GLOBAL MARKETS-Stocks slip as Wall St weighed by banks; dollar down vs yen, euro

A measure of global equity markets edged lower on Thursday, weighed by a decline on Wall Street following a slew of corporate earnings, while the dollar fell against rival currencies although the dip was viewed as temporary.

On Wall Street, the S&P 500 pulled back from record levels following a round of disappointing earnings as financial stocks led the way lower.

After a lackluster start to the new year on concerns stock valuations may be over-extended, the S&P 500 had rallied 1.6 percent in the prior two sessions to set its first record high since Dec. 31.

"We've made a nice run and the market is entitled to consolidate and use sort of a 'wait-and-see' attitude as far as earnings are concerned," said Terry Morris, senior equity manager for National Penn Investors Trust Company in Reading, Pennsylvania.

The MSCI all-country world index was down 0.1 percent at 406.65.

The dollar fell against the euro and the yen, pressured by a data showing a jump in U.S. continuing jobless claims but losses were viewed as temporary after two days of gains as the greenback's uptrend remained intact.

Treasuries prices gained after U.S. inflation data came in as expected and amid strength in German government debt.

U.S. consumer prices rose by the most in six months in December but were in line with expectations, after producer price data on Wednesday surprised some investors by rising more than expected.

An unexpected drop in Australian employment boosted demand for Treasuries overnight. German bunds also rallied.

Treasuries extended their gains after the Philadelphia Fed's index of business conditions in the U.S. Mid-Atlantic region fell to its lowest level since April.

Benchmark 10-year Treasuries were last up 10/32, with the yield at 2.8469 percent.

The dollar fell to 104.28 against the yen, erasing a rebound that came after the greenback was battered by the surprisingly weak December U.S. non-farm payroll report at the end of last week. On Monday, the dollar fell to a four-week low of 102.85 against the yen.

The Australian dollar, meanwhile, tumbled against the U.S. unit to its lowest since August 2010 after a surprise fall in Australian employment raised the possibility of another cut in interest rates from the Reserve Bank of Australia.

_0">

FINANCIALS DRAG WALL ST

Financials were the biggest drag on Wall Street after both Citigroup Inc and Goldman Sachs reported quarterly profits hit by lower bond trading revenue, with Goldman's earnings falling 21 percent and Citigroup's missing expectations.

The results followed fairly positive reads on the sector from JPMorgan Chase & Co, Bank of America and Wells Fargo & Co.

_4">

Goldman's stock slid 2.2 percent to $174.79 and ranked as one of the Dow's biggest decliners, while Citigroup dropped 4.1 percent to $52.74. The S&P financial sector index fell 0.7 percent, the biggest loser among the S&P 500 sectors.

_5">

"This group is very tied to the economy, and it makes it difficult to argue that we could see a higher GDP ahead, given these," said Paul Nolte, managing director at Dearborn Partners in Chicago.

_6">

"The earnings picture, along with some recent data, suggests we haven't made it out of the very slow growth rate that we've been seeing."

_7">

The Dow Jones industrial average was down 76.52 points, or 0.46 percent, at 16,405.42. The Standard & Poor's 500 Index was down 4.20 points, or 0.23 percent, at 1,844.18. The Nasdaq Composite Index was up 0.21 points, or 0.00 percent, at 4,215.09.

_8">

European equities edged lower to steady just below a 5-1/2-year high, hurt by a string of losses in the retail sector after corporate reports but receiving support from miners.

_9">

The MSCI world index, which strips out the recently weak emerging markets, fell 0.2 percent..

_10">

In commodities markets, Brent crude oil fell below $107 a barrel as expectations of more supply from the Middle East and North Africa outweighed news of a large drop in U.S. crude stockpiles.

_11">

Huge volumes of crude from Iran and Libya have been blocked by political and civil disputes, but both countries may soon be able to send more into markets that are already well supplied.

_12">

Time Warner to relocate New York headquarters to cut costs

Time Warner Inc will relocate its Manhattan corporate headquarters to the Hudson Yards development from Columbus Circle in a move to bring operations under one roof and cut costs, the company said on Thursday.

_0">

The media conglomerate that includes HBO and Warner Bros said it sold the space it owns in the Time Warner Center at Columbus Circle for $1.3 billion to real estate company Related Companies, an entity owned by the Abu Dhabi Investment Authority (ADIA) and fund management company GIC.

Time Warner will lease the office space at Columbus Circle until early 2019. Additionally, the media company made an undisclosed financial commitment to Related Companies and Oxford Properties Group, the developers behind the Hudson Yards, to relocate all of its divisions including HBO and CNN to the west side of Manhattan.

"By consolidating our space to Hudson Yards ... we will be able to reallocate substantial savings to our primary business," Jeff Bewkes, chief executive of Time Warner, said in a statement.

Time Warner currently owns or leases space in seven buildings.

It moved to Columbus Circle - a mix of office space, a shopping mall, condominiums, and the Mandarin Oriental Hotel - in 2004.

UPDATE 2-UK to pay Veolia to destroy Syrian arms chemicals

Britain said on Thursday it will pay France's Veolia Environnement to incinerate 150 tonnes of Syrian poison gas precursors in northern England, the first deal for a private firm to help destroy Syria's chemical arms programme in the UK.

Facing the threat of U.S. air strikes, the government of Bashar al-Assad last year promised to dismantle its chemical arsenal, telling the Organisation for the Prohibition of Chemical Weapons (OPCW) it had 1,300 tonnes of such weapons.

Foreign powers have scrambled to find countries to destroy the chemicals. The most toxic are first to be processed on board a U.S. ship. Less dangerous precursor chemicals are to be destroyed commercially at industrial facilities.

Britain agreed in December to destroy part of Syria's chemical weapons stockpile and to escort Scandinavian ships transporting the toxic cargo.

The industrial-grade chemicals, which are of the type used routinely in the pharmaceutical industry, will be processed at Veolia's high-temperature incineration plant at Ellesmere Port, near Liverpool on the west coast of northern England.

"It has been agreed that Veolia will facilitate the destruction of this material under an existing contract with the Ministry of Defence," said a spokesman from Britain's Foreign Office.

Estelle Brachlianoff, Veolia's executive vice-president, UK & Northern Europe, confirmed her company had won the work.

"We will continue to work closely with the Ministry of Defence and relevant UK authorities to ensure the safe destruction of these chemicals," she said in a statement.

Neither side said how much the new deal was worth.

Under a tight deadline agreed with the United States and Russia, Damascus has until the middle of this year to dismantle its entire chemical weapons programme.

The removal and destruction of the most dangerous chemical agents is supposed to be finished earlier, but the head of the OPCW said on Thursday that deadline was likely to slip.

A source familiar with the matter told Reuters earlier on Thursday that the British government was expected to award another, bigger contract for the destruction of Syrian chemicals at a later date.

UPDATE 3-J&J to sell slow-growing diagnostics unit to Carlyle

Johnson & Johnson said on Thursday it would sell its ortho clinical diagnostics unit to buyout firm Carlyle Group LP for $4.15 billion, shedding a slow-growing business to focus on more lucrative products.

A major deal in the private equity world, the sale is small change for J&J, which has a market value of $267 billion and assets spanning pharmaceuticals, medical devices and consumer products. Analysts said the move highlighted J&J's determination not to waste resources on unloved divisions.

"Now with this divestiture nearly complete, we're inclined to believe (J&J) will continue to strategically prune its business segments and use the proceeds to return cash to shareholders or invest in higher-growth assets," Leerink analyst Danielle Antalffy wrote in a note.

J&J's diabetes business, which includes LifeScan blood glucose meters and Animas pumps, could be the next business to go, given slowing sales growth and weak margins, Antalffy said.

J&J shares were down marginally at $94.53 in afternoon trading on the New York Stock Exchange.

Reuters reported in December that Carlyle was nearing a deal to buy the business, trumping a joint bid from Blackstone Group and Danaher Corp.

Carlyle was attracted to the unit's potential to grow in emerging markets, according to a person familiar with the firm's thinking who was not authorized to speak publicly on the matter.

Washington, D.C.-based Carlyle plans to reinvigorate the unit's product lines, invest further in research and development, and grow the sales force, the person added.

J&J said in January 2013 that it was considering a sale or spinoff of the unit, whose products include equipment for laboratory diagnostics and blood transfusion screening.

J&J's businesses typically rank first or second in their markets. The diagnostics unit was ranked fifth among competitors based on sales, according to Thomson Reuters data.

"This transaction is a result of our disciplined approach to portfolio management in order to achieve the greatest value for Johnson & Johnson," Chief Executive Alex Gorsky said in a statement.

Drugmakers around the world are getting rid of non-core businesses as a way to cut costs in the face of pricing and reimbursement pressures from cash-strapped governments.

"I don't get the sense that they're going to follow the path of a Pfizer Inc and Bristol-Myers Squibb Co and kind of break up further. My sense is they're probably going to do some more of this slight restructuring," Morningstar analyst Damien Conover said.

The deal is Carlyle's biggest healthcare investment since it bought Manor Care Inc, a nursing, hospice and home health services provider, in 2007 for $6.3 billion.

Corporate carve-outs represent complex transactions for private equity as the acquired units can be deeply integrated in a parent company's finance, technology, logistics and human resources operations.

Carlyle, however, has experience with such carve-outs. In February 2013, it acquired DuPont's performance coatings business for $4.9 billion. In December 2012 it acquired, together with BC Partners Ltd, the former Hamilton Sundstrand industrial products businesses of United Technologies Group for $3.46 billion.

_0">

Carlyle, which was advised on the J&J deal by Barclays and Goldman Sachs, said it had secured committed debt financing from Barclays, Goldman Sachs, Credit Suisse, UBS and Nomura. Latham & Watkins LLP acted as legal advisers to Carlyle.

_1">

JPMorgan, Cravath, Swaine & Moore LLP and Baker & McKenzie LLP advised J&J.

_2">

The companies said the deal was expected to close in mid-2014.

_3">

Mexico budget airline VivaAerobus files to go public

Mexican low-cost airline VivaAerobus filed a prospectus on Thursday to list shares on Mexico's stock exchange for the first time.

