US STOCKS-Futures flat, indexes on track to close week lower

U.S. stock index futures were little changed on Friday, though recent weakness was enough to put the Dow and S&P 500 on track for their first weekly decline after three consecutive weeks of gains.

* While both the Dow and S&P hit a series of record highs this week, Wall Street has lately been pressured by concerns of slowing global growth and ongoing violence in Iraq, which has taken oil prices to their highest since September.

* The S&P has fallen for three straight days, its longest streak of declines since early April. However, it has dropped just 1.1 percent over that period, and many view the market's recent trend upward as intact.

* Technology shares will be in focus a day after Intel Corp raised its full-year revenue outlook, citing stronger-than-expected demand for personal computers used by businesses. Shares of the Dow component rose 4.7 percent to $29.27 in premarket trading.

* Another positive catalyst may come at 9:55 a.m. EDT (1355 GMT), with the preliminary read on June consumer sentiment from the Thomson Reuters/University of Michigan Surveys of Consumers. The index is seen rising to 83 from 81.9 in the previous report.

* S&P 500 futures fell 2.9 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures fell 29 points and Nasdaq 100 futures slid 3.25 points.

* For the week, the Dow is down 1.1 percent, the S&P is down 1 percent, and the Nasdaq is down 0.6 percent. The Dow and S&P have risen for three straight weeks; Nasdaq has risen for four.

* The CBOE Volatility index is up 10.2 percent on the week, its first weekly rise following eight weeks of declines. Despite the spike, the so-called 'fear index' remains well below its historical average.

* Crude prices will continue to be in focus, rising 0.6 percent to $107.12 per barrel on Friday. While the price of oil has spiked 2.6 percent over the past three days, most analysts said it would need to be sharply above $115 per barrel for a protracted period before it becomes a major headwind to economic growth. Still, energy companies may attract more action as prices fluctuate.

* In Iraq, Islamist rebel fighters captured two more Iraqi towns overnight as they moved towards Baghdad. U.S. President Barack Obama responded by threatening military strikes, adding to the market's geopolitical concern; selling accelerated on Thursday after his comments.

* In company news, Tesla Motors Inc late Thursday said it would allow others to use its intellectual property in the hopes of speeding up development of electric cars by all manufacturers. Shares rose 0.7 percent to $205 before the bell.

* Finisar Corp plunged 22 percent to $19.75 in premarket trading a day after forecasting weaker-than-expected earnings, citing higher capital expenditure in China. (Editing by Bernadette Baum)

Silicon Valley's latest perk: World Cup viewing parties at work

Theme lunches, giant TVs and viewing parties. Silicon Valley may be far from the World Cup in Brazil but tech employees are getting in on the globe's most prestigious soccer event.

Twitter, LinkedIn and Nvidia are among several tech companies airing matches in their offices during the next month and encouraging employees to follow the action.

The World Cup has made inroads in the United States, although employees at many companies must be circumspect about getting their fix. But some tech companies, famous for giving their engineers everything from gourmet food to on-site hairdressers, World Cup fever's penetration is reminiscent of Latin America or Europe, where the tournament captivates the public.

Redwood City's Evernote, which makes note-taking software, dished up traditional Brazilian Feijoada meat stew and bolo de fuba cornmeal cake for lunch while Thursday's opening match between Brazil and Croatia played on projector TVs.

As the tournament progresses, with up to three games per day in the coming weeks, Evernote, as well as Twitter, Facebook Inc and Zynga Inc will have games playing in conference rooms and other locations.

"There are no real rules, you can watch as much of the game as you want," said Linda Kozlowski, Evernote's vice president of worldwide operations. She expects many employees to bring laptops along and work while cheering their favorite team.

Most of this year's matches are scheduled during office hours in California, making for potential disruptions at companies known for demanding work schedules.

Electronic Arts Inc, which makes the 2014 World Cup Brazil videogame, is hosting "viewing parties" at its offices, including in a big-screen theater at its Redwood City headquarters. Its Vancouver, Canada office has daily contests for employees to win official World Cup soccer balls.

The region's top technology companies attract talent from around the world, making for diverse engineering departments often including a fair share of soccer enthusiasts.

Half of Silicon Valley residents speak a language other than English at home, compared to a fifth of people across the United States, according to the US Census Bureau.

French, US, Brazilian and Mexican team jerseys were spotted at chipmaker Nvidia on the days of "friendly" matches ahead of the 32-country tournament.

Cafeterias at Nvidia's 4,000-employee Santa Clara headquarters are showing matches throughout the tournament, said human resources manager Stephanie Luck.

"Because we hold our large meetings in cafeterias, we already have big screens and projectors. So the World Cup or (San Francisco) Giants World Series, anything super-important like that, you can walk into the cafeteria and it's just a sea of people," she said.

The arrival of international stars like David Beckham to play in North America's growing soccer league has increased Americans' interest in the world's most popular game. But Silicon Valley, the birthplace of the iPhone, may be ahead of the trend.

Two in three Americans do not plan to follow the tournament, and only 7 percent anticipate following it closely, according to a Reuters/Ipsos poll. (Reporting by Noel Randewich; Editing by David Gregorio)

UPDATE 1-UK construction data revised higher, policy moves may hold sector back

British 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 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 housing market but could also hurt 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?

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But Thursday's data also pointed towards 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.

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

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Porsche takes on Audi at Le Mans, intensifying VW sibling rivalry

Porsche will return to the Le Mans sports car race for the first time in 16 years on Saturday, intensifying its rivalry with Volkswagen stablemate Audi and putting the parent company's fondness for internal competition to the test.

Volkswagen (VW), Europe's biggest carmaker with vehicles ranging from trucks and cheap Skodas to high-end sports cars, is widely viewed by industry analysts as the model for how to manage a variety of brands within a single group.

But with Audi striving to maintain its challenge to world No. 1 luxury carmaker BMW, some are questioning whether now is the right time to instigate a new battle with its sports car sibling.

Putting two teams into the 24-hour Le Mans race on June 14-15, one of the greatest tests of endurance for cars and drivers, could cost VW as much as 50 million euros ($68 million), a company source told Reuters, asking not to be identified because the matter is confidential.

What's more, it risks exacerbating tensions that are already rising between the brands.

Audi's TT sports coupe, for example, competes with Porsche's Cayman model, while Porsche's all-new Macan SUV has been cannibalizing sales from Audi's equivalent Q5 model since hitting dealerships in April, according to research firm IHS Automotive.

"Audi and Porsche are already in head-on competition" in some vehicle segments, said Stefan Bratzel, head of the Center of Automotive Management think-tank near Cologne. "One mustn't push this internal competition too far."

The stakes are high. Audi, which won in Le Mans last year, and Porsche together contributed over two thirds of VW's first-quarter group profit of 2.9 billion euros ($4 billion).

They are also cooperating closely on the production of sport utility vehicles (SUV) under VW's cost-cutting strategy of producing more vehicles from common platforms.

With 16 wins, mainly during the 1970-1980s, Porsche is the record champion in Le Mans, ahead of Audi, Ferrari, Jaguar and VW's Bentley.

It quit motor racing in 1998 after painful restructuring and expansion into SUVs which saved the brand from bankruptcy, transforming it into the carmaker with the highest profit margins in the industry.

But the maker of the iconic 911 model is keen to restore its racing credentials in a bid to maintain its attraction to sports car purists, even as SUVs account for more than half of sales.

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"Racing is part of our brand and our DNA," Porsche chief executive Matthias Mueller said last week. "It's not enough to always talk about the successes of the past."

Le Mans has also been a source of prestige for Audi, however. It has enjoyed twelve victories since 2000, and could do without being upstaged by its VW stablemate.

After a successful run of launches, Audi has few new models coming in stream opposite Mercedes's string of new cars and BMW's "i" series of electric cars, leading some analysts to predict the brand could soon lose momentum in the race with its arch rivals.

At Le Mans, Audi and Porsche will be vying for the top prize with hybrid models as new rules restrict the amount of fuel the cars will use, and Audi appears to be braced for the possibility that Porsche will deny it a fifth straight win.

"If a newcomer scores victory at the first push, this would be even greater motivation for those who haven't won," Wolfgang Ullrich, head of motorsports at Audi told Reuters.

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"We know that Porsche will be a tough competitor."

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($1 = 0.7345 Euros) (Editing by Mark Potter)

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UK markets scramble to price in 2014 rate rise after Carney warning

Investors braced on Friday for a UK interest rate hike later this year, pushing sterling to five-year highs and hurting property stocks, after the head of the Bank of England said rates may rise sooner than markets predict.

