Former IRS official sought to hide information, lawmakers assert

Congressional Republicans asserted on Wednesday that new emails show a former Internal Revenue Service official deliberately sought to hide information from Congress, opening a new chapter in a probe of IRS treatment of conservative groups.

An email exchange released by House Oversight Committee Chairman Darrell Issa shows the former official, Lois Lerner, asking a colleague whether communications made through an internal messaging system can be searched by Congress. Issa said the exchange, culled from documents provided to Congress last week, showed that Lerner was "leading an effort to hide information from congressional inquiries."

The latest accusation prompted heated questioning of IRS Commissioner John Koskinen at a hearing and angry exchanges among a Democrat and Republicans on the panel.

In the emails, Lerner says she has been telling colleagues to be cautious about what they say in emails and asks whether internal messages are subject to the same data transparency rules. Her colleague replies that even though some messages could be exempt, they should still be treated as if reviewable.

Republicans have been investigating IRS scrutiny of conservative groups seeking tax-exempt status since the practice burst into view in May 2013. That was when Lerner publicly apologized for it at a conference.

Her unexpected statement triggered the worst crisis at the IRS in years, with Republicans accusing the agency of singling out conservative groups, some aligned with the Tea Party, for unfair treatment. Lerner retired from the IRS in September.

The issue had faded from view until last month when the IRS acknowledged losing some of Lerner's emails, which Republicans want for review. Republicans accused the IRS of hiding them and of obstructing the congressional inquiry.

Democrats, for their part, accused Republicans of rehashing baseless accusations for political theater in what has come to be known as the IRS Tea Party targeting affair.

The IRS reviews the activities of non-profit organizations seeking exemptions from paying taxes because U.S. law limits their political involvement. Non-profits have increasingly been used as conduits for political spending, especially by conservatives.

On Wednesday, several Republican lawmakers on the panel grilled Koskinen about when the agency would make officials available to talk about how the emails were misplaced.

Koskinen said he could not do so until an internal investigation is complete. He also said he had never heard of the internal messaging system.

Lerner’s questions about internal messages suggest she had something to hide, Republican Representative Jim Jordan said, prompting an angry exchange with Gerry Connolly, a Democrat.

Connolly said one interpretation of Lerner’s emails could be that she understood that internal messages should be treated as reviewable by Congress.

"You expect us, and more importantly the American people, to believe that, oh yeah, perfect, now we know we need to save these? That is the most ridiculous interpretation," Jordan said.

In response, Connolly said: "As a matter of personal privilege, I would ask that my colleague not question another member as ridiculous."

(Reporting By Mark Felsenthal)

Judge strikes down Colorado gay marriage ban, stays ruling

A state judge struck down Colorado's gay marriage ban on Wednesday, saying the prohibition violated constitutional rights, but put his ruling on hold pending appeal.

It was the latest of several decisions by state and federal judges to strike down state bans on same-sex nuptials and then stay their rulings pending challenges to higher courts.

Adams County District Court Judge C. Scott Crabtree said in his decision that Colorado's prohibition, approved by voters in 2006, conflicted with the fundamental right to marry.

"The Court rejects the State's attempt to too narrowly describe the marital right at issue to the right to marry a person of the same sex," Crabtree wrote.

There are 19 states, plus the District of Columbia, where same-sex marriage is now legal. Several other same-sex marriage lawsuits are moving toward the U.S. Supreme Court.

Two other lawsuits, testing bans in Oklahoma and Virginia, have already been heard by appeals courts.

The attorney general of neighboring Utah said on Wednesday he would appeal directly to the Supreme Court a ruling by a federal appeals court last month that backed gay marriage in the conservative, largely Mormon state.

Responding to Crabtree's ruling, Colorado Attorney General John Suthers said it reaffirmed the fact that the fate of the state's same-sex marriage law now rested with the Supreme Court.

"Judge Crabtree provides additional clarity that until the high court rules on the issue of same-sex marriage, Colorado’s current laws remain in place," Suthers, a Republican, said in a statement.

'FINAL RESOLUTION'

"Adherence to the rule of law will bring about the final resolution with the greatest certainty and legal legitimacy," Suthers added.

He has sued the elected county clerk in Boulder, Colorado, after she issued more than 100 marriage licenses to gay couples following the ruling on Utah by the 10th U.S. Circuit Court of Appeals.

On Wednesday, Boulder County District Court Judge Andrew Hartman held a hearing in the case in which an attorney for the state accused the clerk, Hillary Hall, of flouting the law.

Assistant Solicitor General Michael Francisco said the state's 63 other county clerks had abided by the appellate court's ruling putting its decision on hold.

"Clerk Hall is the only outlier," he said.

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Hall testified briefly, repeating her stance that she could not deny same-sex couples their fundamental right to marry.

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Three lesbians also described the difficulties gay couples face in Colorado because of the ban, including in areas such as making medical decisions for partners, getting approval to adopt children, and being denied federal benefits.

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The question of whether the licenses issued by Hall are valid will be litigated separately.

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Outside the building, gay marriage supporters waved signs reading: "Legalize Love" and "Support Equality."

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Hartman said he would rule on the issue "very shortly," but gave no indication when that might be.

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(Reporting by Keith Coffman; Writing by Daniel Wallis; Editing by Sandra Maler and Peter Cooney)

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Obama rejects criticism over border crisis

President Barack Obama rejected demands from Texas Governor Rick Perry and others that he visit the border where a child migrant crisis is unfolding and said his critics should get behind his request for $3.7 billion if they want to solve the problem.

"Are folks more interested in politics or are they more interested in solving the problem," Obama said he told Perry. "If they are interested in solving the problem then this can be solved. If the preference is for politics then it won’t be solved."

Obama visited Texas for the first time since the influx of child migrants from Central America overwhelmed border resources. He had talks with Perry aboard his Marine One helicopter and in a group meeting with local officials that Obama called constructive.

In a brief news conference after the meeting, Obama dismissed criticism from Perry, a potential 2016 Republican presidential candidate, that he should personally visit the border region for a first-hand look.

"This isn’t theater. This is a problem. I’m not interested in photo ops. I’m interested in solving a problem," he said.

The president, on a three-day trip out of Washington, is spending much time raising money for Democratic congressional candidates, leading to criticism that he should spend some time visiting the border. Obama said he is getting plenty of information from top advisers who are visiting the area.

"There’s nothing that is taking place down there that I am not intimately aware of and briefed on," he said.

Obama is battling political pressure from supporters and opponents alike to halt a growing humanitarian crisis along the Texas border with Mexico.

His request for emergency funds on Tuesday was the most aggressive step yet by his administration to take care of the children who have come from Central America illegally while accelerating the process to have them deported.

The money, however, must be approved by the Democrat-controlled Senate and Republican-led House of Representatives. Republicans, who have pressed the White House to do more to tackle the crisis, gave the proposal a wary reception.

“The House is not going to just rubber-stamp what the administration wants to do," said Representative Mario Diaz-Balart of Florida, who is a member of Speaker John Boehner's border crisis task force.

Republican Representative Mick Mulvaney criticized the funding request and suggested foreign aid should be docked to pay for it.

"I think it’s a charade. I think the president has set it up to make it look as though the only reason he’s not enforcing the border is because he doesn’t have the money. And that’s not accurate," Mulvaney said.

Obama said he emphasized to Perry that he was largely in agreement with the Republican's suggestion that more border patrol agents be moved to the crisis zone.

Perry quickly issued a statement after the talks saying he demanded that Obama dispatch 1,000 National Guard troops to the border.

“Securing the border is attainable, and the president needs to commit the resources necessary to get this done," Perry said.

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Obama said he would consider Perry's demand that National Guard troops be deployed to the area.

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"The bottom line actually is there is nothing the governor indicated that he'd like to see that I have a philosophical objection to," Obama said.

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The greater challenge, he said, is whether Congress is prepared to approve his funding request. He urged Perry to appeal to the Texas congressional delegation to seek passage of the $3.7 billion package.

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"These days in Washington everybody is always concerned about everything falling victim to partisan politics," Obama said. "If I sponsored a bill declaring apple pie American, it might fall victim."

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The child migrant crisis has made the debate over immigration reform even more divisive. Without government action, the administration projects more than 150,000 unaccompanied children under the age of 18 next year could be fleeing to the United States from poverty and drug- and gang-related violence in Honduras, El Salvador and Guatemala.

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(Additional reporting by Susan Cornwell, Susan Heavey, and Richard Cowan; Editing by Caren Bohan, Jonathan Oatis and Ken Wills)

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U.S. House Republicans seek CDC documents on anthrax scare

Congressional Republicans asked the Obama administration on Wednesday to provide documents related to last month's anthrax scare at a U.S. lab, where more than 80 people were initially feared to be exposed to the deadly pathogen.

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In a series of letters, top Republicans on the House Energy and Commerce Committee asked for the results of several Centers for Disease Control and Prevention (CDC) lab inspections and audits of potential weaknesses in biosecurity protocols dating back to October 2007.

"How many suspected exposures to select agents and/or toxins have been reported at CDC since October 2007? How many actual exposures have been reported," said the July 9 letter to CDC Director Dr. Thomas Frieden signed by three Republican panel members including Chairman Fred Upton of Michigan.

The lawmakers, who also requested information from the inspector general of U.S. Department of Health and Human Services, said they were gathering material for a July 16 hearing of the panel's Oversight and Investigations Subcommittee. Frieden is scheduled to testify.

CDC spokesman Tom Skinner said the agency has been working closely with the subcommittee and would "respond as quickly and completely as possible" to the requests.

CDC officials say live anthrax may have been transferred from the Atlanta facility to employees in a lower-security lab who were not wearing proper protective gear, raising concerns that they may have been exposed to the deadly pathogen.

No one has shown symptoms. Officials initially believed as many as 84 people could have been exposed and scores have taken antibiotics to ward off infection.