_0">

The Monterrey-based group launched in 2006 and is a venture of Mexican transport company Grupo IAMSA and the family behind the Irish low-cost airline Ryanair.

Vivaaerobus gave no details on when it hoped to offer the shares nor how many it would sell.

The airline in October said it had ordered 52 Airbus A320-family jets worth $5.1 billion.

Barclays, Banorte and HSBC are co-bookrunners on the deal.

UPDATE 1-Bank of England discussed currency rate-setting 18 months before probe

The Bank of England discussed with top London currency dealers their process for setting foreign exchange rates more than a year before a global investigation into alleged manipulation, according to a document provided to Reuters by the bank.

The document, supplied in response to a freedom of information request for details of a meeting on April 23, 2012 of the chief dealers subgroup of the London Foreign Exchange Joint Standing Committee, said there was a brief discussion of "processes around fixes" - referring to the daily setting of benchmark exchange rates - and "extra levels of compliance".

Two sources with knowledge of the meeting said the traders told the BoE about online chatroom use in the run-up to the daily rate-setting. It was not clear how much detail of this the traders provided at the meeting.

The subgroup, set up for banks and brokers to discuss broad currency market issues, met at the London offices of French bank BNP Paribas.

The time lag between the start of the global probe and the BoE's meeting, at which sources told Reuters traders had disclosed they were exchanging information via chatrooms about client positions, raises questions about whether the central bank should have referred this to the regulators.

Britain's market watchdog, the Financial Conduct Authority, began enquiries in the first quarter of 2013, but did not formally open an investigation until October when the U.S. Department of Justice also launched an investigations into the largely unregulated $5.3 trillion-a-day market in October 2013.

A source close to the UK probe said the FCA only became aware of issues raised at the BoE's April 2012 meeting several months later.

Asked on Thursday whether it had followed up the discussion, a spokesperson for the BoE said: "I cannot add to what is stated in the record of the meeting."

The BoE also declined to give any specific details of what was discussed. The minutes of the meeting say only: "There was a brief discussion on extra levels of compliance that many bank trading desks were subject to when managing client risks around the main set piece benchmark fixings, eg WMR."

The key benchmark, known as the WM/Reuters or "London fix", relates to several exchange rates including the euro, sterling, Swiss franc and yen. They are compiled using data from Thomson Reuters and other providers, and are calculated by WM, a unit of State Street Corp.

Thomson Reuters is the parent company of Reuters News, which is not involved in the fixing process.

The WM/Reuters rate set at 4 p.m. London time is considered the benchmark by many because of the large amount of foreign exchange trading which is done in London.

In response to a previous enquiry from Reuters, the BoE said the record of the April 2012 meeting did not show "any discussion of actual or alleged manipulation of FX benchmarks".

THE LONDON FIX

_0">

Benchmark foreign exchange rates, often referred to as fixes, are used to price investments and deals and relied upon by companies, investors and central banks around the world.

Groups of senior currency traders are alleged to have shared on Bloomberg chatrooms with names like "The Cartel" and "The Bandits' Club" market-sensitive information surrounding the popular currency rate benchmarks known as "the London fix".

_2">

This has prompted a global investigation into allegations of market manipulation and resulted in the firing or suspension of several traders at major banks.

_3">

Britain's Treasury Select Committee could also decide to look into the role of the BoE, depending on the outcome of the investigation, a spokesperson for the parliamentary committee told Reuters.

_4">

Sources with knowledge of the BoE meeting say traders flagged the use of chatrooms because banks were reviewing their policies as a result of allegations that dealers had manipulated the global interest rates known as Libor. That scandal has so far cost banks $6 billion in settlements and seen the first suspects brought to court.

_5">

One of the dealers in attendance was Rohan Ramchandani, the head of European spot currency trading at Citigroup. He was fired by the bank last week, according to sources with knowledge of the matter. Citi declined to comment.

_6">

The BoE said James Pearson from Royal Bank of Scotland , Niall O'Riordan from UBS and BoE representatives Martin Mallet and James O'Connor were also present at the meeting. O'Riordan from UBS has since been suspended, according to a source with knowledge of the matter.

_7">

Citigroup, RBS and UBS declined to comment. None of the traders were available for comment, and a spokesperson for the BoE said its staff were unauthorised to talk to the press.

_8">

The investigations into alleged currency market rigging intensified this week as U.S. regulators descended on Citigroup's London offices and Deutsche Bank suspended "multiple" traders in New York.

_9">

U.S. judge rejects deal to end Detroit swap agreements

A U.S. bankruptcy judge on Thursday rejected a deal for Detroit to end costly interest-rate swap agreements with two investment banks, potentially eliminating a source of cash for the bankrupt city.

_0">

Ending the swaps with UBS AG and Bank of America Corp's Merrill Lynch Capital Services for $165 million - a 43 percent discount - was a key component of Detroit emergency manager Kevyn Orr's plan to adjust the cash-strapped city's finances through the municipal bankruptcy process.

Judge Steven Rhodes, who is overseeing the city's historic bankruptcy case, said Detroit was likely to succeed with some potential challenges to the validity of the swaps, which were used to hedge interest-rate risk for some of the $1.4 billion of pension debt the city sold in 2005 and 2006. He also said the $165 million payment to end the swaps was "too high a price to pay."

Rhodes denied Detroit's plan to finance the swap termination through a $285 million loan with Barclays PLC, but the judge said the city could still borrow $120 million to improve services.

UPDATE 2-Canada loses patience on Keystone XL, tells U.S. to decide

Canada bluntly told the United States on Thursday to settle the fate of TransCanada Corp's proposed Keystone XL pipeline, saying the drawn-out process on whether to approve the northern leg of the project was taking too long.

The hard-line comments by Foreign Minister John Baird were the clearest sign yet that Canada's Conservative government has lost patience over what it sees as U.S. foot-dragging.

Baird also conceded that Washington might veto the project, the first admission of its kind by a Canadian government minister.

The 1,200-mile (1,930-km) pipeline would carry 830,000 barrels a day from the Alberta tar sands in western Canada to the U.S. Gulf Coast. Ottawa strongly backs Keystone XL, which it says would create jobs and provide a secure supply of oil to Canada's closest ally and trading partner.

"The time for Keystone is now. I'll go further - the time for a decision on Keystone is now, even if it's not the right one. We can't continue in this state of limbo," Baird said in a speech to the U.S. Chamber of Commerce.

Although the State Department is responsible for ruling whether the pipeline meets the national interest, President Barack Obama has made clear he will make the final decision.

Obama is under heavy pressure from environmental activists to veto the northern leg, and Washington seems in no hurry, despite the growing irritation in Ottawa. Canada is the largest single supplier of energy to the United States.

The State Department issued a largely favorable initial environmental impact assessment in March 2013, which was followed by a public comment period. On paper, at least, the department should have issued an updated impact assessment and then a final recommendation by the end of 2013.

But the timetable has slipped badly, and political observers expect Obama will act later this year, possibly after midterm congressional elections on Nov. 4.

White House spokesman Jay Carney referred questions about Baird's comments to the State Department, citing the current review. When a decision is made, it will be announced, he told reporters.

Canadian Prime Minister Stephen Harper said earlier this month that Obama had "punted" the decision but expressed confidence that the United States would eventually approve the pipeline.

Last September, he told a New York audience that the logic behind the pipeline was "simply overwhelming" and said "you don't take 'no' for an answer."

Green groups say building the pipeline will speed up extraction of oil from the tar sands - a process that consumes more energy than regular drilling.

Canada has long promised to unveil rules on curbing greenhouse gas emissions from the oil sands. Obama said last July that Canada could be doing more to curb emissions, which some Canadian politicians took as a hint that he wanted to see the new rules before making a decision on Keystone XL.

Baird's comments made it clear this would not be the case. Harper told the Global News television network last month that he was prepared to work with the United States on a joint regulatory regime to cut emissions and hoped this could be done "over the next couple of years".

_0">

A poll by Nanos Research this week said support for the pipeline in Canada had slipped. It said 47.5 percent of Canadians had a positive or somewhat positive impression of the project, compared with 60.1 percent in April 2013.

Canadian-born rock star Neil Young this week played a series of concerts to raise money for an aboriginal group which is trying to prevent the expansion of the oil sands.

_2">

Baird, who is due to meet U.S. Secretary of State John Kerry on Friday, said that if Keystone XL were approved, less oil would have to be shipped by rail.

_3">

A train carrying crude derailed in eastern Canada earlier this week. On Dec. 30, an oil train hit a derailed car from a grain train in a fiery crash in North Dakota. Earlier in the year, 47 people died in Quebec when a train pulling oil tanker cars derailed and exploded in the small town of Lac-Megantic. (Additional reporting by Jeff Mason in Washington; Editing by Andre Grenon and Jonathan Oatis)

_4">

UPDATE 1-China's Nu Skin probe drags down Herbalife, USANA too

China's regulators launched probes into skincare products maker Nu Skin Enterprises Inc after local media questioned the U.S. company's business practices, dragging down shares of several retailers that use similar distribution models.

Nu Skin shares shed a third of their market value by Thursday afternoon. Shares of nutritional supplements maker Herbalife Ltd fell 10 percent, while those of USANA Health Sciences were down 12 percent.

Earlier Thursday, the Xinhua news agency said the State Administration for Industry and Commerce (SAIC) ordered local authorities to investigate a report in Communist Party mouthpiece, the People's Daily, alleging Nu Skin had been exaggerating its influence and creditworthiness in brochures and organizing "brainwashing" gatherings.

Short sellers and other critics have accused companies such as Herbalife, USANA and Nu Skin of running illegal pyramid-type schemes, questioning their distribution model where distributors make money not only from their own sales, but also from those by people they recruit to become distributors themselves.

In 2012, short seller Andrew Left's Citron Research said Nu Skin's direct-selling business in China was actually "pyramid-selling" and was illegal under Chinese law.

He accused USANA of the same practices in 2013.

The most publicized attack against a nutritional products maker and distributor came from activist investor Bill Ackman, who accused Herbalife in December 2012 of running a pyramid scheme and took a $1 billion short position in the company.

Short sellers make money when the stock price of a company drops. They sell borrowed shares in the hope of buying them back at a lower price and return them to the lender, and gain from the difference in price.