Governor Mark Carney's surprisingly stark warning late on Thursday prompted investors to bring forward expectations for a first BoE rate hike by nearly four months, to December from the first quarter of 2015.

Sterling's trade-weighted index posted its biggest one-day rise in four months, hitting 5 1/2-year highs. Short-dated UK government bond yields were on track for their biggest daily gain in more than three years.

A rate hike by the end of 2014 is likely to come at least six months before the U.S. Federal Reserve tightens policy. It would contrast sharply with the European Central Bank, which cut rates last week and is likely to ease policy in the coming months.

"The BoE seems to be slightly ahead of the Fed as far as rate hikes are concerned," said Lutz Karpowitz, currency analyst at Commerzbank. "Macro data is likely to attract particular attention over the coming months. Anything pointing towards a possible rate hike would then support the pound further."

Short sterling futures fell across the strip <0#FSS:>, pricing in a first hike by December. The sterling overnight interbank average curve (SONIA) was pointing to a chance of a rate hike by the end of the year, compared with the first quarter of 2015 on Thursday.

Carney also said he was concerned by signs that mortgage lending standards were becoming looser and set out the case for early action as insurance against future risks.

While Britain's economy is outperforming its peers, growing at a near 3 percent annual rate, house prices are up 11 percent over the past year, pressuring policymakers to prevent a bubble. Britain faces an election in May 2015 in which living standards and the cost of housing are expected to be major issues.

The comments from Carney, who until recently was of the view that rates would be kept lower for longer to ensure a broad-based recovery, sent London's main share index down 1 percent, with housebuilders Persimmon and Barratt Developments both losing between 6-7 percent.

Sterling hit a fresh 5 1/2-year high in a trade-weighted basket of currencies, rising to 88.2. Britain's recovery has pushed the index 8 percent higher over the past year as investors priced in growing chances of rate hikes by the BoE.

The euro fell to 79.765 pence, its lowest since November 2012. The euro has shed nearly 2 percent since the ECB cut rates last Thursday.

The diverging UK and European policy outlooks have pushed the difference in yields between British and German 10-year government bonds to its widest since 1997.

The pound hit $1.6995, its highest since reaching $1.6997 on May 6. Above $1.6997, sterling will be at its highest since August 2009, with bulls now targeting the $1.70 mark.

STOCKS HIT, YIELDS RISE

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Analysts were relatively sanguine on housebuilding stocks, saying Friday's falls should be seen in the context of strong gains in the share prices. While higher rates would raise the costs of borrowing to build, it would also signal the economy - and consequently funding prospects - were looking brighter.

"Markets are obviously now anticipating that interest rates will rise - it'll just take some of the froth off the strength that we've seen (from housebuilders)," said Richard Hunter, head of equities at Hargreaves Lansdown.

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The pain was felt throughout the property sector, with Land Securities and British Land both falling 2.8 percent.

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In the gilts market, shorter-dated British government bond prices plummeted, with the two-year gilt yield on course for its biggest daily gain in more than three years, according to Reuters data.

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It was last up some 15 basis points at 0.888 percent, having hit a high of 0.903 percent - its highest since mid-2011.

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"These comments should help prompt a sustained move towards higher front-end yields," said Jamie Searle, strategist at Citi.

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(Additional reporting by Andy Bruce, Editing by Larry King)

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UPDATE 1-GM issues another ignition switch recall, for Chevy Camaros

General Motors Co recalled 511,528 Chevrolet Camaros on Friday for an ignition switch problem similar to the defect linked to at least 13 deaths in Chevrolet Cobalts and other models.

GM said it was aware of minor accidents but no fatalities from the Camaro, a sporty two-door car. It said the Camaro switch defect differed from the problem in the Cobalts, but a consumer advocate said GM still should have recalled the Camaros sooner.

GM said a driver's knee could bump the Camaro key fob and move the ignition switch out of the "run" position, causing the engine to shut off. The earlier recall of Cobalts and other small cars involved an ignition switch in which a bump of the key fob could turn off the engine, disabling power steering and airbags.

That defect, first observed by GM engineers in 2002, was not reported to consumers for years. Chief Executive Mary Barra in recent months overhauled the way GM handles safety recalls.

The Camaro recall bloats the number of GM vehicles summoned back for switch-related problems to more than 3.1 million as Barra prepares to return to Congress next week to give more testimony on the earlier recall.

"It is troubling that GM continues to announce ignition switch-related recalls on late-model vehicles (which) raises questions about how pervasive the problem is and why it is taking so long for GM to act," said Representative Henry Waxman of California, the senior Democrat on the House Energy and Commerce Committee that is investigating GM.

Barra will be joined by Anton Valukas, chairman of GM's outside law firm Jenner & Block, who conducted a months-long investigation that detailed deep flaws in GM's internal decision-making process.

The so-called Valukas report, made public last week, triggered the departures of 15 GM employees, including several high-ranking executives in the legal, engineering and public policy groups.

GM's 3.1 million switch-related recalls are a fraction of the record 16.5 million cars the automaker has recalled this year in 38 actions. That's about as many cars as the entire auto industry expects to sell this year in the United States.

The switch problem in this recall, of Camaros from model years 2010 to 2014, is "not at all related to the Cobalt," GM safety spokesman Alan Adler said in an interview. "The condition here is a switchblade key" in which a key pops out of the key fob when a small button is depressed.

The problem with the Camaro switch "is an external bumping issue," Adler said. He said it involves "an atypical seating situation. If you sit somewhat normally and don't pull your seat way up, you are not going to have this problem."

The Cobalt and Ion had a similar issue involving the location of the switch on the steering column and the tendency of some drivers to bump that switch. Some other key issues also are similar: When the key fob is bumped and the switch is moved out of the run position, the engine can turn off, causing loss of power steering and failure of airbags to deploy in a crash.

GM said it was aware of three crashes causing four minor injuries linked to the issue in Camaro. Adler said air bags did not deploy in those crashes and he did not know details.

GM "should have recalled" the Camaro earlier, said Clarence Ditlow, director of the Center for Auto Safety, a Washington-based watchdog group. "GM said it's not the same problem, but it's a first cousin," Ditlow said.

Adler said GM would send letters to Camaro owners, advising them to visit dealers to get a new key made. Until then, he said GM is advising Camaro owners to "drive the car and be aware" of the problem.

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The U.S. National Highway Traffic Safety Administration, which is responsible for overseeing safety defects and recalls, had not yet posted an official Camaro recall notice, but the agency has received and posted several consumer complaints.

NHTSA said Friday afternoon it had not received GM's official recall notice on the Camaro, but "is monitoring the issue closely."

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Lawmakers have criticized NHTSA for not acting more swiftly to recall GM small cars with defective switches.

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The agency awarded the 2012-2014 Camaro five-star safety ratings, its highest, for safety in front, side and rollover crashes.

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Adler said GM discovered the issue in the Camaro as it was testing a wide range of its 2014-2016 models after the widely publicized small-car ignition switch recall.

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Jeff Boyer, appointed to the new position of vice president for GM global safety earlier this year in response to the small-car ignition switch recall, said the Camaro recall was a quick action that is "the new norm for product safety at GM," according to the press statement.

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GM shares closed at $35.63, up 11 cents. (Additional reporting by Richard Cowan in Washington and Thyagaraju Adinarayan in Bangalore; Editing by Meredith Mazzilli, Bernadette Baum and David Gregorio)

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Ukrainian forces surround rebel-held port city

Ukrainian forces surrounded the rebel-held port city of Mariupol in fighting with pro-Russian separatists after launching a dawn attack on Friday, the country's interior minister said on his Facebook page.

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The rebel forces, who oppose the pro-European leadership in the capital Kiev, confirmed fighting was under way and said five of their number had been killed. Mariupol is Ukraine's largest Azov Sea port, and is important for steel exports.

(Reporting by Pavel Polityuk, Editing by Timothy Heritage)

UPDATE 1-China crude steel output hits record in May -stats bureau

China's crude steel output hit a record of 70.43 million tonnes in May, up 2.6 percent from a year ago, government data showed on Friday, as steel mills in the world's biggest producer looked to meet strong demand.

Steel demand in China traditionally improves in the second quarter as construction activity picks up along with warmer weather, but the slowing economy and weak property sector is expected to curb demand growth and push mills to cut output in coming months.

May's output rose 2.3 percent from April and trumped the previous record of 70.25 million tonnes hit in March. Output for the first five months of the year rose 2.7 percent to 342.52 million tonnes from the same period last year, data from the National Bureau of Statistics showed.

