REFILE-TransCanada sells Cancarb unit to Tokai Carbon for C$190 mln

TransCanada Corp , Canada's No. 2 pipeline company, said on Monday it will sell its Cancarb Ltd unit, a carbon black manufacturer, to Japan's Tokai Carbon Co for C$190 million ($173.5 million) in order to focus on expanding its pipeline business.

Cancarb, located in Medicine Hat, Alberta, about 300 kilometers (186 miles) southeast of Calgary, is the world's largest producer of thermal carbon black, an industrial material used in tires, printer inks and other goods. The sale includes Cancarb's 41-megawatt power plant, which sells electricity to Medicine Hat's power grid.

TransCanada plans to use the proceeds to fund its pipeline growth strategy, which includes the controversial Keystone XL pipeline to take oil sands crude from northern Alberta to U.S. refiners and the 1.1 million barrel per day Energy East pipeline to take Western Canadian oil to the Atlantic Coast.

"The proceeds from this sale will help fund TransCanada's unprecedented capital growth plan that includes $38 billion in new projects to be completed by the end of the decade," Russ Girling, TransCanada's chief executive, said in a statement.

The sale is expected to close by the end of March.

TransCanada shares were up 38 Canadian cents at C$48.99 at midmorning on Monday on the Toronto Stock Exchange.

Falling Deutsche Bank pulls European stocks lower

European stocks inched lower in thin trade on Monday, slipping from 5 1/2-year highs as Deutsche Bank's surprise quarterly loss prompted investors to cash in recent gains on banking stocks.

Shares in Germany's biggest lender, which had not been due to release results until Jan. 29, sank 5.4 percent, wiping about 2.2 billion euros ($3 billion) off its market capitalisation.

The bank announced a drop in fixed-income trading revenues and heavy litigation and restructuring costs, which prompted it to warn about a challenging 2014.

Commerzbank fell 4.5 percent, Banco Popolare dropped 3.1 percent and Credit Suisse shed 2.5 percent.

"The figures of Deutsche Bank are surprising and there's no end to be seen, and therefore we are kind of critical about the conditions of the banking sector," said Oliver Roth, head trader at Close Brothers Seydler. "I think we have seen the bottom of the crisis, but I don't see the end of the crisis. Therefore I see much more potential in other sectors than banks."

Despite the day's sell-off in among banks, the STOXX bank index is still up 5.5 percent in 2014, Europe's best sector performance so far this year.

The FTSEurofirst 300 index of top European shares ended 0.1 percent lower at 1,344.17 points. The euro zone's blue-chip Euro STOXX 50 index ended down 0.03 percent at 3,153.17.

Trading volumes were light with U.S. markets closed for a public holiday.

Struggling French carmaker PSA Peugeot Citroen also figured among the top losers on Monday, sinking 11 percent after a source told Reuters the group's board has approved a dilutive 3 billion-euro capital increase, with China's Dongfeng Motor Co. and the French government taking a significant stake.

Shares in the struggling automaker are among the most shorted across Europe, with 16.7 percent of the company's shares out on loan, according to data from Markit.

Odey Asset Management LLP and D.E. Shaw are among the hedge funds with the biggest short positions on Peugeot, according to recent filings with French regulator AMF.

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Around Europe, UK's FTSE 100 index gained 0.1 percent, Germany's DAX index lost 0.3 percent, and France's CAC 40 fell 0.1 percent.

European stocks have rallied since last June as a pick-up in the region's macro indicators and a more dovish European Central Bank prompted investors to scoop up European shares. That has led to into massive investment inflows to the region.

Europe equity funds absorbed over $4 billion in net investment inflows in the seven-day period to Jan. 15, according to the latest data from EPFR Global. It was their fourth-biggest weekly total on record.

The brisk inflows into Europe equity funds represented nearly half the collective flows into all equity funds around the world, according to EPFR.

"The market has risen on hopes of a durable turnaround in growth for the euro zone. Recent data has signalled such trends for the U.S. and UK economies, but for the euro zone, it's been mostly optimistic forecasts, not real macro data," FXCM analyst Vincent Ganne said.

"Thursday's PMI for France, Germany and the euro zone should shed some light, with the focus on France, where data has been confusing recently."

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Europe indexes in 2014:

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REFILE-Panama Canal Authority rejects EU mediation offer in contract row

The Panama Canal Authority (PCA) has turned down an offer by the European Commission to mediate in a multi-billion dollar dispute with a Spanish-led construction consortium which threatens to halt work on widening the century-old waterway.

The consortium, known as Grupo Unidos por el Canal (GUPC), had threatened to suspend work by Monday unless the Panama Canal Authority (PCA) paid $1.6 billion in cost overruns on one of the world's largest construction projects. But on Sunday the group backed down from the threat.

The European Commission said on Monday GPUC, led by Spanish builder Sacyr, had requested mediation by the European commissioner for industry Antonio Tajani, who accepted.

But the PCA immediately rejected it.

"The contract over a third set of locks has already mechanisms to resolve disputes and none of them includes the intervention of a third party," PCA said in a statement.

"This will only be dealt with in accordance with what the contract says," it also said.

Earlier on Monday Tajani had told Reuters by telephone he believed a compromise could be found allowing Panama to have the work done and the European companies not to lose the contract.

"In the meantime it is important that the deadline date (to stop work) be put back. This is the first step and it looks to me as if we are heading in this direction," he had said.

Tajani also said he had spoken with the Italian and Spanish foreign ministers and would now discuss the issue with the European Investment Bank, which financed the project, and the representatives of Panama in Brussels.

GUPC - which also includes Italy's Salini Impregilo SpA , Belgium's Jan De Nul and Constructora Urbana from Panama - won the contract in 2009 to build a third set of locks, the main part of the project to double capacity of the near 50-mile (80 km) cargo route.

The consortium's winning bid was $1 billion lower than that of its nearest rival.

The entire project was due to cost about $5.25 billion, but the overruns could bump that up to nearly $7 billion.

GUPC is set to meet with the PCA and insurer Zurich North America on Tuesday to discuss the status of the work, including its $600 million bond on the locks project.

Canal Administrator Jorge Quijano has said the PCA is already in discussions with other third-party contractors in case it cannot resolve its dispute with the GUPC. He estimated the remaining work would cost about $1.5 billion.

The canal authority has said it is willing to consider detailed claims for the overruns through arbitration.

The canal is one of the world's most important shipping routes and halting construction on the project would be a setback for companies eager to move larger ships through the waterway such as liquefied natural gas (LNG) producers who want to ship exports from the U.S. Gulf coast to Asian markets.

GDF Suez eyes buys of up to $20 bln after failed $17 bln Talisman bid-sources

French utility GDF Suez had takeover approaches for Canada-based Talisman Energy rebuffed late last year as it seeks acquisitions worth as much as $10 to $20 billion outside Europe, banking and industrial sources said.

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GDF's financial advisers have reviewed a number of sizeable acquisitions, including U.S.-based utility AES, according to two people with direct knowledge of the situation, as Chief Executive Gerard Mestrallet eyes a transformational deal before his retirement in 2016.

GDF, Talisman and AES declined to comment.

JPMorgan sues Berlin transport provider over derivatives contract

JPMorgan is suing Berlin's public transport provider in a British court to recover the $204 million plus interest it says it is owed over an "unfortunate" derivatives contract taken out before the financial crisis.

The lawyer for the U.S. bank said Berliner Verkehrsbetriebe (BVG) was looking for anyone other than itself to blame for the losses on the collateralised debt obligation (CDO).

"Rather than simply accepting that it had been unfortunate in the events that happened in the financial markets... BVG has decided to follow a course doing everything it could to avoid paying its debts... casting around for someone to blame other than itself," Laurence Rabinowitz told a London court on the first day of the trial.

Problems arose simply because the transaction occurred just when serious cracks in the world's financial system were appearing, Rabinowitz added.

BVG, which runs the German capital's underground railway, tram, bus and ferry networks, argues that it was misled by JPMorgan and the bank's law firm, Clifford Chance, and that it did not fully understand the risks involved. BVG is due to begin its defence on Tuesday.

Clifford Chance said in a statement the "claims against us are misconceived and entirely without merit."

The transport authority maintains that the employee most closely involved in the swap had no experience of the complex financial derivative the bank had pitched to him and misunderstood it, according to court documents.

CDOs are a series of assets, often high-yield junk bonds, mortgage-backed securities, credit default swaps and other products, put together by a bank and sold in tranches according to their level of risk. They were marketed to investors as investments with a defined risk and reward.

Following the 2008 financial crisis many investors who lost tens of millions of dollars through such investments have questioned what banks knew when they modelled such products and a number have brought legal action against the banks.

Industry experts have also argued that some organisations may have lacked the sophistication to understand CDOs.

The case comes after JPMorgan paid nearly $20 billion in 2013 to settle assorted legal claims, including the "London Whale" derivatives trading scandal.

Hedge fund Elliott raises Celesio stake to 24.08 percent

Activist investor Elliott Management Corp has raised its stake in German drug distributor Celesio and now controls shares equivalent to 24.08 percent of voting rights, regulatory filings to the Frankfurt Stock Exchange on Monday showed.

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New York-based hedge fund Elliott, which previously controlled shares with less than 20 percent voting rights, declined to comment.

Earlier this month Reuters reported market talk that Elliott was adding to its stake after the failure of an $8.4-billion Celesio bid from McKesson Corp.

McKesson had raised its offer for Celesio following pressure from Elliott, Celesio's second-largest shareholder behind Franz Haniel. But the U.S. drugs wholesaler failed to get across a 75 percent threshold for acceptances it had set as a condition.

In the disclosure filing on Monday, Elliott revealed it also holds convertible bonds which give it access to an additional 7.93 percent voting stake, giving the hedge fund a theoretical voting stake of 32.01 percent, according to the document.

Because the convertible bonds do not come due until Oct. 29 this year, and April 7, 2018, Elliott is not immediately obliged to make a mandatory offer to shareholders.