Xinhua, China's state news agency, quoted on Thursday an SAIC spokesman as saying the administration would take legal steps against any violations if the probes showed the media reports were factual.

"We are aware that Chinese regulators have now initiated investigations to review issues raised by recent news reports," Nu Skin said in a statement later in the day.

Herbalife and USANA could not be immediately reached for comment.

Nu Skin said it started its own review of its China operations.

The company said the investigation could hurt China revenues, but added that it was too early to say if its previous forecast would be affected.

The company's sales in Greater China more than tripled to $464.6 million in its quarter ended Sept. 30. The region accounted for about half of total sales.

Nu Skin said earlier in the day that the People's Daily article published on Wednesday contained "inaccuracies and exaggerations that are not representative of Nu Skin's business in China." The company said it did not believe "that the article was the result of any particular government inquiry."

State media took many foreign firms to task last year over pricing, poor quality and shoddy customer service, including Starbucks Corp, Apple Inc, Samsung Electronics , the KFC restaurants of Yum Brands Inc and British drugmaker GlaxoSmithKline PLC.

U.S. govt warns merchants on methods used by Target hackers

The U.S. government sent a confidential, 16-page technical bulletin to retailers and other merchants on Thursday that describes the malicious software and techniques used to attack Target Corp late last year.

_0">

The report provides steps to identify the malicious software used by criminal hackers that went undetected by anti-virus software when it infected Target's network, according to Tiffany Jones, a senior vice president with the security intelligence firm iSIGHT Partners, which helped draft the document.

"This report was generated so that we could get it into the hands of commercial entities so that they had information they needed to protect themselves," she told Reuters in an interview.

US STOCKS-Dow, S&P 500 ease as bank earnings disappoint

The Dow and S&P 500 dipped on Thursday, led by financial shares after a round of disappointing earnings from the sector.

The S&P 500 pulled back from record levels and was nearly flat for the week.

Financials were the biggest drag on the market after both Citigroup Inc and Goldman Sachs Group Inc reported quarterly profits hit by lower bond trading revenue, with Goldman's earnings falling 21 percent and Citigroup's missing expectations.

The results followed fairly positive reads on the sector from JPMorgan Chase & Co, Bank of America Corp and Wells Fargo & Co.

Goldman's stock slid 2.1 percent to $175.06, one of the Dow's biggest decliners, while Citigroup dropped 4.1 percent to $52.75. The S&P financial sector index fell 0.7 percent, making it the biggest loser among the S&P 500 sectors.

Given last year's 30-percent gain for the S&P 500, the market doesn't need much of a catalyst for selling, said Uri Landesman, president of Platinum Partners in New York.

"I think you could see a ratchet downward. It's pricing in just a lot of rosiness and a lot of enthusiasm, and the odds are that the news isn't going to be good enough to sustain that," he said.

The Dow Jones industrial average fell 69.99 points or 0.42 percent, to 16,411.95, the S&P 500 lost 3.41 points or 0.18 percent, to 1,844.97 and the Nasdaq Composite added 1.244 points or 0.03 percent, to 4,216.128.

With results in from just 6 percent of S&P 500 companies, just 48 percent of earnings are beating expectations, below the long-term average of 63 percent for a full season.

UnitedHealth Group Inc was the Dow's biggest decliner, falling 2.5 percent to $72.97 even as the largest U.S. health insurer reported a higher fourth-quarter profit and said 2014 earnings would improve.

CSX Corp shares sank 7 percent to $27.17 a day after the U.S. railroad reported profits that missed expectations.

After a lackluster start to 2014 on concerns that stock valuations may be too high after last year's rally, the index surged 1.6 percent over the past two sessions to close at a record high on Wednesday, its first since Dec. 31.

The stock of Best Buy Co Inc plunged 28.2 percent to $26.99, easily the S&P 500's worst performer. The world's largest consumer electronics chain reported a drop in holiday sales and forecast a bigger-than-expected decline in quarterly operating margins.

_0">

In the latest economic data, the Consumer Price Index rose 0.3 percent in December while the core CPI, which strips out volatile food and energy prices, edged up only 0.1 percent, suggesting underlying inflation was muted.

In the deal arena, Apollo Global Management LLC said it would buy CEC Entertainment Inc, the parent of the Chuck E Cheese restaurant chain, for about $948 million. CEC Entertainment's stock jumped 12.9 percent to $54.66. In contrast, Apollo Global's shares were up 0.4 percent at $35.88.

Suvretta cites big gains with J.C. Penney short, consumer stocks

Suvretta Capital Management, founded by a former portfolio manager for billionaire investors George Soros and Steven A. Cohen, told clients on Thursday that its bet against shares of J.C. Penney Company Inc. helped contribute to solid returns in the last two years.

"On the short side, we have now generated profits three times (generating a total return of approximately 130 percent) in the past two years with our J.C. Penney positions," Suvretta Chief Investment Officer Aaron Cowen said in a client letter obtained by Reuters.

Cowen, who was a former portfolio manager for Soros Fund Management and SAC Capital Advisors, said his $700 million-plus Suvretta Capital Management generated net returns of 8.9 percent for the fourth quarter and net returns of 26.3 percent for 2013.

Soros Fund Management, which invests about $20 billion on his and his family's behalf, announced a large stake in J.C. Penney shares in early 2013 and began adding to its exposure as the year went on to become the retailer's second-largest investor at one point.

The stock price of J.C. Penney, one of the oldest retailers in the nation, has lost 80 percent in the last two years.

J.C. Penney said on Wednesday that it would close 33 stores across the country and shed about 2,000 jobs. The announcement indicated that the considerable management and investment turmoil of the last few years is not over. J.C. Penney fired one chief executive officer, Ron Johnson, last year and then brought back his predecessor, Myron E. Ullman III.

"As we have written in the past, we have been amazed by how poorly JCP's strategic change negatively affected the business and by the inability of the Street to understand the magnitude of this failure," Cowen wrote. "This strategic failure, along with headwinds we have seen in the middle end of the consumer market, was a powerful punch to JCP's business in the past year."

Cowen isn't bearish on all things consumer. He said in his letter that in 2013, Suvretta generated solid returns on its long positions in Dollar Tree Inc and Dollar General Corp, given the firm's positive view on serving the low-end consumer niche and the market's short-term bearishness on the low-end consumer due to the expiration of the payroll tax.

"We like both of these investments, not only because the dollar store niche is under served and has a lot of expansion opportunity, but also because of the excellent management teams that are very shareholder friendly," he said.

Suvretta also initiated a long position in Chipotle Mexican Grill Inc in the fourth quarter of 2012 when the firm felt that the multiple had compressed to the low end of its historical price-to-earnings range; the "bear thesis" that Chipotle is the same as Taco Bell was unfounded and that the restaurant chain's management was inclined to raise prices, which would boost both same-store sales and margins.

Chipotle shares, which were recommended as short investment ideas by David Einhorn of Greenlight Capital and Jeffrey Gundlach of DoubleLine Capital, are up roughly 80 percent over the last year.

Cowen said that as Chipotle management started to invest more in marketing and began to roll out catering, Suvretta believed Chipotle's multiple and earnings had a lot of room to expand. And though the increase in pricing was delayed until 2014, the thesis actually improved as 6.2 percent comparable- store sales growth in the third quarter proved that Chipotle "had lots of levers left to pull, and the delayed pricing would result in a stronger moat versus weaker competitors who needed to raise prices to offset food inflation," Cowen wrote.

While Suvretta has since exited its position, it is not because the firm has become bearish on Chipotle, Cowen said.

"We believe it still offers a compelling, long-term investment. However, at 40x P/E and 20x EBITDA, the risk-reward has become less compelling. We have rotated capital into another restaurant investment, Burger King."

UPDATE 1-Buyout firms bow out of German broadcaster ProsiebenSat.1

ProsiebenSat.1 shareholders KKR and Permira will sell on the open market the remaining 17 percent stake they hold jointly in the German broadcaster, completing a gradual exit.

The two buyout firms will place the 36.3 million shares they own in ProSiebenSat.1 - worth 1.27 billion euros ($1.73 billion) at Thursday's closing price - in an accelerated bookbuilding process with institutional investors that will start immediately, KKR said in a statement late on Thursday.

"The share sale is the logical last step in the exit of the former majority owners, which invested in the media company in 2006," KKR said in the statement.

KKR and Permira at the time bought a controlling stake in ProSiebenSat.1 and merged it with SBS Broadcasting, a media group they had acquired a year earlier. Since then they have been disposing of their investment in stages.

The shares have advanced 47 percent over the last 12 months, outperforming the 41 percent gain in the STOXX Europe 600 Media index.

The exit, to be managed by Bank of America Merrill Lynch and Deutsche Bank, would give the broadcaster a 100 percent free float ownership, boosting its chances of getting promoted to Germany's blue-chip DAX.

UPDATE 2-RCS Capital to buy broker-dealer Cetera for $1.15 billion

RCS Capital Corp on Thursday announced it would buy independent broker-dealer Cetera Financial Group from private equity firm Lightyear Capital LLC for about $1.15 billion in cash to expand its retail brokerage business.

New York-based Lightyear Capital, which is run by former Paine Webber Group Inc Chief Executive Officer Donald Marron, created Cetera in 2010 when it acquired three ING broker-dealers.

Over the years, Lightyear has continued to build Cetera through acquisitions. Just last year, it acquired two brokerage firms from MetLife Inc. Today the firm provides broker-dealer and advisory services to about 6,500 independent financial professionals as well as financial institutions.

RCS, which has been an aggressive acquirer over the past few months, approached Lightyear several times last year about buying Cetera, Marron said. But it was not until right before Christmas that Lightyear took the offer seriously, he said.

"They said Cetera's management would remain as it is and they asked if they could make a preemptive bid," Marron told Reuters in an interview. "Price is important to private equity, but also is the firm (so) its value is in Valerie Brown and her team."

Cetera Chief Executive Valerie Brown will continue to operate Cetera.

This is the fourth brokerage acquisition by New York-based RCS Capital, which just went public in June, in the last four months.

It bought Summit Financial Services for $49 million in November and Investor Capital Holdings for about $52.5 million in October. It also bought Hatteras Funds Group in the same month for an undisclosed amount.