The average daily crude steel output fell to 2.272 million tonnes in May from a record 2.295 million tonnes seen in April. It has stood above 2.20 million tonnes so far this year.

A rapid fall in iron ore prices .IO62-CNI=SI, which have lost about one third and hit a 21-month low, has also helped steel mills to generate a profit of about 50-150 yuan ($8-24.18) a tonne, encouraging them to keep production high, traders said.

But steel demand is seasonally weaker in China during the summer months that start from July as construction activity slows, while steel prices have kept falling, forcing a few small mills starting to scale back output in June.

"Falling daily output rates through May (CISA members) and very weak property construction forward indicators point to growing downside risks for Chinese steel demand and output from the second half into 2015," Lachlan Shaw, a senior analyst with CBA, said in a research note.

Shaw has downgraded Chinese steel output growth to 2 percent from 3 percent this year. Annual growth was 7.5 percent last year.

Steel prices fell 5 percent in May and have lost 18 percent this year.

Output at China's large steelmakers -- members of the China Iron & Steel Association (CISA) -- fell to 1.767 million tonnes between May 21-31, the second consecutive fall. ($1 = 6.2031 Chinese Yuan Renminbi) (Reporting by Ruby Lian and Fayen Wong; Editing by Himani Sarkar)

Petra finds "exceptional" 122.52 carat blue diamond in Cullinan mine

Petra Diamonds Ltd said it had recovered an "exceptional" 122.52 carat blue diamond at its Cullinan mine in South Africa, just months after it sold a 29.6 carat blue diamond from the same mine for more than $25 million.

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"The rarity of a blue diamond of this magnitude sets it apart as a truly significant find," the company said in a statement.

Shares in the diamond miner rose almost 7 percent to a year high in early trading, making them the top percentage gainers on the FTSE-250 Midcap Index.

Petra, which acquired the famed diamond mine in 2008, said it would evaluate the optimal route to market for the stone after a further analysis to assess its potential value.

"So far, the highest price on record paid for a rough diamond was $35.3 million, paid in February 2010 for a 507 carat white stone, also recovered from Cullinan. We think that this stone may break that record," finnCap analyst Martin Potts said.

The Cullinan mine boasts the largest rough gem diamond ever recovered, the 1905 Cullinan Diamond, which was cut into two stones that are part of Britain's Crown Jewels held in the Tower of London.

Other notable diamonds discovered at the mine are the 25.5 carat Cullinan blue diamond found in 2013 and sold for $16.9 million, and the Star of Josephine diamond found in 2008 and sold for $9.49 million.

Petra said the diamond would not be sold in the company's current financial year ending June 30.

The company's stock, which has risen 13 percent since its blue diamond sale in February, were up 6.8 percent at 178.6 pence at 0713 GMT. (Reporting by Roshni Menon; Editing by Sunil Nair)

Ukrainian forces raise flag over port city - minister

Ukrainian forces regained control of the port of Mariupol on Friday, raising the national flag over the southeastern city's main administrative building, Interior Minister Arsen Avakov said.

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"At 10:34 a.m. (0734 GMT) the Ukrainian flag was raised over City Hall in Mariupol," he wrote on Facebook after Ukrainian forces attacked the city as part of a broader military operation to reclaim territory seized by pro-Russian separatists.

There was no immediate comment by the rebels on his remarks.

(Reporting by Pavel Polityuk, Editing by Timothy Heritage)

UPDATE 1-Indonesian govt officials meet copper execs, hopes for quick deal

Indonesian government officials met with major foreign copper miners on Friday, with the chief economics minister hoping a quick deal can be reached to overcome a controversial tax that has halted concentrate exports for five months.

Richard Adkerson, the CEO of Freeport McMoRan Copper & Gold Inc and Newmont Mining Corp CEO Gary Goldberg are in the capital Jakarta, signalling a fresh effort to reach a settlement over the export tax that the miners say they should not have to pay.

The tax is part of a government drive to force miners to build smelters and processing plants in Southeast Asia's largest economy, but a lack of progress in resolving the dispute has led Newmont to declare force majeure and Freeport to slash output.

"We hope this happens quickly, everyone wants it to happen quickly," said chief economics minister and billionaire businessman Chairul Tanjung, who is spearheading a new government push aimed at brokering a deal.

Asked about a possible timeframe, Tanjung said: "As quickly as possible but we mustn't rush."

Both Freeport and fellow U.S.-based copper and gold miner Newmont have argued they should be exempt from the tax, which kicks in at 25 percent and rises to 60 percent in the second half of 2016, before a total concentrate export ban in 2017. They say their current contracts prohibit any extra taxes.

The two miners account for 97 percent of Indonesia's copper output, with concentrate exports having now been halted for the past five months.

Freeport was working with the government in an effort to find a solution, said company spokeswoman Daisy Primayanti. Newmont was unable to give any immediate comment.

The two parties are also discussing the miners' contracts, with Freeport seeking a contract extension beyond 2021 before agreeing to invest more than $15 billion to turn its Grasberg complex into an underground mine after 2016.

Tanjung said on Friday he hoped for a conclusion on the contract talks by the end of the month, which could potentially pave the way for a deal on the export tax.

Government officials reiterated that both Freeport and Newmont have agreed to pay the export tax, with the percentage likely to be tied to progress made in smelter construction.

However, the extension of Freeport's miner's contract beyond 2021 appears to now be a key stumbling block.

Government officials say Freeport can only renew its contract in 2019 at the earliest, but are consulting legal experts to see whether there is room for manoeuvre.

A legally binding Memorandum of Understanding (MoU) with Freeport is being suggested by the government as one way to bypass the extension issue, although the validity of such a document may be a concern for Freeport.

An extension to Newmont's deal, which ends in 2030, is not under discussion in the talks, Coal and Minerals Director General Sukhyar said on Friday. The main issue of concern was a proposed increase in royalty percentages paid to the government.

(Additional reporting by Fergus Jensen; Writing by Michael Taylor; Editing by Richard Pullin)

UPDATE 1-EnQuest buys into Malaysian oil field to grow outside of core UK market

North-Sea focused oil producer EnQuest has agreed to take over ExxonMobil's share in the Malaysian Seligi oil field, expanding its production portfolio outside of its core UK market.

Upon completion of the deal, which is subject to regulator approval, EnQuest will become operator of the field and own 50 percent alongside Malaysian state-owned oil company Petronas.

"We continue to look at the UK as our major hub, but because of these movements of companies back to North America we're seeing opportunities specifically in places like Malaysia," said EnQuest chief executive Amjad Bseisu.

His company specialises in maximising oil output from old fields by applying new technology that allows it to retrieve oil that is typically hard to reach.

As large oil majors look to divest late-life assets that have seen a decline in output, EnQuest sees an opportunity in snapping up old fields where it can apply its expertise.

The Seligi oil field, EnQuest's third Malaysian project, will boost the company's net production by around 5,000 barrels of oil equivalent per day and add 11 million barrels of oil equivalent to its net reserves.

EnQuest plans to move "a dozen or so" staff, such as geologists and physicists, from the UK to Malaysia to help operate the Seligi field, Bseisu said.

"This acquisition follows from our recent partnership with Petronas on the Tanjong Baram field and is a significant expansion to our Malaysian operation," he added.

Shares in EnQuest were up 0.1 percent higher at 139.6 pence at 0947 GMT. (Reporting by Karolin Schaps; Editing by Paul Sandle and Sophie Walker)

EU agrees plan to cap use of food-based biofuels

EU energy ministers agreed a deal on Friday to limit production of biofuels made from food crops, responding to criticism these stoke inflation and do more environmental harm than good.

The ministers' endorsement of a new compromise overcomes a stalemate hit late last year when European Union governments failed to agree on a proposed 5 percent cap on the use of biofuels based on crops such as maize or rapeseed.

Friday's deal would set a 7 percent limit on the use of food-based biofuels in transport fuel.

The new deal must now be considered by the newly-elected European Parliament.

"We think this proposal is much better than nothing," European Energy Commissioner Guenther Oettinger told the Luxembourg meeting of ministers.

"We need to support research and development in advanced biofuels so we can move forward from generation one into generation two and generation three," he added, referring to more sophisticated biofuels which do not compete with growing crops for food.

The proposed 7 percent limit is part of a goal to get 10 percent of transport fuel from renewable sources by 2020, as part of efforts to curb greenhouse gas emissions and EU dependence on imported oil and gas.

