PRESS DIGEST - Wall Street Journal - June 13

The following are the top stories in the Wall Street Journal. Reuters has not verified these stories and does not vouch for their accuracy.

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* Iraq's government girded to protect the capital from advancing insurgents, as Iranian security officials said their forces had joined the battle on Baghdad's side and the United States weighed military assistance. (r.reuters.com/xyw99v)

* Iran has deployed Revolutionary Guard forces to fight militants that have overrun a string of Iraqi cities, and it has helped Iraqi troops win back control of most of Tikrit, Iranian security sources said. (r.reuters.com/zyw99v)

* Alibaba Group Holding Ltd IPO-ALIB.N, responding to concerns from investors that it has been too tight-lipped, plans to give out more details about its Internet empire as it readies its potential $20 billion initial public offering. The Chinese e-commerce company, which plans to go public in the next few months, is preparing a new regulatory filing that will give metrics on some of its individual businesses. (r.reuters.com/zuw99v)

* Facebook Inc took another step to reap commercial benefit from the lives of its billion-plus users, saying it will allow advertisers to target ads based on users' web-browsing habits. The move reversed Facebook's previous position on users' browsing data and renewed critics' concerns about the company's commitment to user privacy. (r.reuters.com/dyw99v)

* The U.S. government on June 27 plans to auction almost 30,000 bitcoins, valued at $17.3 million, that were seized as part of the Federal Bureau of Investigation's crackdown last year on the Silk Road online marketplace for illicit drugs, the U.S. Marshals Service said Thursday. (r.reuters.com/fax99v)

* Tesla Motors Inc is offering the proprietary technology at the heart of its Model S electric car to any company that wants to build vehicles, and its chief suggested BMW already is interested in sharing certain patents. (r.reuters.com/gax99v)

* The European Union's second-highest court on Thursday upheld a record 1.06 billion euros ($1.43 billion) fine against Intel Corp for abusing its dominant position in the microprocessor market, the latest in a long line of victories for EU antitrust authorities at the European courts. (r.reuters.com/jyw99v) (Compiled by Supriya Kurane in Bangalore)

GLOBAL MARKETS-Asia stocks down, oil up as Iraq conflict sours mood

Asian stocks slid and crude oil scaled nine-month highs on Friday as escalating civil war in Iraq dulled risk appetite which had been buoyant just days before.

Spreadbetters expected the sour mood to linger on in Europe, forecasting Britain's FTSE to open as much as 0.4 percent lower, Germany's DAX down 0.25 percent and France's CAC 0.26 percent lower.

The yen, however, benefited from its safe-haven status and a decline in U.S. Treasury yields following soft U.S. data that dented economic optimism.

Sunni Islamist militants have extended their advance south towards Baghdad and prompted President Barack Obama to warn of possible U.S. military intervention, while Iraqi Kurdish forces took control of the Kirkuk oil hub amid the chaos.

Weaker-than-expected U.S. retail sales and jobless claims data published on Thursday further tempered economic optimism felt earlier in the week that had propelled Wall Street to record highs.

Taking its cue from an overnight slide in U.S. stocks, MSCI's broadest index of Asia-Pacific shares outside Japan shed 0.3 percent. The index, which hit a three-year high on Monday, was still poised to rise about 0.4 percent this week.

Tokyo's Nikkei swam against the tide to rise 0.9 percent, on course to end the week on a 0.2 percent gain.

Reaction was muted towards China's industrial output and retail sales data, which rose in line with forecasts but were not solid enough to show that the world's second largest economy was on a solid, broad recovery.

Brent crude futures rose towards $114 a barrel on Friday and hit a nine-month high.

"Oil is now in a new price territory and is likely to climb more as investors rework their positions, supported by the uncertainty and technicals," said Ken Hasegawa, a Tokyo-based commodity sales manager at Newedge Japan.

The dollar edged up 0.3 percent to 101.97 yen but was still stuck in the vicinity of a two-week low of 101.60 hit on Thursday. On the week, the dollar was on course to lose about 0.5 percent against the yen.

After the Bank of Japan stood pat on monetary policy on Friday as widely expected, currency market focus turned to whether Governor Haruhiko Kuroda will maintain his confident stance on the economy when he briefs the media at 0630 GMT.

The euro was little changed at $1.3556, poised to end the week down about 0.6 percent, hobbled by a widening yield gap between euro zone bonds and their peers following easing by the European Central Bank earlier this month.

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The pound gained over a cent overnight to five-week highs after Bank of England Governor Mark Carney said on Thursday that British interest rates could rise sooner than financial markets expect. The pound was last up 0.2 percent at $1.6959.

In commodities, copper was up on the day but still set for its third straight weekly loss as seasonally strong demand from China passes its peak. Three-month copper on the London Metal Exchange inched up 0.8 percent to $6,671.50 a tonne.

Palladium and sister metal platinum bounced back from the previous session's slide as South African producers struck a deal with a miners' union to end a crippling five-month strike. (Additional reporting by Lisa Twaronite and Ayai Tomisawa in Tokyo, Manash Goswami in Singapore; Editing by Eric Meijer)

HIGHLIGHTS-BOJ Governor Kuroda comments at news conference

The Bank of Japan kept monetary policy steady on Friday and offered a slightly more upbeat view on overseas growth, signalling confidence the economy is on course to meet its inflation target next year without additional stimulus.

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Following are comments from BOJ Governor Haruhiko Kuroda at his post-meeting news conference:

ON JAPAN'S ECONOMY:

"The economy is moving roughly within our expectations. Household spending remains solid as a trend ... The positive cycle of the economy is firmly in place, accompanied by clear improvements in job conditions and income."

"We expect Japan's economy to temporarily contract in the second quarter (due to the sales tax hike impact). But more companies have decided to raise regular pay and summer bonuses are set to rise, so job and income conditions will continue to clearly improve.

"As such, we expect household spending to remain firm. The downturn in spending (in reaction to the rise ahead of the tax hike) will ease from around summer."

ON EXPORTS:

"While the economy is seen contracting in the second quarter, it is likely to steadily continue a moderate recovery driven mainly by domestic demand. I don't think the recovery lacks balance. One thing, though, is that exports have been somewhat weaker than what most people had expected, so we need to look at developments carefully."

"There's a chance the timing of an export recovery has been delayed somewhat. But I don't think exports as a whole will fail to recover."

ON PRICE TARGET, QQE PROGRAMME

"We're always closely watching price developments ... We are only halfway through (reaching) our price target, so we'll steadily proceed with our QQE programme."

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"QQE is an open-ended programme so there's no pre-set date on how long it will last ... We won't end QQE in 2015 before 2 percent inflation is achieved or before such price growth is achieved in a sustained manner."

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ON PRICE FORECAST OF BOARD MEMBERS AND MONETARY POLICY OUTLOOK:

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"There are some differences (in the board members' forecasts) but I think we broadly agree that the Bank of Japan won't hesitate to adjust policy if upward or downward risks force us to alter our projections."

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ON GOVT'S GROWTH STRATEGY:

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"I understand that the government is accelerating implementation of its existing strategy and, after various discussions, crafting a new one. The Bank of Japan strongly hopes there is steady progress on these fronts."

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ON ECB'S POLICY PACKAGE

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"It's true inflation in the euro zone has been below 1 percent for more than six months and the output gap will weigh on inflation ahead. But the ECB has stressed that medium- and long-term inflation expectations are well anchored and is strongly committed to ensuring it stays that way.

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"I think the latest package shows that determination. Given the region's economy is recovering moderately, I think the risk of the euro zone area as a whole slipping into deflation is small."

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ON IMPACT OF ECB EASING MEASURES ON EURO/YEN EXCHANGE RATE:

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"Japan is steadily moving towards the 2 percent price target but we're still halfway there. We also plan to continue QQE until 2 percent inflation is stably achieved. I therefore think there's no reason for the yen to strengthen much against the euro."

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"I don't think there is a reason for the yen to strengthen against the euro from the ECB's stimulus package, including negative interest rates." (Reporting by Leika Kihara, Stanley White and Tetsushi Kajimoto; Editing by Chris Gallagher)

FOREX-Dollar edges up vs yen, sterling drives higher

The dollar was up around a third of a percent against the yen as markets listened to the Bank of Japan's latest comments on policy on Friday while sterling soared on the back of a surprise hint from the Bank of England that interest rates could rise this year.