The letters were also signed by subcommittee chairman Tim Murphy of Pennsylvania and vice chairman Michael Burgess of Texas.

But they bore no signatures from the committee's Democratic members. Karen Lightfoot, spokeswoman for the panel's top Democrat, Representative Henry Waxman of California, said Democrats were not told about the letters until after they were sent.

The letter to Frieden listed 10 questions seeking documents or information by July 10 on a range of issues, including an investigation conducted by a Canadian public health agency, the number of CDC staff approved to access dangerous toxins and pathogens, and how much the agency has spent on the facility.

(Reporting by David Morgan and Julie Steenhuysen; Editing by Peter Cooney, Andrew Hay, Sandra Maler and Mohammad Zargham)

Christie-led U.S. governors group raises $26.6 million in second quarter

The Republican Governors Association, a group led by possible presidential hopeful Chris Christie, will announce Thursday that it raised $26.6 million in the second quarter of 2014.

The large haul - the group's biggest-ever second quarter number - means that embattled New Jersey Governor Christie has maintained his fundraising prowess while facing national scrutiny for his role in the "Bridgegate" scandal.

Christie has brought in $60 million since taking the helm of the group in November 2013, a signal to backers of his possible White House bid that he may be capable of raising the considerable funds required to run a national campaign despite the scandal.

The group, which is dedicated to helping elect Republican governors in the 36 ongoing governors' races, will also announce it has $70.3 million cash on hand.

"The RGA has never been in such a strong financial position," Christie says in the press release.

Four years ago, the RGA had $40 million in cash on hand, raising $19 million in the second quarter. At the time it was led by then-Mississippi governor Haley Barbour, another famously effective fundraiser.

Christie was widely considered the Republicans' best shot at reclaiming the White House when he easily won re-election in Democratic-leaning New Jersey in 2013. But the January news that his aides allegedly orchestrated a traffic jam for political payback hit his national standing.

Still, Christie has been raising money for and appearing with governors across the country.

(Reporting by Gabriel Debenedetti; editing by Andrew Hay)


Father of Nicole Brown Simpson dies at age 90

The father of Nicole Brown Simpson, the slain ex-wife of retired American football star O.J. Simpson, has died, a family spokeswoman said on Friday.

Louis Brown Jr. died on Thursday at age 90, according to attorney Natasha Roit.

Brown, who lived in Dana Point, California, had been suffering from Alzheimer's disease, Roit said.

Along with other family members, Brown became a familiar face at the much-watched trial in 1995 when Simpson, the Hall of Fame running back, was accused of murdering his former wife and her friend Ronald Goldman in Los Angeles. Simpson was acquitted.

Simpson, 66, is currently in prison on a 2008 armed robbery conviction related to a robbery of two sports memorabilia dealers at a Las Vegas hotel.

A businessman, Brown founded the Nicole Brown Simpson Charitable Foundation after his daughter's death to assist victims of domestic violence, the family spokeswoman said.

(Reporting by Ellen Wulfhorst in New York; Editing by Peter Cooney)

Richard Mellon Scaife, conservative billionaire, dies at 82

Richard Mellon Scaife, the Pittsburgh area billionaire who helped finance the rise of the conservative movement in America in the late 20th century, died on Friday at his home, his lawyer said.

The death of Scaife, 82, was reported by the Pittsburgh Tribune-Review, where he was the publisher and where he wrote in a May 18 column that he had untreatable cancer. His lawyer H. Yale Gutnick confirmed the news.

“Richard Scaife was a remarkable patriot, philanthropist and conservative activist. His passing today is a great loss to America,” tweeted former Speaker of the House Newt Gingrich, whose own rise to power in the 1990s benefited from Scaife’s largesse.

In 1998, then-First Lady Hillary Clinton was referring, in part, to Scaife, when she complained in an interview that a “vast right-wing conspiracy” was trying to destroy her and her husband, President Bill Clinton. Clinton was impeached that year by the House of Representatives. He was acquitted in the Senate.

At the time, the Tribune-Review and the American Spectator magazine, which was bankrolled by Scaife, had accused the Clintons of fraud in the Whitewater real estate deal; aggressively investigated alleged extramarital affairs involving Bill Clinton; and claimed the death of former White House counsel Vincent Foster, which was ruled a suicide, had actually been a murder committed as part of a Whitewater cover-up.

Yet in 2008, after meeting personally with both Clintons, Scaife ended up endorsing Hillary Clinton for the Democratic nomination for President.

Scaife was part of the wealthy Mellon family in Pittsburgh and inherited a reported $500 million in 1965 upon the death of his mother, Sarah Mellon Scaife. She was a niece of former U.S. Treasury Secretary Andrew Mellon.

The family fortune came from banking and large stakes in Gulf Oil and Alcoa.

Richard Mellon Scaife's non-political philanthropies included the Carnegie Museum of Art in Pittsburgh.

Scaife was survived by a daughter, Jennie King Scaife, of Palm Beach, Florida, and a son, David Negley Scaife, of Pittsburgh.

(Editing by Barbara Goldberg and David Gregorio)

Jessica Simpson, Eric Johnson wed in Santa Barbara: People

Jessica Simpson married former NFL player Eric Johnson in southern California on Saturday, People magazine reported.

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Simpson, 33, and Johnson, 34, tied the knot at the San Ysidro Ranch in Santa Barbara, according to the magazine which received confirmation from the couple.

"We are overwhelmed with complete happiness and love having made our eternal commitment," Simpson and Johnson said in a statement to People on Saturday.

The couple was joined by more than 250 guests, including Simpson's sister Ashlee Simpson and her fiancé Evan Ross, Jessica Alba and Donald Faison.

The couple have two children, one-year-old Ace who served as a ring bearer and Maxwell, 2, who was a flower girl.

Simpson, a pop singer and Weight Watchers spokeswoman and Johnson, a former San Francisco 49ers tight end, began dating four years ago and became engaged in November 2010.

(Reporting by Chris Michaud; Editing by Kim Coghill)

Raf Simons makes Christian Dior travel through history

As Paris Haute Couture week gathered pace on its second day, Raf Simons offered a walk through history at Christian Dior, with a mix of 18th century-inspired dresses with side hoops and embroidered masculine court coats.

The designer said he was searching for a modern interpretation of fashion codes from centuries past for his fifth haute couture collection since he was appointed Dior's chief designer in 2012 to replace John Galliano.

The show at the Rodin museum, staged in a gigantic round room with walls decked with white orchids, opened with a series of pale silk dresses with panniers, the dramatic side hoops first introduced by the Spanish court and immortalized in the paintings of Velazquez.

The collection moved on to long dark court jackets with embroidered collars resembling those worn at the court of Louis XIV.

Bright stilettos brought modern flair to the looks, while handbags, one of Dior's biggest products, were notably absent.

"Raf asked himself how 18th century fashion could be re-interpreted with today's codes," Dior Chief Executive Sidney Toledano told Reuters after the show. "He looked at it not from the point of view of today, not one of a museum."

Other striking dresses included 1920s-inspired embroidered or printed cocktail dresses and long woollen coats with slightly bouffant wrists.

On the front row were French actress Marion Cotillard, the brand's ambassador for its bags and Charlize Theron, the face of Dior's J'Adore perfume, with her new partner, actor Sean Penn.

Asked what he thought of the collection after Theron praised Simons effusively, Penn deadpanned: "I just follow her."

Others French actresses at the show included Chiara Mastroianni, Isabelle Huppert and Marisa Berenson.

The ex-girlfriend of French President Francois Hollande, Valerie Trierweiler, used her front row seat to rekindle media attention to the Nigerian schoolgirls kidnapped by Islamists more than two months ago, sporting a T-shirt that read: "Bring back our girls."

"I find it so amazing that everybody got mobilized for them two months ago and now nobody is talking about them, it is as if we have forgotten about them," Trierweiler told Reuters.

She said Christian Dior was the French fashion brand she wore the most while at the Elysee presidential palace, but that she now no longer had the budget to afford the designer's dresses.

SCHIAPARELLI REVIVAL

Earlier on Monday, Marco Zanini, formerly at Rochas, presented his second haute couture show for Schiaparelli, the once-sleepy fashion brand relaunched a year ago by Tod's owner Diego Della Valle.

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Critics called the collection more mature and harmonious than last year's, with clear common themes such as shoulder pads, high waistlines and original sequined prints.

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Elsa Schiaparelli, inspired by artists such as Jean Cocteau and Salvador Dali, was a rival of Gabrielle "Coco" Chanel, making her mark in the fashion world with sharply cut suits ornamented with avant-garde drawings from her artist friends.

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Seven years ago, Della Valle acquired the brand, which had laid dormant since 1954, hoping to replicate the success he had resuscitating shoemaker Roger Vivier, Tod's fastest growing brand, whose sales more than doubled in 2012.

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This year's collection included harlequin-inspired tunics, a voluminous white wedding dress printed with black crows, and audacious mixes of colors such as a caramel silk shirt paired with pastel pink trousers tightened by a green belt.

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"I wanted to pay tribute to Elsa Schiaparelli's irreverence and provocation," Zanini told Reuters.

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(Reporting by Astrid Wendlandt; Editing by Alexandria Sage)

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Harrison Ford injury to halt 'Star Wars' production for two weeks

Actor Harrison Ford is recuperating from surgery after breaking his leg, but the injury on the set of "Star Wars: Episode VII" will force a two-week hiatus in filming, the Walt Disney Studios said.

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News of the stoppage comes after Disney initially said filming would continue on schedule while Ford recovered. But shooting is on track to wrap up in the fall, the studio said, and the release date remains December 2015.

"In August, the team will take a brief two-week hiatus while adjustments to the current production schedule are made as actor Harrison Ford recovers from a leg injury," Disney said in a statement posted on Sunday on the website StarWars.com.

Ford, 71, was injured on the set of the reboot of George Lucas' blockbuster "Star Wars" franchise last month during filming in England. The best actor Oscar-nominee for his role in "Witness" in 1986 is reprising his role as Han Solo in the film that is being directed by J.J. Abrams.