Under German takeover rules, any investor who accumulates a voting stake of above 30 percent must make a mandatory takeover offer to the remaining shareholders.

UPDATE 1-Lenovo resumes talks to buy IBM unit -source

China's Lenovo Group Ltd has resumed discussions to buy International Business Machines Corp's low-end server unit, a source familiar with the matter told Reuters.

The two companies were in discussions to buy the division last year, but no deal was made as they couldn't agree on a price, sources have said.

It was unclear how far along the more recent talks were, or what prices were being considered.

An IBM spokesman said on Monday the company wouldn't comment on the report, nor on similar reports in other media outlets.

Bloomberg, citing a person with direct knowledge of the matter, said Lenovo was in serious discussions to buy the unit and that a deal may be signed within weeks. The Wall Street Journal, also citing unnamed sources, said Dell Inc may be among the potential buyers, though it was unclear how serious Dell was.

Dell went private in a $25 billion deal last year, following prolonged troubles at the computer maker.

IBM's x86 server business sells servers used to power corporate data centers. Last year, Lenovo put the value of the division at below $2.5 billion, according to the Wall Street Journal.

Oxxo convenience stores attacked in central Mexico

A series of Oxxo convenience stores have been attacked in central Mexico, authorities said on Monday, a sign that strikes targeting businesses may be spreading nearer to the capital.

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There were reports that as many as nine stores belonging to Mexico's largest convenience store chain, operated by Femsa , were attacked late on Sunday night, authorities in Hidalgo state and the state of Mexico said.

Femsa said two of its Oxxo stores were set on fire and three were attacked by gunmen. Some employees suffered burns but none were seriously hurt, Femsa said in a statement.

The State of Mexico surrounds most of Mexico City and borders Hidalgo to the north, and local state prosecutors said the attacks appeared coordinated, echoing recent assaults against businesses in the state of Michoacan in western Mexico.

Michoacan, which shares a border with the State of Mexico, has been shaken by fighting between a violent drug gang and heavily-armed vigilante groups, presenting a major security challenge to President Enrique Pena Nieto.

A Hidalgo state official said one store in Tula, just over an hour from Mexico City, was set on fire, apparently with Molotov cocktails. There was a similar incident at a store in Tizayuca, involving the same kind of homemade device, he said.

Five more stores were attacked in Hidalgo but it was not clear if similar devices were used there, the official said.

Two more attacks on Oxxo stores were reported in the State of Mexico, prosecutors said. Femsa confirmed those attacks.

Femsa runs Latin America's biggest Coke bottler, Coca-Cola Femsa, in a joint venture with The Coca-Cola Co. Oxxo sells Coke and other bottled drinks as well as snacks and cigarettes, among other items. Some of the stores are open 24 hours.

In Michoacan, large areas of which have been under the control of the Knights Templar drug cartel, a number of installations operated by Mexico's state-run electricity company were attacked in October, temporarily knocking out power for hundreds of thousands of people.

Two years ago in Michoacan, officials arrested members of the Knights Templar after a string of arson attacks on trucks distributing PepsiCo snack products that was apparently part of an extortion effort.

Ethiopian Airlines plans order for 10-20 narrowbody jets - CEO

Ethiopian Airlines is looking at placing an order for 10-20 narrowbody jets, its chief executive told Reuters on Monday.

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Such an order would be worth $1-2 billion at list prices.

Ethiopian will probably study proposals from Boeing, Airbus and Canada's Bombardier, a new entrant to the market for roughly 150-seat aircraft, Tewolde Gebremariam said.

The airline, which plans to increase its revenues five-fold to $10 billion by 2025, is separately evaluating Boeing's latest wide-body jet, the 406-seat 777X, but has no immediate plans to place an order, he said.

Speaking on the sidelines of an Airlines Economics conference in Dublin, he also downplayed concerns over the Boeing 787 Dreamliner following new glitches on the high-tech jet which was grounded over battery problems last year.

A Japan Airlines (JAL) Boeing 787 Dreamliner was grounded last week after white smoke vented from the plane and a battery cell showed signs of melting.

"We've never had any problems with the batteries," Gebremariam said. Ethiopian operates five Dreamliners.

An Ethiopian 787 which caught fire at London's Heathrow last year resumed service last month without any penalty in performance following repairs to its carbon-fibre fuselage, he said.

The fire has been widely linked to small batteries in an emergency beacon but UK authorities have yet to publish their official on the incident.

Gebremariam said load factors, or the proportion of seats sold, had increased when Ethiopian put the 787 on new routes, such as Frankfurt and London.

EU expected to take legal action vs Germany over Daimler coolant breach

The European Commission is expected to launch legal action against Germany over Daimler's refusal to remove a banned refrigerant from new cars, EU sources said on Monday.

A final decision on legal action against Germany could be taken as early as Wednesday, two sources, speaking on condition of anonymity, said.

Officials have for months been investigating the German luxury carmaker's refusal, backed by Berlin, to follow an EU law banning the air-conditioning coolant known as R134a from the start of last year.

The carmaker insists its refusal to phase out R134a, a global warming agent more than 1,000 times more potent than carbon dioxide, is justified by safety concerns.

The only available replacement, Honeywell's R1234yf has a global warming potential only four times more than carbon dioxide but Daimler says it can emit toxic hydrogen fluoride gas when it burns.

"Germany could so far not prove that R1234yf is so dangerous that a violation of the rule is justified," one of the EU sources told Reuters.

A second said: "The opening of the infringement procedure is imminent. If it will not be at this round of infringements, it will be next month."

After safety tests, other European carmakers have switched their newest models to the coolant developed by Honeywell in partnership with Dupont.

The Commission said it could not comment before Wednesday and Daimler also said it could not comment.

Under the EU infringement system, countries found not to be enforcing the bloc's law can be taken to the European Union's top courts in Luxembourg, which have the power to impose fines.

UPDATE 1-Doric expects to complete Airbus A380 order soon

Doric Lease Corp expects to finalize an order for 20 Airbus A380 superjumbo jets in the next couple of months, a senior executive said on Monday.

The Dublin-based leasing firm placed the order, worth $8 billion at list prices, at last year's Paris Airshow, hoping to find new customers for the world's largest airliner following a period of slack sales.

In a separate move, Emirates airline subsequently placed a firm order for 50 of the aircraft. But while that order has been confirmed, Doric's purchase remains to be finalized and is widely seen as depending on airlines agreeing to lease it.

"Airbus has said it expects to have the order finalized in the next couple of months. That is where we are and where we expect to be," Paul Kent, chief commercial officer, told a conference hosted by Airline Economics.

"We will have news relatively quickly on completion," he added.

Doric has made progress in placing the aircraft it plans to order, Kent added, but declined to give details.

The 525-seat, four-engined A380 was hailed as the answer to crowded airports and scarce landing slots when it was launched at the turn of the century.

But sales have failed so far to reach the potential identified by Airbus after the industry turned its attention to the latest generation of smaller twin-engined aircraft.

Kent said predictions of increased congestion and urbanization would ultimately prove the case for the A380.

In a potential obstacle for sales of the A380, worth more than $400 million at list prices, some industry experts have said Airbus's own 350-seat A350-1000 rivals the economics of the A380 despite spreading its costs over 175 fewer seats.

But Kent said the A380 would hold its own against the largest twin-engined jets.

He said the A380's cash operating costs per seat, a key barometer of performance, were 7 percent lower than those of the A350-1000 and 24 percent lower than the current 777-300ER.

He displayed a chart suggesting the superjumbo would perform about 10 percent better than Boeing's planned new 777X.

Rekindling a dispute between jumbo jet economics, he also claimed a 19 percent per-seat cost advantage for the A380 against its direct competitor, the four-engined Boeing 747-8.

Airbus and Boeing were involved in a bitter clash over their competing claims for their four-engined jumbos last year, with Boeing claiming an 8 percent advantage for the 747-8.

Peru minister expects Southern Copper mine to get permit in Q2

Peru will likely approve the environmental impact study for Southern Copper's $1 billion Tia Maria project in the second quarter, Energy and Mines Minister Jorge Merino said on Monday.

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"We are working closely with the company," Merino told reporters.

In mid-December, Merino told state news agency Andina that the key permit for the proposed copper mine in southern Peru would probably be passed within 90 days.

Merino said the ministry is evaluating observations made by locals following town hall meetings with the company late last year.

In 2011, the previous government rejected the environmental impact study for the project, after violent protests by farmers who said the mine would deplete their water supplies.

Southern Copper, an affiliate of Grupo Mexico, has agreed to build a desalination plant.

Merino said the company now has the backing of nearby communities, but local opponents continue to hold protests against the mine, saying they were excluded from recent talks.

Southern Copper expects Tia Maria to produce 120,000 tons of copper per year.

Canadian insurers paid out C$3.2 bln due to weather last year

Extreme weather events including flooding in Alberta and an ice storm that hit Ontario and Eastern Canada cost Canadian insurers a record C$3.2 billion ($2.92 billion) in losses last year, an industry group said on Monday.

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The report by the Insurance Bureau of Canada (IBC), an umbrella group of Canadian property and casualty insurers, follows warnings from industry players that premiums will have to rise to cover a rising number of catastrophic claims events.

The bulk of the loss stemmed from June floods that shut down the oil industry hub of Calgary, Alberta, and decimated some smaller communities. That flood, which the IBC said was Canada's costliest natural disaster ever, cost insurers C$1.74 billion.

A smaller flash flood in Toronto in July resulted in C$940 million in damages, while an ice storm that hit Toronto and other parts of Ontario and Eastern Canada in December cost insurers C$200 million in damage to homes, it said.

"Canadian communities are seeing more severe weather, especially more intense rainfall. This overburdens our sewer and stormwater infrastructure, resulting in more sewer backups in homes and businesses," Don Forgeron, Chief Executive of the IBC, said in the report.

The losses come in the wake of four straight years of natural disaster losses exceeding C$1 billion, the group said.

Julie Dickson, head of the country's main financial services regulator, in September called 2013 and "annus horribilis" for the property and casualty insurance industry, citing the floods, as well as the derailment and explosion of an oil-laden train that killed nearly 50 people and destroyed part of the town of Lac Megantic, Quebec, in July.