The company's investment banking arm and Barclays were its financial advisers, while Bank of America Merrill Lynch advised Cetera.

The transaction is expected to close in the later part of 2014.

RCS Capital's shares were trading at $19.10, up over 3 percent in late afternoon trading, the New York Stock Exchange.

'Dallas Buyers Club': underdog film turned scrappy Oscar contender

"Dallas Buyers Club" is a film that prompts a discussion about money - not big Hollywood money, but rather the lack thereof.

The scrappiest of the nine films nominated for a best picture Oscar on Thursday cost just $4 million to make - a speck on a Hollywood studio spreadsheet - and 25 days to film.

But the real-life story of an unlikely activist in the fight against AIDS drew big talent, like Matthew McConaughey who plays the lead role of Ron Woodroof, Jared Leto as his transsexual side-kick, Rayon, and up-and-coming Canadian director Jean-Marc Vallee.

Co-producer Robbie Brenner, after earning her first Oscar nomination with the best picture nod, remembered how they were handicapped by the lack of money.

"When we told Jean-Marc that he was going to have less days, he said 'I am going to get rid of the lights, I am going to shoot the movie without lights,'" she told Reuters after what she called "tears and screams" upon hearing Thursday's news.

"Dallas Buyers Club" garnered six nominations in total, predictably for McConaughey and Leto who both shed dozens of pounds (kilos) for their roles and were rewarded with Golden Globes last Sunday for best actor in a drama and best supporting actor, respectively.

The film took 20 years to make from script inception and was touch-and-go even after McConaughey got involved in pulling together financing.

"I'm like, wow, this little story that was declined and rejected 137 times. This little story that was around for 20 years that never could get made," McConaughey told Reuters soon after the pre-dawn nomination announcements, injecting a few "wahoos!" in the interview.

"Dallas Buyers Club," from Focus Features, a unit of Comcast Corp's Universal Pictures, premiered at the Toronto International Film Festival in September to favorable reviews and was released in November. It has earned $16 million at the North American box office.

'NEVER SAY DIE'

While McConaughey, once a hunky staple of the romantic comedy genre, has had several acclaimed roles in the last year, his portrayal of the homophobic Texan who fights for AIDS treatment after he contracts the disease in the 1980s is the one that got critics talking about the new, more serious direction in his career.

"What it means for my career is that I can't wait to go back to work again, tomorrow morning, whenever that is," McConaughey said. "I'm really, really having a wonderful moment in my career now."

Leto, who came back to film after a six-year break to focus on music, said the nominations are "a testament to hard work and independent cinema and to art house film."

"Hopefully, it gives people the encouragement to continue to make smart films, films that are different and films that kind of maybe contain more difficult subject matter," said Leto, who is currently biding his time on Los Angeles jury duty.

Woodroof died in 1992, seven years after being diagnosed with AIDS, and by then he had organized a "buyers club" for mostly gay male AIDS patients to acquire drugs not available in hospitals in the early days of the AIDS crisis and battling in court for access to better treatment.

_0">

And for co-producer Rachel Winter, the determination of Woodroof infused the film and its cast and crew with a defiant attitude.

_1">

"He didn't want to lay down and die, he wanted to stand up and fight. That's why we wanted to tell this story," she said.

_2">

"We had so many hurdles, but it was very much a 'never say die' attitude from the top down," she added.

_3">

When she heard the news this morning, that put her in the elite best picture category with some of Hollywood's biggest producers, Winter said she reverted to her days as a Valley girl, with the signature exclamations of L.A.'s San Fernando Valley.

_4">

"I think I said 'Oh my God,' like, 45 times. It was the only thing coming out of my mouth," she said.

_5">

T-Mobile can afford Macklemore concert after all

T-Mobile US Chief Executive John Legere appeared to go back on his own words on Thursday with the announcement of a plan to sponsor a concert by rapper Macklemore & Ryan Lewis.

_0">

T-Mobile announced the Jan. 23 concert in Los Angeles just over a week after Legere said he was kicked out of a Macklemore concert hosted in Las Vegas by archrival AT&T Inc after he had crashed the event.

The companies are in a full-scale battle to steal each other's customers after No. 2 U.S. mobile service AT&T on Jan. 3 offered to pay T-Mobile customers who switch to AT&T from the smaller carrier following months of direct marketing attacks from T-Mobile.

Legere had said at his own company's press conference on Jan. 8 that T-Mobile would focus on giving his customers a better deal rather than charging more so it could afford to hold expensive high-profile events, like Macklemore concerts.

"We didn't have a big concert with Macklemore the other night. I had to crash because we don't waste our money on this kind of stuff," Legere had told reporters in response to a question about the potential for a U.S. price war.

But only days later, the executive - who peppers his speeches with expletives and sharp criticism of his bigger rivals - seems to have reversed course and found enough spare cash for T-Mobile to act as presenting sponsor for the concert.

While AT&T fully sponsored the Macklemore concert last week, ticket sales for the newly announced Macklemore event would kick off on Friday.

"My appreciation for Macklemore and Ryan Lewis seems to be the worst kept secret in the social hemisphere," Legere said in a statement about the upcoming show.

Macklemore a rapper from Seattle performs with producer Ryan Lewis. T-Mobile's headquarters are in Bellevue, Washington, near Seattle. T-Mobile US is 67 percent owned by Deutsche Telekom .

UnitedHealth says quarterly profit rose, sees 2014 growth

UnitedHealth Group Inc said on Thursday implementing Obamacare and private Medicare funding cuts will eat into 2014 profit but the government-paid insurance business will drive growth as more people sign up.

UnitedHealth, the largest U.S. health insurer, reported fourth-quarter profit a beat higher than analyst expectations, but its shares and those of major competitors fell anyway as investors focused on costs.

"It's rare that United stock doesn't go down on earnings day," said Sheryl Skolnick, an analyst for CRT Capital. "I think what the Street did see was that the medical cost ratio was a bit higher than folks thought."

The company said the medical cost ratio, which reflects the percentage of premiums paid out in claims to cover customer procedures and doctor visits, was "well controlled" and within expectations. It rose 1.1 percentage points in the quarter compared with a year earlier to 81.5 percent.

UnitedHealth shares fell 2.5 percent to $73.05 while WellPoint, Aetna, Cigna and Humana also fell.

UnitedHealth said that funding cuts for private Medicare would negatively effect 2014 and that it was still in discussions with the government on the 2015 funding levels. The Centers for Medicare and Medicaid Services is due to announce a proposed funding rate in February.

"They've done their best to offset them, but there's pressures on their book, particularly in Medicare," Leerink Swann analyst Ana Gupte said.

The fourth quarter marked the beginning of sales of new individual plans created under the national healthcare reform law often called Obamacare, coverage which went into effect for the first customers on January 1.

UnitedHealth has limited its participation in selling those new plans so far to three states and provided few details about how it was going.

"We will continue to closely study the development of the individual public exchanges in 2014 and will be selective in our approaches for 2015," Chief Executive Officer Stephen Hemsley said during a conference call.

Strong growth for the company will come from expansion of Medicaid under healthcare reform law, growth in traditional Medicaid as more people sign up, and the development of programs for people eligible for both Medicare and Medicaid, he said.

The technology for HealthCare.gov, the federal website that sells plans to individuals in 36 states, has had many problems and negatively affected enrollment. The other 14 states run their own websites and some have also had issues.

UnitedHealth said it held onto more small business and individual customers during the fourth quarter than usual because it had extended some existing small group plans that were due to expire into 2014 rather than canceling them.

The Patient Protection and Affordable Care Act requires that plans that do not meet the law's benefit requirements be cancelled. President Barack Obama has asked insurers to extend those to give people more time to sign up because of technology problems and as Americans complained the new plans were too costly compared with previous coverage.

NET INCOME RISES

UnitedHealth said fourth-quarter net income rose to $1.4 billion, or $1.41 per share, from $1.2 billion, or $1.20 per share, a year earlier.

_0">

The insurer is the first to report its results in a group that also includes WellPoint Inc and Aetna Inc. Employer-based plans and government health programs, as well as a fast-growing health technology division, make up the bulk of UnitedHealth's annual sales.

_1">

UnitedHealth also added new members in its government plans for seniors and for the poor, for a total of 45,445,000 medical customers at the end of 2013.

_2">

The company said that revenue rose to $31.12 billion, up from $28.77 billion a year earlier.

_3">

Both earnings and revenue came in slightly ahead of analyst expectations, which were for earnings of $1.40 per and revenue of $31.07 billion, according to ThomsonReuters I/B/E/S.

_4">

United Health said it continues to expect revenue of $128 billion to $129 billion and earnings of $5.40 to $5.60 per share in 2014.

_5">

The company's private Medicare business, which provides managed care plans to seniors, experienced government funding cuts that decreased its profitability, UnitedHealth said.

_6">

It was helped, however, by an overall lower medical spending trend as fewer customers checked into hospital, reducing expenditure on reimbursing providers.

_7">

UnitedHealth said that profit improved in its technology business, which includes the QSSI unit that has been working on fixing problems with the federal website for new health insurance for individuals called HealthCare.gov. Optum, which includes many other health technology related businesses, had earnings from operations of $2.3 billion, up from $875 million a year earlier.

_8">

(Reporting by Caroline Humer; Editing by Rosalind Russell)

_9">

Consumer prices post largest gain in six months

U.S. consumer prices recorded their largest increase in six months in December as gasoline prices rebounded, but there was little to suggest a broader pick-up in prices with underlying inflation muted.

_0">

The Labor Department said on Thursday its Consumer Price Index increased 0.3 percent after being flat in November. In the 12 months to December, consumer prices accelerated 1.5 percent after advancing 1.2 percent in November.

The increases were in line with economists' expectations.

Stripping out the volatile energy and food components, the so-called core CPI rose only 0.1 percent, slowing from a 0.2 percent gain in November.

That left its increase over the past 12 months at 1.7 percent, where it has now been for four consecutive months.

The Fed targets 2 percent inflation, although it tracks a gauge that tends to run a bit below CPI.

The U.S. central bank has started reducing the pace of its monthly bond purchases, but persistently low inflation is expected to see it hold interest rates near zero for a long time even if the jobs market picks up significantly.

