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World News




In mourning, North Korea Seals Itself


The body of North Korean leader, Kim Jong-il lies in state at the Kumsusan Memorial Palace in Pyongyang

REUTERS

Kim Jong-un, the third in a dynasty that has ruled North Korea since its foundation in 1948, paid homage to his dead father Tuesday as the isolated country appeared to cut itself off even more from the outside world.

While U.S. Secretary of State, Hillary Clinton urged North Korea to follow a "path of peace," diplomats and commentators were struggling to understand what would happen as it transitions from the 17-year iron rule of Kim Jong-il, 69 years old when he died Saturday, to that of his untested son, in his late 20s.

Dressed in black, Jong-un, along with top army and government officials, paid respects to his father who lay in state in the capital Pyongyang in a glass topped bier surrounded by the red "Kimjongilia" flowers named after him, reports Reuters.

Emphasising the ruling family's lineage, Kim Jong-il's bier was placed in the mausoleum where the embalmed body of founding father Kim Il-sung is displayed in a glass sarcophagus.

State news agency KCNA said the visitors were "wailing over the sudden and grievous death of Kim Jong-il." South Korean workers returning from an industrial park in the North said the atmosphere there was "normal but solemn."

North Korea has said it does not want foreign dignitaries to attend the December 28 funeral and China said it had noted that, although it later said that the country's leadership was welcome to visit China "at a convenient time."

North Korean media lauded Kim Jong-il as the "Great Father of the People" and reported that he had made several public appearances in the past week.

Jong-un, the youngest son and successor to the ruling dynasty started by his grandfather, was described as the "eternally immovable mental mainstay of the Korean people" by KCNA.

In a sign the hermit state was sealing itself off from the outside world even more after the "Dear Leader's" death, few people crossed the Dandong border with China. China is one of the few states with which it actively trades.

"We can't go in now, because of the death of Kim Jong-il," Yu Lu, a Chinese trader in Dandong who does business with the North, told Reuters. "It's all closed off, and basically all the North Koreans are heading back. It's very tightly closed today."

However, it was not clear if the border was officially closed.

Chinese business people in Dandong said that while it was still possible to travel across Tuesday, many were cancelling trips, fearing the border could be closed.

"We're worried that it could be shut down at any time, because of the mourning activities, and nobody wants to be stuck in North Korea with the border closed," said Yu Lu.

North Korea made the announcement of the elder Kim's death of a heart attack Monday, prompting South Korea - with whom the North remains technically at war after a 1953 armistice ended a conflict - to put its forces on full alert.

Officials said neither the United States nor South Korea appeared to be aware of his death until the announcement.

South Korean media reported that the North test-fired at least one short-range missile Monday, sparking a fresh round of tension, although government officials in Seoul said they did not necessarily believe the launches were linked to Kim's death.

Doubts, fears nag Iraqis as U.S. pulls out



Zahora Jasim lost two brothers to bombs and gunmen in the years of turmoil and violence that followed the U.S. invasion of Iraq.

Now, as the troops leave for home, the Baghdad housewife fears her country's troubles are not over and wonders, like many Iraqis, if their fragile democracy will slide back into sectarian strife.

"The only images I have in my mind from these nine years are the deaths of my brother and his wife, of being forced from our homes, and the death of another brother in a bombing," she said.

"I don't think anything will really change. There will still be bombings, we will still have assassinations, and the government will not be able to do anything."

The U.S. military departure evokes mixed emotions. Some feel gratitude to the Americans for overthrowing dictator Saddam Hussein in the 2003 invasion. For others, a sense of sovereignty is tainted by sadness over lost relatives and memories of U.S. violations like the abuse of inmates in Abu Ghraib prison.

The last U.S. troops are rolling out of the country across the Kuwaiti border as President Barack Obama winds up the most unpopular war since Vietnam.

But Iraq remains uncertain in many ways. A power-sharing deal includes Sunni, Shi'ite and Kurdish parties, but the government struggles with sectarian tensions. Violence is down sharply but bombings and attacks remain part of daily life.

From the Shi'ite-dominated south to western Sunni strongholds, sectarianism bubbles just below the surface, and many are unsure their security forces can contain al Qaeda-linked insurgents and rival militias without U.S. help.

Bombings and attacks have eased since American and Iraqi security forces weakened insurgents. But roadside bombs, car bombs and assassinations still kill and maim almost every day.

A frail economy, constant power shortages, scarce jobs and discontent with political leaders all fuel uncertainty among Iraqis.

"Thanks to the Americans. They took us away from Saddam Hussein, I have to say that. But I think now we are going to be in trouble," Malik Abed, 44, a vendor at a Baghdad fish market. "Maybe the terrorists will start attacking us again."

SECTARIAN WORRIES

With the fall of a Sunni dictator, Iraq's Shi'ite majority has risen and a fragile power-sharing government is led by Shi'ite Prime Minister Nuri al-Maliki. But for some Sunnis, there is no sharing.

"I think sectarianism will return, the struggle between Sunni and Shi'ite. It is clear from the struggle the government has," said security guard Mohammed Ibrahim. "I feel marginalized as a Sunni, there are no jobs for us in the government."

Falluja, the site of bloody urban fighting during the height of the war, has a distinct view of the American presence, with many questioning the massive U.S. military operations there.

Sitting in the Sunni heartland, Falluja was once the heart of al Qaeda operations in Iraq. U.S. troops used overwhelming troop force, gunships and jets to crush the insurgency there. Many still seek compensation.

A group of Falluja residents burned and stamped on U.S. flags on Wednesday in celebration over the withdrawal. Others waved pictures of dead relatives.

"No one trusted their promises, but they said when they came to Iraq they would bring security, stability and would build our country. Now they are walking out, leaving behind killings, ruin and mess," said Ahmed Aied, a Falluja grocer.

Even as their country shakes off the worst of its violence, memories of war leave old and young alike fretting over peace and stability.

"I was just a young girl when the Americans came. I used to walk with the U.S. soldiers and take pictures with them and they talked with me. They gave me pencils, and school books," said Roua Mansour, a young mother in Baghdad

"Now I am always scared. I prefer to stay inside at home. There was once a big bomb at the Sheraton Hotel and since then I have been frightened. A mortar landed in our garden once. I hope it gets better, but security still worries me."

Opium growth increasing in Myanmar, Laos: U.N. report


Opium cultivation is back on the rise in Myanmar and Laos despite government eradication campaigns, with impoverished farmers lured by higher prices and strong demand from neighboring countries, a U.N. report said Thursday.

Land used for growing opium, a paste from poppy used to make heroin, has increased by 14 percent in Myanmar from last year and 38 percent in Laos, according to satellite and helicopter surveys carried out jointly by the United Nations Office on Drugs and Crime (UNODC) and the Myanmar and Lao governments.

The two countries form part of Southeast Asia's infamous Golden Triangle, which once accounted for more than 70 percent of the world's supply of heroin.

Myanmar accounts for 91 percent of regional production and an estimated 9 percent of global output. Afghanistan supplies at least three-quarters of global production.

Poverty and food security were a big concern in all the areas of Myanmar surveyed, with an estimated 35 percent of people having insufficient food, providing little incentive for farmers to stop growing poppies.

Cultivation in Southeast Asia climbed 16 percent in 2011 and there was twice as much land growing opium as five years ago, the survey said.

"There needs to be recognition that the lack of security, political stability and sustainable development are some of the key drivers behind increased opium production," Yuri Fedotov, UNODC executive director, said in the report.

Cultivation rose for a fifth consecutive year in Myanmar after six years of decline. The survey showed 43,600 hectares (107,700 acres) of land was used for opium, up 14 percent from 2010. Although average yields had fallen 8 percent, the larger area under cultivation resulted in an overall increase.

DRUGS AND CONFLICT

The affected areas were Shan State, which accounts for 91 percent of total growth, and Kachin State, where cultivation was up 27 percent from 2010.

Kachin and Shan States bordering China have for decades been battlefields between ethnic rebels and the Burmese military, leaving the areas virtually lawless and deprived of state funds.

Critics have long doubted Myanmar's commitment to wiping out the lucrative trade because some of the military generals who led the country until early this year enjoyed close ties with tycoons linked to the drug business.

However, Western countries are hoping the new civilian government that took office in March, which seems keen to improve Myanmar's image and engage with the international community, might take a tougher line on opium.

The government has embarked on a series of reforms that have stunned its critics and is now seeking peace talks with rebel groups in Shan and Kachin. It has made cooperation to suppress drug production central to proposed cease-fire deals.

In Laos, large concentrations of growth were detected in two provinces previously identified as opium-free.

The total area under cultivation was still low compared with 10 years ago, but it represented a 38 percent increase from 2010, expanding 4,100 hectares, with a potential yield of 25 tonnes that was drawing more families into a business geared mostly toward serving local addicts, the UNODC said.

The government was not doing enough to tackle the problem, it said, with only 10 percent of 1,100 villages that had stopped growing opium receiving alternative development assistance.

Hospital fire kills at least 73 in eastern India



A fire swept through a seven-storey hospital in the eastern Indian city of Kolkata on Friday, killing at least 73 people, most of them patients, a senior hospital official said.

The flames were brought under control by late morning and rescue workers had begun to retrieve the bodies from the building, including at least two children, a Reuters witness said.

Television showed patients being rolled out on stretchers and distraught relatives waiting outside the hospital as a thick layer of smoke engulfed the building.

At least 73 people died, all but three of them patients, the hospital's vice-president, S. Upadhay, told reporters.

He said 90 patients were safely evacuated.

Authorities believe the fire started in the basement, where flammable materials such as oxygen cylinders were stored.

"The fire was detected at 3.30 (a.m.)...we called the fire brigade within five to 10 minutes," Upadhay said.

Two dozen fire trucks were sent to douse the blaze and evacuate the building, but thick smoke hindered rescue operations, officials said.

"The hospital is such that neither the ladders nor the fire brigades could get through ... so the rescue operations got a little delayed and in that time the smoke had risen up to the higher levels," Firhad Hakim, the state's Urban Development Minister, told reporters.

Blast wounds French UN peacekeepers in South Lebanon


A bomb exploded near a UNIFIL peacekeeping patrol on Friday, wounding five French soldiers in southern Lebanon, a witness and security sources said.

The blast, which hit a jeep carrying the French peacekeepers on the outskirts of the city of Tyre, was the third attack on the UNIFIL forces deployed to keep the peace along Lebanon's southern frontier with Israel.

"I can confirm that a UNIFIL vehicle was hit by an explosion in Tyre," UNIFIL spokesman Andrea Tenenti said.

A Reuters reporter saw six wounded people at the scene minutes after the explosion. Security sources said five of them were French UNIFIL personnel, and that two passersby had also been wounded. Most of the injuries were light but medical sources said one of the UNIFIL soldiers was badly wounded.

Friday's attack followed two roadside bombings targeting UNFIL forces near the city of Sidon earlier this year. In May six Italian peacekeepers were wounded, prompting Italy to look into reducing its peacekeeping contribution in Lebanon.

Two months later six French soldiers were wounded in another attack.

UNIFIL has about 12,000 troops and naval personnel in Lebanon after its expansion under U.N. Security Council resolution 1701 that halted the 2006 Israel-Hezbollah war in southern Lebanon.

Pakistan army believes NATO attack planned: reports


A senior Pakistani military officer said a NATO air strike that killed 24 Pakistani troops on the border with Afghanistan last month was pre-planned, newspapers reported on Friday, comments likely to fuel tension with the United States.

Major General Ashfaq Nadeem, director general of military operations, also said Pakistan, a strategic U.S. ally, would deploy an air defence system along the border to prevent such attacks, the newspapers said.

The newspapers said he made the remarks to a Senate committee on defence on Thursday. Military officials were not immediately available to comment.

The Daily Times said Nadeem described the attack as a plot while another newspaper quoted him as saying it was a "pre-planned conspiracy" against Pakistan.

"We can expect more attacks from our supposed allies," Nadeem was quoted as saying during his briefing, The Express Tribune reported.

U.S. and Pakistani officials have offered differing initial accounts of what happened.

Pakistan said the attack was unprovoked, with officials calling it an act of blatant aggression -- an accusation the United States has rejected.

Two U.S. officials told Reuters that preliminary information from the ongoing investigation indicated Pakistani officials at a border coordination centre had cleared the air strike, unaware they had troops in the area.

Nadeem ruled out the possibility that NATO forces may have thought they were firing on militants, who often move across the porous frontier and attack Western troops.

One newspaper reported that he told the Senate committee that militants do not leave themselves exposed on mountain tops, like the ones where the Pakistani border posts were located.

Pakistan responded to the attack by suspending supply routes to NATO forces in Afghanistan.

Idle drivers of trucks carrying fuel and other supplies to the neighbouring country fear being attacked by Pakistani Taliban militants who oppose cooperation with NATO.

Militants fired a rocket-propelled grenade at such trucks in the southwestern city of Quetta in Baluchistan province on Thursday night, setting fire to 29 vehicles, police officials said.

Washington, which sees Pakistan as critical to its efforts to stabilise Afghanistan ahead of a combat troop pullout in 2014, has tried to sooth fury over the NATO incident.

President Barack Obama called Pakistan's president to offer condolences over the strike that provoked a crisis in relations between the two countries. He stopped short of a formal apology.

Pakistan boycotted an international conference in Germany on the future of Afghanistan because of the NATO attack.

U.S.-Pakistani ties were already frayed after the secret U.S. raid in May that killed al Qaeda leader Osama bin Laden.

China unrest spreads to bamboo furniture factory


Hundreds of Chinese workers at a bankrupt furniture factory staged a mass rally on Thursday, facing off with riot police in the latest flare-up of industrial unrest.

Workers at the bamboo and wood furniture factory in Anji in the eastern province of Zhejiang took to the streets to demand back wages after the plant went bankrupt, Hong Kong's Ming Pao Daily said on Friday.

Chinese microblogging sites showed large numbers of riot police surrounding workers at the scene and postings said some workers had been beaten.

A rash of highly organised and potent strikes have hit the factories of a number of global brands including PepsiCo Inc, Japanese watchmaker Citizen Holdings Co Ltd, and shoemaking giant Yue Yuen Industrial (Holdings) Ltd.

While the reasons for the strikes have varied from factory to factory, workers have often complained that jobs and wages are under pressure as manufacturers and exporters look to cut costs in response to slowing Western orders, especially from debt-ridden Europe.

At least two strikes were still simmering at the Singapore-owned Hi-P International Ltd factory, which makes electronics for clients including Apple Inc, with workers demanding compensation for a factory relocation they fear could lead to layoffs.

About 100 Hi-P workers gathered outside a Shanghai government office on Thursday to petition the authorities for help, but dispersed without incident after police arrived.

In the Pearl River Delta plant of Hitachi Ltd-owned Hailiang Storage Products, nearly 800 workers continued to strike, staging a peaceful sit-in in front of the factory on Thursday, labour advocacy group China Labor Watch reported.

Workers were angered that their seniority and benefits may be eroded once a takeover of the factory by Western Digital Corp goes through in March next year.

The group urged "both factories to address their workers' problems with their opaque and unfair management styles and bring their workers into the decision-making process."

U.S. citizen jailed for insulting Thai monarchy



A U.S. citizen was jailed for two-and-a-half years on Thursday for insulting the Thai monarchy, prompting the U.S. Embassy to speak out at the severity of the sentence and say it supported the freedom of expression everywhere in the world.

Thai-born Lerpong Wichaikhammat, 55, had pleaded guilty in October to using the Internet to disseminate information that insulted the monarchy, charges stemming from material posted on his blog in the United States, where he has citizenship.

He was arrested in May during a visit to Thailand.

"The defendant is found guilty ... The court sentenced him to five years in prison. But he pleaded guilty. That makes the case easier, so the court decided to cut it in half to 2 years and six months," a judge said at the criminal court in Bangkok.

Thailand has the world's toughest lese-majeste laws protecting its monarch. The number of cases has jumped in recent years and sentences have become harsher, coinciding with a period of political turbulence in the country.

Lerpong's lawyer, Anon Nampa, said there would be no appeal against the verdict. "One month from now, we'll submit a request for a royal pardon," he added.

Other foreigners who have fallen foul of the lese-majeste law in recent years have tended to spend a short period in jail before being pardoned. Thais have not got off so lightly, one recently getting 20 years for text messages deemed offensive.

Elisabeth Pratt, consul general at the U.S. Embassy in Bangkok, said Joe Gordon -- the name Lerpong goes by -- was an American citizen and would continue to get consular help.

"We're very concerned over the severity of the sentence that has been imposed on Joe Gordon. We support the freedom of expression here in Thailand and internationally throughout the world," she told reporters at the court.

Lerpong was also accused of providing a web link to a biography by an American author of 84-year-old King Bhumibol Adulyadej that is banned in Thailand, where many people regard the king as almost divine.

Before the verdict was read out, Lerpong was allowed to speak to reporters.

"I'm not Thai, I'm American. I was just born in Thailand. I hold an American passport. In Thailand there are many laws that don't allow you to express opinions but we don't have that in America," he said.

Critics say the law is being abused to discredit activists and politicians.

The generals who overthrew former Prime Minister Thaksin Shinawatra in 2006 cited his alleged disrespect for the monarchy among other reasons.

"Personally I don't know Thaksin and usually I don't get involved in politics," Lerpong said. "I'm proud to be American."

Tepco may dump decontaminated water from nuclear plant into sea



The operator of Japan's crippled Fukushima nuclear power plant said on Thursday that it is considering dumping water it treated for radiation contamination into the ocean as early as March, prompting protests from fishing groups.

Tokyo Electric Power, (Tepco) the utility operating Fukushima's Daiichi plant hit by a powerful tsunami in March in the world's worst nuclear accident in 25 years, said it was running out of space to store some of the water it treated at the plant due to an inflow of groundwater.

"We would like to increase the number of tanks to accommodate the water but it will be difficult to do so indefinitely," Tepco spokesman Junichi Matsumoto told reporters, adding the plant was likely to reach its storage capacity around March.

The admission is a setback for the utility which appeared to be making progress in its cleanup after building a cooling system that no longer required pumping in vast amounts of water. It also built a system, drawing on French, U.S. and Japanese technology, that decontaminates the vast pool of tainted runoff to supply the cooling system with water.

The company said representatives of a nationwide federation of fishing cooperatives on Thursday visited its Tokyo headquarters to protest.

Tepco said it is still assessing the potential environmental impact of releasing the accumulating water, but that if forced to do so it would discharge water expected to have the least effect the environment.

Tens of thousands tons of water contaminated with radiation have accumulated at the plant, 240 kilometers (150 miles) northeast of Tokyo after early on in the crisis Tepco tried to cool reactors that suffered nuclear fuel meltdowns by pouring in water, much of it from the sea.

"Our priority is also to look for ways to limit the inflow of groundwater into the buildings at the plant," Matsumoto said.

The operator estimates that due to the inflow the amount of water requiring storage is increasing by 200 to 500 tonnes every day.

The utility released more than 10,000 tonnes of water tainted with low levels of radiation in April to free up space for water that had much higher levels of radioactivity, drawing sharp criticism from neighboring countries such as South Korea and China.

Yemen vice president sets up unity government



Yemen's vice president issued a decree on Wednesday to set up a national unity government to prepare for elections, as fighting raged on the streets of the capital Sanaa.

The announcement by vice-President Abd-Rabbu Mansour Hadi paves the way for a unity government to be sworn in as part of a plan to end months of protests against outgoing President Ali Abdullah Saleh.

In the latest threat to a transition away from Saleh's 33-year rule, government forces traded artillery fire with tribal foes in Sanaa, witnesses said. One person was killed and more than a dozen were injured, according to the office of a tribal leader and Saleh opponent whose compound came under fire.

Under a Gulf-brokered power transfer plan signed in Saudi Arabia last month, Saleh's General People's Congress (GPC) party agreed to divide cabinet posts with its opponents in a coalition government headed by an opposition leader.

Mohammed Basindwa, a former foreign minister, was nominated to head the new government by opposition parties. The GPC retained the key portfolios of defence and foreign affairs, while opposition parties received the interior and finance ministries.

Basindwa told Reuters the swearing in would take place on Saturday.

Apart from preparing for the presidential election, set for February 21, 2012, the new government faces numerous challenges, such as restoring security, providing vital services disrupted by 10 months of mass protests and combating rising separatist sentiment in the south.

"I think the government is going to find it very difficult to be able to function and govern the whole of the united country properly. It remains to be seen how the street will react to this new government and the south also in particular," said Ghanem Nuseibeh, an analyst and founder of the Cornerstone Global Associates consultancy.

The government must also deal with Islamist militants who have exploited the protests to strengthen their southern foothold.

Top oil exporter Saudi Arabia and the United States that a slide toward more chaos after the uprising against Saleh would embolden Yemen's al Qaeda wing, against which Washington has waged a campaign of drone strikes.

FIGHTING IN SANAA

Fighting raged in Sanaa on Wednesday near government buildings and the compound of tribal leader Sadeq al-Ahmar, an arch-rival of Saleh. His office said one person had been killed and 13 injured in shelling by government forces on the al-Hasaba district.

Witnesses said shells had fallen on government buildings including the headquarters of state radio and the prime minister's offices as government forces fought Ahmar's men in their al-Hasaba stronghold.

"Militants and army soldiers have been fighting near the Interior Ministry since dawn. They're using machineguns and RPGs," Abdul Rahman, a Sanaa resident, said by phone as gunfire reverberated in the background.

"We are trapped in our homes and can't get out," he said. Residents of Sanaa said the streets were nearly empty in the affected districts.

The capital saw open warfare in May between Saleh's forces and those of Ahmar, a leader of the powerful Hashed tribal confederation, after Saleh pulled out of signing the transition deal backed by the Gulf Cooperation Council.

Last month Saleh bowed to international pressure and street protests demanding an end to chronic poverty, rampant corruption and lack of economic opportunity, and handed his powers to Hadi.

But the deal is threatened by fighting between Saleh's allies and enemies. In Taiz, 200 km (120 miles) south of Sanaa, the clashes have left at least 20 dead and led the United Nations to demand that government forces stop shooting protesters.

As fighting continued with al Qaeda-linked Islamists in the south, nine militants and four soldiers were killed on Wednesday outside the city of Zinjibar, centre of a province where the militants have seized swathes of territory, a local official said.

In Yemen's north, new fighting flared up on Wednesday between Shi'ite Muslim rebels, whom Saleh's forces attempted to crush with Saudi help in 2009, and Sunni Muslim Salafi Islamists, a Salafi spokesman said.

The Salafis, who espouse a puritanical creed influential in neighboring Saudi Arabia, have said at least 25 people were killed late last month in attacks by Shi'ite Houthi fighters on a Salafi-run religious school in Saada province on the Saudi border.

The Houthis effectively control the province and are deeply suspicious of the Salafis, who deem Shi'ites heretics. They accuse the Salafis of attempting to build military camps near the border.

Italian Mafia boss arrested in fortified bunker


Mafia boss Michele Zagaria, one of Italy's most wanted men, was captured on Wednesday after police drilled into a concrete underground bunker where the man known as "Twisted Head" was hiding.

Zagaria, who had been on the run for 16 years, was head of the Casalesi clan of the Camorra that controlled a swathe of territory north of Naples. The clan inspired Roberto Saviano's best-selling book "Gomorrah: Italy's Other Mafia," which was made into a violent, prize-winning movie.

The 53-year-old, sentenced in absentia to life imprisonment for murder in 2008, was captured in his home town of Casapesenna, police said.

Zagaria's bunker was about 50 square meters (540 sq feet) in size and hidden behind a 5-metre (16 feet) thick wall of reinforced concrete that opened and closed electronically.

Police cut off electricity and air to the bunker, and then drilled through the wall, according to police sources. The bunker was decorated with crucifixes and sacred images, and it was clear that he had lived there for years, they said.

The mug shot distributed on Wednesday showed an ageing, grey-haired man, startlingly different from the picture of a tough-looking, dark-haired Zagaria that had been posted on the Interior Ministry's page of Italy's Most Wanted.

"This is a great day, but the battle against these criminal entrepreneurs is far from over," Saviano told Ansa news agency. Saviano today lives under police protection because Zagaria wanted him dead.

The Casalesi, unlike the fragmented Camorra clans within the city of Naples, had consolidated control over a large geographic area. It used proceeds from drug trafficking and extortion to invest in a range of legitimate investments at home and abroad, from trash collection to construction.

Zagaria, nicknamed capastorta or "Twisted Head" in a reference to his brutality, had ruled the clan alongside Antonio Iovine, who was arrested last year.

Raffaele Cantone, a former Naples magistrate who has lived under police protection since 2003 when it was learned that the Casalesi clan had ordered his assassination, compared the arrest to that of the Sicilian Mafia's "boss of bosses" Bernardo Provenzano in 2006.

"With Zagaria's arrest, the Casalesi clan as we've known it ceases to exist, and we'll have to see what form it will take now," Cantone told Reuters. "It's the end of an epoch."

Prime Minister Mario Monti hailed the arrest as a "great day" for all "honest people." Interior Minister Annamaria Cancellieri said it was "a huge success ... not only against the Casalesi clan but against the entire Camorra organization."

Zagaria will be transferred as early as Wednesday to a high-security prison near Novara in northern Italy, where he will be isolated in his own cell and monitored 24 hours a day, Ansa reported.

A Naples court on Tuesday asked parliament to allow the arrest of lawmaker Nicola Cosentino, a former Treasury undersecretary in Silvio Berlusconi's government, for having been the "national political go-between for the Casalesi clan," according to an arrest order seen by Reuters.

Cosentino denies all charges.

Putin's party has domination cut in Russia



Several thousand protesters took to the streets on Monday to demand an end to Russian Prime Minister Vladimir Putin's 12-year rule after voters cut his party's parliamentary majority in an election that was condemned as unfair by European monitors.

Police said they detained 300 people in Moscow, where they confronted a crowd of 3,000 to 5,000 chanting "Revolution!" and "Russia without Putin" in one of the biggest opposition protests in the capital in years.

Police scuffled with some protesters and formed a line to hem them in and prevent them marching towards the Kremlin. Some managed to break away and head towards the seat of power, but at least 30 were seized before they got there.

The Central Election Commission said the prime minister's United Russia party was set to have 238 deputies in the 450-seat State Duma after Sunday's vote, compared with 315 seats in the current lower house.

The result was Putin's worst election setback since he came to power 12 years ago and signaled growing weariness with his domination of Russian politics as he prepares to reclaim the presidency in an election next March.

President Dmitry Medvedev said Sunday's election was "fair, honest and democratic," but European monitors said the field was slanted in favour of United Russia and the vote was marred by apparent manipulations.

The United States has "serious concerns" about the conduct of the election, a White House spokesman said.

The observers said there had been "serious indications of ballot box stuffing" in a harsh verdict on the election that suggested United Russia could have suffered an even bigger decline in support if the voting had been completely fair.

They also said the election preparations "were marked by a convergence of the state and the governing party, limited political competition and a lack of fairness."

"The country has never seen such a dirty election," said Communist Party leader Gennady Zyuganov, who dismissed the official results as "theft on an especially grand scale."

Former Soviet leader Mikhail Gorbachev, who has compared United Russia to the Soviet Communist Party and advised Putin not to return to the presidency, said the election was "not the most honest."

"We do not have real democracy and we will not have it if the government is afraid of their people, afraid to say things openly," Gorbachev, the father of far-reaching reforms in the final years of the Soviet Union, said on Ekho Moskvy radio.

PUTIN DEFENDS PARTY'S PERFORMANCE

Putin says he brought stability to Russia after the chaos in the years that followed the collapse of the Soviet Union in 1991 and that Russians benefited from an economic boom fuelled by high oil prices during his presidency from 2000 to 2008.

But many Russians now complain of widespread corruption and the growing gap between the rich and poor, and an increasing number say they are disillusioned with Putin and his party.

Putin, 59, defended the party's performance at a government meeting, saying a simple majority of 226 was enough to pass most legislation, and suggested this was sufficient to maintain stability.

"United Russia has been a significant part of the foundation of our political stability in recent years, so its successful performance in the election was important not just for the government but, in my view, for the whole country," he said.

But Medvedev, who led the party into the election at Putin's behest, said voters had sent "a signal to the authorities" and hinted that officials in regions where the party did badly could face dismissal if they do not shape up.

"United Russia did not do too well in a series of regions, but not because people refuse to trust the party itself ... but simply because local functionaries irritate them," he said.

"They look and they say ... if that's United Russia, there's no way I'm going to vote for him."

Opponents said United Russia's official result -- just under 50 percent of the vote -- was inflated by fraud and that it could, in reality, have received far fewer votes.

Although Putin is still likely to win a presidential election next March, the result could dent the authority of the man who has ruled with a mixture of hardline security policies, political acumen and showmanship.

FADING APPEAL

Some voters have been alienated by his suggestion that he and Medvedev, the protege he tapped as successor in 2008 after serving the limit of two consecutive terms as president, had agreed long ago that his protege would step aside next year.

Putin has cultivated a tough man image with stunts such as riding a horse bare-chested, tracking tigers and flying a fighter plane. But the public appears to have wearied of the antics and his popularity, while still high, has fallen.

Some fear Putin's return to the presidency may herald economic and political stagnation.

Putin has as yet no serious personal rivals as Russia's leader. He remains the ultimate arbiter between the clans which control the world's biggest energy producer.

The Communists made big gains to 92 seats in the Duma and official projections put left-leaning Just Russia on 64 Duma seats, up from 38. Vladimir Zhirinovsky's nationalist LDPR will have 56 seats.

The other three parties on the ballot, including the liberal Yabloko, fell short of the 5 percent threshold needed to gain even token representation in the Duma.

A prominent party of Kremlin foes led by Putin's first-term prime minister Mikhail Kasyanov was barred from the ballot.

Medvedev said alleged violations must be investigated but asserted that there was no major fraud.

