE 2-SEC probes Pimco chief Bill Gross's ETF bond fund

Wed Sep 24, 2014 6:10am EDT

* SEC investigating for at least a year -paper

* Allianz says has been kept informed of investigation

* Allianz share 0.5 pct lower, lagging European insurers (Adds comment by Allianz, further background)

Sept 24 (Reuters) - U.S. regulator the Securities and Exchange Commission is investigating whether bond fund manager Pimco inflated the returns of its Total Return Exchange-Traded Fund run by founder Bill Gross, who has come under renewed fire from investors this year over the poor performance of his main fund.

Pimco and its owner, Allianz, Europe's biggest insurer, confirmed the probe after a report in the Wall Street Journal said the SEC investigation into the $3.6 billion exchange-traded fund has been going on for at least a year but has picked up pace in recent weeks. (on.wsj.com/1yq8JiC)

The SEC's probe is looking into how the ETF bought and then valued its investments in bonds and whether that led to inaccurate information about the fund's actual performance being given to investors, the Journal said.

Gross, the chief investment officer of Pimco, and other executives have been interviewed by the SEC as part of the probe, the report said.

"Pimco has been cooperating with the SEC in this non-public matter and we take our regulatory obligations and responsibilities to our clients very seriously," a spokesman for Pimco told Reuters.

"We believe our pricing procedures are entirely appropriate and in keeping with industry best-practices."

An Allianz spokeswoman said the insurer was aware of the probe but declined to say when it started or give any details.

"Allianz has been kept regularly informed by Pimco about the SEC investigation," she said.

The SEC could not be reached for comment outside regular U.S. business hours.

Allianz's shares were down 0.5 percent by 0955 GMT on Wednesday, when the STOXX Europe 600 insurance sector index was down 0.2 percent.

BAD MEMORIES

The news of the probe exacerbates what has already been a rough year for Gross and Pimco. Pimco, which is based in Newport Beach, California, had $1.97 trillion in assets as of June 30.

Pimco's flagship Total Return Fund, the world's largest bond fund, has seen outflows for 16 straight months through August. Analysts have said cash outflows began last year due to weak returns and the fund declined 1.9 percent in 2013, its worst performance in nearly two decades.

A public falling out earlier this year between Gross and his one-time heir-apparent Mohamed El-Erian, who was co-chief investment officer, has only added to investors' unease.

Investors have pulled almost $70 billion from the fund since May 2013, Morningstar data shows, with net outflows in August alone of $3.9 billion despite some improvement in performance.

The Total Return Fund had $221.6 billion in assets at the end of August, down from a peak of $292.9 billion in April 2013.

The Pimco Total Return Exchange-Traded Fund, an actively managed ETF designed to mimic the strategy of the flagship mutual fund, however, has been doing better. The fund had net inflows of $87 million in August, its third month of inflows, according to Morningstar.

Although total assets in the fund at the end of August were $3.6 billion, a fraction of the assets in the mutual fund, the ETF ranks at the top of its category.

Allianz Chief Financial Officer Dieter Wemmer told Reuters TV in an interview in May that Pimco had autonomy on investment decisions and practices but that Allianz's controls were strict.

"When it comes to legal, compliance, risk, finance, internal audit, they are part of the group-wide governance system and that is the way it should be," Wemmer said. (Reporting by Ankush Sharma in Bangalore and Jonathan Gould in Frankfurt; Editing by Gopakumar Warrier and Greg Mahlich)

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Russian assets firm on China data, newspaper report on sanctions

MOSCOW, Sept 23 Tue Sep 23, 2014 4:05am EDT

MOSCOW, Sept 23 (Reuters) - Russian assets firmed on Tuesday, buoyed by positive economic data from China, a major market for Russia's raw materials, and by a report that the European Union might review sanctions imposed against Moscow over its role in the Ukraine crisis.

