UPDATE 1-U.S. muni bond funds report $2.22 bln outflows -Lipper

U.S. municipal bond funds reported $2.22 billion of net outflows in the week ended June 19, up from outflows of $1.6 billion in the previous week, according to data released by Lipper on Thursday.

The funds have had net outflows for four straight weeks, with the latest week the biggest since mid-December. For the four weeks outflows amounted to $5.4 billion.

The four-week moving average remained negative at $1.36 billion, said Lipper, a unit of Thomson Reuters.

Investors pulled out of high-yield funds for a fifth consecutive week, with net outflows of nearly $850 million, which was also the highest since the week of Dec. 19. In the week ended June 12, the funds reported outflows of $657 million.

 

Exchange-traded muni funds saw outflows of $54 million in the latest week, up from $7 million in the prior week, according to Lipper.

Meanwhile, retail investors bought 1.8 muni bonds for every one they sold in the week ended June 19, up slightly from a ratio of 1.7 the week before, according to BondDesk Group. The number of bonds bought totaled 78,327, while the number of bonds sold was 43,583.

UPDATE 1-Greek political impasse deepens after coalition talks fail

Greece's coalition leaders failed to agree to on how to resume state television broadcasts during their third round of talks this week, deepening a nine-day impasse that has renewed fears of political instability in the country.

Prime Minister Antonis Samaras had appeared close to a compromise earlier this week with his two leftist coalition partners over the sudden closure of the ERT state broadcaster, until the three-party talks collapsed again on Thursday.

The leader of the smallest party in the coalition, Fotis Kouvelis of the Democratic Left, attacked Samaras for failing to comply with a court ruling ordering ERT back on air and rejecting his proposal for a reformed broadcaster.

 

"No common ground was reached at the political leaders' meeting with regards to the issue of ERT," Kouvelis said.

Democratic Left party officials were due to meet on Friday morning to discuss their stance on the issue, officials said.

The leader of the other junior coalition partner, Evangelos Venizelos, warned the country's ruling coalition was in trouble and called on Kouvelis to stay in the government.

"The situation for the country, the economy and its citizens is especially grave," said Venizelos, who heads PASOK, the second-biggest party in the government.

"We want the government to continue as a three-party government and we are asking Democratic Left to participate in re-establishing cooperation."

Centre-right leader Samaras has ruled in fragile coalition with the two centre-left parties since coming to power a year ago. The latest crisis was sparked by Samaras abruptly yanking ERT off air last week, triggering an outcry from his allies, unions and journalists.

ERT remains off air despite a court ruling on Monday ordering it back on. Samaras wants a transitional broadcaster run by only a few staff that will air a few ready-made programmes while his allies want ERT to reopen exactly as it was before until the smaller version is launched.

Venizelos said Samaras had accepted a proposal to resume public broadcasts and re-hire about 2,000 workers, but that the junior partners were not satisfied.

"There have been steps to repair this but we are not fully satisfied," he said.

CORRECTED-GLOBAL MARKETS-Stocks, bonds, commodities slump on Fed comments

Global equity markets, bond prices and commodities fell sharply on Thursday in a deep selloff, a day after the Federal Reserve said the U.S. economy was growing strongly enough for it to begin slowing its unprecedented stimulus.

The Fed's bond-buying program, known as quantitative easing, has lifted both the U.S. economy and world financial markets by pushing interest rates to historic lows.

But comments by Fed Chairman Ben Bernanke on Wednesday, when he laid out a likely end to the program by next year if the economy strengthens further, brought a dose of finality to the markets.

"The market has had its safety blanket taken away," said Chris Wyllie, chief investment officer at wealth manager Iveagh Ltd in London.

Andrew Szczurowski, a portfolio manager at Eaton Vance in Boston, said he viewed the U.S. economy as a person lost at sea to whom Bernanke had thrown a life vest.

"And now all of a sudden Bernanke is talking about poking a hole in the life vest, perhaps before the stranded person is able to swim to shore, and we are seeing essentially every market in the world react negatively to this," he said.

The U.S. dollar rallied further against the euro and yen after stronger-than-expected readings on business activity in the United States supported the Fed's view of diminished downside risks to the economic outlook.

Home resales jumped to their highest level in 3-1/2 years in May and factory activity in the U.S. mid-Atlantic region rebounded in June to its highest level in more than two years.

The economic data added to investors' fears that the era of easy money would soon wane, and hammered U.S. credit markets.

Investment-grade bonds were crushed in secondary trading, while China's overnight repo rate - the interest rate for interbank lending that keeps markets liquid - spiked to 25 percent. The level was reminiscent of the credit market freeze just before the collapse of Lehman Brothers, the nadir of the financial crisis in September 2008.

Equities on Wall Street fell 2.5 percent, while stocks in Europe dropped 3.1 percent. Government debt prices fell, with yields on the 10-year U.S. Treasury note rising as high as 2.471 percent, a level last seen almost two years ago.

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"We thought there would be a correction somewhere. This probably is it. We've been looking for a correction since April," said Bruce Bittles, chief investment strategist at brokerage and research firm Robert W. Baird & Co in Sarasota, Florida.

MSCI's benchmark index for emerging equities slumped 4.37 percent and shares across the Asian Pacific region outside Japan recorded their biggest daily drop since late 2011, falling 3.87 percent.

MSCI's all-country world index fell 3.5 percent, its largest single-day drop in 19 months, representing approximately $1 trillion in market value. The pan-European FTSEurofirst 300 index of leading regional shares fell 3.07 percent to close at 1,143.99.

On Wall Street, the Dow Jones industrial average closed down 353.87 points, or 2.34 percent, at 14,758.32. The Standard & Poor's 500 Index fell 40.74 points, or 2.50 percent, at 1,588.19. The Nasdaq Composite Index slid 78.57 points, or 2.28 percent, at 3,364.64.

The CBOE Volatility Index, often referred to as Wall Street's fear gauge, spiked 23.1 percent to 02.49, its highest close so far this year.

Bernanke's comments were more hawkish than some had expected and promoted broad selling across bonds, with five- and seven-year notes suffering the most.

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The benchmark 10-year U.S. Treasury note was down 17/32 in price to yield 2.4154 percent.

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The U.S. dollar rallied to two-week highs against major currencies and looked set to extend gains.

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"The prospect of less QE (and) higher interest rates is something that should help the dollar, particularly in an environment where some other central banks are still moving in the other direction," said Robert Lynch, senior currency strategist at HSBC in New York.

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The euro fell to a session low of $1.3162, a two-week low. It was last at $1.3222, down 0.54 percent on the day.

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The U.S. dollar rose 1.06 percent to 97.48 yen.

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Crude oil fell $4 a barrel, while gold prices tumbled in one of their biggest routs since the 2008 crisis and silver fell more than 8 percent as markets reacted to Bernanke's comments and to a drop in Chinese factory activity to a nine-month low.

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Emerging markets, many of which have been primed by the cheap Fed cash, took some of the biggest selling as investors rushed to the exits.

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A day after the Federal Reserve suggested the U.S. economy was firmly on a recovery path, China's economy was stuttering.

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Faltering demand pushed the flash China HSBC Purchasing Managers Index down to 48.3 in June from 49.2, increasing pressure on the People's Bank of China to loosen the monetary reins.

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China's economy grew at its slowest pace in 13 years in 2012 and data so far this year has been weaker than forecast, bringing warnings the country could miss its 7.5 percent growth target, though possibly not by much.