Initially, the European Union backed biofuels as a way to tackle climate change, but research has since shown that making fuel out of crops such as maize displaces other crops, forces the clearing of valuable habitats, and can inflate food prices.

The next generation of advanced biofuels, made from waste or algae for example, does not raise the same problems, but does require more investment.

The compromise supported by ministers on Friday includes a 0.5 percent non-binding target for next-generation biofuels, which environment campaigners say is nowhere near enough to make a difference.

The agreement could mean that the overall goal to get 10 percent of transport fuel from renewable sources by 2020 is missed, analysts say. Currently around 5 percent of EU transport fuel comes from renewable sources.

Food-based bio-refiners, which have invested on the basis of the original 10 percent, say a lower target threatens jobs.

And those trying to develop advanced biofuels say the progress they are making is under threat.

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Thomas Nagy, executive vice-president of Novozymes , which makes enzymes used in the production of advanced biofuels, said Friday's decision enabled "a reboot of the decision-making process".

However, he said there was a "lack of ambition and absence of incentives to allow the conventional biofuel industry to develop sustainably" and urged the European Parliament, which will resume debate of the draft law later this year, to propose amendments. (Additional reporting by Sybille de la Hamaide in Paris; editing by James Macharia and Jason Neely)

UPDATE 1-Rare blue diamond could fetch more than $35 mln

A rare 122.52-carat blue diamond found in South Africa could fetch more than $35 million for a London-listed mining company.

Only three or four blue diamonds over 100 carats have ever been recovered, according to Cathy Mallins, corporate communications manager at Petra Diamonds Ltd.

So far, the highest price on record for a rough diamond is $35.3 million, paid in February 2010 for a 507-carat white stone recovered from the same mine, finnCap analyst Martin Potts said in a research note.

"We think that this stone may break that record," he said.

Both diamonds were recovered from the Cullinan mine, the source of many large diamonds, including the largest rough gem diamond ever recovered - the 3,106-carat Cullinan Diamond found in 1905.

That diamond was cut into two stones that are part of Britain's Crown Jewels held in the Tower of London.

Petra's shares rose as much as 7 percent on Friday, making them the top percentage gainer on the FTSE-250 Midcap Index .

Petra said it would evaluate the optimal route to market the stone after further analysis to assess its potential value.

Last month, a 100-carat yellow diamond fetched $16.3 million at a Sotheby's auction in Geneva - the highest amount ever paid for a diamond of that colour. The rough stone was 190 carats.

"Given that blue diamonds are rarer, more desirable than both yellow and white stones, we would expect multiples of this in terms of value," Numis analysts said in a note.

"If it comes back from analysis as 'fancy vivid' colour then it could blow the roof off."

Other notable diamonds discovered at the mine include the 25.5-carat Cullinan blue diamond found in 2013, and sold for $16.9 million, and the Star of Josephine diamond recovered in 2008, which sold for $9.49 million.

Petra bought Cullinan in 2008. The mine, located at the foothills of the Magaliesberg mountain range north-east of Pretoria, is one of the company's five producing mines in South Africa. It also has mine in Tanzania.

Petra's shares were trading at 177.7 pence at 1342 GMT, they touched 179.4 pence, their highest in more than two years. (Reporting by Roshni Menon and Karen Rebelo; Editing by Sunil Nair and Ted Kerr)

UPDATE 4-Union says wage deal to end South African platinum strike is imminent

The leader of South Africa's AMCU union said on Friday a wage deal with the top three platinum producers was imminent, signalling a possible end to a crippling five-month strike that has disrupted global output of the metal.

Workers from the Association of Mineworkers and Construction Union (AMCU) begged leader Joseph Mathunjwa on Thursday to end the country's longest mining strike and sign the latest offer - an increase of about 20 percent, or 1,000 rand ($93) a month.

Mathunjwa told Johannesburg radio he would take the offer to more AMCU members at mines on Friday, before meeting with management at Lonmin , Anglo American Platinum and Impala Platinum later or over the weekend to relay the response of his miners to their offer.

"At least there is light at the end of the tunnel, which is not the light of a goods train," he told Talk Radio 702.

The main outstanding sticking point was whether the wage deal should stretch over three or five years, he said.

"We are in quite a sensitive stage of trying to resolve this and reach an agreement. We won't do things haphazardly," he said.

Bishop Joe Seoka, who mediated between miners, companies and the government after the police killing in August 2012 of 34 wildcat AMCU strikers, said communities around the Rustenburg mines in the platinum belt, made desperate by the strike, were ecstatic.

"The mood is very jubilant. People are very happy, very excited," he told Reuters.

"Yesterday I could have flown if I'd had wings. If it hadn't happened yesterday, it could never have happened."

Investec Asset Management, a top 10 investor in all three mining companies, said a deal would end a worrying period of uncertainty but the industry faced major challenges.

"We are not out of the woods yet," Hanré Rossouw, Cape Town- based head of resources at Investec, told Reuters.

"There are still some hard questions to be asked about ongoing sustainability of the industry. A large part of the industry is not generating positive returns," he said.

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PLATINUM HUB

South Africa is home to 80 percent of the world's known platinum reserves and the strike has halted production at mines that usually account for 40 percent of global output of the precious metal.

The cut in production has helped push global palladium prices up 15 percent this year, and platinum prices up 6 percent, but both have seen bouts of heavy selling over the past two days on signs of a wage deal.

The strike by the 70,000 AMCU members began in January and dragged Africa's most advanced economy into contraction in the first quarter. Mining output fell at the steepest rate in nearly 50 years, pulling manufacturing down with it and putting the economy at risk of a recession.

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Fitch ratings agency changed its outlook on South Africa to negative from stable on Friday, partly due to the impact of the strike. Standard and Poor's is also expected to adjust its rating after local markets close.

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TROUBLE AHEAD

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When it first downed tools, AMCU said it wanted a roughly 150 percent pay rise to 12,500 rand per month, but platinum companies said this was totally unrealistic and for much of the negotiations said it wouldn't go beyond 10 percent.

_9">

Even if a deal is now agreed, platinum producers face renewed financial challenges after suffering huge revenue losses in the strike and with the prospect of paying increased salaries, while restarting mines that have lain dormant for five months.

_10">

According to a website run by the three companies, the strike has so far cost them 22 billion rand ($2.05 billion) in revenue, while workers have lost nearly 10 billion in wages.

_11">

"The mining companies are in a very difficult place, they are not a juicy investment," said Peter Major, mining analyst at Cadiz Asset Management.

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"The companies are saying: 'we will worry about when we are going to pay them later. We just want this thing over'."

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Shares in Anglo American were up 1.7 percent by 1243 GMT on Friday, while Impala Platinum rose 1.2 percent.

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Lonmin, which is the most exposed to the strike, eased 0.7 percent, after jumping 9 percent in the previous session.

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The platinum strike also threatens to destabilise labour relations across South Africa as other groups, in particular the NUMSA metalworkers' union, sharpened their rhetoric and pushed for strikes in pursuit of wage increases way above inflation.

"Hopefully a resolution to the platinum strike would cool labour risks elsewhere because a NUMSA strike would be pretty devastating," said Peter Leon, mining analyst at Webber Wentzel. ($1 = 10.6945 South African rand) (Additional reporting by Tiisetso Motsoeneng and Zandi Shabalala; Writing by Joe Brock; Editing by Louise Ireland and Susan Fenton)

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. 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 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 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)

BRIEF-Toronto Stock Index falls 2.94 points or 0.02 percent to 14,906.23 at open

* Toronto stock index falls 2.94 points or 0.02 percent to 14,906.23

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at open

US STOCKS SNAPSHOT-Wall St edges higher at open; Iraq curbs gains

U.S. stock edged higher at the open on Friday as some positive corporate news supported markets, though ongoing violence in Iraq limited the gains.

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The Dow Jones industrial average rose 18.72 points, or 0.11 percent, to 16,752.91, the S&P 500 gained 2.71 points, or 0.14 percent, to 1,932.82 and the Nasdaq Composite added 14.52 points, or 0.34 percent, to 4,312.15. (Reporting by Chuck Mikolajczak; Editing by Bernadette Baum)

Stock funds worldwide attract $11.4 bln over week - BOFA

Stock funds worldwide attracted $11.4 billion in the week ended June 11, marking the biggest inflows into the funds since February, data from a Bank of America Merrill Lynch Global Research report showed on Friday.

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Emerging market equity funds attracted $2.3 billion in new cash, marking their biggest inflows in nine weeks, according to the report, which also cited data from fund-tracker EPFR Global. U.S.-focused stock funds attracted $5.1 billion, up from inflows of $1.2 billion over the prior week.

