Monday, 31 December 2012

US STOCKS-Market rallies on emerging 'fiscal cliff' deal

* S&P 500 on track for double-digits gains for 2012

* Tentative deal could get GOP support: sources

* Apple shares advance, lifting technology sector

* Indexes up: Dow 0.4 pct, S&P 0.7 pct, Nasdaq 1 pct

By Ryan Vlastelica

NEW YORK, Dec 31 (Reuters) - U.S. stocks jumped on Monday after a deal emerged from negotiations in Washington to avert the "fiscal cliff," sources familiar with the talks said.

Equities surged in a thinly traded session, on track to break a five-day streak of losses, as the sources said a majority of Senate Republicans were expected to support the legislation.

If adopted by Congress and President Barack Obama, the plan would sidestep a combination of tax hikes and spending cuts that many feared could push the economy into recession.

The deal, which would still need to be approved by both the Senate and House of Representatives, would raise tax rates for individuals with annual income over $400,000 a year but permanently extend middle class tax cuts.

"The market just wants this resolved and especially resolved in a way where the impact is pushed as far down the road as possible," said Paul Mendelsohn, chief investment strategist at Windham Financial Services in Charlotte, Vermont. "That is exactly what the market wants and I'm hoping that is what they deliver."

President Barack Obama is scheduled to speak on the fiscal cliff at 1:30 p.m. (1830 GMT).

"Right now the market is up 70 points, an hour from now we could be down 70 points, it all depends on what these people say," Mendelsohn said.

The Dow Jones industrial average was up 50.38 points, or 0.39 percent, at 12,988.49 after trimming some of its gains. The Standard & Poor's 500 Index was up 9.73 points, or 0.69 percent, at 1,412.16. The Nasdaq Composite Index was up 31.37 points, or 1.06 percent, at 2,991.68.

The S&P 500 is now up 12.4 percent for the year, compared with a flat performance in 2011. The Dow is about 6.4 percent higher and the Nasdaq is up 15 percent.

Gains in Apple Inc, the most valuable U.S. company, helped lift the Nasdaq. The stock rose 3.2 percent to $525.71, lifting the S&P information technology sector up 1 percent. For the year so far, Apple is up 29.1 percent.

The Dow was lifted by Caterpillar Inc and General Electric, both of which rallied more than 1 percent.

While a deal on the cliff is not yet official, investors may be ready to take on more risk next year in hopes of a greater reward.

Bank stocks rose after a New York Times report that U.S. regulators are nearing a $10 billion settlement with several banks that would end the government's efforts to hold lenders responsible for faulty foreclosure practices.

Bank of America Corp was up 0.8 percent at $11.46.

Financial stocks were among the strongest of the year, with the S&P financial index surging 24.5 percent for 2012 so far. Bank of America is the top-performing Dow component, with its stock price more than doubling over the past 12 months.


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US copper jumps 1.7 pct as potential fiscal deal emerges

NEW YORK | Mon Dec 31, 2012 1:10pm EST

U.S. March copper futures on the COMEX division of the New York Mercantile Exchange were up 1.7 percent at $3.6505 per lb at 1:01 p.m. EDT (1701 GMT), having risen just over 1 percent as news of the tentative deal broke.


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UPDATE 4-Publisher Tribune emerges from 4-year bankruptcy

* Former Discovery Comms COO Liguori expected to be CEO

* New board includes former execs of Yahoo, Disney

* LA Times could fetch $130 mln in auction-analyst

* Company includes 23 TV stations, 8 dailies

By Liana B. Baker and Ashutosh Pandey

Dec 31 (Reuters) - U.S. media giant Tribune Co emerged from bankruptcy on Monday, ending four years of Chapter 11 reorganization and potentially setting itself up for a future without newspapers.

Tribune's controlling owners, which include hedge funds Oaktree Capital and Angelo, Gordon & Co, and JPMorgan Chase & Co intend to sell most, if not all, of its newspapers and already have expressions of interest for The Los Angeles Times, The Orlando Sentinel and others, Reuters has reported.

For now at least, the Chicago-based company said its portfolio would include eight major daily newspapers and 23 TV stations.

Tribune's newspapers remain profitable despite the falloff in readers and advertising. Veteran newspaper analyst John Morton, President of Morton Research, estimated the Los Angeles Times could fetch $130 million at an auction, while the Chicago Tribune could garner $86 million in a sale.

Oaktree is the biggest Tribune shareholder, owning about 23 percent of the company while Angelo Gordon and JP Morgan each hold a 9 percent stake.

"Tribune will emerge as a dynamic multi-media company with a great mix of profitable assets, powerful brands in major markets, sufficient liquidity for operations and investments and significantly less debt," Chief Executive Eddy Hartenstein said in a statement.

As part of the Chapter 11 exit, the company closed on a new $1.1 billion senior secured term loan and a new $300 million asset-based revolving credit facility.

The term loan will be used to fund certain payments under the plan of reorganization and the revolving credit facility will be used to fund ongoing operations, the company said.

Tribune's most actively traded debt, a $5.5 billion loan due in May 2014, was most recently trading at 83 cents on the dollar, according to Thomson Reuters data.

Upon exiting bankruptcy, Tribune will have issued to former creditors a mix of about 100 million shares of new class A common stock and new class B common stock, and new warrants to purchase shares of new class A or class B common stock.

Hartenstein will remain CEO until the new Tribune board names a new management team. Peter Liguori, a former Discovery Communications chief operating officer, is expected to be named CEO.

The company announced a seven-person board that includes Hartenstein, Liguori, former Yahoo CEO Ross Levinsohn and Peter Murphy, Walt Disney's former top strategic planning executive.

Tribune is expected to focus on building its TV operations. In its portfolio, it owns WGN America, a national feed of Tribune's Chicago TV stations that it distributes through cable and satellite to more than 76 million U.S. homes.

Horizon Media analyst Brad Adgate said WGN could expand its base by 20 million to 25 million homes if it adds original programming to its lineup.

Tribune's TV operations are estimated to account for $2.85 billion of the company's $7 billion valuation, while its publishing assets are estimated to represent $623 million, according to a report by its financial advisor, Lazard. The rest of its value resides in assets including its 30 percent stake in the Food Network and its cash balance.

In November, Tribune received regulatory approval from the Federal Communications Commission to transfer its broadcast licenses to the owners who would take it over after emerging from bankruptcy.

Real estate magnate Sam Zell stunned the media industry when he took the company private in 2007 in an $8.2 billion leveraged buyout that burdened the company with debt and that many observers warned would be disastrous. Tribune was forced into bankruptcy in 2008.

The company's reorganization plan was confirmed by the Delaware bankruptcy court in July.

The case is In re: Tribune Co et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141.


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European shares post brisk gains for 2012

* FTSEurofirst 300 up 0.3 pct in last session of the year

* Benchmark index rose 13 pct in 2012, best year since 2009

* Bold central bank moves sparked sharp rally in H2

* U.S. investors continue to pile up European stocks -EPFR

By David Brett and Blaise Robinson

LONDON, Dec 31 (Reuters) - European equities ended slightly higher in the final trading session of 2012, a year that saw a sharp rebound in the region's stocks as bold measures from central banks soothed fears of a break-up of the euro zone.

With just a few hours remaining before the deadline in U.S. budget talks, however, investors were unwilling to take on much risk, keeping trading volumes to extremely low levels.

French, Dutch, Spanish and UK markets only traded for half the session ahead of the New Year Holiday, while those in Germany, Italy, Austria, Denmark, Norway, Sweden and Switzerland remained closed.

The FTSEurofirst 300 ended the year at 1,133.96 points, up 0.3 percent on the day and posting an annual gain of 13.2 percent, its best year since the sharp bounce of 2009.

The euro zone's blue chip Euro STOXX 50 index ended the year at 2,635.93 points, up 0.4 percent on the day and recording a gain of 13.8 percent for 2012.

Hopes were fading, however, for any sort of broad U.S. fiscal deal when Congress comes back later on Monday, with only a few hours of legislative time scheduled in which to act if an agreement materialises to avert the massive tax hikes and spending cuts set to come into force automatically in January.

Most of the few traders still at their desks on Monday had already closed their positions heading in to the year end, and financial markets are largely anticipating that U.S. politicians will compromise eventually, given the damage the automatic measures would do to the U.S. economy.

"There are very few deals being done and there are few sellers out there with most of us having flattened our positions in the build up to Christmas," a London-based trader said.

"Emphasis is shifting from prevention towards retrospective measures in the United States, but it will be interesting to see how Wall Street reacts and what happens when traders get back to their desk in the new year," he said.

BULLISH SECOND-HALF 2012

The Eurofirst 300 closed the month of December with a gain of 1.3 percent, the index's seventh straight monthly gain, its longest streak of positive months since 1999.

Central banks' commitment to stabilising the financial system and attempting to boost growth have favoured beaten-down equities. The main catalyst has been European Central Bank president Mario Draghi's promise to do whatever it takes to save the euro.

With euro zone risks fading and investors becoming more confident in stock picking, European equities have seen the return of positive inflows since July, data has shown.

In the week that ended on Dec. 26, Europe equity funds took in fresh money for a fifth week in a row and in 11 of the past 16 weeks, according to EPFR Global data.

The appetite from U.S. investors has been strong, with U.S.-domiciled Europe equity funds carrying an inflow streak stretching back to mid-August, according to EPFR.

After suffering an 84 percent plunge between October 2009 and June this year, Athens's benchmark index posted a gain of 33.4 percent for 2012, the best performance among European benchmarks and outpacing Germany's DAX, up 29.1 percent.

The Spanish and UK equity markets were the laggards in 2012, with Madrid's IBEX down 4.7 percent on the year and London's FTSE 100 up only 5.8 percent, outpaced by France's CAC 40 index <.FCHI, which gained 15.2 percent and Italy's FTSE MIB, up 7.8 percent.


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UPDATE 1-CIBC to pay $149.5 mln to Lehman, ending dispute

n" readability="55">Dec 31 (Reuters) - Canadian Imperial Bank of Commerce has agreed to pay $149.5 million to the estate of Lehman Brothers Holdings Inc to resolve litigation over a collateralized debt obligation tied to the bankruptcy of the former Wall Street bank.