Slack in the jobs market, which has seen small gains in wages, is keeping the lid on inflation. Even as the economy accelerates, wage growth is expected to lag, meaning inflation will only gradually increase this year.

A 3.1 percent increase in gasoline prices was mostly behind the spike in inflation last month. The increase in gasoline was the largest since June and followed a 1.6 percent fall in November. Food prices nudged up 0.1 percent, rising by the same margin for a third month.

Within the core CPI, apparel prices rose 0.9 percent, also the largest gain since June. Apparel prices had declined for three consecutive months.

There were increases in rents. While medical care costs rose 0.3 percent, prices for prescription drugs fell 0.9 percent. Tobacco prices rose, maintaining the trend seen in wholesale prices.

New motor vehicle prices were flat, while prices for used cars and trucks fell.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

No reason for 'irrational inflationary fears' - ECB's Weidmann

The president of Germany's Bundesbank said on Thursday there was no reason for "irrational inflationary fears" and dismissed suggestions of a danger of the euro zone falling into deflation, echoing the European Central Bank's outlook.

Jens Weidmann also urged France to live up to its function as a role model and show its peers how to restore economic competitiveness, saying it was decisive for the recovery of the whole the euro zone.

A member of the ECB's governing council who tends to take a more hawkish view than many of his peers, Weidmann backed the ECB's expansionary policy stance citing subdued price and economic developments in the euro zone.

His comments suggest that opinions on the council seem less divergent than for example last year, when Weidmann argued against aggressive interest rate cuts.

More harmonized views within the council could bode well for policy decisions as the ECB considers further non-standard measures, having almost depleted its conventional tool box.

"I fully agree with my colleague Mario Draghi that there is no reason to cultivate irrational inflationary fears," Weidmann said in a speech in Berlin, adding that the euro zone was also not about to fall into a deflationary scenario.

Many analysts and international organizations are, however, more concerned of the 18-country bloc falling into a spiral of decreasing prices.

The International Monetary Fund on Wednesday flagged deflation as a rising risk, with Christine Lagarde describing it as an "ogre that must be fought decisively".

The ECB cut its main refinancing rate to a record low of 0.25 percent in November after inflation fell to 0.7 percent in October. It has picked up slightly since.

FOCUS ON FRANCE

Weidmann, however, reiterated his concern about keeping interest rates at low levels for a long time, saying ultra-loose policy cannot become "permanent therapy" for the ailing economy.

Low rates carried risks, including easing pressure on companies to adjust their business models, squeezing margins, and potentially leading to exaggerated real estate prices.

Overall, economic prospects looked brighter than last year and some of the countries hit hardest by the crisis were making good progress, Weidmann said.

"The leading group already has the goal line in sight, while others still have some distance to cover," he said, adding that during the heated phase of the crisis the focus had been on the periphery countries, and now France had to do its part.

"France is decisive for the euro zone," Weidmann said in a question and answer session after the speech.

"France has lost some of its competitiveness. I'd hope that France, as one of the largest countries in the euro zone, would live up to its position as a role model," he added.

_0">

On Wednesday, German Foreign Minister Frank-Walter Steinmeier praised French President Francois Hollande's plans for spending cuts and tax relief for business as courageous, following in the mould of Germany revitalizing its economy a decade ago with welfare reforms.

_1">

Berlin has been discreetly encouraging Hollande, dogged by a lackluster economy and high unemployment, to take such steps since the Socialist became president in 2012.

_2">

Turning to bailout measures, Weidmann re-introduced the idea that euro zone government debt could include a clause of automatically extending maturities by three years when a country receives loans from the European bailout fund.

_3">

Asked if he could imagine switching to a commercial bank at some point with a big salary like his predecessor Axel Weber, who became UBS chairman, Weidmann seemed baffled by the question: "I'm very happy doing what I'm doing now. The Bundesbank is just a great institution."

_4">

"I'd like to stay there. If it's possible to have a second eight-year term then I'd be happy to stay."

_5">

(Writing by Eva Taylor; Editing by Alison Williams)

_6">

Euro zone inflation slows in December on one-off effect in Germany

Euro zone inflation slowed in December, the European Union's statistics office confirmed on Thursday, in what the European Central Bank attributed last week to a one-off change in the method of calculating price growth in Germany.

Consumer prices in 17 countries sharing the euro last year rose 0.3 percent on the month, putting the annual inflation rate at 0.8 percent, down from 0.9 percent in November, but a tad above 0.7 percent in October.

The ECB, which wants to keep inflation below, but close to 2 percent over the medium term, expects a prolonged period of low inflation but sees no immediate risk of deflation.

"We were all aware that the decline in the inflation rate in December ... first of all was expected, and it was caused by a technical adjustment in the statistics of the services inflation in Germany," ECB President Mario Draghi said last week.

"(This) basically produced a much flatter seasonal adjustment and it meant that the December data came out lower than the 0.9 (percent). But fortunately this was a one-off event, so that the January data will not be distorted by this," he said.

Eurogroup President Jeroen Dijsselbloem said earlier on Thursday consumer prices were unlikely to slow further and the current low level is not a major threat to economic recovery.

The October inflation level was a nearly four-year low and pushed the ECB towards a cut in its key lending key rate to a record low of 0.25 percent in November.

The monthly consumer price increase in December was led by a 0.6 percent rise both in prices of services and the highly volatile energy costs.

Prices of food, alcohol and tobacco were up by 0.5 percent while costs of non-energy industrial goods fell 0.3 percent when compared with November.

Consumer prices in Germany, Europe's largest economy, rose 0.5 percent on the month in December, but the annual inflation dropped to 1.2 percent from 1.6 percent in November.

The annual inflation rate in Spain stood 0.3 percent for the second month in a row in December after being flat in October.

Annual inflation in Portugal rose for the third consecutive month, but was still standing at just 0.2 percent in December.

The fall in inflation rates is related to an overall economic adjustment and restoring of competitiveness of Europe's southern periphery countries, where growth collapsed during the crisis and triggered a massive austerity push.

(Reporting by Martin Santa)

Ford recalling 46,000 Edge SUVs over fuel leak

Ford Motor Co ( id="symbol_F.N_0">F.N) is recalling about 46,000 Edge SUVs from the 2012 and 2013 model years on a fuel system leak that could lead to a fire, the company and U.S. regulators said.

_0">

The National Highway Traffic Safety Administration reported the recall on Wednesday. Ford said on Thursday that no crashes or injuries related to the incident have been reported.

There are 27,800 Edge SUVs to be recalled in the United States, 13,500 in the Asia Pacific region, 3,400 in Canada and about 900 spread around the world. They are from the 2012 and 2013 model years and have 2.0-liter engines.

"The fuel line pulse damper metal housing may crack as a result of an improper manufacturing process," according to a report from the National Highway Traffic Safety Administration.

This could cause a leak, which in turn could cause a fire if there is an ignition source, NHTSA said.

Ford said it is also recalling about 400 Explorer SUVs that may have been serviced with a suspect steering gear. They are from the 2011 and 2012 model years and were serviced after September 1, 2013.

A software error could contribute to a situation in which the steering could lock, increasing crash risk. Ford said no crashes or incidents have been reported relating to this issue.

(Reporting by Bernie Woodall; Editing by Nick Zieminski)

Exclusive: Tyson weighs $2 billion-plus deal for Michael Foods - sources

Tyson Foods Inc ( id="symbol_TSN.N_0">TSN.N) is exploring a bid for Michael Foods Group Inc, a deal that would combine one of the world's largest chicken processors with a large distributor of egg and dairy products, according to three people familiar with the matter.

A potential deal for Michael Foods, which is seen worth between $2 billion and $2.5 billion according to the people, would place Tyson, the nation's largest meat producer, into an adjacent category within poultry and protein.

Michael Foods, the egg and dairy products producer owned by Goldman Sachs Group Inc's ( id="symbol_GS.N_1">GS.N) private equity unit, is in the early stages of finding a buyer, and Tyson may ultimately choose not to move forward with an offer, the people cautioned.

Michael Foods is working with Goldman Sachs' investment banking unit and Bank of America Merrill Lynch ( id="symbol_BAC.N_2">BAC.N) on a potential sale, Reuters reported in December.

The sources declined to be named because the matter is private. Tyson Foods and Michael Foods declined to comment. A Goldman Sachs spokeswoman did not immediately respond to a request for comment.

Minnetonka, Minnesota-based Michael Foods produces and distributes products including specialty eggs, refrigerated potatoes, cheese and other dairy products.

Tyson Foods, which has a market cap of around $12 billion, has traditionally shunned large acquisitions. The last major acquisition it made was its 2001 purchase of IBP Inc for $3.2 billion, which helped transform the company into the world's largest meat producer and processor.

A tie-up between Tyson and Michael Foods would bring synergies on the poultry side of the business as both companies raise chickens.

Goldman Sachs Capital Partners bought Michael Foods from private equity firm Thomas H. Lee Partners LP in 2010 for around $1.7 billion. Thomas H. Lee retained an ownership stake of about 20 percent as part of the transaction.

In the nine months ending September 28, Michael Foods posted adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of $188 million, up 7.2 percent from the same period last year.

For the full 2013 year, the company was on track to report EBITDA of around $250 million. Michael Foods is hoping to fetch roughly 9 or ten times that amount, according to the people familiar with the matter.

(Reporting by Olivia Oran, Soyoung Kim and Greg Roumeliotis in New York; Editing by Nick Zieminski)

Exclusive: Dubai Group signs $10 billion debt restructuring deal - sources

Dubai Group has signed a $10 billion debt restructuring deal, two sources with knowledge of the matter told Reuters, marking the end of a perilous period which saw the emirate risk collapse under a mountain of debt obligations.

The unit of Dubai Holding DUBAH.UL, the investment vehicle of Dubai's ruler, was one of a number of state-linked entities which borrowed heavily from banks to fund an acquisitions spree during the boom years of 2006-08.

But as credit markets dried up following the global financial crisis and a local real estate bubble burst, they found themselves unable to manage their obligations and were forced to renegotiate tens of billions of dollars of debt.

Dubai Group finally brought an end to more than three years of negotiations about its debt pile when it signed the restructuring deal on Wednesday, the sources said, speaking on condition of anonymity as the information is not public.