Actress Carrie Fisher and Mark Hamill will also reprise their roles in the film and will be joined by Oscar-winner Lupita Nyong'o, Andy Serkis, Adam Driver and Oscar Isaac.

Disney also announced that two new actors, Briton Pip Andersen and American Crystal Clarke, who were selected from more than 37,000 people during open casting calls, will have roles in the film.

It is the first of three new movies that will continue the saga created by George Lucas, after Disney purchased Lucasfilm in 2012 for $4.05 billion.

(Reporting by Patricia Reaney; editing by Mary Milliken and Gunna Dickson)

Pharrell leaves Montreux festival fans wanting more

Pharrell Williams gave a slick concert for a pumped-up crowd at the Montreux Jazz Festival on Monday night, but some fans were less than happy when he left the famed stage after just an hour.

The American R&B singer and producer, accompanied by his band, two vocalists and six female dancers, played tracks from his second album "GIRL", including "Marilyn Monroe" and "Come Get it Bae", before closing with his global viral hit "Happy."

Known simply by his first name Pharrell, he repeatedly voiced support for women's rights during the concert, declaring 2014 "The Year of the Woman" when things are going to change.

"My new album is an ode to women. From A to Z, I make no apologies for the way I appreciate women," he told the sold-out standing crowd who paid 135 Swiss francs ($150) per ticket. "I make no apology. I love women in every kind of way."

Minutes later he played "Blurred Lines", the raunchy R&B smash hit with Robin Thicke that was last year's top song across the U.S. Billboard music charts, followed by Daft Punk's Grammy-winning disco track "Get Lucky."

"I told you, it's all about women," Pharrell said.

For "Happy", from the "Despicable Me 2" soundtrack, he was joined on stage by a young female fan whom he told: "We are depending on a girl like you to grow up and change the world."

The 41-year-old Pharrell, who has had four Grammy Awards and three mega hit singles, was appearing for the first time at the Swiss resort, one of Europe's most prestigious summer music festivals, whose 48th edition runs from July 4-19.

The Swiss festival's legendary founder Claude Nobs died in January 2013, but his former deputy Mathieu Jaton has deftly taken up the baton, drawing headliner Stevie Wonder on July 16.

Former Blur frontman Damon Albarn, hip-hop duo Outkast, the veteran Van Morrison, Massive Attack, and Thicke are also booked.

"Tonight is a celebration of music. Claude Nobs, who is no longer with us, put together this amazing conjuring of unique ingredients. So for me, for him, and for this organization, I want you guys to let it out," Pharrell told the crowd.

But fans were disappointed when lights went on at 10:30 p.m.

"It was good, but kind of short. I was disappointed there was not a encore. If he would have done one or two more songs and less talking I would have been satisfied," said Tracy Starr, an American fan living in Lausanne.

"He wanted to make clear what the message is of the album, especially after 'Blurred Lines'. From what I've read he has a good relationship with the women in his life," she said.

A Geneva man who gave his name as Thierry, said: "Montreux Jazz Festival means live shows. He was using playback (lip-synching). Some people are stage stars, others are radio stars.

"There is room for improvement," he added.

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His friend, who declined to be identified, said: "It was a bit short given the price."

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Pharrell wore jeans, a white T-shirt, and the same beige hat with a flat brim trimmed with a ribbon as at the annual Serpentine Gallery summer party on July 1 in London.

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Pharrell, rapper Nicki Minaj and newcomer August Alsina led the winners at the Black Entertainment Television awards last month, which also honored veteran soul singer Lionel Richie. Pharrell won two awards, including best male R&B/pop artist.

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($1 = 0.8932 Swiss Francs)

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(Editing by Eric Walsh)

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U.N. Women names actress Emma Watson goodwill ambassador

The United Nations' gender equality body UN Women on Tuesday appointed British actress Emma Watson, best known for her role as Hermione in the "Harry Potter" film series, as a goodwill ambassador to advocate for the empowerment of young women.

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"Being asked to serve as UN Women's Goodwill Ambassador is truly humbling," Watson, 24, said in a statement.

"Women's rights are something so inextricably linked with who I am, so deeply personal and rooted in my life, that I can't imagine an opportunity more exciting," she said.

Watson's films have grossed more than $5.4 billion worldwide over the past decade, according to the Internet Movie Database. She graduated from Brown University in May with a bachelor's degree in English literature.

Other UN Women goodwill ambassadors include Oscar-winning actress Nicole Kidman and Thailand's Princess Bajrakitiyabha Mahidol.

(Reporting by Mirjam Donath, editing by G Crosse)

A Minute With: London's reigning queen soprano DiDonato is a kickboxer too

On stage and off, you don't want to tangle with Joyce DiDonato - American soprano extraordinaire and practiced kickboxer too.

The 45-year-old diva has been leaving audiences at the Royal Opera House in Covent Garden roaring for her singing and performing of the hugely demanding bel canto (beautiful singing) role of the doomed Queen Maria Stuarda - Mary Queen of Scots - in the second of Donizetti's three Tudor operas.

There's hardly a more gripping and dramatic scene in opera than the one at the end of Act Two when DiDonato as Maria has a knock-down, drag-out confrontation with Queen Elizabeth I, sung by the up-and-coming Italian soprano Carmen Giannattasio.

They spit insults at each other, DiDonato hurls "vil bastarda" (evil bastard) at her rival and pulls the tablecloth from under Elizabeth's picnic lunch, sweeping all the food and dishes to the floor - all this in the full knowledge that it will ensure she has her head chopped off.

"I feel completely shattered," DiDonato, changed out of her 16th-century-style royal frock into a cocktail dress, told Reuters at a reception after the opening night on Saturday.

"This is the most difficult role I sing so I always have to step back a bit and make sure I've got some bit of me that is engaged just in navigating the vocalizing ... but there are two moments when I just lose it and I'm really not present anymore, and one of them is the confrontation scene," she said.

Otherwise DiDonato - who practices the martial art of kick boxing to keep fit because she finds fitness machines boring and shows off her arm muscles to prove it - thinks that in this production she has finally nailed a role she has also played at the Houston Opera and at the Metropolitan Opera in New York.

"The first time, in Houston, the part was 'singing me' kind of from beginning to end but I got through it. I did a lot of work and when I got to New York I'd say there was about 16 percent of the opera that was still 'singing me' and at some point I just had to get through those particular moments.

"Here I finally feel like now it's mine, I'm choosing in every moment how I want to sing it rather than this is the only way I can do it and I've never felt that with another role. This has been the biggest learning curve for me."

Here's what else she had to say about her long climb to the top of a cut-throat profession, her upcoming South American tour and new album after winning a Grammy in 2012 for "Diva Divo":

Q: You didn't have one of those immediate career successes, and didn't really hit your stride until about a decade ago, when London and European audiences embraced you before you'd become a star at home. Now you are a regular at the Met and sometimes host the global HD broadcasts. What's it like being at the top?

A: If you're at the top the bottom comes very quickly (laughs). But really, the only way through the time when you're not getting work and when it's hard and when things aren't coming is to go back and do the work you have to do. The work is what will get you through and if a singer starts to fail there's no way you can hide it, you have to work with what you have.

Q: You've got a big South American tour coming up and a new album of bel canto songs from Naples, but from some little known composers. Why this flirtation with the southern climes?

A: I was in South America just two years ago and after my first concert in Santiago I was so surprised that first of all it was sold out and then they literally showered the stage with flowers ... These audience were thirsty, and especially the young people, so after the first concert I called my manager and said let's find another tour and we booked it ...

There's a passion, an unfiltered joy and exuberance and that will lead me into the launch of "Stella di Napoli" which is my next album and really it's sort of an homage to bel canto opera.

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(Writing by Michael Roddy; Editing by Gareth Jones)

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What if the market has it right?: James Saft

The past 15 years of bubbles and busts notwithstanding, sometimes it may be best to just assume financial markets have got it right.

The central problem facing investors today is how to reconcile patchy and uneven growth in the economy with very full valuations for stocks and other risky assets.

What has been a constant tension over the past five years, during which U.S. stocks have more than doubled, was highlighted yet again last week when decent but not outstanding U.S. jobs figures (wage growth for example was poor) prompted investors to underwrite yet another stock market run to record territory.

In trying to figure out why financial markets are doing so well and risk is so well bid, there are two broad competing theories.

The first explanation is that financial markets are ahead of the curve. In this reading a stronger recovery which will justify rich valuations is just around the corner. If true, companies will see revenues jump along with overall economic growth, and margins with them, prompting a new round of investment in capacity and allowing for the vast majority of recently made risky loans to be repaid.

The second theory is that, far from being right, markets are being manipulated by central banks seeking to goose slow growth. Markets, therefore, are wrong, as they were in 1999 and 2006, but may be held aloft so long as policymakers still see a benefit in keeping the party going.

Bill Gross, the so-called bond king of asset manager Pimco, has a third theory, closely related to the second but different in important respects: that markets are right to be priced as they are, not because policy is going to work, as we with a pre-crisis mindset would think of it, but because, in effect, it will not.

Under this theory, which Gross calls the New Neutral, and which he has backed, according to a Bloomberg story, with an investment of $200 million of his own funds, markets are doing nothing more than mechanically calculating the value of future flows of income based on the belief that growth and interest rates will be capped at levels far lower than we assume.

“In a highly levered world, the real rate of interest has been and must remain reduced more than growth in order to keep our financed-based economy functioning,” Gross wrote last week in a note to clients.

LOOKING FOR NEUTRAL

At issue is the 'neutral' policy rate set by the Fed, a concept denoting the correct federal funds rate to be neither stimulative nor dampening to growth and inflation.

The very real possibility is that our reliance on adding new debt as a means of stimulating economic growth has left us with diminishing returns from both new borrowing and falling interest rates. That sensitivity to higher rates means that the economy requires a lower rate of interest than was usual 25 years ago in order to remain in balance.