At 0730 GMT, the dollar-denominated RTS index was up 0.5 percent at 1,157 points, while its rouble-based peer MICEX traded 0.4 percent higher at 1,418 points.

The daily Kommersant, citing an EU source, reported the 28-nation bloc could review its economic sanctions against Russia as early as Sept. 30.

"(This report) should support the market today," analysts at Alfa Bank wrote in a note.

China's factory activity data came in stronger than expected, boosting Moscow's metal and steel companies for whom China is a major market.

However, trading was restricted for shares of coal-to-steel group Mechel after they tumbled nearly 30 percent in the previous session following a comment by Economy Minister Alexei Ulyukayev that bankruptcy may be the only option for the debt-ridden miner.

The rouble was 0.1 percent stronger against the dollar at 38.65 and traded unchanged on the day at 49.69 versus the euro.

This left the currency nearly 0.1 percent stronger at 43.62 against the dollar-euro basket the central bank uses to gauge the rouble's nominal exchange rate.

For rouble poll data see

For Russian equities guide see

For Russian treasury bonds see

Russia in graphics: link.reuters.com/dun63s (Reporting by Lidia Kelly; Editing by Gareth Jones)

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GLOBAL MARKETS-Euro data hits stocks, China reading soothes commodities

Tue Sep 23, 2014 4:53am EDT

* European shares slip on fresh batch of downbeat data

* Commodities pare losses after Chinese PMI

* Oil still near lowest since mid-2012

* Mideast nerves jangle after U.S. attacks IS targets in Syria

* Record-breaking dollar edges down against basket

By Marc Jones

LONDON, Sept 23 (Reuters) - More downbeat data from Europe left shares on course for a third day of losses on Tuesday, though commodities got a break from recent selling after a reading on China's massive factory sector outpaced the market's bleak expectations.

In data likely to dishearten European policymakers, euro zone business activity expanded at a slightly weaker pace than expected this month, with firms also cutting prices for a 30th month in a row to drum up business.

The manufacturing PMI for Germany, Europe's largest economy, slumped to 50.3, its lowest reading since June 2013 and below all forecasts in a Reuters poll of 32 economists, while a services industry PMI for France, the bloc's second-biggest economy, faltered after just two months in growth territory.

Stock markets in London, Frankfurt and Paris fell 1, 0.8 and 1.3 percent respectively as new tax pressures also hit pharmaceutical and UK tobacco firms. Vienna slumped 2 percent as Raiffeisen Bank warned it was likely to see its first ever annual loss due to problems in Ukraine and Hungary.

"Although there was some relief that the French PMI number wasn't worse, the fact that activity in Germany is only just expanding must be a worry," said Gavin Friend, a strategist at National Australia Bank.

In China the news had been slightly better. HSBC's flash survey on manufacturing (PMI) rose to 50.5, from 50.2 in August, confounding forecasts for a dip to 50.0.

The mixed data - comforting from China, less so in Europe - and the start of U.S.-led air strikes on Islamic State strongholds in Syria gave a fillip to safe-haven U.S. and German government bonds, while the high-flying dollar edged lower against its currency basket.

Economists had been braced for something worse from Beijing following the recent run of soft data from the world's number two economy and the relief also helped offset nerves over the fresh bout of political tensions in the Middle East .

Chinese stocks bounced 0.7 percent to lead Asia marginally higher. The Australian dollar also hopped up. The Asian giant is Australia's single biggest export market and investors often use the currency as a liquid proxy for China plays.

Annette Beacher, head of Asia-Pacific research at TD Securities, noted the flash PMIs had averaged 50.9 for the third quarter, a pickup over the previous quarter's 49.6.

"After the dismal industrial production print for August, financial markets were increasingly of the view that China is slowing at a more rapid pace than desired, so today's print provides a welcome offset," said Beacher.

Australia's main index swung smartly higher to be up 1 percent, while MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.2 percent. Japanese markets were shut for a holiday.

