Merkel still believes Juncker should get EU top job: aide

German Chancellor Angela Merkel has not altered her view that Luxembourg's Jean-Claude Juncker should become president of the European Commission, a government spokesman said on Friday.

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"The German chancellor has very clearly said, including in her recent speech to parliament, that she is in favor of Jean-Claude Juncker becoming the next European Commission president and that she will work towards him getting a majority," Steffen Seibert said, adding that "nothing has changed" in this regard.

 
 
 

(Reporting by Stephen Brown and Michelle Martin)

Banks to return 3.7 billion euros in crisis loans to ECB next week

class="mandelbrot_refrag">Banks will return 3.712 billion euros ($5.05 billion) in long-term crisis loans to the European Central Bank next week, ECB data showed, after the ECB started to charge banks for holding their excess cash overnight and promised more long-term loans.

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The amount that class="mandelbrot_refrag">banks will repay on June 18 is below this week's repayments of 10.588 billion euros, and misses the 7.5 billion forecast in a Reuters poll.

The ECB cut interest rates to record lows - the deposit rate is now below zero - and launched a series of measures to pump money into the sluggish class="mandelbrot_refrag">euro zone class="mandelbrot_refrag">economy, pledging to do more if needed to fight off the risk of Japan-like deflation.

 
 
 

The measures also include a new 400 billion euro four-year loan scheme to give banks an incentive to increase lending to businesses in the class="mandelbrot_refrag">euro zone.

"It will only affect banks' behavior over time," said Frederik Ducrozet, senior economist at Credit Agricole CIB, about the introduction of a negative deposit rate.

Banks, particularly in the periphery, are also waiting to see the details of the new four-year loans before deciding on what to do with their old crisis loans which they took from the ECB in late 2011 and early 2012, Ducrozet added.

On Friday, the ECB said seven banks would repay 1.692 billion euros from the first of those LTROs on June 18 and nine banks would pay back 2.02 billion from the second LTRO.

(Reporting by Eva Taylor; Editing by Gareth Jones)

EU to toughen up bankers pay rules

The European Union's banking watchdog will toughen up its guidelines on bankers' pay after a study uncovered wide variations in how lenders apply the rules across the 28-country bloc and how class="mandelbrot_refrag">banks are avoiding the bonus cap.

The European Banking Authority (EBA) did not say how it will toughen the rules but this is likely to include tighter supervision and more detail in how the rules should be applied.

After the 2007-09 financial crisis sparked public anger over bonuses at class="mandelbrot_refrag">banks that taxpayers had to rescue, the EU introduced curbs on the pay of top bankers earning a million euros or more. The current rules mean that 40-60 percent of a bonus must be deferred over 3-5 years, with the possibility to claw back the cash if problems like misconduct are later discovered.

The curbs were toughened so that bonuses handed out from early next year can be no higher than fixed salary, or twice that amount with shareholder approval. Staff earning more than 500,000 euros will be affected.

 
 
 

Top banking staff in 2012 received on average 187,441 euros ($255,200) in bonuses and 172,379 euros in base pay, making a total of 359,820 euros, the review published by the watchdog revealed on Friday.

This represents a 31 percent rise in base salary and a similarly sized fall in bonuses, resulting in an overall drop in average total pay of 10 percent since 2010, the EBA said. Many banks were still busting the cap on bonuses that will apply to payouts from early 2015, it added.

The EBA said pay practices varied too widely among banks with regards to the proportion of a bonus that was deferred and the number of bankers subject to the curbs.

Only 54 percent of high earners are categorized as top bankers, meaning many are escaping the pay restrictions.

Britain has more top earners than all the other EU states combined. It has 2,714 earning over a million euros, but just under half are identified as coming under EBA rules, whereas in other EU states nearly all top earners are properly identified.

The watchdog also noted that some banks are paying so-called position or role-based allowances, paid as part of base salaries, but some policymakers say these allowances are being used to mitigate the new bonus cap.

Banks argue that such allowances are part of fixed pay, but the EBA said they were discretionary, paid to selected staff and in most cases only for a limited period.

"The EBA is currently analyzing this emerging practice and will set guidance criteria to correctly assign these elements to either variable or fixed remuneration, so as to ensure that these practices do not lead to a circumvention of the newly introduced cap," the watchdog said. The EBA's revised guidance will be put out to public consultation at the end of this year and come into effect in early 2015 to ensure more consistent application of the rules.

Britain is challenging the bonus cap in the EU's top court, saying it creates more risks by making it harder for banks to cut fixed costs when business falls.

(Reporting by Huw Jones, editing by Chris Vellacott; Editing by Elaine Hardcastle)

Japan's May exports expected to show first fall in 15 months

Japan's exports likely fell for the first time in 15 months in May due to stagnant demand overseas, and with imports expected to rise the trade balance will probably remain in deficit, where it has been for nearly two years, a Reuters poll showed.

In addition to weak demand from emerging nations, the benefit of a weak yen for exports appeared to have run its course.

The Reuters poll of 28 economists forecast exports to show a 1.2 percent fall in the year to May, which would be the first decline since a 2.9 percent fall in February last year.

 
 
 

In April, Japan's exports rose 5.1 percent from a year earlier.

The poll forecast a 1.7 percent increase in imports in May, largely led by higher demand for liquid class="mandelbrot_refrag">natural gas.

The trade deficit was forecast at 1.17 trillion yen. It would be 23rd straight monthly deficit.

"Shipments to Europe are expected to stay solid, but those to Asia will probably continue to be stagnant. In addition, exports to the U.S. are slow," Takeshi Minami, chief economist at Norinchukin Research Institute, said.

Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute Said he expected the trade deficit to shrink over the summer, but a return to surplus was some way off.

"We expect the nation's exports will pick up around July-September, led by recovering demand from the U.S.," Shinke said.

"But if exports continue to stay tepid, this could raise a possibility that the economic recovery may undershoot."

Japan's class="mandelbrot_refrag">economy grew in the first quarter at the fastest pace since the third quarter of 2011 thanks to a surge in capital spending and strong consumer spending.

The Ministry of class="mandelbrot_refrag">Finance (MOF) will announce the trade data on June 18 at 8:50 a.m. (June 17 at 2350 GMT).