In November, Intact Financial Corp the country's largest property and casualty insurer, said it expected to boost homeowners insurance premiums by between 15 and 20 percent in most provinces to deal with higher claims.

UPDATE 2-GECAS orders 40 Boeing 737s worth $4 bln

GECAS, the world's largest aircraft leasing company, announced an order for 40 Boeing medium-haul passenger jets on Monday, in a fresh boost for the U.S. planemaker's best-selling model.

Confirming an earlier Reuters report, GECAS said the order would be split between the current-generation Boeing 737-800 and the future 737 MAX, a revamped jet designed to save fuel with the introduction of new engines, starting in 2017.

GECAS is owned by General Electric, which makes the engines for the 737 family in a transatlantic joint-venture shared equally with France's Safran.

In October 2012, GECAS ordered 75 Boeing 737 MAX jets and 10 current 737-800s and took options for up to 15 additional 737-800s. Boeing's 737 competes with the Airbus A320.

GECAS was formed in 1993 after GE acquired most of the aircraft of the collapsed leasing empire of Irish entrepreneur Tony Ryan and combined it with its own Polaris operation. Most of its 1,700 aircaft are still managed in Ireland.

Ireland this week celebrates its re-emgerence as a major finance hub after AerCap, which owns the rump of GPA, bought its U.S. rival ILFC.

Following completion of the deal, both AerCap and GECAS will hold most of their aircraft on the books in Ireland, which is attractive to leasing companies because of a 12.5 percent corporation tax and a global network of tax deals.

News of the order came as financiers began annual meetings in an upbeat mood about demand for the 737 and other aircraft, at a conference in Dublin hosted by Airline Economics.

About 40 percent of the world's $100 billion annual deliveries of commercial jets are distributed to airlines via leasing companies like GECAS, which rent them out for a monthly fee and collect advances towards heavy jet maintenance costs.

UPDATE 1-Oxxo convenience stores attacked in central Mexico

A series of Oxxo convenience stores have been attacked in central Mexico, authorities said on Monday, a sign that strikes targeting businesses may be spreading nearer to the capital.

There were reports that as many as nine stores belonging to Mexico's largest convenience store chain, operated by Femsa , were attacked late on Sunday night, authorities in Hidalgo state and the state of Mexico said.

Femsa said three of its Oxxo stores were set on fire and two were attacked by gunmen. Some employees suffered burns but none were seriously hurt, Femsa said in a statement.

The company said it was investigating whether there is any connection between the gun attacks and the fires.

The State of Mexico surrounds most of Mexico City and borders Hidalgo to the north, and local state prosecutors said the attacks appeared coordinated, echoing recent assaults against businesses in the state of Michoacan in western Mexico.

Michoacan, which shares a border with the State of Mexico, has been shaken by fighting between a violent drug gang and heavily-armed vigilante groups, presenting a major security challenge to President Enrique Pena Nieto.

A Hidalgo state official said one store in Tula, just over an hour from Mexico City, was set on fire, apparently with Molotov cocktails. There was a similar incident at a store in Tizayuca, involving the same kind of homemade device, he said.

Five more stores were attacked in Hidalgo but it was not clear if similar devices were used there, the official said.

Two more attacks on Oxxo stores were reported in the State of Mexico, prosecutors said. Femsa confirmed those attacks.

Femsa runs Latin America's biggest Coke bottler, Coca-Cola Femsa, in a joint venture with The Coca-Cola Co. Oxxo sells Coke and other bottled drinks as well as snacks and cigarettes, among other items. Some of the stores are open 24 hours.

In Michoacan, large areas of which have been under the control of the Knights Templar drug cartel, a number of installations operated by Mexico's state-run electricity company were attacked in October, temporarily knocking out power for hundreds of thousands of people.

Two years ago in Michoacan, officials arrested members of the Knights Templar after a string of arson attacks on trucks distributing PepsiCo snack products that was apparently part of an extortion effort.

Train hauling crude oil derails on Philadelphia bridge

A freight train carrying crude oil derailed on Monday on a railroad bridge in Philadelphia, forcing the closing of the busy Schuylkill Expressway, authorities said.

Nothing leaked in the derailment which occurred about 1 a.m. EST (0600 GMT) near the Schuylkill River, the U.S. Coast Guard said in a statement.

The accident was the latest in a series of crashes of trains carrying crude oil in the United States and Canada that has raised safety concerns.

The Schuylkill Expressway was closed for nearly an hour after the derailment and again at about noon, according to a spokesman for the Pennsylvania Department of Transportation.

Delays occurred as well as motorists slowed to look at a tanker car and a freight car visibly leaning sideways on the railway bridge.

Local media quoted a CSX Corp spokesman as saying the 101-car freight train was headed to Philadelphia from Chicago, and that seven cars derailed on the bridge.

Six of the derailed cars carried crude oil, CSX was quoted as saying. The cause of the derailment was unknown, and no injuries were reported.

CSX did not immediately return calls seeking details or comment.

The Philadelphia crash extends a string of accidents involving trains hauling crude oil.

Last July, a runaway oil train derailed and exploded in the center of the Quebec town of Lac-Megantic, killing 47 people.

In early November, an oil train derailed in rural Alabama and erupted into flames that took several days to extinguish.

On Dec. 30, an oil train collided with a derailed car from a grain train outside the small town of Casselton, North Dakota. The fiery collision spilled more 400,000 gallons of crude and forced the evacuation of 1,400 people from their homes.

Brazil homebuilder MRV's project launches surge in fourth quarter

The value of project launches at Brazil's No. 2 homebuilder by market value, MRV Engenharia SA , more than doubled in the fourth quarter following a push to sell off inventory in previous quarters.

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Launches totaled 1.34 billion reais ($573.1 million) in the fourth quarter, a 101 percent increase from the same period in 2012, according to a securities filing on Monday.

The total value of launches in 2013 was 3.52 billion reais, up 2 percent from the previous year, while contracted sales rose 27 percent to 5.09 billion reais. Contracted sales, a measure of firm home purchases, totaled 1.23 billion reais in the fourth quarter, up about 1 percent from a year earlier.

In November, Chief Executive Officer Rubens Menin said the company, which focuses on the low-income market, would increase the pace of project launches as it sold off inventory. Most of the third quarter's sales came from existing stock.

"We had been selling more than we were launching, and that obviously has a limit," Chief Financial Officer Leonardo Corrêa told Reuters on Monday.

While Brazil's economy is widely expected to grow sluggishly this year, Corrêa said he is bullish on MRV's outlook because some of its competitors, struggling with high sales cancellations and project delays, have bowed out of the low-income segment.

"The construction cycle is long, so until one decides to come back, purchase land and restart the whole process, it is a situation that is going to last for a relatively long time," he said.

MRV is expected to release fourth-quarter and full 2013 earnings on March 27.

Brazil's GPA appoints Iabrudi as CEO, to replace Pestana

GPA SA, Brazil's largest diversified retailer, tapped Ronaldo Iabrudi as chief executive officer, according to a securities filing Monday.

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Iabrudi, a former private equity banker who headed mining company Magnesita SA between 2008 and 2012, was currently the top executive of France's Casino Guichard Perrachon & Cie in Brazil. Casino, one of France's largest retailers, is GPA's controlling shareholder.

Iabrudi replaces Enéas Pestana, who ran the São Paulo-based company since March 2010 and tendered his resignation earlier in the day, the filing added.

GECAS may order 40 Boeing 737s worth $4 billion: sources

GECAS, the world's largest aircraft leasing company, is close to placing an order for around 40 Boeing ( id="symbol_BA.N_0">BA.N) medium-haul jets, industry sources said on Monday.

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The order may include a mixture of revamped Boeing 737 MAX aircraft, designed to save fuel with the introduction of new engines from 2017, and Boeing's best-selling current model, the 737-800.

Such an order would be worth some $4 billion at list prices if split evenly between the two models.

Boeing and GECAS both declined comment.

GECAS is owned by General Electric ( id="symbol_GE.N_1">GE.N) which makes the engines for the 737 family in a transatlantic joint-venture co-owned by France's Safran ( id="symbol_SAF.PA_2">SAF.PA).

In October 2012, GECAS ordered 75 Boeing 737 MAX jets and 10 current 737-800s and took options for up to 15 additional 737-800s. Boeing's 737 competes with the Airbus ( id="symbol_AIR.PA_3">AIR.PA) A320.

GECAS was formed in 1993 after GE acquired most of the aircraft of the collapsed leasing empire of Irish entrepreneur Tony Ryan and combined it with its own Polaris operation. Most of its 1,700 aircraft are still managed in Ireland.

Ireland has re-established itself as a global aviation finance hub, after AerCap ( id="symbol_AER.N_4">AER.N), which owns the rump of GPA, bought its main U.S. rival ILFC from U.S. insurer AIG ( id="symbol_AIG.N_5">AIG.N), strengthening its position as industry no.2.

Following completion of the deal, both companies will hold most of their aircraft on books in Ireland for tax reasons.

Aircraft financiers began annual meetings in Dublin on Monday at a conference hosted by Airline Economics.

About 40 percent of the world's $100 billion annual deliveries of commercial jets are distributed to airlines via leasing companies, which rent them out for a monthly fee and collect cash advances towards heavy jet maintenance costs.

(Reporting by Tim Hepher, Conor Humphries; Editing by Victoria Bryan)

Russia to support domestic car industry with subsidies

Russia plans to support its struggling auto industry with subsidies of up to 271 billion roubles ($8 billion) in the three years to 2016, the government said.

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Russian car sales fell in 2013 and face another weak year as a stuttering economy puts off buyers, according to lobby group the Association of European Businesses (AEB).

The subsidies will be for research and development, to support jobs and to compensate for some costs related to meeting tighter exhaust emission standards, the government said in a statement on its web site.