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Meanwhile, Markit's Flash Eurozone Composite PMI, which makes up around 85 percent of the final reading and is seen as a reliable economic growth indicator for the bloc, remained below the dividing line between growth and contraction. It did, however, rise to 48.9 in June from May's 47.7, suggesting the decay has eased across the 17-nation bloc.

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Crude oil prices also took a hit from a surprise increase in U.S. crude inventories, even in the midst of the summer driving season, when demand for gasoline rises. Stocks rose by over 300,000 barrels, in contrast to the 500,000 barrel drop analysts forecast.

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Brent crude settled down $3.97 a barrel at $102.15.

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U.S. crude oil for July, which expired on Thursday, fell $2.84 to settle at $95.40, the largest daily decline since November.

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U.S. Comex gold futures for August delivery settled down $87.80 an ounce at $1,286.20.

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(Additional reporting by Richard Hubbard in London, reporting by Herbert Lash; editing by Clive McKeef, Dan Grebler and Nick Zieminski)

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Combative Maine governor sparks firestorm with Vaseline jab

Maine's Republican Governor, Paul LePage, touched off a firestorm of criticism on Thursday when he made a vulgar remark about a Democratic state senator.

LePage said during a television interview that Senator Troy Jackson, with whom he has sparred recently over budget issues, "claims to be for the people, but he's the first one to give it to the people without providing Vaseline."

 

The remarks followed LePage's promise, at an Americans for Prosperity rally in Augusta, the state capital, to veto a $6.3 billion, two-year budget. Democrats criticized LePage's unwillingness to compromise on the bipartisan budget, which last week passed with two-thirds majorities in both the Maine House and Senate.

The Democratic speaker of the House of Representatives immediately blasted the remark

"LePage's language today crosses a new line - even for him," House Speaker Mark Eves said. "I would not want my children to hear these vulgar comments from the highest official in our state on the evening news."

LePage's office dismissed the criticism as a distraction from important budgetary issues.

"This wasn't the first time that expression had been used in the State House," Samantha Warren, a spokeswoman for the governor, told Reuters. She said LePage's words reflected the governor's frustration with a budget that raised taxes.

"That's where we should be focusing our time right now, and not on these comments," Warren said.

Jackson called the comments "inappropriate, but nothing new," and said they reflected the governor's attitude that if "you're not 100 percent with him, then he doesn't want to deal with you.

"Unfortunately, that's not the way government works," he added.

Molson Coors Canada wins injunction in tussle with Miller

The Ontario Superior Court on Thursday granted Molson Coors a temporary injunction that prevents Miller Brewing Co from ending a license agreement with Molson's Canadian arm before a trial scheduled for December.

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In February, Miller, a subsidiary of SABMiller Plc, had announced that it planned to end the deal with Molson Coors Canadian arm as it believed its partner was not doing enough to promote Miller brands in Canada. Molson Coors in turn filed a lawsuit seeking to prevent the termination of the license agreement.

Miller had provided Molson with a notice of termination in January, and it had been aiming to end the agreement on July 22.

 

Miller said on Thursday it was disappointed with the court's decision, but said it remains confident in its position ahead of the trial. A spokesman for Molson was not immediately reachable for comment.

"We remain firm in our expectation that the Court will agree that we adhered to the terms of our Canadian license agreement when we exercised our right to terminate," said Stephen Rogers, Miller Brewing Co's legal counsel.

The legal tussle is not expected to have an impact on the partnership between the two companies in the United States. The U.S. beer market is currently dominated by the world's largest brewer, Anheuser-Busch InBev, and MillerCoors, a joint venture between Molson Coors and SABMiller.

Miller said it remains committed to the Canadian market and Miller trademark brands will continue to be available in Canada.

The company said it will continue to prepare for a seamless transition, in the event that it wins the trial on the matter.

The court case between the two sides is Molson Canada 2005 V. Miller Brewing Company, in the Superior Court of Justice-Ontario, CV-12-470589.

Greek PM calls on junior partner to back him after talks collapse

Greek Prime Minister Antonis Samaras on Friday called on the small Democratic Left party in his ruling coalition to back him after talks to resume state television broadcasts collapsed, leaving the government in disarray.

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Samaras said he had compromised by offering to re-hire 2,000 out of the 2,600 ERT workers who were fired when it was yanked off air last week, which was accepted by the Socialist PASOK party but rejected by the Democratic Left.

 

"I want us to continue together as we started but I will move on either way," Samaras said in a televised statement.

"Our aim is to conclude our effort to save the country, always with a four-year term in the horizon. We hope for the Democratic Left's support."

UPDATE 4-Barry weakens to depression, moving inland into Mexico

The Mexican state of Veracruz was hit by heavy rains on Thursday after Tropical Storm Barry moved away from Mexico's major oil installations and weakened to a Tropical Depression.

Only one of Mexico's three major oil-exporting ports - Dos Bocas - remained closed, but state oil monopoly Pemex said it was unaffected by the storm.

Almost all of Mexico's crude oil exports, which totaled 1.275 million barrels per day (bpd) in April, are shipped to refineries on the Gulf Coast of the United States from the ports of Coatzacoalcos, Dos Bocas and Cayo Arcas.

 

The rains falling in the town of Actopan in Veracruz were more severe than those during Hurricane Karl, a Category 3 storm that battered the state in 2010, said town spokesman Rafael Alberto Moreno.

There is a risk that the Actopan River, one of the biggest in the state, might overflow and townspeople were being evacuated from their homes, he said.

Barry is expected to lose strength during the course of Thursday, and the tropical storm warning was discontinued, the U.S. National Hurricane Center (NHC) said in an advisory.

Veracruz is home to the Minatitlan refinery, Pemex's fifth-largest and the most recently modernized. It has the capacity to produce 245,000 bpd.

Pemex also has three petrochemical complexes and three gas processing complexes in the state.

Asked about the condition of Pemex's installations in the Gulf of Mexico, a company official texted: "Everything is OK."

The NHC said it expected three to five inches (7.6 to 12.7 cm) of rainfall, with maximum accumulations of 10 inches over parts of southern Mexico. A few more tropical storm-force gusts may continue before subsiding later Thursday, the center said.

Maximum sustained winds had decreased to 35 miles per hour (56 km/h).

Greek coalition party to decide whether to back government-sources

Greece's Democratic Left, the smallest party in the ruling coalition, will decide on Friday whether to continue in the government after a row over the closure of state broadcaster ERT, two party officials said on Friday.

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The party's lawmakers will meet at 0730 GMT on Friday to discuss their position, the officials told Reuters.

"The Democratic Left will decide whether it will continue to back the government or not," one official said.

 

Another party official, Dimitris Hatzisokratis, said it was not the party's intention to push the country to early elections.

UPDATE 4-Bank of Tokyo-Mitsubishi to pay N.Y. $250 mln for wire violations

The Bank of Tokyo-Mitsubishi UFJ has agreed to pay New York state $250 million for deleting information from $100 billion in wire transfers that authorities could have used to police transactions with sanctioned countries like Iran.

The settlement, announced on Thursday, is the latest example of New York state's chief financial regulator, Benjamin Lawsky, flexing the agency's muscle. Lawsky extracted a much bigger sum than the U.S. Treasury Department, which settled with the bank over sanctions violations in December 2012 for $8.57 million.

 

Lawsky has gone his own way before, drawing criticism from other regulators. Last year, when a group of government authorities were investigating Standard Chartered Plc, the New York regulator threatened to revoke the bank's state license, and stopped working with other agencies.