The big action overnight was all on the pound. BoE Governor Mark Carney sent money market rates spinning higher by telling the annual Mansion House dinner that rates may rise sooner than markets currently expect.

That sent sterling to a 19-month high against the euro and close to key resistance around $1.70, up around 1 percent since the close of play in London on Thursday.

"For us this was a clear signal that the first hike will come this year," said Lee Hardman, a strategist with Bank of Tokyo Mitsubishi-UTJ in London. "We think the first month for the bank to move will be November.

The move was all the more shocking given how little faith the market has shown in sterling's ability to rise further against the dollar after a 10 percent rise in the past year. The currency has baulked so far this year at any attempt to breach $1.70 and some dealers said sellers had already appeared around $1.6980.

"The market is getting very ahead of itself we are very much in overshoot land," said one trader in London.

Most analysts and traders have continued to back sterling against the euro, however, which was worth less than 80 pence for the first time since November 2012 as European trade got going.

YEN DIP

Both the yen and the dollar looked supported going into the weekend given concerns over a conflict in Iraq that has prodded oil prices higher this week.

Slightly firmer U.S. bond yields helped the dollar recover from two-week lows against the yen. The Bank of Japan's decision to hold monetary policy steady underpinned the Japanese currency, though the outcome was widely expected and factored into positions.

There was little price movement around Governor Haruhiko Kuroda's remarks at a news conference afterwards and traders said the yen looked pinned in between 101.70 and 102.20 yen per dollar.

"It's very hard to find a good driver to raise dollar/yen expectations," said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

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The dollar added about 0.3 percent on the day to buy 101.97 yen, after dropping as low as 101.60 yen on Thursday. It rose to its session high of 101.83 yen before the BOJ outcome, and had little reaction the actual announcement.

The euro also gained similarly to buy 138.16 yen.

Against the dollar, the euro was a touch higher at $1.3568, having again resisted a push toward a four-month low of $1.3503 set last week after the European Central Bank unveiled a package of monetary easing, becoming the first major central bank to charge financial institutions for parking their funds with it. (Editing by Alexandra Hudson)

Bunds struggle at open after UK rates rise worries

German bond yields edged up on Friday, tracking UK equivalents higher after Bank of England Governor Mark Carney said interest rates could rise sooner than financial markets expect.

Bund futures fell as much as 43 ticks when markets opened, before recovering by the time cash markets opened. German 10-year bond yields rose 1 basis point to 1.4 percent.

"The Bund opened very weak but it is starting to come back a bit, showing that this first reaction was maybe somewhat an exaggeration of the European investors," said Piet Lammens, strategist at KBC.

"The euro area should be a bit immune to UK rates, given the stance of the European Central Bank."

While the BoE is gearing up to raise rates to cool its buoyant housing market and support economic recovery, the ECB has cut rates negative in a desperate attempt to stimulate bank lending and stoke low inflation.

While the connectedness of global economies could not prevent the euro zone debt benchmark from following its UK equivalent higher, it did manage to outperform by around 4 bps.

The BoE's move had no impact on the euro zone's lower-rated bonds, however, which all rallied as investors continued to show appetite for higher yields.

An escalating civil war in Iraq did little to dampen risk appetite, while the market appeared to easily digest a glut of new peripheral bond supply issued on Thursday which included 9 billion euros of new Spanish 10-year bonds, 8.5 billion euros of bonds sold at an Italian auction, and around 1 billion euros of a 10-year tap from Portugal.

Spanish, Italian and Portuguese 10-year bonds all inched 1 bps lower to 2.69, 2.81 and 3.37 percent, respectively.

NEW LOWS

In money markets, the overnight bank-to-bank Eonia lending rate EONIA= fixed at 0.043 percent, beating record lows set on Monday before the European Central Bank's negative rate on deposits applied.

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The ECB's measure effectively penalises banks 10 basis points for holding their cash with the central bank overnight and is aimed at forcing banks to put their money to work, while keeping money market rates anchored at low levels.

The amount of cash euro zone banks have beyond what they need for their day-to-day operations is a key factor holding short-term rates low. Excess liquidity ECBNOMLIQ= stands at 112 billion euros, well above the three-year low of 70 billion euros hit at the end of last month.

Liquidity will be given a boost next week when the ECB stops withdrawing cash from the banking system to neutralise the effect of the bond purchases it made under the now defunct Securities Markets Programme (SMP).

It has also introduced 400 billion euros of ultra-cheap four-year loans for banks - conditional on their lending to the smaller companies that are Europe's economic backbone - which will be available from September.

With forward Eonia rates dated for November and December showing an implied rate of around 0.03, there is clearly scope for money rates to fall further with these liquidity injections.

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Hopes for a full-blown programme of government bond purchases from the ECB was dented late on Thursday, however, after Bundesbank President Jens Weidmann emphasised his opposition to them, calling them "sweet poison for governments" that undermine the central bank's ability to do its job. (Editing by Alexandra Hudson)

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RPT-Bunds struggle at open after UK rates rise worries

German bond yields edged up on Friday, tracking UK equivalents higher after Bank of England Governor Mark Carney said interest rates could rise sooner than financial markets expect.

Bund futures fell as much as 43 ticks when markets opened, before recovering by the time cash markets opened. German 10-year bond yields rose 1 basis point to 1.4 percent.

"The Bund opened very weak but it is starting to come back a bit, showing that this first reaction was maybe somewhat an exaggeration of the European investors," said Piet Lammens, strategist at KBC.

"The euro area should be a bit immune to UK rates, given the stance of the European Central Bank."

While the BoE is gearing up to raise rates to cool its buoyant housing market and support economic recovery, the ECB has cut rates negative in a desperate attempt to stimulate bank lending and stoke low inflation.

While the connectedness of global economies could not prevent the euro zone debt benchmark from following its UK equivalent higher, it did manage to outperform by around 4 bps.

The BoE's move had no impact on the euro zone's lower-rated bonds, however, which all rallied as investors continued to show appetite for higher yields.

An escalating civil war in Iraq did little to dampen risk appetite, while the market appeared to easily digest a glut of new peripheral bond supply issued on Thursday which included 9 billion euros of new Spanish 10-year bonds, 8.5 billion euros of bonds sold at an Italian auction, and around 1 billion euros of a 10-year tap from Portugal.

Spanish, Italian and Portuguese 10-year bonds all inched 1 bps lower to 2.69, 2.81 and 3.37 percent, respectively.

NEW LOWS

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In money markets, the overnight bank-to-bank Eonia lending rate EONIA= fixed at 0.043 percent, beating record lows set on Monday before the European Central Bank's negative rate on deposits applied.

The ECB's measure effectively penalises banks 10 basis points for holding their cash with the central bank overnight and is aimed at forcing banks to put their money to work, while keeping money market rates anchored at low levels.

The amount of cash euro zone banks have beyond what they need for their day-to-day operations is a key factor holding short-term rates low. Excess liquidity ECBNOMLIQ= stands at 112 billion euros, well above the three-year low of 70 billion euros hit at the end of last month.

Liquidity will be given a boost next week when the ECB stops withdrawing cash from the banking system to neutralise the effect of the bond purchases it made under the now defunct Securities Markets Programme (SMP).

It has also introduced 400 billion euros of ultra-cheap four-year loans for banks - conditional on their lending to the smaller companies that are Europe's economic backbone - which will be available from September.

With forward Eonia rates dated for November and December showing an implied rate of around 0.03, there is clearly scope for money rates to fall further with these liquidity injections.

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Hopes for a full-blown programme of government bond purchases from the ECB was dented late on Thursday, however, after Bundesbank President Jens Weidmann emphasised his opposition to them, calling them "sweet poison for governments" that undermine the central bank's ability to do its job. (Editing by Alexandra Hudson)

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PRESS DIGEST- Canada - June 13

The following are the top stories from selected Canadian newspapers. Reuters has not verified these stories and does not vouch for their accuracy.