Its lenders, which include France's Natixis ( id="symbol_CNAT.PA_1">CNAT.PA) and Dubai's Emirates NBD ENBD.DU, still have to sign and return the last piece of documentation and this should happen in the next few days, bringing a formal conclusion to the long-awaited deal, the sources said on Thursday.

"It's not perfect but it's a major milestone for both the emirate and the banks who were exposed to the Dubai government-related entities," said one of the sources at a creditor bank.

Dubai Group declined to comment.

Concluding a deal would allow Dubai to put behind it a period which led to a $20 billion bailout from Abu Dhabi and questions over the city-state's economic viability, with the focus now on advancing the economy and generating the revenues to meet revised debt schedules and fund new mega-projects.

Dubai Group had been in negotiations with creditors since late 2010 after it missed payments on two debt facilities, with talks going on long after many state-linked entities had concluded their own restructurings.

The process to get an agreement has been hit by various delays as dozens of lenders and Dubai Group jostled to secure their own interests in the deal.

This included an attempt to seek remedy through the courts - a rare occurrence in the Gulf - which resulted in some lenders, including Royal Bank of Scotland ( id="symbol_RBS.L_3">RBS.L) and Commerzbank ( id="symbol_CBKG.DE_4">CBKG.DE), accepting 18.5 cents on the dollar to exit the restructuring process.

Much of the uncertainty was due to insolvency regulations in the United Arab Emirates being untested and complex, meaning all involved had no framework to structure their negotiations.

ECONOMIC REBOUND

Dubai Group was still dealing with its debt problems long after the emirate began rebounding from the 2009 crisis, with property prices in 2013 among the fastest-growing in the world and the value of the stock market doubling during the course of the year.

The local economic pick-up has helped asset values to recover, allaying some of the fears over whether prices could ever rebound enough to fully repay lenders. During the negotiating period, Dubai Group's holdings in Kuwait's Global Investment House and Cyprus Popular Bank were decimated by their own restructurings, for example.

The final deal involves creditors extending maturities for up to 12 years, with the length of time dependent on the level of security against specific debts, so Dubai Group's assets can recover in value before being sold to meet its obligations.

_0">

Asset sales have already taken place in 2013, such as offloading credit card firm Dubai First and its stake in Oman National Investment Corp Holding ONIC.OM.

_1">

The sale of the group's 30.5 percent stake in Malaysia's Bank Islam for $550 million raised enough cash to repay one group of creditors and provided more than $200 million to service interest payments in coming years.

_2">

Those involved in the restructuring are hopeful lessons have been learned following the drawn-out process, said the source at the creditor bank.

_3">

"They won't dare default again as they won't want to go through that (process) again, especially with the Expo coming up," said the source, referring to Dubai hosting the World Expo trade convention in 2020.

_4">

(Editing by Dinesh Nair and Pravin Char)

_5">

Bombardier CSeries jet delayed by at least nine months

Bombardier Inc ( id="symbol_BBDb.TO_0">BBDb.TO) warned on Thursday it will delay putting its new CSeries jet into commercial use until the last half of 2015, a major setback in its plan to challenge Airbus Group NV ( id="symbol_AIR.PAAIR.PA) and Boeing Co ( id="symbol_BA.NBA.N) in the narrow body aircraft market.

_1">

A longer-than-expected test phase was the cause for the nine-month delay of the smaller CS100 jet, Bombardier said on Thursday. The news sent shares down more than 6 percent to their lowest level since early May.

_2">

The Montreal-based planemaker now sees the larger CS300's entry-into-service about six months after the CS100.

The highly anticipated CSeries is built using lightweight composite materials and other technologies designed to make them burn less fuel and lower operating costs for airlines.

But at least one airline that has signed up as an early customer said it was talking to Bombardier about the consequences of the delay.

"Of course, we are not amused," said Nils Haupt, a spokesman for DT Lufthansa ( id="symbol_LHAG.DE_3">LHAG.DE), the parent company of launch customer Swiss International Air Lines.

Haupt said compensation is usually part of the contract between airlines and manufacturers in the event of such delays, but did not elaborate on its contract with Bombardier. He said the airline had contingency plans.

"Think about the Dreamliner, think about the A380. We have always seen in the last years, delays in delivery. Of course, we wouldn't hope for that. ... Now it's happened, we have to deal with it," he said. "It is not the end of the world."

The CSeries, which saw its inaugural flight delayed three times before taking off four months ago, was ambitiously scheduled to go into service a year later, though analysts had expected entry into service to be pushed back to early 2015.

"It is no surprise that the EIS date has been pushed to the right," said Cameron Doerksen, an analyst with National Bank Financial, in a client note.

"However, the new date is even later than our expectation and certainly beyond the consensus view that we think was for EIS in Q1 2015."

Doerksen, who did not anticipate order cancellations, speculated the delay could add several hundred million dollars to the C$3.4 billion program due to engineering and testing.

Separately, Bombardier announced a deal worth up to $2 billion on Thursday with Saudi Gulf Airlines to buy 16 CSeries jets with options for 10 more.

FIGHTING INDUSTRY GIANTS

The delay is the latest setback for the world's fourth largest planemaker's ambitious plan to dominate the growing 100- to 149-seat market, pitting itself against the smaller aircraft made by industry giants, Boeing and Airbus.

The planemaker says the CSeries will have a 15 percent cash operating cost advantage, 20 percent fuel burn advantage and will be significantly quieter than competing single-aisle jets.

_0">

The CSeries' projected improvements prompted Airbus and Boeing to launch in recent years new versions of their older single-aisle models, with similar new, fuel-efficient engines.

_1">

Bombardier had previously said flight tests were going according to plan but would provide an update on the aircraft program's entry-into-service schedule early this year.

_2">

Bombardier shares were down 6.6 percent to C$4.22 in mid- morning trading on the Toronto Stock Exchange.

_3">

(Additional reporting by Euan Rocha in Toronto and Ashutosh Pandey in Bangalore; Editing by Sofina Mirza-Reid and Stephen Powell)

_4">

Citi profit disappoints as bond trading revenue drops

Citigroup Inc posted weaker-than-expected quarterly results on Thursday, as lackluster bond-trading results weighed on overall revenue.

The third-largest U.S. bank said its fixed-income revenue fell 15 percent to $2.33 billion in the fourth quarter from the same quarter last year, in what it called a "challenging trading environment." The bond trading results lagged rivals' including Bank of America Corp and JPMorgan Chase & Co.

The bank still posted rising profit, helped by cost-cutting, but the size of the decline in bond trading revenue surprised many analysts. Much of the drop came from falling client activity in corporate bonds and secured debt, said Jon Gerspach, chief financial officer, on a conference call with reporters. Rising bond yields have cut into demand for issuing and trading corporate debt.

"We just saw a fall-off in client volumes," Gerspach said. When asked if there was any explanation, he responded, "No, it's just what we saw."

Citigroup's fourth-quarter adjusted net income rose to $2.60 billion, or 82 cents per share, from $2.15 billion, or 69 cents per share, a year earlier, the bank said. The adjusted results strip out items including costs associated with layoffs and restructuring, and accounting adjustments linked to changes in the value of the company's debt.

Analysts on average expected earnings of 95 cents per share, according to Thomson Reuters I/B/E/S. The average estimate came down 10 cents in the last two weeks, partly in expectation of weak fixed-income market revenue.

"Although we didn't finish the year as strongly as we would have liked, we made substantial progress toward our key priorities in 2013," Chief Executive Michael Corbat said in a statement.

The results reflect the difficulties that Corbat faces as he tries to turn around the third largest U.S. bank. He took the reins of the bank in October 2012, after directors pushed out Vikram Pandit, and has been trying to lower costs while boosting revenue.

Corbat has had more luck with costs than revenue. Operating expenses fell 13 percent to $11.93 billion during the quarter, while revenue fell 1 percent to $17.78 billion.

Citigroup's operating expenses in the quarter included $809 million in legal and related expenses, down from $1.3 billion a year earlier, as the bank worked to leave behind legal troubles that stemmed mainly from the mortgage crisis.

But its legal troubles might not be over. A source told Reuters on Wednesday that U.S. regulators sent investigators to its London headquarters as part of an international investigation into alleged manipulation of the global currency market.

Citigroup drew down loan loss reserves by $670 million, compared with $91 million a year earlier.

Unadjusted net income rose to $2.69 billion, or 85 cents per share, from $1.20 billion, or 38 cents per share, a year earlier.

Citigroup shares were down 3.6 percent at $52.99 on the New York Stock Exchange on Thursday morning. The stock rose 32 percent in 2013, slightly less than the 35 percent rise of the KBW Bank Index.

SHEDDING BAD ASSETS

Citigroup said late on Wednesday that it is selling mortgage servicing rights of $10.3 billion Fannie Mae residential first mortgage loans as it looks to reduce assets and expenses within its Citi Holdings division.

_0">

Citi Holdings houses the portfolio of troubled mortgage assets the bank is winding down after they led to huge losses since the financial crisis.

_1">

Citi Holdings' assets, which totaled $117 billion, or about 6 percent of the company's total assets at the end of December, have long been a drag on the company, tying up capital and generating losses. They once accounted for about 40 percent of total assets. Assets in Citi Holdings fell 4 percent from the third quarter to the fourth quarter.

_2">

While Corbat has said that dealing with Citi Holdings is a priority, he has warned that there is no practical way to quickly get rid of the rest of those troubled assets.

_3">

Citigroup's global consumer banking revenue fell 5 percent to $9.47 billion.

_4">

(Reporting by David Henry in New York and Tanya Agrawal in Bangalore. Additional reporting by Peter Rudegeair in New York.; Editing by Saumyadeb Chakrabarty, Joyjeet Das and Rosalind Russell)

_5">

Exclusive: SEC may seek more power to enforce Volcker rule

U.S. securities regulators fear they do not have the full range of enforcement powers to police Wall Street's compliance with the controversial Volcker rule, and told Reuters they are considering new rules to fill the gap.

Officials at the U.S. Securities and Exchange Commission say the rule, which generally bans banks from making speculative bets with their own money, does not currently allow the agency to police brokerages for technical violations.