In August, Standard Chartered agreed to pay the state $340 million over transactions linked to Iran and other countries. Four months later, the bank settled with other agencies for $327 million.

At issue with Bank of Tokyo-Mitsubishi UFJ were 28,000 transactions the bank processed through New York between 2002 and 2007, according to a statement from New York Governor Andrew Cuomo.

For most of the transactions, Bank of Tokyo-Mitsubishi was not breaking sanctions rules. It was entering transactions known as "u-turns" that were legal from 1995 through 2008. In those transactions, an Iranian company or individual could send or receive dollar payments, but only if it used a nonsanctioned bank as its agent. Those payments would come from overseas, be processed in the United States, and then go back abroad.

Lawsky objected to the way Bank of Tokyo-Mitsubishi UFJ handled records for the transactions. Wire transfer systems flag transactions linked to sanctioned countries for further review. Bank of Tokyo-Mitsubishi UFJ stripped information from transfers, the statement said, to speed their processing. That stripping violated New York banking laws for record-keeping.

The bank's written materials instructed employees on how to delete or omit wire transfer information, according to the statement.

The bank, owned by Mitsubishi UFJ Financial Group Inc , said in a statement it reported the stripping on its own to authorities in 2007, and promptly stopped deleting or omitting information. It also said it has cooperated with regulators.

In December, Bank of Tokyo-Mitsubishi UFJ settled with the U.S. Treasury Department's Office of Foreign Assets Control (OFAC), which oversees sanctions violations. The bank agreed to pay $8.57 million for processing about 100 fund transfers in 2006 and 2007 that allegedly broke federal sanctions laws.

A Treasury spokesman said the department focused only on transactions that were apparent violations of federal sanctions laws.

The Federal Reserve, which regulates Bank of Tokyo-Mitsubishi UFJ, supported OFAC's $8.5 million penalty last year and worked with the bank and other regulators to be sure the compliance program was fixed, a Fed spokesman said.

Other banks have settled with authorities for violating laws related to sanctions. After settling with New York in August, Standard Chartered agreed to pay $327 million in a separate deal with other U.S. agencies to resolve similar accusations in December.

HSBC Holdings Plc agreed to pay $1.9 billion in a deferred prosecution agreement with the U.S. Justice Department in December over sanctions violations.

In the New York settlement, Bank of Tokyo-Mitsubishi UFJ agreed to hire an independent consultant for a year to evaluate risk controls relating to compliance in the New York branch and report to the state.

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The New York Department of Financial Services has also been scrutinizing independent consultants. On Tuesday, the agency said that Deloitte LLP's financial advisory unit will pay $10 million and refrain from new business with certain New York banks for a year.

The deal resolved accusations that Deloitte Financial Advisory Services omitted key information in a report to regulators after reviewing Standard Chartered's operations. The state said it found no evidence that Deloitte intentionally helped or conspired with the bank to launder money.

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Deloitte also agreed to reforms designed to end potential conflicts of interest. Lawsky said the independent consultant for Bank of Tokyo will have to agree to abide by those reforms.

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EU to decide who pays when banks fail

The European Union will seek on Friday to forge rules to force losses on large savers when banks fail, a sensitive reform that could shape how the euro zone deals with its sickly banks.

Finance ministers in Luxembourg will try to resolve one of the most difficult questions posed by Europe's banking crisis - how to shut failed banks without sowing panic or burdening taxpayers.

 

"The costs of future restructurings can't be wished away," said a senior EU official involved in the talks. "We need a mechanism to shift the burden away from taxpayers."

The European Union spent the equivalent of a third of its economic output on saving its banks between 2008 and 2011, plundering taxpayer cash but struggling to contain the crisis and in the case of Ireland, almost bankrupting the country.

But France and Germany are divided over how strict the new rules should be, with Paris worried that imposing losses on depositors could prompt a bank run.

A draft EU law that will form the basis of discussions recommends a pecking order in which first bank shareholders would take losses, then bondholders and finally depositors with more than 100,000 euros ($132,000) in their account.

That would make the harsh treatment of savers, which was part of Cyprus's bailout in March, a permanent feature of Europe's response to future banking crises. EU countries would be required to follow these rules when closing banks.

Finding a prompt solution is important as Europe tries to put more than five years of financial turmoil behind it and emerge from economic stagnation.

"We must act now while we still remember the crisis," Erkki Liikanen, a member of the European Central Bank's governing council, said in Brussels before the meeting.

RESISTANCE IN LONDON, PARIS

A central element to ensure the euro zone's long-term survival is a system to supervise, control and support its banks, known as banking union.

Common rules in the wider European Union are considered a stepping stone towards the euro zone's banking union.

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Agreeing EU-wide norms would address Germany's demand that European rules on closing banks be in place before the 17-nation euro zone's bailout fund can help banks in trouble.

Euro zone finance ministers agreed late on Thursday to set aside 60 billion euros to help banks via the fund, the European Stability Mechanism.

If agreed, the new EU rules would take effect at the start of 2015 with the provisions to impose losses coming as late as 2018.

Still, the idea has divided EU governments.

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Britain and France say countries should have the final word in deciding how to close banks and not be tightly bound by any new EU rules.

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But Germany, the Netherlands and Austria want regulations that will be applied in the same way across all 27 countries in the European Union. They fear that granting too much national leeway would undermine the new law.

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"Some flexibility might be necessary, but it shouldn't be too much," Joerg Asmussen, the German member of the European Central Bank executive board, told reporters, arguing that investors need to know the rules of the game.

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UPDATE 1-Greece to avoid funding problems if it delivers on bailout program-IMF

The International Monetary Fund on Thursday urged Greece to speedily deliver on its bailout program, adding that doing so would ensure the country encounters "no financing problems."

There is an ongoing review of the Greek bailout program, the IMF said on Thursday.

"If the review is concluded by the end of July, as expected, no financing problems will arise because the program is financed till end-July 2014," IMF spokesman Gerry Rice said in a brief statement.

 

The Financial Times reported on Thursday the IMF might suspend aid to Greece next month unless euro zone leaders plugged a funding gap in the Greek rescue program.

Reuters reported on Wednesday that European foot-dragging could leave Greece some 2 billion euros ($2.7 billion) short this year as some euro zone creditors were reluctant to roll over their Greek debt holdings.

Greece's creditors - euro zone countries, the European Central Bank and the International Monetary Fund - agreed last December that the bloc's 17 national central banks would replace some of the Greek bonds they hold with new Greek paper as the debt matures.

This measure, called the "rollover of ANFA holdings", was expected to spare Greece from having to redeem 3.7 billion euros of debt in 2013-2014 and 1.9 billion euros in 2015-2016.

But the bond rollover has hit a snag because some central bankers are worried that it might be seen as direct financing of the Greek government, Greek officials told Reuters. The law governing the ECB forbids it from such direct financing.

The Financial Times, quoting an unnamed source who it said was involved in the discussions, said the IMF had warned EU officials that the financing gap would require it to stop aid payments at the end of July.

"There is an ongoing review of the Greek program; the mission that concluded yesterday has made important progress; policy discussions have paused and are expected to resume by the end of the month," Rice said, responding to press enquiries.

UPDATE 1-U.S. senator says Booz Allen hired convict for classified job

Senator Bill Nelson said contractor Booz Allen Hamilton had hired an employee convicted of lying to the U.S. government for a position in which he would handle classified documents.

Nelson, a Florida Democrat, called on the Senate Intelligence Committee to conduct an investigation broadly into how contractors are handling employees with top secret clearance.