Russia's largest carmaker is Avtovaz, maker of the Lada, which is set to be controlled by Franco-Japanese alliance Renault-Nissan ( id="symbol_RENA.PA_0">RENA.PA) ( id="symbol_7201.T_1">7201.T) by mid-2014. Other foreign carmakers have invested heavily in the country, such as Ford ( id="symbol_F.N_2">F.N) and General Motors ( id="symbol_GM.NGM.N).

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Russia introduced a recycling fee for imported cars in 2012, angering the European Union which argued the fee - to cover the cost of scrapping a car when it becomes too old to drive - was not compatible with Russia's membership of the World Trade Organization (WTO).

The United States and Japan also complained about the levy.

The Russian government responded last year by saying it would apply the same fee to all cars - whether imported or manufactured in Russia - and some analysts said the latest support was a way of offsetting the cost for domestic carmakers.

"The introduction of subsidies will reinstate such government support to the industry at no additional cost to the budget," analysts at Bank of America said in a research note.

The WTO was not immediately available for comment.

Russia last year tried to prop up car sales with credit incentives. The program ended in December.

The government said Russia aimed to increase production of cars to 3.1 million units a year and light commercial vehicles to 280,000 units per year, without giving comparative figures.

Data from the AEB last week said car and light commercial vehicle sales are expected to fall by 1.6 percent in Russia in 2014 to 2.73 million units.

($1 = 33.5492 Russian roubles)

(Reporting by Megan Davies, Additional reporting by Gleb Stolyarov; Editing by Polina Devitt, Douglas Busvine and Mark Potter)

Google set to face Intellectual Ventures in landmark patent trial

Intellectual Ventures is set to square off this week against Google Inc's Motorola Mobility unit in the first trial that the multibillion-dollar patent-buying firm has undertaken since it was founded.

Privately-held Intellectual Ventures sued Motorola in 2011, claiming the mobile phone maker infringed patents covering a variety of smartphone-related technologies, including Google Play. Motorola has denied the allegations and will now go to trial over three of those patents.

Barring any last-minute settlements, jury selection is scheduled to begin on Tuesday at a federal court in Wilmington, Delaware.

The trial takes place amid an unfolding debate in Congress over patent reform, in which Intellectual Ventures and Google are on opposite sides. Google is backing attempts to curb software patents and make it easier to fight lawsuits, while IV has warned that Congress should not act too rashly to weaken patent owners' rights.

IV and other patent aggregators have faced criticism from some in the technology industry, who argue that patent litigation and royalty payments have become a burdensome tax on innovation. They say firms like IV, which do not primarily make products, are exploiting the patent system.

But IV argues that unlike some of the firms denounced as "patent trolls," it invests only in quality intellectual property and does not file frivolous lawsuits. IV also says it helps inventors get paid for their innovations while helping tech companies protect and manage their intellectual property.

Should the Delaware jury rule against Motorola and uphold IV's patents, it could bolster the firm's argument that it does not buy frivolous patents, said Shubha Ghosh, a University of Wisconsin Law School professor.

Yet a win for Motorola could be held up as evidence that the U.S. government issues too many dubious patents. And even if IV prevails, Google could still argue that patent litigation before a jury of non-expert citizens is akin to a lottery, said Ghosh, who supports patent reform.

"Just because you have a winning ticket doesn't mean it's not still a lottery," he said.

IV and Google both declined to comment on the upcoming trial.

Since its founding in 2000, IV has raised about $6 billion (3.6 billion pounds) from investors and has bought tens of thousands of intellectual property assets from a variety of sources. Google was an investor in IV's first patent acquisition fund, but did not join later vehicles.

IV filed a barrage of lawsuits in 2010 against companies in various sectors, and most defendants have since settled.

THE INVENTORS

Two of the patents in the upcoming Motorola trial cover inventions by Richard Reisman, U.S. government records show. Through his company, Teleshuttle, Reisman has developed several patent portfolios for various technologies, including an online update service, according to the Teleshuttle website.

IV claims that the two Reisman patents cover several of Motorola's older-generation cellphones that have Google Play, a platform for Android smartphone apps. Motorola argues that IV's patents should never have been issued because the inventions were known in the field already.

Reisman did not respond to requests for comment.

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One of the patents in play against Motorola has been in a courtroom before. Teleshuttle and a British partner, BTG, sued Microsoft and Apple in 2004 using one of the same patents now in play against Motorola.

_1">

In 2006, Teleshuttle and BTG sold their patent rights to Delaware-based Twintech EU LLC for $35 million up front, plus a percentage of future licensing fees, according to BTG's website. At the same time as the sale, BTG and Teleshuttle abruptly withdrew their cases against Apple and Microsoft.

_2">

Microsoft and Apple were both early investors in Intellectual Ventures. IV often uses subsidiary companies to buy patents, and then transfer them at a later date to related corporate entities, though public records do not indicate whether IV had an ownership interest in Twintech.

_3">

IV took title on the patents from Twintech in September 2011 and sued Motorola a month later, U.S. records show. In a 2011 blog post, Reisman wrote that his deal with IV provided resources "to let me focus on my work as an inventor."

_4">

Microsoft declined to comment while Apple did not respond to a request for comment.

_5">

Another patent being asserted against Motorola was originally issued to Rajendra Kumar in 2006. Kumar's company, Khyber Technologies, transferred it to Balustare Processing NY LLC in July 2011, which passed it over to IV about a month later, patent records show.

_6">

Khyber Technologies was founded in 1991 with the goal of creating the next generation of handheld computing products, according to its website. The patent that IV obtained from Khyber covers detachable handset technology, which IV claims Motorola used in its defunct Lapdock product.

_7">

Kumar declined to comment on the IV lawsuit.

_8">

If IV wins, damages will be decided at a later proceeding. The trial is expected to last about ten days.

_9">

The case in U.S. District Court, District of Delaware is Intellectual Ventures I and Intellectual Ventures II, 11-908.

_10">

(Reporting by Dan Levine; editing by Jonathan Weber)

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Brewer AB InBev grows in Asia with $5.8 billion Korea return

Anheuser-Busch InBev SA, the world's biggest brewer, agreed to buy back South Korea's Oriental Brewery Co Ltd (OB) for $5.8 billion including debt, returning to a large Asian market at a time of strong industry growth across the region.

The sale by KKR & Co and Affinity Equity Partners will be Asia's biggest ever for private equity, excluding flotations, and rewards them with returns of more than five times their investment.

However AB InBev can claim with Monday's deal to be paying a reasonable price for a business that has grown in value in the five years since it was sold for $1.8 billion. That sale was one of the aggressive divestments forced on InBev after its $52 billion purchase of U.S. brewer Anheuser-Busch in 2008.

AB InBev shares rose 1.0 percent by 1050 GMT on Monday, making them the strongest performers in a STOXX 600 European food and beverage index, which was up 0.3 percent.

Andrew Holland, analyst at Societe Generale, said the price was pretty fair considering OB's improved profitability.

"AB InBev is looking for areas of growth faster than in its existing business," he said. Referring to the brewer's two largest markets, he added: "I'm cautious on the U.S. and there are question marks over underlying growth in Brazil beyond the World Cup and weather bounce expected in 2014."

OB, with top-selling lager Cass, has become Korea's largest brewer with a 60 percent market share. It raised its core profit (EBITDA) to some $500 million last year - 2.3 times greater than when KKR and Affinity acquired it.

Korea is a relatively mature beer market, with 40 liters drunk per capita per year, on a par with China. Growth was 2 percent per year from 2009 to 2012, and seen at a little over an annual 1 percent for the subsequent 10 years.

The overall price of AB InBev's deal - excluding a $320 million cash payment it expects to receive - is some 11 times OB's EBITDA. That's well below the 16 times Heineken paid in 2012 to take control of Asia Pacific Breweries, which is active in faster-growing southeast Asia.

The more modest multiple may also reflect the fact that KKR and Affinity have probably already made many of the sort of cost cuts that AB InBev typically seeks from its acquisitions.

Analysts said AB was likely to find further savings from cheaper procurement of raw materials due to its global scale and by pushing its higher-margin premium brands, such as Budweiser and Stella Artois via OB in Korea - as well as selling OB's beers outside Korea.

ASIAN ATTRACTION

AB InBev had an option buy OB back within five years of the date of the 2009 sale. Its decision to strike before the July deadline underscores the hot competition for brewing and liquor assets in the region.

The deal comes a week after Japan's Suntory Holdings agreed to buy spirits maker Beam Inc for $13.6 billion. Carlsberg, Heineken NV and SABMiller Plc have also struck deals in Asia over the past five years, lured by the region's $258 billion market that is growing twice as fast as the rest of the world.

"The longer InBev waited, the more expensive it became and they also risked leaving room open for other suitors to knock at the door of the sellers," said one person with knowledge of the original deal.

OB, along with Hite Jinro controls 90 percent of Korea's beer market, making it relatively easy to raise prices. Its premium segment could also grow from some 10 percent of the overall beer market closer to the 20 percent plus of mature western Europe and North America.

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However, the OB buy is more of an add-on than a transformational deal, given AB's size. Its last big purchase was $20.1 billion in 2013 for the remaining half of Mexico's Grupo Modelo.

_1">

AB InBev said it would draw on existing liquidity to fund the deal and would still be able to bring its net debt/EBITDA ratio to below two times in 2015, though perhaps six months later than planned.

_2">

Some analysts said the OB purchase could mark the start of a push by AB InBev beyond its core markets in the Americas, with other add-on deals possibly in China. The brewer has a relatively small presence in Asia Pacific.

_3">

BIG PRIVATE EQUITY RETURNS

_4">

KKR and Affinity's sale of Oriental Brewery represents a multiple of over five times the cash they paid, according to a source with knowledge of the matter, a huge return for a deal of this size and rewarding the firms with hundreds of millions of dollars in net profit.

_5">

For the buyout firms, it was a high risk deal less than a year after the collapse of Lehman Brothers when there was no clarity on how long the global recession would last.

_6">

Citigroup and Morgan Stanley advised KKR and Affinity and Deutsche Bank AG and Lazard advised AB InBev, according to a source with knowledge of the matter.