While such violations may seem minor, those types of enforcement actions are an important part of the SEC's mission, and they can deter or prevent more egregious behavior and send markets a strong regulatory warning.

"If we want to sanction a firm for not keeping the records or documents they are required to keep or provide reports to us in the form (it is) required, we need to take further action," John Ramsay, acting director of the Trading and Markets Division at the Securities and Exchange Commission, told Reuters in an interview this week.

"It is under consideration. I think we realize that in order to have the full range of authority ... we need to do the additional step," he added.

The Volcker rule was adopted jointly in December by five regulators including the SEC, after they worked for about three years to craft a workable rule.

It aims to crack down on the kinds of risky trades that further destabilized large Wall Street banks during the crisis and were behind JPMorgan's $6 billion "London whale" trading loss in 2012.

Regulators struggled to draft a rule that would clearly define what sort of "proprietary" trades would be prohibited, while still allowing for trades that hedge risk and those designed to meet future customer demand.

The final draft took a middle ground, but questions remain about exactly how it will be enforced when it fully goes into effect in July 2015, especially when multiple regulators share responsibility.

The SEC, Commodity Futures Trading Commission, Federal Reserve, Federal Deposit Insurance Corp and Office of the Comptroller of the Currency each get a slice of enforcement responsibility based on the types of firms they supervise.

ENFORCEMENT

The SEC, for instance, will police broker-dealers and security-based swap dealers, while the Fed has authority over bank holding companies.

But the dilemma for the SEC lies in the fact the Volcker rule falls under the Bank Holding Company Act - the law that empowers bank regulators.

By contrast, the SEC derives its full set of enforcement tools to police brokers under a different law - the Securities Exchange Act. Such tools include imposing fines and cease-and-desist orders.

For now, the main authority the SEC has to enforce the rule will be to order a brokerage, after a notice and hearing, to stop certain activities that may violate the Volcker rule.

That authority to order banks to stop trading activity or divest certain holdings is available to all five regulators under the new Volcker rule.

_0">

"We still have the authority to go after a broker-dealer that says you are not complying with the proprietary trading restrictions, therefore you have to stop this activity ... That is the most important authority that exists with respect the Volcker rule," Ramsay said.

_1">

"That is in the bag."

_2">

But the SEC believes it does not currently have the power to punish banks and brokerages that do not properly maintain certain documents so regulators can monitor for compliance.

_3">

The Volcker rule, for instance, orders banks to file reports containing certain quantitative metrics so regulators can keep a watchful eye on trading activities.

_4">

If the SEC proceeds with a rulemaking, the agency would need to align its full authorities under the Exchange Act with its new policing responsibilities under the Volcker rule.

_5">

"The bank regulators are used to squishy rules and they use their prudential program ... to enforce them. And where the rule doesn't really fit, they can work within the prudential program to accommodate that," said Republican SEC commissioner Daniel Gallagher, who voted against the Volcker rule.

_6">

"There is no Exchange Act provision that links itself to our enforcement authority ... I think we need a rulemaking under the Exchange Act."

_7">

(Reporting by Sarah N. Lynch; Editing by Karey Van Hall and Sophie Hares)

_8">

World economy on recovery road, but weak inflation threatens: Reuters poll

A much better year lies in store for most of the world's major developed economies, although weak inflation will persist, complicating central banks' ability to get interest rates back to normal, Reuters polls forecast on Thursday.

As in the last few years, the United States looks set to the lead the way, with growth also quickening in Britain and Germany.

However, Japan looks set to disappoint and the euro zone will probably lag again compared with its Western peers. Emerging markets again look a mixed bag.

Perhaps the main difference this year is that forecasts from the 300 or so economists polled across the world over the last week at least suggest little prospect of a return to recession in the euro zone, the world's largest trading bloc.

Overall, the poll showed the world economy will grow 3.6 percent this year compared with 2.9 percent in 2013.

That would snap a three-year stretch of slowing global growth since the world economy first rebounded from the severe recession of 2009.

The last few months have been marked by steeply falling inflation in many of the top developed economies, with consumer prices rises in some cases far below stability targets set by their central banks.

Christine Lagarde, head of the International Monetary Fund, on Wednesday warned of the risk of deflation - a damaging and sustained spiral of falling prices - even as she was optimistic about improving economic growth.

Although the poll suggested deflation itself looks unlikely, weak inflation will remain widespread.

Consumer prices are expected to rise tepidly in most of the countries polled - even in the euro zone, where inflation slowed to 0.8 percent in December.

"We're not forecasting a descent into outright deflation. Instead, we're highlighting the risk that inflation remains too low or, worse, that it continues to sink over the next two years," said Stephen King, group chief economist at HSBC, in its global outlook for the year.

MIXED FORTUNES

Thursday's Reuters polls suggested mixed fortunes ahead for emerging markets.

Mexico's ambitious reform agenda will start to pay off after a very disappointing 2013, but the recovery will not likely be as strong as previously hoped as Latin America braces for a bumpy year for local markets.

Turkey too is on course for a difficult year ahead, although growth prospects in South Africa look better in 2014.

The consensus for the world's largest economy, the United States, was upgraded slightly compared with a poll last month. It is expected to grow 2.9 percent, up from 2.6 percent in the December poll and versus an estimated 1.9 percent in 2013.

_0">

"It seems we are putting the Great Recession further and further behind us," said Russell Price, senior economist at Ameriprise Financial Services. "Consumers have reduced debt, corporate balance sheets are in better shape. There are lots of positives that are going to help rather than hinder growth."

_1">

In Japan, the world's No.3 economy, inflation will stay well below target, with the poll suggesting companies there are cautious about passing on their higher profits to employees - seen as vital for the country's economic revitalization.

_2">

Indeed, Japan's economic growth is expected to slow to just 0.7 percent for the 2014-15 fiscal year, compared with 2.5 percent for the previous period.

_3">

The euro zone, by comparison, looks a long way from getting to that point.

_4">

While this year promises some modest economic growth - around 1.0 percent compared with a 0.4 percent contraction this year - the low level of inflation remains worrisome.

_5">

"Core prices pressures will remain low over the medium term," said Herve Amourda, economist at Societe Generale.

_6">

"In addition, risks are broadly tilted to the downside over the medium term, as we have identified a strong (euro), falling commodity prices or even stronger deceleration in unit labor costs to be the major threats to our scenario."

_7">

Britain looks on course to lead the way in terms of economic growth among Europe's heavyweight economies, where unemployment looks set to fall at a faster pace than the Bank of England's expectations that underpin its monetary policy stance.

_8">

The UK economy is expected to grow 0.6 percent per quarter through to the middle of next year, the end of the forecast horizon and the highest forecasts to date.

_9">

Reuters will publish its economic outlook polls for the top Asian economies outside Japan next week.

_10">

Carlos Slim consolidates stakes in Telekom Austria

Mexican telecoms tycoon Carlos Slim has agreed to consolidate his company and family stakes in Telekom Austria, clarifying his position in the eyes of regulators that monitor when stakeholdings become large enough to trigger takeover bids.

Slim's America Movil will own 26.8 percent of Telekom Austria after buying a 3.14 percent stake from a family foundation, enough to veto big decisions at the Austrian firm but below the 30-percent mandatory takeover offer threshold.

Telekom Austria shares, which have been buoyed by speculation that Slim will eventually try to take over the rest of the company, closed up 1.3 percent at 6.60 euros on Thursday, the top gainers in Europe's telecoms index.

Carso Telecom B.V., America Movil's European holding company, will in future hold the entire 26.8 percent stake that was previously split with the family foundation.

The Austrian government owns 28 percent of the former state telecoms provider and has said it is committed to maintaining a blocking minority of at least 25 percent.

Telekom Austria said the takeover commission had expressed concern that America Movil and the Slim family foundation might come within the scope of a law designed to prevent parties that appear separate from acting together to control companies.

America Movil, which also owns a stake in Dutch group KPN, has been seeking to invest outside Latin America, where regulation and competition have been squeezing sales.

It invested in KPN and Telekom Austria in 2012, when their share prices appeared low, although they later fell further amid intense competition and an economic crisis in Europe.

Unlike the case of KPN, where America Movil was thwarted in a takeover bid by a foundation that saw it as hostile, America Movil has been welcomed by Telekom Austria, which has repeatedly described the relationship as constructive.

America Movil has said it does not plan a hostile takeover bid for Telekom Austria.

A spokeswoman for America Movil did not immediately respond to a request for comment.

(Reporting by Georgina Prodhan, additional reporting by Elinor Comway in Mexico; Editing by Michael Shields and Mark Potter)

Best Buy shares tumble on weak holiday sales, margin forecast

Best Buy Co ( id="symbol_BBY.N_0">BBY.N) shares tumbled about 30 percent on Thursday after the world's largest consumer electronics chain reported disappointing holiday sales and warned of a bigger-than-expected decline in quarterly operating margins.

The company blamed intense discounting by rivals, tight supplies of phones and high-end tablets industrywide, and weak traffic in December.

The news, which knocked off almost $4 billion of Best Buy's market value, was the latest evidence that holiday sales at many chains came at the expense of profit.

"It just seems that the promotions did not drive incremental sales, that opening on Thanksgiving just added costs," Janney Capital Markets analyst David Strasser said.

Adding to the pressure on Best Buy, he said, was the "promotional cadence of troubled retailers" like Sears ( id="symbol_SHLD.O_1">SHLD.O), Toys R Us Inc and smaller electronics chains.

Best Buy cut prices sharply in November and December to thwart competition from Wal-Mart Stores Inc ( id="symbol_WMT.N_2">WMT.N), Amazon.com Inc ( id="symbol_AMZN.O_3">AMZN.O) and other chains. The electronics specialist said on Thursday that it continued to discount in January.

Best Buy's stock, one of 2013's hottest, was down 27.6 percent at $27.19 after touching a low of $25.99 earlier in the session. Heading into Thursday, only one out of two dozen analysts covering the stock had a "sell" rating on it.

Shares of consumer electronics peers such as RadioShack Corp ( id="symbol_RSH.N_4">RSH.N) and Hhgregg Inc ( id="symbol_HGG.N_5">HGG.N) also fell.