The settlement announced Monday resolves litigation that began on Sept. 14, 2010, when Lehman sued CIBC and dozens of others to recover more than $3 billion it said it had been deprived of due to its Chapter 11 filing two years earlier.

Lehman sought to hold CIBC responsible for much of the more than $1.3 billion due under an agreement requiring the Canadian bank to cover payment shortfalls tied to a large CDO transaction.

In addition, Lehman contended its contracts gave it senior payment priority, but that the bankruptcy caused it to be improperly replaced with junior payment priority.

CIBC, Canada's fifth largest bank, recognized a gain of $841 million following Lehman's bankruptcy on Sept. 15, 2008, when it had reduced to zero its financial commitment related to a note issued by the CDO.

It has said in regulatory filings that Lehman was the guarantor of a related credit default swap agreement. Monday's payment amounts to $110.3 million after taxes, CIBC said.

Lehman spokeswoman Kimberly Macleod declined to comment.

Once Wall Street's fourth largest investment bank, Lehman emerged from bankruptcy protection on March 6 and has paid out roughly half of the estimated $65 billion it hopes to return to creditors. Its bankruptcy is the largest in U.S. history.

The case is Lehman Brothers Special Financing Inc v. Bank of America NA et al, U.S. Bankruptcy Court, Southern District of New York, No. 10-ap-03547. The main bankruptcy case is In re: Lehman Brothers Holdings Inc in the same court, No. 08-13555.


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US STOCKS SNAPSHOT-Wall St rallies on signs of 'cliff' progress

NEW YORK | Mon Dec 31, 2012 12:59pm EST

NEW YORK Dec 31 (Reuters) - U.S. stocks extended gains, with the Nasdaq up 1 percent on Monday on news that the majority of Senate Republicans are expected to support a tentative deal on the "fiscal cliff."

The market also got a lift from news that President Barack Obama will make a statement on the fiscal cliff at 1:30 p.m. EST at an event with "middle-class Americans," the White House said.

The Dow Jones industrial average was up 82.99 points, or 0.64 percent, at 13,021.10. The Standard & Poor's 500 Index was up 12.66 points, or 0.90 percent, at 1,415.09. The Nasdaq Composite Index was up 37.11 points, or 1.25 percent, at 2,997.43.


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Reuters TV cameraman wounded in Syria

* Libyan citizen worked as part of multi-media team

* Injuries not life threatening

ALEPPO, Syria Dec 31 (Reuters) - A Reuters television cameraman was shot in the leg and wounded while filming on the front line in Syria's northern city of Aleppo on Monday.

Ayman al-Sahili, a Libyan citizen working as part of a Reuters multi-media reporting team, was hit by a rifle bullet fired from a distance. He was treated in Syria and then driven across the border to Turkey. His life was not in danger.

The ambulance transporting Sahili to Turkey encountered an air strike in Aleppo and manoeuvred into an alley until it was safe to continue the journey.

Aleppo and the surrounding area are largely in the hands of rebels, but government forces still control territory there and clashes are common.

More than 45,000 people have been killed in the 21-month war in Syria, the longest and bloodiest of the conflicts to arise from the turmoil sweeping the Arab world over the past two years.

Syria was by far the most dangerous country for journalists in 2012, with 28 killed there during the year according to the Committee to Protect Journalists, a watchdog group.


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US STOCKS SNAPSHOT-Wall St trims gains, Obama says deal not done

NEW YORK | Mon Dec 31, 2012 1:58pm EST

NEW YORK Dec 31 (Reuters) - U.S. stocks trimmed gains on Monday as President Barack Obama said an agreement to prevent tax increases from beginning on New Year's day is in sight, but the deal is not done.

The Dow Jones industrial average was up 25.80 points, or 0.20 percent, at 12,963.91. The Standard & Poor's 500 Index was up 7.79 points, or 0.56 percent, at 1,410.22. The Nasdaq Composite Index was up 28.31 points, or 0.96 percent, at 2,988.62.


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COLUMN-Playing the wild cards in 2013

By John Wasik

CHICAGO Dec 31 (Reuters) - At this point, most investors are peering over the fiscal cliff and feeling like Jimmy Stewart in the classic Hitchcock film "Vertigo." But if you look beyond the precipice, there is some solid ground.

For one thing, the U.S. housing market will be better than most people expect, which bodes well for patient investors holding onto consumer-sector stocks. Most economists are not predicting any startling jump in home sales or prices next year, and they largely have not forecast how a housing rebound will spill over into the wealth effect of increasing consumer spending and job creation.

Home foreclosures in November hit their lowest rate in six years, a trend that is likely to continue, according to RealtyTrac, an online marketplace of foreclosure properties.

If the Obama administration can come up with a plan to stem foreclosures or accelerate turnover of unoccupied properties, that would reduce overall home inventories and boost sales and prices.

Such a plan would also spur sales of appliances, vehicles and other consumer durable and discretionary goods and services. To make the most of this opportunity, consider the iShares Dow Jones Consumer Services ETF or the Industrial Select Sector SPDR.

This is just one example of how an investor could play the wild cards in the economic forecast for 2013. There are still plenty of buying opportunities, even in the face of uncertainty.

Generally, most middle-of-the-road forecasts are calling for sluggish U.S. growth this coming year. A widely followed survey by the National Association of Business Economists shows expectations for about 2 percent growth in U.S. gross domestic product, which is roughly what they predicted for 2012.

Accompanying that growth is a slow resolution of the residential housing downturn, increased consumer consumption and an improving job market, which will result in an average 7.7 percent jobless rate, the survey shows. While other economists are giving similarly uninspiring forecasts, there are some more compelling things that could develop.

READ BETWEEN THE LINES

You have to get away from a lackluster U.S.-centric perspective to understand that international stocks are still going to reflect rising GDP in developing countries. According to RBC Wealth Management's 2013 outlook, a real global growth rate of 3.5 percent equates with stock returns of 5 percent to 10 percent.

While the U.S. Standard & Poor's 500 price-to-earnings ratio is near its long-term average, similar measures in some European and Asian markets are well below average, according to RBC. Growth will continue in China (8 percent), India (6 percent), Brazil (3.5 percent) and Indonesia (3 percent).

If international investors are largely finished with retreating to bonds as safe havens during the prolonged euro zone crisis, that would trigger a buying spree in stocks. In that case, you would want to have exchange-traded funds such as the Vanguard Total Stock Market ETF or the iShares Core MSCI Total International Stock ETF.

There are still opportunities in bonds, though.

The general warning has been out there for years: Shorten your bond-fund maturities because interest rates will eventually rise and bonds will be sold off. That still holds, but you can find higher yields through bank loans, emerging markets and municipal bonds, Mike Gitlin, director of fixed income for T. Rowe Price, said in a recent 2013 outlook.

Funds like the Fidelity Floating Rate High Income Fund invest in floating-rate bank loans. The iShares JP Morgan US Dollar Emerging Markets bond ETF holds an index representing bonds from developing countries. And the SPDR Nuveen Barclays Capital Muni Bond ETF invests in an index of U.S. municipal bonds generally rated "AA" or better.

What would derail my wild cards? The usual worries about European fiscal resolution, budget and debt-ceiling battles in Washington, and growth in China. There also will be blips along the way as market volatility continues unabated.

A key component of my wild-card strategy is investing in sectors or regions when they are cheap and undesirable. If you feel especially brave, you can buy big-company European Union stocks through a fund like the Vanguard MSCI Europe ETF .

Certainly long-term investors who are not retiring soon should consider holding at least 40 percent of the stock portion of their portfolios in non-U.S. shares.


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Cash payouts to fall as banks squeeze bonus pots

* Some may reward staff with recovering toxic assets

* Overall bonuses may be down as much as 30 percent

* Bankers to stay put due to job cuts

By Sarah White and Anjuli Davies

LONDON, Dec 31 (Reuters) - Many European banks are likely to limit the cash portion of this year's staff bonuses as rocky markets, tighter capital rules and costly scandals take their toll.

Under pressure from politicians, regulators and shareholders, firms are shifting further away from the big upfront handouts of the boom years. Some are expected to opt for a mixture of shares and risky assets - the kind which provoked the global financial crisis in 2008 but in some cases are now regaining value.

Britain's Barclays already capped cash awards at 65,000 pounds ($105,000) for 2011 payouts, and those types of limits will feature again at several firms, bankers and headhunters said.

In total, 2012 bonuses could be down by as much as 30 percent on 2011 levels, senior managers believe, and the structure of awards is changing as regulators press the banks to clamp down on short term rewards.

"I'm sure there will be lots of different structures this year with different products, and attempts to cap the cash element. Either way bonuses will be down," said Stephane Rambosson, managing partner of executive search firm Veni Partners.

In the past year the industry has been caught up in a series of scandals ranging from mis-selling of financial products and a failure to prevent money laundering to the rigging of the Libor interest rate. Regulators have slapped heavy fines on a number of banks and disgruntled customers are following up with civil law suits.

All this is affecting the size and shape of bonuses.

"It's a mix of politicians and regulators wanting (pay) to be down and wanting to see an impact in the media, and also banks' new business models, which will mean that people will get paid less in future," Rambosson said.

During the crisis, many assets such as sub-prime mortgages became essentially worthless as no one would buy them, fearing that the borrowers would default. But as the crisis eased, some have begun to regain value - albeit from near zero levels - and banks are now using these assets and other risky type of bonds to reward their staff.

Credit Suisse is examining yet more ways to include different types of products as part of its 2012 bonus round, according to two sources familiar with the matter. The bank declined to comment.

As long as four years ago, the Swiss bank paid a group of employees with some of the riskiest assets on its balance sheet as their bonus, and unveiled a similar programme for 2011 awards. Know as PAF2, the plan linked bonuses for 5,500 senior bankers to about $5 billion in illiquid assets that fell in value in the crisis.

This form of payout can be attractive, and the value of some of the assets has grown again, netting paper gains for the bankers - some of whom even jumped at a chance to buy more of the risky assets in the past year.

But this programme and others like it, where bankers are paid in shares, make it harder to cash in straight away, with stock rewards for instance deferred for several years, or in some cases such as at HSBC, until certain employees leave or retire.