Wall Street's took a tumble overnight. A 0.8 percent drop for the S&P 500 was the biggest one-day decline since early August and was caused in part by a soft reading on U.S. existing home sales. Early futures prices also pointed to another 0.2 percent dip later.

DOLLAR RESTS

U.S. Treasuries and other global bond markets were also still benefitting from comments from New York Federal Reserve bank president William Dudley on Monday that there was still excessive slack in the U.S. economy so any increase in interest rates should be done cautiously.

Yields on 10-year Treasury notes dipped to 2.56 percent, from 2.59 percent late Friday, while German Bunds and other core euro zone bond yields were barely budged just above their recent lows.

Dudley also said the steady rise in the dollar could complicate the Fed's job, potentially hurting U.S. economic performance and pushing down inflation.

The currency has been on a hot streak recently thanks to the diverging outlook for U.S. rates and those in Europe and Japan, where policy is set to remain super-easy and might even be loosened further.

Measured against a basket of currencies the dollar had climbed for 10 straight weeks, the longest run since the index was created in 1971. The index traded at 84.521, having peaked at 84.861 on Monday.

The dollar was also taking a breather against the yen at 108.74 after peaking at a six-year high of 109.46 last week. The euro was hanging on at $1.2862 having hit a new 14-month low at $1.2814 the previous day.

The Australian dollar recouped just a little of its recent losses on the China survey and nudged up to $0.8913. Likewise, copper and gold inched higher, the latter having touched its lowest since January at $1,208.36 on Monday.

Brent crude oil for November delivery bounced 20 cents to $97.17 a barrel, having fallen sharply overnight to be uncomfortably close to its recent trough of $96.21. U.S. crude rose 15 cents to $91.01 a barrel.

Ample supply and slowing economic growth in Europe and China had been outweighing expectations of a cut in oil output from the Organization of the Petroleum Exporting Countries (OPEC).

"The market was really oversold earlier and there was not much room for prices to go further down," said Avtar Sandu, senior manager for commodities at Phillip Futures, after the Chinese data. (Editing by John Stonestreet)

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France undertaking reform, German criticism a 'caricature'-Valls

BERLIN, Sept 23 Tue Sep 23, 2014 6:12am EDT

BERLIN, Sept 23 (Reuters) - French Prime Minister Manuel Valls said on Tuesday his country was making progress on economic reforms and that German comments on a lack of growth in France were sometimes a 'caricature'.

"I am aware that here in Germany people like saying that France is unwilling to reform and that now France is a sick man," Valls told a conference in Berlin hosted by the BDI industry association.

"I look at my country with a very clear eye. I know the obstacles and challenges that France is facing. But if Germany managed ... why shouldn't France be able to do the same?" he said.

"Of course it takes time, but where there is a will there is a way.. We are in a debt spiral that is no longer sustainable," he told the conference. (Reporting by Annika Breidthardt; Writing by Madeline Chambers)

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Putin plans to attend G20 summit in Australia - agency cites Kremlin's spokesman

MOSCOW, Sept 22 Mon Sep 22, 2014 5:30am EDT

MOSCOW, Sept 22 (Reuters) - Russian President Vladimir Putin plans to attend a Group of 20 summit in the Australian city of Brisbane, Interfax news agency said on Monday, despite calls for the hosts to prevent him attending because of Russia's role in the Ukraine crisis.

"The president is continuing to prepare for the upcoming summit of the G20 in Australia," the agency quoted Kremlin spokesman Dmitry Peskov as saying. (Reporting by Lidia Kelly, editing by Elizabeth Piper)

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EMERGING MARKETS-Delicate China hits stocks, strong dollar hurts FX

By Chris Vellacott

LONDON, Sept 22 Mon Sep 22, 2014 5:59am EDT

LONDON, Sept 22 (Reuters) - Emerging stocks hit a six-week low and a string of key currencies fell on Monday as more disappointing signals from China added to the pressure of a strengthening U.S. dollar.