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THE GLOBE AND MAIL

* A crash of China's shadow banking system would send shock waves through the Canadian economy, depressing commodity prices and triggering a housing market correction, the Bank of Canada warned in a new report. Other major risks to the Canadian system remain largely unchanged, including the threat of a house price collapse at home, sharply higher interest rates or the euro crisis. (r.reuters.com/daz99v)

* More than a million encoded BlackBerry messages have been viewed by police as part of a crackdown against Quebec organized crime. In arresting more than 30 people on Thursday, the Royal Canadian Mounted Police took the rare step of publicly highlighting its interception of BlackBerry Inc's supposedly secure "PIN-to-PIN" communications. (r.reuters.com/haz99v)

Reports in the business section:

* As world financial centers battle to become offshore trading hubs for the Chinese yuan, Toronto and Vancouver appear to be setting aside some differences to put up a united front in pitching Canada as the next logical destination. "We can preoccupy ourselves with the competition between two geographic regions - Vancouver and Toronto - or we can capitalize on the strengths that both of those centres would bring. I think that has merit." British Columbia Finance Minister Michael de Jong said in an interview. (r.reuters.com/kaz99v)

NATIONAL POST

* Kathleen Wynne's Liberal Party of Canada will form a majority government, making history in the province and proving Ontario is willing to give her left-of-centre, scandal-plagued party another chance. The party creeped past the 54 seats needed to claim a majority, scoring 59 of them, and holding 38.6 percent of the popular vote. (r.reuters.com/maz99v)

* Lawyers for the family of Sinclair, an aboriginal man who died during a 34-hour emergency room wait, say an inquest judge must rule the death a homicide. They have also asked the judge to recommend Manitoba call a public inquiry into how aboriginal people are treated in the health-care system. (r.reuters.com/paz99v)

FINANCIAL POST

* A new report says that Canadian residential real estate has been getting a huge boost from so-called echo boomers, those in the 20-38 age bracket. "The Baby Boom generation grabs most of the attention on this front, but their children, the echo boomers, pack a heavy economic punch as well." Bank of Montreal economist Robert Kavcic, said in a report released on Thursday. (r.reuters.com/saz99v)

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* BlackBerry Ltd has inked a new three-year deal with EnStream LP - jointly owned by BCE Inc, Telus Corp and Rogers Communications Inc to help secure customer data, marking the Canadian technology company's latest effort to shift its focus from devices to services. (r.reuters.com/waz99v) (Compiled by Ankush Sharma in Bangalore)

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Bunds shrug off UK rates worries to hit day's high

German bonds recovered after an earlier fall on Friday, as investors shrugged off worries that a rates rise in the UK would have a knock on effect for euro zone government borrowing costs.

Bund futures, the most actively traded securities in euro zone bond markets, initially dropped as much as 43 ticks at Friday's open after Bank of England Governor Mark Carney said UK interest rates could rise sooner than financial markets expect.

However, by mid-morning, Bund futures made a full reversal, climbing to daily highs of 145.63, 37 ticks up on the day.

Strategists said data confirming the euro zone's alarmingly weak inflation served as a reminder that the path of ECB policy had completely diverged from its peer across the channel.

"These deflation pressures show the ECB will keep rates low for a very long time, which is the most important thing for investors," said Christian Lenk, strategist at DZ Bank.

Fears around low inflation in the euro zone have centered on the bloc's fragile peripheral states, but it was one of its strongest credits that was a cause for concern on Friday.

Finland's consumer prices rose just 0.8 percent in May, down from 1.1 percent the previous month. Germany's final inflation reading for May was also left unchanged at just 0.6 percent, despite some analysts predicting an uptick.

While the ECB has cut rates in negative territory in an attempt to stave off deflation and stimulate bank lending, the BoE is gearing up to raise rates to cool its buoyant housing market and support economic recovery.

"The euro area should be a bit immune to UK rates, given the stance of the European Central Bank." said Piet Lammens, strategist at KBC.

German 10-year yields initially opened 1 basis point higher at 1.4 percent, but then reversed to trade lower on the day. The yield spread over equivalent 10-year gilts was also pushed to its widest level since mid-1997.

Bond traders said an escalating civil war in Iraq bolstered investor appetite for safe haven German paper, but it did not appear to dampen risk appetite elsewhere.

Markets appeared to easily digest over 18 billion euros of low-rated bonds sold by Spain, Italy and Portugal on Thursday.

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Spanish and Italian 10-year bond yields dropped 1bps lower on Friday, to hit 2.69 and 2.81, respectively, while Greece's dropped 3 bps to 5.73 percent.

Portugal bucked the trend, with 10-year yields rising 1 bps to 3.39 percent, after its finance minister said on Thursday that the country would do without the last payment from its international bailout program after the country's constitutional court rejected a series of austerity measures.

NEW LOWS

In money markets, the overnight bank-to-bank Eonia lending rate EONIA= fixed at 0.043 percent, beating record lows set on Monday before the European Central Bank's negative rate on deposits applied.

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The amount of cash euro zone banks have beyond what they need for their day-to-day operations is a key factor holding short-term rates low.

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Liquidity will be given a boost next week when the ECB stops withdrawing cash from the banking system to neutralise the effect of the bond purchases it made under the now defunct Securities Markets Programme (SMP).

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It has also introduced 400 billion euros of ultra-cheap four-year loans for banks - conditional on their lending to the smaller companies that are Europe's economic backbone - which will be available from September.

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With forward Eonia rates dated for November and December showing an implied rate of around 0.03, there is clearly scope for money rates to fall in months ahead.

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Hopes for a full-blown programme of government bond purchases from the ECB are more remote, however. Bundesbank chief Jens Weidmann called them "sweet poison for governments" that undermine the central bank's ability to do its job. (Editing by Alexandra Hudson and Toby Chopra)

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FOREX-Dollar edges up vs yen, sterling drives higher

The dollar rose around a third of a percent against the yen as markets listened to the Bank of Japan's latest comments on policy on Friday while sterling soared on a surprise hint from the Bank of England that interest rates could rise this year.

The big action overnight was all on the pound. BoE Governor Mark Carney sent money market rates spinning higher by telling London's financial community at Thursday's annual Mansion House dinner that rates may rise sooner than markets currently expect.

That sent sterling to a 19-month high against the euro and close to key resistance around $1.70, up around 1 percent since the close of play in London on Thursday.

"For us, this was a clear signal that the first hike will come this year," said Lee Hardman, a strategist with Bank of Tokyo Mitsubishi-UTJ in London. "We think the first month for the bank to move will be November."

The move was all the more shocking given how little faith the market has shown in the pound's ability to rise further against the dollar after a 10 percent rise in the past year. The currency has baulked so far this year at any attempt to breach $1.70 and sellers quickly appeared around $1.6980. By midday in Europe, sterling had gained another 0.2 percent compared to prices late on Thursday in the U.S. session.

Most analysts and traders have continued to back sterling against the euro, which was worth less than 80 pence for the first time since November 2012.

YEN DIP

Both the yen and the dollar looked supported going into the weekend given concerns over a conflict in Iraq that has prodded oil prices higher this week.

Slightly firmer U.S. bond yields helped the dollar recover from two-week lows against the yen. The Bank of Japan's decision to hold monetary policy steady underpinned the Japanese currency, though the outcome was widely expected and factored into positions.

There was little price movement around Governor Haruhiko Kuroda's remarks at a news conference afterwards and traders said the yen looked pinned in between 101.70 and 102.20 yen per dollar.

"Deeply negative real rates in Japan will force savers to look offshore for better returns," said Kit Juckes, an analyst with Societe Generale in London. "But while that leaves me thinking the yen will weaken further in due course, we could be in low-volatility range trading for a very long time."

The dollar added 0.25 percent on the day to buy 101.96 yen, after dropping as low as 101.60 yen on Thursday. The euro rose by just over 0.3 percent to 138.31 yen.

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Against the dollar, the euro was a touch higher at $1.3568, having again resisted a push toward a four-month low of $1.3503 set last week after the European Central Bank unveiled a package of monetary easing, becoming the first major central bank to charge financial institutions for parking their funds with it.

The jury remains firmly out on whether there is much more near-term weakness to come for the single currency, propped up by flows of capital into higher-yielding southern euro zone bond markets, Germany's huge trade surplus and a reordering of Asian central banks' reserves in favour of the euro. (Editing by Ruth Pitchford)

INVESTMENT FOCUS-Press here, Mr Carney, for lower volatility?

In the struggle to explain this year's collapse in volatility and volume in financial trading, one newly-nominated culprit is central banks' intent to use every tactic available short of raising interest rates too soon.

It sounded like a deeply contrarian view on Friday after comments by Bank of England Governor Mark Carney, but a study by analysts from market heavyweights HSBC this week argued that the use of macroprudential steps will make central bank interest rates in general less volatile in future. Implicitly that may mean markets see less marked swings.