The result is a blow for Medvedev, whose legitimacy to become prime minister in the planned job swap with Putin after the presidential vote could now be in question

Islamist rivals in Egypt election stand-off



Rival Islamists in Egypt's parliamentary election played up their differences in a first-round run-off vote, with the top-placed Muslim Brotherhood anxious to show a moderate face to Egyptians hungry for stability.

Hardline Salafis were the surprise runner-up in last week's opening stage, the biggest test of the public mood since street protests ended Hosni Mubarak's three-decade rule in February.

But during the run-offs that conclude on Tuesday, both the Salafis and the Brotherhood are sounding lukewarm on the chances of forming a dominant Islamist bloc if they repeat their early success in subsequent voting rounds ending on January 11.

"There were attempts to unite but Salafis are very difficult," said Mohamed Hussein, 20, as he distributed leaflets for the Brotherhood's Freedom and Justice Party (FJP) in front of a polling station in the port city of Alexandria.

"We may agree on certain things but we are different in vision and strategy," he said. "It is easier for me to talk with a liberal or a socialist than a Salafi."

The Salafi al-Nour's Party's leader Emad Abdel Ghaffour said the Brotherhood may try to paint the Salafis as troublemakers. "We hate being followers," he told Reuters.

Army generals have ruled a restive Egypt for nine months promising a transition to democratic civilian rule. Mass protests and street clashes in the run-up to the parliamentary vote forced them to bring forward their departure date.

The elected assembly, with its fresh popular mandate, will loom over the ruling military council until the army hands power to an elected president in mid-2012.

Despite its early electoral success, the Brotherhood seems unlikely to seek a showdown with the generals. Egypt's oldest Islamist group renounced violence long ago and has tended to avoid confrontation in furthering its aims.

Its chosen pitch for now is likely to be a new constitution that the new parliament will influence by appointing the assembly that will draft the document.

ISLAMIST-LIBERAL ALLIANCE?

Voting was slow in Cairo, Alexandria and Port Said as the run-offs began on Monday, in contrast to the crowds at polling stations last week.

After the opening round, the FJP's party list won 36.6 percent of valid first-round votes, with al-Nour's list winning 24.4 percent and a liberal Egyptian Bloc on 13.4 percent.

But one fifth of the FJP's list included a variety of smaller parties that included the liberal al-Ghad (Tomorrow) party and the left-leaning Karama (Dignity), a precedent for possible cooperation between the Brotherhood and liberals.

Al-Nour - which wants to stop visitors wearing bikinis on the beach and ban alcohol, a death knell for tourism - quit an electoral alliance with the FJP before the vote, accusing the FJP of hogging too many seats on the list.

The Brotherhood's rivals say it bent campaigning rules by lobbying for votes outside polling stations. The movement said its rivals should accept the result as the will of the people.

Its early success was no surprise given its large network of activists and decades of grass-roots charity work.

But the strong showing by Salafis was a shock for many liberal Muslims and for Coptic Christians, who make up a tenth of Egypt's 80-million population.

"We still have high hopes that the silent majority in the coming two phases will go to the ballot boxes and we still rely on a comeback by the liberal wing," said Youssef Sidhom, editor-in-chief of Orthodox Coptic newspaper al-Watani.

Even if the Brotherhood consolidates its first-round success, Sidhom said, its more moderate members may prevail.

"They know they cannot honor the responsibility that has been bestowed upon them by the people by only preaching Islamic beliefs and a fundamentalist Islamic way of life," he said.

Under a complex system, two-thirds of the 498 elected lower house seats go proportionately to party lists, with the rest going to individual candidates, who must win more than 50 percent of votes in the first round to avoid a run-off.

Only four seats were won outright in the first round, leaving 52 to be decided in the run-off voting on Monday and Tuesday, 24 of them contested between the FJP and al-Nour. Other seats will be decided in later rounds.

Clashes erupt in Congo ahead of vote results



Clashes erupted between protesters and security forces in parts of Democratic Republic of Congo on Monday as diplomats scrambled to defuse tensions ahead of the country's full election results.

Police fired tear gas at opposition supporters in Kinshasa, and gunfire rang out in a city in West Kasai province, an opposition stronghold, after the government shut down a television and radio broadcaster.

The U.N. mission in Congo led a delegation of diplomats to meet with incumbent President Joseph Kabila and his main rival, Etienne Tshisekedi, to ease tensions stretched by allegations the November 28 poll was mismanaged and fraudulent.

Partial preliminary results released so far - representing about 68 percent of the ballots cast - showed Kabila with about 46 percent of the vote to Tshisekedi's 36 percent, but the opposition has said they would reject the outcome. Full preliminary results are expected as early as Tuesday.

At least 18 people have been killed in election-related violence, according to Human Rights Watch, and a senior member of Kabila's camp said the government will have to call in the army if protests become "too chaotic."

"We cannot let chaos prevail. If the situation becomes too chaotic for the police, we will definitely call for the army to come and help," Kikaya Bin Karubi, Congo's ambassador to Britian and a top official in Kabila's camp, told Reuters.

The first locally organized and funded election since the official end of years of war in 2003 was meant to offer hope that the mineral-rich, crisis-riddled giant may stabilize.

But fears are mounting a rejection of the results will pave the way for further bloodshed.

ESCAPE BY BOAT

A national mediation commission is in place and former Zambian President Rupiah Banda may be involved in further talks, sources said. The United Nations peacekeeping mission also led a delegation that included Russian and Gabonese ambassadors to meet with Kabila and Tshisekedi.

Karubi said mediation was a "non-starter" as there was no current conflict, though a spokesman for Banda said he had been approached and was ready to travel to Congo.

"He is just waiting for the U.N. to send a plane for him to travel. He has accepted to mediate," a spokesman for Banda told Reuters, asking not to be named.

Tshisekedi enjoys broad support in Congo's sprawling capital Kinshasa, raising worries a Kabila win will spark unrest in the city of 10 million people.

Sirens blared as police convoys pushed through Kinshasa traffic Monday afternoon, and women and children piled into boats along the Congo River to leave for Congo Republic on the other bank, fearing an outbreak of violence.

"We decided to leave Kinshasa for Brazzaville to stay with family while we wait and see how things develop," said Paulette Pombo, a 43-year-old who sells drinks at a Kinshasa market.

Police used teargas on a crowd of opposition supporters who had gathered near Tshisekedi's residence in Kinshasa, a witness and an opposition party official said.

Gunfire also erupted in the city of Mbuji Mayi in West Kasai province after Tshisekedi supporters protested the closure of a local opposition television and radio station, provincial civil society leader Alexis Kasuasua said.

Tshisekedi supporters had been attempting to block roads in the city and were being dispersed, Alphonse Kasanji, the governor of West Kasai, told Reuters.

There were no reports of injuries from either incident.

In Brussels, home to a large community of Congolese immigrants, police used water cannon to break up a crowd of Tshisekedi supporters, some of whom were burning trash in the street and shouting slogans. Scuffles were also reported outside Conglese embassies in South Africa and France.

Congo's Catholic Church urged election authorities on Sunday to ensure published poll results were a true reflection of voters' intentions and warned that a dispute over the election could trigger major unrest.

Congo's election commission defied all odds to hold the presidential and parliamentary poll last week. Often chaotic and at times violent, voting had to be stretched over three days due to delays in places.

International observers have warned that the various steps of the counting process after the initial tally at polling stations have been poorly organized, with ballots and results sheets often being lost or destroyed in the process.

Kabila's camp has said the president would accept defeat. But it accused the opposition of readying people for protests and said he will not tolerate any threats to his authority on the streets in the event of him winning.

Putin's party clings to reduced majority in Russia


(Reuters) - Vladimir Putin's ruling party clung to a much reduced majority in parliament on Monday after an election that showed growing weariness with the man who has dominated Russia for more than a decade and plans to return to the presidency next year.

Putin's United Russia won 49.5 percent of the votes on Sunday, compared with 64 percent support four years ago, and enough to take up 238 of the 450 seats in the State Duma lower house, almost complete results and projections showed.

The party received nearly one-third fewer votes than in 2007 and fell far short of the 315 seats it secured in the last Duma election, making it the biggest electoral setback for Putin since he rose to power in 1999.

Opponents said even this outcome was inflated by fraud. The leader of the Communist Party, on target to increase its representation from 57 to 92 seats, said the election was the dirtiest since the collapse of the Soviet Union in 1991.

Although Putin is still likely to win a presidential election next March, Sunday's result could dent the authority of the man who has ruled for 12 years with a mixture of hardline security policies, political acumen and showmanship but who was booed and jeered after a martial arts bout last month.

"Many Russians voted against the system and Putin is the head of that system," said Stanislav Kucher, a commentator with Kommersant FM radio station.

"Putin has a very difficult choice. To survive politically he needs to reform but he can only reform if he gets rid of many vested interests in the ruling circle. To stay as he is means the opposite of political survival."

Putin has cultivated a tough man image with stunts such as riding a horse bare chested, tracking tigers and flying a fighter plane. But the public appears to have wearied of the antics and his popularity, while still high, has fallen.

Many voters, fed up with widespread corruption, refer to United Russia as the party of swindlers and thieves and resent the huge gap between the rich and poor. Some fear Putin's return to the presidency may herald economic and political stagnation.

PUTIN SAYS OPTIMAL RESULT

Putin and Medvedev, who took up the presidency in 2008 when Putin was forced to step down after serving a maximum two consecutive terms, made a brief appearance at a subdued meeting at United Russia headquarters late on Sunday.

Medvedev said United Russia, which had previously held a two thirds majority allowing it to change the constitution without opposition support, was prepared to forge alliances on certain issues to secure backing for legislation.

"This is an optimal result which reflects the real situation in the country," Putin, 59, said. "Based on this result we can guarantee stable development of our country."

But there was little to cheer for the man who has dominated Russian politics since he became acting president when Boris Yeltsin quit at the end of 1999 and was elected head of state months later.

His path back to the presidency may now be a little more complicated, with signs growing that voters feel cheated by his decision to swap jobs with Medvedev next year and dismayed by the prospect of more than a decade more of one man at the helm.

COMMUNIST GAINS

The Communists made big gains and officials projections put the left-leaning Just Russia on 64 Duma seats, up from 38, and Vladimir Zhirinovsky's nationalist LDPR on 56, up from 40.

"Russia has a new political reality even if they rewrite everything," said Sergei Obukhov, a Communist parliamentarian.

Many of the votes were cast in protest against United Russia rather than in support of communist ideals because the Party is seen by some Russians as the only credible opposition force.

"I voted against United Russia to support some kind of opposition in the country," said Tamara Alexandrovna, a pensioner in Moscow. "I've seen a one-party system and we cannot go back to that."

Opposition parties complained of election irregularities in several parts of a country spanning 9,000 km (5,600 miles) and a Western-financed electoral watchdog and two liberal media outlets said their sites had been shut down by hackers intent on silencing allegations of violations.

Police said 70 people were detained in the second city of St Petersburg and dozens were held in Moscow in a series of protests against alleged fraud.

Opposition parties say the election was unfair from the start because of authorities' support for United Russia with cash, influence and television air time.

"The country has never seen such a dirty election," said Communist Party leader Gennady Zyuganov, who dismissed the official results as "theft on an especially grand scale."

Zyuganov said police had barred Communist monitors from several polling stations and "some ended up in hospital with broken bones". He said some ballot boxes were stuffed before voting began.

Election monitors were due to comment on the voting later on Monday.

Putin has as yet no serious personal rivals as Russia's leader. He remains the ultimate arbiter between the clans which control the world's biggest energy producer.

Russian stock and currency markets disregarded the election results at Monday's opening, remaining hostage to global financial developments and the performance of companies.

"In our world the big news is that Russian companies are actually paying dividends -- that's more important than a result that wasn't a surprise," said Roland Nash, chief strategist at hedge fund Verno Capital in Moscow.

The result is a blow also for Medvedev, who led United Russia into the election. His legitimacy as the next prime minister could now be in question.

Slovenia mayor faces tough coalition talks


(Reuters) - Slovenia tasked the mayor of its capital city on Monday with establishing a government to stop the euro zone member's slide back into recession, and he faces potentially weeks of tough coalition talks.

The European crisis claimed its latest scalp on Sunday with the Social Democrats of prime minister Borut Pahor relegated into third place by voters angry over rising unemployment in the former Yugoslav republic.

Zoran Jankovic, the centre-left mayor of Ljubljana and former manager of Slovenia's largest food retailer Mercator, took 28 seats in the 90-seat parliament, and will need partners in government.

Even if he gets them, there were concerns on Monday that the coalition might prove too unwieldy to carry out the painful reforms analysts say are necessary, including a divisive pension reform.

"There is a big question mark over how strong Jankovic's government will be ... whether it will be able to push through parliament the legislation necessary to stop the growth of public finance spending," Slovenian daily Finance said in an editorial.

A test of confidence will come on Tuesday when the Finance Ministry will attempt to sell up to 1 billion euros of 18-month treasury bills to roll over debt at the start of 2012.

Five-year Slovenian credit default swaps fell 5.01 percent to 374 basis points by 0844 on Monday, according to Markit data, but were still 104 percent higher than three months ago.

Bojan Ivanc of KD Banka attributed the fall to signs of French-German progress on the euro zone crisis, "rather than a reaction to the Slovenian election."

The blue-chip SBI index eased slightly in Monday morning trade, down 0.19 percent to 609.2 points by 0844 GMT.

DIVISIVE PENSION REFORM

The Alpine state of 2 million people was the fastest growing euro zone member four years ago, but its export-driven economy was badly hit by the global crisis and shrank by 8 percent in 2009.

After a mild recovery in 2010, figures released last week suggest another recession is on the way. The economy contracted 0.5 percent year-on-year in the third quarter.

The budget deficit soared to 5.8 percent in 2010 from zero in 2007.

Sunday's election result was an upset, with opinion polls predicting for weeks that victory would go to the centre-right Slovenian Democratic Party of former prime minister Janez Jansa.

Jansa said that, given the tight result, he did not believe the next government would last its 4-year mandate. Pahor's crumbled in May and was voted out by parliament in September, forcing a snap election.

"Forming a coalition will be difficult," Tanja Staric, a political commentator for the Slovenian daily Delo, told Reuters. "Jankovic will have to offer a coalition to virtually all small parties in parliament, and the differences are big."

Analysts said the Social Democrats, with 10 seats, were likely to get a share of power again in coalition with Jankovic's party, List of Zoran Jankovic - Positive Slovenia.

Jankovic was also likely to look to the centrist Civil List of Gregor Virant, the pensioners party Desus and possibly the centre-right Slovenian People's Party.

In its editorial, Finance said Jankovic would find it hard to push through a pension reform that would raise the retirement age for Slovenians from 57 for women and 58 for men, given opposition from Desus and trade unions.

A pension plan under the previous government was rejected in a referendum in June. Jankovic has also said he is against privatizing state-owned firms as a way to boost budget revenues and ease the credit crunch.

Jankovic says he plans to raise value added tax by 1 percentage point to 21 percent, a move opposed by two of his potential coalition partners.

Lively Chavez hosts Latin American peers, snubs U.S



(Reuters) - Displaying new vigor after cancer treatment, Venezuela's President Hugo Chavez hosted fellow Latin American leaders to launch a new regional body on Friday that pointedly excludes the United States.

The inauguration of the 33-member Community of Latin American and Caribbean States (CELAC), which also does not include Canada, was the Venezuelan socialist's biggest moment on the world stage since he underwent surgery in June.

The 57 year-old Chavez, who wants to win re-election next October in the OPEC nation, embraced and lavished warm words on his counterparts, including Dilma Rousseff of Brazil, Argentina's Cristina Fernandez and Cuba's Raul Castro.

"As the years go by, CELAC is going to leave behind the old and worn-out OAS," Chavez said, referring to the hemisphere-wide Organization of American States that leftist governments say is under Washington's thumb.

The new group has lofty aims including the creation of a regional reserves fund for economic crises and a body for human rights monitoring. But critics say it unnecessarily adds yet another acronym to the plethora of overlapping, "alphabet soup" organizations that already exist around Latin America.

Exuding confidence, Chavez spoke at length and even made light of his health problems. "Whose bald head is the most elegant? Lula's or mine?" he joked of his and former Brazilian leader Luiz Inacio Lula da Silva's chemotherapy.

ANTI-CHAVEZ PROTEST

The CELAC nations have nearly 600 million people and a gross domestic product of about $6 trillion. Analysts said the new body shows the region's wish to move out of the shadow of Washington.

"This has been aided by a progressive disengagement from the region by the U.S. since the end of the Cold War, allowing other countries -- most notably China -- to increase their footprint," said Robert Munks of global think tank IHS Janes.

Chavez's fellow leftists gave the meeting an immediate political slant. "It's the death sentence for the Monroe Doctrine," said Nicaragua's President Daniel Ortega, referring to a hated 19th century U.S. policy that many Latin Americans regard as justifying meddling in their region.

More conservative leaders, though, are believed to have watered down the summit's final declarations, and the next meeting will be hosted by Chile's right-wing government.

Venezuelan opposition activists organized protests after dark, honking horns and beating pots and pans in parts of the city in a traditional "cacerolazo" demonstration.

"During Hugo Chavez's presidency in our country more than 100,000 Venezuelans have died due to crime, thanks to the government's inefficiency in taming crime bands and drug-trafficking," said protest organizer and opposition candidate Maria Corina Machado on her Twitter site.

At the same time, in a colorful demonstration of Venezuela's polarized politics, fireworks went off across the city organized by the government in honor of the meeting.

The two-day summit was meant to be held six months ago to coincide with Venezuela's 200th anniversary of independence. It was called off at the last minute as Chavez recovered in Havana following surgery to remove a baseball-sized tumor.

Chavez says he is cured after four chemotherapy sessions, although cancer specialists say it is too early to make such a call. Privately, people close to his administration say there remains great concern about the secrecy around his health.

"I feel good," he said. "It's a new Chavez, more patient."

Chavez's health is the great unknown in the 2012 election.

A newly united opposition believes it has the best chance yet of unseating him since he won power in a 1998 vote.

Analysts say right now Chavez looks a good bet to win in 2012, albeit by a narrow margin, due to widespread support among the poor, an economic upturn and heavy state spending

fueled by oil. But they warn many unknown factors -- like his health and the strength of the opposition campaign -- could change the picture before October 7.

After NATO strike, Pakistan adjusts rules of engagement



(Reuters) - Pakistan's commanders in the wild Afghan border region can return fire if under attack without waiting for permission, the army chief said on Friday, a policy change that could stoke tensions after Saturday's NATO strike killed 24 Pakistani troops.

Exactly what happened in the attack is unclear. Two U.S. officials told Reuters early indications were that Pakistani officials had cleared the NATO air strike, unaware they had troops in the area. A Pakistani official denied this.

The attack sparked fury in Pakistan and further complicated U.S.-led efforts to ease a crisis in relations with Islamabad, still seething at a secret U.S. raid in May which killed al Qaeda leader Osama bin Laden, and stabilize the region before foreign combat troops leave Afghanistan in 2014.

"I do not want there to be any doubt in the minds of any commander at any level about the rules of engagement," Chief of Army Staff General Ashfaq Kayani said in a communique on Friday.

"In case of any attack, you have complete liberty to respond forcefully using all available resources. You do not need any permission for this."

A military source explained that this amounted to a change in the rules for Pakistani forces guarding the Western border against militant movements to and from Afghanistan.

"In the past, we were only guarding ourselves or reacting against militants," said the source, who requested anonymity because he is not authorized to speak to the media.

"We have given our posts some more space to respond. If they are under attack, they should not wait for orders from above on whether to return fire or not."

The increase in autonomy for local commanders is likely to raise tensions in the unruly and mountainous border region, which is porous and poorly marked. Militants and tribespeople alike move back and forth daily.

"There are certain inherent risks in the delegation of authority," said defense analyst and retired general Talat Masood. "There could be unintended consequences." Exactly what happened at the Pakistani posts along an unruly and poorly defined border is still unclear.

Pakistan said the attack was unprovoked, with officials calling it an act of blatant aggression -- an accusation the top U.S. military officer flatly rejected in an interview with Reuters.

Two U.S. officials told Reuters on Friday that preliminary information from the ongoing investigation indicated Pakistani officials at a border coordination center had cleared the air strike, unaware they had troops in the area.

The U.S. officials, speaking on condition of anonymity to confirm details first reported by the Wall Street Journal, said an Afghan-led assault force that included U.S. commandos came under fire from an encampment along the border with Pakistan.

The commandos thought they were being fired on by militants but instead the fire came from Pakistani troops, they said.

A Pakistani military official categorically denied that account, saying the aircraft had already engaged when Pakistan was contacted.

"Wrong information about the area of operation was provided to Pakistani officials a few minutes before the strike," said the official, who was not authorized to speak to the media.

"Without getting clearance from the Pakistan side, the post had already been engaged by U.S. helicopters and fighter jets. Pakistan did not have any prior information about any operation in the area."

In a statement on its public relations website, Pakistan's military said that its response to the NATO strike was hampered by an inability to scramble its aircraft in time.

"The response could have been more effective if PAF (Pakistan Air Force) had also joined in. However, it was no fault of PAF," the statement said.

"The timely decision could not be taken due to breakdown of communication with the affected posts and, therefore, lack of clarity of situation, at various levels, including the Corps Headquarters and GHQ (General Headquarters)."

The Pentagon has declined to comment on details from the investigation until it is complete. Pentagon spokesman George Little acknowledged at a news conference that Pakistan had been asked but "elected to date not to participate" in the inquiry.

SOUND AND FURY

The United States and NATO have promised to investigate the incident, expressing regret on the deaths of Pakistani soldiers but the White House said it was premature to consider an apology when an investigation was still in its early stages.

Pakistan has shown its anger over the attack by blocking ground supply routes for NATO forces in Afghanistan, and pulling out of an international conference in Germany next week on Afghanistan, depriving the talks of a central player in peace efforts.

"I think it's safe to say that the incident has had a chilling effect on our relationship with the Pakistani military. No question about that," said another Pentagon spokesman, Captain John Kirby.

Western leaders have urged Islamabad to rethink its decision to boycott the conference, but the Pakistani parliament's national security committee Friday endorsed the decision.

Prime Minister Yusuf Raza Gilani said Pakistan's contributions to regional peace efforts have not been appreciated and his country has become a scapegoat for the "failings of international policies in Afghanistan."

"Clearly, there is a limit to our patience. Cooperation cannot be a one-way street," he said.

In Karachi, calls for defiance laced Friday prayer sermons.

"This (the NATO attack) is sheer cruelty and the rulers and the public must join hands to defend our country," an imam said at the Jamia Masjid mosque in an upscale neighborhood. "It's time we decide that we can spend our lives as poor people but not as slaves of Western powers.

"We should have complete faith in Allah, and if you follow Islam in the true spirit, we will have no problems surviving even if the U.S. and Western powers don't like us."

At a rally by the militant group Sipah-e-Sahaba, some 2,000 protesters held placards that read: "Jihad is the only response to the U.S." and "Friends of the U.S. are traitors to Islam."

In the city of Multan in southern Punjab, at a demonstration organized by an Islamist group, Abdul Ghaffar, 45, said: "We're going to teach America the kind of lesson that is going to make them forget about Vietnam."

Insight: African leader's son tests U.S. anti-corruption push



(Reuters) - The wealthy son of Equatorial Guinea's president squared off this week against the U.S. government in a legal battle over efforts to seize his $30 million California mansion, exotic cars, a private jet and an extensive collection of Michael Jackson memorabilia.

In a test of the Obama administration's campaign against bribery and corruption involving foreign countries, the case of Teodoro Nguema Obiang Mangue stands out not only as an example of the government's strategy, but for its sheer excess.

Obiang has an $81,600-a-year job as minister of forestry and agriculture for the impoverished nation that his father has led for 32 years. But Obiang owns a Malibu mansion, drives numerous luxury cars and flies around in a Gulfstream jet.

He also owns, as part of a expensive and expansive collection, one crystal encrusted glove once worn by Jackson and other signed memorabilia of the late pop star.

The U.S. Justice Department earlier this year accused Obiang of taking more than $100 million from Equatorial Guinea and sought to seize his assets in the United States.

But Obiang this week asserted his ownership rights in court, launching a fight to keep the Malibu estate, the plane, a 2011 Ferrari and $1.8 million worth of Jackson memorabilia.

A Washington, D.C.-based spokesman for Obiang was not immediately available for comment.

The United States geared up efforts to root out corruption in developing countries during the Bush administration and the Obama administration has carried on, winning multimillion

dollar settlements from companies that admitted paying bribes.

The Justice Department has in recent years expanded a drive to try to claw back assets bought with ill-gotten gains by foreign officials, sometimes called kleptocrats.

SEIZURE CASES GET BIGGER

Early seizure cases were small in dollar terms, but they have gotten bigger, with the Obiang case a prime example.

Seizing assets can take a long time. Developing evidence is often difficult. In a corruption case involving property owned by the family of the former leader of Taiwan, efforts to seize a posh Manhattan condominium and a Virginia home are still pending more than 16 months after they began.

"What they're prosecuting are definitely the egregious ones and they're prosecuting ones where they're able to get the evidence they need," said Heather Lowe, legal counsel at Washington, D.C.-based Global Financial Integrity, which focuses on efforts to curb illegal money flows.

She said the Obiang case was easier to pursue because much of the evidence was dug earlier up by a U.S. Senate committee.

The Justice Department reportedly has also been investigating Obiang and associates for corruption. An agency spokeswoman in Washington declined to comment.

Rich in oil, Equatorial Guinea ranks 11th among countries perceived as having the world's most corrupt public sectors, according to a list released on Thursday by Transparency International, a Berlin-based anti-corruption group.

Obiang's father became the longest-serving head of state in Africa after the death in October of Libya's Muammar Gaddafi.

"When a developing country's public officials routinely abuse their power for personal gain, its people suffer," said Lanny Breuer, head of the Justice department's criminal division, in a speech in November.

"Roads are not built, schools lie in ruin and basic public services go unprovided ... Political institutions lose legitimacy, and people lose hope that they will ever be able to improve their lot," he said.

TAKING FROM GOVERNMENT TILLS

Equatorial Guinea has a population of about 700,000, most of whom live in squalor and poverty despite billions of dollars in revenue coming into the country as a result of its large oil, timber and natural gas resources.

U.S. prosecutors say that Obiang and other government officials have used bribery and extortion schemes to fill government coffers and steal the money. They said the schemes have included requiring companies to pay so-called taxes and fees, as well to make donations to pet projects.

"When you don't have access to education, you don't have access to healthcare, you don't have access to water, it is apparent that this money is being diverted elsewhere," said Sarah Pray, a policy analyst on African affairs for the Open Society Foundations, a New York-based group.

While accusations of rampant corruption and bribery in Equatorial Guinea have swirled for years under the Obiang family's rule, U.S. authorities have only brought a handful of cases involving companies paying bribes there.

When officials siphon off funds, it "makes it very difficult behavior to go after," said Alexandra Wrage, a legal expert on bribery who is the president of the firm TRACE, which helps firms comply with anti-bribery law.

Known as the Foreign Corrupt Practices Act, the law bars any company listed on U.S. markets from paying a bribe - in money or gifts - to get favorable treatment for its business.

OIL COMPANY AND OBIANG

The Senate's Permanent Subcommittee on Investigations in 2004 found numerous payments by U.S. oil companies to Equatorial Guinea that may have constituted bribes, and the U.S. Securities and Exchange Commission launched a probe.

The SEC probed five oil companies: Exxon Mobil Corp, Chevron, Devon Energy, Amerada Hess and Marathon Oil. The last two of these five companies said the SEC decided against taking action in 2009, while the others did not discuss the probe in detail.

The SEC a year ago settled with GlobalSantaFe Corp, a firm later acquired by oil driller Transocean Ltd, over allegedly illegal payments made in Nigeria, Angola, Gabon and Equatorial Guinea from 2002-2007.

Wrage, of TRACE, said she is familiar with most of the U.S. companies operating in Equatorial Guinea and she said they have strong anti-bribery compliance and training programs.

"It just seems unlikely to me that they would have engaged in conduct that is, on its face, a violation of the FCPA. If they had, I think the Justice Department would be involved by now," she said.

In the Obiang case, a federal judge in Washington has given the Justice Department permission to seek foreign assistance to grab his Gulfstream jet if the opportunity arises. However, getting final court approval to seize it all could take years.

Fugitive ex-Thai PM to get passport back soon: minister


Thaksin, who lives in Dubai to avoid jail in Thailand, should be granted a regular Thai passport because no court order was issued to revoke it when he fled in 2008, Surapong Towijakchaikul said.

"We are considering returning the passport to former prime minister Thaksin and we expect to be able to do so within weeks," Surapong told reporters.

"To be fair we are reviewing the laws and we found that the action is possible ... it could be a New Year's present."

Thaksin, a twice-elected telecoms billionaire who once owned English Premier League soccer club Manchester City, is one of the world's most well-known fugitives and travels on passports issued by Nicaragua and Montenegro.

He went to England shortly before a court handed down in absentia a two-year prison sentence for abuse of power for helping his then wife, Pojamarn Na Pombejra, purchase some prime Bangkok land from a state agency.

He was pursued aggressively by the previous government, but many of the countries he visited ignored extradition requests.

His fortunes changed in July when a party stacked with his allies and led by his sister, Yingluck Shinawatra, was swept to power in an election landslide.

But the move to re-issue his passport is likely to cause a stir in Thailand, where Thaksin has powerful enemies among the military and conservative establishment, making him central to six years of on-off political turmoil.

They accuse Thaksin of corruption, cronyism, terrorism and disloyalty to the monarchy, but he denies the charges and his "red shirt" supporters say his rivals plotted to overthrow him in a 2006 coup and pressured the courts to convict him.

A mooted plan to amend an amnesty law that would have made Thaksin eligible to return to Thailand a free man was aborted by the government two weeks ago after it prompted an outcry from the opposition party and anti-Thaksin groups.

The country's justice minister said the amendment plan never existed and had been "dreamt up" by a "frantic" media.