Bond funds attracted $1.6 billion in inflows, marking their smallest inflows in three months. Floating-rate debt funds posted $1.3 billion in outflows, marking their biggest withdrawals since August 2011. (Reporting by Sam Forgione; Editing by Chizu Nomiyama)

TREASURIES-Prices fall, weighed by Bank of England, Fed rate outlook

U.S. Treasury debt prices slid on Friday, pressured by sharp losses in UK bonds after Bank of England Governor Mark Carney said interest rates could rise sooner than expected, as well as expectations of an imminent rate hike from the Federal Reserve.

Yields across the board rose after two straight days of declines, with market participants selling the front to the intermediate end of the curve more than long-term government securities.

The underperformance of shorter-term maturities rather than longer-dated issues stemmed from their higher sensitivity to traders' expectations that Fed policy-makers might raise rates sooner than they had thought.

"There are some unwinds of curve trades 10s and 30s, 5s and 30s. People are taking profits after the relative sharp flattening move," said Ian Lyngen, senior government bond trader at CRT Capital in Stamford, Connecticut.

A flattening curve reflects an expectation that the Fed will hike rates soon.

But losses in Treasuries prices were limited by escalating tensions in Iraq. U.S. Secretary of State John Kerry said Friday he expects President Barack Obama to decide quickly on what steps the U.S. government will take to combat the relentless advance of the Islamist insurgency in Iraq.

Carney kicked off selling in the U.S. bond market overnight when he signaled an earlier rate increase for the British economy than markets had initially priced in.

British government bond prices dropped as a result. The two-year gilt yield soared to 0.903 percent, its highest in almost three years.

In mid-morning trading, benchmark U.S. 10-year notes were down 5/32 in price to yield 2.606 percent, from 2.605 percent late on Thursday.

U.S. 30-year bonds were down 2/32 to yield 3.413 percent , from 3.418 percent late Thursday.

The five- and seven-year tenors sold off as well. U.S. five-year notes fell 6/32 in price to yield 1.704 percent from 1.689 percent the previous session, while seven year notes declined 7/32 in prices to yield 2.209 percent from 2.202 percent late on Thursday.

U.S. Treasury debt yields pulled back from their highs after two weaker-than-expected economic U.S. numbers.

U.S. producer prices unexpectedly fell in May as costs declined broadly, indicating inflation pressures remained benign. The U.S. producer price index for final demand slipped 0.2 percent, down from April's 0.6 percent increase,

U.S. consumer sentiment also weakened in June. The Thomson Reuters/University of Michigan's preliminary June reading on the overall index on consumer sentiment was 81.2, down from 81.9 a month earlier. It was below the median forecast of 83.0 of economists polled by Reuters. (Editing by Bernadette Baum)

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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UPDATE 4-Union says wage deal to end South African platinum strike is imminent

The leader of South Africa's AMCU union said on Friday a wage deal with the top three platinum producers was imminent, signalling a possible end to a crippling five-month strike that has disrupted global output of the metal.

Workers from the Association of Mineworkers and Construction Union (AMCU) begged leader Joseph Mathunjwa on Thursday to end the country's longest mining strike and sign the latest offer - an increase of about 20 percent, or 1,000 rand ($93) a month.

Mathunjwa told Johannesburg radio he would take the offer to more AMCU members at mines on Friday, before meeting with management at Lonmin , Anglo American Platinum and Impala Platinum later or over the weekend to relay the response of his miners to their offer.

"At least there is light at the end of the tunnel, which is not the light of a goods train," he told Talk Radio 702.

The main outstanding sticking point was whether the wage deal should stretch over three or five years, he said.

"We are in quite a sensitive stage of trying to resolve this and reach an agreement. We won't do things haphazardly," he said.

Bishop Joe Seoka, who mediated between miners, companies and the government after the police killing in August 2012 of 34 wildcat AMCU strikers, said communities around the Rustenburg mines in the platinum belt, made desperate by the strike, were ecstatic.

"The mood is very jubilant. People are very happy, very excited," he told Reuters.

"Yesterday I could have flown if I'd had wings. If it hadn't happened yesterday, it could never have happened."

Investec Asset Management, a top 10 investor in all three mining companies, said a deal would end a worrying period of uncertainty but the industry faced major challenges.

"We are not out of the woods yet," Hanré Rossouw, Cape Town- based head of resources at Investec, told Reuters.

"There are still some hard questions to be asked about ongoing sustainability of the industry. A large part of the industry is not generating positive returns," he said.

_0">

PLATINUM HUB

South Africa is home to 80 percent of the world's known platinum reserves and the strike has halted production at mines that usually account for 40 percent of global output of the precious metal.

The cut in production has helped push global palladium prices up 15 percent this year, and platinum prices up 6 percent, but both have seen bouts of heavy selling over the past two days on signs of a wage deal.

The strike by the 70,000 AMCU members began in January and dragged Africa's most advanced economy into contraction in the first quarter. Mining output fell at the steepest rate in nearly 50 years, pulling manufacturing down with it and putting the economy at risk of a recession.

_5">

Fitch ratings agency changed its outlook on South Africa to negative from stable on Friday, partly due to the impact of the strike. Standard and Poor's is also expected to adjust its rating after local markets close.

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TROUBLE AHEAD

_8">

When it first downed tools, AMCU said it wanted a roughly 150 percent pay rise to 12,500 rand per month, but platinum companies said this was totally unrealistic and for much of the negotiations said it wouldn't go beyond 10 percent.

_9">

Even if a deal is now agreed, platinum producers face renewed financial challenges after suffering huge revenue losses in the strike and with the prospect of paying increased salaries, while restarting mines that have lain dormant for five months.

_10">

According to a website run by the three companies, the strike has so far cost them 22 billion rand ($2.05 billion) in revenue, while workers have lost nearly 10 billion in wages.

_11">

"The mining companies are in a very difficult place, they are not a juicy investment," said Peter Major, mining analyst at Cadiz Asset Management.

_12">

"The companies are saying: 'we will worry about when we are going to pay them later. We just want this thing over'."

_13">

Shares in Anglo American were up 1.7 percent by 1243 GMT on Friday, while Impala Platinum rose 1.2 percent.

_14">

Lonmin, which is the most exposed to the strike, eased 0.7 percent, after jumping 9 percent in the previous session.

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The platinum strike also threatens to destabilise labour relations across South Africa as other groups, in particular the NUMSA metalworkers' union, sharpened their rhetoric and pushed for strikes in pursuit of wage increases way above inflation.

"Hopefully a resolution to the platinum strike would cool labour risks elsewhere because a NUMSA strike would be pretty devastating," said Peter Leon, mining analyst at Webber Wentzel. ($1 = 10.6945 South African rand) (Additional reporting by Tiisetso Motsoeneng and Zandi Shabalala; Writing by Joe Brock; Editing by Louise Ireland and Susan Fenton)

REFILE-GM recalls 511,528 Chevy Camaros because key bump can cause power loss

General Motors Co said on Friday it will recall 511,528 Chevrolet Camaro cars, mainly in North America, because a driver's knee can bump the key fob and turn it out of the "run" position, causing a loss of power.

GM said it is aware of three crashes causing four "minor" injuries believed related to this issue.

"The Camaro ignition system meets all GM engineering specifications and is unrelated to the ignition system used in Chevrolet Cobalts and other small cars included in the ignition switch recall," GM said in a statement.

GM earlier this year recalled 2.6 million small cars because of an ignition switch failure, linked to at least 13 deaths.

(Reporting by Bernie Woodall; Editing by Meredith Mazzilli)

China says it wants London's Heathrow airport to expand

China wants London's Heathrow airport to expand its capacity so that Chinese airlines can introduce more flights between China and Britain, China's ambassador to Britain said on Friday, saying he had written to the government about the issue.

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Speaking ahead of a visit to London next week by China's Premier Li Keqiang, the ambassador said the lack of capacity was a problem for three Chinese carriers who wanted to increase the number of slots they had.

"We'd like to see an increase in capacity in Heathrow airport," Liu Xiaoming, China's ambassador to Britain, told a news conference in London. He said the British government had told him the airport, the world's third busiest by passenger numbers, had reached capacity.

"We expect Heathrow will have a third runway," he said.

British lawmakers and business leaders have identified the lack of new airport capacity as a possible drag on economic growth and agree that the country urgently needs new runways. But the idea of adding them in London is unpopular with many voters, who worry about noise, pollution and safety.