The global economy is right at the point, as the economic fates of Japan, Europe and the United States diverge, when an upturn in trading action could be expected due to the growing chances for arbitrage between future interest rates.

Yet volatility, which traders depend upon for profits, is at rock bottom. Trading in currencies on the biggest platforms has fallen by a third to half in the past year; options contracts betting on volatility are around all-time lows.

Even with a blip higher stemming from Carney's comments on Friday, sterling implied volatility was glued to its lowest levels on record, less than a quarter of highs reached in 2008.

There are numerous theories as to why, ranging from the growth in machine-driven trading to the scaling back of banks' mandates to invest on their own account, disappointment at the pace of the U.S. recovery or allegations of market manipulation that have pushed traders back inside their shells.

The HSBC study argues that one big factor may be that central banks are in the midst of a regime change of their own.

"Macroprudential policy, which aims to maintain financial stability through targeted measures, is already part of the mix and is set to grow ever more important," HSBC analysts said in the paper this week.

"It will, in part, replace interest rate moves and since FX has traditionally been very sensitive to rates, the repercussions for the currency markets will be significant."

HEAT RELEASE

Thereafter, it all gets a bit cloudy.

New Zealand, Canada and Norway have all used targeted measures to tighten their grip on mortgage lending and take some of the heat out of their property markets but in the end wound up raising borrowing costs anyway.

Indeed the New Zealand central bank delivered another market shock this week in pledging it still has a lot more to do.

Likewise, while UK finance minister George Osborne promised further steps to target house prices in a speech on Thursday, Carney followed less than an hour later with a U-turn on policy that looked very like a promise of higher borrowing costs this year.

This all goes to the traditional thinking of many market players on macroprudential policy: it is very nice in theory but has never worked except as a distraction before we return to the real business of managing demand through interest rates.

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Yet it is not just HSBC who says that view is outdated.

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"What you have to recognise about macroprudential measures is that they are a response to the failure of inflation-targeting, which does not work and is too blunt an instrument," said Neil Mellor, a currency market strategist with U.S custodial lender Bank of New York-Mellon in London.

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"You can certainly point to the failure of measures in the past, but if for example we can even partially enhance economic stability over the course of the cycle then that will be a good thing. I think we will see a lot of tinkering over the next few years."

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As with so much of policymaking since the 2008 crisis, this all stems substantially from the need to find ways to do more to address the imbalances and risks in the detail of economies that interest rates can just wash over.

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Much of the HSBC study concerns itself with trying to establish the likely impact of the longer-term and more consistent use of macroprudential measures.

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But, as ever, there are imperatives for officials like Carney in what is right in front of his nose: keeping the British economy going as fast as he can without the wheels coming off either the banking system or inflation.

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Notwithstanding Thursday's words, if he can find any way to accomplish that without having to deliver on the threat of higher rates then surely he will.

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"As a central banker you have to look at the overall picture of the economy," says Andrew Wilson, CEO of Goldman Sachs Asset Management in London.

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"I am not sure it will reduce volatility but if macroprudential policy dampens, for example, house price inflation then it may mean monetary policy needs to do less to weaken demand in the economy in general." (Editing by Ruth Pitchford)

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

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 finance, he added. "This visit is a priority to 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 Greece for a visit. (Reporting by Andrew Osborn; Editing by Guy Faulconbridge)

TIMELINE-The FX market "fixing" probe

Britain's finance minister George Osborne this week rejected European Union plans to outlaw currency market manipulation and instead set out his own proposals to make rigging exchange rates a criminal offence.

A panel led by the Bank of England and including the Treasury and Financial Conduct Authority will recommend new criminal sanctions which meet the needs of London, where much of the largely unregulated FX market takes place.

Osborne's announcement comes as regulators around the world investigate allegations of collusion and price-manipulation in the $5-trillion-a-day market, by far the world's largest.

Since the allegations first surfaced last year, some 40 traders have been placed on leave, suspended or fired by some of the world's biggest banks.

No individual or bank has been accused of wrongdoing and no evidence of wrongdoing has been found. All the banks involved are cooperating with the regulators.

Below is a timeline on the scandal engulfing the FX market.

July 2006: Minutes of a meeting of the BoE's FX Joint Standing Committee's chief dealer sub-group say the group, chaired by BoE chief dealer Martin Mallett, discussed "evidence of attempts to move the market around popular fixing times by players that had no particular interest in that fix. It was noted that 'fixing business' generally was becoming increasingly fraught due to this behaviour".

Spring 2008: The Federal Reserve Bank of New York makes enquiries into concerns surrounding benchmark Libor interest rates, sharing its analysis and suggestions for reforms with "the relevant authorities in the UK".

May 2008: Minutes of a meeting of the BoE's FX Joint Standing Committee's chief dealers sub-group say there was "considerable discussion" on the benchmark "fixings" again.

July 2008: A meeting of the BoE's FX Joint Standing Committee's chief dealers sub-group discusses the suggestion "that using a snapshot of the market may be problematic as it could be subject to manipulation," BoE minutes say.

April 2012: As the Libor scandal reaches its zenith, the regular chief FX dealers' meeting included a "brief discussion on extra levels of compliance that many bank trading desks were subject to when managing client risks around the main set piece benchmark fixings," BoE minutes say.

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June 2013: Bloomberg News reports dealers used electronic chatrooms to share client order information to manipulate benchmark exchange rates at the 4:00 p.m. London "fixing".

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July 2013: A scheduled chief dealers' meeting for 4 July never takes place.

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Sept. 2013: Swiss bank UBS provides the U.S. Department of Justice with information on FX allegations in the hope of gaining antitrust immunity if charged with wrongdoing.

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Oct 2013: The investigation goes global. The DOJ, Britain's Financial Conduct Authority and Bank of England and Switzerland's market regulator all open probes. The Hong Kong Monetary Authority says it is cooperating.

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Dec 2013: Several banks, including JP Morgan Chase, Goldman Sachs and Deutsche Bank ban traders from multi-dealer electronic chatrooms.

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Jan 2014: U.S. regulators visit Citi's main offices in London. Citi fires chief dealer Rohan Ramchandani, a member of the BoE-chaired chief dealers' sub-group and the first trader in the unfolding scandal to be sacked.

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Feb 4, 2014: Martin Wheatley, chief executive the FCA, Britain's market regulator, says the FX allegations are "every bit as bad" as those in Libor. He also says the FCA's investigation will probably run into next year.

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Feb 5, 2014: New York's banking regulator opens its investigation.

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Feb 14, 2014: The Financial Stability Board, the world's top financial regulator which coordinates policy for the G20, says it will review FX fixings.

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March 5, 2014: The Bank of England suspends an employee as part of its internal investigation.

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March 11, 2014: The Bank of England announces a shake-up of the way it works with banks and financial markets, creating a new position of deputy governor responsible for banking and markets.

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March 31, 2014: Swiss competition commission WEKO formally opens investigation into eight Swiss, UK and U.S. banks including Citi, RBS, JP Morgan, UBS and Credit Suisse AG over potential collusion to manipulate foreign exchange rates.

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June 12, 2014: UK finance minister George Osborne rejects EU plans to outlaw FX market manipulation and instead sets out his own rules - "as strong or stronger than those of the EU" - to make rigging exchange rates a criminal offence. (Reporting by Jamie McGeever; Editing by Gareth Jones)

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FOREX-Dollar rises slightly on Iraq conflict, higher U.S. yields

The dollar edged higher against a basket of major currencies on Friday for the first time in three sessions after violence in Iraq triggered a safety bid for the U.S. currency, while higher U.S. bond yields underpinned the move.

Escalating insurgent conflict in Iraq resulted in a cautious mood, while renewed focus on the potential for more monetary stimulus in Japan and higher U.S. Treasury yields drove demand for the dollar.

"The dollar is enjoying a safety bid on renewed instability in Iraq," said senior analyst Joe Manimbo at Western Union Business Solutions in Washington.

Traders dismissed data showing slightly weaker-than-expected U.S. consumer sentiment in June. 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.

The dollar also advanced against the Japanese yen after traders reconsidered the potential for more monetary stimulus from the Bank of Japan. The central bank decided to keep monetary policy steady, but analysts said the potential for weaker economic growth in the second quarter could trigger more easing.

"There might be some renewed weakness in Japan, and if that plays out, that would increase pressure on the Bank of Japan to further loosen monetary policy," said Manimbo of Western Union.