Afghan woman, jailed for being raped, wins pardon


It remained unclear whether the 21-year-old-woman, known as Gulnaz, would still have to marry the man who attacked her, her cousin's husband, after an earlier release offer which stipulated they must marry.

Afghan President Hamid Karzai's palace issued the statement pardoning Gulnaz late on Thursday, a rare pardon in such a case in staunchly conservative Muslim Afghanistan.

Her case attracted international attention after she took part in a documentary film commissioned by the European Union but later withheld.

Gulnaz had eventually agreed to the condition she marry her attacker under the earlier release offer but her lawyer said the release granted this week did not depend on her going through with the marriage.

It was not clear whether she still intended to marry the man, her lawyer, Kimberley Motley, said. Her attacker is serving a 7-year prison term for the crime

. Motley said she hoped her client would be released shortly, and that there was a place for her in a women's shelter.

The palace statement said Justice Minister Habibullah Ghalib asked a panel of top legal officials to order her release. Gulnaz sought a pardon from Karzai earlier this week.

"After assessing Gulnaz's case, (they) decided that her remaining sentence in jail should be pardoned under the current rules and regulations of the country and she should be released," the palace statement said.

Gulnaz was initially sentenced to two years in jail for "adultery by force," which was later increased to 12 years on appeal. She was given the choice of marriage or serving a jail sentence.

Her sentence was then cut to three years after a third appeal, and the requirement for her to marry was dropped.

Gulnaz became pregnant as a result of the attack and gave birth to a daughter in the Badam Bagh women's prison in Kabul almost a year ago.

Motley also welcomed what she said was a decision to review the cases of other women in the same jail.

"The judiciary has effectively supported the Elimination of Violence Against Women Act by allowing for her to be released, for allowing for her to be pardoned," Motley said.

"Precedent definitely has been set. As I understand it, the judiciary today was also reviewing the files of other women in Badam Bagh," she said.

The presidential palace declined to comment on whether other cases were under review.

FILM BLOCKED

The film in which Gulnaz featured, a documentary on women in prison, was blocked from release by the EU mission in Afghanistan over fears it might compromise the safety of the women involved because it showed their identity.

The film-makers have been pushing for the film to be released, and say Gulnaz wanted her story to be told.

"I made a promise to these women that I would get their stories out. I am glad that I've been able to honor that promise to Gulnaz," said the film's director Clementine Malpas.

"I still hope that our film can be released, so people can hear the stories of the other women, and perhaps increase their chance of getting justice as well."

EU spokeswoman Lynne O'Donnell welcomed news Gulnaz would be freed but declined to comment on whether the film would be released.

Gulnaz's case had been condemned widely by human rights groups. An online petition started by Motley has been signed by more than 6,000 people.

Motley said she is still trying to ascertain whether the attacker will also be released if they agree to marry.

Al Qaeda says group kidnapped American in Pakistan



Al Qaeda leader Ayman al-Zawahri also said in an audio recording issued on Islamist websites late on Thursday that a senior al Qaeda leader based in Pakistan known as Attiyatullah had been killed in a U.S. air strike in August.

"Just as the Americans detain all whom they suspect of links to al Qaeda and the Taliban, even remotely, we detained this man who has had an active part in American aid to Pakistan since the seventies," SITE quoted Zawahri as saying in the recording.

The U.S. State Department is aware of the statement and continues to work with Pakistani authorities leading the investigation, a spokeswoman said.

Assailants kidnapped Warren Weinstein, an American development expert, in the Pakistani city of Lahore in August.

Weinstein, about 70 years old, had been working on a project in Pakistan's northwestern tribal areas where Pakistani troops have been battling Islamist insurgents for years.

"We remain concerned for Mr. Weinstein's safety and well-being," said Joanne Moore, spokeswoman for the State Department. The government had been in contact with Weinstein's family in the United States, she said.

"U.S. officials, including the FBI, are assisting in the Pakistani-led investigation," she said, declining to give additional information on the case due to privacy considerations.

"The United States condemns kidnappings of any kind and we call for the immediate release of the individual and the prosecution of those responsible," Moore said.

Zawahri said the group's demands for Weinstein's release included the release of all those held by the United States at the Guantanamo detention center and all others imprisoned for ties to al Qaeda or the Taliban.

He also demanded an end to air strikes by the United States and its allies against militants in Pakistan, Afghanistan, Yemen and Somalia and Gaza.

DEMANDS RELEASE OF HIGH-PROFILE MILITANTS

Zawahri also demanded the release of high-profile militants including Ramzi Yousef, imprisoned in the United States for the 1993 bombing of the World Trade Center, and Sheikh Omar Abdel Rahman, serving a life sentence for plotting to attack the U.N. headquarters and other New York City landmarks.

"Your problem is not with us but with (President Barack) Obama. We have raised fair demands. ... So continue to pressure Obama, if you want your relative to be handed back," Zawahri said, addressing Weinstein's family.

Zawahri said that Attiyatullah, a Libyan militant whose real name was Jamal Ibrahim Ashtiwi al-Misrati, escaped a first air strike but was killed along with his son Issam in a second bombing on August 23.

"He was martyred, may God have mercy on him ... by bombing by a crusader spy plane," Zawahri said.

Zawahri was named by the Islamist group to succeed Osama bin Laden, who was killed in an operation by U.S. forces in Pakistan in May after a decade-long worldwide hunt.

Al Qaeda has tried to wage war on Arab rulers over the past decade through creating cells that used suicide attacks on foreigners and government installations and officials.

But the Arab Spring popular uprisings have left al Qaeda on the sidelines, as uprisings brought down veteran heads of state in Egypt, Tunisia, Libya and Yemen.

Myanmar's Suu Kyi praises U.S. engagement



U.S. Secretary of State Hillary Clinton held a final meeting with Suu Kyi as she wrapped up a landmark visit to Myanmar which saw the new civilian government pledge to forge ahead with political reforms and re-engage with the world community.

Clinton and Suu Kyi - the Nobel laureate who has come to symbolize the pro-democracy aspirations of Myanmar's people - held a private dinner on Thursday and met again on Friday at Suu Kyi's lakeside home, effectively her prison until she was released last November after years in detention.

"We are happy with the way in which the United States is engaging with us and it is through engagement that we hope to promote a process of democratization," said Suu Kyi, adding that Clinton's visit was a "historical moment" for both countries.

The two women spoke together for about an hour and a half. They later stood on a verandah, holding hands as they spoke to reporters.

"If we go forward together I'm confident there will be no turning back from the road to democracy. We are not on that road yet but we hope to get there as soon as possible with our friends," Suu Kyi said.

Clinton's trip follows a decision by U.S. President Barack Obama last month to open the door to expanded ties, saying he saw "flickers of progress" in a country until recently seen as a reclusive military dictatorship firmly aligned with China.

Suu Kyi said she welcomed more support for Myanmar including World Bank and International Monetary Fund assessment missions which she said would help the country figure out how to get its economy on track.

She also called on the military-backed government to do more to ensure the rule of law, which she said would prevent the arrest of more political prisoners. "We need all those who are still in prison to be released and we need to ensure that no more are arrested," she said.

She said she would work with the new government, the opposition and friendly countries including the United States and China for a better future for her country.

Clinton's trip - the first by a senior U.S. official in more than 50 years - represents an opportunity for both Myanmar and the United States, and both appear eager to press ahead with rapprochement.

Myanmar's new leadership hopes the United States will eventually see its way clear to ease or remove sanctions, a step which could open the resource-rich but desperately poor country to more foreign trade and investment and help it catch up to booming neighbors such as Thailand and India.

For Washington, improved ties with Myanmar could underscore Obama's determination to up U.S. engagement in Asia and balance China's fast-growing economic, military and political influence.

"INSPIRATION"

Clinton praised Suu Kyi's "steadfast and clear" leadership adding that she say "some ground for encouragement" after her talks with government leaders in the capital, Naypyitaw, on Thursday.

"You have been an inspiration," Clinton told Suu Kyi.

"But I know that you feel you are standing for all the people of your country who deserve the same rights and freedom as people everywhere."

"We want to see this country take its rightful place in the world," Clinton said.

Clinton was later due to meet representatives of ethnic minority groups, some of which remained locked in bloody conflict with the army, as well as fledgling civil society organizations. She will aim to reassure them that the U.S. outreach to Myanmar's government does not mean it will ease pressure on human rights, political freedoms and rule of law in a country long a hallmark for authoritarian military rule.

After her talks with President Thein Sein on Thursday, Clinton and announced a package of modest steps to improve ties, including U.S. support for the International Monetary Fund and World Bank assessment missions and expanded U.N. aid programs for the country's struggling economy.

She also said the United States would consider reinstating a full ambassador in Myanmar and could eventually ease crippling sanctions, but underscored that these future steps would depend on further measurable progress in Myanmar's reform drive.

U.S. officials said Clinton's visit was aimed at bolstering reformers in the government, but said it was clear that some powerful figures remained wary of reforms - throwing a question mark over whether the changes can be sustained.

Suu Kyi's National League for Democracy will contest coming by-elections for parliament - seen as the next key test of the government's reform program - and Suu Kyi herself has said she will stand for election, another sign that she believes the changes under way are real.

Suu Kyi thanked Obama and praised the "careful and calibrated" way in which the United States was approaching Myanmar's leaders.

"This will be the beginning of a new future for all of us provided we can maintain it and we hope to be able to do so," she said.

Suu Kyi and Clinton embraced and were visibly moved by their encounter.

Al Qaeda says group kidnapped American in Pakistan


Al Qaeda leader Ayman al-Zawahri also said in an audio recording issued on Islamist websites late on Thursday that a senior al Qaeda leader based in Pakistan known as Attiyatullah had been killed in a U.S. air strike in August.

"Just as the Americans detain all whom they suspect of links to al Qaeda and the Taliban, even remotely, we detained this man who has had an active part in American aid to Pakistan since the seventies," SITE quoted Zawahri as saying in the recording.

The U.S. State Department is aware of the statement and continues to work with Pakistani authorities leading the investigation, a spokeswoman said.

Assailants kidnapped Warren Weinstein, an American development expert, in the Pakistani city of Lahore in August.

Weinstein, about 70 years old, had been working on a project in Pakistan's northwestern tribal areas where Pakistani troops have been battling Islamist insurgents for years.

"We remain concerned for Mr. Weinstein's safety and well-being," said Joanne Moore, spokeswoman for the State Department. The government had been in contact with Weinstein's family in the United States, she said.

"U.S. officials, including the FBI, are assisting in the Pakistani-led investigation," she said, declining to give additional information on the case due to privacy considerations.

"The United States condemns kidnappings of any kind and we call for the immediate release of the individual and the prosecution of those responsible," Moore said.

Zawahri said the group's demands for Weinstein's release included the release of all those held by the United States at the Guantanamo detention center and all others imprisoned for ties to al Qaeda or the Taliban.

He also demanded an end to air strikes by the United States and its allies against militants in Pakistan, Afghanistan, Yemen and Somalia and Gaza.

DEMANDS RELEASE OF HIGH-PROFILE MILITANTS

Zawahri also demanded the release of high-profile militants including Ramzi Yousef, imprisoned in the United States for the 1993 bombing of the World Trade Center, and Sheikh Omar Abdel Rahman, serving a life sentence for plotting to attack the U.N. headquarters and other New York City landmarks.

"Your problem is not with us but with (President Barack) Obama. We have raised fair demands. ... So continue to pressure Obama, if you want your relative to be handed back," Zawahri said, addressing Weinstein's family.

Zawahri said that Attiyatullah, a Libyan militant whose real name was Jamal Ibrahim Ashtiwi al-Misrati, escaped a first air strike but was killed along with his son Issam in a second bombing on August 23.

"He was martyred, may God have mercy on him ... by bombing by a crusader spy plane," Zawahri said.

Zawahri was named by the Islamist group to succeed Osama bin Laden, who was killed in an operation by U.S. forces in Pakistan in May after a decade-long worldwide hunt.

Al Qaeda has tried to wage war on Arab rulers over the past decade through creating cells that used suicide attacks on foreigners and government installations and officials.

But the Arab Spring popular uprisings have left al Qaeda on the sidelines, as uprisings brought down veteran heads of state in Egypt, Tunisia, Libya and Yemen.

Clinton offers Myanmar first rewards for political


U.S. Secretary of State Hillary Clinton offered Myanmar the first rewards for reform on Thursday, saying the United States would back more aid for the reclusive country and consider returning an ambassador after an absence of some two decades.

Clinton said she had "candid, productive" conversations with President Thein Sein and other Myanmar ministers, and told them Washington stood ready to support further reforms as the country seeks to emerge from decades of authoritarian military rule.

But she also urged Myanmar to take further steps to release political prisoners and end ethnic conflicts, and said better U.S. ties would be impossible unless Myanmar halts its illicit dealings with North Korea, which has repeatedly set alarm bells ringing across Asia with its renegade nuclear program.

"The president told me he hopes to build on these steps, and I assured him that these reforms have our support," Clinton said in prepared remarks to a news conference after her talks in Myanmar's remote capital, Naypyitaw.

"I also made clear that, while the measures already taken may be unprecedented and welcomed, they are just the beginning."

Clinton's landmark visit to the country also known as Burma marks a tentative rapprochement after more than 50 years of estrangement from the West. She will travel on Thursday to the commercial capital of Yangon, where she will hold the first of two meetings with veteran pro-democracy leader Aung San Suu Kyi.

INCREMENTAL CHANGES

Following meetings with Thein Sein and other officials in Naypyitaw, Clinton unveiled several incremental steps to improve ties and said the United States would consider returning an ambassador to the country.

The United States downgraded its representation in Myanmar to a charge d'affaires in response to the military's brutal 1988 crackdown on pro-democracy protests and voiding of 1990 elections widely judged to have been won by Suu Kyi's party.

"This could become an important channel to air concerns, monitor and support progress, and build trust," Clinton said. "These are incremental steps, and we are prepared to go further if reforms maintain momentum."

Clinton said the United States would support new World Bank and International Monetary Fund assessment missions to help Myanmar jumpstart its feeble economy and new U.N. counter-narcotics and health cooperation programs.

Seeking to pull Myanmar more closely into a region increasingly united by its wariness over regional heavyweight China, Clinton invited Myanmar to become an observer to the Lower Mekong Initiative, a U.S.-backed regional grouping aimed at discussing the future of Southeast Asia's major waterway.

Clinton also said the two countries would discuss a joint effort to recover the remains of Americans killed during the building of the "Burma Road" during World War Two -- echoing steps taken successfully with Vietnam as Washington and Hanoi sought to put their differences behind them.

Rights groups and some lawmakers in the U.S. Congress have been concerned that Washington may be moving too swiftly to endorse the new leadership, and Clinton made clear that the United States needed to see more progress before it could consider major steps such as ending economic sanctions which have squeezed Myanmar's economy and pushed it closer to China.

"It is encouraging that political prisoners have been released, but over 1,000 are still not free," Clinton said.

"Let me say publicly what I said privately earlier today: no person in any country should be detained for exercising universal freedoms of expression, assembly and conscience."

A U.S. official who sat in on the talks said Thein Sein had said that the government considered the release of such prisoners "part of the effort of having an inclusive political process" and it was looking at the possibility of more releases.

Clinton also said it would "be difficult to begin a new chapter" until Myanmar begins forging peace with ethnic minority rebels and starts allowing humanitarian groups, human rights monitors and journalists into conflict areas.

Underscoring a key U.S. diplomatic objective, Clinton pressed Myanmar to halt what U.S. officials say are illicit contacts with North Korea, including trade in missile technology, and to honor U.N. sanctions imposed on Pyongyang because of its renegade nuclear program.

"I was frank that better relations with the United States will only be possible if the entire government respects the international consensus against the spread of nuclear weapons," she said. "We look to Naypyitaw to honour U.N. Security Council Resolutions 1718 and 1874 and sever illicit ties with North Korea."

The U.S. official who sat in on the talks said Thein Sein had expressed "strong reassurances" on commitment to upholding U.N. Security Council resolutions.

The official cited Thein Sein as saying Myanmar was strongly considering signing the International Atomic Energy Agency additional protocol which would allow more latitude for inspections. U.S. officials have played down fear Myanmar's ties with North Korea had broadened to include a nuclear program.

SUU KYI BACKS U.S. ENGAGEMENT

Suu Kyi said on Wednesday she fully backed Washington's effort to gauge Myanmar's reforms since the military nominally gave up power to civilian leaders following elections last year.

"I think we have to be prepared to take risk. Nothing is guaranteed," Suu Kyi told reporters in Washington in a public video call from her home in Yangon, where she was held in detention for 15 of the last 21 years before being released in November last year.

But Suu Kyi -- a Nobel peace laureate and towering figure for Myanmar's embattled democracy movement -- said the United States must remain watchful that the army-backed government did not halt or roll back reforms, and "speak out loud and clear" if people engaging in politics were arrested.

Suu Kyi confirmed she would run in upcoming by-elections, ending a boycott of Myanmar's political system. Clinton's visit was reported on page two of the main state-run New Light of Mynamar newspaper, with a photograph of her arrival and two paragraphs on who accompanied her and met her at the airport.

Its front page focused on the prime minister of Belarus, who is also visiting in coming days, and preparations for a regional economic cooperation meeting.

NATO attack could hurt war on terror: Pakistan


Pakistan, enraged by a NATO cross-border air attack that killed 24 soldiers, could withdraw its support for the U.S.-led war on militancy if its sovereignty is violated again, the foreign minister suggested in comments published on Thursday.

The South Asian nation has already shown its anger over the weekend strike by pulling out of an international conference in Germany next week on Afghanistan. It stood by that decision on Wednesday, depriving the talks of a central player in efforts to bring peace to its neighbor.

"Enough is enough. The government will not tolerate any incident of spilling even a single drop of any civilian or soldier's blood," The News newspaper quoted Foreign Minister Hina Rabbani Khar as telling a Senate committee on foreign affairs.

"Pakistan's role in the war on terror must not be overlooked," Khar said, suggesting Pakistan could end its support for the U.S. war on militancy. Despite opposition at home, Islamabad backed Washington after the September 11, 2001, attacks on the United States.

Pakistan military sources also said it had cancelled a visit by a 15-member delegation, led by the Director General of the Joint Staff, Lieutenant-General Mohammad Asif, to the United States that was to have taken place this week.

NATO helicopters and fighter jets attacked two military border posts in northwest Pakistan on Saturday in the worst incident of its kind since 2001.

Details are still sketchy about what happened in the early morning hours, but Pakistani military sources said the attack came in two waves.

"The attack began at around 12:05 a.m. and lasted for about 30 minutes, when the contacts were made and it was discontinued," said one source. The source said NATO helicopter gunships and jet fighters came back after 35 minutes. The Pakistanis returned fire in a battle that lasted for another 45 minutes.

When it was over, 24 Pakistani soldiers were dead and 13 wounded.

The two posts in question -- Volcano and Boulder -- are perched about 8,000 feet high on a ridgeline near the Afghan border. They are among about 28 such posts in Mohmand Agency set up to prevent cross-border movements by Taliban militants, another military source said.

The source said that there were no militants in the area, however, because they had been flushed out by a Pakistani military operation conducted over the year.

The top U.S. military officer denied allegations by a senior Pakistani army official that the NATO attack was a deliberate act of aggression.

General Martin Dempsey, chairman of the U.S. military's Joint Chiefs of Staff, told Reuters in an interview: "The one thing I will say publicly and categorically is that this was not a deliberate attack.

The army, which has ruled Pakistan for more than half of its history and sets security and foreign policy, faced strong criticism from both the Pakistani public and the United States after Osama bin Laden was killed in a secret raid by U.S. special forces in May.

The al Qaeda leader had apparently been living in a Pakistani garrison town for years.

Pakistanis criticized the military for failing to protect their sovereignty and U.S. officials wondered whether some members of military intelligence had sheltered him. Pakistan's government and military said they had no idea bin Laden was in the country.

The army seems to have regained its confidence and won the support of the public and the government in a country where anti-American sentiment often runs high.

Protests have taken place in several cities every day since the NATO strike along the poorly-defined border, where militants often plan and stage attacks.

In an apparently unrelated attack, a bomb blew out a wall of a government official's office in Peshawar, the last big city on the route to Afghanistan, early on Thursday, police said. There were no reports of casualties.

The United States has long wanted Pakistan, whose military and economy depend heavily on billions of dollars in American aid, to crack down on militant groups that cross its unruly border to attack Western forces in Afghanistan.

More recently, U.S. Secretary of State Hillary Clinton asked Pakistan to bring all militant groups to the negotiating table in order to stabilize Afghanistan.

The NATO attack makes Pakistani cooperation less likely.

NATO hopes an investigation it promised will defuse the crisis and that confidence-building measures can repair ties.

But the army is firmly focused on the NATO attack, and analysts say it is likely to take advantage of the widespread anger to press its interests in any future peace talks on Afghanistan.

Pakistan says it has paid the highest price of any country engaged in the war on militancy. Thousands of soldiers and police have been killed.

Critics allege Pakistan has created a deadly regional mess by supporting militants like the al Qaeda-linked Haqqani network to act as proxies in Afghanistan and other groups to fight Indian forces in the disputed Kashmir region.

"The sacrifices rendered by Pakistan in the war on terror are more than any other country," Khar was quoted as saying. "But that does not mean we will compromise on our sovereignty."

Barak says no Israeli attack on Iran anytime soon


Defense Minister Ehud Barak said Thursday an Israeli attack on Iran is not imminent but all options remain open to stop what Israel sees as an Iranian bid to develop nuclear weapons.

"We have no intention, at the moment, of taking action, but the State of Israel is far from being paralyzed by fear," Barak told Israel Radio. "It must act calmly and quietly -- we don't need big wars."

Iran says its nuclear energy program is wholly peaceful.

The U.N. nuclear watchdog, citing intelligence reports, said last month Iran appeared to have worked on designing an atom bomb and may still be pursuing secret research to that end.

Barak was interviewed a day after the top U.S. military officer said he did not know whether Israel would alert the United States ahead of time if it decided to strike Iran, the Jewish state's arch-adversary in the Middle East.

General Martin Dempsey, the chairman of the Joint Chiefs of Staff, also acknowledged differences in perspective between the United States and Israel over the best way to handle Iran and its nuclear program.

Dempsey said the United States was convinced that sanctions and diplomatic pressure were the right ways to take on Iran, along with "the stated intent not to take any options off the table" -- diplomatic language that leaves open the possibility of future military action.

"I'm not sure the Israelis share our assessment of that. And because they don't and because to them this is an existential threat, I think probably that it's fair to say that our expectations are different right now," Dempsey told Reuters.

Iran is facing new sanctions following the U.N. report.

In the radio interview, Barak said "Israel would be very glad if sanctions and diplomacy could bring the Iranian leadership to a clear decision to abandon its nuclear military program."

But, "unfortunately, I think that is not going to happen."

Asked about Dempsey's remarks, Barak said Israel "greatly respects the United States" and maintained a continuous dialogue with its main ally on security issues.

"But one must remember that ultimately, Israel is a sovereign nation and the Israeli government, defense forces and security services -- not others -- are responsible for Israel's security, future and existence," Barak said.

LAST RESORT

"Certainly, a non-diplomatic option is the last option, and I think everyone agrees with the fact that all options are on the table," the Israeli defense chief said.

Dempsey, asked directly whether Israel would alert the United States ahead of time if it chose to go forward with military action against Iran, replied flatly: "I don't know."

Last week, U.S. Defense Secretary Leon Panetta raised American concerns about the unintended consequences of any military action against Iran during talks with Barak at a security forum in Canada.

Those include U.S. fears about fallout on the world economy and that a strike would only delay -- not derail -- an Iranian nuclear program whose known sites are widely dispersed and fortified against attack.

The Islamic Republic has warned that it will respond to any attacks by hitting Israel, widely believed to be the Middle East's only nuclear power, and U.S. interests in the Gulf

Seven soldiers, six civilians dead in Syria


Seven Syrian soldiers were killed by army renegades and six civilians were shot dead on Wednesday as regional pressure tightened on President Bashar al-Assad, with Turkey imposing tough economic sanctions.

The conflict, which began in spring as a crackdown on peaceful anti-government protests, now appears to be sliding towards civil war. Soldiers are defecting with their weapons to take on Assad loyalist troops.

Piling pressure on Assad, Syria's biggest trade partner Turkey suspended all financial credit dealings with Damascus and froze its assets, joining the Arab League in isolating Assad over the military crackdown. Washington urged other states to follow suit.

The world's largest Islamic body, the Organisation of Islamic Cooperation, urged Syria on Wednesday to "immediately stop the use of excessive force" against its citizens to avert the threat of foreign intervention.

The Syrian Observatory for Human Rights said clashes erupted in the southern town of Dael when security forces moved in during the early morning, and continued well into afternoon.

"Two security force vehicles were blown up. Seven (troops) were killed," said Rami Abdel Rahman, head of the observatory, adding that 19 people were wounded, four critically.

An activist from the town, in the province of Deraa, said some 30 busloads of security men had stormed into Dael but two of the buses were blown up in fighting between security forces and defectors, the Observatory said. One bus had been empty.

In the north of Syria, at least six civilians were shot dead on Wednesday when security forces broke up an anti-government demonstration in the city of Idlib, the Observatory said.

"They have not blocked protests in Idlib for weeks. Today they fired at a crowd thousands who were marching from a roundabout to the main Mohafaza Square," said Fares, an activist

who helped transport three of the injured to Turkey.

FUNERALS

Turkey's move follows a decision by the Arab League on Sunday to impose sanctions on Damascus over the crackdown. The European Union weighed in one day later.

Turkey, a NATO member with a 900-km (560-km) long border with Syria, says it does not want military intervention in Syria but is ready for any scenario.

Foreign Minister Ahmet Davutoglu said Turkey would block delivery of all weapons and military supplies to Syria. Relations with Syria's central bank were suspended and a cooperation agreement was halted until there was a new government in place.

"Until a legitimate government which is at peace with its people is in charge in Syria, the mechanism of the High Level of Strategic Cooperation has been suspended," Davutoglu said.

Assad's rule had reached "the end of the road," he said.

Muslim Turkey, which last year had $2.5 billion in bilateral trade with Syria, was once one of Assad's closest allies, but Prime Minister Tayyip Erdogan lost patience with him. Turkey now hosts Syrian army defectors and opposition group.

Syria does not admit most foreign journalists. It says it is fighting an insurgency by armed groups supported from abroad.

Military funerals were held for 14 members of the army and security forces on Tuesday, evidence of the rising cost of a revolt inspired by Arab uprisings that toppled the leaders of Tunisia, Egypt and Libya this year.

"The martyrs were targeted by armed terrorist groups while they were in the line of duty in Homs and the Damascus countryside," the state news agency SANA said.

Rebels on Tuesday ambushed an army vehicle in the north killing three soldiers, the Human Rights Observatory said. it said the vehicle was targeted by "suspected army defectors." PRISONER RELEASE

Under the terms of an Arab League deal aimed at ending the violence, Syria agreed earlier this month to withdraw the army from urban centers, release political prisoners, launch a dialogue with the opposition and admit foreign observers.

Syria said it had freed 912 prisoners held for taking part in anti-Assad protests, SANA reported. Those liberated did "not have Syrian blood on their hands." The move appeared to be a gesture towards Arab League calls for an end to the crisis.

Some 1,700 prisoners were released earlier this month, SANA said.

United Arab Emirates Foreign Minister Sheikh Abdullah bin Zayed al-Nahayan said he was still hoping Syria would admit observers and avoid sanctions due to be finalized by Saturday.

European and Arab diplomats say the top United Nations human rights forum will paint a grim picture of events in Syria at a special session on Friday which is likely to condemn the Syrian government for crimes against humanity.

A U.N. report said on Monday Syrian forces have committed murder, torture and rape against pro-democracy protesters. The U.N. says more than 3,500 people have been killed since March.

Friday's session is partly designed to put pressure on China and Russia, which have blocked measures by the Security Council to condemn Syria, to take a stronger stand, say diplomats.

Britain pulls embassy staff out of Iran - sources


By Robin Pomeroy

TEHRAN (Reuters) - Britain has evacuated all its diplomatic staff from Iran, Western diplomatic sources told Reuters on Wednesday, a day after protesters stormed and ransacked its embassy and a residential compound.

Britain said it was outraged by the attacks and warned of "serious consequences." The U.N. Security Council condemned the attacks "in the strongest terms." U.S. President Barack Obama called on Iran to hold those responsible to account.

No comment was immediately available from the British government on the reported withdrawal of embassy staff from Iran.

On Tuesday, Iranian protesters stormed two British diplomatic compounds in Tehran, smashing windows, torching a car and burning the British flag in protest against new sanctions imposed by London.

The attacks occurred at a time of rising diplomatic tension between Iran and Western nations, which last week imposed fresh sanctions over Tehran's nuclear programme that they believe is aimed at achieving the capability of making an atomic bomb.

Iran, the world's fifth biggest oil exporter, says it wants nuclear plants only for the generation of electricity.

The embassy storming was also a sign of deepening political infighting within Iran's ruling hardline elites, with the conservative-led parliament attempting to force the hand of President Mahmoud Ahmadinejad and expel the British ambassador.

"Radicals in Iran and in the West are always in favour of crisis ... Such radical hardliners in Iran will use the crisis to unite people and also to blame the crisis for the fading economy," said political analyst Hasan Sedghi.

Several dozen protesters broke away from a crowd of a few hundred outside the main British embassy compound in Tehran, scaled the gates, broke the locks and went inside.

Protesters pulled down the British flag, burned it and put up the Iranian flag, Iranian news agencies and news pictures showed. Inside, the demonstrators smashed windows of office and residential quarters and set a car ablaze, news pictures showed.

One took a framed picture of Queen Elizabeth, state TV showed. Others carried the royal crest out through the embassy gate as police stood by, pictures carried by the semi-official Fars news agency showed.

All embassy personnel were accounted for, a British diplomat told Reuters in Washington, saying Britain did not believe that any sensitive materials had been seized.

Demonstrators waved flags symbolising martyrdom and held aloft portraits of Supreme Leader Ayatollah Ali Khamenei who has the final say on matters of state in Iran.