European Union rules force banks to defer at least 40 percent of a bonus for at least three years, though many firms are now going further than this, partly trying to counter the public outcry over big bonuses after the crisis.

NO EXCITEMENT THIS YEAR

Expectations over bonuses are already low as banks put the final touches to bonus pots and decide how they will be allocated in the first quarter.

Only at a handful of firms are some bankers hopeful of doing slightly better. Goldman Sachs, for instance, put aside more money for pay in the first nine months of 2012 than in the year before. Staff there are due to find out about rewards at the end of January.

But most top investment banks have been cutting back drastically this year to cope with stricter capital rules and weak revenues, leading to mass layoffs this year and prompting some such as UBS and Royal Bank of Scotland to ditch entire businesses.

That will force pay levels down too, as well as bring more changes to bonus structures, while many banks will also be concerned about appeasing shareholders who rebelled against reward plans for 2011.

"No one is very excited this year," said one banker in London, who wished to remain anonymous. "Bankers still do a lot better than most people but pay is very different today than it was five years go. It is not as attractive career as it was."

Germany's Deutsche Bank decided earlier this year to defer any part of an employee's bonus above 200,000 euros, and further restricted how much of that payout would be in cash.

Since then, its new chief executives Anshu Jain and Juergen Fitschen have warned that pay will drop as they crack down on a risk-taking culture driven by short-term gain - possibly signalling further tweaks to pay structures.

Others like Barclays, fined in the Libor rate rigging scandal this year which forced the departure of boss Bob Diamond, will also be keen to show a fresh attitude to pay.

Few bankers are likely to collect their 2012 rewards and jump ship as they might have in fatter years, however, or quit if they don't get what they had hoped for as more job cuts loom.

"We are just expecting zeroes," said another investment banker in London. "But this doesn't make me rethink my career as there is nowhere else to go right now."


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UK housing equity injection lowest since Q1 2010

LONDON | Mon Dec 31, 2012 5:48am EST

LONDON Dec 31 (Reuters) - Britons' mortgage repayments exceeded new borrowing during the third quarter of 2012, but by the smallest margin since early 2010, figures from the Bank of England showed on Monday.

The net injection of housing equity totalled 8.043 billion pounds in the third quarter, equivalent to 2.9 percent of post-tax income - down from 9.439 billion pounds in the second quarter and the lowest figure since Q1 2010.

Before the financial crisis, rapidly rising house prices enabled some British households to boost their spending by remortgaging their properties and withdrawing some of their increased housing wealth.

Since the financial crisis, which caused British house prices to fall by around a fifth, this has ceased to be an option.

"The further substantial net injection of housing equity in the third quarter of 2012 suggests that there is an ongoing strong desire ... of many people to improve their personal financial balance sheets given high debt levels and still serious concerns over the economic situation," said Howard Archer, chief UK economist at IHS Global Insight.

However, the BoE has said net injections of housing equity mostly reflect a lower number of house purchases and new mortgages, rather than existing home-owners paying back their mortgages faster.

In August, the BoE opened its Funding for Lending Scheme, which aims to boost mortgage and business lending by offering banks and building societies cheap finance.

Mortgage approvals in Britain were 1.5 percent lower on the year in November, numbering 33,634, seasonally adjusted data from the British Bankers' Association showed last week.

A Reuters poll this month showed British homeowners will have to wait a long time before they recoup losses from the last few years on their properties as a weak economy and high unemployment keeps demand in check. The median forecast was for UK house prices to rise 0.6 percent in 2013, having dropped by the same amount this year.


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VEGOILS-Palm slips, posts worst annual loss since 2008

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UPDATE 2-Iberdrola to sell French wind parks to cut debt

* Deal is part of debt-cutting drive

* Strategy aimed at keeping investment credit rating

* Polish, U.S. asset sales could follow - sources

By Sarah Morris

MADRID, Dec 31 (Reuters) - Spanish utility Iberdrola is selling its French wind park unit to a consortium including General Electric for about 400 million euros ($529 million) in its drive to cut debt and keep an investment grade credit rating.

The world's largest operator of wind farms said in October it would sell some of its operations, slash investment and cut its workforce over the next two years in order to reduce debt by 6 billion euros to 26 billion by 2014.

Iberdrola is one of several Spanish firms, including Telefonica and Repsol, battling to avoid the big credit downgrades that have hit the cash-strapped Spanish government and which make borrowing harder, and more costly.

In a statement to the stock exchange regulator on Monday, Iberdrola said Iberdrola Renovables France (IBRF), which directly or indirectly controls 32 wind parks, would be sold to a consortium. The unit's offshore assets will be transferred to a separate entity before the sale.

Once the deal is completed, General Electric will own 40 percent of the unit and MEAG, the asset manager of German insurer Munich Re, another 40 percent. EDF Energies Nouvelles, the renewable unit of France's EDF, will own the remaining 20 percent.

The total installed capacity of the French onshore wind farms is 321.4 megawatts.

Iberdrola said the deal involved an initial payment of 350 million euros and an additional payment of 50 million euros subject to conditions.

At 0956 GMT Iberdrola shares were down 1.3 percent at 4.08 euros.

Some analysts think Iberdrola could cut its dividend to preserve its coveted investment credit rating if the Spanish government fails to pay it back in full for years of selling power at regulated prices..

S&P left Iberdrola's rating at just one notch above junk in November, citing concerns the government could delay repaying power companies the deficit of up to 24 billion euros they have racked up from selling electricity at a loss.

The French deal comes after the utility announced on Friday the sale of 20 percent of its stake in the Medgaz pipeline, running between Algeria and Spain, for 146 million euros.

A source with knowledge of the matter told Reuters earlier this month Iberdrola was close to a deal to sell renewable energy assets in Poland for about 200 million euros .

It had also received offers for 10 wind parks in the United States, said another source with knowledge of the matter.

On Saturday Bolivia nationalised two electricity distribution companies owned by Iberdrola. The companies contribute less than 1 percent of profit to the utility.


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Slovenia's top bank NLB says may need capital hike in 2013

LJUBLJANA | Mon Dec 31, 2012 5:31am EST

LJUBLJANA Dec 31 (Reuters) - Slovenia's largest bank Nova Ljubljanska Banka (NLB) warned it will probably need a fresh capital injection in 2013 after shareholders on Saturday failed to approve an immediate 375 million euro ($495.8 million) capital hike.

NLB is one of three troubled local banks whose weak balance sheet, burdened by bad loans, has given rise to speculation that Slovenia might need an international bailout next year.

The lender said on Monday a capital injection would most probably be needed next year to cover losses from rising bad loans and to meet tougher European capital requirements.

It said, however, it would end 2012 with a capital ratio that would be high enough to ensure its "stability and security".

The unlisted bank gave no indication of the size of the capital boost it was likely to need or its expected timing.

Earlier this year, NLB received a total of 383 million euros of capital from the state, which controls about 85 percent of the bank after Belgian banking and insurance group KBC on Friday sold its 22 percent stake to Slovenia for 2.8 million euros.

Slovenian banks, mostly state-owned, are nursing some 6.7 billion euros of bad loans, which equals 19 percent of the country's GDP.

The government will form a new firm in the first quarter of 2013 that will take over bad loans of state-owned banks in exchange for state-guaranteed bonds in order to ease the credit crunch and enable bank privatisation.

Slovenia, which joined the euro zone in 2007, was badly hit by the global crisis due to its dependency on overseas markets and is struggling with recession amid lower export demand and a fall in domestic spending caused in part by budget cuts.

The government expects the economy to shrink by 1.4 percent next year after a contraction of 2 percent in 2012. ($1 = 0.7564 euros) (Reporting by Marja Novak; Editing by Zoran Radosavljevic and David Holmes)


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TEXT-S&P takes rtg actions in 2 AyT Genova Hipotecario Spanish RMBS

Dec 31 -

OVERVIEW

-- We have reviewed AyT Genova Hipotecario X and AyT Genova Hipotecario XI's performance and have applied our 2012 counterparty criteria and nonsovereign ratings criteria.

-- In our view, both transactions have demonstrated good performance since closing, with delinquencies and defaults being low compared with similar-vintage Spanish RMBS transactions.

-- We have affirmed all of our ratings in AyT Genova Hipotecario X and have affirmed our ratings in AyT Genova Hipotecario XI, except for our rating on the class B notes, which we have raised.

-- AyT Genova Hipotecario X and AyT Genova Hipotecario XI are RMBS transactions that securitize portfolios of Spanish residential mortgage loans, and were issued by Barclays Bank in June 2007 and December 2007, respectively.

Standard & Poor's Ratings Services today affirmed all of its credit ratings in AyT Genova Hipotecario X Fondo de Titulizacion Hipotecaria. At the same time, we have raised our rating on AyT Genova Hipotecario XI Fondo de Titulizacion Hipotecaria's class B notes and have affirmed our ratings on the class A2, C, and D notes (see list below).

Levels of credit enhancement available to the rated notes in both transactions have increased since our last review in November 2010, due to the transactions' deleveraging. The performance of the underlying collateral has so far been relatively stable.

We used data from the latest available investor reports for our analysis (September 2012 for AyT Genova Hipotecario X and November 2012 for AyT Genova Hipotecario XI). The ratio of cumulative defaults (loans in arrears for more than 18 months) over the original collateral balance was 0.73% compared with 0.21% in November 2010 for AyT Genova Hipotecario X. For the same period, this was 0.89% compared with 0.38% for AyT Genova Hipotecario XI.

Since our last review, long-term delinquencies (defined in the transaction documents as loans in arrears for more than 90 days) have increased to 0.70% from 0.65% for AyT Genova Hipotecario X, and to 0.77% from 1.33% for AyT Genova Hipotecario XI.

As of the latest interest payment dates (September 2012 for AyT Genova Hipotecario X and November 2012 for AyT Genova Hipotecario XI), the reserve funds for both transactions were not at their required levels. We note that AyT Genova Hipotecario X has a larger reserve fund than AyT Genova Hipotecario XI, as in 2010 the issuer increased the required amount to EUR36 million from EUR12 million (the required amount at closing).

Based on the increasing defaults and delinquencies that we have observed in the underlying portfolios of both transactions, the transactions' structural features (such as triggers, reserve funds, and swaps), and the increase in the level of credit enhancement available to the rated notes, we have affirmed all of our ratings on AyT Genova Hipotecario X's classes of notes.