The preference for the dollar as a safe-haven currency weighed on the euro, which has continued to weaken after the European Central Bank's decision last Thursday to cut rates to record lows. Analysts said the ECB is likely to implement more monetary easing, while the U.S. Federal Reserve is moving toward tightening monetary policy.

"You still have that diverging path of monetary policy between Europe and the Fed, and that should support a lower euro versus the dollar over time," said Eric Viloria, currency strategist at Wells Fargo Securities in New York.

The U.S. dollar index, which measures the dollar against a basket of six major currencies, was last up 0.08 percent at 80.642. The euro was last down 0.11 percent against the dollar at $1.3536. The dollar was last up 0.34 percent against the yen at 102.060.

The preference for safety weighed on the New Zealand dollar , which was last down 0.34 percent at $0.8650 after having rallied to a near one-month high on Thursday. British sterling, meanwhile, extended gains after the Bank of England hinted Thursday that interest rates could rise this year.

Benchmark 10-year U.S. Treasury notes were last down 7/32 in price to yield 2.61 percent, pressured by rising UK gilts yields and on expectations of an earlier-than-expected Fed rate hike. (Reporting by Sam Forgione; Editing by Nick Zieminski)

UPDATE 4-Carney signals earlier British rate rise, sterling soars

Britain could become the first major 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, construction stocks tumbled and interest rate futures priced in a first hike by December after Carney said rates could rise sooner than markets had thought - his most hawkish comment to date.

"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 finance minister George Osborne.

"It could happen sooner than 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 economy to expand further without causing inflation.

A Reuters poll of economists on Friday showed most expect a rate rise will come by March 2015, three months earlier than a previous poll published two weeks ago. Only a minority expect a rate rise before the end of this year.

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.

The pound hit a 5-1/2 year high against a trade-weighted basket of currencies and came with in a hair's breadth of its highest in almost five years against the dollar.

Short sterling rate futures fell <0#FSS:>, pricing in the first hike by December. The interbank interest rate curve (SONIA) also pointed to a rate rise by year's end. On Thursday it had pointed to a rise in the first quarter of 2015.

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Rating's agency Standard & Poor's upgraded its outlook for Britain's triple-A credit rating to stable from negative late on Friday, although rivals Moody's and Fitch have still kept it a notch below triple-A.

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.

HITTING VOTERS IN THE POCKET?

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

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"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.

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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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Carney also said the central bank would weigh carefully the merits of tackling 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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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. (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 and Peter Graff)

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Vontobel sees client inflows at same pace as in H1

Swiss bank Vontobel AG ( id="symbol_VONN.S_0">VONN.S) has seen private client inflows continuing at the same pace as in the first half of the year, private banking head Peter Fanconi said on Wednesday.

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"We have seen continuous stable inflows," he told the Reuters Wealth Management Summit in Geneva, adding that the rate was comparable to first-half net inflows of 700 million Swiss francs ($760.5 million), in line with an annual rate of increase in assets under management of 4-5 percent.

Fanconi, who took over at the private bank in 2009, said he saw particularly good inflows in Switzerland and Germany, including in the onshore business Vontobel is building up as the Swiss offshore business model has come under fire.

"If you are a fully transparent German client and you have the opportunity to book your assets in Zurich or Munich and you live in Munich that makes sense," he said.

However, he admitted the bank would see outflows of a single-digit percent of assets under management when a deal Switzerland signed with Germany to regularize untaxed assets in secret Swiss accounts comes into effect, expected in 2013.

He said he had not seen clients leaving UBS ( id="symbol_UBSN.VX_1">UBSN.VX) immediately after last month's rogue trading loss, but said that could happen in the medium-term.

Fanconi, who led the takeover of German bank Commerzbank's ( id="symbol_CBKG.DE_2">CBKG.DE) Swiss wealth management business in 2009, said Vontobel was looking for meaty acquisitions in particular in its core markets of Switzerland and Germany.

"We are ready to move," he said, adding that a target size was around 4-5 billion francs assets under management.

"We have got very ambitious views on doing an acquisition. We need a strategic fit," he said.

"All acquisitions have been successful in the past. Commerzbank was one of the smoothest integrations in the industry. We increased assets and did not lose any clients."

($1 = 0.920 Swiss Francs)

(Reporting by Emma Thomasson and Oliver Hirt; Editing by Anthony Barker)

Swiss banks tout stability and secrecy to lure rich

Switzerland's banking industry is relying on its stability and expertise to ensure it has a bright future as a leading center for managing the assets of the rich, despite a concerted global attack on its tradition of secrecy.

"Swiss banking is in a transformational process. Still as Switzerland and as Swiss bankers we have a lot to offer," Ivan Adamovich, Geneva head of the country's oldest private bank, Wegelin, told the Reuters Wealth Management Summit.

"There was too much talk about secrecy and taxes and not enough talk about what else is there. Service quality and so on," he said.

Strict Swiss bank secrecy, which helped the country become the world's biggest offshore banking center, has come under heavy fire in recent years from cash-strapped governments clamping down on tax evasion, putting client confidentiality under threat.

Switzerland has agreed to do more to help other countries hunt tax cheats, allowing UBS ( id="symbol_UBSN.VX_0">UBSN.VX)( id="symbol_UBS.N_1">UBS.N) to hand over details of 4,500 clients to settle a U.S. tax probe and recently securing deals with UK and Germany to regularize untaxed accounts.

Despite all the pressure, it has managed to defend its leading position in the offshore business with $2.1 billion in assets, the Boston Consulting Group said in a recent report.

Although its market share has slipped to 27 percent from about 31 percent in 2003 -- with Britain and the Channel Islands, the United States, and Singapore and Hong Kong the big gainers -- bankers are looking at the glass being half full.

"The pie is growing, so everyone is gaining from it," Yves Mirabaud, Managing Partner at Mirabaud & Cie, said.

With new potential clients emerging from growing economies in regions such as Asia and Latin America, Swiss private banks are also expanding their horizons to capture this business.

"I am not worried at all about Swiss banking, about its long term viability, growth and ability to ride through this storm," said Louay Al-Doory, head of global business development at Swiss boutique wealth manager Reyl & Cie.

He said Swiss banks were well positioned even if clients concerned about tax issues shifted their money to Singapore.

"It would be moving from Swiss bank 'A' to Swiss bank 'B' in Singapore. What you will not find is local banks taking any of this money," Al-Doory said.

SELLING STABILITY VS SECRECY

Pierre de Weck, wealth management head at Deutsche Bank ( id="symbol_DBKGn.DE_2">DBKGn.DE), said Switzerland had been able to make up for lost market share in Europe by growth in the booming economies of Asia, Middle East and Africa and Latin America.

"Switzerland has been replacing traditional European offshore assets based on confidentiality with emerging market assets based on lack of soundness in domestic markets," he told the Reuters summit in Geneva.

Bankers said wealthy clients still value Swiss stability, particularly with so much turmoil elsewhere in the world.

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"It has an extremely stable economy. It has a history proving that it is a safe haven for assets in combination with the strong Swiss franc," said Peter Fanconi, head of private banking at Swiss bank Vontobel ( id="symbol_VONN.S_3">VONN.S).

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"The weakness of the euro zone is the strength of the Swiss market as a financial center."

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James Fleming, head of international private banking at Coutts & Co., the private banking arm of the Royal Bank of Scotland ( id="symbol_RBS.L_4">RBS.L), highlighted the same factors, but said they were also a strength of London.

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Competition from other financial centres is perhaps why Swiss bankers still stress the appeal of client confidentiality even if they say tax evasion should be a thing of the past.

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"Banking secrecy, in my view in times of Facebook and data all around the world, is going to be more important than before and not less important," Adamovich said.

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"If you know how much money somebody has, you also know how much you would get if you kidnap him."

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(Reporting by Emma Thomasson; Editing by Alexander Smith)

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Swiss banks steer clear of consolidation

Swiss private bankers say a capital shortfall in the financial sector and a clampdown on tax evasion stand in the way of much-need consolidation in an industry battling rising costs and falling revenues.

Smaller Swiss private banks and asset managers are suffering from lower fees as their clients sit on safer assets, as well as higher costs from investments in technology needed to comply with new capital, risk, and compliance rules.

This should increase pressure for M&A activity, a trend that experts believe could take hold in Asia but has so far not got off the ground in the world's most established private banking market.