He said he is alarmed by the combination of this incident and the more recent revelation that a National Security Agency contractor who worked for Booz Allen Hamilton leaked sensitive government documents.

 

Nelson, in a letter to Senate Intelligence Chair Dianne Feinstein, said these incidents merit a probe "to determine more broadly how private contractors are managing the hiring and monitoring of employees who have top secret clearance from the government."

A spokesman for Booz Allen Hamilton declined to comment.

Nelson said he was reminded earlier this week of a situation in which Booz Allen Hamilton hired a man to work as a counter-threat finance analyst at MacDill Air Force Base in Florida.

Before being hired by Booz Allen Hamilton, the man had received one of the highest levels of security clearances despite having been previously convicted in 2008 of lying to government officials and sentenced to three years of probation, Nelson said in the letter.

The incident received media coverage in 2011. It is not clear exactly when Booz Allen Hamilton hired the man.

"Is there a pattern with these contractors that they are not minding the store?" Nelson separately told reporters.

Nelson said in his letter that he agrees with Feinstein that legislation may be needed to limit or prevent certain contractors from handling highly classified data. Feinstein last week called for that type of legislation.

He also said the Senate Intelligence Committee should probe how private contractors screen, hire and monitor employees who need top secret clearance.

S.Korean shipper STX Pan Ocean seeks protection from US creditors

The bulk shipper STX Pan Ocean Co Ltd filed for protection under U.S. bankruptcy law on Thursday to shield its assets from creditors in the United States, less than two weeks after filing for court receivership in South Korea.

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STX sought protection under Chapter 15 under the U.S. bankruptcy code with the federal bankruptcy court in Manhattan.

The company had previously said it needed protection because it faced "a liquidity crunch" that left it unable to obtain sufficient funds to repay its debt, which recently totaled about 5.51 trillion won (now US$4.81 billion).

 

In Thursday's filing, two court-appointed administrators for STX said the company has struggled with a shrinking profit margin amid a decline in the value of dry bulk shipping contracts. They said STX has several long-term contracts that will prove profitable and around which it intends to reorganize.

The filing seeks recognition of the Korean proceeding as a "foreign main proceeding," and to halt a variety of existing and potential litigation and claims in the United States.

Non-U.S. companies use Chapter 15 to block creditors who want to file lawsuits or tie up assets in the United States.

The case is In re: STX Pan Ocean Co, U.S. Bankruptcy Court, Southern District of New York, No. 13-12046.

UPDATE 2-Greek coalition in disarray, small party considers quitting

Greece's small Democratic Left party could pull out of Prime Minister Antonis Samaras's ruling coalition after talks to resume state television broadcasts collapsed, party officials said on Thursday, plunging the nation into fresh turmoil.

 

Lawmakers from the leftist party - which was angered by the abrupt shutdown of broadcaster ERT last week - will meet at 0730 GMT on Friday to decide whether to continue backing Samaras, who in turn warned he was ready to press ahead without them.

"I want us to continue together as we started but I will move on either way," Samaras said in a televised statement, vowing to implement public sector reforms demanded by lenders.

"Our aim is to conclude our effort to save the country, always with a four-year term in our sights. We hope for the Democratic Left's support."

Samaras's New Democracy party and its Socialist PASOK ally jointly have 153 deputies, a majority of three in the country's 300-member parliament, meaning they could continue together, but a departure of the Democratic Left would be a major blow.

Officials from all three parties ruled out snap elections.

At least two independent lawmakers have also suggested they would back Samaras's government, which came to power a year ago and has bickered ever since over austerity and immigration.

The latest crisis began nine days ago when Samaras abruptly yanked ERT off air, calling it a hotbed of waste and privilege, sparking an outcry from his two allies, unions and journalists.

After initially refusing to restart ERT, Samaras on Thursday complained he offered to re-hire 2,000 out of 2,600 ERT workers who were fired, a compromise "courageously" accepted by the Socialist PASOK party but rejected by the Democratic Left.

"We will no longer have black screens on state TV channels but we are not going to return to the sinful regime," he said.

"At this point we had a serious disagreement over ERT. I undertook efforts to restore unity and to find a solution. I did not respond to nasty comments."

Fotis Kouvelis, leader of the Democratic Left, in turn attacked Samaras for failing to comply with a court ruling this week ordering ERT back on air and said the issue at stake was far bigger than state television broadcasts.

"This issue is not a formality, it's not procedural, it is fundamentally an issue of democracy," said Kouvelis, whose party has 14 lawmakers in parliament. "We are not responsible for the fact that no common ground was reached."

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Evangelos Venizelos, leader of PASOK - which has heavily suffered from Greece's debt crisis and would lose further in a new election - also called on Kouvelis to stay in the coalition.

"The situation for the country, the economy and its citizens is especially grave," said Venizelos.

"We want the government to continue as a three-party government and we are asking Democratic Left to participate in re-establishing cooperation."

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'BEGINNING OF THE END'

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Greece's top administrative court on Thursday confirmed an earlier ruling suspending ERT's closure and calling for a transitional, slimmed-down broadcaster to go on air immediately.

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ERT remains off air despite Monday's court ruling ordering it back on. Much of the squabbling this week centred on Samaras wanting a transitional broadcaster run by only a few staff members while his two partners wanted ERT to reopen exactly as it was before until a newer version is launched.

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Samaras is under pressure to fire public sector employees to show Greece's EU and IMF lenders that it is sticking to promises to cut costs under its international bailout programme.

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Senior euro zone officials and the International Monetary Fund played down concerns on Thursday that Greece could face a shortfall in its finances, saying there was still time to remedy the situation.

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ERT workers meanwhile have continued broadcasting a 24-hour bootleg version on the Internet from their headquarters, where workers and unions have been protesting since last Tuesday.

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On Thursday, a ticker on the screen counted the hours, minutes and seconds since Greece's top administrative court, the Council of State, ordered the broadcaster back on air on Monday.

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Opposition lawmakers rejoiced over the crisis.

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"This is the beginning of the end," independent lawmaker Nikos Nikolopoulos tweeted, referring to Samaras's government.

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PRESS DIGEST-New York Times business news - June 20

The following are the top stories on the New York Times business pages. Reuters has not verified these stories and does not vouch for their accuracy.

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* The possibility of a bankruptcy filing by the city of Detroit has raised concerns about the fate of 62 classic cars managed by the city's historical society. ()

* The U.S. Federal Reserve, increasingly confident in the durability of economic growth, expects to start pulling back later this year from its efforts to stimulate the economy, the Fed Chairman, Ben Bernanke, said on Wednesday. ()

 

* Europe's top antitrust enforcer continued a crackdown on drug company efforts to keep low-cost generic versions of their medicines off the market, a campaign that is taking place on both sides of the Atlantic. ()

* George Zimmer, the founder of Men's Wearhouse Inc and a frequent presence in its commercials, was fired on the day of its shareholders' meeting. A disagreement between Mr. Zimmer and the board appeared to be the reason for the sudden dismissal, though it was not immediately clear what that disagreement was. ()

* The Philippines has the fastest-growing economy in East Asia. But unemployment is still rising and the number of people in poverty has barely changed in six years. ()

* Riverstone Holdings, a leading private equity firm focused on energy and power, announced on Wednesday that it had raised its largest-ever fund, a $7.7 billion vehicle that exceeds its $6 billion target. ()

* The British government is preparing to sell part of its holding in the Lloyds Banking Group and is weighing a breakup of the Royal Bank of Scotland, the chancellor of the Exchequer said. ()

* Sony Corp's Chief Executive Kazuo Hirai told shareholders on Thursday that movies and music were an indispensable part of the company, rejecting a renewed push by the American activist investor Daniel Loeb. ()

FCC's Alpine Germany files for insolvency

The German unit of FCC's Alpine Bau has filed for insolvency, following a similar move by its Austrian parent construction company on Wednesday.