Another group of protesters broke into a second British compound at Qolhak in north Tehran, the IRNA state news agency said. Once the embassy's summer quarters, the sprawling, tree-lined compound is now used to house diplomatic staff.

An Iranian report said six British embassy staff had been briefly held by the protesters. British Foreign Secretary William Hague said the situation had been "confusing" and that he would not have called them "hostages."

"Police freed the six people working for the British embassy in Qolhak garden," Iran's Fars news agency said.

A German school next to the Qolhak compound was also damaged, the German government said.

BRITAIN OUTRAGED

Police appeared to have cleared the demonstrators in front of the main embassy compound, but later clashed with protesters and fired tear gas to try to disperse them, Fars said. Protesters nevertheless entered the compound a second time, before once again leaving, it said.

British Prime Minister David Cameron chaired a meeting of the government crisis committee to discuss the attacks, which he said were "outrageous and indefensible."

"The failure of the Iranian government to defend British staff and property was a disgrace," he said in a statement.

"The Iranian government must recognise that there will be serious consequences for failing to protect our staff. We will consider what these measures should be in the coming days."

The United States, alongside the European Union and many of its member states also strongly condemned the attacks.

There have been regular protests outside the British embassy over the years since the 1979 Islamic revolution that toppled the U.S.-backed shah, but never have any been so violent.

The attacks and hostage-taking were a reminder of the 1979 takeover of the U.S. embassy in Tehran carried out by radical students who held 52 Americans hostage for 444 days. The United States cut diplomatic ties with Iran after the hostage-taking.

Former Ivorian president arrives to face ICC


By Vanessa Romeo

ROTTERDAM (Reuters) - A plane carrying former Ivory Coast President Laurent Gbagbo, facing an arrest warrant by the International Criminal Court, arrived at Rotterdam airport Wednesday, a Reuters witness said.

The Hague-based court, which is also pursuing Sudan's President Omar al-Bashir and investigating alleged crimes in Kenya, Libya and Central African Republic, has so far declined to comment on the warrant.

Gbagbo would be the first former head of state to be tried by the ICC since its inception in 2002.

The ICC opened an investigation last month into killings, rapes and other abuses committed during a four-month conflict triggered by Gbagbo's refusal to cede power to Alassane Ouattara in last year's Ivorian election. The conflict ended only when French-backed pro-Ouattara forces captured him on April 11.

The ICC's silence means there is as yet no information on what exactly Gbagbo is to be charged with.

The Ivory Coast plane landed at Rotterdam airport at 02:44 a.m. BT and entered a hangar, the Reuters witness said.

Gbagbo had been flown by helicopter Tuesday from remote Korhogo in northern Ivory Coast, where he had been under house arrest since his capture, and transferred on to a plane, Ivorian military officials said.

Islamists expect gains as Egypt counts votes


By Tom Perry and Marwa Awad

CAIRO (Reuters) - Egyptians have voted in a parliamentary election that could bring Islamists closer to power, though the army generals who took over from President Hosni Mubarak have yet to step aside.

The Muslim Brotherhood, expected to do well in the marathon vote whose first stage drew millions to the polls, said the new parliament should form a government, setting it at odds with the military council which has only just named a new prime minister.

The election for the lower house is due to be held over three phases, concluding in early January. Early election results were expected to trickle out on Wednesday.



State television broadcast live footage of the vote count across Egypt, which has not seen an election this free since army officers overthrew the monarchy in 1952. Though the Brotherhood went into the polls stronger than nascent secular parties, analysts say it is hard to predict the outcome given that most of the electorate are casting their ballots for the first time.

Election monitors reported logistical hiccups and campaign violations during the poll but no serious violence.

The outcome of the election in one of the Middle East's most influential powers will help shape the future of a region convulsed by uprisings against decades of autocracy.

Though it did not start the Egyptian uprising, the Muslim Brotherhood has emerged as a major beneficiary of the revolt. The group is now eyeing a role in shaping the country's future.

The Freedom and Justice Party, the Brotherhood's political wing established earlier this year, said Egypt's new parliament should form the government.

"A government that is not based on a parliamentary majority cannot conduct its work in practice," Mohamed Mursi told reporters during a tour of polling stations in the working class district of Shubra in Cairo.

"Therefore we see that it is natural that the parliamentary majority in the coming parliament will be the one that forms the government," said Mursi, whose group was outlawed but tolerated under Mubarak, adding:

"We see that it is better for it to be a coalition government built on a majority coalition in the parliament."

SCOPE FOR TENSION

It was only last week that the military council appointed Kamal al-Ganzouri, a 78-year-old veteran of the Mubarak era, to form a cabinet to replace the government of Essam Sharaf, which resigned in the face of protests against military rule.

A military council member said at the weekend the new parliament would not have the authority to dismiss Ganzouri's government or form a new one. Yet observers question whether the council will be able to resist the will of a chamber elected in a fair vote, especially if voting carries on smoothly.

A senior figure in the once-banned Muslim Brotherhood said its FJP had done well in the voting so far.

"The Brotherhood party hopes to win 30 percent of parliament," Mohamed El-Beltagy told Reuters.

The leader of the ultra-conservative Salafi Islamist al-Nour Party, which hopes to siphon votes from the Brotherhood, said organisational failings meant his party had underperformed.

But he told Reuters the party still expected to win up to half of Alexandria's 24 seats in parliament and, nationwide, 70 to 75 of the assembly's 498 elected seats.

In one of the military's first reactions to the election's first phase, General Ismail Atman, a ruling army council member, was quoted by Al-Shorouk newspaper as saying the poll showed the irrelevance of protests demanding an end to military rule in Cairo's Tahrir Square and elsewhere.

The general said turnout would exceed more than 70 percent, though the Brotherhood's Mursi said indications showed a lower figure of 40 percent.

The success of the first phase has deflected criticism faced by the military council, which has been under pressure from street protesters over what they see as the generals' attempts to maintain power and privilege in the post-Mubarak era.

Last week was Egypt's most violent since Mubarak was ousted: 42 people were killed in clashes triggered by the protests against the council.

Unidentified youths hurled petrol bombs near the square late on Tuesday. A Reuters witness heard gunshots and the state news agency MENA said two protesters suffered eye wounds which may have been caused by shots from a pellet gun.

An organiser of the protest said the trouble started when an unidentified group tried to enter the square.

Many Egyptians were worried the elections would be bloody. But there has been little sign of the thugs who were a feature of the rigged elections of the Mubarak era. U.N. Secretary-General Ban Ki-moon congratulated Egyptians on the first stage of the election and "the generally calm and orderly manner in which voting took place," a statement from his office said.

Les Campbell, of the Washington-based National Democratic Institute, one of many groups monitoring the poll, said it was "a fair guess" that turnout would exceed 50 percent, far above the meagre showings in rigged Mubarak-era elections.

(Additional reporting by Marwa Awad in Alexandria, Shaimaa Fayed in Damietta and Tom Perry, Patrick Werr, Peter Millership and Edmund Blair in Cairo; Writing by Tom Perry; Editing by Peter Millership)

NATO attack was blatant aggression - Pakistan army


By Qasim Nauman and Michael Georgy

ISLAMABAD (Reuters) - A senior Pakistani army official has said a NATO cross-border air attack that killed 24 soldiers was a deliberate, blatant act of aggression, hardening Pakistan's stance on an incident which could hurt efforts to stabilise Afghanistan.

In a briefing to editors carried in local newspapers on Wednesday, Major-General Ishfaq Nadeem, director general of military operations, also said NATO forces were alerted they were attacking Pakistani posts, but helicopters kept firing.

"Detailed information of the posts was already with ISAF (International Security Assistance Force), including map references, and it was impossible that they did not know these to be our posts," The News quoted Nadeem as saying in the briefing held at army headquarters on Tuesday.

NATO helicopters and fighter jets attacked two military border posts in northwest Pakistan on Saturday in the worst incident of its kind since Islamabad allied itself with Washington in 2001 in the war on militancy.

The helicopters appeared near the post around 15 to 20 minutes past midnight, opened fire, then left about 45 minutes later, Nadeem was quoted as saying. They reappeared at 0115 local time and attacked again for another hour, he said.

Nadeem said that minutes before the first attack, a U.S. sergeant on duty at a communications centre in Afghanistan told a Pakistani major that NATO special forces were receiving indirect fire from a location 15 km (9 miles) from the posts.

The Pakistanis said they needed time to check and asked for coordinates. Seven minutes later, the sergeant called back and said "your Volcano post has been hit", Nadeem quoted the sergeant as saying.

Nadeem concluded that the communication confirmed NATO knew the locations of the Pakistani posts before attacking, said The News REINVIGORATED MILITARY

The NATO attack shifted attention away from Pakistan's widely questioned performance against militants who cross its border to attack U.S.-led NATO forces in Afghanistan, and has given the military a chance to reassert itself.

On Tuesday, Pakistan pulled out of an international conference on Afghanistan, an angry riposte after the attack by NATO plunged the region deeper into crisis.

Islamabad's decision to boycott next week's meeting in Bonn, Germany, will deprive the talks of a key player that could nudge Taliban militants into a peace process as NATO combat troops prepare to leave Afghanistan in 2014.

U.S. Secretary of State Hillary Clinton said on Wednesday she regretted Pakistan's decision to boycott next week's international conference on Afghanistan but hoped to secure Islamabad's cooperation in future.

"Nothing will be gained by turning our backs on mutually beneficial cooperation. Frankly it is regrettable that Pakistan has decided not to attend the conference in Bonn," Clinton told a news conference in South Korea.

The army, which has ruled the country for more than half of its history and sets security and foreign policy, faced strong criticism from both the Pakistani public and its ally, the United States, after the raid that killed Osama bin Laden.

The al Qaeda leader had apparently been living in a Pakistani garrison town for years before U.S. special forces found and killed him in a unilateral raid.

Pakistanis criticised the military for failing to protect their sovereignty, and angry U.S. officials wondered whether some members of military intelligence had sheltered him.

Pakistan's government and military said they had no idea bin Laden was in the country.

The army seems to have regained its confidence, and anti-NATO protests suggest it has won the support of the public in a country where anti-American sentiment runs high even on rare occasions when relations with Washington are healthy.

Exactly what happened at the Pakistani posts along an unruly and poorly defined border is still unclear. NATO has promised to investigate.

A Western official and an Afghan security official who requested anonymity said NATO troops were responding to fire from across the border. Pakistan said earlier the attack was unprovoked.

Both the Western and Pakistani explanations are possibly correct: that a retaliatory attack by NATO troops took a tragic, mistaken turn in harsh terrain where differentiating friend from foe can be difficult.

Nadeem was adamant that all communications channels had informed NATO that it was attacking Pakistani positions.



"They continued regardless, with impunity," The News quoted him as saying.

(Writing by Michael Georgy; Editing by Sugita Katyal)

Outgoing defence minister to be Kuwait PM - reports


KUWAIT (Reuters) - Kuwait's emir will name outgoing Defence Minister Sheikh Jaber al-Mubarak al-Sabah as new prime minister and ask him to form a government, Al Jazeera television and Kuwaiti newspapers reported on Wednesday, two days after the government resigned.

The Qatar-based news station did not cite a source, and there was no immediate comment on the report by Kuwaiti officials.

At least two Kuwaiti newspapers carried a similar report on their websites, citing unnamed sources as saying that the emir, Sheikh Sabah al-Ahmad al-Sabah, would also dissolve parliament.

Kuwait's government resigned on Monday, bowing to escalating demands by protesters and opposition deputies that Prime Minister Sheikh Nasser al-Mohammad al-Sabah step down over corruption allegations.

"Political sources expect the nomination at anytime of ... Sheikh Jaber ... as prime minister," the daily al-Watan said.

"The sources said an expected scenario is a dissolution of parliament, and the announcement of a government headed by Sheikh Jaber ... to oversee the election and resign after the ...election," it said.

Kuwait, an OPEC oil-producer, has tolerated criticism of its government to a degree rare among its Gulf neighbours, helping to insulate it from the protest-driven political tumult that has helped topple four Arab leaders this year.

But tensions rose sharply this month when opposition lawmakers and protesters stormed parliament to demand the resignation of the prime minister.

Kuwait has been locked in a long-running political battle between the government dominated by the ruling Al Sabah family and the 50-member elected parliament.

The standoff between parliament and the government has pushed Kuwait from one political crisis to the next and delayed key economic reforms and projects.

Since Sheikh Nasser became prime minister in 2006, seven cabinets have been re-jigged and the emir has been pushed to dissolve parliament and call early elections three times.

The previous cabinet resigned in March to avoid parliamentary questioning of three ministers, the main weapon the elected body has against the government.

Changes of the oil minister usually do not have an impact on the energy policy of the OPEC producer, which is usually among the top six world crude exporters.

(Reporting by Eman Goma in Kuwait and Firouz Sedarat in Dubai; Editing by Peter Graff)

Congo vote begins despite delay fears, violence


Voting began in Congo's second-post war election Monday after poll organizers defied fears that a delay would be needed to deal with logistical problems and critics who called for a review because of irregularities.

After repeated delays, the run-up to the presidential and parliamentary vote turned violent in the capital at the weekend. Final rallies were canceled due to clashes between rival supporters, security forces opened fire on crowds and the main presidential challenger was prevented from campaigning.

The polls - which pit President Joseph Kabila against 10 rivals while more than 18,500 candidates compete for 500 seats in parliament - will test the central African nation's progress toward stability after decades of misrule and two wars in the last 15 years.

In the eastern lakeside town of Goma, which has seen some of the worst violence, polls opened slightly late but thousands of people lined up to cast their ballots.

"I am happy to have voted. I want change so I hope those that lose accept the results. We don't want trouble," Joel Mweso, a student, told Reuters.

A Reuters witness also saw residents in the capital, Kinshasa, voting after initial delays.

The last conflict in the mineral-rich state officially ended in 2003 but Congo remains plagued by pockets of instability and many people have yet to reap the dividends of eight years of relative peace.

In parts of the east, the vote will take place in areas still run by a plethora of local and foreign rebel groups.

Election commission chief Daniel Ngoy Mulunda said Sunday the country would prove critics wrong by holding credible and peaceful elections.

"Everyone's going to vote tomorrow, it's going to be a celebration of democracy. The Congolese people are going to take the second step in the consolidation of their democracy. We have kept our promise," he said on the eve of the vote.

The first post-war election in 2006 was seen as broadly free and fair but gunbattles erupted after the voting.

Doubts over the election have stemmed from delays throughout the process, which meant that preparations for the poll have been last-minute and, at times, chaotic.

United Nations troops and helicopters from Angola and South Africa have been called on to ferry election material to 60,000 polling stations across a nation the size of Western Europe with little infrastructure so some 32 million people can vote.

Provisional results are due on December 6.

However, even in the capital voters complained of last-minute confusion over where they were meant to be voting due to polling stations being moved and errors with voter lists.

The opposition has also protested that election lists were not properly vetted, leading to potential fraud. After outbursts of violence during the campaign, there are also fears of a contested result.

"COME A LONG WAY"

Addressing the nation Sunday evening, Kabila said the security forces had taken all measures possible to protect the population and warned against a return to widespread violence.

"Our country has come a long way, from war and conflict of every type. We must take care not to go back to that," he said.

A European Union observer mission Sunday condemned moves by the police Saturday to prevent Kabila's rival, veteran opposition leader Etienne Tshisekedi, from campaigning.

Kabila, who came to power when his father Laurent was assassinated in 2001 and then won the 2006 poll, has been seen by many as the favorite due to the advantages of incumbency.

The failure of the opposition to unite behind a single candidate - after Kabila's camp pushed through a law scrapping the need for a run-off if no candidate secures a majority in the first round of voting - also bolstered his chances.

But Tshisekedi, who has spent decades in opposition and boycotted the last poll due to complaints of fraud, has drawn increasingly large crowds as his campaign, which started late, picked up momentum in the anti-Kabila West.

Peter Pham, director of the U.S.-based Michael S. Ansari Africa Center, said it appeared that Tshisekedi had cemented himself as the anti-Kabila vote amid frustrations at the slow pace of progress, even if no formal alliance was in place.

"Ironically, the government's ham-fisted attempts to obstruct his campaign have only served to enhance his stature," he said.

Bomber hits Iraq military base, 11 dead: officials


A suicide bomber struck a military base in the Iraqi town of Taji Monday, killing at least 11 people in the latest attack by insurgents attempting to undermine the government.

It was the third major attack in the last five days and underscored the fragile state of Iraqi security as Washington pulls its remaining 14,500 troops out by year-end, nearly nine years after the invasion that ousted dictator Saddam Hussein.

The attacker detonated a bomb at the entrance to the base, which houses a jail holding al Qaeda, Mehdi Army militia and other prisoners, officials and security sources said. Taji is 20 km (12 miles) north of Baghdad.

"We heard a big explosion we thought it was a rocket, but we heard on our radios that it was a car bomb targeting the main reception area for the jail," guard Mushtaq Kadaim said. "When we arrived at the scene there was no car, and the wounded people told us it was a suicide bomber."

"There is a lot of damage to the place and many cars are burned. The flesh of the victims is stuck to the front of the cars and nearby walls," he said.

Five guards and four civilian employees, plus two people visiting relatives at the jail, were among the dead, he said.

Violence has dropped sharply since the peak of sectarian slaughter in 2006-07. But Iraqi security forces still struggle to contain daily attacks by Sunni Muslim insurgents tied to al Qaeda and rival Shi'ite Muslim militias.

The Baghdad security operations center put the toll at 11 dead and 17 wounded. Police and hospital sources said 11 were killed and 19 wounded.

Militants launch scores of bombings and other attacks every month. According to official government figures, 161 civilians were killed in violence in October, the highest toll of the year, along with 97 police and soldiers.

Iraqi and U.S. military officials have said Iraq may see an increase in attacks as American troops depart. Soldiers and police are frequent targets.

Saturday attackers struck two areas around the Iraqi capital, killing at least 13 people and wounding more than 20 others. In the southern oil hub of Basra Thursday three bombs exploded in a busy market, killing 21 and wounding 80.

The town of Taji, the site of a major Iraqi military base, was hit by bombers in July, when two blasts in the parking lot of a municipal government building killed at least 28 people and wounded scores of others.

On November 14, seven rockets landed in or near the U.S. military's Kalsu base near Iskandariya, 40 km (25 miles) south of Baghdad, wounding two Iraqi civilians living near the base, local police said.

Voters queue in Egypt's first post-Mubarak election


Egyptians flocked to polling stations on Monday for their first free election in living memory, part of a transition born in revolutionary euphoria but now tinged by distrust of the generals who replaced Hosni Mubarak.

"This is the first real election in 30 years. Egyptians are making history," said Walid Atta, 34, an engineer waiting to vote at a school on his way to work in Alexandria.

In the nine months since a popular revolt ended Mubarak's 30-year rule, political change in Egypt has faltered, with the military apparently more focused on preserving its power and privilege than on fostering any democratic transformation.

Frustration erupted last week into bloody protests that cost 42 lives and forced the army council to promise civilian rule by July after the parliamentary vote and a presidential poll, now expected in June - much sooner than previously envisaged.

There were no reports of serious election-day violence. But scuffles among women voters erupted at one Alexandria polling station that opened late because ballot papers had not arrived.

Tents of protesters demanding an immediate end to army rule still stood in Cairo's Tahrir Square, but after heavy overnight rain, only a few score demonstrators had stayed on.

At least 1,000 people were queuing outside one polling station in the central Cairo district of Zamalek when voting started at 8 a.m. The line stretched around the block. Posters of candidates and parties festooned the street.

"We are very happy to be here and to be part of the election," said Wafa Zaklama, 55, voting for the first time in a parliamentary election. "What was the point before?"

In rain-washed Alexandria, Egypt's second city, men and women voted in long, separate queues. "I am here to cast my vote. This is a national duty in this time of crisis," said Abdullah Metwali, 55, voting on his way to work.

Campaign posters for Islamist parties, such as the Muslim Brotherhood's Freedom and Justice Party (FJP), and the Salafi Nour Party and the moderate Wasat Party festooned streets nearby. Troops outnumbered police guarding polling stations.

SEGREGATED VOTING

The segregated voting for men and women in Alexandria and many other places was a reminder of the conservative religious fabric of Egypt's mainly Muslim society, where Coptic Christians comprise 10 percent of a population of more than 80 million.

A host of parties have been formed since the removal of Mubarak, who routinely rigged elections to ensure that his now-dissolved National Democratic Party dominated parliament.

About 17 million Egyptians are eligible to vote in the first two-day phase of three rounds of polling for the lower house, which will be completed on January 11. Under a complex electoral system, voters pick both party lists and individual candidates.

The return of protesters to Tahrir Square and last week's violent street confrontations clouded the run-up to Egypt's first free election in six decades.

Oppressed under Mubarak, the Muslim Brotherhood and other Islamist parties stood aloof from those challenging army rule, unwilling to let anything obstruct elections that may open a route to political power previously beyond their reach.

In the Nile Delta city of Damietta, some voters said they would punish the Brotherhood for its perceived opportunism.

"I expect the Salafis to win, mainly because of people's recent enmity to the (Brotherhood's) FJP. People started to hate them because they see that their goals ...

have to do with parliamentary seats," said Ayman Soliman, 35, a tour operator who said he would vote for the moderate Islamist Wasat Party.

"I think the Brotherhood has lost more in the past three months than it built in the last three decades," he said.

Nevertheless, the Brotherhood has formidable advantages that include a disciplined organization, name recognition among a welter of little-known parties and a record of opposing Mubarak long before the popular revolt that swept him from power.

In the central Cairo district of Bulaq, FJP activists in white caps held placards outside a polling station to help voters identify their two candidates for the district.

BENCHMARK OF PROGRESS

Shadi Hamid, research director at the Doha Brookings Center, said the vote was the first benchmark in Egypt's transition.

"It will also tell us how much Egyptians are invested in this political process. If turnout is low, it will mean there is widespread disaffection among Egyptians and they don't believe that real change is possible through the electoral process."

Early signs suggested Egyptians were enthused by the novelty of a vote where the outcome was, for a change, not a foregone conclusion.

Parliament's lower house will be Egypt's first nationally elected body since Mubarak's fall, and those credentials alone may enable it to dilute the military's monopoly of power.

Yet army council member General Mamdouh Shahin said on Sunday the new assembly would have no right to remove an army-appointed government using its "presidential" powers.

In an eastern suburb of Cairo, Amir Makar, 23, said he was voting, but with few illusions about Egypt's future. "After Shahin's comments and this week's events, I'm quite cynical about the whole endeavor," he said.

A queue of women voters snaked for hundreds of meters (yards). One woman said: "I think if I went to work and came back, this line still wouldn't have moved."

A little girl asked her mother: "Where did all these people come from?" Her mother replied: "Look my child, this is a small picture of what millions like us are doing. This is what you will have when you grow up: a voice."

On Friday, the army named Kamal Ganzouri to form a new cabinet, a choice quickly rejected by protesters in Tahrir Square demanding that generals step aside immediately in favor of a civilian body to oversee the transition to democracy.

The military had envisaged that once upper house elections are completed in March, parliament would pick a constituent assembly to write a constitution to be approved by a referendum before a presidential election. That would have let the generals stay in power until late 2012 or early 2013.

The faster timetable agreed under pressure from the street has thrown up many questions about how the process will unfold and how much influence the army will retain behind the scenes.

The United States and its European allies, which have long valued Egypt's peace treaty with Israel, have urged the generals to step aside swiftly, apparently seeing them as causing, not curing, instability in the most populous Arab nation.

Judges were supervising polling stations to guard against the ballot-stuffing, intimidation and other abuses of the past.

"By the end of the day, the ballot box, room and the whole school will be sealed with red wax," said Mohamed Refaat, a judge from the southern city of Assiut who was supervising an increasingly crowded polling station in Alexandria.

Mexico's early frontrunner formalizes presidential bid


The frontrunner in Mexico's 2012 presidential race pledged on Sunday to break past decades of political paralysis and deliver the country from a deepening spiral of drug violence and sluggish economic growth.

Thousands of cheering supporters rallied around Enrique Pena Nieto, the charismatic young ex-governor of Mexico's most populous state, after he registered in Mexico City as the official presidential candidate of the opposition Institutional Revolutionary Party (PRI).

With a 20-point lead in national polls, Pena Nieto, 45, is the strongest candidate fielded by the PRI since the party that ruled Mexico for most of the 20th century lost power in 2000.

After two conservative administrations and growing frustration with rising crime and economic inequality, Pena Nieto is offering a message of hope, backed by the PRI's long experience in government.

"Today in Mexico there is fear, anxiety, discouragement. But at the same time there is a growing force, optimistic, and sure that better times are coming," Pena Nieto told the crowd gathered at the party's headquarters. He promised to make the country safer, reduce social inequality and create more jobs.

Following its defeat in 2000, the PRI fractured. But the party's massive machine of unions, civil groups and farmers have rallied behind Pena Nieto. His good looks and message of change have captured wide support beyond the PRI's base.

"Unless the Virgin of Guadalupe intervenes, he will win the election in a landslide," said George Grayson, a professor at the College of William & Mary in Virginia.

Pena Nieto is seen by analysts and investors as Mexico's best chance to pass key economic reforms, such as opening the state oil company to private investment and reforming labor laws, due to the PRI's sway over the country's biggest unions.

While Pena Nieto's victory may seem likely, the PRI could falter in congressional races, which would hamper Pena Nieto's agenda. Rivalries between parties have scuttled major reforms ever since the PRI lost its congressional majority in 1997.

PAN NOMINATION UNDECIDED

Three candidates are vying for the nomination of President Felipe Calderon's conservative National Action Party (PAN), with former education minister Josefina Vazquez Mota in the lead.

The leftist Party of the Democratic Revolution (PRD) is backing Andres Manuel Lopez Obrador, who nearly won in 2006 but is now in a distant third place in the polls.

Mexicans will not vote until next July, leaving plenty of time for a reversal in Pena Nieto's fortune. Calderon came from far behind to win in 2006.

Pena Nieto has benefited from a cozy relationship with dominant broadcaster Televisa. Its adulatory coverage of his campaign and his wedding to one of its soap stars has been reviled by critics as a throwback to the days of Mexico's authoritarian past.

Rivals paint him as a puppet of the PRI's old party bosses. Vazquez Mota said the PRI's lack of a primary showed it was the same old party, which defined its rule by imposing a candidate who triumphed in sham elections.

"In the PAN we are seeing a democratic process, in other parties we see the traditions and customs they historically have had," Vazquez Mota told daily newspaper El Universal.

By the end of its 71 years of rule, the PRI was synonymous with rampant corruption that undercut Mexico's economy and allowed the country's powerful criminal gangs to flourish.

PAN candidates are trying to tar Pena Nieto's image by suggesting the PRI is still in the pockets of drug cartels.

But those charges may not stick. Pena Nieto has given the party a new face after a term as a wildly popular governor of Mexico State, where he won support by building roads and schools and steered clear of any major scandals.

"In 70 years the PRI made mistakes, got lost and tripped up, but we have been learning and we won't let it happen again," said Emilio Gamboa, who leads the PRI's popular front.

During the PAN's two administrations, the economy has grown at about a third of the pace it needs to create enough good jobs for all the young Mexicans entering the workforce.

Meanwhile, more than 45,000 people have died in Calderon's military-led offensive against drug cartels. Many backed the move to challenge the gangs, but doubts are now growing.

"People think security has gotten out of the PAN's control," said Jose Antonio Crespo from graduate school CIDE. "While they think there was corruption under the PRI, at least there was order and more effective governance."

Arab sanctions tighten noose on Syria's Assad


The Arab League approved unprecedented economic sanctions against Syria, isolating President Bashar al-Assad's government over its eight-month crackdown on protests against his rule.

Britain said the sanctions could help enlist support at the United Nations for action against Damascus, which launched the crackdown against protesters calling for Assad's removal soon after the uprising began eight months ago.

The United Nations says Syrian security forces have killed more than 3,500 people in the crackdown.

Anti-Assad activists said there was no respite and security forces had killed at least 24 civilians Sunday, many in a town north of Damascus that has become a focus for the protests. Others were killed in raids on towns in the province of Homs.

"The indications are not positive ... the sanctions are still economic but if there is no movement on the part of Syria then we have a responsibility as human beings to stop the killings," Sheikh Hamad bin Jassim al-Thani, Qatar's prime minister and foreign minister, told reporters.

"Power is not worth anything when a ruler kills his people," he said after 19 of the League's 22 members approved the decision to immediately enforce the sanctions at a meeting in Cairo Sunday.

The sanctions include a travel ban on top Syrian officials, a freeze on assets related to Assad's government and are aimed at halting dealings with Syria's central bank and investment in the country, Sheikh Hamad said.

He added that Turkey, which attended the meeting, would also honor some of the measures, which will be another blow to the Syrian economy already reeling from sanctions imposed by the European Union and United States.

Arab nations wanted to avoid a repeat of what happened in Libya, where a U.N. Security Council resolution led to NATO air strikes. Sheikh Hamad warned other Arab states that the West could intervene if it felt the league was not "serious."

British Foreign Secretary William Hague said the "unprecedented decision to impose sanctions demonstrates that the regime's repeated failure to deliver on its promises will not be ignored and that those who perpetrate these appalling abuses will be held to account."

Hague said Britain hoped the move would help break what he called United Nations silence "on the ongoing brutality taking place in Syria" after Russia and China thwarted Western efforts to pass a U.N. Security Council resolution on Syria.

"To that end we welcome the commitment by the Arab League to engage with the U.N. Secretary General at the earliest opportunity to gain the U.N.'s support to address the situation in Syria," he said.

Britain has repeatedly ruled out a military attack on Syria.

Assad, who inherited power from his father in 2000, said in an interview this month that he would continue the crackdown and blamed the unrest on outside pressure to "subjugate Syria."

Many Arab leaders have become increasingly concerned by a series of "Arab Spring" revolts that have toppled the rulers of Tunisia, Egypt and Libya.

