UK watchdog says suspicious share moves rise slightly

Britain's Financial Conduct Authority (FCA) said the level of suspicious share price moves ahead of the announcement of takeover bids or mergers rose slightly to 15.1 percent in the last financial year, up from 14.9 percent in the prior period.


The FCA, launched in 2013 to take a harder line on financial crime, said on Thursday this was still well down on the nearly 30 percent level seen back in 2010.

Unexplained moves are defined as anything outside a stock's normal movement, which usually refers to volume and frequency of trading.

The FCA published its update on "market cleanliness" in its annual report. (Reporting by Huw Jones; Editing by David Holmes)

Libya's oil industry remains vulnerable to protests

Libya's oil industry hopes life will return to normal now that a wave of protests has ebbed, but it will take months to ramp up production and more unrest is in prospect as political chaos spreads in the North African country.

A group of eastern rebels agreed last week to clear two major ports they had seized almost a year ago in a drive for regional autonomy.

Together with the freeing of the southern El Sharara oilfield, where a separate group has ended a blockade of its own, the ports' reopening could boost oil exports by 650,000 barrels a day in the next few weeks - helping to restore much of the 1.4 million bpd Libya used to pump before protests paralysed the sector.

The rebels agreed to end their blockades after Libyans voted for a new parliamentary assembly last month in which candidates campaigning for a federal state that would share oil wealth between all regions scored well in the neglected east, according to preliminary results.

But more protests can erupt at any time as the government is unable to control the militias who helped oust Muammar Gaddafi in 2011 and who can seize oil facilities at will in pursuit of political leverage and petroleum revenues.

The deal to reopen the eastern ports means the rebels will now be paid state salaries, which could tempt other militias to seize oil infrastructure in pursuit of similar rewards.

"Energy assets will remain a key bargaining chip for groups wishing to put pressure on national-level politicians," said Geoffrey Howard, analyst at London-based Control Risks, who is just back from a trip to Libya.

"Shutdowns are likely to continue over at least the coming year, making a return to full export levels highly unlikely."

A potential blackmail opportunity is a 70 percent-salary increase for oil workers which the government approved last autumn in a failed attempt to discourage protests, said Husni Bey, head of one of Libya's largest private conglomerates.

The central bank has warned against implementing the hike because it would ruin public finances already severely under strain after a year of oil protests.


But in an indication that the government might bow to pressure, the cabinet of Prime Minister Abdullah al-Thinni said it had "reservations" about freezing salary increases for the country's judiciary.

At the same time the government said it might have to sell Islamic bonds to fund the $47 billion budget, an unusual step for an oil-producing country which used to be flush with cash.

A major problem is that oil output will rise only gradually, forcing the central bank to burn more foreign reserves, which have fallen to $109 billion from around $130 billion a year ago.

Libya can quickly sell 7.5 million barrels of oil stored at the reopened Ras Lanuf and Es Sider ports, but it might take time to restart connecting oilfields and pipelines which have been idle for longer than during the eight-month uprising against Gaddafi in 2011.


El Sharara lost at least 20 pumps due to repeated shutdowns, requiring several months of repairs to restore full capacity of 340,000 bpd, the state-run National Oil Corp has said.


While oil engineers scramble to restore output, Tripoli is facing the dilemma that it cannot cut the budget because up to 70 percent is spent on the public sector, subsidies on petrol and bread, and on militias in an attempt to keep popular frustrations in check.


Libya's new rulers with their under-equipped army and police have not dared to touch a system from the Gaddafi era under which people are put on the state payroll or given other generous allowances as a way to buy their acquiescence.


The state lost $40 billion in oil revenues due to the protests, Central Bank governor Saddek Omar Elkaber said last week.


Bey said that even with oil exports rising to one million barrels per day by the end of September the budget deficit would still be 50 percent.


The oil protests ended after authorities brought forward elections to June 25 to get rid of the old General National Congress, an assembly which many associate with the political infighting that has plagued Libya since Gaddafi's overthrow.


Results are not due until next week but partial counts show a strong showing of federalist candidates in the east loyal to the agenda of port rebel leader Ibrahim Jathran.


But questions remain over what kind of political system Libya will eventually adopt as a special body tasked with drafting a new national constitution has still not finished its work. (Additional reporting by Feras Bosalum; Editing by Giles Elgood)


Research shows Gulf of Mexico oil spill caused lesions in fish -scientists

Oil that matches the 2010 Deepwater Horizon spill in the Gulf of Mexico has been found in the bodies of sickened fish, according to a team of Florida scientists who studied the oil's chemical composition.

"We matched up the oil in the livers and flesh with Deepwater Horizon like a fingerprint," lead researcher Steven Murawski, a professor at the University of South Florida's College of Marine Science in Tampa, told Reuters.

He said the findings debunk arguments that fish abnormalities could have been caused by other factors including oil in coastal runoff and oil from naturally occurring seeps in the Gulf.

BP, whose oil rig caused the spill, rejected the research, stating in an emailed response that it was "not possible to accurately identify the source of oil based on chemical traces found in fish livers or tissue."

BP's statement added, "vertebrates such as fish very quickly metabolize and eliminate oil compounds. Once metabolized, the sources of those compounds are no longer discernable after a period of a few days."

Murawski disagreed with BP's response, saying the fish in the study had been exposed recently enough that it was possible to identify the chemical signatures of oil in their bodies.

The research team included scientists from USF, the Florida Institute of Oceanography and the Florida Fish and Wildlife Research Institute. The work was published in the current edition of the online journal of Transactions of the American Fisheries Society.

Thousands of claims for damages against BP continue to be processed since the oil and gas producer's Gulf rig exploded, killing 11 oil workers and spilling millions of barrels of oil into the Gulf of Mexico for 87 days after the April 2010 blast.

Fishermen in the northern Gulf near the blown-out well say they began noticing a spike in abnormal-looking fish, including many with unusual skin lesions, in the winter of 2010-2011.

Murawski said his team compared the chemical signatures of oil found in fish livers and flesh to the unique signature of the Louisiana sweet crude from the Deepwater well and signatures of other oil sources.

"The closest match was directly to Deepwater Horizon and had a very poor match to these other sources. So what we've done is eliminated some of these other potential sources," he said.

Murawski said the team also ruled out pathogens and other oceanographic conditions. By 2012, the frequency of fish lesions declined 53 percent, he said. (Reporting by Barbara Liston; Editing by David Adams and Eric Beech)

U.S. oil group pens 'good neighbor' standards for fracking

An oil industry lobbying group on Wednesday unveiled voluntary standards aimed at tamping down concerns about the oil and gas production process known as horizontal drilling, or fracking, in communities around the United States.


The American Petroleum Institute said it published standards for how to engage with communities that host shale drilling sites, based on the "best practices" of industry participants who have been involved in such projects for 65 years.

"The energy revolution is now occurring in areas of the country where oil and natural gas exploration doesn't have the same history as Texas or Oklahoma," API director of standards David Miller said of the move.

The "good neighbor" standards include a list of steps oil and gas companies should take to "help local leaders and residents prepare for energy exploration, minimize interruption to the community, and manage resources."

The guidelines do not address common local concerns about the practice of horizontal drilling and fracking, such as methane leakage and potential water contamination.

API's effort to win over local communities may be too late for certain states.

The guidelines come just weeks after New York state's top court ruled that towns have the authority to ban gas drilling within their borders, upholding drilling bans in two upstate towns.

The towns involved in that case were among the first of more than 170 municipalities in New York to ban gas drilling as state officials consider whether to lift a moratorium on fracking.

Meanwhile in Colorado, five cities have voted to ban fracking. In November, voters will be able to vote on ballot initiatives that would let municipalities ban fracking.

API's guidelines include recommendations for how to conduct public meetings on safety; local training for new job opportunities; and ensuring "that oil and gas production is done in way that complements community goals." (Reporting by Valerie Volcovici; Editing by Ros Krasny and Lisa Shumaker)

Australian Senate delays carbon tax repeal

The Australian Senate rejected legislation to repeal the country's carbon tax on Thursday because it did not guarantee savings would be passed onto consumers, but amended legislation could still pass as early as next week.

Mining magnate Clive Palmer's Palmer United Party (PUP), which holds the balance of power in the Senate, had said it would pass the legislation but withdrew support at the last minute.

"We're very clear: we support the removal of the carbon tax, but we don't support the removal of the carbon tax if it means it won't flow on to normal people," Palmer told reporters.

Australia has among the world's highest carbon emissions per capita due mainly to its reliance on coal-fired power stations.