The Bank of class="mandelbrot_refrag">Japan on Friday kept monetary policy steady and revised up its assessment of overseas economies. BOJ officials saw overseas headwinds receding as China's exports rebound and as the U.S. class="mandelbrot_refrag">economy recovers from a severe winter.

(Editing by Simon Cameron-Moore)

India's Modi kicks into gear with defense, dam projects

India's new government kicked into gear this week, clearing billions of dollars worth of long-delayed defense projects, including a big navy base, as well as approving the scaling-up of one of the country's biggest dams.

The decision to give the projects the go-ahead despite concern about their environmental and social impact signals Prime Minister Narendra Modi's no-nonsense approach to issues he considers to be important for national security.

The clearances were made over several days and were the first major decisions from the government that swept to power on May 16 on promises of getting Asia's third-largest class="mandelbrot_refrag">economy moving and building a stronger country.

Environment Minister Prakash Javadekar said the government could not compromise on efforts to build military and civil infrastructure on the border with class="mandelbrot_refrag">China as well the west-coast naval base in as an alternative to crowded Mumbai port.

As well as the $2 billion extension to the Karwar base in the southern state of Karnataka, Javadekar approved a radar station in the Andaman and Nicobar islands in the Bay of Bengal.

A defense source said he also planned to fast-track road building along the disputed border with class="mandelbrot_refrag">China.

Javadekar said China had built infrastructure in the Coco Islands, which are controlled by class="mandelbrot_refrag">Myanmar and just to the north of the Andamans.

"If you have a situation where China is sitting in front and we won't do anything, how can you run the country like this," he said in comments made available to Reuters on Friday.

The radar station proposal had earlier been turned down because the Environment Ministry under the last government saw a threat to the Narcondam Hornbill, an endangered bird species.

The radar on Narcondam island is one of 18 that the military has planned, running north to south along the Andamans, which straddle the strategic seaway leading to the Malacca Straits.

This year, India's patchy radar meant it was unable to say whether missing Malaysian class="mandelbrot_refrag">airlines flight MH370 had passed over the islands.

Modi met China's foreign minister this week and is likely to visit Beijing this year, but he is also keen to quickly build up border defenses that have fallen far behind India's neighbor.

The 63-year-old's first foreign foray will be on Sunday to tiny Bhutan, a Himalayan buffer between India and China that has long been a close Indian military and diplomatic ally.

HIGHER DAM

Modi's Bharatiya Janata Party has promised to end a prolonged period of paralysis at the Defense Ministry where weapons acquisitions and infrastructure contracts were frozen because of fear of corruption scandals.

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Javadekar said he had also cleared the second phase of a naval base in Karwar, on the west coast, that had stalled because environmental activists had warned the ecology of the Western Ghats mountains would be affected.

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The base is intended to take the load off Mumbai port, used by the navy and civilian ships. The navy has also said it wanted a more secure base to berth its latest aircraft carrier.

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"Mumbai is a target. We need an alternative. It is of strategic importance," he said.

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The Environment Ministry is also trying to fast-track roads and defense projects classified as strategic.

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Radars and telecommunications projects within 100 km (62 miles) of the 4,000-km (2,500-mile) border with China, large parts of which are disputed, will be put on an automatic approval list, a defense source said.

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As well as the military projects, the government on Thursday approved a long-stalled proposal to raise the height of the Narmada dam to 138.73 meters (455 feet), from 121.92 meters (400 feet), so more water will be available for drinking, irrigation and power generation.

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The project will benefit Modi's home state of Gujarat. As chief minister of the state, he campaigned for approval to build the dam higher to protect farmers from drought.

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Activist Medha Patkar, who has long campaigned against the project, said about 250,000 people will be displaced.

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She said the government appeared to have rushed into the decision without looking at the social and environmental impact as required by law.

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"How could the government deal with such a grave situation and go ahead just because Mr Narendra Modi is the prime minister?" she said.

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(Editing by Robert Birsel)

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Brazil economic activity up slightly in April, weak second-quarter start

Brazilian economic activity rose slightly in April, in another lackluster showing for the once-booming class="mandelbrot_refrag">economy that points to a sluggish second quarter.

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The central bank's IBC-Br economic activity index rose 0.12 percent in April from March in seasonally adjusted terms, the bank said on Friday. The median estimate in a Reuters survey of 19 analysts was for 0.0 percent growth.

The Brazilian class="mandelbrot_refrag">economy barely grew in the first quarter and a plunge in investment pointed to more weakness in the coming quarter. Economists have repeatedly revised down their economic growth estimates to just 1.4 percent this year from an expansion of 2.5 percent in 2013.

 
 
 

For Bradesco economists the slight increase in activity in April reinforced expectations that the second quarter will remain subdued.

"It is compatible with our expectations for a slowdown in the second quarter," Bradesco economists said in a research note.

The central bank paused a year-long rate-hiking cycle to give a breather to an economy which despite slowing down has suffered from naggingly high inflation.

Economic activity growth in March was revised up to 0.05 percent growth from a previously reported drop of 0.11 percent, according to central bank data.

The index, a gauge of activity in the class="mandelbrot_refrag">farming, industry and services sectors, dropped a non-seasonally adjusted 2.29 percent over the same month a year ago.

(Reporting by Alonso Soto; Editing by W Simon and Chizu Nomiyama)

Carney signals earlier British rate rise, sterling soars

Britain could become the first major class="mandelbrot_refrag">economy to tighten monetary policy since the 2008 financial crisis, Bank of England Governor Mark Carney has signalled, sending sterling shooting towards a five-year high against the dollar on Friday.

British government bond yields soared, class="mandelbrot_refrag">construction stocks tumbled and interest rate class="mandelbrot_refrag">futures priced in a first hike by December after Carney said rates could rise sooner than class="mandelbrot_refrag">markets had thought - his most hawkish comment to date.

A Reuters poll of economists on Friday showed most expect a rise in the first three months of next year rather than before the end of 2014.

 
 
 

"There's already great speculation about the exact timing of the first rate hike and this decision is becoming more balanced," Carney said in a speech late on Thursday alongside British class="mandelbrot_refrag">finance minister George Osborne.

"It could happen sooner than class="mandelbrot_refrag">markets currently expect."

Few economists had expected rates to increase until the second quarter of next year given the central bank's previous guidance that there was plenty of scope for Britain's class="mandelbrot_refrag">economy to expand further without causing inflation.