MERCHANT CLASS

A Western diplomat said Assad could for now count on support from China and Russia at the United Nations but that the two countries may change position if Assad heightens the crackdown and if the Arab League campaigns for international intervention.

China and Russia have oil concessions in Syria. Moscow also has a mostly disused naval base in the country and military advisers to the Syrian army.

"The sanctions are likely to lose Assad support among those in Syria who have been waiting to see whether he will be able to turn things around, such as merchants who could now see their businesses take more hits," the diplomat said.

The president of the Union of Arab Banks, a division of the Arab League, said Sunday the sanctions would hit Syria's central bank, which has "big deposits" in the region, especially the Gulf.

Arab ministers were spurred to action by worsening violence in Syria and by the Assad government's failure to meet a deadline to let in Arab monitors and take other steps to end its crackdown on the uprising.

Syrian official media quoted an undated letter by Syrian Foreign Minister Walid al-Moualem to the Arab League as saying Damascus viewed the plan for monitors as interference in its affairs.

The League has been galvanised by pressure from Gulf Arabs, already angry at Syria's alliance with regional rival Iran, by the political changes brought about by Arab uprisings, and by the scale of the Syrian bloodshed.

Along with peaceful protests, some of Assad's opponents are fighting back. Army defectors have loosely grouped under the Syrian Free Army and more insurgent attacks on loyalist troops have been reported in the last several weeks.

Officials blame the violence on armed groups targeting civilians and its security forces and say 1,100 security force members have been killed.

Saboteurs blow up Egypt gas pipeline to Jordan, Israel


Saboteurs blew up Egypt's gas pipeline to Jordan and Israel on Monday, witnesses and security sources said, a few hours before the country holds its first free election since President Hosni Mubarak was toppled in February.

The explosion struck the pipeline west of al-Arish in Sinai, witnesses said. There was a second consecutive blast, about 100 meters away, sources said.

State news agency MENA said the explosion was in al-Sabeel area. Security forces and fire trucks raced to the scene.

Security sources said the explosions were detonated from a distance and that tracks from two vehicles were found in the area. No group has claimed responsibility for the attack.

The pipeline, which supplies gas to Jordan and Israel, was last attacked on November 25. It is the eighth such attack since Mubarak stepped down on February 11. It is the ninth this year, with the first attack a few days before Mubarak was toppled.

Egypt's 20-year gas deal with Israel, signed in the Mubarak era, is unpopular with the Egyptian public, with critics arguing that the Jewish state does not pay enough for the gas.

An executive of the East Mediterranean Gas Co (EMG), which exports Egyptian gas to Israel, said in July that international shareholders in the firm were pursuing legal claims against Egypt for $8 billion in damages from contract violations in gas supplies, following disruptions caused by pipeline attacks.

Egypt doubled the price of gas exported to Jordan last month. Petroleum Minister Abdullah Ghorab said the new price was just above $5 per million BTU, up from $2.15 to $2.30.

The government said this month it would tighten security measures along the pipeline by installing alarm devices and recruiting security patrols from Bedouin tribesmen.

Italy's Monti in austerity race as IMF role eyed


Prime Minister Mario Monti faces a testing week seeking to shore up Italy's strained public finances, with an IMF mission expected in Rome and market pressure building to a point where outside help may be needed to stem a full-scale debt emergency.

Monti is expected to unveil measures on December 5 that could include a revamped housing tax, a rise in sales tax and accelerated increases in the pension age. But pressure from the markets could force him to act more quickly.

One source with knowledge of the matter said contacts between the International Monetary Fund and Rome had intensified in recent days as concern has grown that German opposition to an expanded role for the European Central Bank could leave Italy without a financial backstop if one were needed.

The source said it was unclear what form of support could be offered, such as a traditional standby arrangement or a precautionary credit line, if a market selloff Monday forced immediate action.

The IMF inspection team is expected to visit Rome in the coming days but no date has been announced.

An unsourced report in Italian daily La Stampa said up to 600 billion euros could be made available at a rate of between 4-5 percent to give Italy breathing space for 18 months.

Such a sum would be beyond the IMF's current capacity and would need new measures such as the issue of new special drawing rights (SDRs) or intervention by the ECB, it said.

The Fund's total lending capacity is currently around $400 billion.

The IMF declined to comment on any moves to provide financial support, and official sources in Rome said they were unaware of any request for assistance from Italy, which has over 185 billion euros of bonds falling due between December and the end of April.

Italy's borrowing costs have returned to the dangerous levels that triggered the collapse of former Prime Minister Silvio Berlusconi's center-right government, with yields on 10 year bonds ending last week at more than 7.3 percent.

Italian yields are now in the territory that forced Greece, Ireland and Portugal to seek international bailouts and an auction Tuesday of up to 8 billion euros of BTP bonds will be a crucial test.

Friday, Italy paid a euro lifetime high yield of 6.5 percent to sell new six-month paper, a level which analysts said cannot be maintained for long without pushing a public debt amounting to 120 percent of gross domestic product out of control.

Italy, the euro zone's third biggest economy, would be far too big for existing bailout mechanisms and default on its 1.8 trillion euro debt would cause a banking and financial crisis that would probably destroy the single currency.

Monti outlined the broad thrust of his reform plans earlier this month, promising a mix of budget rigour and reforms to stimulate economic growth, and has stuck to Berlusconi's pledge to balance the budget by 2013.

But with growing signs that Italy's chronically sluggish economy could be entering recession, he has come under pressure to provide concrete details quickly.

PRESSURE

The measures outlined so far are broadly in line with directions previously given by the ECB, but there have been no detailed discussions with international bodies on the kinds of conditions normally attached to IMF assistance programs.

As well as loosening job protection measures, privatising local services and opening up professions to more competition, additional budget measures estimated by Italian media at up to 15 billion euros could be announced.

Monti can take some comfort from surveys showing broad popular support for his technocrat government, but austerity measures have yet to bite deeply and surveys also show a mixed picture on individual austerity measures.

On pensions, the government is expected to bring forward an already-planned increase in retirement ages, with a wider reform possible in the coming weeks.

Monti may reintroduce a housing tax that was scrapped by Berlusconi in a last-minute campaign pledge before the 2008 election. The move cost the Treasury an estimated 3.5 billion euros a year.

Other ideas under consideration include raising the value-added tax band in bars and restaurants, which currently stands at 10 percent

Islamists win most seats in Moroccan vote


Morocco's moderate Islamist PJD party won the most seats in the country's parliamentary election, final results showed Sunday, in the latest sign of a resurgence of faith-based movements since the Arab Spring uprisings.

The victory for Morocco's Justice and Development Party came a month after Tunisia handed power to a previously-banned party of moderate Islamists. Egypt's Muslim Brotherhood is also expected to do well in an election starting Monday.

PJD, which will get its first chance to head a coalition government, has said it will promote Islamic finance but steer clear of imposing a strict moral code on a country that depends on tourism.

The party, whose deceased founder was a physician of King Mohammed's grandfather, is loyal to the monarchy and backs its role as the supreme religious authority in the country.

PJD won 107 seats in the 395-seat parliament, according to results from the interior ministry carried by the official MAP news agency.

Three parties from the secularist Koutla bloc, with which the PJD wants to form a coalition, won a total 117 seats, the results showed.

Koutla includes the Istiqlal Party, of outgoing Prime Minister Abbas Al Fassi, Socialist Union of Popular Forces (USFP) and Socialism and Progress Party (PPS). The three parties won 60, 39 and 18 seats respectively. Istiqlal headed the incumbent coalition.

Ruler King Mohammed is expected to pick a prime minister from PJD's ranks next week, with its secretary general Abdelilah Benkirane touted for the job.

PJD's rivals, a grouping of eight liberal parties with close ties to the royal palace, lagged behind with about 160 seats in total, according to the final results.

Morocco has not had a revolution of the kind seen elsewhere in the region. But King Mohammed, has pushed through limited reforms to contain what has become regular protests demanding a British or Spanish-style monarchy.

Fathallah Arsalane, a prominent figure in the banned al-Adl Wal Ihsane (Justice and Spirituality) which has been a driving force behind the protests, said PJD deserved to win but he noted that it may not be any different from parties that have led previous governments.

"They (PJD) are honest people who love their country. But it will be in a coalition with other parties ... Parties execute the ruler's policies," he told Reuters in an interview.

The moderate Islamists' strong showing came on the back of its promises for greater democracy, less corruption and to tackle acute social inequalities by raising minimum wages and reforming education. Youth unemployment is at 31 percent and nearly a quarter of the 33 million population live in severe poverty.

Mohamed, a building concierge in his mid-thirties in Rabat, gave his vote to PJD, which he referred to as "Justice."

"I like Justice. They are fearless. Benkirane is blunt, he calls things by their name. He is not like other politicians who speak words I can't fathom."

"But they have to work quickly and it will not be made easy for them. The other parties don't like them. I think Justice have one year to show us some satisfactory change ... We want dignity and jobs," said Mohamed, arms-folded.

Rage grips Pakistan over NATO attack


Fury spread in Pakistan Sunday over a NATO cross-border air attack that killed 24 Pakistani soldiers and could undermine the U.S. effort to wind up the war in Afghanistan.

Sunday night in Pakistan, more than 40 hours after the incident, many questions remained.

NATO described the killings as a "tragic unintended incident" and said an investigation was underway. A Western official and an Afghan security official who requested anonymity said NATO troops were responding to fire from across the border.

It's possible both explanations are correct: that a retaliatory attack by NATO troops took a tragic, mistaken turn in harsh terrain where identifying friend and foe can be difficult.

"All of this is extremely murky and needs to be investigated," said a U.S. official in Washington, who spoke on condition of anonymity. "Our goal today is ... that the investigation gets mounted in a way that is confidence-building on all sides."

Militants often attack from Pakistani soil or flee after combat across a porous border that NATO-led troops, under their United Nations mandate, cannot cross.

What is clear is the incident could undermine U.S. efforts to improve ties with Pakistan so that the regional power helps stabilize Afghanistan before NATO combat troops go home by the end of 2014.

The attack was the latest perceived provocation by the United States, which infuriated Pakistan's powerful military with a unilateral special forces raid that killed al Qaeda leader Osama bin Laden in May.

Thousands gathered outside the American consulate in the city of Karachi to protest against the NATO attack.

A Reuters reporter at the scene said the angry crowd shouted "Down with America." One young man climbed on the wall surrounding the heavily fortified compound and attached a Pakistani flag to barbed wire.

"America is attacking our borders. The government should immediately break ties with it," said Naseema Baluch, a housewife attending the demonstration. "America wants to occupy our country but we will not let it do that."

Pakistan buried the troops killed in the attack Sunday. Television stations showed coffins draped in green and white Pakistani flags in a prayer ceremony at the headquarters of the regional command in Peshawar, attended by army chief General Ashfaq Kayani.

The NATO attack highlights the difficulties faced by the United States as it tries to secure the unruly border area that is home to some of the world's most dangerous militant groups who have mastered the harsh mountainous landscape.

Around 40 troops were stationed at the outposts at the time of the attack, military sources said.

Militants targeting NATO forces have long taken advantage of the fact that the alliance's mandate ends at the border to either attack from within Pakistan or flee to relative safety after an attack.

Three Pakistani soldiers were killed last year by NATO gunships. NATO said then that its forces had mistaken warning shots from Pakistani forces for a militant attack.

In the latest incident, a Western official and a senior Afghan security official said NATO and Afghan forces had come under fire from across the border with Pakistan before NATO aircraft attacked a Pakistani army post, killing the soldiers.

"They came under cross-border fire," the Western official said, without identifying the source of the fire.

The Afghan official said troops had come under fire from inside Pakistan as they were descending from helicopters, which had returned fire.



Both officials asked not to be named because the attack is so sensitive.
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Pakistan has said the attack was an unprovoked assault and has said it reserves the right to retaliate.

STRAINED RELATIONS

U.S. and NATO officials are trying to defuse tensions but the soldiers' deaths are testing a bad marriage of convenience between Washington and Islamabad.

Many Pakistanis believe their army is fighting a war against militants that only serves Western interests.

Foreign Minister Hina Rabbani Khar spoke with U.S. Secretary of State Hillary Clinton by telephone early Sunday to convey "the deep sense of rage felt across Pakistan" and warned that the incident could undermine efforts to improve relations, the Foreign Ministry said in a statement.

Pakistan shut down NATO supply routes into Afghanistan in retaliation for the incident, the worst of its kind since Islamabad uneasily allied itself with Washington following the September 11, 2001, attacks on the United States.



Pakistan is the route for nearly half of NATO supplies shipped overland to its troops in Afghanistan. Land shipments account for about two thirds of the alliance's cargo.

A similar incident on Sept 30, 2010, which killed two Pakistani service personnel, led to the closure of one of NATO's supply routes through Pakistan for 10 days.

U.S. ties with Pakistan have suffered several big setbacks starting with the unilateral U.S. special forces raid in May that killed bin Laden in a Pakistani town where he had apparently been living for years.

Pakistan condemned the secret operation as a flagrant violation of its sovereignty, while suspicions arose in Washington that members of Pakistan's military intelligence had harbored the al Qaeda leader.

The military came under unprecedented criticism from both Pakistanis who said it failed to protect the country and American officials who said bin Laden's presence was proof the country was an unreliable ally in the war on militancy.

Pakistan's army, one of the world's largest, may see the NATO incursion from Afghanistan as a chance to reassert itself, especially since the deaths of the soldiers are likely to unite generals and politicians, whose ties are normally uneasy.

Pakistan's jailing of a CIA contractor, Raymond Davis, and U.S. accusations that Pakistan backed a militant attack on the U.S. embassy in Kabul have added to the tensions.

"From Raymond Davis and his gun slinging in the streets of Lahore to the Osama bin Laden incident, and now to the firing on Pakistani soldiers on the volatile Pakistan-Afghan border, things hardly seem able to get any worse," said the Daily Times.

Islamabad depends on billions in U.S. aid and Washington believes Pakistan can help it bring about peace in Afghanistan.

But it is constantly battling Anti-American sentiment over everything from U.S. drone aircraft strikes to Washington's calls for economic reforms.

"We should end our friendship with America. It's better to have animosity with America than friendship. It's nobody's friend," said laborer Sameer Baluch.

In Karachi, dozens of truck drivers who should have been transporting supplies to Afghanistan were idle.

Taj Malli braves the threat of Taliban attacks to deliver supplies to Afghanistan so that he can support his children. But he thinks it is time to block the route permanently in protest.

"Pakistan is more important than money. The government must stop all supplies to NATO so that they realize the importance of Pakistan," he said.

But some Pakistanis doubt their leaders have the resolve to challenge the United States.

"This government is cowardly. It will do nothing," said Peshawar shopkeeper Sabir Khan. "Similar attacks happened in the past, but what have they done?"

(Additional reporting by Zeeshan Haider in Islamabad, Izaz Mohmand and Aftab Ahmed in Peshawar, Imtiaz Shah in Karachi, and David Brunnstrom in Brussels; Writing by Michael Georgy;

Yemen names opposition leader Basindwa as premier


Sunday opposition leader Mohammed

Basindwa as the country's new interim prime minister, the state news agency Saba reported, under a deal aimed at ending months of protests which have rocked the country.

If the agreement goes according to plan, Saleh will become the fourth Arab ruler brought down by mass demonstrations that have reshaped the political landscape of the Middle East.

Vice President Abd-Rabbu Mansour Hadi named Basindwa in a decree carried by the agency. This followed a decision Friday by opposition parties to nominate Basindwa, the head of an alliance that led months of protests against President Ali Abdullah Saleh, to form a new government.

"A presidential decree issued today ... mandated Mohammed Salem Basindwa to form a government of national unity," Saba said.

Basindwa, a foreign minister from 1993 to 1994, is to form the new government under the deal signed in Riyadh last Wednesday when Saleh transferred his powers to his deputy to resolve the crisis resulting from months of pro-democracy demonstrations.

Saleh returned home Saturday after signing the deal with the opposition after 33 years in office and 10 months of protests.

Saturday, Hadi called presidential elections for February 21.

Under the Gulf-sponsored agreement, Saleh will receive immunity from prosecution and keep his title until a successor is elected. Hadi was charged with calling the election within three months and forming a new government with the opposition.

Hundreds of people have been killed during months of protests anti-Saleh protests. The political deadlock has reignited conflicts with separatists and militants, raising fears that al Qaeda's Yemen-based regional wing could take a foothold on the borders of Saudi Arabia, the world's top oil exporter.

In continued unrest, at least 25 people have been killed and dozens wounded in northern Yemen in what Sunni Islamist Salafi fighters said was shelling by Shi'ite Muslim rebels Saturday and Sunday. [ID:nL5E7MR0C3]

(Reporting by Sami Aboudi in Dubai, writing by David Stamp and Firouz Sedarat)

Turkey tells Syria's Assad: Step down!

By Jonathon Burch ANKARA (Reuters) - Turkey bluntly told Syrian President Bashar al-Assad to step down for the sake of his people, tightening regional pressure on Damascus while the wider world condemned Syria's violent crackdown on protests in a vote at the United Nations.



Activists said Syrian forces killed 21 civilians and five army deserters on Tuesday. Among those killed were four children shot dead by troops near a school in the central region of Houla and a 12-year-old killed at a protest in the eastern city of Deir al-Zor, the Syrian Observatory for Human Rights said. It was not possible to independently confirm the killings as Syrian authorities, who blame the unrest on "armed terrorist groups," have barred most independent media from the country.

The United Nations says 3,500 people have been killed since the protests erupted in March, triggered by Arab uprisings which toppled the leaders of Tunisia, Egypt and Libya. "Without spilling any more blood, without causing any more injustice, for the sake of peace for the people, the country and the region, finally step down," Turkish Prime Minister Tayyip Erdogan said on Tuesday, in his first direct call for Assad to go.

In a further sign that Turkey was stepping up pressure on Syria, Turkish media reported that Turkeys' land commander inspected troops near the border.

"Bashar al-Assad comes out and says 'I will fight to the death'. For the love of God, who are you fighting with?" asked Erdogan. "Fighting your own people until the death is not heroism. It's cowardice. If you want to see someone who fights his people to the death, look at Nazi Germany, look at Hitler, look at Mussolini," he told his ruling AK party. "If you cannot learn a lesson from them, look at the killed Libyan leader who turned his guns on his own people and only 32 days ago used the same expressions as you." But, echoing the stance of Arab League foreign ministers who suspended Damascus and have threatened economic and political sanctions, he said his criticism did not mean Turkey was calling for international military action.

"We do not have eyes on any country's land, we have no desire to interfere in any country's internal affairs," Erdogan said.

"SYSTEMATIC VIOLATIONS"

Highlighting Syria's growing isolation, 122 countries voted for a resolution at the U.N. General Assembly's human rights committee condemning the government crackdown. Only 13 countries voted against and 41 abstained. The resolution says the committee "strongly condemns the continued grave and systematic human rights violations by the Syrian authorities, such as arbitrary executions, excessive use of force and the persecution and killing of protesters and human rights defenders."

It also demands an immediate end to "arbitrary detention, enforced disappearances, torture and ill treatment of detainees, including children" in Syria. Russia and China, which vetoed a European-drafted U.N. Security Council resolution last month that would have condemned Syria and threatened possible future sanctions, abstained according to an official U.N. tally, which diplomats said could indicate a shift in their positions.

Countries that voted against the resolution included Iran, North Korea, Belarus, Nicaragua, Venezuela and Vietnam. Syria's U.N. Ambassador Bashar Ja'afari said the resolution, drafted by Britain, France and Germany, had no meaning for Damascus.

"Although the draft resolution is submitted primarily from three European countries it is not a secret that the United States of America is the mastermind and main instigator of the political campaign against my country," Ja'afari said. "This draft resolution definitely has nothing to do with human rights; it is only a part of the typically hostile policy by the United States against Syria," he said. Ja'afari held up for delegates what he said were documents naming terrorists arrested while smuggling arms into Syria. He said the documents offered clear proof of a U.S.-led plot to topple Assad.

German Ambassador Peter Wittig said it was time to move the issue back to the 15-nation Security Council, which has been deadlocked on Syria due to Russian and Chinese opposition. "The Security Council cannot fall behind the region," he said, referring to the Arab League suspension of Syria. "We would encourage the ... council to come back to this issue." British Foreign Secretary William Hague said in a statement that the resolution "sends a signal of united condemnation of the Syrian regime's systematic human rights abuses." "As long as the crisis in Syria continues the international pressure on the Assad regime will only intensify," he said.

U.S. Ambassador Susan Rice also welcomed the committee's adoption of the resolution, which will be confirmed by a new vote in a plenary meeting of the General Assembly next month. "By overwhelmingly adopting its first-ever resolution on Syria's human rights abuses, the ... Third Committee has sent a clear message that it does not accept abuse and death as a legitimate path to retaining power," she said in a statement.

(Additional reporting by Khaled Yacoub Oweis in Amman and Louis Charbonneau at the United Nations; Writing by Dominic Evans; Editing by Jon Hemming)

Yemeni president in Saudi to sign power transfer

DUBAI (Reuters) - Yemeni President Ali Abdullah Saleh arrived in Saudi Arabia on Wednesday to sign a Gulf power transfer initiative made by the six-member Gulf Cooperation Council (GCC), the country's state TV said.

"The president of the republic arrives safely to the airport of Riyadh to visit the Kingdom of Saudi Arabia, following an invitation from the Saudi leadership, to attend the signing of the Gulf initiative," a ticker running on the bottom of Yemen TV said.

Yemen's opposition said on Monday it had finalised a deal under which Saleh, who has ruled the impoverished country for 33 years, is to transfer his powers to his deputy. Saleh has three times backed down from signing the initiative.

Yemen has been paralysed by months of protests that have weakened the government's control on the country and allowed Islamist militants to take hold of swathes of territory in the south. The violence has also triggered fears that it could affect neighbouring Saudi Arabia, the world's largest oil exporter which shares a long border with Yemen.

Three U.S. students held in Egypt over protests


CAIRO (Reuters) - Three U.S. students were paraded on Egyptian television on Tuesday after being accused of throwing petrol bombs at police during protests near Cairo's Tahrir Square where demonstrators have been demanding an end to military rule.

State television did not give their identities, describing them as "foreigners." But the U.S. embassy confirmed that three U.S. citizens were being detained and the American University in Cairo said three U.S. students studying there had been held.

Egypt's state television cited an Interior Ministry official as saying that the three had been detained after they threw petrol bombs at police protecting the Interior Ministry. It said the identities of the three were being established.

It showed pictures of three with their backs against a wall and looking at the camera. One person out of shot raised the head of one of the Americans with his hand to ensure he looked straight ahead.

It showed videos, taken by phone cameras, that it said showed the three taking part in the protest at night. One of the people in the picture wore a medical face mask that many protesters have been using to protect against teargas. Another had a headscarf around his mouth.

"Three of our American study-abroad students, Gregory Porter, Luke Gates and Derrik Sweeney, were arrested last night. We are in touch with their families and are working with the U.S. embassy and the Egyptian authorities to ensure that they are safe," the American University in Cairo said.

"We have been able to determine that they are being held at Abdeen's public prosecutor's office," it said in a statement that was e-mailed to alumni of the university. The U.S. embassy also confirmed the detention. "We have been in contact with the Egyptian authorities and can confirm that there are three U.S. citizens in detention in connection with the protest. We have requested consular access," a U.S. embassy spokeswoman said.

She said the embassy expected to be granted access on Wednesday.

Egypt protesters battle on to end army rule


CAIRO (Reuters) - Egypt's army chief, seeking to defuse street protests that have left 37 dead, promised a swifter handover to civilian rule but failed to convince thousands of hardcore demonstrators, some of whom battled police through the night.

One man was killed in clashes early Wednesday in the second city Alexandria, one of several towns that saw unrest.

Field Marshal Mohamed Hussein Tantawi, who has run the ruling military council since mass protests unseated his long-time ally Hosni Mubarak in February, made a faltering televised address Tuesday in which he promised a civilian president would be elected in June, about six months sooner than planned. Confirming Egypt's first free parliamentary election in decades will start Monday, the council also accepted the resignation of the civilian prime minister and his cabinet, who had incensed democrats with a short-lived proposal that the army remain beyond civilian control under any new constitution.

But Tantawi angered many of the youthful demonstrators on Cairo's Tahrir Square and in other cities by suggesting a referendum on whether military rule should end earlier - a move many saw as a ploy to appeal to the many Egyptians who fear further upheaval and to divide those from the young activists. "Leave! Leave!" came the chants in Cairo and, in an echo of February's chorus: "The people want to topple the marshal."

Long into the night, while small groups on the fringes skirmished with police in clouds of teargas, those occupying the main square sang: "He must go! We won't go!" It is a battle of wills whose outcome is hard to predict. The field marshal, hanged in effigy on Tahrir Square in a visual echo of Mubarak's final days, seems intent on preserving the armed forces' vast business interests built up over six decades of effective military rule. But there was no renewal of earlier heavy-handed efforts to clear the area. Parliamentary elections will start this coming Monday - a plan confirmed at a meeting between the army and politicians - but they will take till January to complete. It is not clear how a referendum on military rule might be organised, nor what alternative might be proposed until June's presidential vote.

Tantawi, 76 and defence minister under Mubarak for two decades, appeared hesitant, speaking in field uniform, as he told the 80 million Egyptians his army did not want power: "The army is ready to go back to barracks immediately if the people wish that through a popular referendum, if need be." Tens of thousands packed Tahrir, the seat of the revolution which ended Mubarak's 30-year rule, from Tuesday afternoon and, though most drifted away, thousands remained camped through the night into Wednesday, while, in tense side-streets skirmishes, diehards pelted police who hit back with batons and teargas.

In Alexandria, a 38-year-old protester was killed. A Health Ministry official said the man was shot in the head during a confrontation outside a state security building. Police have denied using live ammunition but most of the 36 dead in the preceding five days of protest have had bullet wounds, medics say. And demonstrators have shown off cartridge casings they say come from weapons used by the authorities.

"We will stay here until the field marshal leaves and a transitional council from the people takes over," said Abdullah Galal, 28, a computer sales manager, as people set up tents across the sprawling Tahrir traffic interchange which has become the abiding symbol of this year's "Arab Spring" revolts. A stream of motorbikes and ambulances ferried away the injured from the skirmishing on the outskirts of the protest, while at the centre of the square a mood of quiet occupation set in as blankets were brought out and small bonfires lit.

REFERENDUM SCEPTICISM

Many of the protesters saw the suggestion of a referendum, vague in its content, as a ploy to split the nation: "He is trying to say that, despite all these people in Tahrir, they don't represent the public," said 32-year-old Rasha, one of dozens huddled around a radio in the nearby Cafe Riche, a venerable Cairo landmark. "He wants to pull the rug from under them and take it to a public referendum." A military source said Tantawi's referendum offer would come into play "if the people reject the field marshal's speech," but did not explain how the popular mood would be assessed.

Tantawi may calculate that most Egyptians, unsettled by dizzying change, do not share the young protesters' appetite for breaking from the army's familiar embrace just yet. For many Egyptians, trapped in a daily battle to feed themselves and their families, the political demands of some of those they view as young idealists are hard to fathom: "I have lost track of what the demands are," said Mohamed Sayed, 32, a store clerk in central Cairo as the capital went about its normal business before the start of what protesters had hoped might be a "million man march" Tuesday.

"If you talk to the people in Tahrir, they have no clue," added Sayed. "I don't know where the country is headed. I'm worried about my life."

On the square, however, demonstrators believed the army's reluctance to cede power could see an escalation, as activists tried to complete what some call an "unfinished revolution": "All they are doing now is forcing people to escalate," said Mohamed, 23, a financial analyst. "They are leaving. There is no question about that. "This opens the door for instability."

UNCERTAIN OPTIONS

When it was clear Mubarak had lost his potency, it was his former colleagues in the army who delivered the coup de grace. If it were now to be the turn of those generals themselves to have lost the legitimacy they won by easing Mubarak out with little loss of life, it is unclear who might replace them.

Some have raised the possibility of more junior officers ousting their superiors, though so far the ranks seem solid. Using a computer analogy, protester Abdullah Galal said: "There are many viruses in the system. It needs to be cleaned out entirely. We want to delete, reformat and reinstall ... We need to change the regime like they did in Tunisia and Libya." While the scale of protests is far short of the mass street action that ousted Mubarak, there is unrest in other cities.

In Alexandria, on the Mediterranean, protesters waved shoes in a sign of disrespect. In five days of protests in various cities, at least 1,250 people have been injured in addition to the 37 killed - a figure that includes Wednesday's death. The United States, which gives Egypt's military $1.3 billion (831.5 million pounds) a year in aid, called for an end to the "deplorable" violence in Egypt and said elections there must go forward. "We are deeply concerned about the violence. The violence is deplorable. We call on all sides to exercise restraint," White House spokesman Jay Carney said.

The unrest has knocked Egypt's markets. The benchmark share index has fallen 11 percent since Thursday, hitting its lowest level since March 2009. The Egyptian pound fell to its weakest against the dollar since January 2005. Political uncertainty has gripped Egypt since Mubarak's fall, while sectarian clashes, labour unrest, gas pipeline sabotage and a gaping absence of tourists have paralysed the economy and prompted a widespread yearning for stability.

Suu Kyi to run for Myanmar parliament seat


By Aung Hla Tun

YANGON (Reuters) - Myanmar democracy leader Aung San Suu Kyi will run in a parliamentary by-election expected by the end of the year, a top party official said on Monday, three days after her popular movement ended its boycott of the country's political system.

It will be the first time the Nobel Peace Prize laureate contests a seat herself having not stood as a candidate in her National League for Democracy's (NLD) 1990 election landslide, which was ignored by the then military regime and led to her lengthy incarceration.

"Aung San Suu Kyi intends to stand for the by-election but it's a bit early to say from which constituency she will run," Nyan Win, a member of the NLD's executive committee, told Reuters.

There are 48 seats available in Myanmar's new senate and lower house, which will be contested in polls expected by the end of the year.