Conservative Prime Minister Tony Abbott, once a climate-change sceptic, made the abolition of the carbon tax a centrepiece of his 2013 election, arguing it financially burdened industry and consumers and did little to cut emissions.

The last minute collapse in support from Palmer reflects the difficulty Abbott faces in shepherding his agenda through a potentially volatile parliament that his Liberal-National coalition does not fully control.

Last month Palmer, a colourful mining magnate, stood beside former U.S. Vice President Al Gore in Canberra and said he would support the repeal but only with numerous conditions unpalatable to the government.

Chief among them was that Australia create a new emissions trading scheme in place of the one about to be repealed, which would have a zero price on carbon until Australia's main trading partners adopted similar legislation.

The carbon tax repeal legislation will now be sent back to the lower house of parliament for a fresh vote, dragging out the process and prolonging uncertainty in markets eager for a long-term answer on carbon pricing.

The new bill will remove the obligation on 348 of Australia's biggest companies to pay A$24.15 for each tonne of CO2 they emit and repeal legislation that would have launched an Emissions Trading Scheme in 2015.

The government plans to replace the carbon tax with a A$2.55 billion ($2.40 billion) Emissions Reduction Fund that will pay big emitters to cut carbon levels, but Palmer has dismissed that plan as "hopeless", casting more doubt on the path forward. ($1 = 1.0625 Australian Dollars) (Reporting by Matt Siegel)

China June daily crude oil imports down 7.8 pct on month

China's crude oil imports in June were at 23.28 million tonnes, or 5.66 million barrels per day, customs data showed on Thursday.


On a daily basis, June imports fell 7.8 percent from 6.14 million bpd in May. (Reporting by Judy Hua and Fayen Wong; Editing by Himani Sarkar)

UPDATE 2-Suedzucker profit falls on weak EU sugar sales

Operating profit at Europe's largest sugar producer Suedzucker fell by more than half in its fiscal first quarter, due to sinking sales inside the European Union's protected sugar quota system.

European sugar prices have fallen sharply in the past year, hurting producers and refiners, because the European Union has allowed more imports and also plans to end the EU's sugar output quotas in 2017, part of moves to liberalise production.

Sudzucker had warned in April it expected revenue and profit to decrease in its current financial year due to the difficult environment on the European sugar and bioethanol markets.

The company said on Thursday it expected operating profit to come in significantly below the year-earlier level in the second quarter as well.

"Export prices for non-quota sugar were less than last year as world market prices retreated," Suedzucker added. "In the sugar segment we expect a significant drop in revenues in fiscal 2014-15."

The company said it expected "a significant decline in operating profit, mainly due to the increasing deterioration of the economic environment in the EU sugar market."

Associated British Foods, among Europe's top sugar companies, in April also forecast weak profits at its AB Sugar business.

Suedzucker's shares rose more than three percent as the profit fall was less than expected. They were among the biggest gainers on Germany's midcap index.

Quarterly earnings before interest and tax (EBIT) slumped to 106 million euros ($145 million), from 232 million a year earlier, as revenue dropped in southern and eastern European markets in particular.

That beat the average estimate of 79.2 million euros, in a Reuters poll of banks and brokerages. Net profit after minorities dropped 63 percent to 77 million euros, also better than expected.

The company expects full-year 2014-15 revenue at about 7 billion euros and sees operating profit falling to about 200 million euros.

Suedzucker's shares have not recovered much from a 20 percent dive they took on April 8, when the company warned on profits.

Suedzucker's bioethanol unit, CropEnergies, on Tuesday also posted reduced profits due to low bioethanol prices.

($1 = 0.7331 Euros) (Additional reporting by Maria Sheahan; Editing by Matt Driskill and Jane Merriman)

UPDATE 1-Dutch marine services company Fugro warns will disappoint in first half

Dutch marine services company Fugro NV has warned that weakness in the oil and gas industry, combined with technical difficulties, meant its results for the first half would fall short of expectations, hammering its shares.

Fugro, involved in the search for Malaysia Airlines' missing flight MH370, said it would make a one-off writedown of up to 350 million euros ($477.4 million) as a result of slowing growth in capital spending in the oil and gas industry, which accounts for three quarters of group revenue.

It said it would report a "low single-digit" margin, on the basis of earnings before interest and tax (EBIT), for the first six months of the year, but strong growth in the second half would partly compensate for the setback.

The full-year margin will still be down on last year.

"For sure we are in a dip," said Chief Executive Paul van Riel in an analyst call. "But we really are looking at a much better second half ahead of us and also circumstances like this do create opportunities."

Fugro shares were down 20 percent at 32.62 euros by 0927 GMT, after falling as low as 32.40 euros, their lowest in nearly five years.

The marine engineering firm said it would restructure parts of the company to raise efficiency, investing in shared services centres to lower administrative overheads. It would also slow its vessel fleet expansion programme.

The company, whose full half-year figures are due on Aug. 11, faces operational difficulties after an engine fire put its largest vessel out of use for seven weeks, and three deep-sea diving crews in Brazil went on strike.

Fugro runs a fleet of ships that carry out undersea surveying and exploration for energy and telecommunications companies that need to lay cables.

In the hunt for Malaysia Airlines' missing flight MH370, it is scouring 6,000m depths of the southern Indian Ocean to build up a detailed map of the ocean floor. ($1 = 0.7331 Euros) (Editing by David Holmes)

Malaysia's Hibiscus Petroleum hires UBS, Maybank to advise on fundraising

Malaysia's Hibiscus Petroleum Bhd, an oil and gas production company, has hired UBS AG and Maybank Investment Bank Bhd to explore fundraising opportunities locally and abroad.


The company is seeking funds to meet future expansion plans, it said in an announcement to the stock exchange on Thursday.

The announcement was made the same day that Hibiscus Petroleum called off plans for a private placement to raise 500 million ringgit ($157.2 million), which was first announced in Oct 2013 and had Hong Leong Investment Bank as an advisor.

Hibiscus Petroleum operates small to medium sized oil and gas fields in the Middle East, Norway, Southeast Asia and Oceania. ($1 = 3.1800 Malaysian Ringgits) (Reporting By Al-Zaquan Amer Hamzah; Editing By Miral Fahmy)

UPDATE 1-Indonesian shares, rupiah rise as markets bet on Jokowi presidency

Indonesian shares and the rupiah rose on Thursday on the prospect of a presidential election victory for Jakarta Governor Joko "Jokowi" Widodo, widely seen as more business-friendly than his rival, former general Prabowo Subianto.

Both claimed victory after Wednesday's vote and analysts warned there could be a drawn-out constitutional battle to decide who will lead the world's third-largest democracy and Southeast Asia's biggest economy.

Even so, the Jakarta stock exchange rose as much as 2.8 percent to 5,165.42, the highest since May 30 last year, before ending up 1.5 percent. The rupiah hit a seven-week high.

Both candidates favour a nationalist agenda, underpinned by popular perceptions the economy has for too long depended on selling off its vast natural resources cheaply to foreign buyers.

But Prabowo is seen as more fiercely nationalistic, while Jokowi is seen as a more capable, hands-on administrator.

"Investors are buying on the hope that some structural barriers that have been a real problem over the last few years would begin to diminish after the elections. A Jokowi victory is expected to be good for the economy," Ciptadana Securities said in a report.

"He has talked about economic reform, cutting red tape and corruption during the election campaign and if he carries it through, most of the economy should benefit."

Several respected, private "quick counts" had Jokowi as the winner. The official result is due around July 22.

Banks, infrastructure and property stocks were some of the biggest gainers on Thursday as they are expected to benefit from Jokowi's focus on these sectors.

Property developer PT Lippo Karawaci Tbk surged 6.9 percent, while PT Bank Mandiri Tbk, Indonesia's biggest lender by assets, rose 3.2 percent and state construction firm PT Wijaya Karya Tbk 2.7 percent.

Shares in companies controlled by Prabowo's supporters underperformed the market.

Heavily indebted coal miner PT Bumi Resources Tbk, part of the Bakrie Group, dropped as much as 5 percent. Its media arm, Visi Media Asia, plunged as much as 7.5 percent.

Shares in several companies in the MNC Group, led by tycoon and Prabowo supporter Hary Tanoesoedibjo, fell as much as 6.6 percent although some pared their losses in late trading.

At a routine central bank policy meeting on Thursday, Bank Indonesia kept its main benchmark rate steady at 7.5 percent. It said its decision was consistent with efforts to limit inflation to around 4.5 percent this year and 4 percent next year, and to improve the current account balance.