A rise in BoE rates this year would be the first since 2007 and put it ahead of both the U.S. Federal Reserve and the European Central Bank. The Fed is still pumping extra stimulus into the U.S. economy while the ECB cut interest rates to record lows last week and said it may not have finished easing.

Carney said Britain's economy still had room to grow without pushing up inflation, but added that he saw little sign yet of a slowdown in the pace of expansion that the central bank had pencilled in for the second half of the year.

"The change reflects the reality in the economy. It is flying now. Employment is rising at a record pace and we see no sign of economic growth slowing from its current pace," said Rob Wood, chief UK economist at German bank Berenberg.

An interest rate rise before a national election next May could hurt perceptions of the Conservative-led coalition government by raising mortgage costs and eating into disposable income, which the opposition Labour party says is being eroded by rising prices for everything from energy to transport.

"It is absolutely without question that those people who are right on the edge at the moment will, with a small increase in interest rates, be pushed over the edge," Conservative lawmaker Mark Garnier told Reuters.

FLYING TOO HIGH?

Although Britain's $2.5 trillion economy had won back the output lost in the convulsions of the 2008 crisis, Garner said it could be a hard sell to convince voters of the recovery if they felt they had less money in their pockets.

"We can't just go to people and say: 'Yes, it's costing you more, but overall the economy is bigger'. They'll just turn around and say 'Well, it's not bigger for me'," he said.

While Britain's economy is growing fast now, its recovery began much later than in the United States or Germany, and wages have fallen significantly in real terms since the financial crisis.

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The pound hit a 5-1/2 year high against a trade-weighted basket of class="mandelbrot_refrag">currencies and was just a fraction below an almost five-year high against the dollar.

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Short sterling rate class="mandelbrot_refrag">futures fell <0#FSS:>, pricing in the first hike by December. The interbank interest rate curve (SONIA) also pointed to a rate rise by the end of the year, compared with the first quarter of 2015 on Thursday.

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However, only 10 of the 45 economists polled by Reuters on Friday expected a rise this year. The poll showed the first rise will likely come in the first quarter of 2015, three months earlier than the last poll published on May 28.

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Carney said the central bank would weigh carefully the merits of tackling class="mandelbrot_refrag">housing market risks, including an undesirable loosening in mortgage underwriting standards, when its Financial Policy Committee meets later this month.

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House prices in London have soared in the past year and though rises outside the capital have been more modest, Carney cautioned that average household debt was 140 percent of disposable income - higher than in most other countries.

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Osborne said he would grant the BoE new powers to impose maximum loan-to-value and loan-to-income ratios on mortgage lending, a step which Carney welcomed.

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RATE RISE NEARING?

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Last month, a minority of BoE policymakers said the case for a rate rise was "more balanced" and that interest rates might need to increase sooner rather than later to ensure they did not need to rise sharply.

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But Carney had until now appeared less keen to contemplate tightening, emphasising that Britain's economy was still a long way from full strength.

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On Thursday, he said that more important than the timing of a first rate rise was that future increases be "gradual and limited", in part due to high household indebtedness and a drag on growth from a stronger currency.

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He also said the timing of a rise would depend on incoming data, and the bank had no fixed plan on when to raise rates.

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(Writing by David Milliken and Guy Faulconbridge; Additional reporting by Kate Holton, William James, Andy Bruce, Anirban Nag and Tricia Wright; Editing by Paul Taylor)

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Weak U.S. producer prices point to tame inflation pressures

U.S. producer prices fell in May after two month of solid gains, but the decline was not enough to change perceptions that inflation pressures are steadily creeping up.

The Labor Department said on Friday its producer price index for final demand slipped 0.2 percent after advancing in April by 0.6 percent, which was the largest gain in 1-1/2 years.

Economists, who had expected producer prices to edge up, saw the decline as a correction after gains in March and April, and said it did not change their view that prices were firming.

 
 
 

"The net result is a pick-up. The net strengthening makes the modest acceleration in the more important consumer inflation measures more credible," said Jim O'Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York.

The government revamped the PPI series at the start of the year to include services and class="mandelbrot_refrag">construction. Big swings in prices received for trade services have injected volatility into the series, making it hard to get a good read on inflation.

The overall inflation backdrop remains generally tame, with the main gauge watched by the Federal Reserve continuing to run below the U.S. central bank's 2 percent target.

Still, key consumer inflation measures pushed up in April and are expected to continue edging higher as the labor market tightens and the class="mandelbrot_refrag">economy regains momentum. That should position the Fed to raise interest rates in the second half of 2015.

MOVING TOWARDS TARGET

The U.S. central bank, which is already scaling back the amount of money it is injecting into the class="mandelbrot_refrag">economy through monthly bond purchases, has kept overnight lending rates near zero since December 2008. Fed officials meet on Tuesday and Wednesday to assess the economy's health and their monetary policy stance.

"They will probably say inflation is trending toward its 2 percent goal," said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

A separate report showed consumer sentiment slipped slightly in early June. The Thomson Reuters/University of Michigan's consumer sentiment index was at 81.2 from 81.9 in May.

The report offered a mixed reading on the outlook for prices. Households' prediction of inflation a year out fell to a six month low of 3.0 percent from 3.3 percent in June, but the five-year projection ticked up to 2.9 percent from 2.8 percent.

Producer inflation in May was depressed by broad price declines at the factory gate, while wholesale food prices snapped four consecutive months of increases.

There were also declines in the prices of trade services, a gauge of retailers' and wholesalers' margins.

And while wholesale gasoline prices fell last month, economists cautioned increases were in the cards because of the unrest in class="mandelbrot_refrag">Iraq.

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A recent spike in the price of oil "should filter through to the economy over the next several months, especially if the sectarian violence (in class="mandelbrot_refrag">Iraq) continues," said Jay Morelock, an economist at FTN Financial in New York.

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In the 12 months through May, prices received by the nation's farms, factories and refineries rose 2.0 percent, moderating from April's 2.1 percent gain.

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Producer prices excluding food, energy and trade services were flat after advancing 0.3 percent the prior month.

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(Reporting By Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Andrea Ricci and Meredith Mazzilli)

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U.S. consumer sentiment slips in June

U.S. consumer sentiment fell in June as views by consumers with the lowest incomes soured, a survey released on Friday showed.