Chinese and other Asian stocks were the main offenders as MSCI's main emerging equities index fell 0.7 percent to its lowest level since Aug. 8.

Hopes have been building that China will soon introduce stimulus measures to tackle a soft patch in the economy, but Finance Minister Lou Jiwei said over the weekend there would be no dramatic change in policy.

Investors are now worrying that China's manufacturing PMI reading on Tuesday could come in below the 50 level, indicating that manufacturing activity is now contracting.

"All the macro data now in China is being closely watched, whether it's PMI, retail sales or housing. Bottom line is we've come to 7 percent (growth) levels, now we will go down to 6 percent levels. It's just a readjustment phase," said Simon Quijano-Evans, head of emerging markets research at Commerzbank in London.

In Russia, markets also headed lower on Monday amid signs the ceasefire in eastern Ukraine is under strain after apparent violations over the weekend.

The dollar-denominated RTS index was down 0.3 percent and the rouble declined 0.5 percent against the dollar to trade close to the all-time lows reached earlier this month.

Investors see Western sanctions in retaliation for Moscow's role in the Ukraine crisis as adding to the damage already inflicted on Russia's economy by a weakening oil price.

Prime Minister Dmitry Medvedev said on Friday that Russia would not isolate its sanctions-hit economy from the West, but improving relations with Asian countries has become a key strategy.

South Africa's rand was under pressure too. It dropped 0.4 percent to trade close to the 7-month lows touched on Friday after news that central bank governor Gill Marcus will leave her post in November. Stocks in Johannesburg fell 1 percent.

"Whatever you look at in South Africa, the macro political backdrop, infrastructure, unemployment, income inequality - there is very little support out there," Quijano-Evans said.

Turkey's lira was also at six-month lows while Istanbul's main share index slipped 0.34 percent.

Turkey is seen as vulnerable to a strengthening dollar because capital fleeing to chase higher yields available elsewhere would expose a reliance on external financing. Investors are also eyeing the possibility of the conflict in neighbouring Syria spilling over the border.

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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French bonds outperform after dodging Moody's ratings downgrade

Mon Sep 22, 2014 6:57am EDT

* French bond yields fall 4 bps after Moody's keeps Aa1 rating

* Moody's warns outlook remains negative on slow reforms

* Other top-rated bonds lower as economic data seen weak

* ECB's Draghi in focus after tepid TLTRO take-up (Updates prices, adds detail)

By Emelia Sithole-Matarise

LONDON, Sept 22 (Reuters) - French bonds outperformed most of their euro zone peers on Monday after Moody's spared the region's second largest economy from a fresh credit rating downgrade even though Paris has overrun its deficit targets.

The French government's admission last week that it would take longer than planned to cut its deficit as agreed with European partners had prompted speculation in the market and in the press that a one-notch downgrade was all but inevitable.

Moody's kept its rating on French bonds at Aa1 late on Friday but maintained its negative outlook, citing the difficulties of pushing through reforms.

French 10-year bond yields fell 4 basis points to 1.35 percent, outperforming other euro zone bonds whose yields were also lower on expectations that economic data due this week will add to signs of anaemic growth in the region.

Their yield spread over benchmark German Bunds tightened 2 bps to 38 bps.

"There's some limited reaction on the back of Moody's decision to keep the rating but I wouldn't have been surprised to see a very limited reaction even if there was a one-notch downgrade," said Patrick Jacq, a strategist at BNP Paribas.

"It's still a very liquid market and you still have some spread above German paper. In such conditions there's little risk at the moment of a decent sell-off on French paper."

QE PRESSURE

Market focus is also on European Central Bank President Mario Draghi's appearance at the EU parliament later on Monday, which follows tepid demand for the bank's latest scheme to push cheap long-term cash through the financial system.

If purchasing manager surveys on Tuesday point to more weakness in the euro zone economy, it will add to speculation that Draghi sooner or later will be forced to embark on full-scale asset purchases including government bonds, a tool known as quantitative easing.