Indonesian President Susilo Bambang Yudhoyono urged the two candidates to keep their supporters in check during what will be an agonising two-week wait for an official result.


"With both camps declaring victory, the market could still be held hostage by politics at least through July 22," said Harry Su, head of research at Bahana Securities in Jakarta.


And DBS Group Research cautioned that the real test would begin when the new president takes office in October.


"A fragmented parliament is a dominant feature of domestic politics, which has made it difficult to push for reforms. On this front, pushing for fuel subsidy reforms is the first key hurdle for the new government," DBS said.


Foreign investors, who own almost 80 percent of the free floating Indonesian stock market, have been buying, although their investments have slowed to a trickle in the past month.


Data from the Indonesia Stock Exchange showed that by Tuesday, foreign investors had invested a net 46.5 trillion rupiah ($4 billion) so far this year.


The rupiah has risen more than 3 percent against the dollar since last week and is now around 11,570 per dollar. Bonds have rallied, too, despite the threat of an imminent rise in administered fuel prices and therefore in policy rates.


Indonesia is heavily dependent on foreign portfolio flows to finance its huge current account deficit and has had several bouts of capital outflows triggered by double-digit inflationary spikes and currency volatility.


The bond market is among the emerging world's highest yielding and foreigners own more than 35 percent of outstanding bonds. That money is at risk if policy rates climb too fast or a rise in U.S. yields causes portfolio outflows from emerging markets. ($1 = 11,570 rupiah) (Editing by Vidya Ranganathan and Alan Raybould)


Bangladesh exports up 11 pct in 2013/14 as garment sales surge

Bangladesh's exports in the 2013/14 financial year that ended in June rose 11.65 percent from a year earlier to nearly $30.18 billion, boosted by stronger clothing sales, the Export Promotion Bureau said on Thursday.


Garments are a vital sector for the South Asian nation, whose low wages and duty-free access to Western markets have helped make it the world's largest apparel exporter after China.

Garment exports surged 14 percent to $24.5 billion in 2013/14 from a year earlier.

The garment industry, which supplies many Western brands such as Wal-Mart WMT.N, Tesco TSCO.L and H&M HMb.ST, has been under the spotlight after a string of fatal factory accidents, including the collapse of a building housing factories in April 2013 that killed more than 1,130 people.

(Reporting by Ruma Paul; Editing by Kim Coghill)

UPDATE 1-Bangladesh exports up 11 pct in 2013/14 as garment sales surge

Bangladesh's exports in the 2013/14 financial year that ended in June rose 11.65 percent from a year earlier to nearly $30.18 billion, boosted by stronger clothing sales, the Export Promotion Bureau said on Thursday.

Garments are a vital sector for the South Asian nation, whose low wages and duty-free access to Western markets have helped make it the world's largest apparel exporter after China.

Garment exports surged 14 percent to $24.5 billion in 2013/14 from a year earlier.

But the total exports were 1 percent below the target of $30.5 billion, partly because of political violence leading up to an election in January that crippled the economy.

The readymade garment industry employs four million people, and the industry generates 80 percent of the country's export earnings.

Bangladesh has to do more to improve factory conditions and workers rights in order to have U.S. trade benefits restored, the U.S. Trade Representative's office said earlier this month.

President Barack Obama revoked longtime trade benefits for Bangladesh a year ago, after a garment factory collapse and a factory fire killed more than 1,200 people, and gave the country a checklist of things to improve.

Late last year, the government raised the minimum wage for garment workers by 77 percent to 5,300 taka ($68) and amended its labour law to boost workers' rights, including the freedom to form trade unions. It is also cooperating with garment factory inspections by safety experts hired by retailer brands.

But erratic decision-making poses a new set of problems for the industry, whose safety record has been under the microscope since the collapse of a factory near Dhaka that killed more than 1,100 workers last year.

In its new budget for the 2014-15 fiscal year, Bangladesh announced minor sops to improve safety in the garment industry, but did not allocate new funds to relocate dangerous buildings.

The budget removed import duties on raw materials to make pre-fabricated buildings and abolished taxes on safety equipment such as fire-resistant doors and emergency lights.

The garment industry had been looking for government support to buy land and relocate factories in unsafe buildings to a planned industrial park in a bid to restore the confidence of Western buyers.

Global buyers have also slowly started pulling out orders from around 30 percent of the garment factories housed in unsafe, shared buildings and which employ 1.5 million workers, the Bangladesh Garment Manufacturers and Exporters Association said. (Reporting by Ruma Paul; Editing by Kim Coghill)

Britain says to pass emergency phone and email data law

Britain said on Thursday it would rush through emergency legislation to force telecoms companies to retain the data of users for a year, saying the move was vital to protect national security following a decision by Europe's top court.


Communication companies had been required to retain data for 12 months under a 2006 European Union directive which was thrown out by the European Court of Justice in April.

The scrapping of the directive could deprive police and intelligence agencies of access to information about who customers contacted by phone, text or email, and where and when, the British government said.

British Prime Minister David Cameron said the emergency legislation would restore this capability and enshrine it in law, ensuring investigations would not be hampered and giving protection to the telecom firms from possible legal challenges.

However, he stated the measure would not give the authorities any new powers to access Britons' personal data or the content of their calls or emails, a hugely controversial issue which has already led to one proposed law being ditched in the wake of privacy concerns.

"No government introduces fast track legislation lightly. But the consequences of not acting are grave," Cameron said in a statement.

"I want to be very clear that we are not introducing new powers or capabilities - that is not for this Parliament. This is about restoring two vital measures ensuring that our law enforcement and intelligence agencies maintain the right tools to keep us all safe."

The emergency security legislation, which has the support of all three major parties, will include a termination clause meaning it will expire in 2016 meaning lawmakers will have to look at the measures in detail again before then. (Reporting by Michael Holden; editing by Guy Faulconbridge)

Club Med suitor Bonomi meets unions amid job fears

Club Mediterranee suitor Andrea Bonomi met trade unions on Thursday morning to outline his plan for the French holidays group amid fears of possible job cuts in its home market, where it has been underperforming.

Bonomi is now Club Med's largest shareholder in the company that pioneered all-inclusive holidays after building a stake of nearly 11 percent this year. He is offering 21 euros a share for Club Med or 790 million euros ($1.08 billion).

The Italian tycoon's offer tops a one year-old 557 million euros offer by China's Fosun International and French private equity group Ardian. That offer was priced at 17.50 euros a share but became mired in legal challenges and shareholder opposition to it as too low.

Bonomi must convince Club Med shareholders, staff and the French establishment his offer is best for Club Med's future. Part of his strategy to win support has been to promise accelerated expansion in the country.

Unions are unconvinced.

"Bonomi's offer is attractively priced but there are fears he might tighten cost cuts and cut jobs. We want to see how serious he is about expanding in France," FGTA-FO trade union representative Dejan Terglav told Reuters by phone.

"Today's meeting is key. Let's see if he can be convincing," he added.

Force Ouvriere (FO), which is the main trade union at Club Med and has been backing the lower Ardian-Fosun offer. It recently met with French Economy Ministry officials to voice its concerns.

But it also plans to meet with foreign ministry officials in the coming days. The foreign ministry took over responsibility for tourism in a recent government reshuffle.

A diplomatic source told Reuters this week: "We are keeping an eye on what is happening and talked to various players on all sides."

Bonomi's offer notably faces opposition from Club Med's Chairman and Chief Executive Henri Giscard d'Estaing - himself a shareholder, and who would keep his job should Fosun and Ardian win. He has played the national champion card, saying a sale to Bonomi would hand control of Club Med to foreign investors

"Nobody is immune to Mr Giscard d'Estaing's lobbying. We are following the subject very carefully. It's a major French company that markets France and which many French holiday makers are close to. However it is not for us to intervene. It is a private listed company," the same diplomatic source said.

Giscard d'Estaing is the son of former president Valery Giscard d'Estaing.

With a stock market value of 614 million euros and annual sales of 1.4 billion, Club Med competes with hoteliers including Intercontinental and Accor, as well as tour operators such as TUI Travel and Thomas Cook.

A recent drive to reinvent itself as an upmarket operator has been stifled by an economic downturn in Europe, which still accounts for 70 percent of its revenue. The operating margin of its holiday villages fell to 3.9 percent of sales in 2013 from 4.3 percent in 2012.

Fosun, with a 9.96 percent stake, and Ardian, with 9.4 percent, have said their plan is to accelerate Club Med's shift towards China, which Club Med wants to make its second-biggest zone after France by 2015.