Britain's Airport Commission is due to make a final recommendation on where and how to expand London's airport capacity by next summer.

Heathrow Airport Holdings Limited is co-owned by Spanish infrastructure firm Ferrovial, its largest shareholder with a 25 percent share. Partners include Qatar Holding, China Investment Corp. and the Government of Singapore Investment Corp. (Reporting by Andrew Osborn; Editing by Guy Faulconbridge)

UPDATE 1-Fiat Chrysler CEO confirms targets despite difficult Brazil

Fiat Chrysler Automobiles will meet its 2014 targets even though the Brazilian car market is set to remain difficult and Europe is showing no sign of improvement, Chief Executive Sergio Marchionne said on Friday.

"At the group level, we'll achieve them. This is not a problem," Marchionne told reporters on the sidelines of an event in Venice.

Asked about a possible stabilisation of the situation in Brazil, he said: "Fiat will maintain its market share in the ups and downs. We expected it to be a difficult year. We see a difficult year until the elections."

"The World Cup is distracting everyone but elections are the real problem," he added.

A sluggish economy, expiring tax breaks and weak exports have put the brakes on Brazil's car industry, stoking fears of lay-offs in an election year.

Marchionne said he saw no sign of changes in the European car market, which this year would remain "more or less in line" with 2013. "Its not a healthy growth," he said.

Asked whether Fiat would be able to reduce losses in Europe in spite of higher investments, he said it would depend on the performance of its luxury brand Maserati given that costs in its mass-market segment had been cut to the bone.

On press reports of talks with Mitsubishi for a venture in pick-ups, Marchionne said: "We continue to talk with everyone including Mitsubishi." (Reporting by Danilo Masoni; editing by Lisa Jucca and Tom Pfeiffer)

Thai junta says curfew lifted nationwide

Thailand's military government lifted a curfew nationwide on Friday, citing the absence of any violence and the need to support the country's tourism sector.

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"As the situation has improved and there have been no incidents that can lead to violence ... and in order to improve tourism, the curfew will be lifted in all remaining provinces," the ruling military council said in a televised announcement.

The curfew had been in place from midnight to 4 a.m. in 47 provinces including the capital Bangkok. It had lifted the curfew in 30 provinces, which include the country's main tourist hotspots, over the past week.

(Reporting by Amty Sawitta Lefevre; Writing by Maertin Petty; Editing by Ron Popeski)

UK markets scramble to price in 2014 rate rise after Carney warning

Investors braced on Friday for a UK interest rate hike later this year, pushing sterling to five-year highs and hurting property stocks, after the head of the Bank of England said rates may rise sooner than markets predict.

Governor Mark Carney's surprisingly stark warning late on Thursday prompted investors to bring forward expectations for a first BoE rate hike by nearly four months, to December from the first quarter of 2015.

Sterling's trade-weighted index posted its biggest one-day rise in four months, hitting 5 1/2-year highs. Short-dated UK government bond yields were on track for their biggest daily gain in more than three years.

A rate hike by the end of 2014 is likely to come at least six months before the U.S. Federal Reserve tightens policy. It would contrast sharply with the European Central Bank, which cut rates last week and is likely to ease policy in the coming months.

"The BoE seems to be slightly ahead of the Fed as far as rate hikes are concerned," said Lutz Karpowitz, currency analyst at Commerzbank. "Macro data is likely to attract particular attention over the coming months. Anything pointing towards a possible rate hike would then support the pound further."

Short sterling futures fell across the strip <0#FSS:>, pricing in a first hike by December. The sterling overnight interbank average curve (SONIA) was pointing to a chance of a rate hike by the end of the year, compared with the first quarter of 2015 on Thursday.

Carney also said he was concerned by signs that mortgage lending standards were becoming looser and set out the case for early action as insurance against future risks.

While Britain's economy is outperforming its peers, growing at a near 3 percent annual rate, house prices are up 11 percent over the past year, pressuring policymakers to prevent a bubble. Britain faces an election in May 2015 in which living standards and the cost of housing are expected to be major issues.

The comments from Carney, who until recently was of the view that rates would be kept lower for longer to ensure a broad-based recovery, sent London's main share index down 1 percent, with housebuilders Persimmon and Barratt Developments both losing between 6-7 percent.

Sterling hit a fresh 5 1/2-year high in a trade-weighted basket of currencies, rising to 88.2. Britain's recovery has pushed the index 8 percent higher over the past year as investors priced in growing chances of rate hikes by the BoE.

The euro fell to 79.765 pence, its lowest since November 2012. The euro has shed nearly 2 percent since the ECB cut rates last Thursday.

The diverging UK and European policy outlooks have pushed the difference in yields between British and German 10-year government bonds to its widest since 1997.

The pound hit $1.6995, its highest since reaching $1.6997 on May 6. Above $1.6997, sterling will be at its highest since August 2009, with bulls now targeting the $1.70 mark.

STOCKS HIT, YIELDS RISE

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Analysts were relatively sanguine on housebuilding stocks, saying Friday's falls should be seen in the context of strong gains in the share prices. While higher rates would raise the costs of borrowing to build, it would also signal the economy - and consequently funding prospects - were looking brighter.

"Markets are obviously now anticipating that interest rates will rise - it'll just take some of the froth off the strength that we've seen (from housebuilders)," said Richard Hunter, head of equities at Hargreaves Lansdown.

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The pain was felt throughout the property sector, with Land Securities and British Land both falling 2.8 percent.

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In the gilts market, shorter-dated British government bond prices plummeted, with the two-year gilt yield on course for its biggest daily gain in more than three years, according to Reuters data.

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It was last up some 15 basis points at 0.888 percent, having hit a high of 0.903 percent - its highest since mid-2011.

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"These comments should help prompt a sustained move towards higher front-end yields," said Jamie Searle, strategist at Citi.

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(Additional reporting by Andy Bruce, Editing by Larry King)

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UPDATE 2-Recapitalizing Fannie, Freddie not viable -Treasury official

A senior U.S. Treasury official on Friday rejected calls to recapitalize Fannie Mae and Freddie Mac, saying it would take at least 20 years to make sure they were adequately funded and that in the meantime taxpayers would be on the hook.

In remarks to a housing conference, Treasury Undersecretary Mary Miller repeated the Obama administration's call that the two so-called government-sponsored enterprises be wound down.

"Critics of reform would suggest that we can simply recapitalize the GSEs and avoid difficult decisions around creating a new system," she said. "Even if truly rehabilitating the GSEs were possible, recapitalizing them adequately would take at least 20 years."

"During these 20 years, the taxpayer would remain at risk of having to bail out the GSEs during another downturn," Miller added

Fannie Mae and Freddie Mac, which buy mortgages from lenders and repackage them into securities they sell to investors with a guarantee, were seized by the government in 2008 as loan losses threatened their solvency.

They were propped up with $187.5 billion in taxpayer aid, but they have since returned to profitability and have paid more in dividends to the government than they received in support.

Efforts to wind down the two entities, the largest sources of mortgage finance, have foundered on Capitol Hill, spurring the hopes of investors who would like to see them reprivatized.

Miller noted that their recent profits have been driven largely by one-time, tax-related adjustments and legal settlements. She also noted they are required to shrink their loan portfolios, which are also helping drive income, by 15 percent a year.

"The GSEs will not be able to replicate the levels of revenue they achieved over the past two years," she said.

In her remarks, Miller also called for a greater effort to ensure financing was available for affordable rental housing, noting that the financial crisis and recession had led many Americans to choose renting over buying.

She repeated the administration's call on Congress to allow Ginnie Mae, another GSE, to securitize loans made under a program in which the Federal Housing Administration, a government mortgage insurer, shares risks with state and local housing finance agencies or other qualified lenders.

But Miller said the administration was not waiting for congressional action. Instead, it was exploring whether funding might be available from other governmental sources for loans already guaranteed through FHA's risk-sharing program, she said.

"This could present a viable interim solution and we hope to say more in the near future," Miller said. (Reporting by Timothy Ahmann; Editing by Chizu Nomiyama, Steve Orlofsky and Jonathan Oatis)

Insurgents' Iraq advance poses security, economic risk for Turkey

The advance of Sunni militants in Iraq leaves Turkey facing a widening Islamist insurgency in two of its southern neighbours, endangering domestic security, threatening important trade routes and forcing it again to rethink Middle Eastern policies.

Militants from the Islamic State in Iraq and the Levant (ISIL) overran the northern Iraqi city of Mosul, 110 km (68 miles) from the Turkish border, earlier this week and have since thrust southwards towards Baghdad, seat of the Shi'ite Muslim-led central government.