A fall in the ECB's preferred measure of the market's long-term inflation expectations to its lowest this year on Friday, coming after the small take-up of the four-year loans, exacerbated deflation fears and increased speculation about QE.

The five-year, five-year breakeven forward rate, which measures roughly where markets expect 2024 inflation forecasts to be in 2019 fell to around 1.91 percent on Friday, within a whisker of 2010 lows of 1.90 percent.

Expectations that the ECB will eventually have to undertake more aggressive monetary stimulus were also supporting demand for lower-rated euro zone bonds.

Italian 10-year and Portuguese yields were slightly lower.

Spanish yields retreated slightly from lows hit last Friday after voters in Scotland rejected independence from the United Kingdom, easing concerns that separatists in wealthy Catalonia could be emboldened by the Scots.

"We're still bullish periphery despite the poor TLTRO take-up, as this should bring QE closer. We are still expecting 20 percent of TLTRO cash to go into carry trades," RBS strategists said in a note. (Editing by Catherine Evans)

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WRAPUP 1-G20 says nearing growth goal, but more needed from Europe

Sun Sep 21, 2014 2:41am EDT

* G20 says almost on track to add 2 pct to global growth

* Calls for Europe to do more to lift growth in near term

* Germany cautious on expansionary policy, warns of bubbles

* G20 leaders to meet in Brisbane in November

By Ian Chua and Cecile Lefort

CAIRNS, Australia, Sept 21 (Reuters) - The Group of 20 leading nations say they are tantalisingly close to adding an extra $2 trillion to the global economy and creating millions of new jobs, but Europe's extended stagnation remains a major stumbling block.

The finance ministers and central bank chiefs gathered in the Australian city of Cairns claimed progress on fireproofing the world's financial system and on closing tax loopholes exploited by giant multinationals.

They also dealt with the thorny problem of whether to invite Russian President Vladimir Putin to the G20 leaders' summit in November given events in Ukraine, with the consensus being to maintain diplomatic pressure but leave the door open for his attendance.

"We are determined to lift growth, and countries are willing to use all our macroeconomic levers - monetary, fiscal and structural policies - to meet this challenge," said Australian Treasurer Joe Hockey, who hosted the event.

Almost 1,000 measures had been proposed that would boost global growth by 1.8 percent by 2018, nearing the ambitious goal of 2 percentage points adopted back in February.

A common concern was the risk of Europe's economic malaise pulling others down. U.S. Treasury Secretary Jack Lew cited "philosophical" differences with some of his counterparts in Europe, especially on the need for near-term stimulus.

"The concern that I have is that if the efforts to boost demand are deferred for too long, there's a risk that the headwinds get stronger and what Europe needs is some more tailwinds in the economy," said Lew.

That was not an argument that found favour with German Finance Minister Wolfgang Schaeuble who emphasised the need for structural reforms and strict budget controls.

The proposals to lift global growth will now go for formal approval at the summit of G20 leaders in Brisbane in November.

Chief among them was a global initiative aimed at increasing private investment in infrastructure, a particular hobby horse of the Australians who head the G20 this year.

CHINA GETS A PASS

While Europe's failings were front and centre, there was surprisingly little said about China's slowdown, at least publicly. That struck some as odd given the Asian giant was just behind the United States in the size of its economy.

"Our basic point on the aspirational growth target is that with China slowing down in a structural sense... it will be exceedingly difficult to hit that (2 percent) number, given China's massive arithmetic impact," said Huw McKay, a senior international economist at Westpac.

China's finance chief, Lou Jiwei, noted that stimulus measures also brought problems such as excess capacity, environmental pollution and growing local government debt, just the latest sign that any policy easing there would be limited.

The risks that super-loose monetary policy could inflate asset bubbles was also much discussed by the G20, along with the need for the U.S. Federal Reserve to avoid spooking markets as it winds down its quantitative easing campaign.