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The Thomson Reuters/University of Michigan's preliminary June reading on the overall index on consumer sentiment came in at 81.2, down from 81.9 the month before.

It was below the median forecast of 83.0 among economists polled by Reuters.

 
 
 

"The change from May was too small to indicate a

significant loss in sentiment," survey director Richard Curtin said in a statement.

"The small month-to-month variations aside, the main finding from the recent surveys is that consumers have maintained their expectations at reasonably favorable levels for the past six months."

The survey's barometer of current economic conditions rose to 95.4 from 94.5 and was below a forecast of 95.7.

The survey's gauge of consumer expectations slipped to 72.2 from 73.7, and missed an expected 74.6.

The survey's one-year inflation expectation was at 3.0 percent down from 3.3 percent, while the survey's five-to-10-year inflation outlook was at 2.9 percent compared with 2.8 percent.

(Reporting by Rodrigo Campos; Editing by Chizu Nomiyama)

UK construction data revised higher, policy moves may hold sector back

British class="mandelbrot_refrag">construction output grew faster than previously thought in the first quarter, new figures showed on Friday, but could slow in the next three months, particularly after the government took steps to cool the class="mandelbrot_refrag">housing market.

Finance minister George Osborne said on Thursday that he would give the Bank of England stronger powers to curb mortgage lending, while BoE Governor Mark Carney said interest rates could rise sooner than financial markets expect.

The comments sent sterling and short-dated British government bond yields soaring and caused shares to plunge, with housebuilders particularly hard hit. Some 1.7 billion pounds ($2.85 billion) has been wiped off the value of the six housebuilders and two property groups.

 
 
 

Economists say Osborne's announcement means the Bank may adopt a more direct approach when trying to curb mortgage lending. It is expected to announce more controls after its Financial Policy Committee meeting next week.

The moves should help take some heat out of the class="mandelbrot_refrag">housing market but could also hurt class="mandelbrot_refrag">construction at a time when the government is trying to tackle Britain's long-standing housing shortage and to support first-time buyers before 2015 elections.

"Such a move could further dampen mortgage activity with eventual read-across to the house building sector over the months ahead, perhaps providing a modest drag to otherwise positive momentum in the UK's macro recovery," said Victoria Clarke, an economist at Investec.

Britain's construction sector was hard hit by the financial crisis but has recovered recently along with the housing market, buoyed by record-low interest rates and rapidly falling unemployment.

Construction output rose 1.2 percent in April, picking up speed after a decline of 0.2 percent in March.

The Office for National Statistics also raised its estimate of construction output for the first quarter to 1.5 percent from 0.6 percent previously. That would add 0.1 percentage point to gross domestic product over that period.

Britain's economy kept up last year's momentum in the first quarter, growing 0.8 percent. Construction and the housing market played a key role.

COOLING DOWN?

But Thursday's data also pointed toward some slowdown in construction in the near term, even before the government indicated it would tighten its regulation of the housing market.

On an annual basis, output slowed to 4.6 percent in April from 6.8 percent in March as the building of public housing slowed.

Total new construction orders fell by 6.3 percent in the first quarter, led by a 45.7 percent drop in public housing orders, the biggest since records began in 1964.

Osborne's announcement of changes to planning rules that he said would allow as many as 200,000 homes to be built on former industrial sites in urban areas also seemed to have little effect, against expectations of earlier monetary tightening.

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"The central bank is gearing up to take action. As with everything last night, it is the change in tone that was most significant, rather than the precise measures announced," said Rob Wood, the chief UK economist at Berenberg.

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Options open to the FPC to curb the housing market include making banks hold more capital against certain types of home loans or urging caps on how large mortgages can be relative to a borrower's income - something analysts think is now more likely after Osborne said he would give the power to the BoE to impose caps on loan-to-income and loan-to-value ratios.

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Previously, it only had the ability to recommend that banks do this. Such caps are seen as politically sensitive because they could make it harder for first-time buyers to get on the property ladder.

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"I think loan-to-income ratios and higher interest rates will affect mortgage approvals and in the end housebuilders should respond ... so you could see a drop in construction in the back end of the year if that all feeds through," Clarke said.

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A separate survey carried out by Markit recently showed Britain's construction industry, while still robust, slowed further in May to a seven-month low, while mortgage approvals fell to their lowest level in nine months in April.($1 = 0.5956 British Pounds)

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(Additional reporting by Kate Holton; Editing by Larry King)

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OECD sees U.S. growth accelerating through 2015

The U.S. economic recovery should accelerate in coming months as an energy boom, steadily falling unemployment and a rebound in investment push growth to its fastest pace in a decade, the Organization for Economic Cooperation and Development said on Friday.

In its latest overview of the U.S. class="mandelbrot_refrag">economy, the Paris-based group said U.S. gross domestic product would expand 2.5 percent this year, a touch below a forecast it released last month.

But it maintained its 3.5 percent growth projection for next year, which would be the strongest advance since 2004.

 
 
 

The OECD is more optimistic on U.S. growth than most private forecasters and some other international organizations, including the World Bank, which looks for growth in 2015 of only 3.0 percent.

The OECD said it saw several positive trends converging to make the recovery faster, more entrenched and more driven by private demand.

Low energy prices and continued low borrowing costs, coupled with record corporate stores of cash, should produce a surge of 10 percent in business investment in 2015, the OECD projected, while steadily falling unemployment would mean rising consumer demand and a firm recovery in housing over the next year.

"The U.S. is the bright spot in the world's recovery today," said OECD head Angel Gurria. "This has been building up," as the United States worked through the aftermath of the crisis and recession and set the stage for domestic demand and investment to take off.

"The U.S. is the one country that has its own growth built in."

Notably, the OECD said that the steps taken to rein in federal spending and debt in recent years were succeeding. The drag on the class="mandelbrot_refrag">economy from budget cuts has diminished, while federal debt as a percentage of GDP was stabilizing at around 106 percent - high by world standards but perhaps set to decline.

The OECD, an economic policy organization that includes the world's largest developed nations, did warn that some trends in labor class="mandelbrot_refrag">markets could hurt the country's prospects.