"We have a lot of break-even to slightly-losing-money institutions that have no business being in the market," Louay Al-Doory, head of business development at Reyl & Cie told the Reuters wealth management summit in Geneva.

"There are many institutions looking to sell, we have ample choice."

While Reyl was looking to make selected acquisitions in Zurich and London, there were assets on the market that nobody wants to touch any more.

"You need to be very mindful that you are dealing with declared assets (to tax authorities)," Al-Doory said, adding the bank had turned down an opportunity to buy undeclared assets which were being virtually given away for free.

"Who would be willing to acquire assets that are noncompliant," said Alexandre Zeller, European head of private banking at HSBC ( id="symbol_HSBA.L_0">HSBA.L).

Another obstacle to consolidation is the fact that few banks have the balance sheet strength to cut a deal in the current environment.

Pierre de Weck, head of wealth management at Deutsche Bank ( id="symbol_DBKGn.DE_1">DBKGn.DE), said, "I think there are a number of distressed assets on the market. But they don't move, and there is a clear reason. Most of the financial services industry has no spare capacity."

Large lenders are shoring up their balance sheets to meet new capital rules known as Basel III, de Weck said.

"The only way to do consolidation is through mergers of equals between people who don't have a big Basel III issue to deal with," de Weck added.

J.P Morgan JP.N had looked at four to five businesses with more than $10 billion in assets under management, Pablo Garnica, European head of private banking told Reuters, but in the end opted for organic growth.

"People realize that it is not just the size of the asset, it is the complexity of the integration of the deal," Garnica said.

The pattern in Switzerland mirrors a trend in the United States where mergers between banks are increasingly scarce.

"We have talked about consolidation for 10 years because of rising costs," said Peter Fanconi, head of private banking at Vontobel group. "I think we will see much more asset deals and we will see much more liquidations."

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Indeed, struggles among banks across Europe may provide some expansion opportunities for acquirers with healthy balance sheets and an eye for private banking.

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"This is a particular opportune time now for attracting both clients and advisers," Royal Bank of Canada's ( id="symbol_RY.TO_3">RY.TO) global head of wealth and asset management, George Lewis, told the Summit in New York on Tuesday. (For a Reuters Insider story, click: link.reuters.com/waw24s)

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The Toronto bank wants to expand in the United Kingdom, following up on its purchase of BlueBay Asset Management late last year for $1.5 billion. RBC plans to hire 70 advisers and bankers, bringing its UK total to 100 in the next five years.

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"There are going to be some attractive opportunities to expand our base because of the market dislocation we've seen," he said.

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(Reporting By Edward Taylor; Additional reporting by Joe Giannone in New York; Editing by Alexander Smith, Jane Merriman and Matthew Lewis)

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BlackRock launches first retail alternative funds

BlackRock Inc ( id="symbol_BLK.N_0">BLK.N) is launching its first alternative mutual funds for retail investors.

Given the recent dramatic swings in the market, financial advisers are increasingly looking for investment products that do not correlate to the markets, Frank Porcelli, head of BlackRock's U.S. retail business, told the Reuters Global Wealth Management Summit on Wednesday.

"There's never been a more difficult time to navigate financial markets than where we are today," Porcelli said.

As a result, many broker-dealers are trying to increase their clients' use of alternative investments, which are not correlated to the markets. But they are having trouble doing so, he said.

For example, one national broker-dealer with $1.7 trillion in assets recently came to BlackRock asking the firm to help increase clients' allocation to alternatives. While the firm wanted to see on average a 10 percent allocation to alternatives, the actual client holding of alternatives was less than 1 percent, Porcelli said.

The problem was that this firm, like many, offered hedge-like funds only to very high-net-worth investors. That is why BlackRock is launching alternative mutual funds for retail investors with just $1,000 to invest.

This week, BlackRock unveils a long/short emerging markets fund, a commodities strategies fund and a long/short credit opportunities fund.

In starting the funds, the New York-based asset manager enters a somewhat crowded market. Almost half of the 247 alternative mutual funds on the market today have been launched in the last three years, according to Morningstar Inc.

But if BlackRock can show strong performance, there is definitely growing demand for these products, said Jeff Tjornehoj, senior research analyst at Lipper.

"If you are 100 percent long or 100 percent short, you are likely to end up nowhere," Tjornehoj said. "But with a clever manager and the right strategy, you can edge some gains from this seesaw market."

Specifically, there is growing demand in long-short debt funds, said Mallory Horejs, an alternatives analyst at Morningstar Inc. "Our data shows that investors are over-allocated to fixed income right now, so funds that hedge credit and/or interest rate risk hold widespread appeal."

As of September 30, investors had poured $4.89 billion so far this year into the 13 long/short debt funds that Morningstar has in its database. As a response to investor interest in these funds, Morningstar is going to give long/short debt funds their own category this fall, Horejs said.

BlackRock believes it has the expertise to make its push into retail alternatives successful, particularly because it already has a $100 billion alternatives business, Porcelli said.

The firm also has hired a team of seven alternative specialists to act as experts for its wholesalers.

He believes that investor interest in alternatives is not a passing fad.

"I think the traditional allocation of 60 percent stocks, 40 percent fixed income is a thing of the past," he said. "We have been working on 'the new diversification.'"

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BlackRock's push into retail alternative funds is part of its effort to double its U.S. mutual fund business aimed at retail investors to $600 billion by the end of 2014.

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Since BlackRock bought Merrill Lynch Investment Managers in 2006, it has focused on getting more of its retail funds sold through the platforms of third-party broker-dealers other than Merrill Lynch, Porcelli said. The firm's mutual fund penetration at broker-dealers other than Merrill has jumped to 5 percent from less than 1 percent in 2006. "We are in the top three or four (fund groups) at every firm we do business with," Porcelli said.

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(Reporting by Jessica Toonkel; editing by Matthew Lewis, Phil Berlowitz)

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Rivals see UBS holding on to clients after trading loss

Rich clients of Swiss bank UBS ( id="symbol_UBSN.VX_0">UBSN.VX) have not yet moved their millions to other banks after its $2.3 billion trading scandal last month, rival private bankers said.

"They've been hit by everything. It's not going to make any difference," Louay Al-Doory, head of global business development at Swiss boutique wealth manager Reyl & Cie, told the Reuters Wealth Management Summit in Geneva.

"UBS is still UBS. You may have a scratched Rolls Royce, but it's still a Rolls Royce," said Al-Doory, himself a former UBS banker.

UBS Chief Financial Officer Tom Naratil said on Tuesday the bank had not seen any "material change" in client deposits since the trading scandal was made public on September 15.

Clients pulled nearly 400 billion Swiss francs -- almost 20 percent of total client assets -- from UBS during the financial crisis as the once proud bank was battered by subprime losses and a prolonged dispute with the U.S. tax authorities.

It had just started to restore client confidence when the latest news hit, but UBS said on Tuesday it expects third-quarter client inflows to be broadly similar to the 5.6 billion Swiss francs it reported in the previous three months.

"In comparison with 2008, we have a feeling that a number of investors are confused and do not have the energy to change banks," Blaise Goetschin, chief executive of Swiss Banque Cantonale de Geneve ( id="symbol_BCGE.S_1">BCGE.S), told Reuters in Dubai on Tuesday.

James Fleming, head of international private banking at Coutts & Co., the private banking arm of the Royal Bank of Scotland ( id="symbol_RBS.L_2">RBS.L), agreed.

"A lot of clients were disaffected over the last few years. We've seen a migration of people who were badly served in previous institutions," he said. "I can't see any increase since the UBS scandal."

One leading Swiss institution has seen clients moving from UBS since the scandal, one banker told Reuters, but others said it was too early to judge the impact of the latest crisis.

"There has been no increase in flow from UBS in the short term. Mid-term, long term I would assume yes," said Peter Fanconi, head of private banking at Swiss bank Vontobel ( id="symbol_VONN.S_3">VONN.S).

Enrique Marazuela, chief investment officer of the private banking arm of Spain's BBVA, said he had not seen big movements of clients recently like those during the financial crisis.

"Asking questions yes, but moving not," he said.

Yves Mirabaud, managing partner at Swiss bank Mirabaud & Cie, said the rogue trading crisis showed that "small is also sometimes very beautiful," although he joked that his wife had not moved her account from UBS.

But he had no feeling of schadenfreude over the woes of Switzerland's biggest bank: "It's terrible because UBS is a key factor in Switzerland. It is not good for the Swiss financial center," he said.