For AyT Genova Hipotecario XI, our credit and cash flow analysis indicates that the level of credit enhancement available to the class B notes is now commensurate with a higher rating than currently assigned. This is partly due to the increased reserve fund for this transaction, which has provided a higher level of credit enhancement for the senior notes.

Our rating on AyT Genova Hipotecario XI's class B notes is also constrained by our sovereign rating on the Kingdom of Spain (BBB-/Negative/A-3) and the application of our nonsovereign ratings criteria, in which we rate issuers or transactions in the European Monetary Union up to six notches above the sovereign rating (see "Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions," published on June 14, 2011). We have therefore raised to 'AA- (sf)' from 'A (sf)' our rating on this class of notes. In our opinion, the level of credit enhancement available to the class A2, C, and D notes is commensurate with the current ratings on these classes of notes. We have therefore affirmed these ratings.

The transaction documents, for both transactions, relating to the swap counterparty and bank account provider are in line with our 2012 counterparty criteria (see "Counterparty Risk Framework Methodology And Assumptions," published on Nov. 29, 2012). Under the transaction documents, the counterparties will take remedy actions within a certain period if the counterparty losses the rating required under the documents.

AyT Genova Hipotecario X and AyT Genova Hipotecario XI are Spanish residential mortgage-backed securities (RMBS) transactions backed by pools of first-ranking mortgages secured over owner-occupied residential properties in Spain. Barclays Bank S.A. (BBB-/Negative/A-3) originated the underlying collateral between November 2001 and November 2006 for AyT Genova Hipotecario X, and between June 2007 and December 2007 for AyT Genova Hipotecario XI.

RELATED CRITERIA AND RESEARCH

Related Criteria

-- Counterparty Risk Framework Methodology And Assumptions, Nov. 29, 2012

-- Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions, June 14, 2011

-- Principles Of Credit Ratings, Feb. 16, 2011

-- Methodology: Credit Stability Criteria, May 3, 2010

-- Methodology And Assumptions: Update To The Cash Flow Criteria For European RMBS Transactions, Jan. 6, 2009

-- Methodology And Assumptions: Update To The Criteria For Rating Spanish Residential Mortgage-Backed Securities, Jan. 6, 2009

-- Criteria for Rating Spanish Residential Mortgage-Backed Securities, March 1, 2002

Related Research

-- Economic Research: The Eurozone Enters An Uncertain 2013 As The New Recession Drags On, Dec. 13, 2012

-- Spanish RMBS Index Report Q3 2012: Delinquencies Keep Rising As Spain's Economy Struggles, Nov. 28, 2012

-- Scenario Analysis: What's Driving Spanish Mortgage Arrears?, April 13, 2012

-- European Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, March 14, 2012

-- Global Structured Finance Scenario And Sensitivity Analysis: The Effects Of The Top Five Macroeconomic Factors, Nov. 4, 2011

-- Ratings Affirmed In Various AyT Genova Hipotecario Spanish RMBS Transactions; Several Classes On CreditWatch Positive, Nov. 26, 2010

-- Ratings Affirmed In AyT Genova Hipotecario XI Fondo de Titulizacion Hipotecaria, Nov. 26, 2010

RATINGS LIST

Class Rating

To From

AyT Genova Hipotecario X Fondo de Titulizacion Hipotecaria

EUR1.05 Billion Mortgage-Backed Floating-Rate Notes

Ratings Affirmed

A2 AA- (sf)

B A (sf)

C BBB+ (sf)

D BB- (sf)

AyT Genova Hipotecario XI Fondo de Titulizacion Hipotecaria

EUR1.2 Billion Mortgage-Backed Floating-Rate Notes

Rating Raised

B AA- (sf) A (sf)

Ratings Affirmed

A2 AA- (sf)

C BBB+ (sf)

D BB- (sf)


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MOVES-City Of London Investment

n">Dec 31 (Reuters) - The following financial services industry appointment was announced on Monday. To inform us of other job changes, email to moves@thomsonreuters.com.

CITY OF LONDON INVESTMENT GROUP PLC

The company, which focuses on emerging markets funds, named Doug Allison as chief executive. Allison, formerly a finance director at the company, will succeed Barry Olliff.


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Deals of the day -- mergers and acquisitions

n">Dec 31 (Reuters) - The following bids, mergers, acquisitions and disposals were reported by 1045 GMT on Monday:

** Shares of Australia's Sundance Resources Ltd surged more than 17 percent on Monday after the Republic of Congo granted it a key mining permit and following reports China's Hanlong Group plans to complete its long-delayed $1.4 billion takeover by March.

** A group of private equity firms, including the Carlyle Group, struck a deal to buy financial advisory and investment banking firm Duff & Phelps Corp for about $665.5 million.

** Taiwan's Chinatrust Commercial Bank is in talks with U.S. investment fund Lone Star Funds and other shareholders of Tokyo Star Bank to take over the Japanese lender for some 50 billion yen ($580.8 million), Japanese media reported.

** Spanish utility Iberdrola is selling its French wind park unit to a consortium including General Electric for about 400 million euros ($529 million) in its drive to cut debt and keep an investment grade credit rating.

** The German government is close to completing a 100 million-euro ($132.2 million) arms deal with Saudi Arabia to sell 30 armored vehicles, and Berlin's national security council has already signaled its backing, Bild am Sonntag newspaper reported.

** China Merchants Holdings (International) Co Ltd said it will buy a 23.5 percent stake in Port de Djibouti S.A. for $185 million, its third port investment in Africa after Lagos in Nigeria and Lome in Togo.

** Carlo Tassara Group, former majority owner of Polish bank Alior, is expected to name advisors this week to sell its remaining stake in the company, Il Sole 24 Ore newspaper reported.


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China Property Digest: Curbs to stay in 2013

(For a previous issue, please click )

BEIJING Dec 31 (Reuters) - China's home prices rose in November from a month earlier as stimulative policies from Beijing underpinned demand despite property purchase restrictions in place since early 2010.

Critics have said Beijing must use market instruments such as property taxes to control home prices, not ad hoc controls such as restrictions on the number of homes Chinese can buy.

Property investment accounted for 14.4 percent of China's gross domestic product in the first nine months of 2012.

Here is a look at the latest news, numbers and more from China's real estate market.

REUTERS NEWS

Dec 26 - Trading in shares of China Vanke Co Ltd , the country's biggest property developer by sales, were suspended from Wednesday pending an announcement, the firm said late on Tuesday.

Dec 25 - China will extend its property controls into 2013 to choke speculative buying while expanding a trial property tax, the official Xinhua news agency reported, citing the country's housing ministry.

Dec 24 - Chinese officials will this week discuss improving compensation for farmers whose land is expropriated, state media said, a move designed to try to quell growing rural anger over forced land seizures.

DATA

- China aims to start building 6 million public homes next year and finish construction of 4.6 million, the Ministry of Housing and Urban-Rural Development said.

- Chinese developer Poly Real Estate clocked over 100 billion yuan ($16.05 billion) worth of sales for the year to Dec 21, ranking it as the No. 2 developer by annual sales volume after Vanke.

- China's home prices may rise 7.8 percent in 2013 from a year earlier, according to data from the private consultant China Real Estate Index System.

- Idle land due for development reached 11,000 hectares at the end of November, of which 7,461 hectares are set aside for residential construction, data from the Ministry of Land and Resources showed.

CHINESE PRESS

Dec 28 - China's real estate sector is likely to pick up steam in 2013, industry observers said, due to growing market demand. (Xinhua News Agency)

Dec 25 - City authorities in Tianjin sold a land parcel at a record price of 4.62 billion yuan at an auction with a 25 percent premium to its starting price. (Beijing Youth Daily)

Dec 24 - False signs of panic home-buying in Beijing were created by some developers to mislead prospective buyers, officials from the city's commission of housing and urban-rural development said, noting that the property market was stable. (People's Daily)

Dec 21 - China's Ministry of Housing and Urban-Rural Development is investigating the property market and industry watchers expect policymakers to launch new controls soon.(China Securities Journal)

Dec 20 - Authorities in Beijing have decided to suspend plans to sell a land parcel expected to be sold at record prices due to its prime location. (Economic Information Daily)

THEY SAID

-- "For cities that have relaxed property restrictions to promote a sharp rise in home prices, we will continue to take measures (against them)." (Jiang Weixin, the housing minister said in a recent meeting)

-- "Property developers are inclined to set higher prices for their new projects due to rising land prices and premiums." (Zhang Dawei, a head of research at property consultancy Centaline in Beijing, was quoted as saying by the official People's Daily) ($1 = 6.2286 Chinese yuan) (Reporting By Xiaoyi Shao and Aileen Wang; Editing by Nick Macfie)


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TEXT-Fitch revises CPSCL's national rating to 'AA-(tun)';outlook negative

(The following statement was released by the rating agency)

Dec 31 - Fitch Ratings has revised Tunisia-based Caisse des Prets et de Soutien des Collectivites Locales' (CPSCL) National Long-term rating to 'AA-(tun)' from 'AA(tun)' and affirmed the National Short-term rating at 'F1+(tun)'. The Outlook on the National Long-term rating is Negative. At the same time, Fitch has withdrawn CPSCL's Support Rating of '3' due to a criteria change. Fitch now applies its 'Ratings of Public Sector Entities - Outside the US' criteria to rate CPSCL with a top-down approach, rather than its Financial Institutions criteria.

The National rating actions follow the downgrade of Tunisia's Issuer Default Rating (see "Fitch Downgrades Tunisia to 'BB+', Outlook Negative", dated 12 December 2012 at www.fitchratings.com), and indirectly reflect a relative weakening of the sovereign creditworthiness within the National scale. The Negative Outlook on the National Long-term Rating reflects that on Tunisia's Long-term IDRs.

CPSCL's ratings are linked to those of Tunisia, reflecting its quasi-sovereign status, the high probability of government support in case of need and its public sector policy role in providing infrastructure funding to Tunisian local authorities.