The overall weakness in the consumer electronics industry was a "shock for everyone," Best Buy Chief Executive Officer Hubert Joly said, but insisted that the company's own turnaround was not at risk.

"Since the beginning, we've seen this transformation as a multiyear journey, and we are in the early innings of this ball game," he said.

Joly, who joined the company in the fall of 2012, has removed layers of management, eliminated hundreds of jobs, closed unprofitable stores and boosted cash by selling Best Buy's stake in a European joint venture with Carphone Warehouse Group Plc ( id="symbol_CPW.L_6">CPW.L).

So far, he has taken out $550 million in annualized costs, and he said he saw room to make the company more efficient by reducing and better managing the items that are returned by customers.

Best Buy also plans to do more to personalize its email marketing efforts, especially since it has a database of 40 million members.

In what many on Wall Street called the most promotional holiday season since the recession, shoppers were bombarded by too many emails from retailers, making it harder for Best Buy to stand out, Joly said.

Best Buy had warned in late November that its decision to discount more could hurt margins. But some analysts had then expected the chain to offset some of the margin pressure through cost cuts and market share gains.

MARGINS VS. MARKET SHARE

_0">

Heavy discounting ate into profits, and Best Buy expects operating margin, excluding special items, to be 175 to 185 basis points lower in the fourth quarter ending February 1 than a year earlier. Credit Suisse analyst Gary Balter said that outlook was well below Wall Street expectations.

_1">

The discounting, however, boosted Best Buy's market share at a time when overall industry sales fell, Joly said, citing data from NPD Group.

_2">

Best Buy's sales at stores open at least 14 months were down 0.9 percent in the United States and up 0.1 percent internationally in the nine weeks ended January 4. Total revenue fell about 2.6 percent to $11.45 billion.

_3">

Declines in sales of digital imaging, movies, MP3 players and other products more than offset strong demand for computers, appliances and gaming devices, the company said.

_4">

Best Buy's online segment was a bright spot in the otherwise weak report. Domestic online revenue was $1.32 billion, and comparable online sales rose 23.5 percent.

_5">

During the most recent holiday season, Best Buy offered free shipping for online orders of more than $25 and made its website easier to navigate.

_6">

The company also shipped directly from more than 400 stores this season to compete with retailers like Amazon.com and Wal-Mart. It is now expanding that service to its 1,000 big box stores, Best Buy said on Thursday.

_7">

(Reporting by Dhanya Skariachan; Editing by Jeffrey Benkoe and Lisa Von Ahn)

_8">

U.S. Treasury to reduce stake in auto lender Ally

The U.S. Treasury Department on Thursday announced plans to sell 410,000 shares in auto lender Ally Financial as part of its effort to unwind its financial bailout fund.

_0">

The Treasury said it expected taxpayers to recover about $3 billion from the private offering of Ally common stock at $7,375 per share. The sale would reduce the government's stake to 37 percent, it said.

The government pumped $17.2 billion into Ally during the 2007-2009 financial crisis, and the Treasury said taxpayers will have recovered about $15.3 billion once the stock sale was complete.

The offering could also leave the Treasury just a few billion short on the investments it made to prop up lenders, automakers and the housing sector from its crisis-era $700 billion Troubled Asset Relief Program.

Private market investors appear to be optimistic about Ally's prospects. Ally sold $1.3 billion in unlisted shares to private investors in November for an average price of around $6,000 per share, and weeks later GM sold its remaining 8.5 percent stake in Ally for around $6,800 per share.

The appetite for Ally shares from private investors suggests the government might be able to fully exit its stake this year.

Ally Chief Executive Officer Michael Carpenter said the company in the fourth quarter of 2013 had completed a series of strategic actions that included raising common equity, reaching a settlement with the U.S. Consumer Financial Protection Bureau and the Department of Justice and being granted financial holding company status.

"These actions, coupled with the strength of our ongoing business, position Ally to complete its plans to exit TARP and to continue to build upon our thriving franchises," Carpenter said in a statement. "This is a very positive outcome for Ally and for the U.S. taxpayer, and the strong investor interest is a testament to the significant transformation of the company."

In announcing its offering, the Treasury said it would work with Ally to further reduce the government's investment through either a public offering, private sale of its common shares or other alternatives.

If the Treasury sold its remaining 571,971 shares at the same price as the current offering, it would raise a further $4.2 billion and put TARP into the black.

Ally has been hoping to go public since at least 2011, but investors had remained worried about the problems that forced it to seek a taxpayer bailout, which included bad home loans at its Residential Capital subprime mortgage unit.

That unit is now getting ready to emerge from bankruptcy.

(Story corrects paragraph 10, corrects amount Treasury would raise if it sold remaining Ally shares at same price to $4.2 billion from

$42.2 billion)

(Reporting by Timothy Ahmann and Elvina Nawaguna; Editing by Paul Simao)

Target agrees to testify on Capitol Hill about data breach

Target Corp has agreed to testify before Congress in early February about a data breach that compromised credit and debit card and personal data of millions of customers, a House of Representatives subcommittee said on Thursday.

Representative Lee Terry, who chairs the commerce, manufacturing and trade subcommittee of the House Committee on Energy and Commerce, said in a statement that a hearing conducted by his panel would examine such data breaches and their effect on consumers.

The subcommittee said it expects to take testimony from law enforcement officials and others, in addition to one or more representatives of Target, the third largest U.S. retailer.

Target has said a breach of its networks during the busy holiday shopping period resulted in the theft of about 40 million credit and debit card records and 70 million other records with customer information such as addresses and telephone numbers.

"By examining these recent breaches and their consequences on consumers, we hope to gain a better understanding of the nature of these crimes and what steps can be taken to further protect information and limit cyber threats," Terry said.

The subcommittee has approached the U.S. Secret Service, the lead investigator into recent data breaches at both Target and Neiman Marcus, and its parent agency, the Department of Homeland Security, about participating in the hearing, a subcommittee official said.

Because the Target breach is under active investigation, the amount of detail that will discussed at the hearing on how the breach occurred and where investigations are headed is unclear.

Instead, the official said, the main objective of the hearing would be to examine how consumers were affected by the data breach and what they can do to protect themselves against such data intrusions.

"We are continuing to work (with) elected officials to keep them informed and updated as our investigation continues," Target said."

No federal laws exist that set out standard rules for when and how companies must report data breaches to customers and law enforcement agencies

As a result, the lack of federal regulations means that U.S. agencies such as the Secret Service may not have been notified by companies of all major recent breaches.

Separately, leaders of the Senate Commerce Committee have written to Target seeking information about the recent breach from the retailer's security officials.

(Reporting by Mark Hosenball; Additional reporting by Dhanya Skariachan; Editing by Ros Krasny and Steve Orlofsky)

U.S. data points to firming labor market, inflation tame

The number of Americans filing new claims for unemployment benefits fell for the second consecutive week last week, suggesting a sharp step-down in job growth in December was likely to be temporary.

The better labor market tone was also captured by a survey on Thursday showing an acceleration in manufacturing activity in

the Mid-Atlantic region, accompanied by a rise in factory jobs.

"We view the tepid December payroll gain as an aberration and expect job creation to look stronger in January," said John Ryding, chief economist at RDQ Economics in New York.

Initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 326,000, the Labor Department said. That compared to economists' expectations for a fall to 328,000.

Job growth slowed sharply in December, with employers adding only 74,000 new positions. Nonfarm payrolls increased 241,000 in November and the retreat last month was blamed on cold weather.

In a separate report, the Philadelphia Federal Reserve Bank said its business activity index rose to 9.4 points this month from 6.4 in December. Any reading above zero indicates manufacturing expansion in the region, which includes factories in eastern Pennsylvania, southern New Jersey and Delaware.

A gauge of factory jobs surged this month, but workers saw a drop in hours on average. There was a slowdown in new orders.

Even as the economy gathers steam there is little sign of a broad pick-up in prices, keeping inflation pressures muted.

In another report, the Labor Department said its Consumer Price Index increased 0.3 percent after being flat in November. In the 12 months to December, consumer prices accelerated 1.5

percent after advancing 1.2 percent in November.

The increases were in line with economists' expectations.

LOW INTEREST RATES BIAS

Stripping out the volatile energy and food components, the so-called core CPI rose only 0.1 percent, slowing from a 0.2 percent gain in November.

That left its increase over the past 12 months at 1.7 percent, where it has now been for four consecutive months.

U.S. Treasury debt prices rose on the tame inflation picture, while the dollar was little changed against a basket of currencies. Stocks of Wall Street were trading off early highs.

_0">

The Fed targets 2 percent inflation, although it tracks a gauge that tends to run a bit below CPI.

_1">

The U.S. central bank has started reducing the pace of its monthly bond purchases, but persistently low inflation is expected to see it hold interest rates near zero for a long time even if the jobs market picks up significantly.

_2">

"With the amount of slack in the labor market, we do not anticipate any substantial acceleration in wage growth for quite some time," said Ethan Harris, co-head of global economics research at Bank of America Merrill Lynch in New York.

_3">

"We expect a patient and gradual end to the current pace of accommodation. We still believe the Fed will cease asset purchases by the end of 2014, announcing additional $10 billion cuts in buying at each policy meeting this year."

_4">

Average hourly earnings adjusted for inflation fell 0.3 percent in December. They rose only 0.2 percent from a year ago.

_5">

A 3.1 percent increase in gasoline prices was mostly behind the spike in inflation last month. The increase in gasoline was the largest since June and followed a 1.6 percent fall in November. Food prices rose 0.1 percent for a third month.

_6">

Within the core CPI, apparel prices posted their largest increase since June. They had declined for three consecutive months.

_7">

Rental inflation remained elevated in December. While medical care costs rose, prices for prescription drugs fell significantly last month.

_8">

There were increases in tobacco prices. New motor vehicle prices were flat, while prices for used cars and trucks fell.

_9">

"Low inflation looks set to continue in 2014," said Sam Bullard, a senior economist at Wells Fargo in Charlotte, North Carolina. "Prices for imported consumer goods have been flat or fallen in seven of the past eight months, which should keep downward pressure on the CPI in coming months."

_10">

(Reporting by Lucia Mutikani, additional reporting by Steven C Johnson in New York; Editing by Paul Simao)

_11">