Their lightning ascendancy in Turkey's second biggest export market and biggest oil supplier compounds the challenges confronting Prime Minister Tayyip Erdogan, already contending with a slowing economy and the spillover from Syria's civil war where ISIL has also seized patches of border territory.

Although analysts believe any ISIL encroachment would be quickly spotted by Turkish forces arrayed along the frontier, financial markets have been unnerved. Turkey's lira currency fell to its weakest point in six weeks against the dollar on Friday, while stocks, bonds and the cost of insuring Turkish debt against default have also been volatile.

Turkish officials, from the normally vocal Erdogan down, have made little public comment on events in Iraq. Their top priority, they say, is the delicate process of ensuring the release of 80 Turks, including diplomats, special forces soldiers and children, snatched by ISIL as it seized Mosul.

"We're closely monitoring this situation ... We've mobilized all efforts to get our citizens back," Erdogan told a rally in the Black Sea town of Rize on Friday, saying he had spoken with Turkey's consul general in Mosul, who is among the hostages.

But the developments have reinforced a sense among his critics that Turkey's Middle Eastern policy is in disarray.

"Foreign Minister Ahmet Davutoglu was claiming a few years ago that a leaf could not move in the Middle East without Turkey's consent," wrote Semih Idiz, a columnist at Hurriyet Daily News who has covered Turkish foreign policy for 30 years.

"Today there are forest fires raging there and all Ankara can do is look on."

Davutoglu, touted as a potential future prime minister if Erdogan runs for the presidency as expected in an August election, has seen his declared policy of "zero problems with the neighbours" crumble over the past few years.

Turkey's assumption of the quick demise of Syrian President Bashar al-Assad, a former ally, proved a costly miscalculation, with Ankara underestimating the threat posed by fundamentalists among the rebel ranks as it maintained an open border policy which has allowed fighters and supplies to cross back and forth.

"The weapons in ISIL's hands are sent by Tayyip Erdogan," the leader of the main opposition CHP, Kemal Kilicdaroglu, was quoted as saying by the Cumhuriyet newspaper on Friday.

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The government has repeatedly denied arming Syria's rebels or backing radical Islamists. "Did Turkey consciously send people, weapons and financial aid to ISIL? No. We can say definitely no to this and the whole world knows it," Deputy Prime Minister Bulent Arinc told a news conference.

ECONOMIC CONSEQUENCES

Iraq has risen to become Turkey's second biggest export market after Germany in recent years. Ankara has sought to diversify its trade away from a dependence on Europe, exporting $12 billion of goods to Iraq last year.

Exports to Iraq, mostly to the autonomous Kurdish enclave in the north of the country, have been growing in the double digits since 2005, at times in excess of 30 percent. This has helped to narrow a trade gap that is part of the reason for Turkey's huge current account deficit, the Achilles heel of its economy.

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But relations are tense with Prime Minister Nuri al-Maliki's administration in Baghdad, not least because of Turkey's thickening ties with the Kurdistan region, which is at odds with the federal government over oil and land rights.

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Diplomats say Ankara will need to intensify its efforts to bring about a thaw in ties not only with Baghdad but also Shi'ite Iran, which is equally perturbed by the ISIL advance.

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Turkish businesses are heavily active in Iraq, which is home to around 135,000 Turkish citizens, the vast majority of them in Kurdistan, which curves around north and east of Mosul and, for the moment, serves as a buffer between ISIL and Turkish soil.

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"The mountainous area can be easily defended by the peshmerga (Kurdish forces) and any large group of (ISIL) militants would be easily spotted by the Turkish military, which is deployed in large numbers alongside the border," said Wolfango Piccoli of risk research firm Teneo Intelligence.

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Turkey has warned its nationals to get out of Iraq and flag carrier Turkish Airlines is scheduling additional flights to Baghdad and Arbil, in Kurdistan, to help them do so.

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MILITARY ACTION

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Ankara has the second largest armed forces in the NATO military alliance after the United States but is seen as highly unlikely to undertake any form of military action other than as part of an international coalition.

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U.S. President Barack Obama threatened military strikes against ISIL on Thursday; the United States has a major air base at Incirlik in southern Turkey.

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"In the medium-term I do not see any other option than an international intervention in Iraq, which would need to be on the request of the central government in Baghdad," said Sinan Ulgen, head of the Edam think-tank in Istanbul.

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"Turkey would also be involved, as a country that has been exposed to all the security spillovers, but Turkey cannot lead. Iraq would not want Turkey to lead because of the strained relationship between the two governments," he told Reuters.

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Justice Minister Bekir Bozdag said on Thursday the Turkish government was not working on any new request for parliament to authorise a cross-border operation beyond an existing mandate, which expires in October, that enables Ankara to strike at bases of Kurdish PKK rebels sheltering in the north of Iraq.

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(Additional reporting by Humeyra Pamuk and Seda Sezer; Editing by Mark Heinrich)

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UPDATE 2-Priceline to buy OpenTable for $2.6 bln

Travel website owner Priceline Group Inc will buy restaurant reservation website operator OpenTable Inc for $2.6 billion, aiming to broaden its services outside the increasingly competitive online travel industry.

Priceline's offer of $103 per share for the owner of OpenTable.com represents a premium of 46 percent to OpenTable's Thursday close.

OpenTable's shares inched past the offer price to trade as high as $104.19 on the Nasdaq, suggesting that some investors expect a higher bid.

Priceline's shares were down 1.6 percent at $1,205.50.

Priceline, whose competitors include Expedia Inc and Orbitz Worldwide Inc, has a record of buying smaller companies and transforming them into large, successful businesses.

With little room to expand, online travel companies are looking outside the industry to boost revenue and drive more customers to their websites by offering more of a one-stop shop for travelers by offering services at their destination.

TripAdvisor Inc, for example, bought French online restaurant booking platform Lafourchette last month to enter the restaurant-booking industry.

Friday's deal gives the travel site operator access to OpenTable's agreements with over 23,000 U.S. restaurants.

OpenTable has been trying to expand its international business as it faces increased competition from Yelp Inc and a slew of startups focused on local services.

"Priceline could further strengthen OpenTable's business, especially in Europe, where Priceline is the market leader, as a result of its significant online user traffic and its organizational infrastructure," Citi Investment Research analyst Mark May wrote in a research note.

Priceline bought Kayak.com last year and has built it into one of the biggest travel websites outside the United States. It has also ramped up U.S. advertising for Booking.com, which it bought in 2005, giving stiff competition to Expedia.

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As of Thursday, OpenTable's shares were trading at about 33.5 times 12-month estimated forward earnings, far below the 498.7 times of Yelp, its closest competitor, according to Thomson Reuters StarMine.

"I think (the takeover) creates urgency for larger players to acquire the leading local platforms," Telsey Advisory Group analyst James Cakmak told Reuters, mentioning Yahoo Inc , Google Inc and Microsoft Corp as potential buyers in the sector.

OpenTable posted its first quarterly loss in five years for the period ended March 31 as it spent more on marketing to stem the slowdown in the number of restaurants signing up for its services.

The number of North American restaurants using OpenTable's platform rose 19 percent, but growth was slower than in the previous two quarters.

OpenTable, which gets $1.00 from a restaurant if a diner reserves a table through its website or app, will continue to operate as an independent business led by its current management, Priceline said.

Yelp's shares were up 13 percent at $74.65 in midday trading, having fallen 5 percent this year to Thursday's close.

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Priceline reported a 36 percent rise in second-quarter profit as hotel and car booking rose.

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The deal is expected to close in the third quarter. (Additional reporting by Lehar Mann; Editing by Maju Samuel and Ted Kerr)

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PRECIOUS-Palladium at one-month low on hopes of S.Africa wage deal

Palladium tumbled to a one-month low on Friday, extending its biggest drop in nearly a year in the previous session, as investors awaited confirmation that South Africa's longest mining strike would end soon.

Gold prices edged up after Thursday's 1 percent gain. The safe-haven metal, however, failed to rally further on market expectations that security conditions in Iraq will improve soon, traders said.

The leader of South Africa's striking AMCU union said on Friday he hoped to meet the three major platinum firms over the weekend to give them formal feedback from workers about a wage offer that could mean the end of a five-month strike.

On Wednesday, palladium had rallied to a 13-year high on speculation of a deadlock in wage talks.