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Alpine Bau Deutschland has operations in the Netherlands, Poland, Russia and the United Arab Emirates as well as Germany, and employs 1,500 people. It had sales of around 600 million euros ($804 million) in 2012.

"We have a clear goal of cleaning up Alpine. The insolvency proceedings... are an appropriate way to create the necessary basis for a future of the company," Alpine Bau Deutschland Chief Executive Frank Jainz said in a statement late on Wednesday.

 

The company said it was looking for a new investor. ($1 = 0.7461 euros) (Reporting by Georgina Prodhan; editing by Patrick Graham)

Lehman Europe creditors to get further $5.5 bln payout

More than 1,000 creditors of the European operations of failed U.S. investment bank Lehman Brothers will share a 3.5 billion pound ($5.5 billion) payout next week, its administrators said on Thursday.

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The payout means the recovery so far for creditors from one of the banking collapses at the heart of the 2008 financial crisis is 68.5 cents in the dollar.

 

PricewaterhouseCoopers, joint administrators for Lehman Brothers International (Europe), said a dividend of 43.3 percent of what creditors were owed - the second so far - would be paid on June 28.

The administrators for what is the biggest bankruptcy in history said in their last progress report in April that unsecured creditors could be paid in full and there could be surplus funds.

Tony Lomas, lead administrator of LBIE and partner at PwC, said the latest payout followed resolution of a number of multi-billion pound disputes with affiliates and a reduction in creditor claims reserves through settlements with major trading counterparties.

The second dividend adds to an initial 2 billion pound payment.

The collapse of Lehman Brothers, one of the biggest U.S. investment banks, in September 2008 plunged the global financial system into chaos. Its European arm, headquartered in London, was the largest and most complex part of the group because it was a hub for trading and investments.

The wind-up of its European arm has been one of the biggest and most complex administrations ever and still involves a large team of PwC and Lehman staff.

PwC said many more creditors have yet to agree their claims against LBIE and funds have been retained to pay the same 68.5 percent dividend to them when they do so.

It said a third dividend would be paid in the future, as assets continue to be realised and claims continue to be agreed. ($1 = 0.6386 British pounds) (Reporting by Steve Slater; editing by Patrick Graham)

Kodak strikes post-bankruptcy loan deal with banks

Eastman Kodak Co said on Thursday that it had reached a $895 million financing deal with three Wall Street banks that will help fund its rebirth as commercial imaging business after the former film pioneer emerges from bankruptcy.

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Affiliates of JPMorgan Chase & Co, Bank of America Corp and Barclays Plc will be joint lead arrangers for a senior secured term loan package of $695 million. The three banks will also arrange an asset-based revolving credit facility of $200 million.

 

Kodak will use the money to pay off loans that funded its bankruptcy as well as for working capital once it exits bankruptcy, which is expected later this year.

The loan agreement is contingent on approval from the U.S. Bankruptcy Court in Manhattan, which is overseeing the Chapter 11 reorganization of Rochester, New York-based Kodak.

On Wednesday Kodak said it would seek court approval for a $406 million rights offering, selling 34 million shares, or 85 percent of the equity in the reorganized company.

Proceeds from the rights offering would go to repay various creditors, including more junior second-lien creditors that would no longer receive equity in the reorganized company.

Creditors committed to investing in the rights offering are GSO Capital Partners, BlueMountain Capital, George Karfunkel, United Equities Group and Contrarian Capital, Kodak said.

Kodak sought protection from creditors in January 2012 because of high pension costs and after falling many years behind rivals in embracing digital technology in its photography business.

The company has since sold a variety of assets.

The case is In re: Eastman Kodak Co, U.S. Bankruptcy Court, Southern District of New York, No. 12-10202.

Builder Porr delays bond after Alpine insolvency

Austrian construction group Porr has abandoned for now a 150 million euro ($201 million) bond issue planned for the start of July after peer Alpine filed for insolvency, Chief Executive Karl-Heinz Strauss said on Thursday.

The move by Alpine Bau, the Austrian construction unit of Spanish group FCC, meant Porr would not now be able to sell the bond at the interest rate it wanted, he told Reuters in an interview.

 

"We have postponed our bond plan indefinitely," he said.

"Alpine's insolvency offers both risks and opportunities," Strauss said, reiterating his company could buy parts of its ailing rival and take on 3,000 to 4,000 workers in Austria.

He said he had no interest in Alpine's foreign business, saying it had too many "legacy burdens".

Alpine Bau GmbH, Austria's second-biggest construction firm, filed for insolvency on Wednesday with liabilities of up to 2.6 billion euros in what could become the country's biggest corporate collapse since World War Two.

Strauss said Porr, which swung back to profit last year, intended to reduce its debt load of nearly 600 million euros.

"In the next 24 to 36 months we will pass on to investors non-core property worth 700 million to 800 million euros," he said. ($1 = 0.7461 euros) (Writing by Georgina Prodhan and Michael Shields; editing by Patrick Graham)

Saab parent to appeal dismissal of $3 bln lawsuit vs GM

Dutch sports car maker Spyker NV said on Thursday it will appeal a U.S. judge's decision to dismiss its $3 billion lawsuit accusing General Motors Co of trying to bankrupt Swedish automaker Saab.

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Spyker, which now owns Saab, said in a statement posted on the company's website that it would appeal the decision following a "careful review" of the court's opinion. No further details were disclosed and Spyker Chief Executive Victor Muller was not immediately available to comment.

 

U.S. District Court Judge Gershwin Drain said on June 10, in tossing the lawsuit, that GM had a contractual right to approve or disapprove the proposed sale of Saab to China's Zhejiang Youngman Lotus Automobile Co.

Saab, one of Sweden's best-known brands, stopped production in May 2011 when it could no longer pay suppliers and employees. It went bust in December 2011, less than two years after GM sold it to Spyker.

Spyker sued GM in August 2012, seeking damages and accusing GM of trying to scuttle the deal with Zhejiang and eliminate a potential rival in the growing Chinese market.

Detroit emergency manager launches pension corruption probe

Detroit Emergency Manager Kevyn Orr is ordering a joint investigation into the city's two pension funds, in search of evidence of suspected fraud, corruption, waste and other possible malfeasance.

Orr, a restructuring attorney appointed to reduce the city's runaway debt, signed an order on Thursday that calls for the city's auditor general and inspector general to investigate the funds, which handle pension benefits for more than 20,000 retirees.

 

"There have been many questionable investments that have been made by the fund boards, and some of those investments were made without the advice of their financial adviser," Orr's spokesman, Bill Nowling, said on Thursday. "We want to find out what happened."

Orr called for a preliminary report to be issued within the next 60 days.

"The EM believes that any such waste, fraud, abuse, or corruption in the administration operation or implementation of Benefit Programs harms the City and its residents, and that identifying and correcting such waste, abuse, fraud, or corruption is necessary and appropriate to carry out the purposes" of the state law that created the emergency manager position, Orr wrote in the order.

The investigation takes place at a time when Orr is meeting with creditors, union leaders and others with an eye toward seeking financial concessions. Orr has said Detroit will end up in bankruptcy court if creditors do not accept considerable reductions in what the city owes.