Despite stronger growth, the group forecast the unemployment rate would decline only slowly, remaining at 6 percent at the end of 2015 - still above the level typically regarded as full employment. The jobless rate stood at 6.3 percent in May.

The continued stagnation of wages among middle- and lower-income families has stunted demand and worsened income inequality, the OECD said. It called for tax law changes and an increase in the minimum wage to address the issue.

Declining labor force participation also poses a problem which the OECD said could be addressed through reform of immigration laws, or employee tax and training programs that encourage people to work. It recommended specifically a broadening of the earned income tax credit.

The OECD said the United States should also cut its 39.1 percent corporate tax rate, the highest among OECD countries, and reform the system to broaden the base of corporations paying taxes and to give businesses less incentive to book profits abroad.

(Reporting by Howard Schneider; Editing by Jonathan Oatis)

Univision held preliminary sale talks with CBS, Time Warner: WSJ

The owner of Univision Communications Inc [UVN.UL] have recently held preliminary talks about selling the Spanish-language broadcaster with class="mandelbrot_refrag">CBS Corp ( id="symbol_CBS.N_0">CBS.N), class="mandelbrot_refrag">Time Warner Inc ( id="symbol_TWX.NTWX.N) and other media companies, the Wall Street Journal reported, citing people familiar with the matter.

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The talks, however, appear to have gone nowhere, the people said, citing the $20 billion Univision's owners are seeking for company as an issue. (r.reuters.com/xew99v)

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Univision spokeswoman Monica Talan said the company does not comment on rumors. Univision is based in the United States, and owned by Univision Communications Inc.

 
 
 

CBS representatives declined to comment on the report, while representatives for class="mandelbrot_refrag">Time Warner did not immediately respond to a request for comment outside regular U.S. business hours.

Univision's owner had also considered Mexican media conglomerate Grupo Televisa SAB ( id="symbol_TLVACPO.MX_2">TLVACPO.MX) as a possible buyer, the newspaper said. Grupo Televisa owns a minority stake in Univision and supplies much of its programming.

The was no immediate comment from the relevant officials at Grupo Televisa.

The talks are the latest sign of a rising tide of potential megadeals in the telecoms, cable and satellite TV industry, which is being roiled by Comcast Corp's ( id="symbol_CMCSA.O_3">CMCSA.O) proposed $45 billion takeover of class="mandelbrot_refrag">Time Warner Cable Inc ( id="symbol_TWC.N_4">TWC.N) and AT&T's ( id="symbol_T.N_5">T.N) talk to buy satellite TV provider DirecTV ( id="symbol_DTV.ODTV.O).

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(Reporting by Supriya Kurane in Bangalore; Editing by Miral Fahmy)

Senate panel to examine AT&T plan to buy DirectTV

The U.S. Senate Judiciary Committee's antitrust panel will hold a hearing on June 24 to examine the proposed purchase by class="mandelbrot_refrag">AT&T ( id="symbol_T.N_0">T.N) of DirectTV ( id="symbol_DTV.ODTV.O), the committee said on Thursday.

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The House of Representatives Judiciary Committee will hold its hearing on the same day to discuss plans by class="mandelbrot_refrag">AT&T, the No. 2 U.S. cellular operator, to buy the largest U.S. satellite TV provider for $48.5 billion.

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AT&T has said that it wanted to buy DirectTV in order to offer consumers access to video in a variety of media and to give the company scale to compete with larger cable competitors.

 
 
 

The deal is one of three roiling the cable and wireless landscape. The other two are Comcast's ( id="symbol_CMCSA.O_2">CMCSA.O) $45.2 billion bid for class="mandelbrot_refrag">Time Warner Cable ( id="symbol_TWC.NTWC.N) and Sprint's ( id="symbol_S.NS.N) potential bid for TMobile US ( id="symbol_TMUS.NTMUS.N).

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The Senate subcommittee did not announce witnesses for the hearing. Witnesses for the House hearing include AT&T Chief Executive Randall Stephenson and DirecTV CEO Michael White.

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(Reporting by Diane Bartz and Ros Krasny; Editing by Peter Cooney and Sandra Maler)

Talks on EBRD stakes in Ukraine's banks to start in months

The European Bank for Reconstruction and Development expects to start talks on building stakes in Ukrainian banks in the next few months as it looks to ensure that Ukraine's financial system does not rupture in the wake of tensions with Russia.

In an interview with Reuters, Francis Malige, the EBRD's new head for Eastern Europe and the Caucasus, said the situation in class="mandelbrot_refrag">Ukraine looked to have stabilized in recent weeks, although it was still far too early for optimism.

The EBRD's latest forecasts, issued in May, have Ukraine's class="mandelbrot_refrag">economy shrinking 7 percent this year.

 
 
 

"We don't see at this stage an element that should push us to revise them in any direction," Malige said. "If I was a rating agency I would say it's not on negative watch, but it's not on positive watch either."

He said the EBRD's involvement in a big road building project, energy initiatives and a metro system upgrade meant it was firmly on track with plans to raise spending in class="mandelbrot_refrag">Ukraine in response to its crisis to a billion euros this year.

It was also starting to look at expanding its stakes in Ukrainian banks, part of international efforts to try to prevent the turmoil driving away foreign-owned institutions and crushing the banking system's general willingness to lend.

"The right time to have these conversations is when the results of the Asset Quality Review (being done by Ukraine's central bank as part of an IMF aid program) are known," said Malige, who was a managing director at BNP Paribas, focused on bank acquisitions, before joining the EBRD in 2010.

"So the conversations should take place starting in the fall."

The EBRD already has stakes in a small number of Ukraine's banks, but with the IMF having called for a consolidation of the sector as a condition of a $17 billion aid program for Ukraine agreed in April, it could be about to become a lot more active.

"It is dependent on banks being willing to work with us. But we can play a part in many different ways: we can invest in equity, we can lend, we can provide guarantees, we can help with the development of local-currency capital class="mandelbrot_refrag">markets."

GOOD PARENTS

Most of Ukraine's major banks are state- or locally-owned. Malige declined to say which banks the EBRD was most likely to get involved with, but said stakes could start being confirmed next year. The EBRD does not take majority stakes in banks, and usually sets a maximum of around 25 percent.

"To successfully negotiate and implement a capital increase in a bank is a process that is not done overnight, so it is more likely to be next year than this year," Malige said.