The NLD was officially dissolved by the military junta for refusing to take part in last year's parliamentary polls because of "unfair and unjust" laws that would have prevented hundreds of its members from becoming lawmakers.

The legislature convened in February and is Myanmar's first since the late 1980s, when a unicameral "People's Assembly" controlled by the military's Burma Socialist Programme Party was scrapped.

Suu Kyi is the daughter of late independence hero Aung San and was a staunch opponent of the military during its 49 years of totalitarian rule. However, she has shown willingness to work with the new civilian government approved by parliament in March, even though it is run by former junta generals.

On Friday, the NLD voted unanimously to register the party and re-enter the political fray following an amendment to the constitution allowing those who have served sentences for crimes to take part in elections. Many NLD members, including Suu Kyi, are current or former political prisoners.

Since the annulled 1990 polls, Suu Kyi, 66, has spent most of the time in detention. She was released a year ago and still chooses to live in the lakeside house that on and off was her prison for 15 years.

U.S. ENDORSEMENT

She had earlier given no indication she herself was interested in becoming a lawmaker.

Her decision comes after Myanmar won a powerful endorsement on Friday, with U.S. President Barack Obama announcing Secretary of State Hillary Clinton would visit the resource-rich country neighbouring China, citing "flickers of progress."

Clinton will be the highest-ranking American to visit Myanmar since a 1962 military coup. She will go to Myanmar for two days early next month and plans to meet Suu Kyi.

Clinton has said credible elections are one condition for ending U.S. sanctions, along with the release of more political prisoners and peace with ethnic minorities. Myanmar released 230 political prisoners last month and another amnesty is expected in the coming weeks and months.

The NLD, Myanmar's biggest opposition force, would have dominated parliament had the 1990 result been accepted by the junta. The regime annulled the 1990 result only last year, arguing that the NLD's win could not be recognised because it was in breach of a constitution drafted 18 years later.

Suu Kyi commands considerable influence over the party and Ko Ko Hlaing, a senior advisor to President Thein Sein, said on the sidelines of the Association of South East Asian Nations (ASEAN) summit in Bali last week that the NLD's decision to re-register was a "significant step."

The presence of Suu Kyi in parliament would be another dramatic sign of openness that could give more legitimacy to the retired generals in control of the country, who are seeking acceptance, engagement, support and investment from the international community.

Part of its plan was to expedite that process by lobbying to chair ASEAN in 2014, two years ahead of schedule.

The new government has started dialogue with Suu Kyi, moves welcomed by the West, which has imposed sanctions on the country because of its poor human rights record.

(Writing by Jason Szep and Martin Petty)

Egyptians protest at army, clashes kill at least 12


By Tamim Elyan and Edmund Blair

CAIRO (Reuters) - At least 12 people were killed in clashes between security forces and crowds protesting against Egypt's ruling military council in some of the worst violence since the overthrow of Hosni Mubarak.

With just a week before voting in the first free parliamentary election in decades, the confrontations in the capital Cairo and other cities raised worries about how smooth voting will be.

Protesters camped out for a third night on Monday in Cairo's Tahrir Square, the epicentre of the 28-day uprising that ended Mubarak's 30-year rule. [ID:nL5E7MK0N3]

Egyptians elect a new parliament in a staggered vote that starts on November 28, but even when the assembly is picked, presidential powers remain with the army until a presidential poll, which may not happen until late 2012 or early 2013. Protesters want a much swifter transition.

Teargas has rained down on demonstrators and police have beaten them with batons in a bid to end the protest. Angry protesters brandished spent shotgun cartridges and bullet casings on Sunday, although police denied using live rounds.

Police backed by army officers fired salvoes of gas canisters and charged demonstrators in the square as darkness fell on Sunday, temporarily sending protesters fleeing.

They burnt down banners and Internet video clips, which could not be independently checked, showed police beating protesters with sticks, pulling them by the hair and, in one case, dumping what appeared to be a corpse on piles of rubbish.

But demonstrators swiftly regrouped in sidestreets and returned to take control of the square.

Field Marshal Mohamed Hussein Tantawi, Mubarak's defence minister for two decades and who leads the army council, has become a target of protests.

"The people want the toppling of the Field Marshal," protesters frequently chanted.

"I don't want Tantawi ... I am staying tonight," said Ayman Ramadan, a data entry employee, said early on Monday morning.

State television said at least 10 people were killed on Sunday, raising the death toll since Saturday, when clashes erupted, to at least 12. Hundreds have been wounded.

SWIFT TRANSITION

The demonstration that began on Friday was initially led by Islamists, angry at a bid by the army-backed cabinet to lay down principles for a new constitution that would have kept the army out of the control of a future civilian government.

But since then, the protest has largely been driven by the same youthful activists who galvanised Egyptians to bring down Mubarak, putting national pride before religion.

One of those groups, April 6 youth movement, told Egypt's state news agency it would stay in Cairo's Tahrir and continue sit-ins in other cities until its demands were met, including a call for a presidential vote no later than April.

Other demands include replacing the current cabinet with a national salvation government and an immediate investigation into the clashes in Tahrir and trial of those implicated in it.

Presidential candidate Hazem Salah Abu Ismail, an ultra-conservative Salafi Islamist, told protesters in Tahrir: "We are demanding as the minimum that power be handed over within six months."

The army has denied any desire to cling onto power and says it will not let any violence delay the parliamentary poll. It insists it can ensure security during the vote.

"We are all insisting on having the election on time -- the government, parties and the Supreme Council of the Armed Forces," cabinet spokesman Mohamed Hegazy told Reuters.

But analysts say a surge in violence in voting, a common feature of elections in Mubarak's era of rigged polls, could undermine the assembly's legitimacy if the result is questioned and deepen public frustration at the army's handling of the transition.

Presidential hopefuls Mohamed ElBaradei and Abdallah al-Ashaal denounced violence against protesters and called for a national salvation government, state news agency MENA said.

The European Union's foreign policy chief, Catherine Ashton, urged Egypt's interim authority to halt the violence.

"I urge calm and restraint and condemn the use of violence in the strongest terms," she said.

British Foreign Office Minister Alistair Burt condemned the clashes and said the deaths were "deeply regrettable".

Liberal groups are dismayed by the military trials of thousands of civilians and the army's failure to scrap a hated emergency law. Islamists eying a strong showing in the next parliament suspect the army wants to curtail their influence.

Analysts say Islamists could win 40 percent of parliamentary seats, with a big portion going to the Muslim Brotherhood.

But analysts say predicting a result is tricky, given the vast number of new parties and voices in Egypt's political landscape.

(Writing by Edmund Blair; Editing by Andrew Heavens)

Exclusive - The capture of Gaddafi's son


By Marie-Louise Gumuchian

OBARI, Libya (Reuters) - The chic black sweater and jeans were gone. So too the combat khaki T-shirt of his televised last stand in Tripoli. Designer stubble had become bushy black beard after months on the run.

But the rimless glasses, framing those piercing eyes above that straight fine nose, gave him away despite the flowing nomad robes held close across his face.

Saif al-Islam Gaddafi, doctor of the London School of Economics, one-time reformer turned scourge of the rebels against his dictator father, was now a prisoner, bundled aboard an old Libyan air force transport plane near the oil-drilling outpost of Obari, deep in the Sahara desert.

The interim government's spokesman billed it as the "final act of the Libyan drama". But there would be no closing soliloquy from the lead player, scion of the dynasty that Muammar Gaddafi, self-styled "king of kings," had once hoped might rule Africa.

A Reuters reporter aboard the flight approached the 39-year-old prisoner as he huddled on a bench at the rear of the growling, Soviet-era Antonov. The man who held court to the world's media in the early months of the Arab Spring was now on a 90-minute flight bound for the town of Zintan near Tripoli.

He sat frowning, silent and seemingly lost in thought for part of the way, nursing his right hand, bandaged around the thumb and two fingers. At other times he chatted calmly with his captors and even posed for a picture.

IN THE DEAD OF NIGHT

Gaddafi's run had come to an end just a few hours earlier, at dead of night on a desert track, as he and a handful of trusted companions tried to thread their way through patrols of former rebel fighters intent on blocking their escape over the border.

"At the beginning he was very scared. He thought we would kill him," said Ahmed Ammar, one of the 15 fighters who captured Gaddafi. The fighters, from Zintan's Khaled bin al-Waleed Brigade, intercepted the fugitives' two 4x4 vehicles 40 miles out in the desert.

"But we talked to him in a friendly way and made him more relaxed and we said, 'We won't hurt you'."

The capture of Saif al-Islam is the latest dramatic chapter in the series of revolts that have swept the Arab world. The first uprising toppled the Ben Ali government in Tunisia early this year.

The upheaval spread to Egypt, forcing out long-time ruler Hosni Mubarak in February; swept Libya, where the capital Tripoli fell to rebels this summer and Muammar Gaddafi died after being beaten and abused by captors last month; and is now threatening the Assad family's four-decade grip on Syria.

Saif al-Islam was the smiling face of the Muammar Gaddafi's power structure. He won personal credibility at the highest echelons of international society, especially in London, where he helped tidy up the reputation of Libya via a personal charitable foundation. He threw that reputation away in the uprising, emerging as one of the hardest of hard-liners against the rebels.

This account of his capture and his final month on the run is based on interviews with the younger Gaddafi's captors and the prisoner himself. The scenes of his flight into captivity were witnessed by the Reuters reporter and a Reuters cameraman and photographer who were also aboard the plane.

FACING DEATH PENALTY

Caught exactly a month after his father met a violent end, Saif al-Islam Gaddafi is wanted by the International Criminal Court at The Hague on charges of crimes against humanity - specifically for allegedly ordering the killing of unarmed protesters last spring. Libya's interim leaders want him to stand trial at home and say they won't extradite him; the justice minister said he faces the death penalty.

His attempt to flee began on October 19, under NATO fire from the tribal bastion of Bani Walid, 100 miles from the capital. Ammar and his fellow fighters said they believed he had been hiding since then in the desolate tracts of the mountainous Brak al-Shati region.

Aides who were captured at Bani Walid said Saif al-Islam's convoy had been hit by a NATO air strike in a place nearby called Wadi Zamzam - "Holy Water River". Since then, there had been speculation that nomadic tribesmen once lionised by his father might have been working to spirit him across Libya's southern borders - perhaps, like his surviving brothers, sister and mother, into Niger or Algeria.

He did not get that far. Obari is a good 200 miles from either. But his captors believe he was headed for Niger, once a beneficiary of Muammar Gaddafi's oil-fuelled largesse, which has granted asylum to Saif al-Islam's brother Saadi.

"WHO ARE YOU?"

Ammar said his unit, scouring the desert for weeks, received a tip-off that a small group of Gaddafi loyalists - they did not know who - would be heading on a certain route towards Obari. Lying in wait, they spotted two all-terrain vehicles grinding through the darkness.

"We fired in the air and into the ground in front of them," Ammar said. The small convoy pulled up, perhaps hoping to brazen it out.

"Who are you?" Adeljwani Ali Ahmed, the leader of the squad, demanded to know of the man he took to be the main passenger in the group.

"Abdelsalam," came the reply.

It's a common enough name, though it means "servant of peace" in Arabic; Saif al-Islam's real name means "Sword of Islam".

Ahmed, sizing the man up, took Ammar aside and whispered: "I think that's Saif."

Turning back to the car, a Toyota Land cruiser of a type favoured on these rugged desert tracks, Ammar said: "I know who you are. I know you."

CASH AND KALASHNIKOVS

The game was up. The militiamen retrieved several Kalashnikov rifles, a hand grenade and, one of the Zintani fighters said, some $4,000 in cash from the vehicles. It was a tiny haul from a man whose father commanded one of the best-equipped armies in Africa and who is suspected by many of holding the keys - in his head - to billions stolen from the Libyan state and stashed in secret bank accounts abroad.

"He didn't say anything," Ammar said. "He was very scared and then eventually he asked where we are from, and we said we are Libyans. He asked from which city and we said Zintan."

Zintan sits far from the spot of Gaddafi's capture in the Western, or Nafusa, Mountains, just a couple of hours drive south of the capital. The people of Zintan put together an effective militia in the uprising, and they are seeking to parlay their military prowess into political clout as new leaders in Tripoli try to form a government.

At Obari, a fly-speck of a place dominated by the oil operations of a Spanish company, Zintan fighters have extended their writ since the war deep into traditionally pro-Gaddafi country peopled by Tuaregs, nomadic tribes who recognise no borders.

The Zintanis are also a force in the capital. On Saturday morning, the Antonov flew to Obari from Tripoli, bearing the new tricolour flag of "Free Libya" - and piloted by a former air force colonel turned Zintan rebel. Just a few minutes after it landed, the purpose of the flight became clear.





FLIGHT TO CAPTIVITY

Five prisoners, escorted by about 10 fighters in an array of desert camouflage, piled aboard, ranging themselves on benches along the sides of the spartan hold of the Antonov An-32, which is designed to carry four dozen paratroopers.

Two of the men were handcuffed together. A third had his arms cuffed in front of him. A dozen or so bulky black bags were carried in, and some thin mattresses - the scant belongings of the prisoners, their captors said.

All wore casual, modern dress - with the exception of Saif al-Islam.

His brown robe, turban and face scarf, open sandals on his feet, were typical of the Tuaregs of the region. The choice of costume offered concealment for a man more commonly seen in sharp suits and smart casual wear, and a visual echo of his late father's penchant for dressing up.

As they shuffled on the benches, rifle butts scraping on the metal floor, one of the guards said: "He is afraid now."

The pilot, though, said that he had had a paternal word with the 39-year-old captive and put him at ease before he was brought on board.

"LIKE A SMALL CHILD"

"I spoke to him like he was a small child," said Abdullah al-Mehdi, a diminutive, heavily moustachioed ball of energy in a green jumpsuit. His ambition - typical of Zintanis in these anarchic days in Libya - is to start up a whole new air force.

"I told him he would not be beaten and he wouldn't be hurt and I gave my word," said Mehdi.

He and the other two crew in the cockpit chain-smoked their way through the flight, navigating over the barren wastes the old-fashioned way, on analogue instruments, with just occasional help from a new GPS device clamped awkwardly to the windscreen.

The howl of the propellers was numbing, and there was little conversation during the flight.

Saif al-Islam by turns stared ahead or turned back to crane his neck out at the land he once was in line to rule. Every so often, holding his scarf across his mouth Tuareg-fashion, he would say a few words to a guard.

The calm was in stark contrast to the frenzy that greeted the capture of Muammar Gaddafi on October 20 as he tried to flee the siege of his hometown of Sirte, on the Mediterranean coast.

Fighters from the long embattled city of Misrata filmed themselves on cellphones hammering the fallen leader, howling for revenge and inflicting a series of indignities on him before his body was displayed to crowds of sightseers for several days.

SURROUNDED

The reporter caught Saif al-Islam's eye a few times, but on each occasion he looked away. At one point he asked for water, and a bottle from the journalist's pack was passed up to him. The other prisoners, too, did not want to speak.

After the plane bumped down on the tarmac in the mountains at Zintan, it was surrounded within minutes by hundreds of people - some cheering, some clearly angry, many shouting the rebels' Islamic battle cry, "Allahu Akbar!" (God is Greatest).

Some held up cellphones to the few windows in the cargo hold, hoping to catch a snap of the most wanted man in Libya. At one point others were rattling the catches of the doors, intent it seemed on storming inside.

While his companions, clearly nervous, huddled together, Saif al-Islam seemed calm. He sat back and waited. The plane rocked gently as crowds clambered over the wings. The prisoners talked a little to each other and the guards.

Asked about The Hague court's statement that he was in touch through intermediaries about turning himself in to the international judges - who cannot impose the death penalty - he seemed to take offence: "It's all lies. I've never been in touch with them."

After more than an hour, the fighters decided they could get the other four captives off. They were helped out of the front door. Gaddafi remained where he was, on his own at the back, silent and aloof.

INJURED HAND

A further hour went by, the crowds still idling on the runway. The guards suggested it was time for the journalists to leave.

Moving back to speak to the solitary Gaddafi, the reporter asked, in English: "Are you OK?"

"Yes," he replied, looking up.

The reporter pointed to his injured hand. He said simply: "Air force, air force."

"NATO?"

"Yes. One month ago."

The reporter moved past him to the aircraft steps. Gaddafi looked up and, without a word, briefly took her hand.

Later, television footage showed him being helped off the plane as people among the crowd on the tarmac tried to slap him. His captors shoved him into a car and sped off for a hiding place somewhere in town.

(Additional reporting by Mahmoud al-Farjani in Obari and Oliver Holmes in Zintan; Writing by Alastair Macdonald in Tripoli; Editing by Michael Williams)

After Gaddafi son, spy chief captured


By Alastair Macdonald and Ali Shuaib

TRIPOLI (Reuters) - Abdullah al-Senussi, Libya's feared former intelligence chief, was cornered and captured at a remote desert homestead on Sunday, a day after Muammar Gaddafi's son was seized by Libyan fighters in the same region.

The arrest of the last survivor of the old regime who is wanted at The Hague for crimes against humanity crowned a momentous couple of days for a new government that is still in the process of formation, and also posed immediate tests of its authority -- both over powerful militias and with world powers.

In a sign of the strain that the prime minister-designate is under to reconcile the interests of rival militia groups that control the ground in Libya, officials said Abdurrahim El-Keib had asked for another couple of days to complete a cabinet that he had previously hoped to announce on Sunday.

A commander of former rebel forces nominally loyal to the National Transitional Council (NTC), General Ahmed al-Hamdouni, told Reuters that his men, acting on a tip, had found and surrounded Senussi at a house belonging to his sister near the town of Birak, about 500 km (300 miles) south of Tripoli and in the same region as Saif al-Islam was seized on Saturday.

NTC spokesman Abdul Hafez Ghoga later confirmed that Senussi, who is Saif al-Islam's uncle by marriage, had been captured. It was not immediately clear if the arrests were linked, though there has been speculation since the fall of Tripoli three months ago that the pair were hiding together.

Fighters who intercepted Saif al-Islam on a desert road in the early hours of Saturday said they believed one of his companions was also a nephew of Senussi, whose wife is a sister of Muammar Gaddafi's second wife Safiya.

Like Muammar Gaddafi, who was captured and killed on the coast a month ago on Sunday, Saif al-Islam and Senussi were indicted this year by the International Criminal Court for alleged plans to kill protesters after the Arab Spring revolt erupted in February.

But NTC officials have said they can convince the ICC to let them try both men in Libya.

Ghoga said NTC members meeting on Sunday had confirmed that preference, as did the current justice minister - although legal experts point out that international law demands Tripoli make a strong case for the right to try anyone who has already been indicted by the ICC.

MANY LIBYANS WANT HANGMAN'S NOOSE

Given the state of Libya's legal system after 42 years of dictatorship, as well as the depth of feelings after this year's civil war, the ICC seems unlikely to agree, many jurists think. Its chief prosecutor is expected in Libya this week.

While the ICC, backed by a U.N. resolution, can demand Libya hand over the prisoners, many Libyans are keen to see them tried for alleged crimes committed over decades, well beyond the scope of the ICC charges relating to this year only. And many also want them hanged, something barred at The Hague.

Among other old wounds, Senussi is suspected of a key role in the killing of more than 1,200 inmates at Tripoli's Abu Salim prison in 1996. It was the arrest of a lawyer for victims' relatives that sparked Libya's Arab Spring revolt in February. And many of the dead were members of Islamist groups which are expected to be a major political force in a democratic Libya.

The case of Senussi, long the elder Gaddafi's right-hand man and enforcer, may also revive interest in international incidents long shrouded in mystery, from the days in the 1980s and 90s when Gaddafi's Libya waged undercover war on the West.

Senussi's name has been linked with the Lockerbie bombing of 1988. He was among six Libyans convicted in absentia in Paris of bringing down a French UTA airliner a year later.

Saif al-Islam Gaddafi spent Sunday at a secret location in the militia stronghold of Zintan while in Tripoli the Libyan rebel leaders who overthrew his father tried to resolve their differences and form a government that can try the new captive.

With rival local militia commanders from across the country trying to parlay their guns into cabinet seats, officials in the capital gave mixed signals on how long Keib, may need.

Ghoga said the NTC had given Keib another two days, right up to a deadline of Tuesday, to agree his cabinet -- a delay that indicated the extent of horse-trading going on.

And though the Zintan mountain fighters who intercepted the 39-year-old heir to the four-decade Gaddafi dynasty deep in the Sahara said they would hand him over once some central authority was clear, few expect Saif al-Islam in Tripoli soon.

Members of the NTC, the self-appointed legislative panel of notables formed after February's uprising, expect to vote on Keib's nominees, with keenest attention among the men who control the militias focussed on the Defence Ministry.

One official working for the NTC said that the group from Zintan, a town of just 50,000 in the Western Mountains outside Tripoli that was a stronghold of resistance to Gaddafi, might even secure that ministry thanks to holding Saif al-Islam.

Other groups include rival Islamist and secularist militias in the capital, those from Benghazi, Libya's second city and the original seat of revolt, and the fighters from the third city of Misrata, who took credit for capturing and killing the elder Gaddafi and haggled with the NTC over the fate of his rotting corpse for several days in October.

"FINAL ACT"

"The final act of the Libyan drama," as a spokesman for the former rebels put it, began in the blackness of the Sahara night, when a small unit of fighters from the town of Zintan, acting on a tip-off, intercepted Saif al-Islam and four armed companions driving in a pair of 4x4 vehicles on a desert track.

It ended, after a 300-mile flight north on a cargo plane, with the London-educated younger Gaddafi, who had tried to pass himself off as "Abdelsalam, a camel herder", being held in a safe house in Zintan and the townsfolk vowing to keep him healthy until he can face a judge in the capital.

His captors said he was "very scared" when they first recognised him, despite the heavy beard and enveloping Tuareg robes and turban he wore. But they reassured him and, by the time a Reuters correspondent spoke to him aboard the plane, he had been chatting amiably to his guards.

"He looked tired. He had been lost in the desert for many days," said Abdul al-Salaam al-Wahissi, a Zintan fighter involved in the operation. "I think he lost his guide."

Sitting on the tarmac at Zintan, under siege from a mob who seemed ready to inflict on him the indignities that met his father, revealed his fears, but also some bravado and not a little humour. When others in the besieged aircraft lit up cigarettes, he complained: "We're going to choke to death."

In video posted on YouTube, he was later seen chatting in a room with others, apparently at ease in Zintan -- images that may surprise other Libyans who bear deep grudges against him.

"There is no problem," he said at one point, after cursing the "infidel Crusader pact" of NATO whose air strike a month ago had killed 26 of his men and left him with a wounded hand.

How long Libya will hold on to him and Senussi, who officials said was being held overnight in the desert, was unclear. Despite official insistence, some analysts said Libya would face international pressure if it tried them itself.

Western leaders, who backed February's uprising against Gaddafi but looked on squeamishly as rebel fighters filmed themselves taking vengeance on the fallen strongman a month ago, urged Keib to seek foreign help to ensure a fair trial.

Keib, who taught engineering at U.S. universities before returning to Libya to join the rebellion, drove on Saturday the two hours from Tripoli to Zintan to pay homage to its fighters. He promised justice would be done - within Libya.

(Additional reporting by Marie-Louise Gumuchian, Hisham El-Dani and Francois Murphy in Tripoli and Oliver Holmes and Taha Zargoun in Zintan; Writing by Alastair Macdonald)

Spain's Rajoy triumphs with big election majority


By Judy MacInnes

MADRID (Reuters) - Mariano Rajoy's centre-right People's Party stormed to a crushing election victory when voters punished the outgoing Socialist government for the worst economic crisis in generations.

Rajoy, who led his party to an absolute parliamentary majority in Sunday's election, is widely expected to push through drastic measures to try to prevent Spain being sucked deeper into a debt crisis threatening the whole euro zone.

"Difficult times are coming," Rajoy, 56, told supporters in his victory speech, with financial markets hungry for details on how he will attack a steep public deficit threatening to push the euro zone's fourth economy towards a perilous bail-out.

"Spain's voice must be respected again in Brussels and Frankfurt... We will stop being part of the problem and will be part of the solution," said Rajoy, who is not scheduled to take office for a month.

Voters vented their rage on the Socialists, who led Spain from boom to bust in seven years in charge. With 5 million people out of work, the European Union's highest jobless rate, the country is heading into its second recession in four years.

Spaniards were the fifth European nation to throw out their leaders because of the spreading euro zone crisis, following Greece, Portugal, Ireland and Italy.

The People's Party (PP), formed from other rightist parties in the 1980s after Spain returned to democracy at the end of the Franco dictatorship, won the biggest majority for any party in three decades.

The PP took 186 seats in the 350-seat lower house, according to official results with 99.95 percent of the vote counted.

The Socialists slumped to 111 seats from 169 in the outgoing parliament, their worst showing in 30 years.

MARKET FRIENDLY

Spain's stock and bond prices may initially react positively to the vote because Rajoy, a former interior minister, is seen as market friendly and pro-business.

Rajoy, who will not be sworn in until around December 20, will not get much breathing space.

The nation's borrowing costs are at their highest since the euro zone was formed and yields on 10-year bonds soared last week to close to 7 percent, a level that forced other countries like Portugal and Greece to seek international bail-outs.

The Spanish Treasury heads back to the markets with debt auctions on Tuesday and Thursday this week, which will test confidence in Rajoy's pending leadership

"The fact the PP has won by a large majority is a very good sign for the markets. It means stability," said Teresa Sabada, professor of political communication at IESE business school in Madrid.

"The best scenario now would be for Spain to announce some new emergency austerity measures but I am not sure whether this will happen or not."

Economic gloom dominated the election campaign, with more than 40 percent of young Spaniards unable to find work and a million people at risk of losing their homes to the banks.

"Being a civil servant I'm not optimistic," said Jose Vazquez, 45, after he voted in Madrid.

"We can choose the sauce they will cook us in, but we're still going to be cooked."

TREASURED INSTITUTIONS

Many leftist voters are concerned Rajoy will cut back Spain's treasured national health and education systems.

Too soured with the Socialists, they turned to smaller parties or stayed away from the polls. The abstention rate was higher than in the last election in 2008.

The United Left, which includes the former communist party, won 11 seats in the lower house, its best showing since the mid-1990s and way up from the previous legislature when it had only two seats.

Small parties doubled their presence in the lower house of parliament, taking 54 seats compared with 26 in the last legislature.

Rajoy has been cagey about exactly where he will cut public spending, but he has pledged to meet the country's target to trim its public deficit to 4.4 percent of economic output next year, which implies drastic measures.

But he risks pushing Spain back into its second recession in four years and provoking massive street protests.

When the Socialists took power in 2004 Spain was riding a construction boom fuelled by cheap interest rates, infrastructure projects and foreign demand for vacation homes on the country's warm coastlines.

Droves of young men dropped out of high school to take building jobs and bought flashy BMWs with their inflated wages.

But the government, consumers and companies were engulfed in debt when the building sector collapsed in 2007, leaving the landscape dotted with vacant housing developments, empty airports and underused highways.

"Something's got to change here in Spain, with 5 million people on the dole, this can't go on," said Juan Antonio Fernandez, 60, a jobless Madrid construction worker who switched to the PP from the Socialists.

Pablo Cortes, 27, who can find only occasional restaurant work despite his degree in architecture, saw no reason for optimism from the result.

"Does anyone really believe the PP is going to solve this? How, with more austerity for the have-nots and favours for the rich?" he said.

(Additional reporting by Nigel Davies, Martin Roberts and; Carlos Ruano in Madrid; Writing by Fiona Ortiz; Editing by Ralph Gowling)

Eleven killed in Syria on eve of Arab deadline


By Khaled Yacoub Oweis

AMMAN (Reuters) - Syria is seeking changes to a planned mission to monitor its implementation of an Arab League peace initiative, the group's chief said on Friday, on the eve of a deadline for Damascus to take steps to end months of bloodshed.

Activists said security forces killed 11 people after weekly prayers, in the latest violence in the crackdown on protests against President Bashar al-Assad, which the United Nations says has killed at least 3,500 people since March.

The Arab League has suspended Syria and set the Saturday deadline for it to comply with the Arab peace plan, which entails a military pullout from around restive areas, threatening sanctions unless Assad acts to halt the violence.

Arab League Secretary-General Nabil Elaraby said the organisation was studying a letter from Syria which "included amendments to the draft protocol regarding the legal status and duties of the monitoring mission of the Arab League to Syria."

French Foreign Minister Alain Juppe said he doubted Syria would respond positively to the Arab League initiative. But he said any international intervention must not be unilateral and should be mandated by the United Nations.

U.S. Secretary of State Hillary Clinton feared the country could slide into civil war.

"I think there could be a civil war with a very determined and well-armed and eventually well-financed opposition that is, if not directed by, certainly influenced by defectors from the army," she told NBC news in Indonesia, where she was attending a regional summit.

However, she did not foresee the global community intervening in the same way as it did in Libya. "There is no appetite for that kind of action vis-a-vis Syria," she said, pointing to moves by the Arab League and Turkey.

WORKING WITH THE OPPOSITION

Juppe, speaking alongside Turkish Foreign Minister Ahmed Davutoglu, said France was ready to work with the Syrian opposition and that tougher sanctions were needed on Damascus.

British Foreign Secretary William Hague will meet Syrian opposition representatives in London next week in what officials characterised as an intensification of contact with Assad opponents.

A Foreign Office source said Britain was "a long way off" from recognising the Syrian National Council or Syrian opposition groups as a government-in-waiting or as the legitimate alternative to Assad.

"What they have to do is come together and form a coherent unified vision of the Syria they want of the future, particularly around the transition period and how to get there," the source said.

Sanctions already imposed by the European Union and the United States are starting to bite: On Friday, French oil major Total said Syria had halted payments for its oil production activities. Syria's oil exports, worth $400 million a month, a vital source of government earnings, have come to a standstill.

But, at the end of a week in which army deserters attacked an intelligence building near Damascus and waged a deadly battle with Assad's forces, Juppe appeared to call on the opposition not to use army defectors to mount attacks.