The order comes on the same day unions are meeting with Orr's restructuring team to discuss the emergency manager's plan to shift retirees from city-operated healthcare to Medicare or the Affordable Care Act.

Shortfalls in the city's pension funds are among the most difficult problems facing Detroit, and pension payments to retirees are among issues being discussed in some of the meetings Orr and his staff are holding as he seeks to stave off a Chapter 9 bankruptcy filing.

This is not the first time corruption has been suspected in Detroit's pension systems. Earlier this month, Detroit-based investment adviser Chauncey Mayfield agreed to give back $3.1 million that U.S. regulators allege he stole from a pension fund for the city's police and firefighters.

The city's former treasurer, Jeffrey Beasley, also has been charged with taking bribes in exchange for steering business to Mayfield.

The government has taken action against others allegedly involved in pension-related corruption during the administration of former Detroit Mayor Kwame Kilpatrick. In March, two former Detroit city pension officials were indicted, a week after Kilpatrick was convicted for similar offenses.

UPDATE 3-Madoff trustee cannot sue big banks, U.S. court rules

The trustee seeking money for Bernard Madoff's victims suffered a big defeat as a federal appeals court rejected his bid to recover nearly $30 billion from JPMorgan Chase & Co. and other banks he accused of aiding in the swindler's fraud.

 

The 2nd U.S. Circuit Court of Appeals in New York said on Thursday trustee Irving Picard lacked standing to pursue a variety of claims on behalf of former Madoff customers.

It also said that because Picard "stands in the shoes" of the former Bernard L. Madoff Investment Securities LLC, he could not pursue other claims on behalf of the firm's bankruptcy estate over a fraud that the firm itself orchestrated.

Thursday's 3-0 decision, written by Chief Judge Dennis Jacobs, is a victory for JPMorgan, which had been Madoff's main bank, as well as Britain's HSBC Holdings Plc, Italy's UniCredit SpA and Switzerland's UBS AG .

Unless Picard successfully appeals, it also limits how much he will have to distribute to victims of Madoff's Ponzi scheme once the recovery process is complete. That process began soon after Madoff's Dec. 11, 2008 arrest, and may last years more.

"In dollars, it's a significant defeat, and it's a shame for defrauded victims because the purpose of a trustee is to recover funds for them," said Kathy Bazoian Phelps, a partner at Diamond McCarthy in Los Angeles and co-author of: "The Ponzi Book: A Legal Resource for Unraveling Ponzi Schemes."

According to his website, Picard has so far recovered $9.35 billion, slightly more than half of the $17.3 billion of customer principal he has said was lost.

Amanda Remus, a spokeswoman for Picard, said the trustee is reviewing the decision and is still pursuing more than $4 billion of separate claims against bank defendants in the federal bankruptcy court in Manhattan.

Picard is a partner at the law firm Baker & Hostetler.

"RED FLAGS"

Thursday's decision upheld rulings by U.S. District Judges Colleen McMahon and Jed Rakoff in Manhattan, which the 2nd Circuit called "well-reasoned."

Those rulings dismissed roughly $19 billion of claims against JPMorgan, $8.6 billion of claims against defendants including HSBC and UniCredit, and $2 billion of claims against UBS and many other defendants, the 2nd Circuit said.

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Picard had argued that the banks ignored "red flags" of fraud, often to win more fees and commissions for services they provided to Madoff and his firm, and should pay their "fair share" to cover victims' losses.

JPMorgan spokesman Joseph Evangelisti and UBS spokeswoman Karina Byrne said their respective banks are pleased with the decision. Marco Schnabl, a partner at Skadden, Arps, Slate, Meagher & Flom representing UniCredit, said he is also pleased with the decision. HSBC spokeswoman Juanita Gutierrez declined to comment.

"EQUITY HAS ITS LIMITS"

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Citing a legal doctrine known as "in pari delicto," Jacobs said Picard could not assert claims on the firm's behalf to recover for fraud caused by the firm itself.

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He also said the federal Securities Investor Protection Act, which helps protect customers of failed brokerages, does not let Picard assert a variety of claims on their behalf.

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The 2nd Circuit also set aside Picard's contention that giving him greater power would reduce the chance of "windfalls" for Madoff's enablers and increase recoveries for victims.

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"No doubt, there are advantages to the course Picard wants to follow," Jacobs wrote. "But equity has its limits; it may fill certain gaps in a statute, but it should not be used to enlarge substantive rights and powers."

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The judge added in a footnote that "it is not obvious why customers cannot bring their own suits" against the banks.

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Phelps, the attorney and author, said there could be hurdles, including whether customers have legal standing to bring particular claims, or "can afford to litigate against large, well-funded banks."

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Picard has filed more than 1,000 lawsuits against banks and other defendants to recover more than $103 billion, a sum inflated by triple damages on some claims.

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Madoff, 75, pleaded guilty in March 2009 and is serving a 150-year sentence in a North Carolina federal prison.

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Prosecutors have estimated his Ponzi scheme was valued at $64.8 billion, reflecting amounts customers supposedly held at his firm prior to his arrest.

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The cases are In re: Bernard L. Madoff Investment Securities LLC, 2nd U.S. Circuit Court of Appeals, Nos. 11-5044, 11-5051, 11-5175 and 11-5207.

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Blackstone settles Extended Stay lawsuit for $10 mln

Blackstone Group LP agreed to pay $10 million to settle a lawsuit that had sought $8.4 billion for its role in the sale and subsequent bankruptcy of hotel chain Extended Stay Inc.

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Citigroup Inc, an adviser to the private equity firm that took control of Extended Stay in a 2007 leveraged buyout, agreed to pay $200,000, according to a filing with the U.S. Bankruptcy Court in New York on Thursday. Bank of America Corp , which advised Blackstone, was also released from the lawsuits as part of the settlement.

 

The lawsuits stemmed from the 2009 bankruptcy of Extended Stay Inc, which creditors blamed on a leveraged buyout of the chain two years earlier.

In 2007, Blackstone sold the chain of about 680 hotels for $8 billion to a little-known private equity investor, David Lichtenstein. The settlement excluded Lichtenstein.

After Extended Stay filed for bankruptcy, a trustee acting for the benefit of its creditors filed five lawsuits in 2011.

The lawsuits alleged that Blackstone skimmed $2.1 billion from the sale of the chain. The trust also asked the court for $6.3 billion in punitive damages because it alleged Blackstone and others maliciously breached their duties to Extended Stay creditors.

In court papers on Thursday seeking approval of the settlement, trustee Finbarr O'Connor said the agreement was fair, given recent court rulings that strengthened the so-called safe harbor defense. The 2nd U.S. Circuit Court of Appeals, in New York, has given broad protections to prebankruptcy sales and transfers, making them very difficult for creditors to challenge.

As part of the settlement, the defendants agreed to aid the trustee in the remaining lawsuits.

O'Connor asked the court to consider approval of the Blackstone and Citigroup settlements at a hearing on July 18.

The Chapter 11 case is Extended Stay Inc, U.S. Bankruptcy Court, Southern District of New York, No. 09-13764; the adversary proceedings are Nos. 11-02254, 11-02255 and 11-02398.

Britons freed, Canadian jailed for 9 years in Cuban graft cases

Two British businessmen were released from custody in Cuba this week but a Canadian remained behind bars after courts delivered verdicts in two high-profile corruption trials, sources close to the cases said on Thursday.

Amado Fakhre and Stephen Purvis, the top executives of British investment and trading firm Coral Capital Group Ltd, were found guilty of minor charges and released for time served, according to the sources who spoke on condition of anonymity.