Palladium, however, tumbled as much as 5 percent on Thursday on news that platinum group metal (PGM) producers and the AMCU agreed in principle on a wage deal, taking a step closer to resuming operations after the longest strike in the 130-year history of South Africa's mines.

Analysts said PGMs still have some upside as the miners start the long and slow process of getting operations back up.

"South African supply issues do not end with a resolution of the 21-week old strike," said UBS metals strategist Edel Tully. "A correction in PGMs would present an attractive entry point."

Palladium was down 1.2 percent to $812 an ounce by 3:11 p.m. EDT (1911 GMT), having touched its lowest since May 16 earlier. The metal lost about 3.5 percent for the week, its biggest decline since January.

Platinum fell 0.4 percent to $1,428.50 an ounce. It had lost almost 3 percent on Thursday in its biggest daily drop since June 2013.

South Africa's crippling five-month strike in the platinum belt has lifted palladium prices by more than 15 percent this year, outpacing gains in platinum which is up just six percent.

NO GOLD RALLY DESPITE IRAQ

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Spot gold was up 0.2 percent at $1,275.39 an ounce. U.S. COMEX gold futures for August delivery settled up 10 cents at $1,274.10 an ounce.

The metal, however, has not risen further following Thursday's 1-percent gain.

On Friday, Iraq's most senior Shi'ite Muslim cleric urged followers to take up arms against a full-blown Sunni militant insurgency to topple Shi'ite Prime Minister Nuri al-Maliki, escalating a conflict that threatens civil war and a possible break-up of the country.

"The general thought out there is that what's going on in Iraq will be contained and should not create a significant impact globally by affecting oil production," said Mike Meyer, assistant vice president at EverBank World markets in St. Louis.

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Silver rose 0.7 percent to $19.63 an ounce. 3:11 PM EDT LAST/ NET PCT LOW HIGH CURRENT

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SETTLE CHNG CHNG VOL US Gold AUG 1274.10 0.10 0.0 1270.90 1277.60 77,626 US Silver SEP 19.699 0.126 0.6 19.525 19.760 12,566 US Plat JUL 1435.00 -6.30 -0.4 1433.20 1457.30 11,925 US Pall SEP 812.60 -6.80 -0.8 806.35 831.25 8,547 Gold 1275.39 2.53 0.2 1271.00 1276.80 Silver 19.630 0.140 0.7 19.510 19.700 Platinum 1428.50 -6.00 -0.4 1433.00 1453.50 Palladium 812.00 -10.00 -1.2 808.50 829.60 TOTAL MARKET VOLUME 30-D ATM VOLATILITY

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CURRENT 30D AVG 250D AVG CURRENT CHG US Gold 80,224 157,616 165,263 12.81 -0.63 US Silver 64,905 44,418 55,217 16.72 -0.25 US Platinum 12,823 13,635 12,325 18.4 -0.42 US Palladium 8,672 8,952 5,834 23.01 3.60 (Additional reporting by Lewa Pardomuan in Singapore; Editing by Susan Fenton, David Evans, Meredith Mazzilli and Nick Zieminski)

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Soccer-World Cup opener gets more Facebook comments than Oscars

Brazil's 3-1 win over Croatia in the World Cup opener on Thursday generated 58 million posts on Facebook, almost five times more than this year's Academy Awards ceremony in Hollywood, the social media company said on Friday.

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The most commented play on Facebook was Neymar's first goal, which levelled the match after Brazil fell behind early with an embarrassing own goal. The second most talked-about play was the controversial penalty that led to Neymar's second goal, putting Brazil ahead for the first time.

With 16 million posts, Brazil was the most active country on Facebook during the game, followed by the United States and England.

"That number represents more than 20 times the capacity of all the stadiums of the World Cup," Facebook said in a statement.

The World Cup is a big business opportunity for companies like Facebook as fans around the world turn to social media to comment on live events.

The most active demographic group during the opening match was men between 18 and 24 years old, Facebook said. (Reporting by Esteban Israel; Editing by Todd Benson and Ed Osmond)

Iraq crisis push European shares to one-week low

Major European stock indexes ended lower on Friday, with British equities slipping on the possibility of an early rate hike and travel stocks hurt by concern the Iraq conflict will raise oil prices.

The STOXX Europe 600 Travel and Leisure index fell 1.7 percent, the top decliner in Europe, on concern higher energy prices will hurt profit margins of airlines and other transport companies.

In Britain, the blue-chip FTSE 100 index fell 1.0 percent, led by property firms, after Bank of England Governor Mark Carney said interest rates might rise sooner than markets expected and it would consider controls on mortgage lending.

A Reuters poll of economists on Friday suggested the first rate rise will come in the first three months of next year. In a May 28 poll, economists' expectations had been for rates to go up in the second quarter.

In reaction, Land Securities and British Land , the country's top two listed property companies, fell more than 4 percent. Kingfisher, Europe's biggest home improvements retailer, fell nearly 4 percent.

"Renewed geopolitical tensions and concerns that interest rate hikes is the UK might come quicker than expected are putting some pressure on the market," Robert Parkes, equity strategist at HSBC, said.

"However, we believe that the bull case for the market is intact and I don't see today's weakness as the start of a deeper correction. Improving global economic conditions will continue to support the market going forward."

The FTSEurofirst 300 index of top European shares ended 0.2 percent lower at 1,389.83 points, moving further away from this week's 6 1/2-year high, after falling up to 1,381.35, the lowest since early June.

Across Europe, Germany's DAX fell 0.3 percent, France's CAC was down 0.2 percent and the euro zone's blue-chip Euro STOXX 50 dropped 0.04 percent.

Travel stocks were among the major decliners in Europe, with British Airways owner International Airlines Group, Germany's Lufthansa and budget airline firm easyJet , falling 2.9 to 3.5 percent on Iraq tensions.

"The market was looking for an excuse to take profits after a rally to new highs, and tensions in Iraq gave investors an opportunity to trim their positions," Philippe Gijsels, head of research at BNP Paribas Fortis Global Markets in Brussels.

"America may send a few fighter planes to help Iraq, but it doesn't look like the start of a new Iraq war. I don't see a sharp pull-back in the market. Shares could fall another 3 to 5 percent in the near term before bouncing back."

President Barack Obama said on Friday he will take several days to review options for how the United States can help Iraq deal with the militant insurgency, saying any action would need significant involvement by Iraq itself.

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However, losses in the broader market were capped by a rise in energy stocks following a rally in oil prices. The European oil and gas index rose 1.1 percent, helped by a 2 percent rise in Statoil and a 0.9 percent rise in Total .

The sector index was also supported by a 10.7 percent jump in CGG, a company whose services include providing geological data analysis to energy companies, as traders cited rumours it could attract bid interest.

Europe bourses in 2014: link.reuters.com/pap87v

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Asset performance in 2014: link.reuters.com/gap87v

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Today's European research round-up (Additional reporting by Francesco Canepa; Editing by Larry King)

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UPDATE 1-Wal-Mart to launch e-commerce marketplace in India in July

Wal-Mart Stores Inc will launch its business-to-business e-commerce platform in the Indian cities of Lucknow and Hyderabad in the first week of July, its India boss said on Friday.

The world's largest retailer has 20 wholesale outlets in India, including in Lucknow and Hyderabad, which will support its e-commerce services, its India Chief Executive Officer Krish Iyer said.

It would look at rolling out the service to the remaining 18 outlets as well, Iyer said, but not for another six months at least.

"We will not start rolling out to the other 18 stores for the next six months because we will learn from any teething problems and feedback from members," Iyer told Reuters.

In April, Wal-Mart said it planned to open 50 more wholesale outlets in India over four to five years and start online operations to sell to small shopkeepers, several months after it decided against opening its own retail stores.

The e-commerce service will be available only to its trader members, Iyer said.

India restricts global online retailers from selling their products directly to consumers.

But sources told Reuters this month India could allow global online retailers such as Amazon.com Inc to sell their own products directly to consumers as early as July, removing restrictions that have held back competition in one of the world's biggest retail markets.

Wal-Mart does not have any immediate plans to sell directly to consumers through its e-commerce service, Iyer said.

"We will continue to focus only on business-to-business... but that does not mean we will not look at it," he said.

Iyer said Wal-Mart's wholesale stores currently cater to consumers within a 20-km radius and the e-commerce business will help the company serve customers from within a 40-km radius of its stores.

Wal-Mart has been operating under the wholesale format in India since 2007. The company's desire to enter India with supermarkets has been met with fierce opposition from small shopkeepers and political parties.

(Reporting by Aditi Shah; Editing by Sumeet Chatterjee and Susan Thomas)

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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