Rather than the 1.75 percent fed funds rate which central bankers assume we will return to when things return to the status quo, we may only be able to handle something a lot closer to zero.

Financial markets attempt to place a value on the future stream of income represented by a security, such as the interest rate on a loan or bond or the dividends and capital gains expected of a stock. That’s driven, in part, by current interest rates and also expectations of where rates will settle in the future. The higher future rates are expected to be, the lower the value of those future cash flows, and vice versa.

So, that leaves open the possibility, as argued by Gross, that current valuations and bond prices make a lot more sense than those of us with our heads stuck in the 1980s and early 1990s assume.

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Growth won’t accelerate and the Fed won’t be able to jump rates back to historic norms for quite some time. That leaves current stocks and bonds looking a lot more sensibly priced, if not with a lot of headroom for future strong appreciation.

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Even if you accept the New Normal thesis, there are huge open questions. For one thing the very highly leveraged nature of the economy leaves it vulnerable to future shocks from whatever direction. Stocks priced for low growth and low rates will look terribly expensive and risky if that turns into negative growth and low rates.

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Financial markets, in other words, may well have it about right now but still be a good deal riskier than they’ve usually been, even taking into account the last 15 crazy years.

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(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund. You can email him at jamessaft@jamessaft.com and find more columns at blogs.reuters.com/james-saft)

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(Editing by James Dalgleish)

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Why most seniors can't afford to pay more for Medicare

Should seniors pay more for Medicare? Republicans think so; they have repeatedly called for replacing the current program with vouchers that would shift cost and risk to seniors.

There's no doubt this is where Republicans will take us if they capture control of Congress this year, and the White House in 2016. Representative Paul Ryan, the Wisconsin Republican who chairs the House Budget Committee, advocates “premium support” reforms that would give seniors vouchers to buy private Medicare insurance policies in lieu of traditional fee-for-service Medicare.

Under the latest version of Ryan's budget proposed in April, starting in 2024 seniors could opt to buy premium-supported private plans or stay in traditional Medicare. Ryan has argued that introducing competition will bring down costs over time, and capping the government's costs does sound like a tempting way to address Medicare's financial problems.

Medicare's trustees project total annual spending will jump 78 percent by 2022, to $1.09 trillion. Much of that increase will be fueled by higher enrollment as the baby boom generation ages.

But premium supports would shift risk to seniors, and could effectively make traditional Medicare much more expensive by siphoning off healthier seniors to private plans. The Congressional Budget Office has estimated that this effect could boost traditional Medicare premiums 50 percent by 2020 compared with current projections.

Most seniors simply can’t afford to pay more. If you doubt it, check out the new interactive tool launched last month by the Henry J. Kaiser Family Foundation, one of the country's leading healthcare research groups.

The tool analyzes the income and assets of today's 52.4 million Medicare beneficiaries, and how their financial picture will change between now and 2030, when 80.9 million people will be covered by the program. It can compare different demographic slices of the Medicare population based on variables such as education, race, gender and marital status - and here you get a stark look at how economic inequality affects the pocketbooks of seniors.

Kaiser's tool is based on a simulation model developed by the Urban Institute that uses population data to analyze the long-range impact on retirement and aging issues. I encourage you to test-drive the tool (bit.ly/1zi5rMq), but here are some highlights:

INCOME

Fifty-three percent of Medicare beneficiaries had $25,000 or less in annual income last year; half had savings below $61,400 and less than $67,700 in home equity on a per-person basis.

The income figures reflect the sharp divisions that characterize the wider U.S. population. Just 4 percent of seniors had income over $100,000 last year; 27 percent had income below $15,000 (which is just a bit higher than the average annual Social Security benefit).

Healthcare already is one of the largest expenses for seniors, most of whom are on fixed incomes (reut.rs/1iQtmNG). HealthView Services, which develops software for gauging healthcare costs, recently estimated that a senior retiring this year in high-cost Massachusetts would pay $7,020 in Medicare premiums alone - a number that will jump to $11,536 in 2024. And that figure doesn’t include co-pays and out-of-pocket costs for things Medicare doesn’t cover, such as dental care. It also doesn’t include costs for a catastrophic event.

“Sixty-six thousand in savings is less than the cost of one year in a nursing home,” says Tricia Neuman, senior vice-president at the foundation and director of the foundation's Medicare policy program. “That tells us that many people on Medicare today don’t have the resources they’d need to pay for a significant health or long-term-care expense if it should arise.”

DEMOGRAPHIC DIVIDES

Neuman says she was especially surprised by the extent of the gaps in income and saving by race, ethnicity and gender. Median 2013 per capita income for white Medicare beneficiaries was $26,400, compared with $16,350 for African Americans and $13,000 for Hispanics.

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Men had $25,880 in median income, compared with $21,800 for women. And married couples were better off than singles: Per capita income for married seniors in 2013 was $27,400, compared with $20,250 for divorced people, $21,050 for widows and $14,150 for those who never married.

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That's unlikely to change by 2030. “The model suggests there won’t be phenomenal changes in wealth, or that seniors will be that much more comfortable,” Neuman says.

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Neuman says the data also points to continued income inequality and sharp divisions in the status of seniors. In 2030, 5 percent of Medicare beneficiaries will have income over $111,900, while half will have income below $28,250.

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“There will always be a small share of the Medicare population with sufficient wealth and resources to absorb higher costs, but most will not be in that position," she says. "The assumption that boomers are healthier and wealthier and that we’ll have a much rosier Medicare outlook down the road just isn’t going to happen.”

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For more from Mark Miller, see link.reuters.com/qyk97s

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(Follow us @ReutersMoney or here. Editing by Douglas Royalty)

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SEC review of alternative mutual funds is imminent: official

A surge of investment in alternative mutual funds has caught the attention of the U.S. Securities and Exchange Commission, which will launch examinations of fund companies targeting funds' leverage, liquidity and other concerns, according to an official.

The series of examinations, which will likely begin this summer or fall, will also gauge funds' compliance with securities industry laws and regulations, said Norm Champ, director of the SEC's Division of Investment Management, in prepared remarks published by the agency late on Monday.

Among the issues: whether funds are properly determining the value of securities they hold and disclosing risks to investors, Champ originally made the remarks at a seminar for lawyers in New York last week.

Champ's remarks (available at 1.usa.gov/1ssp3IS) include significant details about the imminent examinations, known as a "sweep," which SEC has been discussing since last year.

Alternative mutual funds typically employ investment strategies that imitate those of hedge funds, such as investing in private debt or shorting assets. Traditional mutual funds, in comparison, generally invest in more standard asset classes, such as stocks and bonds, for the long haul.

The SEC's review comes as yield-hungry retail investors flock to alternative funds, which held $300 billion in assets as of the end of May, Champ said. Investors poured almost $95 billion into alternative funds in 2013, more than five times the amount they invested in 2012, Champ said.

Alternative funds accounted for just 2.3 percent of the overall mutual fund market at the end of 2013, but investments flowing into those funds represented almost one-third of all investments into the entire industry, Champ said.

The examinations will initially include 15 to 20 fund families, Champ said.

Examiners will home in on several areas, including whether fund managers are complying with the law when they determine the value of assets they hold. That would include derivatives and illiquid assets, such as investments in private start-up companies. Illiquid assets are trickier to value than traditional stocks and bonds, Champ said.

The SEC also expects alternative funds to follow a regulation that generally requires mutual funds to send payments to investors within seven days after they redeem shares.

Champ said funds that invest too heavily in illiquid assets should consider appropriate steps to ensure they can in a timely manner pay investors who redeem their shares, as well as other obligations.

The SEC will also look into the quality of fund governance. For example, a fund's board of directors must review and approve the fund's compliance program, Champ said. He said that boards should also steer clear of misleading fund names that suggest protection from losses, among other promises.

In January, the SEC issued a risk alert directing investment advisers to be cautious when they conduct due diligence, or research, alternative investments.

(Reporting by Suzanne Barlyn)

Deutsche Bank says asset management unit back on track

Deutsche Bank AG said its asset and wealth management unit was back on track after two years of restructuring, and was growing quickly with new client money pouring in at an accelerating pace.

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Michele Faissola, who has led restructuring efforts in the underperforming division, said on Tuesday he was on track to meet a target of 1.7 billion euros ($2.3 billion) in pretax profit by 2015, more than double last year's total and more than 10 times its 2012 result.

"Our ambition is to be the growth engine for the Deutsche Bank group," Faissola said, in part by winning over super-rich clients in Asia in direct competition with similarly positioned banks such as JP Morgan and Credit Suisse.

New client money in the second quarter of 2014 poured into the division at the fastest pace ever, Faissola said, after some quarters in the recent past saw net outflows. The bank plans to report detailed quarterly results on July 29.

"The flows are starting to kick in. Q1 was a positive quarter and Q2, I'm pleased to report, so far, has been the best quarter," he said at a conference.

The division has no plans to sell any of its activities and has, rather, added 1,000 staff in the past year, with plans to recruit more wealth managers specializing in elite clients in London and in Asia, he said.

"We are progressing quite fast. 2013 showed we were delivering on our ambitions and that the strategy is working," Faissola said.

($1 = 0.7331 Euros)

(Reporting Kathrin Jones and Simon Jessop Writing by Thomas Atkins; Editing by David Holmes)

Hedge funds attract $72.2 billion in first five months of year: data

Investors poured $72.2 billion into hedge funds worldwide in the first five months of 2014, marking their strongest five-month start to a year since 2007 partly on fears of a downturn in stock and bond prices, data from a survey showed on Tuesday.

Hedge funds attracted $16.9 billion in investor cash in May, down from inflows of $19.1 billion in April but enough to push the industry's assets to $2.3 trillion, or just under a six-year high, according to data from industry groups TrimTabs/BarclayHedge.