Bonomi has said he believed the future of Club Med was not solely in China but also in Europe and the Americas. He has also said warned against neglecting the lower end of the holiday market. ($1 = 0.7331 Euros) (Reporting by Dominique Vidalon, additional reporting by John Irish; Editing by Andrew Callus)

UPDATE 2-Burberry beats sales forecasts, warns of forex hit

British luxury brand Burberry reported faster than expected sales growth in its financial first quarter but warned a strong pound would hit this year's profits.

Burberry reported retail revenue of 370 million pounds ($629.6 million) for the three months to June 30, which beat analyst forecasts of around 350 million pounds. Sales growth reached 12 percent on a like-for-like basis, compared to an 8 percent consensus analyst forecast.

Bigger luxury labels such as Louis Vuitton and Gucci have seen retail sales growth collapse to below 5 percent from above 10 percent three years ago as consumers tired of global brands they saw as too ubiquitous.

Burberry, known for its camel trenchcoats, has kept sales growing in China, unlike rivals that suffered more from a crackdown on corruption and conspicuous spending.

But sterling's strength is taking its toll on the company's earnings power.

Burberry's fixed costs are in pounds and its revenue comes in a variety of currencies. It said exchange rates would reduce this year's retail and wholesale profit by about 55 million pounds and would narrow its adjusted operating margin to around 16 percent from 17.5 percent.

"Despite driving best-in-class top-line growth, the continued margin pressure at Burberry remains a concern, and today's results do not help to improve the profitability gap that exists between Burberry and its luxury peers," Bernstein said in a note.

It estimated the operating profitability gap between Burberry and top players such as Kering, the group behind Gucci, and Prada to be around 7-10 percent.

Morgan Stanley said it expected consensus expectations for profit before tax to be cut by around 3-4 percent.

Burberry shares still rose 2.2 percent on Thursday.

"We believe that investors will likely welcome first thing this morning the very strong like-for-like (sales growth) reported by Burberry, confirming the very solid underlying momentum the brand has been enjoying for the last few quarters," said JP Morgan, which has a "neutral" rating on Burberry shares.



Burberry is the first luxury goods company to report second quarter earnings, to be followed later this month by Louis Vuitton owner LVMH and Kering.

The British brand said demand in the UK remained solid but noted a slowdown in continental Europe, with a decline in the number of transactions from tourists including Russians, a trend that is likely to have affected rivals as well.

However, demand from Chinese travellers remained strong, it said.

"Burberry remains one of the very few luxury companies to continue to enjoy double-digit revenue growth," Citi said in note. Citi has a "neutral" rating on the stock as it believes a valuation premium to peers has disappeared in the past year.


Burberry started running its perfume business directly last year after ending a partnership with Interparfums. It said it expected to roll out its first skin care products "at some point in 2015".


The brand, which has branched out into make-up and nail polish, said it expected beauty revenue to rise 25 percent this year.


It said it expected broadly unchanged revenue at constant exchange rates in both Japan and global product licences, but it would lose about 10 million pounds in reported licensing revenue, given the movement in the sterling/yen rate. ($1 = 0.5877 British Pounds) (Editing by Tom Pfeiffer)


Metro keen to hold on to Media-Saturn despite fight with founder

German retailer Metro AG said it wants to hold on to Europe's biggest electronics chain Media-Saturn despite a fight for control with Erich Kellerhals, the founder and minority owner.

"Media-Saturn has great potential to grow. On the board, we are all of the opinion that we should not part with it," Metro Chief Executive Olaf Koch told journalists at an event late on Wednesday.

Metro is majority owner of Media-Saturn, the world's second-biggest consumer electronics chain after Best Buy Co Inc . It has been fighting for control for years with Kellerhals, who still owns a 22 percent stake and who said in May he wanted to buy back the business.

Metro lifted its holding in Media-Saturn to 78 percent last year when it bought an extra 3 percent stake from co-founder Leopold Stiefel for about 230 million euros. That valued the whole company, which accounts for about a third of Metro's sales, at more than 7 billion euros ($9.55 billion).

Industry sources told Reuters last month that Metro and Kellerhals had discussed a possible sale but had not reached agreement as the company's founder seemed more interesting in persuading Metro to spin off the business than buy it himself.

Koch said he was obliged to consider any concrete offer from Kellerhals but dismissed the idea of spinning off Media-Saturn.

"You can't just split off the company and leave it in other hands without the proper conditions. That would be wrong both strategically and for liability and responsibility reasons," he said.

Koch said he wanted to find a constructive solution to the conflict with Kellerhals, including settling a dispute over the company's acting CEO, Pieter Haas, who Metro appointed in May after the previous boss quit due to the long-running dispute.

Kellerhals is challenging the appointment of Haas in the courts, but Koch said he saw little chance for him succeeding, adding he hoped the two sides could still agree on a permanent replacement.

Kellerhals opened the first Media Markt store in Munich in 1979, entering into a partnership in 1988 with the forerunner of the Metro Group, which brought Media Markt together with its Saturn chain and drove a global expansion.

Media-Saturn is battling online competition and saw its sales fall 4 percent in its fiscal second quarter to 4.88 billion euros, prompting Metro to cut its full-year earnings forecast for the unit. ($1 = 0.7331 euros) (Reporting by Nikola Rotscheroth; Writing by Emma Thomasson; Editing by Susan Fenton)

UPDATE 2-Fast Retailing cuts net profit forecast on high-end denim woes

Japanese apparel supplier Fast Retailing Co cut its full-year net profit forecast more than 10 percent to account for losses at a premium denim brand, even as strong sales in its flagship Uniqlo stores helped third-quarter operating profit grow 21 percent, in line with forecasts.

Asia's biggest fashion retailer cut its full-year net profit target on Thursday to 78 billion yen ($768 million), down from 88 billion yen, to account for a possible 10 billion yen impairment loss on its J Brand U.S. jeans operation. Fast Retailing paid $290 million to buy an 80 percent stake in J Brand late in 2012, with label managers holding on to the remaining stake.

"We weren't effective enough in competing in the increasingly tough premium denim market," Chief Financial Officer Takeshi Okazaki told a news conference in Tokyo.

The persistent loss at J Brand highlights the potential risks of scooping up non-homegrown brands for Fast Retailing in its drive for international growth. Ambitious chief executive Tadashi Yanai has a long-standing goal to make Fast Retailing, which also includes trendy labels like Theory and Comptoir des Cotonniers, the world's biggest apparel retailer by sales by 2020.

For the March-May fiscal third quarter, operating profit rose to 33.0 billion yen ($325.09 million), just above an average estimate of 31.23 billion yen in a poll of five analysts by Thomson Reuters I/B/E/S.

Sales jumped 19.4 percent in the quarter to 323.6 billion yen, while net profit fell 11.7 percent to 20.2 billion yen, squeezed by foreign exchange losses. The new net full-year profit forecast means the company would book a net loss for the fourth quarter alone.

Fast Retailing in May assigned Theory chief executive Andrew Rosen to also oversee J Brand, replacing the brand's founder and former CEO Jeff Rudes, who resigned. "We hope to be able to talk about some progress next fiscal year," Okazaki said.

Fast Retailing kept its annual operating profit forecast for the year ending on Aug. 31 unchanged at 145.5 billion yen, having cut the guidance by 7 percent in April. Making that target would represent a 9.5 percent rise on the year for Fast Retailing.

Fast Retailing posted a 71 percent rise in overseas sales at its flagship Uniqlo chain, which is making steady progress expanding its presence abroad to compete with global clothing retailers such as Sweden's Hennes & Mauritz AB (H&M) and the Zara chain operated by Spain's Industria de Diseno Textil SA (Inditex).

But Uniqlo faces rising costs at home as a weaker yen raises the cost of imports while global textile materials prices climb. Uniqlo books just over half of its sales in Japan.

Known in Japan for its affordable but high-quality clothes, Uniqlo is taking the unusual step of raising prices, by around 5 percent, from the fall/winter collection this year in Japan to offset higher costs.

But it faces a further rise in costs over the next several years as it aims to hire about 16,000 regular staff to stem high turnover among part-time workers in Japan's tight labour market. Fast Retailing has said that, in the longer term, labour costs should fall as a stable workforce boosts efficiency and the cost of training new staff diminishes.

The company's shares, the most heavily weighted in Tokyo's benchmark Nikkei average, have fallen by nearly a quarter since the start of the year, more than three times the Nikkei's nearly 7 percent drop. Fast Retailing ended up 0.8 percent at 33,505 yen before the earnings release, compared with the Nikkei's 0.6 percent drop.

