BP wants future spill claims limited (Reuters)

HOUSTON (Reuters) – BP Plc wants to limit future claims related to its Gulf of Mexico oil spill disaster as the region's economy recovers, the oil company said in a document made public on Friday.

The Gulf economy is strong and "there is no basis to assume that claimants, with very limited exceptions, will incur a future loss related to the oil spill," BP said in a paper filed with the Gulf Coast Claims Facility (GCCF).

Oystermen, whose beds have been destroyed by crude, should be considered for future payments, the British oil company said.

Kenneth Feinberg is the administrator of the $20 billion GCCF fund established at the urging of President Barack Obama to compensate people and businesses for losses related to the BP oil disaster.

BP's deepwater Macondo well ruptured in April 2010, causing a fiery explosion that killed 11 rig workers and spewed more than 4 million barrels of oil into the Gulf. The accident closed waters to fishing, disrupted tourism and caused the government to shut down deepwater exploration for months.

But now, Gulf residents are getting back to work and industries are on the rebound, BP said, citing lodging, fishing and other data.

"The GCCF welcomes any and all input from any interested sources including BP," Feinberg said in an email. "We take all of the submissions 'under advisement.'"

BP supports the payment of legitimate claims and future losses that are substantiated, but the company objects to the GCCF's "practice of assuming futures losses on certain claims," the company said in an email.

At the beginning of July, the GCCF had paid $4.5 billion in claims to 195,000 claimants. There are also about $430 million worth of offers that are under consideration by Gulf residents.

(Reporting by Anna Driver in Houston; editing by Carol Bishopric and Matthew Lewis)

Could Murdoch deputy Hinton take the fall? (Reuters)

LONDON/NEW YORK (Reuters) – Les Hinton was adamant. Asked in 2007 by a British parliamentary committee whether the News of the World had "carried out a full, rigorous internal inquiry" into the use of illegal phone hacking by the newspaper and was "absolutely convinced" it was limited to a single reporter, Hinton did not hesitate.

"Yes, we have," the then-executive chairman of News of the World's owner News International told the select committee, "and I believe he was the only person, but that investigation, under the new editor, continues."

Four years on, Hinton may have serious reason to regret those words. In the middle of a voicemail hacking scandal that has killed the 168-year-old mass-circulation paper and threatens further damage to Rupert Murdoch's media empire, much of the public anger so far has focused on Rebekah Brooks, editor of News of the World between 2000 and 2003 when some of the most high-profile hacking occurred, and her successor Andy Coulson, under whom it continued.

But attention is now turning to Hinton, 67, who headed up News International during Brooks's and Coulson's editorships and now runs the New York-based Dow Jones & Co., another arm of Murdoch's sprawling News Corp. Murdoch's long-time lieutenant, some News Corp watchers say, could end up being a high-profile casualty in the scandal.

"The person that I think is most of a problem for Murdoch is Les Hinton," Peter Burden, author of a 2008 book about the News of the World, told Reuters.

"He was definitely around when it was going on and he's now running the Wall Street Journal and Dow Jones, and for him to be seen to be mixed up in that whole tacky situation would be very, very damaging indeed."

Claire Enders, head of a research consultancy that advises many of Europe's biggest media and communications companies, points out that Murdoch's son and heir apparent James took on responsibility for News Corp's British newspapers after Hinton left for New York in 2007. The younger Murdoch now has to deal with problems that occurred on his predecessor's watch.

"For the last 6 months, I have heard that Mr Hinton has not been visiting the UK for precisely that reason, in order to avoid drawing any attention to himself," Enders told Reuters.

Britain's Guardian newspaper, whose story last Monday triggered the crisis for News Corp, had asked questions "about the role of Les Hinton in the culture of News International and in particular in the way that the company defense, the rogue reporter argument, was developed."

A spokeswoman for Dow Jones declined to comment and turned down a request to interview Hinton. She would not say whether British authorities had been in touch with Dow Jones.

TRUSTED DEPUTY

Hinton has spent his entire career working for Murdoch, beginning as a reporter at the Adelaide News -- legend has it that he used to collect Murdoch's sandwiches -- and rising through the ranks until he was tapped to run News International in 1995, and later Dow Jones after News Corp bought the publisher of the Wall Street Journal.

Tall, trim and debonair, with rimless glasses and waves of silver hair, Hinton has a reputation for being level-headed and insightful, and wins praise for balancing out some of the stormier personalities within News Corp, including Murdoch himself.

"He runs interference for Rupert," said one source who knows both men. "He's a very nice guy -- congenial, easy going and smart."