The Fed is widely expected to end its asset-buying program in October and to start raising interest rates next year, a marked contrast to the European Central Bank and the Bank of Japan where even more easing might be needed.

BANK BUFFERS

Regulators are looking at increasing the size of the capital buffer that the world's top banks need to hold to reduce the risk of a repeat of the global financial crisis.

European Central Bank Governing Council member Christian Noyer said a buffer of about 16 percent of risk-weighted assets was realistic but had not been finalised. A figure would be announced at the leaders summit, he said.

Also on the drawing board were plans to stem the loss of revenue from multinationals shifting their profits to low-tax countries, potentially reclaiming billions of dollars.

Taxation arrangements of global companies such as Google Inc , Apple Inc and Amazon.com Inc have become a hot political topic following media and parliamentary investigations into how many companies reduce their bills.

"We have endorsed far-reaching initiatives to identify and catch tax cheats through the automatic exchange of information using a Common Reporting Standard," said Australia's Hockey.

"We encourage others to match this commitment so that there are no places to hide."

(Additional reporting by Leika Kihara, Byron Kaye, Gernot Heller and Lincoln Feast; Writing by Wayne Cole; Editing by John Mair)

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Russia's Yamal LNG project may tap wealth fund in 2014 - EconMin

By Katya Golubkova

SOCHI, Russia, Sept 20 Sat Sep 20, 2014 9:26am EDT

SOCHI, Russia, Sept 20 (Reuters) - Russia's Novatek may get funds from the National Wealth Fund for its Yamal LNG project before the year-end, a minister said, as part of government plans to support sanction-hit companies.

Russia's No.2 gas producer, co-owned by an ally of President Vladimir Putin, Gennady Timchenko, was put on the Western sanctions list over Moscow's role in the Ukraine crisis, limiting its ability to raise funds in Western markets.

The government has pledged to support sanctions-hit companies irrespective of their shareholder structure, using National Wealth Fund as one of the options. Under the plan, NWF may buy bonds issued by some of such firms.

The Economy Ministry received Novatek's request for support in the amount of 100 billion to 150 billion roubles ($2.6-3.9 billion) - in line with the figures provided by Finance Ministry on Friday.

"We will give our conclusion on the strategic importance of this project in October and by the end of the year I think we can move toward granting the NWF funds," Deputy Economy Minister Nikolai Podguzov said on Saturday.

Podguzov added that Novatek's bonds that the NWF could buy would likely carry an interest equal to an annual inflation rate plus 1 percentage point and have a maturity of around 20 years.

Novatek leads the $27 billion Yamal LNG project in Russian Arctic, which is expected to more than double Russia's share on the global liquefied natural gas market. France's Total and China's CNPC co-own the project.

"As far as I understand, the project is in a high stage of realisation. There could be a situation when certain financing sources will drop out and might have to be replaced by NWF," Podguzov said on the sidelines of an economic forum in the Russian Black Sea resort of Sochi.

Russian state development bank VEB along with Gazprombank - both sanctioned by the West - are coordinating fundraising for Yamal LNG on the Russian side.

China Development Bank Corporation is coordinating China financing, earlier estimated by Timchenko at around $20 billion. Vladimir Dmitriev, VEB's chairman, told reporters on Friday that VEB may support Yamal LNG separately as well. (1 US dollar = 38.4275 Russian rouble) (Reporting by Katya Golubkova; Editing by Maria Kiselyova and Louise Heavens)

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French and German visions for Europe to clash in Berlin

Sun Sep 21, 2014 6:09am EDT

* Valls holds talks with Merkel after French deficit breach

* Germans want "verifiable" reform pledges from Paris

* Domestic pressures limit French PM's room for manoeuvre

By Noah Barkin and Mark John

BERLIN/PARIS, Sept 21 (Reuters) - Germany and France will try to reconcile divergent visions of how to fix Europe's economy on Monday when Manuel Valls makes his first visit to Berlin as French prime minister and holds talks with Angela Merkel.