($1 = 101.5100 Japanese Yen) (Reporting by Chang-Ran Kim; Editing by Kenneth Maxwell)

Hidden Chinese tin stocks, weak demand head off expected deficit

The export of hidden Chinese tin stocks is likely to be behind a puzzling rise in London Metal Exchange (LME) inventories that has frustrated investors who expected to see shortages this year.

At the start of the year, tight supply-demand fundamentals led to numerous forecasts that tin prices would rise.

But prices are down half a percent so far this year and have shed nearly 7 percent since touching a peak in April, weighed down partly by rising inventories.

Full data are not available, but analysts say that the apparently well supplied market is due to hidden stocks in China that are making their way onto the international market, while demand has been weaker than forecast.

Analysts polled by Reuters in April expected the cash LME tin price to average $23,360 a tonne this year, compared with the current price of $22,200.

But instead of a scarcity of tin, stocks in warehouses monitored by the LME MSNSTX-TOTAL have surged by nearly 50 percent since Feb. 27, confounding investors and analysts.

"It's wrong-footed a lot of people including ourselves," analyst Robin Bhar at Societe Generale in London said. "The price action has been very disappointing."

Peter Kettle, manager of markets at industry group ITRI, agreed that supply appeared to be greater than anticipated: "The consensus view was that there's a deficit this year, but no one can actually see it in real life."


Meanwhile, investors have been attracted to forecasts of shortages in nickel and zinc and piled into those markets, sucking even more liquidity from tin, which was already the LME base metal with the least volume.


Volumes on the LME's electronic trading platform are down 13.5 percent so far this year on last year's average, analyst Leon Westgate at Standard Bank said.

"It seems that market attention has switched to metals like nickel and to a lesser extent zinc, with tin seen as too illiquid to build a decent-sized position," he said in a note.

The rise in inventories has been particularly baffling because top tin exporter Indonesia imposed rules last year forcing all tin ingot shipments to trade via a local platform before leaving the country, resulting in a 21 percent fall in exports during the first five months of the year.

"If Indonesia is not even exporting all that it is supposed to be producing, that makes the deficit even bigger, and yet that clearly is not showing up in price performance or the trend in LME stocks," analyst Stephen Briggs at BNP Paribas said.

"That is a bit of a mystery to me."





Analysts say that more material has been available on global markets partly due to unexpected exports from China.


Hard data from China has not been released, but Kettle estimated that China exported around 5,000 tonnes of tin in the first five months of the year, an increase of about 50 percent from the same period last year.


In 2012, large amounts of tin were imported by China due to an attractive arbitrage between the LME and Chinese domestic prices, leading to a build-up of an estimated 20,000 tonnes of hidden stocks, ITRI's Kettle said.


That price relationship has reversed, however, leading to an outflow of material from China, which imposes a tax on refined metal but not on products.


"Over the past several months, this was the first time where the price differential has reversed, and as long as you don't have to pay export duty, it's been profitable to export again," Kettle said.


Briggs said: "We have seen in the past that when material comes out, it tends to be categorised as tin product by China, but is often categorised by the importing country as just refined tin."


Weaker demand than expected is also probably behind the rise in inventories in tin, which is mainly used as solder in electronics, analysts said.


"There was a pretty good pick-up (in demand) globally in the second half of last year, but it seems to have levelled out now," Kettle said. "Chinese demand has been fairly flat, with much slower growth in electronics production in the first half of the year."


Some analysts still expect shortages to eventually develop in tin. "Tin is only a couple of bullish stories away from being re-ignited, with the ingredients in place for a strong rally when it is. For the moment, however, the metal is moribund," Westgate said. (editing by Jane Baird)

As silver fix decision nears, LME ties up with Autilla

The London Metal Exchange and technology firm Autilla joined forces on Wednesday to propose an electronic system for setting the global silver price benchmark as the deadline neared for replacing London's century-old silver fix.

The 117-year-old price benchmark, or fix, will come to an end on Aug. 14, operator London Silver Market Fixing Limited said in May, as regulatory scrutiny of price-setting intensifies across markets.

The silver fix is set every day at noon by three banks via a conference call, working out a price at which their customers are willing to buy and sell the metal.

The London Bullion Market Association (LBMA) has consulted with market participants since May with the aim of producing a transparent electronic alternative to the conference call that complies with toughened regulatory standards.

"Throughout the LBMA's process, the market has consistently indicated that Autilla's technology and the LME's compliance and price discovery systems are market-leading," LME Chief Executive Garry Jones said in a statement.

The LME and Autilla, run by former brokers and traders from some of the fixing banks, had originally presented separate proposals.

The exchange had said it would use its electronic platform LMESelect, which was already available to LBMA market-makers such as JPMorgan and Societe Generale.

The LBMA said an announcement was likely by the end of the week.

Members of the association, which count gold and silver fixing banks and other large bullion-trading banks, discussed the seven original proposals at a meeting on Friday, without reaching any decision.

Other bidders include

The Chicago Mercantile Exchange (CME) also has joined forces with Thomson Reuters Benchmark Services Ltd, part of Thomson Reuters Corp .

Other bidders include U.S. derivatives exchange Intercontinental Exchange (ICE), U.S. news agency Bloomberg, commodity price benchmark provider Platts, a unit of McGraw Hill Group, UK-based exchange-traded funds provider ETF Securities have also presented their proposals.

The banks involved in the current silver fixing process are Deutsche Bank, HSBC and Bank of Nova Scotia-ScotiaMocatta.

The LME currently provides clearing of over-the-counter silver forward rates in conjunction with London clearing house LCH.Clearnet, which are marked to market using the LBMA forward curve.

"The solution will be ready for testing from 14 July, with implementation and roll-out to begin in early August," the exchange said.

An electronic solution to the silver fix could be applied to price-setting for gold and platinum group metals as well, sources said. (Editing by Veronica Brown and Jane Baird)

UPDATE 2-Russia's VEB bank says will not help bail out miner Mechel

Russian state-owned development bank Vnesheconombank (VEB) said on Wednesday it would not take part in a bailout of indebted miner Mechel, extinguishing hopes for a convertible bond scheme that was seen as its most likely lifeline.

The loss-making coal to steel group, hit by weak prices for its products, is in critical need of government support.

With debts of $8.6 billion, Mechel, co-owned by billionaire Igor Zyuzin, has already gone through several debt restructurings with creditor banks.

Russia nursed its oligarch-owned conglomerates through the 2008-09 global crisis, avoiding a wave of defaults. Mechel piled on more debt to pay for acquisitions, only to be hit by an industry slump that left it with a devalued asset portfolio.

In June Economy Minister Alexei Ulyukayev said the government was considering implementing a 180-billion rouble ($5.3 billion) scheme that would involve a convertible bond, which could be purchased by state development bank Vnesheconombank, or VEB.

However on Wednesday VEB chairman Vladimir Dmitriev ruled out the bank participating in the bailout or any other plan to save Mechel, Itar-Tass news agency reported.

"We at the bank have taken the decision not to participate in the suggested schemes to save Mechel. The suggested schemes would be loss-making for the bank," Dmitriev was quoted as saying.

Other plans to help the coalminer include providing state controlled monopoly Russian Railways (RZhD) with the funds to buy the rail link to Mechel's key Elga project for up to 70 billion roubles.

However it is not clear if this or other proposals are still on the table.

Some banks in the group of creditors, which includes Sberbank, VTB and Gazprombank, have been calling for the removal of majority owner Zyuzin, Russian media reported in June.

The convertible bond scheme would have helped the banks to reduce bad debt provisions at a time when Russia's economy is slowing partly due to Western sanctions over Russian action in Ukraine.

($1 = 33.9670 Russian Roubles) (Reporting by Alessandra Prentice; editing by Timothy Heritage and Keiron Henderson)

Swann's SSP prices London float at lower end of revised range -Telegraph

SSP Group has priced its London float at 210 pence per share, the bottom of its revised range, giving the owner of Upper Crust and Caffe Ritazza a market valuation of just under 1 billion pounds ($1.7 billion), the Telegraph reported on Wednesday.


The price range for SSP's IPO-SSPG.L initial public listing had be narrowed twice, with the final refined range being between 210 pence per share to 215 pence per share, the daily said, without naming sources. (

The paper had earlier on Tuesday reported that the food and beverage company's price range had been narrowed to between 210 pence per share and 230 pence per share, from between 200 pence per share and 240 pence per share.