_7">

(Additional reporting by Denny Thomas, Michael Flaherty and Joyce Lee; Editing by Edwina Gibbs and Sophie Walker)

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South Africa minister warns on economy as mines face strike threat

South Africa's ailing economy cannot afford more mine labor unrest, Finance Minister Pravin Gordhan said on Monday, as the platinum industry's main trade union served notice on the world's top three producers that it planned to strike this week.

A series of sometimes violent strikes in the factory and mining sectors constrained growth to a sluggish 2 percent in 2013, hampering efforts by President Jacob Zuma's government to create badly needed jobs as it braces for elections this year.

The African National Congress has swept elections since overturning white minority rule in 1994, but the party Zuma now heads faces growing criticism that it has failed to lift millions of blacks out of poverty during 20 years in power.

Platinum producers Anglo American Platinum ( id="symbol_AMSJ.J_0">AMSJ.J), Lonmin ( id="symbol_LMI.L_1">LMI.L) ( id="symbol_LONJ.J_2">LONJ.J) and Impala Platinum ( id="symbol_IMPJ.J_3">IMPJ.J) said they had received notice from the Association of Mineworkers and Construction Union (AMCU) to strike in 48 hours, setting the stage for another crippling wave of unrest.

The chamber of mines, which represents bullion producers, said it was seeking a court order to block plans by the AMCU to down tools at Sibanye Gold's ( id="symbol_SGLJ.J_4">SGLJ.J) Driefontein mine, Harmony Gold's ( id="symbol_HARJ.JHARJ.J) Kusaselethu and Masimong mines, and at AngloGold Ashanti's ( id="symbol_AGLJ.JAGLJ.J) local operations.

_5">

The AMCU, which has a record of militancy, has rejected a 8 percent pay hike that rival union National Union of Mineworkers (NUM), which still represents most gold miners, agreed with producers last year.

_6">

The rand hovered close to recent five year lows after news of the planned strikes and Gordhan's warning, with scope to extend its nearly 4 percent losses against the dollar in the first three weeks of the new year.

Renewed labor strife in Africa's biggest economy will raise a red flag for ratings agencies after more than 50 people died during violent mine protests in 2012 that triggered downgrades from Moody's, Fitch, and Standard and Poor's and helped knock about 25 percent off the rand's value.

"The platinum industry needs to seriously get around the table," Gordhan told state broadcaster SAFM in an interview on Monday. "We can least afford another round of strikes that will act as a destabilization to the platinum sector, which has had increasing difficulties over the last 18 months."

STRIKES CONSTRAIN SOUTH AFRICA RATING

Earlier this month, Moody's cited weakening productivity and strike-related business losses, exacerbated by declining terms of trade, as a major credit challenge for South Africa.

"The economy has never fully recovered its momentum following the global recession in 2009, partly due to domestic political and economic turbulence ignited by violent labor unrest and the associated uncertainty that it has created," it said.

Demands for wage increases well above inflation of 5.3 percent will also worry the Reserve Bank, which has been blocked from further policy loosening by price pressures stemming from the rand's weakness.

The central bank will likely keep interest rates at a four-decade low of 5 percent at its first policy meeting of the year next week.

At Anglo American Platinum and Lonmin, the AMCU is seeking a minimum monthly wage of 12,500 rand ($1,200) for entry-level workers - more than double current levels, under the populist banner of a "living wage".

At Impala, the union scaled back its demand late last year to just over 8,500 rand a month.

_0">

The NUM said on Friday it had accepted overall wage increase offers of between 9.8 and 11.8 percent from mid-tier platinum producer Northam Platinum ( id="symbol_NHMJ.J_7">NHMJ.J) in a bid to end a 75-day strike by more than 7,000 miners.

_1">

Companies have said they can ill afford steep increases as power and other costs soar while prices for platinum, used in pollution-reducing automobile catalytic converters, remain depressed.

_2">

($1 = 10.8370 South African rand)

_3">

(Writing and additional reporting by Stella Mapenzauswa; Additional reporting by Ed Stoddard; Editing by Giles Elgood)

_4">

Regulators start work on new bank asset valuation rule

Global regulators are planning the world's first common rule within three years to value hard-to-price assets held by banks after unexpected revisions have unsettled investors, the man overseeing the plan told Reuters.

The initiative may face resistance from a banking sector worried that assets will be more conservatively priced, hitting bonuses and bumping up capital requirements.

"Regulators don't have a benchmark for valuations at banks," said David Tweedie, chairman of the International Valuation Standards Council (IVSC), an independent, not-for-profit, private sector body which develops valuation standards.

"Our job is to say that is how you arrive at the value. Let's agree a model. The big ones we should have done within two to three years," he told Reuters in an interview.

Despite warnings about hasty rulemaking from accountants, the Financial Stability Board (FSB), which coordinates regulation for the Group of 20 (G20) leading economies, is encouraging the work to plug gaps highlighted by the 2007-09 financial crisis and more recent announcements from banks.

Tweedie will start setting up this week a task force of regulators, standard setters, rating agencies and accountants to look at big variations in values and the pricing methods used.

Accounting rules set out when an asset is priced at the going rate, known as mark-to-market, but give little guidance on exactly how that information should be applied in a company's accounts - especially if there is no market.

"The key one will be derivatives and how to deal with them when there is not a market. We could get resistance as this could affect bonuses and capital buffers," Tweedie said.

The IVSC is incorporated in the United States with operational headquarters in London, and is funded mainly through membership subscriptions and sponsorship from the worlds of accounting, regulation and academia.

It currently has 74 member bodies from 54 countries, but does not have enforcement powers, and if any new rule is agreed, it would raise the question who would carry out the valuations.

"A DIFFICULT TASK"

Tweedie previously chaired the International Accounting Standards Board (IASB) which for the past decade has been aligning global accounting rules at the G20's request to make it easier for investors to compare companies.

Six years after the financial crisis started, the IASB has yet to fulfill a G20 demand to force banks to make provisions for loans much earlier, a sign of the challenge the IVSC faces.

When markets froze during the financial crisis, it was hard to price assets like derivatives and since then there have also been unexpected changes in asset values.

Shares in Deutsche Bank fell up to 5 percent on Monday after the German lender surprised markets, partly due to a 623 million euro ($845 million) charge for various valuation adjustments.

The European Central Bank is now sifting through assets of top euro zone lenders, including Deutsche Bank, to make sure values reflect reality before it supervises them from November.

_0">

Last August, Britain's Co-op Bank unveiled an impairment on loans of 496 million pounds after a fresh review. It followed a 351 million pound impairment in 2012.

_1">

"Could the market have seen that coming if they had done it differently?" Tweedie asked of the Co-op's case.

_2">

Iain Coke, head of faculty at the ICAEW, an accounting body, said a new rule would be a complex undertaking as how an asset is valued often depends on the valuer's point of view.

_3">

"If you are a regulator worried about whether the bank has enough capital then you may well have a particular bias to prudence, while for financial reporting it's aimed at being more neutral, neither over or understating values," Coke said.

_4">

"You can have a range of values even under a single accounting standard, which suggests it's going to be a difficult task. It's an ambitious agenda and we hope they are not going to be pushing too fast," Coke said.

_5">

Other people familiar with the IVSC's work said it was crucial to come up with principles that are not set in stone otherwise valuations cannot be improved on.

_6">

($1 = 0.7376 euros)

_7">

(Editing by Mark Potter)

_8">

China cheer muted as Deutsche Bank sets European nerves jangling

Asian markets got off to a subdued start on Tuesday amid a dearth of major data, with the only action being a spike in the New Zealand dollar on talk interest rates could rise there as early as next week.

Leads were few and far between with most European share markets marginally lower and Wall Street shut for a holiday. That left MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS down a bare 0.07 percent, while Australia's main index .AXJO eased 0.3 percent.

Investors had a wary eye on Chinese money markets after the People's Bank of China (PBOC) announced a surprise injection of funds on Monday aimed at curbing a recent spike in rates.

The central bank also broke tradition by saying it would add more money at its regular operations on Tuesday, an apparent attempt to avoid a repeat of the severe cash crunch that roiled markets in June.

The early mover in Asia was the New Zealand dollar which surged half a U.S. cent to $0.8329 after inflation data came in higher than expected and fuelled already intense speculation of a rate rise.

Annual inflation ticked up to 1.6 percent in the fourth quarter of 2013, the fastest pace in 21 months.

The country of 4.5 million is undergoing an economic revival thanks in large part to China's insatiable demand for its dairy exports, and particularly baby formula.

That has greatly lessened the need for rates to remain at record lows of 2.5 percent and led markets to price in a series of hikes this year.

The Reserve Bank of New Zealand next meets on January 30 and. if it does not move then, an increase is considered virtually certain for March.

ECB LIQUIDITY

Other major currencies were locked in tight ranges. Against the yen, the dollar was steady at 104.15, as was the euro at 141.22.

Against the greenback, the single currency pared some of its recent losses to stand at $1.3555, up from a two-month trough of $1.3508.

Investors will be watching liquidity operations by the European Central Bank later Tuesday to see if they act to correct a recent sharp rise in money rates, a tightening of conditions that could threaten the region's recovery.

Attention will also be on Turkey's central bank as a crumbling currency piles pressure on for a hike in interest rates at its policy meeting on Tuesday.

The lira has hit a string of record lows while the cost of insuring Turkish debt spiked to 18-month highs as a government corruption scandal undermined investor confidence.

In commodity markets, gold steadied at $1,254.98 an ounce, after hitting its highest level since mid December at $1,259.85 on Monday.

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Chinese gold imports, the lone bright spot in an otherwise disastrous year for bullion in 2013, look set to fall from last year's record levels, adding to pressure on gold as analysts forecast a price decline for a second year.

_1">

Platinum rose to their highest in nearly three months at $1,469.50 an ounce after the main trade union for South African platinum miners said workers at the world's top three producers would go on strike this week.

_2">

Brent crude oil for March delivery eased 15 cents to $106.33 a barrel, while U.S. crude fell 59 cents to

_3">

$93.78.