The trip comes at a watershed moment, with the region struggling to shake off the aftermath of a prolonged financial crisis that has left its citizens poorer, increasingly jobless and turning to extremist politicians for answers.

But the risk is that Valls and Merkel talk past each other: the Frenchman urging a dash for growth and understanding from Berlin on France's broken fiscal promises, and the German leader asking the politically impossible of Paris on budgetary rigour and reform.

The outcome of their one-hour lunch in Merkel's chancellery will be scrutinised in other euro zone capitals - not least in Athens, Dublin, Portugal and Madrid, where leaders have played by the EU rule book and subjected their countries to genuine austerity.

"We have no interest in humiliating the French," said one German official who requested anonymity.

"But we would like to extract something out of them - including real, verifiable action on structural reform - in exchange for letting them off the hook," he said. "The problem will be to find a compromise that is acceptable politically to both the French and the Germans."

A decade ago, past leaders of Europe's two largest economies reneged on promises to rein in their public deficits - a transgression some say undermined the bloc's rules on budget discipline and helped set the stage for its sovereign debt crisis five years later.

The difference is that Berlin gradually went about bringing its fiscal house into order, imposing wage moderation and enacting controversial labour reforms. France largely stood still - and missed at least three more deficit targets.

Earlier this month it acknowledged that it would not bring its deficit down within EU limits until 2017. Initially, it had pledged to do so by 2013, before winning a reprieve until 2015.

"Granting France yet another two years on the deficit will create problems in other euro zone members," said Daniela Schwarzer of the German Marshall Fund in Berlin.

"Countries like Portugal, which were forced to take tough measures, will see a double-standard. Others will try to free-ride on the flexibility granted to France. The Germans are very aware of this."

ECHOES OF SCHROEDER

Valls is a centrist within the Socialist party who ahead of his Berlin visit has repeatedly name-checked Gerhard Schroeder the Social Democrat ex-chancellor credited with Germany's reform push of the 2000s. He will aim to convince Merkel he can do the same job for France.

His agenda in Germany sends an economy-friendly signal.

After a red carpet welcome with military honours on Monday, Valls will give a speech to German businessmen on Tuesday. He then travels to the Hamburg site of Franco-German planemaker Airbus and to Stuttgart, the heart of German industrial might.

The snag is that what Valls can achieve during the remaining two years of President Francois Hollande's term may fall well short of Merkel's expectations.

Two main reform projects are currently in the works: a "law on growth" aimed at freeing up trading hours and tightly regulated sectors in the French economy from pharmacists to legal professionals; and an easing of restrictions on companies to provide worker representation and other benefits.

Both are controversial with unions and the French left and have already sparked street protests and threats of strikes. Yet few in Berlin believe that reforms being undertaken in France currently match those done in Germany.

"Very little has been done. They need to do much more," said an aide to the chancellor.

Valls survived a confidence vote on his newly reshuffled government last week but did not obtain an absolute majority - meaning that any future attempts to rein in public spending or enact reforms risk being held hostage by rebel leftists.

Moreover his once healthy poll ratings have been hit by his association with Hollande, whose public standing has been ripped to shreds by his failure to improve the lot of ordinary French, his indecisive leadership and messy private life.

The contrast with Merkel, who has emerged as Europe's dominant leader with popularity ratings at home of over 70 percent, could not be greater.

RIGHT-WING PRESSURES

Valls will do his best to ignore the imbalance and project an image of strength in Berlin, telling reporters on Friday he was looking forward to the meeting "in a positive spirit" but was not there to seek Germany's indulgence.

"I'm the first to say we must cut the public deficit," he said, noting that France has pledged to seek an unprecedented 50 billion euros in savings between now and 2017. "But cutting it at a forced march is out of the question."