SSP, which is headed by retail veteran Kate Swann, could not immediately be reached for a comment outside of regular business hours in the UK. ($1 = 0.5877 British Pounds) (Reporting by Esha Vaish in Bangalore, editing by Louise Heavens)

UPDATE 1-Swann's SSP prices London float at lower end of revised range -Telegraph

SSP Group has priced its London float at 210 pence per share, the bottom of its revised range, giving the owner of Upper Crust and Caffe Ritazza a market valuation of just under 1 billion pounds ($1.7 billion), the Telegraph reported on Wednesday.

The price range for SSP's IPO-SSPG.L initial public listing was narrowed twice, with the final refined range between 210 to 215 pence per share, the daily said, without naming sources. (

The company is headed by retail veteran Kate Swann.

The paper had earlier on Tuesday reported that the food and beverage company's price range had been narrowed to between 210 pence per share and 230 pence per share, from between 200 pence per share and 240 pence per share.

A spokesman for the company declined to comment.

SSP operates food and drink outlets in airports and railway stations in 29 countries. ($1 = 0.5877 British Pounds) (Reporting by Esha Vaish in Bangalore, editing by Louise Heavens and Cynthia Osterman)

UPDATE 1-As silver fix decision nears, LME ties up with Autilla

The London Metal Exchange and technology firm Autilla teamed up on Wednesday to launch a last-minute bid to run the new global silver price benchmark in the closely fought contest to replace the 117-year old London "fix."

The Autilla/LME camp's proposal for an electronic system will likely challenge a joint proposal from exchange operator CME Group Inc and Thomson Reuters Corp, who are also in the final running, sources who were not competing in the process have told Reuters.

The London Bullion Market Association (LBMA), the industry body coordinating the search for a new mechanism, said on Wednesday the results of the high-profile process are likely by the end of the week. It had been due earlier this week.

The winner will operate a new daily silver pricing benchmark to replace London's century-old silver fix when it ends on Aug. 14 as regulatory scrutiny of price-setting intensifies across markets.

The LBMA has been consulting with market participants since May with the aim of producing a transparent electronic alternative to the conference call that complies with toughened regulatory standards.

"Throughout the LBMA's process, the market has consistently indicated that Autilla's technology and the LME's compliance and price discovery systems are market-leading," LME Chief Executive Garry Jones said in a statement.

The LME and Autilla, run by former brokers and traders from some of the fixing banks, had originally presented separate proposals.

The exchange had said it would use its electronic platform LMESelect, which was already available to LBMA market-makers such as JPMorgan and Societe Generale.

Members of the association, which count gold and silver fixing banks and other large bullion-trading banks, discussed the seven original proposals at a meeting on Friday, without reaching any decision.

After a months-long consultation involving market participants across the industry, the bid from CME and Thomson Reuters Benchmark Services Ltd had been considered a strong contender out of seven proposals, sources have told Reuters.

Thomson Reuters and the CME declined to comment.

Other bidders include U.S. derivatives exchange Intercontinental Exchange (ICE), U.S. news agency Bloomberg, commodity price benchmark provider Platts, a unit of McGraw Hill Group ; and UK-based exchange-traded funds provider ETF Securities.

The banks involved in the current silver fixing process are Deutsche Bank, HSBC and Bank of Nova Scotia-ScotiaMocatta.

The LME currently provides clearing of over-the-counter silver forward rates in conjunction with London clearing house LCH.Clearnet, which are marked to market using the LBMA forward curve.

"The solution will be ready for testing from 14 July, with implementation and roll-out to begin in early August," the exchange said.


An electronic solution to the silver fix could be applied to price-setting for gold and platinum group metals as well, sources said.

The silver fix is set every day at noon by three banks via a conference call, working out a price at which their customers are willing to buy and sell the metal. (Additional reporting by Josephine Mason in New York; Editing by Veronica Brown, Jane Baird, Jonathan Leff and Jonathan Oatis)


Russian minister says supports saving Mechel with bankruptcy law one option

Russian Industry Minister Denis Manturov said on Thursday he supported returning indebted miner Mechel to financial health within the framework of bankruptcy law or by creating a managing company, RIA Novosti news agency reported.


On Wednesday state-owned development bank Vnesheconombank (VEB) said it would not take part in a bailout of Mechel, extinguishing hopes for a convertible bond scheme that was seen as its most likely lifeline.

(Reporting by Polina Devitt; Editing by Alessandra Prentice)

Symantec in talks with Chinese government after software ban report

U.S. security software maker Symantec Corp said it is holding discussions with authorities in Beijing after a state-controlled Chinese newspaper reported that the Ministry of Public Security had banned the use of one of its products.


The China Daily reported on July 4 that the ministry had issued an order to branches across the nation telling them to uninstall Symantec's data loss prevention, or DLP, products from their systems, saying the software "could pose information risks."

The newspaper also said Chinese news site had reported that the public security bureau had banned Symantec's DLP products from future procurement projects. (

Symantec spokeswoman Colleen Lacter told Reuters that her company was in discussions with the Chinese government about the matter, though she declined to confirm or deny the newspaper's account of what had happened.

"The discussions are ongoing and it's premature to go into detail at this time," Lacter said via email.

When asked if other Chinese government agencies were pulling out Symantec's software, Lacter said: "We believe (this) is an isolated incident to the Ministry of Public Security."

The ministry declined to provide immediate comment by phone and did not respond to faxed questions.

DLP software helps organizations prevent workers from intentionally or unintentionally removing sensitive data from computer networks. It is one of several categories of security software sold by Symantec, which is best known for anti-virus programs that detect malicious software on personal computers.

Talk of China's decision to target Symantec comes following reports in May that China banned government use of Windows 8, the current version of Microsoft Corp's operating system for personal computers.

The official Xinhua news agency said the ban was to ensure computer security after Microsoft ended support for its Windows XP operating system, which was widely used in China. (Reporting by Jim Finkle; Additional reporting by Beijing Newsroom; Editing by Christopher Cushing)

GLOBAL MARKETS-Still shaky despite Fed assurance

European shares were back in negative territory on Thursday, a brief lift from U.S. Federal Reserve meeting minutes proving short-lived as investors worried whether markets could go it alone without the U.S. central bank's emergency support.

Faith in a rally in share prices dating back almost three years has more shaky over the past month than for some time, as the Fed nears what looks like a definitive end to its programme of new money-printing.

The minutes from the U.S. central bank's last meeting, published after European markets had closed on Wednesday, offered no sign it was any closer to following that with a swift rise in official interest rates to cool the economy.

That boosted U.S. and Asian markets overnight. But the dominant concern at the European open was over companies' results and the economy's ability to survive without the new funds which the Fed's bond-buying has forced into the system every month.

Norway's largest bank DNB added to an inauspicious start to the second quarter earnings for some of Europe's biggest companies while construction firm Skanska said it would significantly scale down its loss-making Latin American operations.

"For many the markets are still a bit too expensive considered that the global recovery seems to be progressing somewhat slower than previously hoped," said Markus Huber, an analyst with trading firm Peregrine Black in London.

The dollar , seen as the big beneficiary of any move by the Fed toward higher interest rates, fell by as much as half a cent in response to the minutes but was broadly steady in early European trade.

Britain's FTSE 100 index was helped by an almost 4 percent rise for Burberry after the luxury brand reported a strong batch of earnings for the first quarter, boding well for other high-end consumer companies.

But oil prices were lower, normally a negative for the commodity heavy index, and the market was struggling to eke out any gains after a week of steady losses.

Germany's DAX and France's CAC were both down between almost 0.2 percent.



That ran in contrast to the performance in much of Asia overnight, where the MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.3 percent.

Tokyo's Nikkei bucked the trend and fell 0.3 percent, weighed down by a record drop in machinery orders in May that cast doubt over the outlook for capital spending and the strength of its economic recovery.

China's exports in June also missed market forecasts, but caused limited reaction in regional markets as it reinforced expectations that Beijing will have to unveil more stimulus measures to stabilise the economy and meet its 2014 growth target.

"The trade figures were not so exciting. It's still unrealistic to count on exports to be an important contributor to economic growth," said Wang Jun, an economist at the China Centre for International Economic Exchanges in Beijing.

"The import figure showed some signs of improvement on domestic demand. Taken together with weak inflation data, we think domestic demand remains weak. It would be relatively difficult for China to achieve its annual trade growth target of 7.5 percent in 2014."