_4">

(Editing by Edwina Gibbs)

_5">

Ford's 'quality' push comes at busy time for automaker

Ford Motor Co ( id="symbol_F.N_0">F.N) is betting that the tight bond between two of its senior executives can help the automaker prevent quality missteps from derailing its busiest-ever year for launching new vehicles.

Joe Hinrichs, head of North and South American operations, and Raj Nair, Ford's global product development chief, are two of the key players in what has been an all-out push to stamp out problems that have dogged the automaker in the last few years.

At stake are Ford's credibility and profitability as it embarks on an ambitious plan to introduce 23 new vehicles - the most in one year in company history - around the world this year.

These include a radical revamp of its most profitable vehicle, the top-selling F-150 pickup truck, which was unveiled at the Detroit auto show last week. The new version uses less steel and more aluminum.

"We have a lot more new product and a lot more new launches than we used to have," Hinrichs said in interview on the sidelines of the auto show. "We know how important these launches are."

In the last few years, Ford has tumbled in key reliability surveys due to problems with its touch-screen dashboard system and some of its transmissions. It conducted seven recalls of its Escape crossover since its mid-2012 launch, which may have led to warranty costs of as much as $300 million in 2013.

As part of the redoubling of Ford's effort to prevent quality woes, Hinrichs and Nair are drawing on their experience working together in North America and Asia for the last dozen years.

Both helped shape Ford's restructuring in North America in 2005 and 2006, when Chief Executive Alan Mulally came on board to steer the automaker's turnaround. In late 2009, they went to Shanghai and spent the better part of a year away from their families to replicate Mulally's "One Ford" plan - which unified formerly disconnected business units to gain economies of scale - - in Asia and improve quality.

The two now conduct high-level reviews every month or so of all major programs to pinpoint potential problems, a practice that will continue throughout 2014.

Over the years, the two have developed an almost intuitive understanding of the other's perspective, Hinrichs and Nair said in a joint interview late last year.

Their strong rapport allows them to divvy up duties and work more effectively, they said. So when a scheduling conflict arises, they are comfortable if one of them has to miss a launch review as long as the other person is in the room.

"When we look at something, 99 times out of a 100, we're both seeing the same thing," Nair said. "A lot of times, we both don't have to be there because of that."

Then Hinrichs jumped in: "Which is important because there's only so much time in the day."

NOT POINTING FINGERS

The Escape recalls have also been a black eye for Ford and account for most of the $250 million to $300 million in warranty expenses that Ford expects to pay for 2013.

These costs could pinch its 2013 operating margin in North America, Ford said last month.

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Ford's woes largely stem from the fact that it is launching more new vehicles at a faster clip than in years past, in keeping with a broader trend in the industry, analysts and executives said.

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In some cases, that has led to unresolved glitches that make features like the MyFord Touch entertainment and navigation system tough to operate, according to Consumer Reports magazine and consultant J.D. Power & Associates.

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"Maybe Ford went too far, too early," Morgan Stanley analyst Adam Jonas said. But "if you have a heart-to-heart with Ford management about the issues, they don't give you excuses. They're addressing it. They are not pointing fingers."

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The faster pace evokes a broader trend. Since the 2009 economic downturn, major automakers have been launching new models with fewer factories and a smaller supply base, elevating the risk of quality problems in the future.

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In the 1990s, the average automaker's lineup was between four and five years old in North America, Citi analysts said last month in a research note. That will shorten to between two and three years over the next couple years.

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But as part of its effort, Ford is now spending more time conducting research before green-lighting a vehicle design. This has lengthened the time it takes Ford to develop a new product, but should ensure the product is top-notch.

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"We reached the point where we took more time out than we could probably afford to, so we put time back in - based on data, based on learnings from the consumer," Hinrichs said.

_7">

STILL A WAR

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Analysts added that quality issues are not insurmountable, pointing to Toyota Motor Corp's ( id="symbol_7203.T_1">7203.T) ability to bounce back from its recent crisis involving sudden unintended acceleration in some vehicles.

_9">

Despite the problems, Ford's U.S. market share actually grew almost half a percentage point to 15.9 percent last year.

_10">

But the U.S. auto market is expected to be more competitive this year as sales growth is expected to slow, analysts said.

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If quality problems persist this year, it may raise questions about Ford's ability to execute the F-150 launch, Guggenheim Securities analyst Matthew Stover said.

_12">

Company executives are keenly aware of this risk and said that as a result, quality has been a key focus for Ford over the past year. These changes to Ford's quality process will continue throughout 2014.

_13">

Ford engineers and designers are coordinating efforts earlier in the product development process. They are using 3D technology and other tools that allow Ford to spot and avoid problems from showing up on the assembly line.

_14">

Each Wednesday, top executives pore over Ford's more than 60 global vehicle programs, focusing on the most troubled ones.

_15">

Such meetings bring problems to light more quickly and make "a big organization small," said Chief Operating Officer Mark Fields, who started the forum and who also leads it.

_0">

This year, Ford is launching revamped versions of the F-150 and Mustang sports car, two models that have an outsized effect on consumer perceptions of Ford worldwide.

_1">

The Mustang will be sold globally for the first time ever. The F-150 is an even bigger challenge because it features an aluminum-alloy body that has triggered changes to the way the trucks are built, repaired and sold.

_2">

New model launches are something of a specialty for Hinrichs and Nair. When they met around 2002, Hinrichs was in charge of material planning and logistics worldwide for Ford and Nair led new model launches in North America.

_3">

"Because both of us have been through a lot of launches, we have the emotional resilience that you need to have because every launch is difficult," Hinrichs said.

_4">

"It's like asking, is the war going well?" Nair added. "It's still a war."

_5">

(Additional reporting by Ben Klayman in Detroit; editing by Matthew Lewis)

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BRIC or MINT? Investors suffer acronym anxiety

Which investment takes your fancy: BRIC, MINT or CIVETS? For many fund managers seeking the next big thing in emerging markets, the answer is none.

Acronym investment - putting money into small groupings of markets which often have little in common beyond a broad economic concept - is giving way to acronym anxiety.

Former Goldman Sachs economist Jim O'Neill set the ball rolling in 2001 when he created the BRIC family of Brazil, Russia, India and China.

Many of these countries and others lumped together under separate acronyms have, at least until recently, enjoyed turbo-charged economic growth. But investment gains are not guaranteed and underperforming local stock markets have led fund managers to flee what had been fashionable groupings.

Assets under management in BRIC funds fell to 9 billion euros at the end of last year from 21 billion at the end of 2010, according to Lipper data, while assets under management in broader emerging equity funds have grown in that time.

Goldman Sachs's own BRIC fund has lost 20 percent in value over the past three years.

Undaunted, O'Neill has coined a new acronym. In a series on BBC radio this month, he championed the MINT group - Mexico, Indonesia, Nigeria, Turkey - as the next giants after the BRICs. O'Neill stresses that MINT - like BRIC before - is an economic, not an investment, concept and his programs explored each country's problems as well as its potential.

Nevertheless, the appeal of acronym investment is fading. Fund managers say such groupings do not take into account different stages of development of the countries involved and risk sidelining other promising markets. The groupings have also frequently suffered from disappointing performances of their listed companies, the main target of foreign investors.

O'Neill's timing is not ideal. Turkey has been rocked by an investigation into alleged corruption following street protests last summer, while Nigerian politics are in turmoil before elections next year.

Indonesia, along with other emerging economies which are running large current account deficits, is experiencing a flight of investors.

"Mexico, Indonesia, Nigeria and Turkey are all very interesting countries but not much connected beyond the excuse for having an acronym," said Richard Titherington, chief investment officer of emerging equities at JP Morgan Asset Management. Titherington prefers groupings by concepts such as markets where companies offer the highest dividend yields.

Investors in the BRIC countries have already found out the hard way that economic growth may not convert into stock market gains, and some analysts blame problems with corporate governance in markets such as Russia and China.

BRIC markets have underperformed the broader MSCI index of emerging stocks in dollar terms in the past three years, with emerging markets in turn lagging developed markets.

NO MORE CIVETS

In another sign of acronym anxiety, HSBC closed its CIVETS fund last year, leaving no managers tracking another group of emerging markets - Colombia, Indonesia, Vietnam, Egypt, Turkey and South Africa.

Both the BRIC and MINT groupings focus on demographics - countries which are going to grow rapidly by the middle of the century, due to their young populations.

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This is an attraction of frontier economies - those which are at an earlier stage of development than established emerging markets. One such is Nigeria, whose stock market has been an extreme outperformer, doubling in value last year.

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But relying exclusively on demographics to make investment decisions is risky, says Andrew Brudenell, frontier fund manager at HSBC Asset Management.

_2">

Instead, investors should look at countries with weaker corporate regulation and where relatively low levels of goods and services are available, offering potential for growth.

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These factors should produce the best returns on company earnings. "Demographics are definitely one of the (investment) criteria, the others are also criteria," Brudenell said. "We would not necessarily decide MINT are interesting countries to invest in, there are lots of other ones."

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Nigeria is at an earlier stage in the development cycle than the others. According to IMF estimates, its per capita gross domestic product (GDP) was about $2,800 last year measured by purchasing power parity. That compares with around $5,000 for Indonesia and more than $15,000 for Mexico and Turkey.

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Turkey is the country most out of kilter in stock performance terms. It has been hit by weakness of its currency as foreign investors pulled out before the U.S. Federal Reserve begins scaling back its bond-buying this month, a program that had depressed yields in U.S. markets and encouraged investors to seek higher returns in riskier assets.

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The Turkish stock market has underperformed even the BRICs in dollar terms in the last three years. The corruption inquiry, which led to the resignations of government ministers, aggravated the problem.

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"Turkey remains a long-term investment opportunity but in the short term remains quite risky," said Mauro Ratto, head of emerging markets at Pioneer Investments.

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As with Turkey, investors are wary of political risk in Nigeria before the next year's elections and amid uncertainty over whether President Goodluck Jonathan will run.