"We are making a call to the Syrian opposition. To avoid a civil war, we hope that the army will not be mobilised. This would be a catastrophe," Juppe said.

Hundreds of people have been killed in Syria, including civilians, army deserters and forces loyal to Assad, since it agreed on November 2 to withdraw troops from urban areas and release political prisoners under an Arab League initiative.

Syria says it is trying to implement the deal but has called on neighbouring countries to do more to stem a flow of arms to the opposition and end what it says is a media campaign of incitement against Syrian authorities.

"REAL CIVIL WAR"

On Friday activists said security forces shot dead at least 11 people and wounded dozens when they fired to disperse protests in the cities of Deraa, Homs, Hama and the Damascus suburb of Erbin.

Syria's state news agency said two members of the security forces were killed and a third was seriously wounded when a bomb exploded in the province of Hama. Two others were wounded by gunfire in Deraa, it said.

Syria has barred most independent journalists from the country, making it difficult to verify reports from activists or officials. Authorities blame the violence on foreign-backed armed groups who they say have killed 1,100 soldiers and police.

Protesters called on foreign countries to expel Syrian ambassadors in support of the opposition.

"Whoever fears God should expel the Syrian ambassador" read a banner at a demonstration in the southern province of Deraa, where the uprising erupted in March.

In the eastern province of Hasaka, protesters shouted, "Why are you afraid? God is with us!" In Homs and Hama, young men dancing arm in arm chanted "The Free Army is our army," referring to army deserters who have waged an escalating campaign of attacks on state targets.

Opposition sources said on Wednesday the Free Syrian Army had killed or wounded 20 security police in an assault on an Air Force Intelligence complex on the outskirts of Damascus, the first of its kind in the revolt against Assad.

Russia, which opposed Western efforts to secure a Security Council resolution condemning Syria which could have led to U.N. sanctions on Damascus, said the raid showed that the conflict in Syria was "similar to real civil war."

France, Britain and Germany plan to ask the U.N. General Assembly's human rights committee to approve a resolution condemning the violence in Syria, before putting the non-binding measure to a vote in an assembly plenary session.

Russian Prime Minister Vladimir Putin called on Friday for a cautious response from the international community.

"We are ready to work with the international community but we call for restraint and caution," Putin told reporters, asked whether Russia will support calls for Assad to resign or back a U.N. resolution condemning his actions.

Meeting his French counterpart Francois Fillon in Moscow, Putin chided France for meddling in the affairs of other nations and reiterated a warning against military intervention.

Fillon said that faced with an increasingly "dramatic" situation in Syria, France was "more than ever determined to take action" against a president "who has lost all legitimacy in our eyes by firing on his own people."

Iran's ambassador to Lebanon said growing international pressure would not topple Syria's government.

"These threats will not yield any results," Ghadanfar Roken Abadi said on Friday. "Intensifying these threats...only increases our enthusiasm for popular unity with Syria."

(Additional reporting by Erika Solomon and Laila Bassam in Beirut, Muriel Boselli in Paris, Alissa de Carbonnel in Moscow and Tim Castle in London; Writing by Dominic Evans; Editing by Andrew Roche and Matthew Jones)

Thousands protest in Egypt's Tahrir against army rule


By Marwa Awad

CAIRO (Reuters) - About 50,000 mainly Islamist protesters flocked to Cairo's Tahrir Square on Friday to press Egypt's military rulers to transfer power to elected civilians after the cabinet launched a move to exempt the army from parliamentary oversight.

The protesters chanted Islamic songs before Friday prayers while others handed out flyers demanding the withdrawal of the constitutional proposal and that presidential elections be held no later than April 2012, instead of at year end or in 2013.

"Does the government want to humiliate the people? The people revolted against Mubarak and they will revolt against the constitution they want to impose on us!" a member of an orthodox Islamic Salafi group cried out over loudspeakers.

"Down to military rule" and "No to making the army a state above the state" were some of the chants echoing across Tahrir.

A military source said on Friday the army would hand power to a civilian government in 2012, without giving a exact date.

Except for the preponderance of bearded men and veiled women typical of strict Islamists, the mass rally recalled the 18-day, largely secular uprising centred in Tahrir that toppled autocratic President Hosni Mubarak on February 11.

A parliamentary election set for November 28 could be disrupted if political parties and the government fail to resolve a row over the proposal that would deny parliamentary oversight of the army, potentially allowing it to defy an elected government.

Over 39 political parties and groups said in a joint statement they would rally "to protect democracy and the transfer of power" after negotiations broke down between Islamist groups and the cabinet.

Deputy Prime Minister Ali al-Silmi showed a constitutional draft to political groups earlier this month which would give the army exclusive authority over its internal affairs and budget.

Salafi parties and movements who follow strict Islamic teachings were the earliest to galvanise support for the Friday protest, with the Muslim Brotherhood and a number of liberal parties following suit.

Thousands of Salafi protesters arrived in Cairo from different parts of the country, many waving flags and singing the national anthem while youth groups guarded entrances to the square to prevent thugs from slipping through.

"We came by bus from the Nile Delta. We have been called to come and show our refusal of army rule and support of civilian rule," said Mohamed Ali, a member of the Salafi Al-Asalah party.

ANTI-MILITARY RALLIES ACROSS EGYPT

In the port city of Alexandria, thousands of Islamists and youth groups also held a rally and planned to head to a military base in a show of protest against the army.

"We went down to demand change but they removed Mubarak and brought the Field Marshal," protesters in Alexandria chanted, referring to Mubarak's former defence minister who now heads the military council that is supposed to guide Egypt to democracy.

Thousands also gathered in the Northern Sinai and Upper Egypt regions to protest but they called for an Islamic state, not a civilian state, the demand of protesters in the capital and Alexandria.

Despite Friday's street outcry against the army, many ordinary Egyptians feel their country needs the military command to preside firmly over the transitional period.

Despite the unified call against the ruling generals, Tahrir square was split between the Muslim Brotherhood's Freedom and Justice Party and their harder-line Salafi rivals, represented by several political parties.

The two set up separate sound stages and organised their own speeches and chants, only joining forces for Friday prayers.

"Our aims are one but there are differences between us as Islamist groups," said Abdullah Galil, a Salafi youth.

Liberal and leftist parties were also marching to Tahrir to take part in the rally. "There is no alternative but a return to the demands of the revolution which we must put back on track through a unified political voice," Mohamed Anis, co-founder of the liberal mainstream Justice Party, said.

(Writing by Marwa Awad; Additional reporting by Edmund Blair and Shaimaa Fayed, AbdelRahman Mansour in Alexandria and Yusri Mohamed in Ismailia; Editing by Mark Heinrich)

U.N. nuclear watchdog board rebukes defiant Iran


By Fredrik Dahl and Sylvia Westall

VIENNA (Reuters) - The U.N. nuclear watchdog board censured Iran on Friday over mounting suspicions it is trying to develop nuclear weapons, but Tehran said the move would only strengthen its determination to press on with sensitive work.

Almost unanimously, the agency's 35-nation board passed a resolution expressing "increasing concern" about Iran's nuclear programme, after a U.N. report last week said the Islamic state appeared to have worked on designing an atom bomb.

In Washington, officials spoke out harshly against Iran while sources familiar with the matter said the United States was planning sanctions on Iran's petrochemical industry that could be unveiled as early as Monday.

The sources, who spoke on condition that they not be named, said Washington wanted to send a strong message to Tehran and was looking to find a way to block foreign companies from aiding Iran's petrochemical industry with the threat of depriving them of access to the U.S. market.

White House press secretary Jay Carney said the U.N. resolution exposed the "hollowness of Iran's claims" that its nuclear programme is purely peaceful. He said the United States would continue to pressure Tehran, in part through sanctions.

"The whole world now knows that Iran not only sought to hide its uranium enrichment program from the world for more than two decades, but also engaged in covert research and development related to activities that can have only one application: building a nuclear warhead," Carney said.

U.S. Defence Secretary Leon Panetta and Israeli Defence Minister Ehud Barak discussed Iran's nuclear ambitions during talks in Canada on Friday. Panetta stressed the U.S. focus was on sanctions and bringing diplomatic pressure on Tehran, said a senior Defence official, briefing reporters after the talks.

Panetta reiterated concerns about the potential consequences that a military strike might have, including its impact on the world economy, the official said. ENERGY MARKET CONCERNS

"This gets right to energy concerns. And I think Minister Barak shared the same concerns, that there is an energy component here," the official said.

And in a further sign of Tehran's worsening ties with the U.N. body, an Iranian official said Iran would boycott rare Middle East nuclear talks hosted by the IAEA next week.

"Iran will not bow to pressure," said Ali Asghar Soltanieh, Iran's envoy to the International Atomic Energy Agency (IAEA).

But the compromise text - adopted by 32 votes for and only Cuba and Ecuador against - omitted any concrete punitive steps, reflecting Russian and Chinese opposition to cornering Iran. Indonesia abstained in the vote.

Moscow's and Beijing's reluctance to further punish Iran, a major oil producer, makes clear Western states will have to act on their own if they want to tighten sanctions on the country.

That in turn is likely to disappoint Israel, which has not ruled out military action against its arch-foe if diplomatic means fail to stop a nuclear programme which the Jewish state sees as an existential threat.

Last week's IAEA report presented a stash of intelligence indicating that Iran has undertaken research and experiments geared to developing a nuclear weapons capability. It has stoked tensions in the Middle East and redoubled calls in Western capitals for stiffer sanctions against Tehran.

Iran showed no sign of backing down in the protracted dispute over its atomic activities, threatening to take legal action against the Vienna-based U.N. agency for issuing the hard-hitting report about Tehran's nuclear programme

Iran says it is enriching uranium only as fuel for nuclear power plants, not atomic weapons. It has dismissed the details in the IAEA report, obtained mainly from Western spy agencies, as fabricated, and accuses the IAEA of a pro-Western slant.

BIG POWER DIVISIONS

Iran considers the IAEA report "unprofessional, unbalanced, illegal and politicised," Soltanieh told the board meeting before the vote, the second against Iran in as many years.

The IAEA resolution's "only immediate effect is a further strengthening" of Iran's determination to continue its nuclear activities, he later told reporters.

"We will not suspend our enrichment activities and our work for even a second," Soltanieh added.

The six powers spearheading diplomacy on Iran - the United States, Russia, China, France, Britain and Germany - this week ironed out the resolution in intense talks and submitted it to the board, a mix of industrialised and developing countries.

It will not placate those in the West and in Israel who had hoped Amano's report would bring about tough international action to corral Tehran.

"At this point, it doesn't really ratchet up the pressure on Iran," said proliferation expert Mark Hibbs of the Carnegie Endowment for International Peace.

But the broad support for the text, including votes in favour from emerging political and economic powers India, Brazil and South Africa, may worry Iran.

With several rounds of nuclear talks having led nowhere, failing even to agree an agenda, the Security Council has imposed four rounds of sanctions on Iran since 2006. But Moscow and Beijing, with hefty trade and energy stakes in Iran, have made clear their opposition to more such steps.

Diplomats cast the powers' resolution text as a compromise between Western states, which would have preferred sharper language, and Russia and China, which resisted out of concern not to lose trade or burn all bridges for talks with Tehran.

Russia has criticised the IAEA for publishing its report on Iran last week. In contrast, Western states seized on it to press for additional sanctions on the Islamic Republic, but Russia has flatly ruled this out at the U.N. level.

The resolution expressed "deep and increasing concern about the unresolved issues regarding the Iranian nuclear programme, including those which need to be clarified to exclude the existence of possible military dimensions."

It called on Tehran to open up fully to U.N. inspectors and investigators and "engage seriously and without preconditions in talks" to address nuclear concerns. It asked Amano to report back to the board's next meeting in March.

In November 2009, IAEA governors including Russia and China rebuked Iran for building a uranium enrichment plant in secret. Iran rejected that vote as "intimidation."

(Additional reporting by Alister Bull, Arshad Mohammed and Phil Stewart in Washington; Editing by Andrew Roche)

Exclusive - U.S. to sanction Iran petrochemical industry


By Arshad Mohammed

WASHINGTON (Reuters) - The United States plans to sanction Iran's petrochemical industry, sources familiar with the matter said on Friday, seeking to raise pressure on Tehran after fresh allegations it may be pursuing nuclear weapons.

The sources said Washington wanted to send a strong signal after the U.N. nuclear watchdog issued a November 8 report saying Iran appeared to have worked on designing an atomic bomb and may still be secretly carrying out related research.

The sources, who spoke on condition that they not be named, said the sanctions could be unveiled as early as Monday.

They said the United States was looking to find a way to bar foreign companies from aiding Iran's petrochemical industry with the threat of depriving them access to the U.S. market.

While European nations have historically resented such "extra-territorial" U.S. sanctions seeking to punish their companies, in this case the sources said the European nations were themselves likely to follow suit, though not immediately.

U.S. firms are barred from most trade with Iran. The U.S. push is therefore aimed at foreign firms by in effect making them choose between working with Iran's petrochemical industry or doing business in the vast U.S. market.

It was not clear what authorities the Obama administration planned to invoke to impose the sanctions or precisely how, and how much, they would hurt Iran's petrochemical sector.

Discussion of the idea comes amid a renewed flurry of Israeli media speculation about the possibility of an Israeli military strike to try to destroy Iran's nuclear facilities.

The United States suspects Iran may be using its civil nuclear program as a cover to develop nuclear weapons. Iran has insisted its program is purely peaceful.

Anxieties about Iran's nuclear program increased after the International Atomic Energy Agency (IAEA) released intelligence last week suggesting Iran has undertaken research and experiments geared to developing a nuclear weapons capability.

ACTION ON FINANCIAL SECTOR?

Iran, which denies it wants nuclear weapons, condemned the findings of the Vienna-based IAEA as "unbalanced" and "politically motivated."

The report increased tensions in the Middle East and led to redoubled calls in Western capitals for stiffer sanctions against Tehran.

The sources familiar with the matter said there had also been discussion of sanctions on the Iranian financial sector.

While U.S. officials last week said the idea of cutting off the Iranian central bank entirely was off the table for now, one source said there had been consideration of more limited measures.

"There was displeasure at the top with the view that it's all or nothing ... (and that if it's all) we take out our own economic recovery," he said. "The instruction was given to look for other possible avenues."

The sources said the United States was reluctant to try to cut off the Iranian central bank entirely for fear this could drive oil prices dramatically higher, potentially impairing the U.S. recovery.

The United States and its European allies, notably Britain, France and Germany, are seeking ways to raise the pressure on Iran without going to the U.N. Security Council, where fresh sanctions are all but sure to be opposed by Russia and China.

The U.N. Security Council has passed four resolutions imposing sanctions on Iran but both Russia and China have made clear their reluctance to go further for now.

There has been growing pressure from the U.S. Congress and prominent Republicans, including presidential candidate and Texas Governor Rick Perry and former U.S. Secretary of State Condoleezza Rice, to sanction the Iranian central bank.

Perry advocated the idea in a televised debate on Saturday while Rice did so in an interview with Reuters on Wednesday.

"There is time for diplomacy but it better be pretty coercive diplomacy at this point," Rice told Reuters.

"There are many things we could do even without probably the Security Council: sanction the Iranian central bank, deny them access to the financial system through that," she said.

(Editing by Todd Eastham)

U.S.-China tensions spill over into Asia summit


By Ben Blanchard and Olivia Rondonuwu

NUSA DUA, Indonesia (Reuters) - Tensions between the United States and China spilt over into meetings of Asia-Pacific leaders on Friday as the two countries jostled over how to handle competing claims to the South China Sea.

Chinese Premier Wen Jiabao demanded that "outside forces" had no excuse to get involved in the complex maritime dispute, a veiled warning to the United States and other countries to keep out of the sensitive issue.

"It ought to be resolved through friendly consultations and discussions by countries directly involved. Outside forces should not, under any pretext, get involved," Wen told a meeting with Southeast Asian leaders, several of whose countries claim sovereignty to parts of the South China Sea.

The comments were carried on the Chinese Foreign Ministry's website (www.mfa.gov.cn).

The remark is the latest barb between the two countries in recent weeks when President Barack Obama has sought to reassert U.S. presence in the Asia-Pacific region to counter the growing influence of China, its biggest economic rival.

Obama said in Australia on Thursday, on his last stop before jetting to the Asia meetings in neighbouring Indonesia, that the U.S. military would expand its Asia-Pacific role despite budget cuts, declaring America was "here to stay" as a Pacific power.

Days earlier, as host of the Asia Pacific Economic Co-Operation forum in Hawaii, Obama had voiced growing frustration at China's trade practices and he pushed for a new Asia-Pacific trade deal with some of Beijing's neighbours.

The moves are seen as an attempt to reassert U.S. leadership to counter China's growing influence around the Pacific Rim and reassure allies such as South Korea and Japan that it would remain a strong counterweight.

The United States wants the dispute over the South China Sea discussed on the Indonesian resort island of Bali at meetings of the 10-member Association of South-East Asian Nations (ASEAN) and eight regional powers, including the United States, China, Russia and Japan.

Bilateral meetings are being held on Friday before a full East Asia summit on Saturday.

Vietnam, the Philippines, Taiwan, Malaysia and Brunei are the other claimants to parts of the South China Sea, a major route for some $5 trillion in trade each year and potentially rich in resources.

The Southeast Asian countries along with the United States and Japan, are pressuring Beijing to try and seek some way forward on the knotty issue of sovereignty, which has flared up again this year with often tense maritime stand-offs.

U.S. Secretary of State Hillary Clinton urged claimants earlier this week not to resort to intimidation to push their cause, itself an indirect reference to China, which lays claim to large swathes of the sea.

In bilateral meetings on Friday, Obama said the dispute should be discussed by the regional leaders at the talks, known as the East Asia Summit, which could embolden some Southeast Asian countries with claims.

Japan added its voice to the call, saying those with claims should "seek a peaceful resolution in a transparent matter based on international law."

China though is adamant it does not want such talks to take place and that the issue should be resolved via bilateral negotiations. Raising the issue in multilateral summit talks would not help foster East Asian co-operation, it argues.

"On the contrary, this could open up a Pandora's Box and inflame regional tensions," the overseas edition of the People's Daily, the official paper of the ruling Communist Party, said on Friday in a front page commentary.

The People's Daily generally reflects official thinking, and the small-circulation overseas edition often states views more bluntly than the bigger domestic edition.

VITAL ECONOMIC INTEREST

Obama has said the increased focus on the Asia-Pacific region was essential for America's economic future, a point he emphasised on Friday as executives from Boeing Co and Indonesia's Lion Air signed an agreement for the low cost carrier to buy $21.7 billion worth of U.S. planes.

"This is a remarkable example of the trade, investment and commercial opportunities that exist in the Asia-Pacific region," he said of Boeing's biggest commercial order.

"This is an example of a win-win situation where people in the region are going to be able to benefit from outstanding airlines, and our workers back home are going to be able to have job security.

A first step in extending the U.S. military reach into Southeast Asia will see U.S. Marines, naval ships and aircraft deployed to northern Australia from 2012.

That deployment to Australia, which by 2016 will reach a taskforce of 2,500 U.S. troops, is small compared with the 28,000 troops stationed in South Korea and 50,000 in Japan.

But the de facto base in Darwin, only 820 km from Indonesia, expands the direct U.S. military presence in Asia beyond South Korea and Japan and into Southeast Asia, an area where China has growing economic and strategic interests.

It will also put more U.S. troops, ships and aircraft much closer to the South China Sea and will allow the United States to quickly reach into Southeast Asia and the Indian Ocean.

Obama on Thursday acknowledged China's unease at what it sees as attempts by Washington to encircle it, pledging to seek greater cooperation with Beijing.

China has questioned the new U.S. deployment, with a foreign ministry spokesman raising doubts about whether strengthening such alliances helped the region pull together at a time of economic gloom.

From the APEC meeting last week to the president's sweep through Asia, Obama has used some of his strongest language against China, which some analysts suggest is largely focussed on the U.S. domestic audience ahead of elections next year.

Last week in Hawaii, he demanded that China stop "gaming" the international system. He said China, which often presents itself as a developing country, is now "grown up" and should act that way in international affairs.

China's official reaction has been restrained, with an impending leadership succession preoccupying the Communist Party and leaving Beijing anxious to avoid diplomatic fireworks.


Syrian troops shell villages, Arab deadline looms


By Khaled Yacoub Oweis

AMMAN (Reuters) - Syrian troops shelled two northern villages overnight after an attack by army defectors on forces loyal to President Bashar al-Assad, local activists said Friday, in the first reported use of sustained shelling against the eight-month uprising.

The assault came a day after the Arab League suspended Syria and gave it until the end of the week to comply with an Arab peace plan to end a crackdown on the revolt that has killed more than 3,500 people, by a United Nations count.

Along with mostly peaceful street protests demanding Assad's removal, an armed insurgency has emerged, prompting calls by opposition leaders for protesters to stick to non-violence in face of an escalating crackdown.

Eight villagers were injured overnight when tank shells and heavy mortars fell for three hours on Tal Minnij and Maarshamsheh and surrounding farmland, the activists said.

"Hundreds of families have left. Electricity and Internet services have been cut off," said one of the activists who gave his first name as Raed.

It was not possible to confirm the shelling independently. Syria has barred most foreign media since unrest began.

The official news agency said troops carried out a "qualitative operation" in the region, arresting 58 wanted people and seizing rifles and bomb detonators.

Until now, Syrian troops mostly have been using heavy machineguns and anti-aircraft guns, employed as a ground weapons, on restless cities and towns to try to put down the uprising.

Army defectors earlier had attacked a building housing security forces near army depots in the Wadi al-Deif area on the edge of the town of Maarat al-Numaan, 290 km (180 miles) north of Damascus, activists said.

The town, on the Damascus-Aleppo highway, has seen regular street protests demanding Assad's removal and raids by security forces to put down the demonstrations.

In the last few weeks, residents say a growing number of army defectors has been defending Maarat al-Numaan and attacking army patrols and roadblocks. One resident said the town's main hospital received 40 troops and security forces between dead and wounded Wednesday.

Activists said at least 10 civilians were killed elsewhere in the country Thursday in raids by troops and in firings from roadblocks.

Among them was activist Samer al-Tayyeb, who was arrested in house-to-house raids in the eastern province of Deir al-Zor and died in custody, the main activists group known as the Local Coordination Committees said.

The authorities blame the violence on foreign-backed armed groups who they say have killed more than 1,100 soldiers and police.

The official news agency said eight "of the most wanted terrorist" were arrested Thursday in the central city of Homs, where tanks have been deployed.

PRESSURE

While Arab and Western countries sought to pile pressure on Assad, Russia, which has a naval base, major oil concessions and military personnel in Syria, stood by him.

Russian Foreign Minister Sergei Lavrov, whose country is one of Syria's few remaining foreign friends, said demands for Assad's removal would destroy the initiative, which calls for dialogue between the Syrian government and its foes.

Lavrov said a raid Wednesday by the Free Syrian Army on an Airforce Intelligence complex on the outskirts of Damascus was "already completely similar to real civil war."

Opposition sources said Syrian army defectors had killed or wounded 20 security police in the early-morning attack, the first of its kind in the revolt against Assad.

U.S. State Department spokesman Mark Toner rejected the suggestion that Syria was virtually in civil war, saying: "We believe it's very much the Assad regime carrying out a campaign of violence, intimidation, and repression against innocent protesters."

Syria's pervasive security apparatus, dominated by Assad's minority Alawite sect, underpins the power structure that has enabled Assad, and before him his father, to rule for 41 years.

While the West appears to have no appetite for military intervention in Syria, a leader of Syria's outlawed Muslim Brotherhood said Turkish military action might be acceptable.

Mohammad Riad Shaqfa said this week's attack on the security complex near Damascus was carried out by soldiers "who have refused orders to kill their own people."

"We reaffirm the peacefulness of the uprising," Shaqfa said. "We are calling on civilians not to take up arms."


Authorities foil NY protest bid to shut Wall Street


By Chris Francescani and Aman Ali

NEW YORK (Reuters) - New York police prevented protesters from shutting down Wall Street on Thursday, arresting more than 200 people in repeated clashes with an unexpectedly small but spirited Occupy Wall Street rally.

Protesters took to the streets in rainy New York and cities across the United States for a day of action seen as a test of the momentum of the two-month-old grass-roots movement against economic inequality.

Organizers and city officials had expected tens of thousands to turn out for a demonstration following the New York police raid that broke up the protesters' encampment in a park near Wall Street on Tuesday.

A crowd that disappointed organizers throughout the day grew to several thousand after the standard workday ended and labour union activists joined a march across the Brooklyn Bridge, where last month more than 700 people were arrested during a similar march.

"We certainly want to see more people mobilise and show up," said Occupy Wall Street spokesman Jeff Smith, who nevertheless said there was "a fantastic turnout."

After tempers among police and protesters flared throughout the day, crowds grew larger and more festive after dark.

"This is a great night for a revolution. I've never seen anything like this in my entire life," said Daniel Reynolds, 34, a financial analyst at a venture capital firm, who joined the protests for the first time on Thursday.

Many protesters complained of police brutality, pointing to one media image of man whose face was bloodied during his arrest and another of a woman who was dragged across the sidewalk by an officer.

Police reported seven officers were injured, including one whose hand was cut by a flying piece of glass and five who were hit in the face by a liquid believed to be vinegar.

Police barricaded the narrow streets around Wall Street, home to the New York Stock Exchange, and used batons to push protesters onto the sidewalk as they marched through the area to try to prevent financial workers getting to their desks.

Workers were allowed past barricades with identification and the New York Stock Exchange opened on time and operated normally.

Protesters banged drums and yelled, "We are the 99 percent," referring to their contention that the U.S. political system benefits only the richest 1 percent.

At the Union Square subway stop, one of the busiest in the city, protesters tried to crowd the entrance but police repeatedly moved them against the walls to make way for subway riders.

PROTESTS ACROSS U.S.

Demonstrators targeted bridges they considered in disrepair in cities such as Miami, Detroit and Boston to highlight what they said was the need for government spending on infrastructure projects to create jobs.

In St. Louis, more than 1,000 protesters marched through downtown in support of the Occupy St. Louis movement that was evicted last week from its campsite near the Gateway Arch. The Thursday march was by far the largest since Occupy St. Louis began in support of the New York demonstrators.

In Los Angeles, hundreds of anti-Wall Street demonstrators marched through the financial district, blocking a downtown street to snarl morning rush-hour traffic, and briefly pitched tents outside a Bank of America office tower. Nearly 80 protesters were arrested in the city.

At least 300 people gathered at Chicago's Thompson Centre, giving speeches in English and Spanish. The protest was focussed on jobs with signs reading: "We need jobs, not cuts" and "Jobs, schools, equality: end the wars."

The Washington, D.C., gathering was smaller than hoped for by organizers. One protester in McPherson Square said he expected about 1,000 people, while perhaps 200 showed up, with many leaving within the hour.

About 100 marched through downtown Denver, chanting slogans and calling for the recall of Mayor Michael Hancock for his decision to have police remove illegally pitched tents and other items from the Occupy Denver campsite last weekend.

In Dallas, more than a dozen people were arrested when police shut down their six-week-old camp near City Hall.

Hundreds of Occupy demonstrators in Portland, Oregon, gathered on a major bridge and later massed in front of a Chase bank branch downtown. Police arrested at least 30 people.

About 600 protesters in Seattle converged in an early evening "Jobs Not Cuts" rally on a bridge spanning near the University of Washington, causing a 2-mile (3-km) traffic backup during the city's raining rush hour.

Police in Las Vegas arrested 21 protesters who sat down in the street outside a federal courthouse after they ignored warnings to leave.

Before dawn on Thursday, police cleared away a protest camp from a plaza at the University of California, Berkeley, where 5,000 people had gathered on Tuesday night. Protesters say they are upset that billions of dollars in bailouts given to banks during the recession allowed a return to huge profits while average Americans have had no relief from high unemployment and a struggling economy.

They also say the richest 1 percent of Americans do not pay their fair share of taxes.

(Additional reporting by Sharon Reich in New York, Lily Kuo in Washington, Mary Wisniewski in Chicago, Keith Coffman in Denver, Bruce Nichols in Houston, Alex Dobuzinskis in Los Angeles, Laird Harrison in Oakland and Jim Forsyth in San Antonio; Writing by Michelle Nichols and Daniel Trotta; Editing by Eric Walsh and Peter Cooney)


Greek govt readies budget, awaits EU/IMF inspectors


By Michael Winfrey

ATHENS (Reuters) - Greece's new national unity government submits a 2012 austerity budget to parliament on Friday, its first task in meeting the terms of the country's bailout and avoiding bankruptcy.

Technocrat Prime Minister Lucas Papademos must get the rival parties in his coalition to cooperate in persuading Greece's EU and IMF lenders to release a latest instalment of emergency financing it needs to avoid default next month, plus longer term funding later.

Inspectors from the "troika" of the International Monetary Fund, the European Union and the European Central Bank will start arriving in Athens on Friday for talks on releasing the 8 billion euro (6.8 billion pound) instalment, a troika source said.

One point of contention is sure to be a refusal by the leader of the conservative New Democracy party to sign a commitment to do whatever is needed to meet the terms of a 130 billion euro bailout agreed last month.

Greece's lenders have said that without such written assurances by all the major political forces, they will release neither the latest instalment nor funding under the new bailout which Athens needs to stay afloat next year.

But New Democracy leader Antonis Samaras, whose party is in the coalition with the Socialists of fallen prime minister George Papandreou and the far-right LAOS party, has refused.

"I have repeatedly said I will not sign such statements," he was quoted as saying by magazine Epikera in an interview.

Samaras also said he needed to win a parliamentary majority in early elections next year to reverse the austerity measures he disagrees with.

The coalition government faces public anger over measures that have already slashed wages and caused huge job losses, keeping the country in a fourth year of recession and driving unemployment to a record 18 percent.

The anger was evident on Thursday, when tens of thousands of Greeks took to the streets on the anniversary of a 1973 student uprising against the then-military junta. The uprising was crushed violently but it eventually helped to fell the regime.