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UPDATE 1-BG gets $1.8 bln loan from U.S. Export-Import Bank

LONDON Dec 31 (Reuters) - Britain's BG Group said on Monday it had secured a $1.8 billion loan from the Export-Import Bank of the United States, as part of a wider push to diversify its funding options to support major projects.

BG, which announced Chris Finlayson as its new chief executive earlier this month, recently agreed a new syndicated facility, reached an agreement with the Japan Bank for International Cooperation and raised money via capital markets.

It said it now had undrawn committed bank borrowing facilities of $5.2 billion.

It has also reached an initial agreement with Brazilian Development Bank for up to $1.8 billion of new funding and signed a $500 million credit agreement with Export Development Canada.

The new loan from the United States will support the export of U.S. services and also help fund equipment for the Queensland Curtis LNG project in Australia which is on schedule for first gas in 2014.


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Sunday, 30 December 2012

Italy centre left pushes Monti to pick a side

* Monti wants alliance that goes beyond left-right split

* Left leader says Monti's stance needs more explaining

* Centre right's Berlusconi thinks Monti favours left

* Elections due in February 2013

By Catherine Hornby

ROME, Dec 30 (Reuters) - Italian centre-left leader Pier Luigi Bersani called on Mario Monti on Sunday to pick which side he was on politically after the outgoing prime minister unveiled plans this week to lead a broad centrist alliance in February elections.

Monti said on Friday he wanted his alliance to go beyond traditional political boundaries and unite a coalition of factions and civil society groups around a reform agenda aimed at tackling Italy's economic woes.

His announcement ended weeks of speculation over whether he would run for a second term and pits him against Bersani's centre-left Democratic Party (PD) and Silvio Berlusconi's People of Freedom (PDL) group.

But Bersani urged the former European Commissioner on Sunday to be clearer about whether he supports a left or right-leaning agenda and outline the choices he would make on issues such as civil rights.

"This centrist alliance needs to explain exactly where they stand," Bersani told reporters on Sunday.

"Does Monti and the centre not think that the bipolar political system is working? Do they want to dismantle it? If not, then which side are they on?"

He repeated that the centre left would be open to discussing a possible alliance with Monti once his position was clearer.

Bersani's demands come after Berlusconi attacked Monti on Saturday, accusing him of striking a hidden deal with the left to help them secure power after the Feb. 24-25 elections.

Pier Ferdinando Casini, head of Italy's oldest and largest centrist party, the UDC, which is backing Monti, has denied that any secret accord has been struck and quickly rebuffed Bersani's demands.

"The PD does not want a competitive and uncomfortable centrist grouping because they prefer the old and eternal fight with Berlusconi," he said.

Monti was appointed to head a technocrat government last year to save Italy from financial crisis after Berlusconi stepped down as prime minister.

While Monti has won the backing of investors, the business community and the Catholic Church, many Italians have become increasingly tired of the tax hikes and spending cuts he has imposed to shore up battered public finances.

Opinion polls suggest the PD will win a comfortable lower house majority but may have to agree a deal with centrist forces in the Senate, where the centre left has struggled to gain control in past elections.

The PD, which has pledged to maintain Monti's broad reform course while putting more emphasis on growth and jobs, has been politely sceptical about his candidacy, while Berlusconi has launched an angry media blitz against the 69-year-old economics professor.

Monti, whose status as senator for life means he does not have to stand for a seat, said on Friday his grouping could win a "significant result" in the election, but there have also been fears it could lead to a less stable parliament.

A survey published on Sunday in newspaper Il Sole 24 Ore found that about 36 percent of Italians would choose Bersani to be the next prime minister, compared with around 23 percent for Monti and about 22 percent for Berlusconi. (Reporting By Catherine Hornby; Editing by Will Waterman)


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Saudi Arabia to issue bonds for Jeddah, Riyadh airports

DUBAI | Sun Dec 30, 2012 5:47am EST

DUBAI Dec 30 (Reuters) - Saudi Arabia's government will issue bonds next year backed by the kingdom's ministry of finance to fund construction work at airports in Riyadh and Jeddah, Finance Minister Ibrahim Alassaf told Al Arabiya television on Sunday.

"The rest of the bonds for King Abdulaziz Airport in Jeddah and King Khaled Airport in Riyadh will be issued this (coming) year," Alassaf said.

The kingdom's General Authority for Civil Aviation (GACA) said in January it planned to issue a second sukuk, or Islamic bond, at the end of 2012 to help fund its 27 billion riyal ($7.2 billion) airport in Jeddah.

A first sukuk, launched earlier this year and fully guaranteed by the Saudi Ministry of Finance, raised 15 billion riyals to help fund the Jeddah airport development.

Last year, industrial conglomerate Saudi Bin Laden Group won the contracts to develop the first phase of the Jeddah airport, raising its annual capacity to 30 million passengers.

Saudi Arabia is currently investing in multi-billion dollar infrastructure projects and revamping many of its airports to cater to a growing number of passengers. (Reporting by Mahmoud Habboush. Editing by Jane Merriman)


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RPT-Wall St Week Ahead: 'Cliff' may be a fear, but debt ceiling scarier

n" readability="149">Dec 30 (Reuters) - Investors fearing a stock market plunge - if the United States tumbles off the "fiscal cliff" this week - may want to relax.

But they should be scared if a few weeks later, Washington fails to reach a deal to increase the nation's debt ceiling because that raises the threat of a default, another credit downgrade and a panic in the financial markets.

Market strategists say that while falling off the cliff for any lengthy period - which would lead to automatic tax increases and stiff cuts in government spending - would badly hurt both consumer and business confidence, it would take some time for the U.S. economy to slide into recession. In the meantime, there would be plenty of chances for lawmakers to make amends by reversing some of the effects.

That has been reflected in a U.S. stock market that has still not shown signs of melting down. Instead, it has drifted lower and become more volatile.

In some ways, that has let Washington off the hook. In the past, a plunge in stock prices forced the hand of Congress, such as in the middle of the financial crisis in 2008.

"If this thing continues for a bit longer and the result is you get a U.S. debt downgrade ... the risk is not that you lose 2-1/2 percent, the risk is that you lose 10-1/2," said Jonathan Golub, chief U.S. equity strategist at UBS Equity Research, in New York.

U.S. Treasury Secretary Timothy Geithner said the United States will technically reach its debt limit at the end of the year.

INVESTORS WARY OF JANUARY

The White House has said it will not negotiate the debt ceiling as in 2011, when the fight over what was once a procedural matter preceded the first-ever downgrade of the U.S. credit rating. But it may be forced into such a battle again. A repeat of that war is most worrisome for markets.

Stock markets posted several days of sharp losses in the period surrounding the debt ceiling fight in 2011. Even after a bill to increase the ceiling had passed, stocks plunged in what was seen as a vote of "no confidence" in Washington's ability to function, considering how close lawmakers came to a default.

Credit rating agency Standard & Poor's lowered the U.S. sovereign rating to "AA-plus," citing Washington's legislative problems as one reason for the downgrade from "AAA" status. The benchmark S&P 500 dropped 16 percent in a four-week period ending Aug. 21, 2011.

"I think there will be a tremendous fight between Democrats and Republicans about the debt ceiling," said Jon Najarian, a co-founder of online brokerage TradeMonster.com, in Chicago.

"I think that is the biggest risk to the downside in January for the market and the U.S. economy."

There are some signs in the options market that investors are starting to eye the January period with more wariness. The CBOE Volatility Index, or the VIX, the market's preferred indicator of anxiety, has remained at relatively low levels throughout this process, although on Thursday, it edged above 20 for the first time since July.

More notable is the action in VIX futures markets, which shows a sharper increase in expected volatility in January than in later-dated contracts. January VIX futures are up nearly 23 percent in the last seven trading days, compared with a 13 percent increase in March futures and an 8 percent increase in May futures. That is a sign of increasing near-term worry among market participants.

The CBOE Volatility Index closed on Friday at 22.72, gaining nearly 17 percent to end at its highest level since June as details emerged of a meeting on Friday afternoon of President Barack Obama with Senate and House leaders from both parties where the president offered proposals similar to those already rejected by Republicans. Stocks slid in late trading and equity futures continued that slide after cash markets closed.

"I was stunned Obama didn't have another plan, and that's absolutely why we sold off," said Mike Shea, a managing partner and trader at Direct Access Partners LLC, in New York.

Obama offered hope for a last-minute agreement to avoid the fiscal cliff after a meeting with congressional leaders, although he scolded Congress for leaving the problem unresolved until the 11th hour.

"The hour for immediate action is here," he told reporters at a White House briefing. "I'm modestly optimistic that an agreement can be achieved."

The U.S. House of Representatives is set to convene on Sunday and continue working through the New Year's Day holiday.

Obama has proposed maintaining current tax rates for all but the highest earners.

Consumers do not appear at all traumatized by the fiscal cliff talks - yet. Helping to bolster consumer confidence has been a steady recovery in the housing market and growth in the labor market, albeit slow.

The latest take on employment will be out on Friday, when the U.S. Labor Department's nonfarm payrolls report is expected to show jobs growth of 145,000 for December, in line with recent growth.

Consumers will see their paychecks affected if lawmakers cannot broker a deal and tax rates rise, but the effect on spending is likely to be gradual.

PLAYING DEFENSE

Options strategists have noted an increase in positions to guard against weakness in defense stocks such as General Dynamics because those stocks would be affected by spending cuts set for that sector. Notably, though, the PHLX Defense Index is less than 1 percent away from an all-time high reached on Dec. 20.

This underscores the view taken by most investors and strategists: One way or another, Washington will come to an agreement to offset some effects of the cliff. The result will not be entirely satisfying, but it will be enough to satisfy investors.

"Expectations are pretty low at this point, and yet the equity market hasn't reacted," said Carmine Grigoli, chief U.S. investment strategist at Mizuho Securities USA, in New York. "You're not going to see the markets react to anything with more than a 5 (percent) to 7 percent correction."

Save for a brief 3.6 percent drop in equity futures late on the evening of Dec. 20, after House Speaker John Boehner had to cancel a scheduled vote on a tax-increase bill due to lack of Republican support, markets have not shown the same kind of volatility as in 2008 or 2011.

A gradual decline remains possible, Golub said, if business and consumer confidence keep taking a hit on the back of fiscal cliff worries. The Conference Board's measure of consumer confidence fell sharply in December, a drop blamed in part on the fiscal issues.