But Canadian businessman Sarkis Yacoubian, originally from Armenia and the owner of import firm Tri-Star Caribbean, and his cousin and associate, Lebanese citizen Krikor Bayassalian, were found guilty of bribery and other related charges.

Yacoubian, who provided evidence to the government after he was arrested and his company closed two years ago, was sentenced to nine years in prison. Bayassalian received a four-year prison term.

The four were tried in two separate cases last month.

Yacoubian, who along with Bayassalian is being held in a Cuban jail, plans to waive his right to an appeal and hopes to be transferred to Canada, his relatives told the Canadian Press news agency.

The Cuban government and the defendants' attorneys and family were not immediately available for comment.

Fakhre, who was born in Lebanon, was arrested in October 2011 when the company's offices were raided and closed and recently had been held in a Cuban hospital. Purvis had been behind bars since March 2012.

The sources said Purvis was free to leave the country, while Fakhre's status was unclear.

A trial date has yet to be set for the owner of another Canadian trading company, Cy Tokmakjian, who was taken into custody when his firm, the Tokmakjian Group, was raided and closed in September 2011.

The arrests of the foreign businessmen, part of a broad government campaign to stamp out corruption, sent shockwaves through Cuba's foreign business community where the companies were among the most visible players.

Until then, expulsions rather than imprisonment had been the norm for those accused of corrupt practices.

Dozens of Cuban state purchasers and officials, including deputy ministers, have been arrested and convicted as part of the government's investigation into the Cuban imports business.

Soon after taking over for his ailing brother Fidel in 2008, President Raul Castro established the comptroller general's office with a seat on the ruling Council of State, even as he began implementing market-oriented economic reforms.

The measure marked the start of the anti-corruption campaign. Since then, high-level graft has been uncovered in several key areas, from the cigar, nickel and communications industries, to food processing and civil aviation.

The Cuban government has been less successful, however, in tackling low salaries and lack of transparency, which contribute to the problem, according to foreign diplomats and businessmen.

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There is no open bidding in Cuba's import-export sector and state purchasers who handle multimillion-dollar contracts earn anywhere from $50 to $100 per month.

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Cuban officials blame U.S. sanctions for the lack of open bidding, accusing Washington of trying to scare off any foreign company interested in doing business with the Communist-ruled nation.

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Transparency International, considered the world's leading anti-graft watchdog, rates Cuba 58 out of 178 countries in terms of tackling corruption, ahead of all but eight of 33 nations in Latin America and the Caribbean.

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(Reporting by Marc Frank; Editing by Tom Brown and Paul Simao)

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Insurgency threat may dim Mozambique's shine for investors

An economic take-off in Mozambique driven by bumper coal and gas discoveries two decades after the end of a civil war is facing disruption from disgruntled former guerrillas who feel they have not benefited from the post-conflict dividend.

A public threat by the ex-rebel Renamo opposition party to paralyze central rail and road links has put the Frelimo government on alert and alarmed diplomats and investors.

 

A slide back into the kind of all-out war that crippled the former Portuguese southern African colony between 1975 and 1992 looks unlikely.

Nevertheless, Mozambique's rebirth as an attractive tourism and investment destination could lose some of its momentum after armed attacks in the last two months blamed on Renamo.

The raids in central Sofala province killed at least 11 soldiers and police and three civilians and came after Renamo leader Afonso Dhlakama returned with his civil war comrades to the Gorongosa jungle base where they operated in the 1980s.

"It does bring back all those fears of the war," said Joseph Hanlon, a senior lecturer at Britain's Open University and an expert on Mozambique.

Renamo, which signed a peace pact in 1992 with its former Marxist foe Frelimo, denied that it carried out a raid on an arms depot on Monday that killed seven soldiers. But on Wednesday it threatened to paralyze the main road through Sofala and the railway carrying coal exports to port.

There was no evidence by late Thursday that it had carried out the threat. Witness reports from Chimoio and Dondo on the Beira corridor railroad link indicated no immediate disruption.

"Everything here is absolutely tranquil. It is a normal day," Arnaldo Neves, Director of Production for Portuguese construction company Mota-Engil which is rehabilitating the railroad, told Reuters from Dondo railway terminal in Sofala.

Mozambican state railways spokesman Alves Cumbe said operations were continuing as normal on Thursday.

The Sena line to Beira port is used mainly by Brazil's Vale and London-listed Rio Tinto, which are among companies that have been developing Mozambique's coal deposits and offshore gas fields.

Vale, which is investing $4 billion in its Moatize coal mines near Tete and is the main user of the Sena line, declined to comment.

President Armando Guebuza's government said it was taking the Renamo threat seriously but insisted it would keep the country's strategic transport corridors open. Officials declined to detail specific measures taken to counter Renamo actions.

Renamo had claimed an earlier attack that killed four policemen in Sofala in April.

COMPLAINTS OF EXCLUSION

Renamo, originally founded with the help of white-ruled Rhodesia's intelligence services and then backed by apartheid South Africa, accuses Frelimo of maintaining a stranglehold over politics and the economy and stacking the election commission to ensure victory in a presidential vote next year.

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"Renamo and its followers think that the political system is not inclusive enough," said Ozias Tungwarara, head of the Africa Governance, Monitoring and Advocacy Project at the Open Society pro-democracy network founded by financier George Soros.

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Resentment at Frelimo's dominance of politics and elections since the end of the war has also been accompanied by opposition allegations that the party's leaders are hogging the spoils of the coal and gas bonanza.

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"There is a feeling that an elite is getting rich and becoming wealthy, and that others are not," Hanlon said.

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He saw Renamo's old military chiefs leading a campaign for Frelimo to cede to its former war foes a greater share of the national wealth, whether in state jobs or business patronage.

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Hanlon said Dhlakama and his fighters - which some estimates put at around 1,000-strong - could certainly create a security problem for the government army from their Gorongosa jungle base by raiding and sabotaging nearby road and rail corridors.

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"That central area is quite heavily forested. It's good guerrilla country. It's easy to attack traffic," he said.

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But he believed neither Renamo nor Frelimo had the military capacity to go back to fighting an all-out conflict of the kind that left Mozambique in ruins two decades ago.

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Hanlon saw "zero popular support" for war from a Mozambican population of 23 million which had come to appreciate an existence of peace but still remained among the poorest in the world, scraping by on an average wage of only $400 a year.

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CALL FOR "GIVE AND TAKE"

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But there are fears that even sporadic attacks could badly undermine recent economic gains.

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"It might start as a small fire now ... but a small group of determined, disgruntled people with some military training could still cause havoc and suffering," Tungwarara said, pointing to other debilitating insurgencies in Somalia and Mali.

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Held up as a post-conflict success story, Mozambique has emerged as one of the brightest stars in the "Africa Rising" narrative, enjoying growth rates of more than 7 percent.

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Attacks and disruption to key coal exports and transport corridors could badly choke the enthusiasm of investors, Tungwarara added.

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Hanlon said that if Renamo's "generals without soldiers" failed to make good on their threats to paralyze the country's logistics then the group's credibility was likely to suffer.

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But both believed Guebuza's government should try to defuse tensions by opening up economic and political opportunities for Renamo, for example by addressing its demands for a more independent and representative electoral authority.

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"The danger is that we will see increased polarization as we move towards the 2014 elections," said Tungwarara. "There is time to step back, but it requires genuine give and take".