(Additional reporting by Dinesh Nair; Editing by Alexander Smith)

Private bank clients urged to avoid U.S. securities

Some Swiss bankers are advising clients to steer clear of U.S. securities ahead of a new law that would tax people with over $50,000 invested in stocks or bonds of U.S. companies even if they have never set foot in the United States.

FATCA, or the Foreign Account Tax Compliance Act, will require overseas banks to report U.S. clients to the Internal Revenue Service, but its loose definition of who is a U.S. citizen will create a huge administrative burden and could push non-residents to slash their U.S. exposure, some bankers say.

"Wegelin believe this is a regulatory monster. It is an important regulatory burden not only on Swiss banks but all over the world," said Ivan Adamovich, head of the Geneva branch of Switzerland's oldest bank, Wegelin.

"We decided to tell our clients not to invest in U.S. securities any more. If clients want exposure to U.S. securities we would buy an ETF which does not have a U.S. regulatory base," Adamovich said.

Due to become law in 2014, FATCA will ask overseas banks to report U.S. clients with more than $50,000 in assets to the U.S. Internal Revenue Services, or withhold 30 percent of the interest, dividend and investment payments due those clients and send the money to the IRS.

Bankers say the scheme will be extremely costly to implement, and some say that as the legislation stands, any bank with a client judged to be a U.S. citizen will be also obliged to supply documentation on all other clients.

"FATCA will cost 10 times to the banks than it will generate for the IRS. It is going to be extremely complicated," said Yves Mirabaud, managing partner at Mirabaud & Cie and Swiss Bankers Association board member.

"We (will) try to convince the IRS to make something which is a bit lighter, a bit more reasonable. We are not in favor of automatic exchange of information."

But despite concerns about FATCA, it may be unfeasible to advise clients who want a globally diversified portfolio to sell all their U.S. company stocks and bonds, said Vontobel head of private banking Peter Fanconi.

"We as an industry need to seriously start to talk about the consequences of FATCA. (But) we can't advise clients to pull out of one of the biggest global markets," Fanconi said.

Alexandre Zeller, head of the private banking business for Europe, the Middle East and Africa at HSBC ( id="symbol_HSBA.L_0">HSBA.L) said avoiding U.S. assets will not be an option for global institutions.

"We are a global bank... There is no way we are going to say we don't do business with the US so clearly it's about finding the best way to implement this new regulation," he said.

A U.S. inheritance law dating back at least 50 years which may now be more vigorously applied as the United States seeks to rake in tax revenues is also making bankers think twice about client holdings of U.S. securities.

"Holding US securities on a direct basis can give rise to inheritance tax independent of the holders of those securities," said Pierre de Weck, global head of private wealth management at Deutsche Bank.

"Therefore we definitely advise non-U.S. clients not to hold U.S. securities on a direct basis. There's no reason for a Swiss resident with nothing to do with the U.S. to incur 40 percent U.S. inheritance tax."

The broader definition of who is subject to U.S. taxation under FATCA could also bring more private banking clients under the U.S. tax net, regardless of their domicile.

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"The client needs to be aware... being a Swiss citizen and having U.S. exposure, there could be an inheritance issue. We have not actively advised, we have informed our clients there is possibly an end risk there," said Fanconi.

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(Reporting by Martin de Sa'Pinto; Editing by Mike Nesbit)

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(This story is corrected in paragraph 8 to add dropped “not” to show Swiss Bankers' Association is not in favour of automatic exchange of information)

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Bessemer goes on defense, on pace for best year

Portfolio managers at Bessemer Trust, financial adviser to ultra-wealthy U.S. families, took an extremely defensive posture a few weeks ago amid some of the most volatile financial markets in more than 80 years.

A sluggish U.S. recovery, an expanding debt crisis in Europe and political deadlock are just some of the factors contributing to wild ups and downs in stock prices. As markets convulse with growing frequency, often for no apparent reason, many small investors are heading to the sidelines.

Now, apparently, families with tens of millions of dollars at their disposal are also fleeing the market.

"Right now, 50 percent of our balanced growth portfolio is in cash, bonds and foreign currency," Bessemer Chief Executive John Hilton said at the Reuters Global Wealth Management Summit on Wednesday. "Historically, we'd hold only 20 to 25 percent (of cash and bonds) in the portfolio."

That change took place about two weeks ago, he said. August was the seventh-most volatile month in the past 1,000 months, he added, a period spanning more than 83 years.

"I think it's very hard to make any sense of it," he said. "There's just a general lack of leadership and a lack of confidence," not just in the United States but globally.

Hilton stressed Bessemer clients have not abandoned stocks completely, but the firm's in-house investment portfolios are more defensive than usual -- focused on capping losses as opposed to seeking the highest possible gains.

"Our clients are tremendously afraid of losing their wealth," Hilton said. "We're more comfortable taking a more defensive position, which will hurt us if markets go straight up, but we don't think they will go straight up any time soon."

Bessemer was formed in 1907 to manage the fortune of Andrew Carnegie business partner Henry Phipps. The firm opened its doors to other millionaire families in 1975, and since then assets soared from $1 billion to about $65 billion.

The firm's roughly 2,000 clients have on average $30 million of assets apiece. Bessemer and its 750 employees rank 13th in assets managed for U.S. multimillionaires, according to Barron's, on par with some global banks.

Business has soared in recent years as wealthy families left big banks humbled by the 2008 financial crisis.

Last year, Bessemer added 119 new clients with $3.2 billion in new assets as well as $1.7 billion of money from existing customers. Overall, assets grew nearly 10 percent. Two years ago, Bessemer attracted 170 clients and a record $3.5 billion in new assets.

Hilton declined to discuss rivals by name, but he said recent turmoil and controversy among big banks is driving business to small, private firms. Bessemer expects the number of clients to grow by 10 to 15 percent this year.

The scale of the business is much smaller, to be sure. Hilton seeks to add eight to 10 senior advisers this year to help serve 140 to 150 new clients. He declined to identify from which firms his firm was recruiting, saying only Bessemer is adding people from all corners of the industry.

"New clients are coming in at a slightly better pace than last year," Hilton said. "You don't read about us in the newspaper, we are very quiet, we have an unblemished reputation."

(Reporting by Joseph A. Giannone, editing by Matthew Lewis)

Private banker pay holds up in tough market

Stiff competition for top private bankers has kept a floor under pay even as low interest rates, flaccid client trading and tougher regulation squeeze industry profit margins.

Sky-high pay and bonuses for investment bank counterparts may once have turned private bankers green with envy.

But the drive to slash wage bills and rein in risk has made investment bankers expendable as many banks realign their business around more stable private banking.

"Pay was never extreme in private banking -- it's not as subject to a correction as in investment banking," Deutsche Bank global head of private wealth management Pierre de Weck told the Reuters Wealth Summit this week.

Stricter rules on capital have curbed profits in many areas of investment banking and a number of large integrated banks like UBS and Bank of America have pledged to cut back on capital guzzling businesses and shrink staff numbers, piling downward pressure on pay.

But in private banking, competition remains hot for advisers who can bring in a good portfolio of clients, helping sustain pay, said James Fleming, head of international private banking at RBS unit Coutts & Co.

"The war for talent is not quite the 100 years war but certainly 15 years," Fleming said at the Reuters Summit.

"Experience shows high compensation is a key part of retention, but also tools to do the job properly, and working for a brand that's forward thinking and progressive and providing good service for the client base."

Remuneration is by far the biggest cost center, well ahead of premises and technology, said Alexandre Zeller, head of Private banking, EMEA at HSBC, adding that banks have to put time and effort into finding the right people to serve its clients.

"The value of staff in our business is actually extremely high," said de Weck. "When we make a new hire it takes 2.5 to three years for them to become productive. But the penalty for making the wrong pay decision in our business is very high."

Bankers at the Reuters summit generally confirmed their commitment to their businesses in Switzerland, although they said the strong Swiss franc was limiting profitability.

As competition limits growth in developed markets, the fight for staff was intensifying in higher-growth areas like Singapore.

De Weck said these factors have pushed the cost of Asian bankers higher than in Switzerland, while in London staff costs are about the same.

The business remains centered around people and relationships and downward pressure on costs can have only a limited effect on pay scales, said Pablo Garnica, European head of JP Morgan's private bank.

"You need to reward people to incentivize people to grow," Garnica said.