Appetite for hedge funds, which use various techniques to deliver so-called "uncorrelated" returns that are independent from traditional stock and bond markets, has accelerated this year partly on caution toward highly priced stocks and bonds.

"Investors in hedge funds are cautious about valuations in other markets, including stock, bond, and real estate markets," said David Santschi, chief executive officer at TrimTabs Investment Research.

Fixed income hedge funds attracted the most new cash in May at $6 billion, while inflows into multi-strategy hedge funds outpaced all other categories for the first five months of the year at $21.3 billion.

There were strong net inflows into hedge funds over the first five months of the year despite underperformance compared to stocks and bonds over the period.

Hedge funds returned 2.4 percent on average over that period, according to data from TrimTabs/BarclayHedge, lagging the 4.1 percent and 3.9 percent gains of the S&P 500 stock index and Barclays U.S. Aggregate Bond Index, respectively.

Santschi said investors in hedge funds have avoided better-performing stocks and bonds due to reluctance to buy at current expensive levels, in addition to concerns of a pullback in prices.

The S&P 500 has risen 7 percent this year through Monday and remains near record levels after gaining nearly 30 percent in 2013, while the Barclays index has gained 3.4 percent through Monday. The average hedge fund globally gained 3.2 percent in the first half of the year, according to HFR data.

(Reporting by Sam Forgione; Editing by Chizu Nomiyama)

U.S. court tosses ex-broker's privacy lawsuit to clean up record

A U.S. judge threw out a lawsuit against the Financial Industry Regulatory Authority (FINRA) by a former broker who alleged that disclosures on the regulator's public database violated his privacy rights.

The former broker, Alan Santos-Buch, sued FINRA, Wall Street's industry-funded regulator in February, alleging it continues to make details of a 1997 disciplinary case against him available on its website and in a regulatory document. That makes it difficult for him to find jobs, he alleged. Santos-Buch wanted the court to order that FINRA erase the black mark on his record.

But Santos-Buch failed to raise "substantial constitutional questions" that would allow his case to proceed in federal court, according to an opinion released late Tuesday by the U.S. District Court in Manhattan.

Instead, Santos-Buch should have challenged FINRA's rules using another procedure available through the U.S. Securities and Exchange Commission, wrote Judge Shira Scheindlin.

An attorney for Santos-Buch, Paul McMenamin, said he plans to appeal, saying the ruling ignored the "strong and credible" constitutional claims raised.

A FINRA spokeswoman declined to comment.

The case hinged on an unusual legal argument to address what many brokers say is a problem: They settled disciplinary cases with FINRA before a 2010 rule that makes details about those actions permanently available to the public on FINRA's BrokerCheck database. Investors can use the free online service to research brokers' professional histories.

"Santos-Buch has failed to allege any facts establishing that irreparable injury may occur without immediate judicial relief," Judge Scheindlin wrote in the 21-page opinion.

Santos-Buch, who worked for a now-defunct firm in Connecticut, had agreed to a $10,000 fine and 30-day suspension in 1997 to settle charges that he had signed and sent a document that guaranteed a customer's account against losses, a violation of industry rules.

Santos-Buch, who had left the securities business the year before he was formally suspended, neither admitted nor denied the allegations. He now works in the energy industry.

(Reporting by Suzanne Barlyn; Editing by Jonathan Oatis)

Wall Street watchdog launches exams into order routing practices

Wall Street's self-regulator said on Tuesday it is conducting examinations of 10 firms to ensure they are in compliance with regulations requiring that investors receive the best execution for their stock orders.

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The Financial Industry Regulatory Authority did not disclose which 10 firms were sent letters demanding records and other documents on their execution and order-routing practices.

FINRA posted a sample letter on its website explaining its examination process. A link to the letter can be found at (here)

Tom Gira, executive vice president of FINRA's Market Regulation Department, said the 10 firms were selected because of their order flow.

"We're conducting a sweep, it's called a thematic sweep, we want to learn more about these issues," Gira said. "We wanted to ask them some questions. We're not concluding that they violated anything," he said.

FINRA is now the second regulator conducting a deeper probe into how orders are routed on Wall Street. Reuters reported in May that the Securities and Exchange Commission has sent out subpoenas in a broad investigation into similar routing practices.

The SEC's enforcement division is also looking at the payments that some retail brokers receive from exchanges and trading firms in exchange for directing customer orders to those platforms, people familiar with the matter told Reuters.

Some of the biggest retail brokerage companies are Charles Schwab Corp, TD Ameritrade Holding, Fidelity Investments' Fidelity Brokerage Services and E*Trade Financial Corp, which can get paid $100 million a year or more for selling their orders.

Payment for order flow has long simmered as an issue on Wall Street, where some have questioned whether they are conflicts of interest. Researchers from the University of Notre Dame and the business school at Indiana University raised the issue in a late 2013 a study that suggested the practice might harm retail investors.

The study looked at TD Ameritrade, E*Trade, Scottrade and Fidelity's unit, and found the firms tended to route "limit orders" to the exchanges that pay the highest rebate fees. That conflict may violate best execution rules, the study found.

Gira said FINRA's letter was exhaustive, and aimed to ensure the 10 firms were aware of their best execution and order handling obligations.

FINRA wanted to know "how do they go about monitoring that order flow and the quality of the orders, and how do they react to issues when they see them, if they do see problems," Gira said.

FINRA's Trading Examination Unit of six investigators is conducting the review of the 10 firms.

(Reporting by Herbert Lash. Editing by Andre Grenon, Bernard Orr)

China, U.S. say committed to managing differences

China and the United States need to manage their differences, the leaders of both countries said on Wednesday at the start of annual talks expected to focus on cyber-security, maritime disputes, the Chinese currency and an investment treaty.

The two-day talks in Beijing, called the Strategic and Economic Dialogue, will be an opportunity for the world's two biggest economies to dial down tensions after months of bickering over a host of issues, experts have said.

U.S. Secretary of State John Kerry and Treasury Secretary Jack Lew chair the U.S. delegation, with Vice Premier Wang Yang and top diplomat Yang Jiechi leading the Chinese side.

President Xi Jinping said Sino-U.S. cooperation was of vital importance to the global community.

"China-U.S. confrontation, to the two countries and the world, would definitely be a disaster," he told the opening ceremony at a government guesthouse in the west of the city.

"We should mutually respect and treat each other equally, and respect the other's sovereignty and territorial integrity and respect each other's choice on the path of development."

Escalating tensions between China and some countries in the South China Sea and with Japan in the East China Sea as well as U.S. charges over hacking and Internet spying have provoked ire on both sides of the Pacific in recent months.

In a statement released as the discussions began, U.S. President Barack Obama said the United States was committed to building a "new model" of relations with China that is defined by cooperation and the constructive management of differences.

"The United States welcomes the emergence of a stable, peaceful, and prosperous China," Obama said. "We remain determined to ensure that cooperation defines the overall relationship."

A senior U.S. administration official said discussions between Kerry and senior Chinese officials included candid discussions over human rights, maritime disputes and cyber espionage.

"The Secretary made the case to the Chinese for the wisdom of getting back to work in the cyber working group," the official said, referring to talks which were suspended in May when the U.S. charged the five Chinese military officers with hacking.

"He made clear that we are very much of the view that these issues are sufficiently important to warrant us rolling up our sleeves and tackling them."

MARKET-DRIVEN YUAN

Despite deeply interconnected business ties and two-way trade worth more than half a trillion dollars a year, Beijing and Washington have deep differences over everything from human rights to the value of the Chinese currency, the yuan.

Washington has begun to push for China to move to a market-driven exchange rate.

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"We support China's efforts to allow the market to play a more decisive role in the economy and rely more on household consumption to drive China's economic growth. Moving to a market-determined exchange rate will be a crucial step," Lew said at the opening ceremony.

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Critics say China artificially suppresses the value of the yuan to protect its exporters, an accusation China has always denied.

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Chinese Finance Minister Lou Jiwei defended the country's currency interventions, saying it was difficult to take a hands-off approach when it came to the yuan, given an unsteady economy and abnormal capital inflows.

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"The U.S. side has constantly raised the issue about whether intervention is no longer needed in our foreign exchange policy," Lou told reporters at a briefing. "But we say it's difficult when the economy has yet to fully recover, and cross-border capital flows are not normal."

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He said he hoped U.S. authorities could do their part to keep the U.S. economy growing at a steady clip, and that Washington should be mindful of the spillover effects of its ultra-loose monetary policy.

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"The normalization of U.S. monetary policy has drawn wide attention," Lou said. "We hope the U.S. side can act prudently."

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The annual talks, now in their fifth year, have yielded few substantive agreements, in part because relations have grown more complex with China's increasing military, diplomatic and economic clout. Still, U.S. officials have underscored the importance of the discussions to help ensure the relationship doesn't drift toward confrontation.

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Xi said both countries should strengthen cooperation in fighting terror and speed up talks on a bilateral investment treaty to reach an agreement at an early date.

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The United States hopes the treaty will loosen Chinese restrictions to allow for a more level playing field for U.S. companies in China. Chinese officials say they hope it will help drive China's own domestic reforms.

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The U.S. official said Kerry explained U.S. viewpoint on the East and South China Sea disputes, emphasizing neither was "a situation in which countries should or can be permitted to act unilaterally to advance their territorial claims".

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Washington has not taken sides in the disputes but has been critical of China's behavior in the potentially energy-rich South China Sea, where the Philippines, Vietnam, Malaysia, Brunei and Taiwan have overlapping territorial claims with China.

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Beijing, though, views the United States as encouraging Vietnam and the Philippines to be more aggressive in the dispute, and of backing its security ally Japan in the separate spat over uninhabited islands in the East China Sea.

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Kerry reiterated that the United States was not seeking to "contain" China.

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"We have a profound stake in each others success," he said. "I can tell you that we are determined to choose the path of peace and prosperity and cooperation, and yes, even competition, but not conflict."