Indonesian stocks hit their highest in over a year as the market welcomed the prospect of reform-minded Jakarta Governor Joko "Jokowi" Widodo becoming the next president, although his rival has refused to concede defeat after Wednesday's election.


The Jakarta market was up 1.7 percent after earlier rising more than 2 percent. The Indonesian rupiah also gained 0.6 percent to 11,555 to the dollar.


BoE says fines tally for banks makes its work harder

Growing fines for banks for misconduct is making it harder for regulators to work out how much capital lenders should be holding, Bank of England Deputy Governor Andrew Bailey said on Thursday.


Bailey said regulators such as the BoE have to look at the direction of travel of fines, particularly in the United States, to see what potential fines are in the pipeline.

Banks have been fined millions of pounds for rigging the Libor interest rate benchmark and allegations are now emerging that the foreign exchange market has been manipulated as well.

"This is a considerable dent in rebuilding bank capital," Bailey told a Bloomberg event.

"So far this has not caused a major financial stability issue. These are things on a scale that have to be handled very closely to deal with the issues around them." (Reporting by Huw Jones; editing by Jason Neely)

Fiscal deficit control, manufacturing revival India's top challenges

Containing the fiscal deficit and a revival of manufacturing are the biggest challenges for the Indian government, Finance Minister Arun Jaitley said after presenting the federal budget on Thursday. (Reporting by Manoj Kumar and Ratnajyoti Dutta)


UPDATE 1-Bankruptcy law is option for Russia's Mechel, minister says

Indebted miner Mechel may be allowed to declare bankruptcy to sort out its finances, a Russian minister said, suggesting for the first time that the company might not be bailed out.

Russia has been nursing its oligarch-owned conglomerates through a prolonged downturn in the commodities cycle, seeking to avoid a wave of defaults that would lead to mass job losses at a time when the economy is at near standstill.

However, Industry Minister Denis Manturov said on Thursday bankruptcy might help Mechel, a coal-to-steel group with $8.6 billion in debt and which employs 70,000 workers, a day after state development bank Vnesheconombank (VEB) said it did not want to take part in any bailout.

While Manturov's comments could signal a change in policy, the final decision on what to do with Mechel, controlled by businessman Igor Zyuzin, will most probably rest with Russian President Vladimir Putin.

"We need to talk about financial recovery either via bankruptcy law, or by strengthening a managing company, which should take the risk on itself and the responsibility to take the company out of crisis," RIA news agency quoted Manturov as saying.

"But the tasks and the commitments are huge and I cannot say who is willing to take it yet. Therefore, we will continue to work on it," Manturov added.

He did not give any further details. Mechel declined to comment.

Hit by weak prices for its products, Mechel is in critical need of financial support. It has already undergone several debt restructurings with creditor banks, mainly with three state banks - Sberbank, VTB and Gazprombank.

In 2013, the company earned less than it needed to stump up in interest payments on its loans.


After months of negotiations, it is clear officials have yet to reach a consensus on what to do next with a company that provides employment to thousands in Russia's industrial Urals regions, its far east and Siberia.

Previously, the government had preferred a bailout because it was seen as safer for creditors and better able to save jobs.


A source familiar with government discussions on Mechel told Reuters that Putin would take the final decision.

"There were several orders (to discuss the problem) from him; now everything will return to him and he will have to make a decision himself," the source said.

"It's the company's destiny, not Zyuzin's, which is the president's headache now," the source said, suggesting that the government would like to avoid a large loss of jobs. "It's exactly that case when (something) is too big to fail."

The government had been considering implementing a 180-billion roubles ($5.3 billion) scheme in which three banks would loan this sum to VEB, which would use the cash to buy convertible bonds from Mechel.


However on Wednesday VEB chairman Vladimir Dmitriev said he would recommend to the bank's supervisory board, chaired by Prime Minister Dmitry Medvedev, that it should avoid bailout schemes as they would be loss-making.


It was not clear whether VEB's board would follow the advice, nor when they would next meet.


Besides VEB and bankruptcy, another option is for state banks to seek government guarantees for further restructuring of Mechel's debts. "If VEB declines (to participate), banks will push for state guarantees," a banking source told Reuters.


Shares in Mechel were down 13 percent in Moscow on Thursday. The company's market value has plummeted more than 95 percent since its peak in 2008, according to Reuters data. (Reporting by Polina Devitt, Oksana Kobzeva; Writing by Polina Devitt and Alessandra Prentice; Editing by Elizabeth Piper and Mark Potter)


Boeing sees $5.2 trln jet market, win vs Airbus on twin-aisles

Boeing Co made its most bullish 20-year forecast for jetliner demand since 2011, saying on Thursday the world will need 36,770 new planes worth $5.2 trillion by 2033.

The company's annual projection is up 4.2 percent from its 2013 forecast, and it predicted beating rival Airbus Group NV in the lucrative market for twin-aisle planes as the planes are built and delivered over the next two decades.

"If Airbus doesn't do something with their product strategy, they're headed to 30-35 percent market share" in deliveries of next-generation twin-aisle aircraft, Randy Tinseth, Boeing's vice president of marketing, told reporters in a briefing.

Boeing's 787 and 777X jets already make up 65 percent of all current orders, with the Airbus A350 accounting for the rest, and that gap will widen unless Airbus develops another jet as a competitor, he said.

Planes are delivered years after orders are placed, so the final numbers may change as airlines change their plans.

Airbus has disputed Boeing's numbers, saying it is already winning most orders in twin-aisle aircraft when looking at recent years.

Airbus is considering embarking on development of such a jet, and may launch the project at the Farnborough Airshow next week. The jet, dubbed the A330neo, would be a revamped version of Airbus' twin-aisle A330 jetliner with new efficient engines made by Rolls-Royce Holdings PLC.


Boeing's annual forecast, released in conjunction with the airshow, said single-aisle airplanes such as the 737 and A320 will garner the most orders, reflecting booming demand for air travel in Asia and the growth of low-cost carriers there.

Last year Boeing predicted a 20-year need for 35,280 planes valued at $4.8 trillion.

About 40 percent of single-aisle planes built in the next two decades will go to low-cost carriers, and a large share of will be in China, Tinseth said. He predicted China would overtake the United States as the world's largest domestic air travel market in the next 20 years.

Twin-aisle planes also will attract strong demand. But Boeing notched back its forecast for jumbo jets such as the Boeing 747 and Airbus A380. It expects airlines to need about 620 of those over the next 20 years, down from the 760 it forecast last year.

"That's the market that has really struggled to take hold," Tinseth said.

Boeing expects airlines to buy 25,680 new single-aisle planes over 20 years, and that the global fleet will double to 42,180. About 58 percent of those planes will represent growth at airlines. The rest will replace retired aircraft.

Boeing cut its forecast for air-cargo growth this year to 4.7 percent from 5 percent in 2013, but said the trend is stable and will continue to support production of the 747-8 freighter and freight versions of its popular 777 jet. (Reporting by Alwyn Scott; Additional reporting by Tim Hepher in London; Editing by Richard Chang)

UPDATE 1-Britain moves to keep email, phone data for security

Britain said on Thursday it would rush through emergency legislation to force telecoms firms to retain customer data for a year, calling the move vital for national security following a decision by Europe's top court.

Communication companies had been required to retain data for 12 months under a 2006 European Union directive but this was thrown out in April by the European Court of Justice on the grounds that it infringed human rights.

Britain's coalition government said the scrapping of that directive could deprive police and intelligence agencies of access to information about who customers contacted by phone, text or email, and where and when.

Prime Minister David Cameron said it was vital these powers were not compromised at a time of growing concern over Britons travelling to Iraq and Syria to join militant Islamist groups.

Those concerns prompted the government to take the unusual step of announcing fast-track legislation which, under a deal brokered behind closed doors between Britain's three major political parties, could become law as soon as next week.

"This is at the heart of our entire criminal justice system," Cameron told a news conference. "It is used in 95 percent of all serious organised crime cases ... It has been used in every major security service counter-terrorism investigation over the last decade and it is the foundation of prosecution of paedophiles, drug dealers and fraudsters."

In an effort to deflect criticism that collecting communications data flouted civil liberties, Cameron stressed the emergency law would not grant new powers and would only enshrine existing capabilities in law.

He said the new legislation would also clarify the grounds under which authorities could request service providers provide the content of calls, emails and text messages, even if the companies holding that data were based overseas.

"There is now a real risk that legal uncertainty will reduce companies' willingness to comply with UK law, even where they would wish to support us," the Conservative prime minister said. "Some companies are already saying they can no longer work with us unless UK law is clarified immediately."