(Writing by Pascal Fletcher; editing by Tom Pfeiffer)

Liberia sends first post-war peacekeepers to Mali

Liberia sent about 50 troops to Mali on Thursday to join the U.N. peacekeeping mission, a first for the West African nation since its 14-year civil war ended a decade ago.

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The 12,000-strong U.N. force, known as MINUSMA, will take over peacekeeping duties next month from an African regional mission deployed after France launched an offensive in January to drive Islamist rebels from northern Mali.

 

Liberian President Ellen Johnson Sirleaf, joint winner of the 2011 Nobel Peace Prize, urged the soldiers to be professional and disciplined during their mission.

"You are the pride of Liberia," Sirleaf told the troops at a ceremony in the capital, Monrovia.

The peacekeeping deployment is only the second in Liberia's history, after it sent peacekeepers to Democratic Republic of Congo in the 1960s.

The Mali mission is the first since it rebuilt its army from scratch after the civil war, which was characterized by the use of child soldiers by rival warlords and rampant human rights abuses.

Peacekeepers from the West African regional bloc ECOWAS played an important role in returning war-torn Liberia to stability.

"We are going to Mali to help our friends. They helped us during our war. If we are in the position to help, we need to do so," said Emmanuel Minarth, an officer with the contingent.

Former President Charles Taylor, who led Liberia for most of the civil war years, was jailed for 50 years by the International Criminal Court in May last year for helping the RUF rebels in neighboring Sierra Leone commit what the court called some of the worst war crimes in history.

(Reporting by Alphonso Toweh; Writing by Bate Felix; Editing by Daniel Flynn and Angus MacSwan)

French government's caution on pension reform a "mistake": union chief

President Francois Hollande's plan for a cautious reform of the pension system is not extensive enough, the head of France's largest union said on Thursday.

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Laurent Berger, who heads the reformist CFDT union, criticized Hollande as unions, employers and officials launched three months of talks on how to fix a pension system seen running a 20-billion-euro ($26 billion) deficit by 2020.

 

The debate is aimed at yielding recommendations that are non-binding for the government, but will serve as the basis for a draft law to be put before parliament in September.

On Sunday, the Socialist Hollande said he wanted adjustments to the system rather than an overhaul, as he tries to ease a strain on public finances without setting off street protests.

"The principles laid out by the president... are principles that should lead us toward a systemic reform of the pension system," he told journalists. "He is loath to go there. That's a mistake."

The remark showed disappointment from a traditional ally and reform advocate after Hollande said he did not want to "start from scratch" on the pension system, but work at the margins.

Despite threats by hardline unions to call protests if Hollande forces people to work longer for their pensions, opinion polls suggest many French people are eager for reform.

A survey in May showed two thirds of respondents wanted a "deep overhaul" of the pension system, while another this month showed a majority wanted to see the government carry out faster reforms to bolster the economy.

Hollande has said he prefers to eventually increase the number of years workers must pay into the public scheme to get a full pension beyond the current 41.5 years, and tasked unions and employers to agree on the pace.

But he repeated his objection to raising the legal retirement age above 62, going against the wishes both of the MEDEF employers' union and the European Commission.

($1 = 0.7590 euros)

(Reporting By Nicholas Vinocur and Yann Le Guernigou; editing by Ron Askew)

Iran seizes two UAE fishing boats in Gulf, arrests 13

Iran has detained 12 United Arab Emirates nationals and one Indian who were aboard two boats which crossed into what Iran claims as its territorial waters in the Gulf, the English-language Press TV reported on Thursday.

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"The (Iranian) forces at Abu Musa Marine Patrol Base detected two intruding UAE vessels while fishing in the Persian Gulf waters and issued the order for capturing them," Press TV quoted base commander Colonel Ali Vesali as saying.

 

Vesali said those arrested were transferred to a military dock, without giving further details.

Political relations are strained between the two oil-rich countries which face each other across the Gulf.

The three islands of Abu Musa and Greater and Lesser Tunb are claimed by both countries but have been held by Iran since 1971, shortly before the seven Gulf emirates gained full independence from Britain and formed the UAE, now allied with Washington.

In May, the United Arab Emirates criticized a visit by Iranian lawmakers to the disputed islands.

(Reporting by Zahra Hosseinian; Editing by Michael Roddy)

Islamists to rally for Mursi as Egyptian tensions rise

Islamist supporters of Egyptian President Mohamed Mursi will rally in Cairo on Friday in a show of approval for him to upstage opposition protests planned to mark his first year in office at the end of the month.

Preparations for renewed street action after some months of calm have raised fears of violence of the kind that has punctuated the two-and-a-half years since Hosni Mubarak fell.

 

Mursi's opponents, who say at least 13 million people have signed a petition calling on him to step down, hope protests on June 30 will force him out. Their demand has angered Islamists who see it as an undemocratic bid to remove an elected leader.

His allies will rally after Friday prayers in Cairo.

A year after Mursi won election - with 13.2 million votes - the split between his supporters and a diverse opposition that accuses his Muslim Brotherhood of trying to Islamise the state is deeper than ever. It has fuelled political instability that is hampering Egypt's recovery from a deep economic crisis.

Tensions between Mursi's supporters and opponents spilled over into violence outside Cairo this week. Around 100 people have been injured in scattered skirmishes triggered by Mursi's decision to appoint more Islamists as provincial governors.

Rhetoric has grown more toxic in recent days: one Islamist cleric referred to Mursi's opponents as "infidels" during a rally attended by the president last week. The opposition are billing it as Mursi's last days in office, hoping for a repeat of the January 25 uprising that toppled Mubarak in 2011.

"There are numerous saboteur forces which aim to bring down the state," said Khaled al-Sherif of the political wing of al-Gamaa al-Islamiya, a once armed Salafist group that backs Mursi.

But Egypt's biggest Salafist force, the Nour Party, is not taking part. It has warned of "an imminent collision" between Egyptians and called on both sides to give ground - Mursi by appointing a cabinet for national unity and the opposition by switching its focus to elections from street protests.

MUTUAL MISTRUST

Grievances have been stirred by economic hardship as the Mursi administration has struggled to attract foreign tourists and investment, confront a budget crisis and stem a slide in a local currency now at record lows against the dollar.

Islamists say the opposition have rebuffed Mursi's offers of power-sharing and want to thwart him by fomenting instability.

"My real worry is that tomorrow will be another round of spreading hatred: accusations of being infidels and being against Islam," said Khaled Dawoud, spokesman for the National Salvation Front, an alliance of liberal and leftist parties.

Along with Mursi and the Brotherhood, one less obvious target of the wrath of some protesters is the United States and, specifically, its ambassador to Cairo, who this week suggested they would do better to improve opposition organizations than risk violence trying to oust a president who was fairly elected.

In a speech on Tuesday, Anne Patterson responded to "conspiracy theories" among disappointed liberals that Washington secretly backed a Brotherhood takeover of Egypt.

"This is the government that you and your fellow citizens elected," she said. "Even if you voted for others, I don't think the elected nature of this government is seriously in doubt.

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"Egypt needs stability to get its economic house in order, and more violence on the streets will do little more than add new names to the lists of martyrs. Instead, I recommend Egyptians get organized."

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Prominent businessman Naguib Sawiris shot back on Twitter: "Madam Ambassador, ... Please bless us with your silence."

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Other social media postings were less polite. And the National Association for Change, among the organizers of the June 30 rallies, issued a statement complaining of Patterson's "blatant interference" in Egyptian domestic affairs.

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(Additional reporting by Shaimaa Fayed and Omar Fahmy; Editing by Mark Heinrich)

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