TARGETS SLIPPING

The cabinet is expected to approve the budget on Friday with changes from earlier drafts before sending it to parliament, where it will proceed through committees for a vote by the whole chamber, which may not come until next week or later.

A draft approved by the previous cabinet last month foresaw a deficit of 8.5 percent of gross domestic product (GDP) for 2011, well above an earlier 7.6 percent target.

Finance Minister Evangelos Venizelos said last week the 2011 shortfall would be closer to 9 percent, moving the reference for next year and potentially putting a 14.6 billion euro target - an estimated 6.8 percent of GDP - at risk.

The draft also saw the economy shrinking 2.5 percent next year, a fifth year of contraction, but an estimate released by the European Commission this week projected a 2.8 percent fall.

Greece's main aim in 2012 is to achieve a primary budget surplus - with revenues exceeding spending when debt maintenance costs are excluded - so it can start digging itself out from under a debt load that exceeds 30,000 euros for every citizen.

To do that, Papademos's government must begin fighting rampant tax evasion, start privatisations and shrink the public sector - all reforms planned but ineffectively executed by Papandreou.

"We need to rescue our country, we need to rectify our country, we need to bring back our country's integrity," Venizelos said on Thursday. "We need to give Greek people, once again, the right to be optimistic and to hope."

In another key part of the bailout plan, Greece has begun talks with private sector bondholders on a bond swap which aims to halve the debt Greece owes to them, the Finance Ministry said. It said it expected to present a proposal to the private bondholders by the end of November.

Did U.S. troops bring democracy? Iraqis have doubts

By Waleed Ibrahim

BAGHDAD (Reuters) - Sitting in a barber shop in Baghdad's Shi'ite Sadr City slum, three friends agreed after a long and hard argument that U.S. forces brought democracy to Iraq.

But they found it difficult to utter the words without raging about the flip side of what they saw as the U.S. occupation of their country.

"OK, we have democracy. We can talk freely with no fear. We can demonstrate and vote freely. All these are available, and all were not before 2003," said student Hussain Ali, 20, as he waited for his haircut.

"But why don't you ask us about the other side of the story of the U.S. presence in Iraq? Why don't you ask about their crimes, atrocities, the pain and anguish that we suffered because of their military presence here?" Ali said, his face turning red with anger.

On April 9, 2003, U.S. forces toppled a statue of dictator Saddam Hussein in central Baghdad, marking the end of more than 35 years of iron-fisted rule by Saddam's Baath Party.

Then-U.S. President George W. Bush said Iraq could become a model of democracy in the Middle East.

But Iraqis who applauded the event and dreamed of a better future were disappointed as their nation descended into vicious sectarian warfare in which tens of thousands died. Recalling those years, many talk about the prisoner abuse scandal at Abu Ghraib, and what they call the U.S. misuse of power.

Since the invasion, Iraqis have chosen representatives in parliament and provincial councils in a series of elections deemed largely free and fair.

Newspapers and news agencies have been established. New television channels are on the air. Non-governmental organisations and new political parties have been formed.

Nearly nine years after the invasion, the U.S. military presence in Iraq is quickly coming to an end. The remaining 24,000 troops are due to leave before December 31.

But political parties are at odds, sectarian divisions are rife, Sunni insurgents and Shi'ite militias threaten stability with scores of attacks each month and many people are uncertain that Iraq's brand of democracy is what they need or want.

"We got rid of Saddam, but the problem now is that we have many," said Ali's friend, Hamza Jabbar, 23, an unemployed security guard sitting in the barber shop.

Hundreds of thousands of Iraqi are jobless. The unemployment rate is 15 percent, with another 28 percent in part-time jobs. The government says just under a quarter of the estimated 30 million population lives in poverty.

In conversations with dozens of Iraqis in Shi'ite Sadr City, all reluctantly conceded that U.S. forces had brought democracy. The teeming slum supports Moqtada al-Sadr, a fiercely anti-American Shi'ite cleric whose followers fought U.S. forces.

Iraqis freely express disappointment in the performance of their own leaders since 2003 and bitterness over brutal political infighting.

"Americans brought democracy to Iraq. But our leaders undermine it. They exploit it for their own personal benefit," said Khalid al-Taei, 35, a computer shop owner in the northern province of Nineveh.

On the other side of Baghdad, in the Sunni area of Adhamiya, dozens of Sunnis had a different take on the situation.

Sunnis dominated Iraq under Saddam and have felt marginalised politically since the invasion, which propelled majority Shi'ites into power. Sunnis are part of Shi'ite Prime Minister Nuri al-Maliki's frail governing coalition but many say they are oppressed under his government.

"Do you see this soldier in this checkpoint" asked shop owner Wael al-Khafaji, 48. "He can do whatever he wants to me right now and I can't say a word. Is this democracy?"

"What democracy are you asking me about, when my basic rights as a human being are stolen? If this is what Americans mean by democracy, let it be damned."

Hundreds of checkpoints still dot the landscape, and Iraqis are frustrated by a near nine-year security crackdown.

Nearly two years after the last national election, Khafaji is still disappointed that former premier Iyad Allawi's cross-sectarian Iraqiya bloc, which won the most seats with heavy support from Sunnis, could not form a government.

"Can you tell me who won the vote and who formed the government? Answer my question before you ask me to answer yours. Is this democracy?

"Unfortunately, we Arab nations, and not only Iraqis, do not know yet what democracy means. So we don't deserve it."

Inspired by "Arab Spring" uprisings in Egypt, Tunisia and other countries, Iraqis have demonstrated this year against corruption and poor basic services, and for political reform. But when asked whether Iraq needs its own Arab Spring, many reject the idea.

"It means more bloodshed, and we are fed up with this. Look at people in the countries of the Arab Spring. They are fighting each other," said Hussain Ali, at the barbers. "We can vote. And we can make change through voting."

"If this does not work, then there will be no option but to topple them by force," he added.

Looking beyond the year-end departure of U.S. troops, many Iraqis say they are worried about the fate of their democracy.

"Islamic fundamentalist parties are waiting for this opportunity to swoop in and grab power," said Mosul taxi driver Mohammed Jassim, 42. "If it happens, it means bye-bye democracy."

(Additional reporting by Jamal al-Badrani in Mosul; Editing by Jim Loney and Andrew Heavens)



Obama boosts U.S. military in Australia, reassures China


By Caren Bohan and James Grubel

CANBERRA (Reuters) - U.S. President Barack Obama and Australian Prime Minister Julia Gillard on Wednesday unveiled plans to deepen the U.S. military presence in the Asia-Pacific, with 2,500 U.S. marines operating out of a de facto base in northern Australia.

China, already worried the United States is caging it in, immediately questioned whether strengthening military alliances would help the region when economic woes put a premium on cooperation.

"With my visit to the region, I am making it clear that the United States is stepping up its commitment to the entire Asia-Pacific region," Obama told a joint news conference with Gillard in Canberra.

From next year, U.S. troops and aircraft will operate out of the tropical city of Darwin, only 820 kms (500 miles) from Indonesia, able to respond quickly to any humanitarian and security issues in Southeast Asia, where disputes over sovereignty of the South China Sea are causing rising tensions.

"It is appropriate for us to make sure...that the security architecture for the region is updated for the 21st century and this initiative is going to allow us to do that," Obama said.

He stressed that it was not an attempt to isolate China which is concerned that Washington is trying to encircle it with bases in Japan and South Korea and now troops in Australia.

"The notion that we fear China is mistaken. The notion that we are looking to exclude China is mistaken," he said, adding China was not being excluded from the planned Trans-Pacific Partnership (TTP) on trade.

"We welcome a rising, peaceful China." But China's rising power means it must take on greater responsibilities to ensure free trade and security in the region, he added.

"It's important for them to play by the rules of the road and, in fact, help underwrite the rules that have allowed so much remarkable economic progress," he said.

PEARL HARBOUR OF AUSTRALIA

The U.S. deployment to Australia, the largest since World War Two, will start next year with a company of 200-250 marines in Darwin, the "Pearl Harbour of Australia", Gillard said.

More bombs were dropped on Darwin during a surprise Japanese raid than on Pearl Harbour, Hawaii.

A total of 2,500 U.S. troops would eventually rotate through the port city. The United States will bring in ships, aircraft and vehicles, as well as increase military training.

Asked about the proposed deepening of U.S.-Australian military cooperation, Foreign Ministry spokesman Liu Weimin said China stood for "peaceful development and cooperation".

"We also believe that the external policies of countries in the region should develop along these lines," Liu told a regular news briefing in Beijing.

Liu added that "whether strengthening and expanding a military alliance is in the common interests of the region's countries and the international community is worthy of discussion", especially amid a gloomy international economic situation and with each country seeking cooperation.

Some Asian nations are likely to welcome the U.S. move as a counterbalance to China's growing military power, especially its expanding maritime operations, and a reassurance that Washington will not scale back its engagement in the region due to a stretched U.S. military budget.

"The United States hopes to militarily strengthen alliance relations with Japan in the north and with Australia in the south, with the clear intention of counter-balancing China," Su Hao, the director of the Asia-Pacific Researcher Centre at the Foreign Affairs University in Beijing, told the Global Times, a popular Chinese newspaper.

OBAMA TO RAISE SOUTH CHINA SEA

The winding down of wars in Afghanistan and Iraq has opened the door to greater U.S. attention to simmering tension over the South China Sea, a shipping lane for more than $5 trillion in annual trade that the United States wants to keep open.

Obama plans to raise maritime security in the South China Sea at a regional summit on Bali this week, defying China's desire to keep the sensitive topic off the agenda.

China claims the entire maritime region, a vital commercial shipping route rich in oil, minerals and fishery resources. It insists that any disputes be resolved through bilateral talks and says Washington has no business getting involved.

Vietnam, the Philippines, Taiwan, Malaysia and Brunei hold rivals claims to at least parts of the sea and tension occasionally flares up into maritime stand-offs.

Obama will make an "anchor speech" outlining the U.S. vision for the Asia-Pacific to the Australian parliament on Thursday before a whistle stop in Darwin. He then flies to the Indonesian island of Bali for the East Asia summit.

(Additional reporting by Michael Perry and Jim Regan in Sydney and Chris Buckley in Beijing; Editing by Lincoln Feast and Jonathan Thatcher)



Monti to unveil new Italian government


By Philip Pullella

ROME (Reuters) - Prime Minister designate Mario Monti is expected to unveil Italy's new government on Wednesday after an intense two days of consultations aimed at staving off a major financial crisis that has pushed Italy's borrowing costs to untenable levels.

The presidential palace said Monti would meet President Giorgio Napolitano at 11 a.m. (10 a.m. British time) to tell him formally that a government could be formed.

Monti told reporters on Tuesday night the "framework is now clearly delineated" for his government but declined to give details, saying he would work them out "in the next few hours" and brief the president on Wednesday before announcing them.

Italian media said he would go to the meeting with Napolitano with his cabinet list ready. It was not clear when the government would be sworn in.

The government, expected to be made up of technocrats, will have to tackle a crisis that has brought Italy to the brink of economic disaster and endangered the entire euro zone.

"I would like to confirm my absolute serenity and conviction in the capacity of our country to overcome this difficult phase," Monti said.

Italian newspapers speculated that Monti would hold the economy portfolio in the interim, and suggested that Corrado Passera, the CEO of Italy's biggest retail bank Intesa Sanpaolo, could get the industry minister role.

Before the end of the week, the new government is expected to outline its programme and seek confidence votes from parliament, which will formally invest it with power.

Monti, who won the backing of all political forces except the Northern League, must push through a tough austerity programme demanded by European leaders to restore shattered confidence in Italy and take market pressure off the country.

Yields on Italy's 10-year BTP bonds rose above 7 percent on Tuesday, the level at which Greece and Ireland were forced into bailouts. Italy is too big to be bailed out with the resources currently available.

Emma Marcegaglia, head of the employers association Confindustria, told reporters after meeting Monti: "We said we will support his government very strongly. We think this government is the last chance for Italy to exit from this situation of emergency."

Crucial to Monti's success was the backing of the PDL party of outgoing prime minister Silvio Berlusconi, who was forced to step down on Saturday by the fast-worsening crisis.

Napolitano, who has engineered the extremely rapid government transition in response to the collapse of confidence in Italy, nominated Monti for the premiership on Sunday night.

The president has called for an extraordinary national effort to win back the confidence of markets, noting that Italy has to refinance about 200 billion euros ($273 billion) of bonds by the end of April.

Monti has said his government should last until the next scheduled elections in 2013, despite widespread expectation that politicians intend to give him only enough time to implement reforms before precipitating early polls.

"I hope that this government of technocrats succeeds in addressing all the requests made by the European Central Bank in its letter," outgoing industry minister Paolo Romani, from Berlusconi's PDL party, told the Corriere della Sera newspaper.

"But let it be clear that as soon as that is done, we expect Monti to give the people the chance to choose a government."

(Editing by Andrew Heavens)



Syrian army defectors attack security complex


By Khaled Yacoub Oweis

AMMAN (Reuters) - Syrian army defectors attacked an intelligence complex on the edge of Damascus early on Wednesday, the first such reported assault on a major security facility in the eight-month uprising against President Bashar al-Assad, activists said. Members of the Free Syrian Army fired shoulder-mounted rockets and machine guns at a large Air Force Intelligence complex situated on the northern edge of the capital on the Damascus-Aleppo highway at about 2:30 a.m. (12:30 a.m. British time).

A gunfight ensued and helicopters circled the area, the sources said. The attack appeared to mark an escalation in armed confrontations between government and opposition forces instead of clashes involving street protesters.

"I heard several explosions, the sound of machinegun fire being exchanged," said a resident of the suburb of Harasta, who declined to be named.

There was no immediate report of casualties and the area where the fighting occurred remained inaccessible, the sources said.

Syria said it would boycott an Arab League meeting following the body's decision to suspend Damascus from the organisation, as regional states stepped up efforts to isolate Assad for refusing to end the government repression of eight months of protests.

The meeting of Arab foreign ministers in Rabat on Wednesday comes four days after they decided to discipline Syria for pursuing the crackdown instead of implementing an Arab peace initiative.

The League has stopped short of calling for Assad's departure or proposing any Libya-style military intervention.

"In light of statements by officials in Morocco, Syria has decided not to participate in the Arab meeting in Rabat," the agency said, without giving details.

Morocco's foreign minister said "Syrian colleagues" were welcome at the meeting but did not say if Syria's foreign minister could attend.

Syrian forces killed at least six civilians on Tuesday, shooting from roadblocks in the northwestern province of Idlib and in raids on the central city of Homs and its environs, activists said. Several deaths also were reported in fighting between army defectors and loyalist forces on both sides.

The Syrian Observatory for Human Rights said the bodies of three young activists who were killed in custody were delivered to their families on Tuesday, including 23-year-old Osama al-Sheikh Youssef.

"The family collected the body from Tishreen Military Hospital on the condition of a quiet burial. Security police in plainclothes stood on top of Osama watching as we lowered him into the ground," an activist who attended the funeral said.

Syrian authorities have banned most independent media. They blame the unrest on "armed terrorist gangs" and foreign-backed militants whom they say have killed 1,100 soldiers and police. The United Nations say the crackdown has killed 3,500 people.

With armed resistance mounting against Assad's rule, alongside mostly peaceful protests, hundreds of Syrians have been killed this month in one of the bloodiest periods of the revolt, inspired by uprisings which have overthrown leaders in Tunisia, Egypt and Libya.

INSURGENT ATTACKS ON RISE

An Arab official, who did not want to be named, said insurgent attacks on loyalist forces rose sharply in the last 10 days, although the army remains largely cohesive.

Tank bombardment continued overnight on Bab Amro, an area of Homs that has seen regular protests against Assad and where army deserters have been fighting loyalist forces, witnesses said.

"The tanks were firing according to instructions they were receiving from snipers stationed on rooftops," a retired army officer in his 50s, who had fled the district, said.

As the diplomatic pressure rose, Syria released more than 1,000 prisoners, state media reported, including prominent dissident Kamal Labwani.

Human rights campaigners say tens of thousands of Syrians have been detained since street protests against Assad's repressive rule erupted in March.

The Arab League, stung into action by months of bloodshed in Syria, met opponents of Assad on Tuesday, a day after violence in his country killed 69 more people. In a rare move among Arab leaders, Jordan's King Abdullah said earlier this week that Assad should step down in the best interests of the country.

A Saudi prince said Assad's "lack of response" to efforts to end the violence has made his departure inevitable, predicting that opposition to him will mount.

"I think it is inevitable that he will have to step down in one form or another," Prince Turki al-Faisal, the former chief of Saudi intelligence, said in Washington.

Unlike more homogeneous Arab countries, Syria is a majority Muslim country ruled by an elite from Assad's Alawite sect, an offshoot of Shi'ite Islam who dominate the state, the military and the security apparatus underpinning the power structure.

The country of 20 million has one million ethnic Kurds and an established Christian minority, as well as Alawites, Druze, and Ismailis.

Wary of repercussions if Assad were to fall, and taking into account Syria's geopolitical position at the faultlines of Middle East conflicts, Arab officials have been hesitant to criticise Assad directly or call for fundamental political change in Syria.

The League, however, voted to suspend Syria's membership from Wednesday, and asked Syrian opposition groups to draw up plans for a transition of power, as a prelude to a wider gathering on Syria's future planned by the Cairo-based body.

Arab ostracism is a particularly bitter blow for Assad, who has always seen himself as a champion of Arab unity. Damascus says it is committed to the Arab peace initiative, which calls for a cease-fire and dialogue with the opposition.

Syria requested an emergency Arab summit, but a Saudi-led bloc of six Gulf Arab states rejected the idea.

The United States hoped the League would use Wednesday's meeting to send a "forceful message to Assad that he needs to allow for a democratic transition to take place and end the violence against his own people," State Department spokesman Mark Toner said.

U.N. Secretary-General Ban Ki-moon said: "President Bashar should stop immediately the killing of his own people."

Russia, one of Syria's last few foreign friends, hosted talks with the Syrian National Council and urged it to hold a dialogue with Assad's government. The opposition group responded by pressing Moscow to join calls for the Syrian leader to quit.

Russia joined China last month to block a U.N. Security Council resolution that would have condemned Assad's crackdown, and has accused the West of discouraging dialogue in Syria.

(Additional reporting by Tamim Elyan in Cairo, Steve Gutterman in Moscow, Isabel Coles in Dubai, Jonathon Burch in Ankara, Dominic Evans in Beirut and Souhail Karam in Rabat; Editing by Giles Elgood)



Italy's Berlusconi wins confidence vote


By Angeliki Koutantou and Gareth Jones

ATHENS (Reuters) - Greece's new government should comfortably survive a vote of confidence on Wednesday but Prime Minister Lucas Papademos faces a daunting task repairing shattered public finances, and cracks are already appearing in his crisis coalition.

Polls show Papademos, a former vice president of the European Central Bank, has the backing of three in four Greeks but the need to implement painful tax rises and spending cuts to secure fresh loans and stave off bankruptcy will sorely test that support.

Tension surfaced on Wednesday when the main utility union cut off power to the Health Ministry building in protest of a law imposing a tax on property owners that the government is trying to collect through electricity bills.

Papademos must secure an 8 billion euro loan tranche Greece needs to meet debt repayments next month and then must lock down a new bailout worth 130 billion euros (110 billion pounds). Greece needs some 80 billion euros of that second rescue package in early 2012.

His national unity government brings together bitter rivals, the conservative New Democracy of Antonis Samaras, the Socialists of fallen prime minister George Papandreou and the far-right LAOS party.

"The government is asking for a vote of confidence. This should not be taken for granted because of its big majority. It is a symbolic, political action," Finance Minister Evangelos Venizelos said in a confidence debate late on Tuesday.

"We will help ourselves and the euro zone if we do what we have to do now, quickly, responsibly, so that Greece can always be a member of the euro zone and for the euro zone to exist, to permanently overcome the risk of a default," he said.

The vote is scheduled for 1300 GMT, but may be delayed.

On the eve of the confidence motion, New Democracy lawmakers defied the European Commission's request for a written pledge from the three parties on meeting the terms of Greece's bailout, saying they would not bow to Brussels.

New Democracy MP Nikos Dendias said orders "from Brussels cannot be a legitimate policy."

Such a stance will test anew the patience and confidence of Greece's European partners, who have already begun to speculate publicly on whether the country of 11 million people has a future within the euro zone.

Further highlighting the lack of unity in a government that must prepare for an election in the first quarter of 2012, 101 Socialist deputies signed a petition on Tuesday opposing their party's cooperation with New Democracy and LAOS.

PAINFUL AUSTERITY

In Italy, former EU commissioner Mario Monti prepared to inform the president he had selected a new government that must jump start painful reforms to tackle that country's debt load.

But the appointments of Monti and his Greek technocrat counterpart Papademos have done little to convince investors that European countries can get their finances in order.

Asian shares and the euro fell in morning trading as signs that rising borrowing costs were hitting AAA-rated France and raised fears that the crisis could engulf core euro states.

In Athens, the GENOP-DEH union of state-owned utility PPC shut off power to the Health Ministry for four hours in a symbolic protest against the property tax.

The union has repeatedly refused to cut the power of low income earners. The tax usually amounts to hundreds of euros for an ordinary home and the union said the ministry itself owed 3.8 million euros in unpaid power bills.

"We will block it any way we can, the cutting of power in the houses of the poor, the unemployed, the pensioner, the low-wage earner," GENOP-DEH President Nikos Fotopoulos told NET TV.

"Electricity cannot be used as a lever for blackmail."

On Thursday, tens of thousands of protesters are expected to join an annual rally on Thursday to mark the November 17 student uprising in 1973 that helped topple the 1967-74 military junta.

The ranks of students and workers are likely to be swelled by middle-class Greeks who have diligently paid their taxes and blame the four-year economic crisis on a corrupt and quarrelsome political elite and rich tax evaders.

"We expect massive participation as rage and anger have been dwelling in people for so long ... It is very possible that some groups will misbehave," said Mary Bossis, international security professor at the University of Piraeus.

Athens will also begin thrashing out a deal with private bondholders on Thursday to slash its public debt, sources said, tackling a key pillar of the 130 billion euro bailout plan agreed with euro zone leaders last month.

The plan envisages slashing Greece's 360 billion euro debt load by a third and imposing a 50 percent loss on private bondholders, but it has been poorly received among Greeks who fear further waves of painful austerity.

The Financial Times cited a proposal from bank negotiators for Greek bondholders that said they would swap their debt only if new bonds feature high interest rates and had extra incentives, including annual payments if Greece's economy recovered more than expected.

It said the Institute of International Finance, a banking lobby, had proposed three different options that all indicated a reduction of 51-53 percent in the value of the debt but cited a source saying Greece was proposing losses of 70-80 percent.

(Writing by Gareth Jones and Michael Winfrey; Editing by Tim Pearce and Matthew Jones)



Italy's Berlusconi wins confidence vote


Italian Premier Silvio Berlusconi survived a confidence vote in Parliament on Friday, but his narrow majority raises doubts over his ability to govern effectively when the country needs a steady hand during its economic crisis.

Berlusconi's conservatives won in a 316-301 vote in Parliament's lower house. After days of tension, the premier's allies clapped when the result of the vote was announced.

Berlusconi has been weakened by sex scandals and criticized for his handling of Italy's economy. He has been facing repeated calls for his resignation from his political rivals, labor unions and parts of the business community that once considered him their savior.

Even some of his own allies have openly expressed disappointment, with at least two deserting the crucial vote Friday.

Had he lost the vote of confidence, Berlusconi would have been forced to resign — about 1 1 / 2years before the end of his term, in 2013.

Three ratings agencies have downgraded Italy's public debt, citing the country's political gridlock and low growth prospects as key reasons. The vote Friday appeared to do little to reassure markets.

"The best signal that Italy could have sent to the markets would have been to boot Mr. Berlusconi out, but it has failed to do so," said Sony Kapoor, managing director of Re-Define an Economic Think Tank, shortly after the vote. "With Mr. Berlusconi still at the helm, there is nothing that Italy can do from within that will restore market confidence."

The 75-year-old leader has steadfastly hung onto power despite the scandals and four criminal trials in Milan. He has always maintained his innocence and blamed what he says are overzealous, left-leaning prosecutors bent on ousting him from power.

He insisted that there is no alternative to his government. He said the vote Friday amounted to an "ambush" by the opposition, and moments after the vote, he spoke to reporters about his plan to spur the country's moribund economy.

Italy is under pressure to come up with growth-promoting measures to avert being dragged into the widening sovereign debt crisis.

This week, Central Bank chief Mario Draghi, who takes over the helm of the European Central Bank on Nov. 1, urged the government to act more quickly to implement reforms that can spur growth — beyond the austerity package that put Italy on the path to balance its budget by 2013.

Otherwise, Draghi warned that the rising cost of borrowing to service national debt seen over the last three months will eat up "no small part" of the austerity package approved by Parliament last month.

"The goal of relaunching growth is finally largely shared, but the adoption of the measures necessary so far have banged up against apparently insurmountable difficulties," Draghi said.

U.S. missile kills 4 in Pakistan



Drone-fired U.S. missiles killed four people in a northwestern Pakistani region controlled by the Haqqani militant network on Friday, a day after a similar attack there killed a top commander of the group, Pakistani officials said.



The identities of the dead in the North Waziristan region were not known, the officials said.

The four were riding in a car close to Miran Shah town, the main base of the Haqqani network, when two missiles struck, said the officials, who did not give their names because they were not allowed to brief reporters.

U.S. intelligence believes the Haqqanis are the top threat to security in Afghanistan and that they enjoy the support of the Pakistani army. It wants the army to sever its ties and attack the group, something that Islamabad refuses to do.

The issue is a main cause of tensions between the two countries.

On Thursday, a missile attack close to Miran Shah killed Janbaz Zadran, who U.S. officials said was a top commander in the network who helped orchestrate attacks in Kabul and southeastern Afghanistan. They said he was the most senior Haqqani leader in Pakistan to be taken off the battlefield.

Earlier Friday, two militants killed alongside Zadran were buried in the town of Lakki Marwat, which lies just outside the tribal regions. About 2,000 supporters attended the funeral of one of the men, Maulana Iftikhar. They included Arab militants and a lawmaker from the country's largest opposition party.

The size of the funeral indicated significant support in that region for fighters battling the American presence just across the border in Afghanistan. The Pashtun ethnic group that accounts for most of the resistance in Afghanistan straddles the frontier.

Iftikhar was the head of an Islamic school in Miran Shah. He came from Lakki Marwat.

Locals said he was involved in "jihad" in Afghanistan.

"Maulana Iftikhar is a martyr, and we warn America to immediately stop these drone attacks," said Ahmed Jan Qureshi, a local leader of the Islamist Jamiat Ulema Islam political party. "America should realize that these attacks are causing hate against it, and see these thousands of people who are here to attend funeral of a martyr."

Alsso present was Munawar Khan, the town's local lawmaker and a member of the opposition party of former Prime Minister Nawaz Sharif. He declined to speak to The Associated Press.

Since 2008, the United States has regularly unleashed unmanned drone-fired missiles against militants in the border region. Pakistani officials protest the strikes, which are unpopular among many Pakistanis, but the country is believed to support them privately and makes no diplomatic or military efforts to stop them.

U.N.: Syria death toll tops 3,000

Syrian security forces opened fire Friday on protesters calling for the overthrow of President Bashar Assad, killing at least seven, activists said.

The killings came as the U.N.'s top human rights official urged the international community to take "immediate measures" to protect civilians in Syria.

The protests were called to support the Free Syrian Army, a group of army defectors who have reportedly clashed with loyalists in northern and central Syria. The demonstrations were the most explicit show of support offered so far by the country's protest movement to the group, whose operations have led to an increased militarization of the seven-month-old uprising.

Clashes between troops and gunmen believed to be defectors left at least 25 people dead on Thursday, according to the London-based Syrian Observatory for Human Rights.

Syria-based activist Mustafa Osso and the Local Coordination Committees, an activist group, said the protests on Friday spread from the suburbs of the capital Damascus to the southern province of Daraa, the northern provinces of Aleppo, Idlib and Hassakeh, and to the central regions of Homs and Hama, as well as to other areas.

The observatory and the LCC said security forces killed one protester in the Damascus suburb of Saqba and another in the village of Andan in the northern province of Idlib.

The two groups had different death tolls from the southern village of Dael, with the observatory reporting seven people killed and the LCC reporting five dead. It was impossible to resolve the discrepancy or to independently verify the reports.

A banner in English carried by protesters in the northern village of Kfar Nabul urged the United States to overthrow the Syrian president. "Americans!… If you don't topple Al-Assad now don't boast about democracy again," said the banner, a photo of which appeared on the LCC's Facebook page.

The uprising against Assad's regime began in mid-March amid a wave of anti-government protests in the Arab world that toppled autocrats in Tunisia, Egypt and Libya.

In Geneva, Navi Pillay, the U.N. High Commissioner for Human Rights, warned that an unrelenting crackdown by Assad's government could worsen unless further action is taken. She said the death toll from seven months of anti-government unrest in the country rose to above 3,000.

"The onus is on all members of the international community to take protective action in a collective and decisive manner, before the continual ruthless repression and killings drive the country into a full-blown civil war," Pillay said in a statement.

She didn't elaborate on what measures the international community could take beyond the sanctions already imposed on Assad's regime.

Her spokesman, Rupert Colville, told reporters in Geneva that it was up to the U.N. Security Council to decide what action was appropriate.

But he added: "What has been done so far is not producing results and people continue to be killed every single day."

"Just hoping things will get better isn't good enough, clearly," Colville said.

The U.N. human rights office estimates that more than 3,000 people have now been killed since mid-March — about 10 to 15 people every day. The figure includes at least 187 children. More than 100 people had been killed in the last 10 days alone, the global body said.

Colville said hundreds more protesters have been arrested, detained, tortured and disappeared. Families of anti-government protesters inside and outside the country have also been targeted for harassment.