The biggest Internet Service Providers in Britain are BT , BSkyB, TalkTalk and Virgin Media . The four main mobile providers who would be affected include EE , O2, Vodafone and Three.



Britain is the first EU country to seek to rewrite its law to continue data retention since the European court decision, and the government said it was in close contact with other European states on the issue.

Denmark said in June that it would no longer enforce part of a local law that requires "session logging" - or data retention - by telecom operators while in Sweden, telecom operators simply stopped collecting the data.

Britain's new measures come in the wake of revelations by former U.S. intelligence contractor Edward Snowden about British spying on private communications, and privacy campaigners said they were worried about the implications of the legislation.

"We need to get back to a point where the police monitor people who are actually suspected of wrongdoing and rather than wasting millions every year requiring data to be stored on an indiscriminate basis," Emma Carr, acting director of Big Brother Watch, said in a statement.

The government said the law would establish a Privacy and Civil Liberties Oversight Board, based on a U.S. model, to ensure civil liberties were properly taken into account.


It also said the number of bodies that could approach telecoms and internet firms for data would be restricted, and there would be an annual transparency report to make information more widely available on surveillance powers used by the state.


The emergency legislation will include a termination clause meaning it will expire in 2016, forcing lawmakers to look at the measures in detail again before then.


Last year, the government failed to bring in a Communications Data bill, which critics dubbed a "snoopers charter" and would have secured the West's most far-reaching surveillance powers in the face of widespread opposition.


Senior police and security chiefs had argued that unless they were given new powers to monitor online activities, militants and criminals would exploit new forms of communication technology such as Facebook and Skype.


But the centre-left Liberal Democrats, the junior partner in Cameron's government, blocked those plans saying they were not proportionate or workable. (Additional reporting by Leila Abboud; Editing by Guy Faulconbridge and Mark Heinrich)


UPDATE 1-Collision halts Statoil Oseberg East platform, restart seen Thurs

Statoil shut its oil platform at the Oseberg East field offshore Norway after a collision with a supply vessel but production was expected to restart later the same day, a spokesman said.

The collision took place at 0140 CET (1140 GMT on Wednesday), forcing a shutdown and preparations to evacuate workers. The situation was normalised a few hours later, and the inspection showed small damage on the platform.

"The production was stopped, but we are preparing to restart it later today," said Lars Kindingstad, a spokesman for Statoil.

During the first four months of the year, Oseberg East produced 961,189 barrels of oil or about 8,000 barrels of oil per day, data from the Norwegian Petroleum Directorate showed.

Statoil, the operator of the field, has a 49.3 percent stake in the production licence. The other partners are Norway's state-owned Petoro with 33.6 percent, France's Total with 14.7 and U.S. major ConocoPhillips with 2.4 percent. (Reporting by Nerijus Adomaitis, editing by Gwladys Fouche and Jason Neely)

UPDATE 2-Pork producer WH Group seeking up to $3bln in revised Hong Kong IPO-IFR

Chinese pork producer WH Group Ltd is seeking to raise up to $3 billion as early as this month in a revived Hong Kong initial public offering (IPO) which saw the deal size cut by nearly two-thirds, Thomson Reuters publication IFR reported on Thursday.

The offer would be the second attempt this year by the world's biggest pork company to go public, as it seeks funds to repay part of the debt it took to foot last year's $7.1 billion purchase of U.S. pork producer Smithfield International.

In April, WH Group pulled an Hong Kong IPO it had hoped would raise up to $5.3 billion after investors baulked at the high valuation. The 29 banks - a record number - hired to manage the offer also sent confusing signals to institutional investors, while the negative publicity surrounding sky-high executive compensation raised corporate governance issues.

The new IPO would only comprise primary shares, meaning existing shareholders including CDH Investments, New Horizon, Goldman Sachs and Temasek Holdings would not sell their stake in the offering, IFR reported, citing sources familiar with matter.

After the IPO, public shareholders would own about 20 percent. WH Group plans to complete the offer quickly, and with little or no marketing, IFR added.

A WH Group spokesman declined to comment when asked about the deal.

WH Group, whose products include Smithfield ham and Farmland bacon in the United States, has named BOC International and Morgan Stanley as the two IPO sponsors, down from an initial list of seven.

The company updated its IPO prospectus late on Wednesday, highlighting a stronger financial performance.

Its first quarter 2014 profit after tax more than tripled to $407 million from $125 million in the same year-ago period while turnover also more than tripled to $5.05 billion.

The company earned a 7 percent net profit margin compared with negative 2.3 percent margin for the year ended Dec. 31.

The company had previously named five other sponsors, including Citic Securities International, DBS Group, Goldman Sachs, Standard Chartered and UBS. (Reporting by Denny Thomas and Daniel Stanton; Editing by Miral Fahmy)

India raises military spending, eases foreign investment limit in arms industry

India boosted defence spending by 12 percent in 2014-15 over the previous year in a budget presented on Thursday and further opened the domestic weapons industry to foreign investment to help rebuild the military and narrow the gap with China.

India has been the world's top arms buyer for the last three years, trying to replace an ageing Soviet-era military with modern weapons as a deterrent to a rising China, with which it fought a war more than half a century ago.

Finance Minister Arun Jaitley set the military budget at 2.29 trillion Indian rupees ($38.35 billion) for 2014-15, 50 billion rupees more than what the previous government agreed in an interim budget earlier this year.

Defence expenditure for 2013/14 was kept at 2.04 trillion rupees.

"Modernisation of the armed forces is critical to enable them to play their role effectively in the defence of India's strategic interests," he said to the thumping of desks in the lower house of parliament, where he presented the new government's first budget.

Jaitley's Bharatiya Janata Party has long called for a militarily-strong India to counter potential threats from both China and Pakistan and said it would speed up the pace of arms purchases for the military, the world's third largest.

Even at the elevated spending, India's military budget is still less than a third of China's $145 billion expenditure last year estimated by the Pentagon in its report to the U.S. Congress this month.

New Delhi worries that China is building roads and other infrastructure along the disputed land border as well as bolstering its naval presence in the Indian Ocean that it considers its zone of influence.

The rise in India's military spending comes as a Western governments are rushing to visit the new administration in New Delhi in the hope of landing multi-billion deals.

Politicians from France and Britain have held talks in New Delhi, while the United States, which has built close military ties, is also pushing for faster decisions on arms contracts.


Jaitley also increased the foreign investment limit in the domestic defence industry to 49 percent from 26 percent, hoping to draw greater interest from its main arms suppliers and help reshape the defence industrial base dominated by state firms.

"Companies controlled by foreign governments and foreign private sector are supplying our defence requirements to us at considerable outflow of foreign exchange," he said.

Global arms firms are wooing India in the hope of landing multi-billion dollars and New Delhi is aiming to leverage some of that buying power to get transfer of technology and end the overwhelming reliance on imports.

The government is in the midst of finalising an estimated $15 billion contract with Dassault Aviation for the sale of 126 Rafale fighter jets.


U.S. government officials are separately pushing hard for $2.8 billion in delayed sales of Boeing's Apache attack and Chinook military transport helicopters.


The move to raise investment limits for foreign firms in the defence sector drew support.


"FDI limit has been raised from 26 percent to 49 percent by the Finance Minister which is definitely a positive move for the indigenous defence industry. However, the government still wants Indian players to maintain control and ownership of the defence joint ventures," said Nidhi Goyal, a director at Deloitte in India.


Jaitley, however, did not go as far in liberalising the sector as foreign manufacturers and even the government's own investment promotion department would have liked.


India's Department of Industrial Policy and Promotion had earlier circulated a discussion document that proposed allowing up to 100 percent foreign direct investment in defence production, two government officials told Reuters this month.


The note suggested allowing 100 percent FDI in manufacturing of state-of-the art equipment, one of the officials said. It also recommended a cap of 49 percent for investments which do not involve transfer technology and a 74 percent ceiling in such cases where the foreign investor is ready to share technology know-how, the official added.


Until now, defence has attracted less than $5 million in foreign investment. Foreign firms have said they need higher investment caps and greater management control if they are to develop a bigger industrial base in India. ($1 = 59.7150 Indian rupees)


Ukraine threatens to retake territory from defiant rebels

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.




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.


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.


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


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.


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."


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."





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.


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.


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.


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.


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.


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


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


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.


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.


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


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.


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.



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


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.



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


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.


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.


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.


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.


"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.


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


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.


"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.


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


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


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.


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.


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.


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.


(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)