"If Congress came out and said that everything is off the table, yeah, that would be a short-term shock to the market, but that's not likely," said Richard Weiss, a Mountain View, California-based senior money manager at American Century Investments.

"Things will be resolved, just maybe not on a good timetable. All else being equal, we see any further decline as a buying opportunity."

(Wall St Week Ahead runs every Sunday. Questions or comments on this column can be emailed to: david.gaffen(at)thomsonreuters.com)


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OUTLOOK-Skittish investors may be ready for more risk in 2013

By Steven C. Johnson

NEW YORK | Sun Dec 30, 2012 6:59am EST

NEW YORK Dec 30 (Reuters) - The investment landscape won't be much different in 2013 than it has been this year, but the investors might be.

After spending most of 2012 in a defensive crouch, cowed by past crises and on guard against any future ones, more investors seem willing to take risks in 2013 in hopes of a greater reward, money managers say.

"Managing money with one eye on the rear-view mirror is no fun," said Alan Wilde, head of fixed income and currency strategy at Baring Asset Management, which oversees $50 billion.

With investors a bit less skittish but still starved for yield, Wilde said he expects a "small increase in optimism" to encourage investors to chase higher returns.

Doing so will require creativity as conditions around the world -- advanced economies in particular -- are not conducive to rapid growth. With debt levels and jobless rates high and inflation subdued, most major central banks are committed to holding interest rates near zero for years to come.

Cash may not be an option either. Savings accounts yield virtually nothing and money markets only marginally more. Returns on both are well below the rate of inflation, which when stripped of volatile food and energy costs stood just shy of 2 percent in the year to November.

That panorama, investment managers say, should enhance the appeal of assets such as stocks, high-yielding "junk" bonds, floating-rate loans and mortgage-backed securities.

TOO CONSERVATIVE

Of course, the uncertainty in Washington has had a paralyzing effect. As of late December, talks between the White House and Congress had yet to yield a plan to avert a looming U.S. budget crisis.

Economists fear failure to prevent some $600 billion of automatic spending cuts and tax increases from taking effect as planned in January could thrust the economy back into recession.

While stock markets have wobbled in recent days, investors still seem reasonably confident a deal will eventually get done.

That's quite different from the doomsday thinking that dominated markets in 2012, when at times it seemed the euro would collapse, the bottom would fall out of China's economy and the United States would lurch back into a recession.

"Those kinds of distractions have hounded investors all year, this idea that there was always a disaster just around the corner," said Steven Englander, head of global G10 currency strategy at Citigroup.

As a result, many anxious investors sought shelter in low-yielding bond funds, which took in $297.3 billion this year, according to Lipper data. Stock funds attracted just $13.56 billion in new cash despite double-digit gains for the S&P 500.

But those who did take risks in 2012 did remarkably well, noted Jim McDonald, chief investment strategist at Northern Trust, which oversees more than $700 billion.

The total return, including dividends, of the benchmark S&P 500 through Dec. 27 was 15.3 percent, while financial stocks rose 29 percent after tumbling 24 percent in 2011.

European shares returned nearly 13 percent, while the Barclays Global High Yield Bond Index was up 19.6 percent year-to-date.

Even Greek government bonds rallied once it became clear the country would not be leaving the euro zone, with the 10-year yield falling from around 40 percent in March to 12 percent at year end. Returns were much more modest on benchmark German bund; yields fell from 2 percent to 1.3 percent in that time period.

Northern Trust said it would enter 2013 with "a tactical overweight to risk," though McDonald warned that the slight increase in investor optimism will make returns more modest.

REACHING FOR YIELD

Next year looks like it could be another solid one for equities. Even with 2012's gains, Northern Trust says earnings yields still look attractive, and continued central bank stimulus should provide fuel for further gains.

David Darst, chief investment strategist at Morgan Stanley Smith Barney, favors what he calls the "global gorillas" -- large companies with a global footprint that have exposure to emerging markets, which should grow more swiftly than developed ones.

Dividend-paying stocks from Taiwan, Mexico, Brazil and elsewhere also present a good opportunity to pick up yield, said Michael Fredericks, lead manager of the BlackRock Multi-Asset Income Fund, especially if U.S. dividend taxes rise next year as a result of a deficit reduction deal.

Fredericks said the most promising stocks tend to be those of companies that rely on domestic demand rather than the big exporters that dominate many emerging market mutual funds.

"If you really want to get at the local, organic growth taking place in emerging markets, you have to get more direct exposure to that growth than you would by buying a big exporter whose business depends on U.S. and European consumers," he said.

Of course, investing next year will not be risk-free. Europe's debt crisis could worsen again, the U.S. economy could tumble over the fiscal cliff and into recession, continued turmoil in the Middle East could trigger a spike in oil prices and a global slump.

"It's still a market where you have to be nimble," Darst said. "You still have to drive with both hands on the wheel."

That's especially true in fixed income, where strategists warn against pouring too much money into bond funds with interest rates at record lows.

Even a modest rise in bond yields could do immense damage to bond portfolios, said Rick Rieder, BlackRock's chief investment officer for fundamental fixed income. BlackRock expects 10-year U.S. Treasury yields to rise to 2.25 percent next year from around 1.70 percent currently.

That, he said, means bond investors will have to "take a little bit of credit quality risk" in 2013 and to consider taking on some higher-yielding but less liquid securities.

"We still like high yield, U.S. municipal bonds, bridge loans and structured collateralized loan obligations (CLOs), which give you income without a lot of duration," he said.

Average yields on high-yield corporate bonds, also known as "junk" bonds, were hovering above 6 percent, well above the 1.7 percent available from 10-year Treasuries.

Mortgage-related securities were also likely to be in high demand thanks to the Federal Reserve, which has committed to buying $40 billion of mortgage bonds each month to lower long-term interest rates, boost housing and help the broader economy.

DoubleLine Capital, which oversees more than $50 billion in assets and has favored residential non-agency mortgage-backed bonds this year, was now looking at commercial mortgage-backed securities to help raise returns in 2013, senior portfolio manager Bonnie Baha said at the Reuters Global Investment Outlook Summit in November.

Rieder agreed: "We like owning assets with structural tailwinds to them, such as real estate-related assets. Commercial mortgage-backed securities are one of our favorites."


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UPDATE 1-US Senate, House ag committees in deal to avert milk price spike

* Proposal will add 1 yr to expiring bill; no timing on vote

* Follows rising alarm about potential milk price doubling

* Another year of costly direct subsidies to growers

By Jim Wolf

WASHINGTON, Dec 30 (Reuters) - Farm-state lawmakers have agreed to a one-year extension of the expiring U.S. farm bill that, if enacted, would head off a possible doubling of retail milk prices to $7.OO or more a gallon in 2013.

The compromise measure resulted from bipartisan discussions in the House of Representatives' Agriculture Committee and talks with colleagues in the U.S. Senate, Frank Lucas of Oklahoma, the House panel's chairman, said in a statement Sunday.

"It is not perfect - no compromise ever is - but it is my sincere hope that it will pass the House and Senate and be signed by the President by January 1," Lucas, a Republican, said.

It was not immediately clear whether House and Senate leaders would bring the measure to a vote soon enough to avoid putting the so-called "dairy cliff" milk price spike into action.

Separately, lawmakers are working on a last-ditch effort to avert the similarly timed "fiscal cliff," when the biggest tax increases ever to hit Americans are set to start, paired with significant federal spending cuts

U.S. Agriculture Secretary Tom Vilsack, in an interview with CNN taped Friday and aired on Sunday, urged Congress to come up with such a solution, if only an extension of the old law that expired nearly three months ago, lest milk prices start rising after Jan. 1, 2013.

Absent a new bill or an extension of current law, milk prices would revert to rules set in 1949, the last "permanent" farm legislation in the United States. Government price supports would kick in, based on production costs 64 years ago, plus inflation. The potential retail milk price has been estimated at $6.00 to $8.00 a gallon versus current levels near $3.50.

Lucas said in the statement that time had run out in Congress' current session to enact a new five-year farm bill, as farm-state lawmakers and the dairy lobby had hoped.

Vilsack told CNN that soaring milk prices - if it comes to that - would ripple throughout all commodities "if this thing goes on for an extended period of time."

The price of milk will not double on Jan. 1, if Congress fails to act. Instead, prices would rise gradually as supplies are removed from normal markets and land instead in U.S. Department of Agriculture storage facilities.

With supplies more scarce in normal marketing channels, some milk distributors and dairy product manufacturers could have turned to imported supplies.

The Department of Agriculture is reviewing a range of options for administering programs should a permanent law become legally effective on Jan. 1, a spokesman said on Friday.

The Senate passed its new five-year farm bill in June, and the House Agriculture Committee followed with a version in July.

But the House bill, with large cuts in food-stamp funding for lower-income Americans, has never been brought to a vote by the full House. The Senate and House have for months remained far apart on the issues of food stamps and crop subsidies.

Lucas said the year-long extension "provides certainty to our producers and critical disaster assistance to those affected by record drought conditions."

It would also mean another round of the direct subsidies to farmers that cost about $5 billion a year, and that both sides of debate had agreed earlier to eliminate.


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U.S farm-state lawmakers agree to farm subsidy law extension

WASHINGTON | Sun Dec 30, 2012 12:09pm EST

WASHINGTON Dec 30 (Reuters) - Farm-state lawmakers have agreed on a one-year extension of a farm law that, if enacted, would head off a possible doubling of U.S. milk prices to $7.OO or more a gallon in 2013.

The compromise resulted from bipartisan discussions in the House of Representatives' Agriculture Committee and talks with colleagues in the U.S. Senate, Frank Lucas of Oklahoma, the House panel's chairman, said in a statement on Sunday.

"It is not perfect - no compromise ever is - but it is my sincere hope that it will pass the House and Senate and be signed by the President by January 1," Lucas, a Republican, said.


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Merkel's rival Steinbrueck says euro zone austerity too severe

BERLIN | Sun Dec 30, 2012 9:56am EST

BERLIN Dec 30 (Reuters) - Former German Finance Minister Peer Steinbrueck, who is running against Chancellor Angela Merkel in next year's election, said austerity measures being imposed on struggling euro zone countries were too severe.