After recent talks in Ukraine along the lines of the 2009 Vienna Initiative, which helped to shore up central and eastern European banks at the height of the financial crisis, he said he was confident that international banks would not quit Ukraine.

Some European banks have pulled the plug on Ukrainian subsidiaries since 2008, including Germany's Commerzbank, Austria's Erste Bank, Swedbank of Sweden and Italy's Intesa Sanpaolo.

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Raiffeisen Research estimated that non-Russian foreign lenders had cut their exposure to 20 percent of Ukraine's banking assets by 2012, half their share in 2008.

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But units of Austria's Raiffeisen and Italy's Unicredit remain among the top 10 lenders, and Russian banks including Sberbank, VEB and VTB also have heavy exposure to Ukraine.

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"When I look at the parent banks, I see responsible parents," Malige said. "I don't see an orphaned bank in Ukraine."

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(Reporting by Marc Jones; Editing by Kevin Liffey)

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Exclusive: Demand for Abengoa Yield IPO was 16 times offer - Abengoa CEO

Demand for shares in the initial public offering of renewable energy firm Abengoa Yield Plc was $10 billion, more than 16 times what was on offer, the chief executive of Spanish parent company Abengoa told Reuters on Friday.

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The class="mandelbrot_refrag">banks handling the share sale would sell a greenshoe package of 3.727 million shares in the coming hours, CEO Manuel Sanchez Ortega said by telephone from New York.

The shares priced earlier on Friday at $29 per share, valuing Abengoa Yield at around $2.32 billion.

(Reporting by Jose Elias Rodriguez; Writing by Fiona Ortiz; Editing by Sonya Dowsett)

 
 
 

Greece's Alpha Bank close to buying Citi's Greek retail ops: sources

Greece's fourth-biggest lender Alpha Bank is close to clinching a deal to buy Citibank's class="mandelbrot_refrag">retail operations in class="mandelbrot_refrag">Greece, two Greek banking sources told Reuters on Thursday.

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Greece's debt crisis has prompted foreign class="mandelbrot_refrag">banks, including France's Credit Agricole and Societe Generale, to sell local units to Greek banks in recent years.

"We're close," said one banking source who spoke on condition of anonymity. "There are just some formalities left."

 
 
 

Greece's bank bailout fund, the HFSF, a majority owner of Alpha Bank with a 69.9 percent stake, has approved the deal, a second source told Reuters.

"We have given the green light," the source said.

Greece's top four class="mandelbrot_refrag">banks control about 90 percent of its banking market after a wave of consolidation and the winding-down of smaller banks that were deemed not viable.

Citibank, which started shipping and corporate lending operations in class="mandelbrot_refrag">Greece in 1964 and expanded into class="mandelbrot_refrag">retail banking in the 1980s, has a network of some 21 branches across the country.

Alpha acquired Emporiki Bank from Credit Agricole in 2012.

(Reporting by George Georgiopoulos; Editing by Karolina Tagaris and David Evans)

China and UK to sign deals worth at least $30 billion next week

class="mandelbrot_refrag">China and Britain will sign business deals worth at least $30 billion next week during a visit to London by China's Premier Li Keqiang, the Chinese ambassador to Britain said on Friday.

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"The total value may be record-breaking," Liu Xiaoming, China's ambassador to Britain, told a news conference in London, saying that over 40 separate agreements whose total value was at least $30 billion would be signed.

The deals would cover a range of sectors, including energy, education and class="mandelbrot_refrag">finance, he added. "This visit is a priority to class="mandelbrot_refrag">China and the UK. Expectations are very high," he said, saying Li would be joined by over 200 Chinese business leaders.

 
 
 

The two sides will discuss possible Chinese investment in Britain's planned HS2 high-speed rail network linking the north of England with London and in its nuclear sector, he said. There will also be banking deals.

Li will meet with British Prime Minister David Cameron at his London residence on June 17, a reciprocal visit following the British leader's trip to China last year. Li will then travel to class="mandelbrot_refrag">Greece for a visit.

(Reporting by Andrew Osborn; Editing by Guy Faulconbridge)

Mitsubishi mulls stake in Alstom: papers

Japan's Mitsubishi Heavy Industries is considering taking a direct stake in French class="mandelbrot_refrag">engineering group Alstom as part of an offer with Germany's Siemens, two French newspapers said on Thursday.

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Financial daily Les Echos said Mitsubishi is considering buying part of French Bouygues's 29 percent stake in Alstom and would also buy Alstom's steam turbines while Siemens would take over its gas turbines.

At a later stage, after an expected offer for Alstom on June 16, Siemens would contribute its transport assets to Alstom, which would remain a listed company with activities in power grids, wind turbines and transports, les Echos wrote.

 
 
 

Le Figaro said Mitsubishi would propose an alliance with Alstom modeled on the Renault-Nissan alliance, which would involve Mitsubishi taking a minority stake in Alstom's power activities (excluding grids) or even buying part of Bouygues's stake. The paper said Siemens would propose to buy Alstom's gas turbines unit and give Alstom its rail transport business.

French ministers met on Thursday to discuss Alstom's fate as Siemens and Mitsubishi are considering a joint offer to beat a bid by U.S. conglomerate General Electric.

(Reporting by Geert De Clercq, editing by David Evans)

Drug-linked payouts: complex fix for Pfizer's next Astra bid?

The world's biggest would-be drugs merger hit a wall last month but speculation about smart ways that Pfizer could yet seal a deal with AstraZeneca remains intense.

Even as talks fell apart last month, some in Pfizer's camp remained optimistic the transaction could be revived - and certain AstraZeneca advisers have not ruled out renewed talks. Under British takeover law, the UK firm can approach Pfizer at the end of August to discuss a sweetened bid, or Pfizer can try again in November.

While the most obvious method for Pfizer to win AstraZeneca around might seem to be more cash, some class="mandelbrot_refrag">hedge funds think the U.S. firm could structure payouts by tying them to the performance of key AstraZeneca drugs.

 
 
 

A so-called contingent value right, or CVR, was a winning formula for class="mandelbrot_refrag">Sanofi in its 2011 battle for Genzyme and the tradeable product - promising additional payouts once future benchmarks are hit - has been used in several other drug industry deals when the two sides could not agree on price.