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Whatever their differences or similarities, the danger with all emerging markets is that their performance is not always dictated by local stories, but by the global economic outlook.

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"These countries do not have an independent monetary cycle," said Bill O'Neill, chief UK strategist at UBS Wealth Management. "In these environments, emerging markets do struggle short term."

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Jim O'Neill said investors had got the wrong end of the stick by banking on the BRIC. "It is very important for me to emphasize, being Mr. BRIC, that I created the BRIC as an economic concept, not as an investment theme," he said.

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The same went for the MINT grouping, said O'Neill. "Each of the four MINT (economies) make up more than 1 percent of the world's GDP, except Nigeria - which has the best potential to make up 1 percent of GDP," he added.

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And as always, timing is vital with investing. While Goldman's BRIC fund has fallen in the past three years, it is up 26 percent since its launch almost eight years ago.

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"If you invested in the BRICS in 2008 for the first time, you would not be very happy. If you had invested in them in 2000, you would be very happy," he said.

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(Additional reporting by Sujata Rao; editing by David Stamp)

LVMH watches and jewelry head Trapani to step down

LVMH ( id="symbol_LVMH.PA_0">LVMH.PA) said watches and jewelry head Francesco Trapani would step down on March 1, becoming an advisor to group Chairman Bernard Arnault and keeping his seat on the board of directors of the world's biggest luxury group.

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LVMH's jewelry divisions, including Bulgari, Chaumet, Fred and De Beers, will report instead to group Managing Director Antonio Belloni, LVMH said on Monday.

Watch brands TAG Heuer and Zenith will come under the responsibility of Hublot President Jean-Claude Biver, LVMH added.

As its then chief executive, Trapani agreed to sell Bulgari, long seen as a takeover target, to LVMH nearly three years ago for some $5 billion. That gave it access to the French group's global retail network and improved margins through cost-sharing.

Louis Vuitton owner LVMH was keen to close the gap with bigger watch and jewelry companies such as Richemont ( id="symbol_CFR.VX_1">CFR.VX) and Swatch ( id="symbol_UHR.VX_2">UHR.VX), as well as to gain more exposure to emerging markets.

Trapani's change in role follows the successful integration of the Italian brand Bulgari, established in 1884, into the LVMH group, Arnault said in the statement.

Another former jewelry and watches head at LVMH, Philippe Pascal, also stepped down to become an advisor to Arnault before subsequently leaving the group completely in 2012.

(Reporting by James Regan; Editing by Matthias Williams)

New credit raters struggle to break stranglehold of 'big three'

For all the outrage over the role of the big three credit-rating firms in the financial crisis, they show no sign of losing their grip on the highly profitable industry.

That has not stopped new contenders joining the 50 or so lesser-known rating firms that have long been trying to grab a bigger slice of the business.

The financial crisis should have helped their cause. The big firms - Standard and Poor's, Moody's and Fitch - lost much kudos when many of the complex U.S. housing market-linked loans that they rated top-notch triple-A turned out to be worthless.

Many of the newcomers are touting themselves as preferable alternatives. A Lisbon-based firm called ARC that launched last week says its ratings will be far cheaper than the dominant players and will take a more balanced view so be less volatile.

But official figures show how hard it is to make headway. S&P, Moody's (both 40 percent) and Fitch (17 percent) are holding onto over 95 of the industry's marketshare. S&P made $850 million from its ratings business last financial year, up 18 percent on the year before. Its latest results show a profit margin of 42 percent.

Dave King from the South African GCR agency, one of five small agencies that have come together to form ARC, acknowledges the difficulties.

"The rating agency business is a catch-22," King said. "You don't get a client until you have credibility, but you don't get credibility until you have a client."

"You could put a billion dollars into it but you'd still end up blowing it over time."

RATINGS SCALE

After at least two failed launch attempts, ARC finally got off the ground last week, almost three months late, with an event at London's swanky Ivy restaurant.

It hopes to win business with pay-as-you-go ratings and by ditching the convention of splitting ratings into investment grade or junk. Besides the standard startups' promise of cheaper prices and less 'cyclical' ratings, ARC says it will also take into account issues as broad as U.S. monetary stimulus and worldwide cyber attacks.

But its main potential strength is that it gathers five existing agencies from Portugal, India, South Africa, Malaysia and Brazil in an alliance aimed almost purely at creating enough scale to compete with the big three.

Between them they have roughly 6,000, mainly emerging market, firms who use their ratings. The hope is that around 600 of them will soon be big enough to borrow on capital markets like London.

For that, such firms will need more stringent 'international' ratings and that's where ARC, which has gained clearance from European rating authority ESMA, comes in.

"The only reason why they (firms) are using the hegemony of the big three (S&P, Moody's and Fitch) is because there is no alternative," said Mohd Razlan Mohamed, head of Malaysia's MARC ratings, one of the ARC agencies.

"I have people asking me all the time if there is someone else, so we have all this low hanging fruit of our local clients."

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PROBLEM WITH AUTHORITY

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ARC must still overcome the problem raised by King: if those looking to buy the bonds and other types of securities don't recognize a rating firm, the issuers of those bonds are less likely to use them.

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Morningstar and management consultancy Kroll, as well as China's Dagong have also joined the landscape in the last couple of years, but they are yet to have a major impact.

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"Clearly clients look at ratings and benchmarks look at ratings... so it affects what we can and cannot buy," said Daniel Loughney, a portfolio manager and senior vice president at AllianceBernstein Fixed Income.

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"It is a function of who (among the rating agencies) the client wants. It tends to be one of the big guys and I don't see that changing."

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The third and final hurdle for new entrants to the rating industry is one of the biggest, created by authorities in both Europe and the United States.

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There are just 10 agencies on the SEC's list of Nationally Recognized Statistical Rating Organizations (NRSROs), while in Europe, the European Central Bank only accepts the ratings of four - the big three plus Toronto-based DBRS - on the collateral that banks use to access its ultra-cheap loans.

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That effectively means that issuers will use only those agencies that can ensure investors will be able use their securities at places like the ECB.

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"We know this (not being one of four on the ECB list) is an issue," said Jose Pocas Esteves CEO of ARC. "Getting ourselves recognized at the ECB is one of our targets."

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That will take time. It took DBRS two years of protracted negotiations to get its ECB recognition in 2007.

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In the meantime, GCR's King hopes the firm's prices will be enough to tempt issuers. "We think we can do this cheaper than anyone else, so if we can't do it, nobody can."

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(Reporting by Marc Jones; Editing by Ruth Pitchford)

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Doric expects to complete Airbus A380 order soon

Doric Lease Corp expects to finalize an order for 20 Airbus ( id="symbol_AIR.PA_0">AIR.PA) A380 superjumbo jets in the next couple of months, a senior executive said on Monday.

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"Airbus has said it expects to have the order finalized in the next couple of months. That is where we are and where we expect to be," Paul Kent, chief commercial officer, told a conference hosted by Airline Economics.

"We will have news relatively quickly on completion," he added.

Doric Lease Corp placed the order, worth $8 billion at list prices, at the Paris Airshow in June 2013.

The Dublin-based company has partnered with Airbus to find new customers for the world's largest airliner following slack sales. In a separate move, Emirates airline subsequently placed a firm order for 50 of the aircraft.

Doric has made progress in placing with airlines the aircraft it plans to order, Kent added, but declined to give details.

(Reporting by Conor Humphries, Editing by Tim Hepher)

German car industry rocked by vote-rigging in auto prize

Germany's ADAC car club, Europe's largest and most influential, said on Monday revelations it had falsified results of its annual car award struck at the core of its credibility and critics raised questions about its car safety tests.

Volkswagen said it was considering giving back the award.

ADAC communications director Michael Ramstetter resigned in disgrace after conceding he manipulated the results of the car club's coveted "Yellow Angel" award for Germany's favorite car, which was won last week by the Volkswagen Golf model.

"We've got our work cut out for us to repair the tarnished reputation," said ADAC managing director Karl Obermair, who called Ramstetter's actions "an inexcusable mistake".

"We're very sorry," added Obermair, personally humiliated himself after he initially scolded media for reporting doubts about ADAC's vote-counting. "This strikes at the very core of our existence. Our goal is to restore our credibility."

ADAC has over 18 million members. Its Yellow Angel award can give a fillip to sales in a competitive domestic market.

ADAC conceded that Ramstetter, the editor of ADAC's popular "ADAC Motorwelt" magazine that calls itself Europe's biggest monthly with 18 million readers, massively inflated the results of votes, saying 34,299 motorists had voted for the Golf as Germany's favorite car when it had only been 3,409 votes.

ADAC, normally a bastion of integrity whose car test reports are followed closely in a country with a deep affinity for its automobiles, said the order of the results was not tampered with - only the total number of votes.

But that caveat did little to calm the storm of protest in Germany over the vote-rigging at what is usually ranked as one of the country's most respected institutions alongside the Bundesbank and the consumer watchdog Stiftung Warentest.

"It's up to ADAC to come clean with everything," said Transport Minister Alexander Dobrindt, himself a target of ADAC criticism at times. Dobrindt said the club founded in 1903 should start "showing a little more modesty" in the future.

The sharpest criticism of ADAC, which stands for Allgemeiner Deutscher Automobil-Club, came from Ferdinand Dudenhoeffer, a car expert at the University of Duisburg-Essen. He said ADAC's reports and rankings need to be reexamined.

"The car breakdown statistics and tunnel safety reports need to be re-examined," said Dudenhoeffer. "If there are lies told about the 'Yellow Angel', other areas can't be ruled out."

ADAC has long wielded considerable influence in Germany. It coined the slogan "Freie Fahrt fuer freie Buerger" (Free travel for free citizens) that long served as a rallying cry against introducing a speed limit on motorways.

The ball's in the ADAC's court now," said Peter-Heinz Thul, head of VW's product communication, in an interview with NDR radio. He added VW expects ADAC to thoroughly investigate the scandal. "We'll then decide what to do with the award."