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(Additional reporting by Kevin Yao; Writing by Ben Blanchard; Editing by Dean Yates and Raju Gopalakrishnan)

Both candidates in Indonesia election claim victory; Jokowi ahead in more counts

Both candidates claimed victory in Indonesia's presidential election on Wednesday, suggesting there could be a drawn out constitutional battle to decide who will next lead the world's third-largest democracy.

Just a few hours after voting closed, Jakarta governor Joko "Jokowi" Widodo said he had won, based on quick counts of more than 90 percent of the votes. A victory for him would be seen as a triumph for a new breed of politician that has emerged in Southeast Asia's biggest economy, and increase the promise of desperately needed reform in government.

But ex-general Prabowo Subianto, the rival candidate viewed as representative of the old guard that flourished under decades of autocratic rule, said other, unnamed, quick counts of votes favoured him.

Jokowi, on other hand, named tallies by six pollsters, most regarded as reliable and independent. The included three respected, non-partisan agencies - CSIS, Kompas and Saifulmujani - which provided accurate tallies in the April parliamentary election.

The quick counts are conducted by private agencies which collate actual vote tallies as they come out of each district. The results however are unofficial: the Election Commission will take about two weeks to make an official announcement and the new president is not due to take office until Oct. 1.

"There are many quick counts from various survey agencies. But...the one that will be valid according to law in the end will be the verdict of the KPU (Election Commission)," Prabowo told a talk-show on a television channel.

A senior aide to Jokowi said the party would not take any action like naming a cabinet until the official result is announced on or around July 22. "We've waited months. We can wait another 2 to 3 weeks for the (Election Commission's) final verdict," Luhut Panjaitan told Reuters.

The standoff is unprecedented in Indonesia, a member of the G-20 group of nations that is holding only its third direct presidential election. In both the previous elections, Susilo Bambang Yudhoyono, now the outgoing president, won by a clear margin. There have been concerns of violence once the result is known, a worry alluded to by Yudhoyono's administration.

"For both groups of supporters related with the split quick count results, we request they do not mobilise their supporters excessively," said Djoko Suyanto, coordinating minister for legal, political and security affairs.

There were no reports of any major violence. Around 250,000 police officers were on standby across Indonesia, authorities said.

CLAIM AND COUNTER-CLAIM

It has been the dirtiest and most confrontational campaign in memory in a country which traditionally holds up the value of consensus politics.

Ahead of the vote, the two candidates had been neck and neck in opinion polls as Jokowi lost a huge early lead in the face of smear campaigns and a far more focused, and expensive, race for the presidency by his rival.

"Today the people have decided a new direction for Indonesia ... This is a new chapter for Indonesia," Jokowi told hundreds of supporters at Proclamation Square, where the country's first president Sukarno declared independence in 1945.

At the same time, Jokowi offered conciliatory words to his rival, Prabowo, saying he was a patriot and contributed to a better democracy.

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Prabowo countered with his own declaration of victory.

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"(The quick counts) show that we, Prabowo-Hatta, have received the support and mandate from the people of Indonesia," he told a rally in the capital, referring to his running mate Hatta Rajasa.

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After the official result is declared, candidates can challenge the results in the Constitutional Court, the final arbiter over contested polls.

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The Court's reputation has been badly tarnished after its chief was sentenced to jail for life this month for corruption.

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"There have always been challenges...So we could end up with delayed certainty for a few weeks," Douglas Ramage, a Jakarta-based political analyst told Reuters.

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The government declared Wednesday a public holiday and markets were closed although the rupiah currency hit a seven-week high against the dollar in offshore markets on Jokowi's victory claim.

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His clean image is seen likely to bring in more foreign investment as he seeks to correct Indonesia's reputation of widespread corruption.

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But any euphoria in the market could quickly evaporate if the stalemate over the result is not quickly resolved or if there is violence.

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"Whether the market goes up or down tomorrow will mostly depend on the security. For me, maintaining security is very important at this point," said Isbono Putro, a director at BNI Asset Management, who helps manage about 8 trillion rupiah ($688.47 million) in assets.

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(Additional reporting by Jakarta bureau, and Lewa Pardomuan in Tasikmalaya, Writing by Jonathan Thatcher and Randy Fabi; Editing by Raju Gopalakrishnan)

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Emirates finalizes $56 billion order for 150 Boeing 777X planes

Dubai airline Emirates [EMIRA.UL] finalized a $56 billion order to buy 150 Boeing ( id="symbol_BA.N_0">BA.N) 777X jets on Wednesday, firming up a commitment made last year, just weeks after scrapping an order with rival planemaker Airbus ( id="symbol_AIR.PAAIR.PA).

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The deal includes purchase rights for an additional 50 airplanes which, if exercised, could increase the value to about $75 billion at list prices, Boeing said in a statement.

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"With the order for 150 777Xs, Emirates now has 208 Boeing 777s pending delivery, creating and securing jobs across the supply chain," Emirates president Tim Clark said.

The agreement comes days before the Farnborough International Airshow, traditionally an event at which billions of dollars of new plane orders are announced.

It follows the surprise cancellation in June of a $16-billion order by Emirates to buy 70 of Airbus' A350 aircraft, which delivered a blow to the European planemaker's newest aircraft and hit its share price.

Airbus ended the first half of the year behind its U.S. rival in orders and deliveries, but is widely expected to unveil hundreds of new orders at the Farnborough show next week.

The Emirates' order was part of the 777X launch at the Dubai Air Show in November last year, one of the largest product launches in commercial jetliner history. Along with Emirates, Gulf carriers Etihad Airways and Qatar Airways also announced deals for the plane, totaling $100 billion at list prices.

Emirates, which is the world's largest operator of the Boeing 777 jet, was close to finalizing the order, Reuters reported last week.

Emirates and Qatar Airways, which also ordered 50 777X jets, had jointly negotiated the deal at the Dubai Air Show. However, it was not clear whether the Doha airline had finalised its order yet.

Qatar Airways could not be immediately reached for a comment.

Emirates and Qatar Airways are part of a trio of Gulf carriers, alongside Abu Dhabi's Etihad, that have secured large fleets of widebody jets to support the growth of new hubs.

The 777X is the latest version of Boeing's best-selling widebody jet, a so-called mini-jumbo, which carries a list price of up to $320 million.

The current versions are capable of seating up to 550 passengers in a single-class configuration, according to Boeing. In a more typical three-class configuration, the jet family seats up to 386 passengers and has a range of up to 9,395 nautical miles.

(Reporting by Supriya Kurane in Bangalore; Writing by Praveen Menon; Editing by Jason Neely and Mark Potter)

Scoping the new subprime as watchdogs cry 'bubble'

As global watchdogs warn that euphoric financial markets are divorced from economic reality and acting out some reprise of the credit bubble and bust of the past decade, fears of another subprime timebomb are inevitable.

But even if you believe another crisis is brewing, it's most likely not where it was last time. At least not in U.S. securitised mortgages - the heart of systemic blowout that nearly brought down the global banking system in 2008.

A mix of tighter regulation, stricter underwriting standards and the lowest new mortgage applications in almost 20 years means sales of private U.S. mortgage-backed securities have dwindled to just $600 million (350 million pounds) so far this year - a mere sliver of the record $726 billion of new bonds in 2005.

For what it's worth, new U.S. bonds backed by subprime mortgages chave all but vanished. Bonds backed by subprime U.S. auto-loans have taken up some of the running, but not on anything like the same scale.

Yet in its latest annual report the Bank for International Settlements, the Basel-based forum for the world's major central banks, seemed pretty convinced global debt markets are once again in risky territory and heading for a fall.

The BIS focused mainly on fresh accumulation of new corporate and sovereign debt by asset managers rather than banks and scratched its head about the coincidence of sub-par economic activity and record low default rates that in turn depress borrowing rates and credit spreads ever lower nearly everywhere.

'Exuberant' equity and real estate and rock-bottom financial volatility merely fed off that picture, it said. And it added that if all this was simply due to zero official rates, it could all suddenly go into reverse when they rise.

"It is hard to avoid the sense of a puzzling disconnect between the markets' buoyancy and underlying economic developments globally," the report mused.

Low-grade corporate rather than household borrowing was marked out for special attention.

New sales of 'junk' bonds worldwide hit a quarterly record of $148 billion between April and June, according to ThomsonReuters data. That's up from average quarterly sales of around $30 billion before the last credit bubble burst.

Additionally, more than 40 percent of new syndicated loans signed for companies last year were low-grade leveraged loans - more than in the 2005-2007 period. Increasingly the money was raised without creditor protection in terms of covenants.

So could this be the new subprime? Banks' inability to hold large inventory of these bonds since the crisis helps insulate the banking system per se but their limited ability to broker the market risks a stampede for the exit if prices become hard to find - with all the attendant shock that could deliver to corporate finance generally as well as savers and fund managers.

After all, it was the post-crisis retrenchment of straight bank lending that pushed many firms to move en masse to the bond markets and seek investors direct. If that avenue is cut off suddenly and refinancing difficult, a shockwave would ensue.

And yet for investors grappling with a 'safe' government bond universe with inflation-adjusted yields of less than one percent, junk bonds may be their only avenue to meet targets. And that won't change until interest rates do.

AFRICA'S SUBPRIME

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Ditto for high-risk government bonds - in particular the high-risk segment of the euro zone and emerging markets.

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Despite a shakeout in larger developing economies over the past year, appetite has been brisk for the more exotic debt of recent defaulters and bankrupt nations such as Greece and Cyprus or Ecuador and Jamaica, as well as a whole sweep of sub-Saharan Africa countries from Kenya to Zambia.

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New debt from high-risk 'frontier' nations, for example, hit a record $16.3 billion for the first six months of this year, Societe Generale estimates.

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Indeed, the welter of new bonds sold in recent years by African nations - just over a decade after multilateral debt forgiveness was agreed for many of them - led Nobel laureate Joseph Stiglitz to describe the bonds as "Africa's subprime".