"An enriched cash:equity mix as well as a CVR component to bridge the ... valuation gap between the two management teams may see the deal agreed upon on a friendly basis," said analysts at Jefferies this week, predicting an 80 percent probability of AstraZeneca inviting Pfizer back after an enforced cooling-off period ends in late August.

UNWIELDY OPTION?

Where CVRs have worked before, they have typically been tied to one particular drug upon which buyers and sellers could not agree a price - such as Genzyme's multiple sclerosis drug Lemtrada.

Applying a CVR to AstraZeneca, then, could be tough, given the number of new drugs in its pipeline and the time needed to prove their value: Debate about the UK company's valuation centres on a wide range of experimental drugs in cancer, respiratory disease and other areas, for which it has made sales forecasts stretching as far as 2023.

“Who wants to own a CVR for 10 years?" said Dan Mahony, a fund manager at Polar Capital, who built up his stake in AstraZeneca last year and doubts the idea would be attractive to investors.

“I’m not sure a CVR would necessarily work in this situation. You’d end up with something that is a really long-dated option - and anything that is illiquid and doesn’t really trade is always a bit of a pain in the neck."

In order to cover itself against the risk of a new drug not working out, Pfizer would have to construct any CVR around a number of very different assets ranging from new cancer drugs like MEDI4736 and AZD9291 to benralizumab for asthma to diabetes and heart drugs, suggested Mark Clark, an analyst at Deutsche Bank - a nice idea, but "probably too unwieldy."

"If Pfizer was cash-strapped then it might be a sensible way to work through the difficulties – but it’s not cash-strapped and it seems overly complex," Clark said.

MORE CASH

It would be far simpler for Pfizer instead to bump up the cash element in its 55 pounds-a-share offer - rejected as inadequate - and meet the 58.85 pounds that AstraZeneca has indicated is the minimum at which it might recommend a deal.

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Many healthcare bankers not involved in the bid predict Pfizer will be back - not least because no other target both complements the U.S. company's product range and offers the same potential for tax and cost benefits.

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Pfizer Chief Financial Officer Frank D'Amelio suggested as much this week - and pushed AstraZeneca shares higher - when he told a Goldman Sachs healthcare conference that talks about a deal had fallen down simply over price.

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"In a word it was price," D’Amelio said. "Any other issues that were raised during the negotiations, during the conversations, I think we were able to adequately, effectively address those."

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Since AstraZeneca also raised deep-seated concerns about execution risks and British politicians whipped up a storm over job cuts, D'Amelio's comments were taken as a sign that Pfizer sees such problems as manageable. D'Amelio stressed that he could not speculate on whether Pfizer would return or not.

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UK takeover rules prohibit any re-engagement for three months from May 26 - and what happens after that will depend on how AstraZeneca's drug research fares in the meantime and what happens to its shares - a strong run on the stock could push it out of Pfizer's reach.

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So far, the newsflow for AstraZeneca has been good, with promising data on new cancer drugs and no competition yet to its blockbuster heartburn medicine Nexium in the U.S. market due to problems at generic supplier Ranbaxy - a factor that could allow it to beat its current targets for 2014 class="mandelbrot_refrag">earnings.

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(Editing by Sophie Walker)

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RPT-Fitch: Credit Suisse Saw Only Moderate US Money Fund Outflows

(The following statement was released by the rating agency)

Money market fund outflows from Credit Suisse were only moderate in May following its guilty plea to helping US clients evade tax, Fitch Ratings says.

Money fund flows are driven by various factors, including pricing, and can react to headline risk either by reducing exposures or by shortening maturities. class="mandelbrot_refrag">Banks do not rely on these short-term funds and in most instances place deposits from the money funds with the Federal Reserve.

 
 
 

US prime money fund allocations to Credit Suisse fell 8% in May compared to relatively stable total prime fund assets, according to data from Crane. The monthly decline is higher than the average monthly variance of 4.8% for Credit Suisse's money fund exposures over the previous six months. But the exposures are still slightly above the end-2013 level, so the overall fall is not material. The bank was still one of the top 15 held names, comprising $39bn, or 2.6% of money fund assets.

There were stark contrasts at the fund manager level with some counterparties reducing allocations and others raising exposures to Credit Suisse. The largest decrease for a fund manager was approximately USD1bn, or 23% of the fund manager's exposure to the bank. Further downward or upward adjustments are possible as the settlement is digested, but the impact on overall money fund allocations is likely to be limited. As we have said previously, we do not believe the fine and guilty plea from Credit Suisse's settlement on May 19 will cause significant damage to its franchise.

Money fund exposures to BNP Paribas, which is involved in an ongoing investigation on US sanctions breaches, increased slightly in May to 2.7% of assets, up 0.1pp from end-April. Allocations to the bank were USD1bn or 2.8% higher than April, even though total money fund assets were broadly flat. There was, however, a wide range of allocation changes among the fund manager mix, like at Credit Suisse.

Bank of America, which is in discussions with the US Department of Justice on various mortgage related issues, also saw an increase in money fund allocations. Money fund exposures to BAC increased by USD1.9bn or 6.7% during May, reaching 2.0% of total money fund assets.

INSIGHT-Argentina's economy minister: from 'flaming Red' to pragmatic negotiator

When he became Argentina's class="mandelbrot_refrag">economy minister late last year, many in the business community feared Axel Kicillof, who was once described by a critic as a "flaming Red Marxist," might plunge Latin America's No. 3 economy deeper into isolation in the name of ideology.

Instead, the enigmatic scholar who previously lambasted foreign firms for "looting" the country, has in a few months resolved some of Argentina's long-running disputes with companies and creditors, in a bid to attract investment back into the country.

Deals with the Paris Club of creditor nations to pay back almost $10 billion in debt and with Spanish oil major Repsol to compensate it for the seizure of energy company YPF have sent Argentine bonds and equities climbing as investors show renewed confidence in a country that has been cut off from global credit class="mandelbrot_refrag">markets since a 2001/02 default.

 
 
 

The key test of Kicillof's new conciliatory approach will be whether he can secure a deal with "holdout" bondholders who refused Argentina's prior debt swaps - the main obstacle to putting the default behind it. If the U.S. Supreme Court decides this week not to hear Argentina's case against the holdouts, and Kicillof fails to negotiate a deal, class="mandelbrot_refrag">Argentina faces the prospect of defaulting again.