In an interview with the Frankfurter Allgemeine Sonntagszeitung (FAS), Steinbrueck said austerity measures were pushing some countries to do too much too soon. He said there would be massive protests in Germany if such a heavy dose of austerity were to be imposed so quickly.

"The savings measures are too severe, they're leading to depression," said Steinbrueck, 65, a Social Democrat (SPD) who was finance minister from 2005 to 2009 in Merkel's right-centre grand coalition government.

"Some societies are being forced to their knees. Budget consolidation is in some ways like medicine. The right amount can save lives while too much can be lethal."

Steinbrueck noted that some countries were being forced to make spending cuts that amounted to five percent of their gross domestic product (GDP).

"In Germany that would amount to 150 billion euros (of spending to be cut)," Steinbrueck said. "You can imagine what the protests would be like on German streets with that."

Steinbrueck said he and the centre-left SPD were clearly in favour of efforts to stabilise the euro zone - due partly to German national interests and also due to Germany's responsibility to the European Union.

"My advice to the SPD is that we shouldn't treat the European issue in the election campaign as a minor topic or without being courageous," Steinbrueck said, referring to fears in the SPD that talking about the euro zone rescue efforts would benefit Merkel more than the SPD.

"Europe has to be stabilised out of our national interests and out of our responsibility to Europe."


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FEATURE-Michigan hospital blazes trail in fight against fungal meningitis

* Hospital scans hundreds of patients for secondary infections

* Aggressive approach nets new cases of festering spinal infections

By Julie Steenhuysen

CHICAGO, Dec 30 (Reuters) - After his first day working at St Joseph Mercy Ann Arbor hospital's newly created Fungal Outbreak Clinic, Dr David Vandenberg struggled to describe to his boss the enormity of what lay ahead. He settled on a line from the movie Jaws.

"We're going to need a bigger boat," Vandenberg told Dr Lakshmi Halasyamani, chief medical officer of the Michigan hospital, echoing the film's local police chief after he first eyes a 25-foot (7.5-metre) killer shark.

The St Joseph Mercy clinic has been at the front line of the fight against one of the biggest ever U.S. outbreaks of fungal meningitis, a killer infection that has been traced to tainted steroid shots from a Massachusetts pharmacy.

So far, 620 Americans have developed serious infections related to the outbreak, including 367 cases of deadly meningitis, and 39 people have died. Of the 19 U.S. states affected, Michigan has been worst hit, handling more than one third of the total cases in the outbreak.

St Joseph Mercy - a 537-bed Catholic hospital located in Ypsilanti, on the doorstep of the University of Michigan - has treated 169 of the state's 223 cases of infections that can cause meningitis, including 7 people who died.

At one point it was so overrun that 87 of its 537 beds, which are usually occupied by patients with cancer or heart ailments and the like, were occupied by patients with fungal meningitis and related infections.

Dr Tom Chiller, the fungal disease expert at the U.S. Centers for Disease Control and Prevention, who has been overseeing the outbreak, praised the work of the hospital in helping to limit deaths from the outbreak.

"They have been incredibly creative in dealing with these complicated patients," he said.

In all, almost 14,000 people seeking relief from back and joint pain received injections from moldy steroid shots made at the now-bankrupt New England Compounding Center in Massachusetts before they were recalled in late September.

CDC experts initially feared death rates in the 40 to 50 percent range; instead, only about 6 percent of those infected have died, and the CDC credits the creative and dogged efforts of state and local health officials for keeping the death rates so low.

The first wave of the outbreak involved the most severe cases of meningitis - an inflammation of the membranes that cover the brain and spinal cord. But starting in mid-October, patients who had been recovering from meningitis were developing potentially fatal localized infections near the site where contaminated drug was injected to treat back or neck pain.

As they started seeing more cases of these local, secondary infections, the staff at St Joseph's devised a bold plan to screen all patients in their database looking for potential new infections that might have been missed in the first wave.

On Dec. 20, the CDC issued an alert to doctors incorporating some of lessons learned by the efforts of doctors at St Joseph's and other hospitals, calling for increased screening of patients who may be harboring localized infections.

A BEWILDERING FUNGI

Among the patients who developed secondary infections was Bonita Robbins, a 72-year-old retired nurse from Pinckney, Michigan, who received doses of the tainted drug at the Michigan Pain Specialists clinic in the nearby town of Brighton while seeking relief for lower-back pain.

The first shot brought some relief, the second did little to ease her aches, and the third was contaminated. In October, Robbins went to St Joseph's with a severe headache, back pain and pain in her thighs.

She spent 37 days in the hospital taking two kinds of antifungal drugs.

Dr Anurag Malani, an infectious disease specialist treating Robbins, said the challenge with the outbreak was that there was no medical literature to fall back on.

"No one has ever seen anything of this magnitude related to fungal infections, ever," he said.

Chiller said U.S. doctors had never treated meningitis caused by Exserohilum rostratum, the environmental mold causing most of the infections.

"It's just a rare, rare cause of infection." Seeing that mold in the meninges - membranes covering the brain and spinal cord - is "completely new."

Initially, St Joseph's Fungal Outbreak Clinic was started in order to coordinate the care of patients after their discharge, which included overseeing the administration of a complex regime of anti-fungal drugs.

It morphed into something bigger when some of its 53 patients with meningitis started returning with infections near the site in their back or neck where the contaminated drug was injected.

Then came a wave of patients like Robbins, who had been ruled out for meningitis with a spinal tap, but were still complaining of pain near their injection site.

GETTING THE 'BIGGER BOAT'

"When it became obvious that the number of patients would be a much higher percentage than anticipated by the CDC, we expanded our clinic and started enlisting the help of several other hospitals," Vandenberg said.

Many of the patients had spinal abscesses, an infection in the space between the outside covering of the spinal cord and the bones of the spine. Others developed arachnoiditis, an infection of nerves within the spinal canal.

The decision to screen all patients in the hospital database who might have received tainted injections was not taken at the recommendation of the CDC.

"That was our own decision," said Vandenberg, a specialist in internal medicine overseeing the screening effort.

He admitted that the strategy was aggressive, but said that, especially early on, doctors feared the local infections might be precursors to meningitis, making catching them early a potentially life-saving move.

Excluding patients who had already been screened and those who had injections in areas other than the spine, the hospital targeted about 500 patients for MRI scans.

Most so far have had private insurance that covers the screening. For the uninsured, the hospital's Patient Financial Services department has been helping them to apply for financial support.

"We did over 400 MRIs in about a 4-week period," Vandenberg said. The hospital screened so many patients, in fact, that the state of Michigan sent in an emergency mobile MRI unit to help.

Vandenberg got the task of reading stacks of MRI reports, sometimes as many as 30 a day.

So far, about 20 percent of the MRIs have shown up as abnormal, meaning that patients have to come back for surgery and treatment.

Vandenberg makes all of those calls personally. Not all of them go smoothly. He likens the gravity of the conversation - learning you have a potentially deadly new disease that requires months of treatment with risky drugs - to telling someone they have cancer.

After one especially tough call, in which a heart patient feared he would not survive the surgery he would need to clear his infection, Vandenberg cracked.

"I started crying. I probably haven't cried for 15 years."

SIGNS OUTBREAK IS EASING

But at last, after months of onslaught, there are signs the outbreak is easing.

Attendance at the hospital's daily support group has begun to taper off. And since the beginning of December, more than 50 patients with fungal infections have been discharged, while only 20 have been admitted, bringing the total number of fungus-related inpatient to 30.

Vandenberg nevertheless cautions that the outbreak is still far from over.

"Every single day of this screening program, we're finding one or two cases that are abnormal and need to be admitted," he said.

Vandenberg gave the CDC access to the clinic's database so the agency could see how the effort turned out, and this month, the CDC issued the alert to doctors incorporating some of the results of the MRI screening program.

The alert warned that some patients who got tainted injections but did not develop meningitis may still be at risk of localized infections.

And it urged doctors to consider ordering an MRI for all patients who still have pain, even if the pain is similar to what sent them in for treatment in the first place.

Chiller said the United States had not yet reached the end of the outbreak.

"Unfortunately, with fungi, the incubation periods are so long and they can remain indolent. I'm definitely concerned that we're going to continue to see more cases."


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Stake in Polish bank Alior put up for sale -report

MILAN | Sun Dec 30, 2012 6:23am EST

MILAN Dec 30 (Reuters) - Carlo Tassara Group, former majority owner of Polish bank Alior, is expected to name advisors this week to sell its remaining stake in the company, Il Sole 24 Ore newspaper reported on Sunday.

Carlo Tassara, an investment vehicle of businessman Romain Zaleski, had sold a 66 percent stake in Alior in a public share sale earlier this month, which raised 2.1 billion zlotys ($681 million).

The advisors will try to sell Zaleski's remaining 34 percent stake in Alior as well as a 12.8 percent stake in French mining and metal group Eramet, Il Sole 24 Ore said without citing sources.

Carlo Tassara could not immediately be reached for comment.

In 2011, the investment group had agreed with creditor banks to sell assets by 2013 to pay down debts of around 2.5 billion euros.

Alior owns Poland's third-largest branch network and has become a well-known brand thanks to adverts which feature bowler-hatted bankers. It is currently valued at around 4 billion zlotys ($1.30 billion).

Russia's Sberbank, which in the past has shown interest in the bank, might be among possible suitors for Zaleski's stake, Il Sole said.

The newspaper said Zaleski would proceed with a planned sale of his Italian assets in the second half of 2013.

These assets include a 1.73 percent stake in Italy's bank Intesa Sanpaolo, 1.2 percent in investment bank Mediobanca, 2.5 percent in Italian utility A2A and 1.14 percent in lender Banca Monte dei Paschi di Siena . ($1 = 3.0846 Polish zlotys) (Reporting by Antonella Ciancio. Editing by Jane Merriman)


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Stung Bankia investors look to courts for justice

* Official inquiry into Bankia debacle unlikely

* Small savers say they were swindled

* Judge in legal probe has yet to open formal lawsuit

By Sonya Dowsett

MADRID, Dec 30 (Reuters) - Spanish savers and pensioners who have seen their money wiped out by investing in state-rescued lender Bankia are likely to seek redress in court rather than wait for any official inquiry, which looks increasingly unlikely.