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But even though potentially worrisome for poorer countries seeking 'no strings attached' borrowing instead of cheaper concessional lending or slower foreign direct investment, the scale of debt involved is nowhere near levels marking a systemic threat for the global financial system.

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RATE FLAG

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The BIS, then, is at most just flagging the risk of higher interest rates. "The sustainability of this process will ultimately be put to the test when interest rates normalize."

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The seeming inevitability of rates rising from next year suggests investors should already be bracing for some serious turbulence, if not quite on 2007 levels.

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Yet many still believe central banks will hold off until the last minute because underlying economies will remain subpar for years to come as a result of aging demographics and the relentless paydown of past debts. And with inflation subdued, rates will likely only rise modestly even when they do go up.

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Another Nobel laureate, Paul Krugman, this week scoffed at the idea interest rates were artificially depressed.

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"There simply isn't any macroeconomic case for claiming that interest rates are wildly depressed relative to fundamentals, and not much reason to believe that assets in general are overvalued," he wrote in his New York Times blog.

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Maybe this time it really is different.

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(Additional reporting by Sujata Rao and Dan Burns; Editing by Ruth Pitchford)

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Russia gives green light for next U.S. ambassador

Russia has given the green light for career diplomat John Tefft to be appointed U.S. ambassador to Moscow, an aide to President Vladimir Putin said on Wednesday.

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Russian officials say privately that Tefft, a former ambassador to Ukraine, Georgia and Lithuania, is not entirely to Moscow's liking, but his candidacy has been approved following calls by Putin for better relations with the United States.

Ties are at a low point, particularly because of the crisis in Ukraine. The previous ambassador, Michael McFaul, left Russia in February after two years marked by controversy and tension.

Confirming that Russia had approved Tefft's candidacy, Kremlin foreign policy adviser Yuri Ushakov told reporters: "The agreement is done. This is a high-ranking diplomat."

"I will leave without comment how he acted in Georgia and Ukraine. Everybody knows that well. But it is also a fact that he has very good professional preparation, he has worked in Russia and knows our country and speaks Russian," he said.

Tefft was the United States' ambassador to Georgia during the former Soviet republic's five-day war with Russia in 2008 and the U.S. envoy to Ukraine for nearly four years until July last year. He was deputy chief of mission in Moscow in the second half of the 1990s.

Washington imposed sanctions on Russia after it annexed the Crimea peninsula from Ukraine in March, a month after the overthrow of a Ukrainian president sympathetic to Moscow.

Putin said in a message last week marking U.S. Independence Day that he wanted better ties with Washington but that Moscow must be treated as an equal partner.

(Reporting by Darya Korsunskaya, Writing by Gabriela Baczynska, Editing by Timothy Heritage)

Fugitive Snowden asks to extend stay in Russia: lawyer

Former U.S. intelligence contractor Edward Snowden has asked Moscow to extend his asylum in Russia, his lawyer said on Wednesday.

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Russia granted Snowden a one-year visa in August 2013 despite the United States wanting Moscow to send him home to face criminal charges, including espionage, for disclosing secret U.S Internet and telephone surveillance programs.

"We have carried out the procedure of getting temporary asylum. It expires on July 31," Interfax news agency quoted Snowden's Russian lawyer, Anatoly Kucherena, as saying.

"Correspondingly, we have filed documents to extend his stay on the territory of Russia."

Kucherena could not immediately be reached for comment independently and the Russian Federal Migration Service declined comment.

Another lawyer for Snowden, whose precise whereabouts are a secret, said last month he expected Russia to extend the American's asylum beyond July.

President Vladimir Putin's refusal to return Snowden to the United States is one of many irritants in relations between Moscow and Washington, which are also as loggerheads over the conflicts in Syria and Ukraine, human rights and defense issues.

(Additional reporting by Tatiana Ustinova; Writing by Gabriela Baczynska, Editing by Timothy Heritage)

Ukraine readies plan to take back lost territory, rebels defiant

Ukrainian government forces on Wednesday warned separatists in the eastern town of Donetsk that a plan was now in place to take back the territory they occupy, but defiant rebels reported a steady flow of new recruits who were ready to fight.

The Ukrainian military pushed the rebels out of their best-fortified stronghold in the town of Slaviansk on Saturday, but they have regrouped for a stand in Donetsk, a city of nearly a million people. Rebels also still control strategic buildings in Luhansk near the Russian border.

Separatists said on Tuesday that Igor Strelkov, a Russian military officer from Moscow who until the weekend led rebels in Slaviansk, had assumed command of the "defense of Donetsk".

President Petro Poroshenko has ruled out using air strikes and artillery that might endanger civilians and said on Tuesday night: "There will be no street fighting in Donetsk."

But the government says it has a plan to retake Donetsk and Luhansk and deliver a "nasty surprise" for the rebels.

Military spokesman Andriy Lysenko spelled out the threat on Wednesday, saying: "There's a plan to liberate Ukrainian territory from the terrorists, and it doesn't depend on the readiness or the unreadiness of Strelkov and his underlings to defend, as they call it, the Donbass."

But separatists in charge of a 'mobilization' center for the self-proclaimed 'people's republic' said on Wednesday that recruitment of new fighters was continuing at a pace since Strelkov made an appeal for fresh recruits on Tuesday.

About 300 volunteers had come forward to join up since Tuesday, many more than the usual number of 25-30 people per day, separatists at the center said.

Pro-Russian separatists have been fighting government forces in the Russian-speaking east since April in a conflict in which more than 200 Ukrainian troops have been killed as well as hundreds of civilians and rebels.

The conflict has driven relations between Russia and the ex-Soviet republic to an all-time low and sparked the worst crisis in Russia's relations with the West since the Cold War.

After a patchy performance at the start of the campaign, government forces have been re-invigorated by the Slaviansk victory and signs that rebel calls on Russia for help are now going unheeded.

Poroshenko referred back to those early days of the campaign when, he said, Ukrainian soldiers had refused to carry out orders and refused to fight, a time when "a bunch of provocateurs could stop a brigade of paratroopers or special forces".

"On July 7 the country had 320 km (200 miles) of open border (with Russia) ... A month has passed and now the army ensures the border is closed," he said.

German Chancellor Angela Merkel and French President Francois Hollande spoke by phone with Poroshenko on Wednesday, with the aim of restarting talks with separatists on a ceasefire, Merkel's spokesman said.

But hundreds of rebels are setting up barricades and digging in on the outskirts of Donetsk since pouring in from Slaviansk and nearby areas recaptured by the government.

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PAYING NEW FIGHTERS

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Many of the rebel fighters are from Russia, though Moscow denies supporting their revolt, which began in April after Russia annexed Ukraine's Crimea peninsula following the overthrow of a Moscow-backed president in Kiev.

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Despite the rebels' claim of a strong flow of recruits, Strelkov, also known as Igor Girkin, appeared to be disappointed at the number of volunteers coming forward. He told a local rebel TV station that volunteers would be offered monthly pay of 5,000-8,000 hryvnia ($430 to $690) from now on to fight.

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"Maybe this will help those people who are hesitating to find the strength in themselves and join the ranks," he said.

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But Lysenko derided this as an empty offer: "The terrorists are resorting to all methods to deceive the local population. We are coming across leaflets with promises that they are ready to ... pay 8,000 hryvnia and 20,000 Russian roubles ($600) per month. They are stopping at nothing to try and persuade people to come over to their side." Many men of fighting age were wary of the call to arms.

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In Donetsk, Evhen, a 35-year-old who runs his own business, said: "I personally would only join if the situation became really critical. I never did military service and I have no military experience. I support the idea (of insurgency), but there is no clear support (from Russia). Sensible people worry about how it will all end."

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A 19-year-old who would not give his name said: "I won't join them. For a start, I want a united country. Secondly, there are an awful lot of marginals among them. There are robbers. They frighten people and take away their businesses and cars."

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APPEAL FOR AID

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In Kiev, Prime Minister Arseny Yatseniuk meanwhile appealed to Western institutions and donors for further cash and credit to rebuild infrastructure such as roads, bridges and buildings in the east that have been shattered by the conflict.

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But he expressed confidence that Ukraine's compliance with criteria set by the International Monetary Fund meant the Kiev government was on course to secure soon a second tranche of $1.5 billion under a $17 billion IMF program.

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The ex-Soviet republic received a first slice of slightly more than $3 billion in May under a program drawn up to help it plug holes in its budget and settle a big foreign debt.

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But Ukraine told international donors on Tuesday in Brussels that the Fund's bailout was not enough to bring about a full recovery because of the drain caused by the cost of the war against the separatists, and it called on them to join in a "Marshall Plan" to further help Ukraine's recovery.

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Ukraine's turn towards the West and away from Moscow has cost it billions of dollars in promised Russian support for an economy on the verge of bankruptcy after years of rule rated by watchdogs as among the world's most corrupt.

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Taking up the same theme on Wednesday, Yatseniuk said Ukraine needed further aid to establish functioning infrastructure on the border with Russia.

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In addition, Ukraine wanted help to meet an estimated cost of 8 billion hryvnia (about $700 million) to rebuild infrastructure.

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Yatseniuk said Ukraine would also want donors' help to work out a "post-rehabilitation" program to regenerate the Donbass - an economically depressed eastern region of decaying infrastructure in the steel and coal industries - which has become the battleground for the insurgency.

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The European Union agreed to add 11 new names to the list of persons targeted with asset freezes and travel bans over the Ukraine crisis and the sanctions are likely to take effect on Saturday, an EU diplomat said.

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Ukraine accused Russia of abducting a woman army officer who was captured by separatist fighters in eastern Ukraine.

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Nadezhda Savchenko, 33, was seized by pro-Russian rebels in June while she was fighting with pro-government militia on the outskirts of Luhansk on the border with Russia, local media say.

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The Ukrainian foreign ministry demanded her release but Moscow said she had been charged with involvement in the deaths of two Russian reporters killed near Luhansk.