In debt exchanges in 2005 and 2010, 93 percent of Argentina's bondholders took a 65 percent haircut, or loss, on their holdings, leaving a handful of holdouts who demand they be repaid in full.

"He has switched from being ideological to being pragmatic," one executive who has dealt with the 42-year old former economics professor extensively told Reuters. "Contrary to appearances, he has a very businesslike streak."

The executive, like others spoken to for this story, declined to be named, fearing it could impact relations with the government.

Kicillof declined to comment for this story.

Analysts say it was President Cristina Fernandez' defeat in last year's mid-term elections and a perilous decline in Argentina's foreign reserves that prompted her government's reluctant switch towards a more orthodox approach to foreign investors.

It is unclear to what extent Kicillof's apparently new pragmatic approach is driving the agenda or whether Fernandez has had a change of heart. He is close to both the president and to her son's influential youth movement.

Some policy experts fear Kicillof wants to prop up Argentina's ailing class="mandelbrot_refrag">economy until the end of the president's term next year by boosting foreign investment instead of undertaking tough reforms of subsidies, trade and capital controls that are the root cause of the country's poor growth outlook.

"These are tactical decisions that are more liberal than before but at the same time, the government maintains its controls over the economy - and that's not liberal at all," said Ricardo Rouvier, an analyst who now runs his own consultancy and is a former adviser to Fernandez.

Still, top businessmen and foreign officials told Reuters they were impressed by the speed and ability with which Kicillof has gone about sealing deals.

A source present at the Paris Club talks earlier this month said he made a good impression by making a case for the deal on solid financial grounds rather than political ones.

Known for his aversion to ties, Kicillof's casual style and hands-on approach surprised them. He whipped out his laptop to draft the deal himself, rather than delegating to aides, prompting some to quip "where's the minister?".

Another business executive who meets him regularly said he was not the "tough guy" he had initially appeared to be.

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Unlike the previous strongman in Fernandez's economics team, pugnacious Peronist Guillermo Moreno, who once took a boxing glove to a tense business meeting as a threat, Kicillof was "friendly, polite and well-educated", said the Argentine business executive.

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"He has his vision of things, and you won't convince him otherwise, but when he wants to see a result he is capable of getting out of his tunnel vision."

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The young minister was raised in the exclusive Buenos Aires district of Recoleta and went to an elite school. He was top of his class at university. An economist who first knew him then, said that in contrast to others in Fernandez's cabinet, he was more of a left-wing intellectual than a populist Peronist.

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He is, though, appealing to a younger demographic more than many politicians. With glacial blue eyes and dark sideburns, Kicillof has been dubbed "the pretty face of Argentina's economy" by the Spanish daily El Pais.

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'FREAKING OUT'

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Investors had plenty of reason to be wary of Kicillof. He first made international headlines when, as deputy economy minister in 2012, he masterminded the seizure of YPF from Spain's Repsol and defended the move in fiery speeches. It was around this time that Walter Molano, an analyst at U.S.-based BCP Securities, made the "flaming red Marxist" comment.

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"We were all freaking out about this guy, when people started talking about him being economics minister," said Alberto Bernal, head of emerging class="mandelbrot_refrag">markets at Miami-based investment bank and broker Bulltick Capital Markets. "The way I would label him now is someone who is still very ideological, a Marxist, but a Marxist who is willing to talk to Wall Street."

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Bernal said that on a December trip to Buenos Aires with investors, he got the warmest welcome he had received from Argentine officials in more than a decade of such trips. "I felt a big interest from the Argentine government," he said. "The attitude of the government was totally different."

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When appointed, Kicillof had little experience in either business or politics, having spent most of his career in academia, giving classes and writing about John Maynard Keynes and Karl Marx.

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At news conferences, he still lectures for hours, often underscoring his dislike of economic liberalism. After the Paris Club deal, he boasted of having avoided the involvement of the International Monetary Fund, which forced prior Argentine governments to reduce social spending and privatise companies.

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Critics say if Kicillof had been less ideological and accepted IMF auditing, he might have got a more generous repayment schedule. His strategy was, though, broadly celebrated in a country where the IMF is vilified by many people.

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An old-school ideologue who criticises the tenets of 21st century globalism, he says Argentina's path to prosperity is through strong domestic demand and he has expanded welfare programs.

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But analysts say they believe that the nation's dwindling reserves must have also made him aware of Argentina's urgent need for foreign funds to keep the economy afloat and continue financing his and Fernandez's shared dream of "social inclusion".

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The economy is currently in or close to a recession, and is set for its first decline in Gross Domestic Product since 2002 this year, as industrial output falls and one of the world's highest inflation rates hits consumer spending and investment.

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"What they've basically done is gone about tackling each of the issues still in the way of class="mandelbrot_refrag">Argentina getting back to the market," said David Rees at Capital Economics research group in London.

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Still, negotiating with holdouts, many of whom bought Argentina's debt at a massive discount and are now demanding payment back in full, would be more of a bitter pill to swallow - and much more contentious politically than other deals to date.

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Last month, Argentina's cabinet chief said the country might consider a deal with holdouts, including hedge fund NML Capital Ltd, but NML said it had still not been contacted by the Argentine government despite "repeated requests to negotiate".

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Argentina is "doing everything backwards," said a source familiar with NML's thinking. "Paying the Paris Club doesn't really open the market for them, only in small ways."

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PRESIDENTIAL BACKING

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Kicillof's popularity with the President and the pro-government youth movement founded by her son gives him a stronger negotiating position than previous economy ministers.

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Ignacio Labaqui, analyst for consultancy Medley Global Advisors, said he is the first Argentine minister in almost a decade to control nearly all areas of economic policy.

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Fernandez consults with him frequently throughout the day, by mobile or in person over lunch, and praises him in her speeches. Kicillof will need to wield this influence if he wants to get her approval for negotiating with holdouts, a step she has previously refused to support.

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"He influences her and her economic policies a lot," said a mid-level official at the presidential palace, the "pink house". (Additional Reporting by Nicolas Misculin, Eliana Raszewski and Alejandro Lifschitz in Buenos Aires Leigh Thomas in Paris and Daniel Bases in New York; Editing by Martin Howell)

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