GERMAN CARMAKERS DEMAND CLARITY

The ADAC affair recalled another scandal about German car testing in 1997 when a Swedish motor magazine found Mercedes' A-Class tended to flip while undergoing its "elk test", or evasive maneuver test. German magazines did not detect the flaw. Mercedes first declined to comment but later recalled the cars to retrofit added safety features.

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German carmakers were also shaken up by the revelations and reverberations from the vote-rigging at ADAC over a prize that might be prestigious in Germany but of minor relevance abroad.

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Daimler, maker of Mercedes-Benz luxury automobiles demanded speedy clarification from ADAC. "We expect that ADAC will, in its own interest, comprehensively investigate this matter and then inform the general public," a Daimler spokeswoman said.

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A Germany-based spokesman for Ford said: "The prize has a big reputation. One should be able to assume that finding a winner is done in a manner which is above board."

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Helmut Becker a Munich economist who long worked for BMW, said the ADAC scandal might trigger a broader shake-out.

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"We need to take a more critical look at all the awards in the car sector," he said. "I see a danger that vehicle comparison tests have also been manipulated."

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Franz-Rudolf Esch, a professor of brand management and automotive marketing at the European Business School, said carmakers take the awards seriously as they help sell cars.

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"Generally speaking, prizes are important," he said. "It is a nice decoration and an external validation. This has a particular impact on manufacturers with weak brands. Clients feel they're doing the right thing by buying a car that has been awarded a prize."

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Another way to measure the importance of a prize is to look at how companies themselves revere them, Esch said.

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"The level of seniority of staff who accept the prizes give a good indication of how important these awards are," he said.

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(Additional reporting by Edward Taylor in Frankfurt, Joern Poltz in Munich, Jan Schwartz in Hamburg, writing by Erik Kirschbaum; editing by Ralph Boulton)

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Putin orders lower borrowing costs for 'productive' Russian companies

President Vladimir Putin has instructed Russia's central bank to reduce borrowing costs for "productive" companies, the Kremlin said on its website on Monday.

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The directive may increase the pressure on central bank Governor Elvira Nabiullina to soften the bank's tough anti-inflationary policy. The bank has resisted cuts in its key policy rate for over a year despite an abrupt economic slowdown.

However, the phrasing of Putin's order, one of several issued to governmental bodies for implementation this year, suggests that he wants the central bank to come up with a targeted scheme.

The order recommends the bank to work on "stimulating a lowering of the level of interest rates on rouble loans provided to organizations active in the productive sphere".

It did not elaborate further, except to say that Nabiullina is responsible for presenting proposals by September 1.

Russian policymakers have long been concerned by the small role of manufacturing in an economy heavily dependent on commodity exports.

While many Russian companies complain of high borrowing costs, the central bank has insisted that lowering policy interest rates would be counter-productive at present, fuelling inflation without boosting long-term economic growth.

But the central bank has said it favors improving the link between policy rates and actual borrowing costs, implying a convergence in high lending costs faced by companies with the much lower rates charged on central bank loans to banks.

Although the bank's key lending rate is 5.5 percent, below inflation, the average interest rate on loans to companies is almost twice as high at around 10 percent.

(Reporting By Jason Bush; Editing by Stephen Powell)

Senior JPMorgan banker Diederichs retires after 34 years: memo

Veteran JPMorgan Chase & Co ( id="symbol_JPM.N_0">JPM.N) dealmaker Klaus Diederichs is to retire after 34 years with the company, the bank said in an internal memo seen by Reuters.

Diederichs has held numerous leadership roles in his time with the company, most recently as chairman of investment banking for Europe, Middle East and Africa (EMEA). He was instrumental in building JPMorgan's investment banking franchise and also had roles running debt capital markets in Europe and global mergers and acquisitions (M&A).

He has coordinated the firm's strategies for its 100 top clients worldwide and advised leading European companies including Nokia ( id="symbol_NOK1V.HE_1">NOK1V.HE), Virgin Media ( id="symbol_LBTYA.O_2">LBTYA.O), Rosneft ( id="symbol_ROSN.MMROSN.MM), Vodafone ( id="symbol_VOD.LVOD.L), Unicredit ( id="symbol_CRDI.MICRDI.MI) and Pernod Ricard ( id="symbol_PERP.PAPERP.PA) on M&A, initial public offerings and financing deals.

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Klaus will continue as senior adviser to JPMorgan.

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A spokeswoman for JPMorgan confirmed the content of the memo.

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(Editing by David Goodman)

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German watchdog to visit Deutsche in London in FX probe: source

Representatives from Germany's financial watchdog Bafin will visit the London offices of Deutsche Bank, the country's biggest lender, as it steps up investigations into alleged currency market manipulation, a source familiar with the process said on Monday.

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This follows Deutsche's suspension last week of traders in New York and mirrors the arrival of U.S. regulators in London last week at Citigroup's London headquarters, marking an escalation in the global probe.

German magazine Der Spiegel reported on Sunday that Bafin was setting up a so-called special investigation, putting the case at the top of its priority list.

Bafin was not available for immediate comment.

Deutsche Bank declined to comment, and referred Reuters to a previous statement that it is cooperating with those investigations, and will take disciplinary action with regards to individuals if merited.

The source could not say when the visit would take place, or whether Bafin officials also plan to visit Deutsche's U.S. headquarters in New York.

Benchmark foreign exchange rates, or daily fixings, are a cornerstone of global financial markets, used to price trillions of dollars worth of investments and deals and relied upon by companies, investors and central banks.

London is the hub of the $5.3 trillion-a-day global foreign exchange trading market, accounting for around 40 percent of that total.

Authorities around the world are investigating whether senior traders at some of the world's biggest banks colluded to rig these rates.

They include the U.S. Department of Justice, Britain's Financial Conduct Authority and Switzerland's main watchdog FINMA.

Deutsche Bank has been the biggest foreign exchange trader in the world for nine years running, seeing 15.18 percent of global daily turnover in 2013, according to Euromoney magazine.

The bank's shares fell sharply on Monday following a surprise fourth-quarter loss due to a steep drop in debt trading revenues and heavy litigation and restructuring costs.

(Reporting by Jamie McGeever; Editing by Carmel Crimmins and Jane Merriman)

Waiver helps UK credit unions take on payday lenders

A new type of loan insurance could help Britain's credit unions take on payday lenders charging sky-high rates and go some way to plugging a protection gap left by the country's worst-ever mis-selling scandal.

Cuna Mutual, the world's biggest credit union insurer, is working with UK lenders to provide a 'debt waiver' facility for borrowers which ensures they do not have to make repayments on loans if they fall ill or lose their jobs.

The product increases the attractiveness of loans offered by credit unions and comes at a time when they are being urged to grow at the expense of payday lenders such as Wonga, which charges an annual interest rate of 5,853 percent.

Paul Walsh, Cuna's chief executive who was previously an insurance executive at Barclays ( id="symbol_BARC.L_0">BARC.L), says adopting the waiver could heighten their popularity.

"I think it's a very credible way of transforming the attractiveness of their products. It makes them more innovative and more relevant to certain types of customers," Walsh said.

Cuna has been offering similar waiver products in the United States for the past 75 years, where it has been adopted by the Navy Federal Credit Union, a savings club attached to the United States military, which has a $35 billion loan book.

Credit unions, or community-run savings clubs, are less developed in Britain but are expected to grow in number as the authorities see them as an alternative to payday lenders, which have surged in popularity since banks tightened lending activity after the 2008 financial crisis.

Britain is clamping down on the previously lightly-regulated short-term lending market and the Archbishop of Canterbury has vowed to drive them out of business by using the Anglican church to build up a network of credit unions. Last week, he hired Britain's former top financial regulator to lead a task force as part of the campaign.

According to data from the Association of British Credit Unions, around 1 million Britons currently use them, with over 600 million pounds ($986.66 million) loaned to members as at September, 2012. In comparison, payday lenders lent between 2-2.2 billion pounds in the 2011/12 financial year.

Cuna's product provides an alternative to payment protection insurance (PPI), which was sold by banks and other lenders to millions of customers but which was discredited when it emerged many borrowers were ineligible to claim on it - leaving the industry with a 20-billion-pound compensation bill.

Walsh was a commercial director at the insurance division of Barclays, Britain's third-biggest retail bank, between 2004 and 2007, a time when PPI was being mis-sold across the industry. However, he wasn't involved in the marketing of the product, for which Barclays has set aside 4 billion pounds to compensate customers for mis-selling.

Since 2010 banks and other mainstream lenders have stopped offering PPI or any alternative protection, fearful of further mis-selling scandals, leaving millions of borrowers with no security should they fall upon hard times.

The waiver was developed for credit unions and customer-owned lenders rather than banks so it would only partly plug that gap. Walsh estimates that more than 95 percent of UK mortgages are sold to customers without any insurance.

"There is a growing protection deficit in the United Kingdom. It is going to come home to roost. Consumers don't have any creditable way of protecting their loan," he said.

Public policy think tank ResPublica, whose advisory board members include Anthony Browne, chairman of the British Bankers Association, said in a report last year that the government should encourage state-backed Royal Bank of Scotland ( id="symbol_RBS.L_1">RBS.L) and Lloyds Banking Group ( id="symbol_LLOY.L_2">LLOY.L) to adopt the waiver.

Cuna launched its first payment waiver product in Britain last year in partnership with Plane Saver, a credit union with 8,000 members set up by British Airways staff in the 1990s. Plane Saver, the 4th biggest credit union in the country, with 31 million pounds of assets, has seen a 23 percent rise in lending since introducing the waiver last September.

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Cuna has agreed similar partnerships with Clockwise, a credit union linked with Leicester City Council and the Scottish Police credit union.

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The waiver facility is written into the loan agreement and no third party is involved. The lender purchases a business-to-business insurance policy which transfers the risk of default from its balance sheet onto the insurer.

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Walsh said Cuna is also talking to building societies, including one of Britain's top 10 mortgage lenders, about offering the facility alongside mortgages.

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($1 = 0.6081 British pounds)

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(Editing by Carmel Crimmins and Louise Heavens)

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