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(Writing by Richard Balmforth; Editing by Will Waterman and Giles Elgood)

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Fifty-three blindfolded bodies found in Iraq as political leaders bicker

Iraqi security forces found 53 corpses, blindfolded and handcuffed, south of Baghdad on Wednesday as Shi'ite and Kurdish leaders traded accusations over an Islamist insurgency raging in the country's Sunni provinces.

Officials said dozens of bodies were discovered near the mainly Shi'ite Muslim village of Khamissiya, with bullets to the chest and head, the latest mass killing since Sunni insurgents swept through northern Iraq.

"Fifty-three unidentified corpses were found, all of them blindfolded and handcuffed," Sadeq Madloul, governor of the mainly Shi'ite southern province of Babil, told reporters.

He said the victims appeared to have been killed overnight after being brought by car to an area near the main highway running from Baghdad to the southern provinces, about 25 km (15 miles) southeast of the city of Hilla.

The identity and sectarian affiliation of the dead people was not immediately clear, he said.

Sunni militants have been carrying out attacks around the southern rim of Baghdad since spring. In response, Shi'ite militias have been active in rural districts of Baghdad, abducting Sunnis they suspect of terrorism, many of whom later turn up dead.

The tit-for-tat attacks have escalated dramatically since Sunni Islamist fighters seized control of large parts of northern and western Iraq last month, sweeping towards Baghdad in the most serious challenge to the Shi'ite-led government of Prime Minister Nuri al-Maliki since the withdrawal of U.S. forces in 2011.

Mass killings of scores of victims have become a regular occurrence in Iraq for the first time since the worst days of sectarian and ethnic cleansing in 2006-2007.

The Sunni insurgents, led by the group known as the Islamic State which considers all Shi'ites heretics who must repent or die, boasted of killing hundreds of captive Shi'ite army troops after capturing the city of Tikrit on June 12. They put footage on the Internet of their fighters shooting prisoners.

In the following weeks more than 100 Sunni prisoners died in two mass killings while in government custody. The Shi'ite-led government officially says they were killed in crossfire when their guards came under attack, first in a jail in Baquba north of Baghdad and then in a convoy moving prisoners from Hilla. Sunni leaders say the prisoners were executed by their guards.

Amnesty International and the United Nations have reported several other suspected incidents of mass killings of prisoners in government custody.

The fighting between the Islamic State, formerly known as the Islamic State in Iraq and the Levant, backed by other armed Sunni groups, and the army backed by Shi'ite militias, threatens to split the country.

The renewed sectarian war has brought violence to levels unseen since the very worst few months of the fighting that followed the U.S. invasion to topple Saddam Hussein in 2003.

Abductions have also increased. On Friday, 17 Sunni Muslims were taken from the Musayyib area and briefly held by security forces and Shi'ite militia, a local tribal leader said, while a prominent sheikh was also kidnapped by unidentified men.

BARZANI FLAYS MALIKI

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Sunnis have backed the Islamic State's offensive because of the widespread view that they have been oppressed under Maliki's government.

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The United States and other countries have called for politicians to set up a more inclusive government in Baghdad following a parliamentary election in April. But the new legislature has so far failed to agree on leadership for the country, leaving Maliki in power as a caretaker.

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Sunnis and Kurds demand he leave office, but he shows no sign of agreeing to step aside. The Kurds are now closer than ever to abandoning Iraq altogether, with Massoud Barzani, leader of their autonomous region, calling last week for his parliament to ready a referendum on independence.

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In a statement late on Tuesday, Barzani launched a withering attack on Maliki, saying his eight years in office had brought disaster to Iraq and set the stage for its latest conflict.

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Kurdish forces have exploited the turmoil to seize control of the city of Kirkuk and its huge oil reserves a month ago, achieving a long-held dream. They regard the city, just outside their autonomous region, as their historical capital, while its oil could provide ample revenue for an independent state.

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"We have said we are not prepared under any circumstances to accept for our will to be bent, and go back to square one and face what reminds us of the policies that drowned Kurdistan in seas of the blood of its civilians and turned their homeland to ruins and mass graves," Barzani said, referring to years of oppression under Saddam.

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"That is what we have clearly faced throughout the period of abuse of power during the two disappointing terms of the prime minister."

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Maliki hit back in a weekly address on Wednesday, accusing Kurds of allowing their provincial capital Arbil to become a haven for the Islamic State and other militants, including former members of Saddam's now-banned Baath Party.

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"We will never be silent about Arbil becoming a base for the operations of the Islamic State and Baathists and al Qaeda and the terrorists," he said.

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Many Sunni Muslims who fled the mostly Sunni northern city of Mosul during the militants' offensive have ended up in Arbil.

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Medical sources and eyewitnesses said seven people were killed and 18 wounded in an air raid on Mosul on Wednesday.

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In Falluja, in the mainly Sunni western Anbar province that borders Syria, the general hospital said nine civilians died and 44 were wounded on Wednesday from aerial shelling and what residents call "barrel bombs". In fighting northeast of Baghdad, militants took control of the town of Sudor as well as a local dam in fighting which killed four soldiers and wounded six others, a source at the local al-Zahra hospital said.

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Sudor lies in Diyala province about 90 km (55 miles) from the capital, another area where the army and Shi'ite militias have clashed with the Sunni insurgents, with both sides gaining and losing territory.

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Also in Diyala, nine soldiers were killed and 38 were wounded as they repulsed an attack by the Islamic State fighters on the Mansuriya military base on Wednesday, police and hospital sources said.

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In the Zaiyouna district of eastern Baghdad, gunmen stormed the house of a government official, beheading his son and shooting dead his wife, a security source and a source in the Baghdad morgue said.

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(Additional reporting by Isabel Coles in Arbil, Ned Parker and Maggie Fick in Baghdad and a reporter in Hilla; Writing by Dominic Evans; Editing by Peter Graff and Giles Elgood)

Anger mounts as Germany unearths second U.S. spy suspect

German politicians reacted angrily on Wednesday to news of a suspected U.S. spy in the defense ministry, which came days after the arrest of a German foreign intelligence agency worker as a suspected CIA informant.

After the federal prosecutors said authorities had conducted searches in connection with a second spying case, Chancellor Angela Merkel's coalition partners said Washington should remove any U.S. embassy staff involved and cease spying on its ally.

Security sources told Reuters the latest suspect to face investigation was from the military and worked in the Defence Ministry in Berlin, but no arrest appeared to have been made. Other sources close to the investigation said the suspect was a German Foreign Ministry official on assignment at the Defence Ministry.

The Defence Ministry confirmed its premises had been searched but gave no other details.

"It is not yet clear what is behind this," Defence Minister Ursula von der Leyen told the Berliner Zeitung newspaper, in an excerpt of Thursday's edition.

Merkel has already said the arrest last week of a low-level official of Germany's foreign intelligence agency, known as the BND, for spying for the United States would, if confirmed, be a "serious case". But she also says it will not affect transatlantic free trade talks.

The chancellor faces political fallout for not criticizing President Barack Obama sufficiently for alleged surveillance in Germany by the U.S. National Security Agency, which targeted her mobile phone for eavesdropping. The new cases put further pressure on Merkel to react.

Yasmin Fahimi, general secretary of the Social Democrats (SPD) who share power with Merkel's conservatives, urged the "immediate removal of embassy staff involved and the immediate cessation of all other espionage in our country".

Von der Leyen, who is from Merkel's party, said the NSA case had "shaken confidence" in the United States and it had to be made clear to the intelligence community that "not everything that is possible is politically acceptable".

"DEEP DIFFERENCES OF OPINION"

Merkel's spokesman Steffen Seibert acknowledged there were "deep differences of opinion" with the United States on how to balance the need for security with civil rights, though German officials stress they are heavily reliant on U.S. intelligence.

The 31-year-old BND agent arrested last week admitted to passing documents to a U.S. contact, including details of a parliamentary committee's investigation of former U.S. intelligence contractor Edward Snowden's allegations of American spying in Germany.

The CIA and other U.S. government agencies declined to comment on the cases. However, U.S. officials acknowledged to Reuters that the CIA had been involved in recruiting the BND official as an informant, and did not dispute German media reports that his initial recruitment occurred two years ago.

On Wednesday, John Emerson, the U.S. Ambassador in Berlin, visited the German foreign ministry at his request to discuss the spy uproar, U.S. and German officials said.

A U.S. official said CIA director John Brennan also would be in telephone contact with Klaus-Dieter Fritsche, the foreign intelligence coordinator in Merkel's office.

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Brennan has also briefed leaders of both the U.S. Senate and House Intelligence committees about the controversy.

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U.S. officials confirmed that neither Obama nor Merkel mentioned the BND official's arrest, which occurred on July 2, in a telephone discussion they held on July 3. The officials did not dispute a New York Times report which said, at the time of the call, Obama had not been made aware of the alleged CIA informant's arrest in Germany.

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The new spy case, reported on Wednesday, is believed to be more serious than last week's, Sueddeutsche Zeitung daily said in an advance copy of Thursday's edition.

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Ties between Berlin and Washington have been strained by Snowden's allegations and the opposition Greens said it was now even more important that he testify in person, rather than by video link, before the parliamentary committee probing NSA activities.

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Merkel's conservatives are reluctant to bring him to Germany from asylum in Russia, which could anger the Americans who want Snowden to stand trial for treason.

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Merkel said on Wednesday that there were talks with the United States, but she could not comment on their content.

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Surveillance is a sensitive issue in Germany, where the memory of the Nazi's Gestapo secret police and Communist East Germany's Stasi means the right to privacy is treasured.

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After the Snowden revelations, Berlin demanded Washington agree to a "no-spy agreement," but the United States was unwilling to make such a commitment.

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(Additional reporting by Sabine Siebold; Writing by Stephen Brown; Editing by Ruth Pitchford, Jason Szep and Gunna Dickson)

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