About 350,000 stockholders will share the pain of the bank's European bailout, many of them bank clients who were sold the shares through an aggressive marketing campaign for its stock market flotation in 2011.

Shares in the lender, rescued by the state in May in Spain's biggest ever bank bailout, fell to record lows on Friday, tumbling over 40 percent from the start of the week after it emerged losses on bad loans were worse than expected. The stock has fallen 85 percent since its IPO.

"Going to the courts and seeing if a judge can bring us justice is the only path left to us," said Maricarmen Olivares, whose parents lost 600,000 euros ($793,300) they made from selling her father's car workshop by investing in Bankia preference shares.

Neither of the two main political parties want to push for a full investigation into Bankia's demise, which could draw attention to their own role in a debacle that has driven Spain to the brink of an international rescue, commentators say.

"Investigations work when a political party has something to gain over another. In this case, no-one has anything to gain," said Juan Carlos Rodriguez, of consultancy Analistas Socio Politicos.

"I don't see the big parties investigating this because if there have been errors committed, they have been committed by both sides."

The Socialist Party was in power when Bankia was formed in 2010 from an ill-matched combination of seven regional savings banks, a union that concentrated an unsustainable exposure to Spain's collapsed property sector.

Immense political pressure from the then government forced Bankia executives to push ahead with an initial public offering in July 2011 as Spain sought to bring private capital into its banking system and avoid a European bailout.

Then chairman, Rodrigo Rato, a former chief of the International Monetary Fund, had strong links to the centre-right Popular Party (PP) and was finance minister in a previous PP administration.

A small political party, UPyD, forced the High Court in July to open an investigation into whether Rato, ousted when the bank was nationalised in May, and 32 other former board members are guilty of fraud, price-fixing or falsifying accounts.

Investigating magistrate Fernando Andreu has so far not brought charges against anyone and could still drop the case.

"WE WON'T SEE OUR MONEY AGAIN"

Rato appeared in a private session before the judge on Dec. 20 where he denied any blame for what happened.

Rato, who cannot legally speak to the press because he is the subject of a court investigation, has kept a low profile since the bank rescue in May. Protesters gathered outside the court on the day of his declaration wearing masks of his face.

The probe centres around Bankia's stock market listing, the formation of the lender from the seven savings banks and the gaping capital shortfall revealed at the bank after the state takeover in May.

Rato and 23 others including bank executives and cabinet ministers were called to testify before a parliamentary committee in July this year where Rato said he had a clear conscience and had done things properly.

"That was just window-dressing by the PP following the outcry over the Bankia disaster," said a Socialist Party source.

The opposition Socialists called for a full parliamentary investigation in May, but the ruling PP blocked it, the Socialist Party source said. A PP spokeswoman said any investigation of Bankia should be carried out through the courts, not the government.

A government source said any investigative process would not fall to the government, but to the courts.

Bankia, alongside other Spanish banks, sold billions of euros of preference shares and subordinated debt to high street clients, many of whom say they were tricked into parting with their savings and are seeking compensation.

The investigating magistrate is not including the mis-selling of preference shares - hybrid instruments that fall between a share and a bond - in the probe.

Holders of preference shares at Bankia will incur losses of up to 46 percent as part of the European bailout, receiving shares rather than cash in exchange.

"We won't see our money again, that's for sure. They'll give us shares, but shares with no value or credibility in a nationalised bank," said Olivares, who said she had heard nothing from the bank as to how much their losses would be.

The losses each investor will have to take has yet to be decided, a Bankia spokesman said, adding that hybrid debtholders at all rescued banks had to take losses, not just at Bankia.

A source close to the court investigation said there would certainly be scope for a separate wider probe into the mis-selling of preference shares, not just at Bankia, but throughout Spain's savings banks.

Olivares, like many other small savers at Spain's state-rescued banks, claims her parents were sold the preference shares as a kind of high-interest savings account and that the bank staff did not explain the risks attached.

The government is in the process of setting up an arbitration process to compensate Bankia clients who can prove that they were duped into buying preference shares, Economy Minister Luis de Guindos said last week.

But many ordinary Spaniards who lost their life savings through the Bankia rescue say this is not enough and they want answers as to what happened to their money.

"We want justice, at least some kind of recognition that we were swindled," said Raimundo Guillen, a 50-year-old electricity station worker who put 30,000 euros in preference shares with Bankia under the impression they were a form of savings account.

"It's as if they've stolen your wallet - blatantly, with their face uncovered."


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Merkel challenger under fire for saying chancellor underpaid

* Steinbrueck revives his own speaking fee row with comments

* SPD candidate says German chancellors are underpaid

* Steinbrueck also Merkel popular due to "woman's bonus"

By Erik Kirschbaum

BERLIN, Dec 30 (Reuters) - Chancellor candidate Peer Steinbrueck was widely criticised on Sunday, even by his own centre-left Social Democrats (SPD), for saying German leaders were underpaid.

Steinbrueck has struggled to gain ground against Chancellor Angela Merkel ahead of next September's election, in part due to lingering criticism over him earning 1.25 million euros ($1.65 million) as an after-dinner speaker in the past three years.

The remarks from the former finance minister about what he called the inadequate compensation for the chancellor drew speedy rebukes across the country's political spectrum, including from the last SPD chancellor Gerhard Schroeder.

"A German chancellor does not earn enough based on the performance that is required of her or him compared with the jobs of others who have far less responsibility and far more pay," Steinbrueck, 65, was quoted on Sunday by the Frankfurter Allgemeine Sonntagszeitung newspaper saying.

"Nearly every savings bank director in North Rhine-Westphalia earns more than the chancellor does," Steinbrueck said of his home state.

Merkel's pay is set to rise by 930 euros per month to 17,106 euros in 2013 along with pay rises for her ministers and members of parliament, increases that have been criticised by some for sending the wrong signal in an era of austerity.

"Some of the debates kicked up by the 'guardians of public virtue' are grotesque and are harmful for anyone considering getting involved in politics," Steinbrueck said.

ELECTION

The SPD trails Merkel's conservatives by 10 points in opinion polls, but, with its Greens allies, it does have a chance of winning power in September because of the prolonged weakness of Merkel's Free Democrat (FDP) coalition partners.

Steinbrueck, whose blunt talk makes him popular among some voters despite him never winning a major election and him being defeated as state premier in North Rhine-Westphalia in 2005, said there were times in his career when he was not as well off and admitted he was now a "wealthy Social Democrat".

Schroeder, chancellor from 1998 to 2005, has endorsed Steinbrueck to lead his party against Merkel but distanced himself from Steinbrueck's views on pay.

"In my view politicians in Germany are adequately compensated," Schroeder told Bild am Sonntag newspaper. "I was certainly always able to live off the pay. And anyone who doesn't feel it's enough pay can always look for another job."

Other SPD leaders indirectly criticised Steinbrueck. Dieter Wiefelspuetz, a top SPD member of parliament, said politicians were misguided if they compared their wages to private industry.

"To serve as chancellor is a fascinating job and the pay is definitely not shabby," he said.

Steinbrueck was once seen as the centre left's best hope of winning back the chancellorship. He was popular as the no-nonsense finance minister and the SPD hoped he would siphon centrist voters away from the conservatives.

But the controversy over his earning 1.25 million euros for 89 speeches will not go away and his campaign has been marred by setbacks and awkward comments.

Analysts say he is also struggling to win over female voters, many of whom are put off by his combative style.

"Merkel is popular due to a 'woman's bonus' that she gets," Steinbrueck told the paper. ($1 = 0.7564 euros) (Editing by Alison Williams)


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UPDATE 3-Bolivia nationalises Iberdrola electricity companies

(Adds Spanish government comment)

By Carlos Quiroga and Sonya Dowsett

LA PAZ/MADRID Dec 29 (Reuters) - Bolivia nationalised two electricity distribution companies owned by Spanish utility Iberdrola on Saturday, the latest move by leftist President Evo Morales to assert control over the country's resources.

Iberdrola will be compensated according to a valuation to be drawn up by an independent arbiter, Morales said, adding that the measure was aimed at enhancing rural energy services.

"We considered this measure necessary to ensure equitable energy tariffs ... and to see to it that the quality of electricity service is uniform in rural as well as urban areas," Morales said.

President Morales has nationalised oil, telecommunications, mining and electrical generation companies.

In June, Morales took control of global commodities giant Glencore's tin and zinc mine in Bolivia and more nationalisations of mining companies could be ahead in the Andean country.

Iberdrola, whose office in capital city La Paz was being guarded by police on Saturday, has operated in Bolivia since the late 1990s. An Iberdrola spokesman said the company was studying the situation and declined to comment further.

Spain regretted Bolivia's actions, the Spanish Ministry of Foreign Affairs said in a statement on Saturday, adding the government hoped the shareholders of the companies involved would be fairly compensated.

"This decision by the Bolivian government involves companies that carried out the public service of distributing electricity that have never belonged to the Bolivian state," the statement said.

The Iberdrola units are Electropaz, which supplies around 470,000 customers in the cities of La Paz and El Alto; and Elfeo, which supplies over 80,000 customers in the city of Oruro.

The nationalisation also includes two small suppliers owned by Iberdrola, which provide services to the distributors.

In 2006, Morales announced the takeover of petroleum companies operating in Bolivia. He later nationalised oil and gas reserves to redistribute wealth to the landlocked country's indigenous majority.

Iberdrola is not the first Spanish company to have its assets seized in Latin America.

Bolivia decided to nationalise a power transmission unit of power grid operator Red Electrica in May, just weeks after Argentinian President Cristina Fernandez seized YPF , the country's biggest energy company, accusing oil major Repsol of underinvesting at the unit.

Repsol called the move unlawful, discriminatory and a violation of a bilateral investment treaty between Spain and Argentina. The World Bank's arbitration body has agreed to begin an arbitration process on the Repsol case.

Other Spanish companies in Bolivia include bank BBVA and motorway operator Abertis, though exposure for each is less than 1 percent of revenues. (Additional reporting by Blanca Rodriguez in Madrid and Hugh Bronstein in Buenos Aires; editing by Gunna Dickson)


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