"At the end of the day you need to have the people capable of dealing with clients and complex situations. At the end of the day you need a human being talking to a human being."

(Editing by David Cowell)

Brokerages cut down on novice hires, turn to experience

As brokerages search for ways to grow in a tight economy, many firms are cutting back on new adviser training programs and instead investing in experience.

"We've consolidated a lot of the hiring," Morgan Stanley's ( id="symbol_MS.N_0">MS.N) president of global wealth, Greg Fleming, said at the Reuters Wealth Summit this week.

He said that Morgan Stanley decided this year to cut the number of people it brings into its adviser training program by nearly 30 percent, to 1,250 adviser trainees per year, from 1,750 trainees.

On average, about two out of 10 in a typical training program will be successful and start a career at a firm, said Danny Sarch, a financial services recruiter based in White Plains, New York. Brokerages facing tighter budgets are weighing that with the greater certainty that comes with hiring an experienced adviser, Sarch said.

"Morgan Stanley, from their Dean Witter routes, had always been aggressive in hiring young trainees," he said. "It's becoming tougher. You don't see entire trainee offices anymore."

Jim Weddle, chief executive at investment firm Edward Jones, said the new financial adviser joining his firm is, on average, a career changer who is 37 years old and 10 to 12 years out of college. He said the firm recently raised productivity requirements of some of its advisers, and revamped its compensation plan.

"If you're recruiting better people who have been more successful in the past, you have to be willing to pay them," Weddle said.

Ameriprise Financial's Don Froude, president of the firm's Personal Advisors Group, also he expects his firm to recruit more heavily from the pool of seasoned advisers.

"Our model now, instead of bringing in the novices, is now recruiting experienced advisers," he said. "People who are coming into the franchise now are people who are coming from other businesses."

The strategy makes sense given the changing environment in wealth management, Sarch said. For one, advisers' clients have become more sophisticated over the past decade. Add to that the rise of mutual funds, exchange-traded products and novel investment vehicles. Together, it has created a stronger need for more experienced advisers, Sarch said.

An adviser's client base is largely built on long-standing relationships between the adviser and his or her client. That's true for both career-changing advisers and those who have built their client base for years.

David Drucker, a veteran Wall Street adviser who spent his early advising career at Morgan Stanley Dean Witter, said the bulk of advisers he sees in the industry now are between the ages of 30 and 50. He sees the focus on building up more established advisers as a positive.

"They (firms) have to give more support to the people who are paying the bills," Drucker said.

(Reporting by Ashley Lau; Editing by Jennifer Merritt and Walden Siew)

Bankers warn of long crisis as rich seek comfort

Private banks are telling their clients financial volatility surrounding Europe's debt crisis will continue for at least a year as more of the continent's rich seek the comfort of household names or state backing when choosing where to bank.

"We are telling (clients) very honestly nobody knows how this is going to evolve and you have to be extremely careful in terms of your exposure," said Alexandre Zeller, head of private banking for Europe, the Middle East and Africa at HSBC.

Pierre de Weck, wealth management head at Deutsche Bank, said during the Reuters Global Wealth Management Summit that clients could expect at least another 18 months of volatility.

"If you're short term oriented and you cannot take pain, reduce risk because we are going to have a bumpy road over the next 18 months until this European sovereign crisis is resolved," he said.

The market volatility since the summer and fears over bank solvency have boosted the kind of institution often shunned during boom times, on account of perceptions they are old fashioned or conservative, bankers said at the summit in Geneva this week

"It has been an accelerating factor in the last few weeks, we have observed a flight to safety. Banks with solid balance sheets, with conservative management and approach to the markets, are seeing significant inflows on a global scale," said Zeller,

"If you look at it more locally, state guaranteed institutions are seeing significant inflows . part-nationalized banks or those with an implicit state guarantee," he said.

James Fleming, head of the international business at Coutts, a division of part nationalized British lender Royal Bank of Scotland, tracing its origins back to 1692, said it had attracted clients in the crisis seeking comfort in its history.

"All the major financial booms and busts in last 320 years, we've navigated our clients through. And I think clients see that," he said.

Yves Mirabaud, managing partner at Swiss bank Mirabaud & Cie, said the woes of large banking groups, most recently an alleged rogue trading scandal at Swiss giant UBS, was boosting the appeal of Switzerland's family-run partnerships.

"I don't know if the fact it is a family business is a selling point ... (But) when you see how the big banks have behaved the past few years I believe that the model is stronger than ever," he said.

(Reporting by Chris Vellacott; Editing by Hans-Juergen Peters)

U.S. small business borrowing slows in February

U.S. small businesses borrowing hit a five month low in February, in the latest indication of slower economic growth in the first quarter after an unusually harsh winter.

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The Thomson Reuters/PayNet Small Business Lending Index, which measures the volume of financing to small companies, fell to 110.5 in February from a reading of 116.5 in January, PayNet said on Tuesday. That was the lowest level since last September.

The index continues to retreat from a near seven-year high touched in December. Still, it was 5 percent higher than it was in February 2013, an indication of underlying strength.

"Small business investment expansion signals moderate GDP growth," said PayNet founder Bill Phelan.

Unseasonably cold weather weighed on economic activity at the end of 2013 and the beginning of this year, setting the tone for a weak first quarter.

Growth in the first three months of this year is expected to have slowed to an annualized pace below 2 percent after expanding at a 2.6 percent rate in the fourth quarter.

Activity, however, is showing signs of accelerating as temperatures warm up, with employment growth, industrial production and retail sales gaining momentum in February.

A separate index released by PayNet showed loan delinquencies steady. Delinquencies of 31-to-180 days were little changed in February at 1.48 percent of all loans made.

The index hit a high of 4.73 percent in August 2009. The record low was 1.44 percent last October.

PayNet collects real-time loan information such as originations and delinquencies from more than 250 leading U.S. lenders.

(Reporting By Lucia Mutikani; editing by Andrew Hay)

BNP got high-level 2006 warnings on sanctions busting - report

French bank BNP Paribas was warned in 2006 by a high-ranking U.S. Treasury official and in three reports by legal experts that it risked being penalised for breaking U.S. sanctions, according to Le Monde newspaper.

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Since France's biggest bank flagged the risk of a big fine in February this year, sources close to the affair have said it ignored early warnings of the risks it faced. They pointed out that the alleged offending transactions being investigated by U.S. authorities continued until 2009.

The French newspaper's report, written as talks accelerate towards a possible $10 billion fine and other penalties, said Stuart Levey, then the U.S. Treasury Under Secretary for Terrorism and Financial Intelligence, made a visit to Paris in September 2006.

The paper, drawing on the findings of its own investigation, said Levey met the bank's top officials, including Baudoin Prot, who has since become chairman, in its boardroom.

Levey was there not to talk about the legal risks, but to warn the bank to be vigilant, citing the names of a number of blacklisted Iranian banks, the Le Monde report said.

U.S. President George Bush had called Iran part of an "Axis of Evil" and wanted European banks to stop working there. Levey took the same "clear" message to other European banks, Le Monde reported.

A second set of warnings also came in 2006, the report said, this time from legal experts, after ABN Amro was fined $40 million for breaking sanctions against Iran and Libya in January of that year.

Until that point, lawyers Cleary Gottlieb had assured BNP Paribas it was not at risk as long as it operated outside U.S. territory, Le Monde said. However the ABN Amro fine was a first - covering transactions done outside the United States. After it, Cleary Gottlieb changed its advice to say there was a risk in certain cases. Two other expert reports commissioned by the bank came to a similar conclusion.

BNP Paribas was not immediately available to comment on the Le Monde report.

The bank has said publicly only that it is in discussions with U.S. authorities about "certain U.S. dollar payments involving countries, persons and entities that could have been subject to economic sanctions".

It has set aside $1.1 billion for the fine but told shareholders it could be far higher than that. Last month it also said it had improved control processes to ensure such mistakes did not occur again.

The suggestion that Prot had a personal warning from the U.S. Treasury puts a new focus of attention on him after the bank announced the departure of chief operating officer Georges Chodron de Courcel on Thursday.

U.S. authorities - five of them in all including the New York financial regulator - are investigating whether BNP evaded U.S. sanctions between 2002 and 2009. Sources familiar with the matter say they are trying to establish whether the bank stripped out identifying information from wire transfers so they could pass through the U.S. financial system without raising red flags. (Reporting by Andrew Callus and Matthieu Protard; editing by Tom Pfeiffer)