He will point to French air strikes against Islamic State (IS) militants in Iraq, which began Friday, as proof Paris takes its responsibilities seriously. Germany agreed to send arms to Kurdish fighters battling IS but will have no part in strikes.

Any signs from Valls of weakness in Berlin would be seized upon by his political opponents at home, above all Marine Le Pen and her France-first National Front.

"The central argument of Valls will be: we haven't changed our goals but there is less growth in Europe, less growth in France and less inflation. The context has changed, not the will to reform," said Claire Demesmay of the German Council on Foreign Relations (DGAP).

Whether Merkel accepts this argument is doubtful. She also has political constraints in the form of the Alternative for Germany (AfD), a rising new German eurosceptic party that is unsettling her Christian Democrats (CDU).

If she goes too easy on France - for example granting Paris more time on the deficit without new reform commitments - the AfD and many within her own party would cry foul.

Nor is Merkel likely to accede to French wishes for more German stimulus. Her government's top goal is to deliver on its own promise to balance the federal budget next year for the first time since 1969. Any spending that might endanger this target is seen as taboo.

"The chancellor is adamant about this," the Merkel aide said.

And if Berlin allows leeway on the deficit, France must be seen to do something in return.

"Behind closed doors, while Germany will certainly push France on reform and (budget) consolidation, France will be given more time and flexibility," said Christian Odendahl, chief economist at the London-based Centre for European Reform (CER).

"But it just must not appear that way to the German public." (editing by Anna Willard)

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U.S. court voids RadioShack class-action settlement over card receipts

By Jonathan Stempel

Sept 19 Fri Sep 19, 2014 6:29pm EDT

Sept 19 (Reuters) - A federal appeals court on Friday voided RadioShack Corp's class-action settlement with customers who objected to its putting credit and debit card expiration dates on receipts, saying the benefits of the accord appeared too small relative to the proposed legal fees.

The 7th U.S. Circuit Court of Appeals in Chicago said there was no showing that the proposed $1 million fee was reasonable for a settlement calling for roughly 83,000 class members to each receive a $10 voucher redeemable at RadioShack stores.

Writing for a three-judge panel, Circuit Judge Richard Posner noted that RadioShack's "fragile" state, including the electronics retailer's recent announcement that it may file for bankruptcy, might have hastened the perceived need to settle.

But he also said the vouchers might not all be redeemed, reducing the settlement's value, and that revised terms could have shifted some of the "exorbitant" legal fees to customers.

"The law quite rightly requires more than a judicial rubber stamp" to class-action accords, Posner wrote, just 11 days after oral arguments. He returned the case to the federal district court in Chicago for further proceedings.

The accord was intended to resolve claims that RadioShack violated the federal Fair and Accurate Credit Transactions Act by printing card expiration dates on customers' receipts, which if lost could increase the potential for identity theft.

Paul Markoff, a lawyer for the customers, said in a phone interview that the settlement had been driven "primarily" by RadioShack's financial position.

"We built protections into this settlement in the event RadioShack were to file for bankruptcy, and believed the alternative to this settlement was that the class would get nothing," he said. "Now that the settlement has been thrown out, that may be the most likely scenario."

RadioShack and its lawyers did not respond to requests for comment. Shares of the Fort Worth, Texas-based company closed down 5.3 cents at 90.7 cents on Friday.

Ted Frank, a critic of what he considers excessive legal fees and who represented a couple opposing the RadioShack settlement, in a phone interview welcomed the decision.

"It is important in the class-action settlement process that class members be the foremost beneficiaries," he said. "One must look at the actual recovery, rather than a hypothetical adding up of numbers that don't benefit the class."

Frank said he is pursuing six cases in federal appeals courts raising similar issues.

The case is Redman et al v. RadioShack Corp et al, 7th U.S. Circuit Court of Appeals, Nos. 14-1470, 14-1471, 14-1658. (Reporting by Jonathan Stempel in New York; Editing by Grant McCool)

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