Hinton lives in an elegant townhouse -- fitted out with a Jacuzzi and a deck -- on Manhattan's upper east side with his wife, Kath, a former aide to Gordon Brown.

He and Murdoch have spent more than 50 years working alongside each other, so it's not surprising that insiders describe Hinton as one of the newspaper baron's consiglieri, trusted to sort through sticky business issues or smooth political flaps.

One recent example: Hinton was instrumental in saving the Wall Street Journal's online pay model after his boss toyed with the idea of making the wsj.com website free, according to a source familiar with the matter.

"I think Les was very helpful in persuading Rupert not to take down the subscription wall," the source said."And now of course, Rupert will put a wall around anything."

The source saw Hinton as part of Murdoch's inner circle, but added that he was not as close to the mogul as Wall Street Journal editor Robert Thomson or Brooks, who took over as the News International chief executive in 2009.

"My sense is that they are not personally close in the way that Robert and Rupert are close," said the source. "But he has Rupert's respect."

A former Dow Jones employee, though, said Murdoch trusts Hinton as much as he trusts Thomson or Brooks, even if their relationship is less public.

"He's very smart, very level-headed, very calm. He makes Rupert see the light on things. Les believes the lower the profile you have, the longer you survive in News Corp. Les is a confidant and Rupert knows that everything Les knows will go to the grave with him," said the source.

QUESTIONS TO ANSWER

That relationship could now be tested as never before.

After his assurances to the parliamentary committee in 2007, Hinton answered further questions in September 2009. Speaking over a video link from New York, the Murdoch lieutenant again sought to convince the members of parliament that all was now right at the British tabloid newspaper.

"There was never any evidence delivered to me that suggested that the conduct of (the single reporter) Clive Goodman spread beyond him ... We went, I promise you, to extraordinary lengths within the News of the World," he said.

Though there were times during the hearing when Hinton's certainty appeared to be cracking -- he used the phrases "I do not recall" or "I do not know" or variations on them at least 55 times -- his faith in the newspaper's internal checks seemed resolute.

Asked whether he should have pushed his editors on "the extent of the inquiry and more details about what had actually been looked into," he replied that he "was happy when I gave evidence to you all two and a half years ago that the answers I gave were sincere and that the efforts made to discover any other wrongdoing had been conscientious and thorough, and I think people worked very hard in very difficult circumstances to both investigate what might have happened and to make sure that it did not happen again."

Those answers could come back to haunt him.

James Murdoch conceded on Thursday that statements had been made to parliament before all the facts of the case were known. "That was wrong," he said, without placing blame on any one person.

At least one of the two inquiries announced by Prime Minister David Cameron is likely to call Hinton, who could face questions not just about phone hacking but also about a payment to Goodman, the News of the World's former royal editor, after the journalist had been jailed.

"He's got lots of questions to answer," Mark Lewis, lawyer for the family of Milly Dowler, the murdered teenager whose voicemail the News of the World allegedly hacked into, told reporters outside the entrance to News International in London. "There is none so blind as those that will not see."

Author Burden believes that Murdoch's desire to protect his beloved Wall Street Journal will help dictate his next moves. "Rupert is very proud of the Wall Street Journal and that's why he wouldn't want to see it being damaged by Les Hinton being smeared," Burden said.

That, said the former Dow Jones employee, might mean Hinton has to fall on his sword: "I wouldn't be surprised if Hinton was the fall guy. He would take one for the team."

In his 2007 appearance before the parliamentary committee, Hinton gave his thoughts on the way his reporters sometimes skirted the line of what was permissible.

"Those lines exist all the time and editors, when they are running aggressive, investigative newspapers, are forever having to judge the wisdom or not of stepping over the line," he said. "And -- do you know what? -- they do not always get it right."

(With additional reporting by Sudip Kar-Gupta and Paul Hoskins in London; Editing by Simon Robinson, Michael Williams and Kevin Liffey)

Newsmaker: James Murdoch faces biggest test as heir to empire (Reuters)

LONDON (Reuters) – James Murdoch was not responsible for the phone hacking scandal that has engulfed his father's media empire, but that will matter little if his handling of the case does not improve quickly.

Tipped as heir to the empire, Rupert Murdoch's youngest son is under pressure to show he can muster his father's political touch to contain scandal that is damning the family name and slashing by the day the value of media assets that have been in the business for decades.

So far, analysts say he has been slow to realize the enormity of the situation, or to show genuine humility over an episode in which his newspapers have been seen to harass the families of child murder victims, dead soldiers and bombing victims, all to generate stories.

"This is the most serious political crisis in a generation (for the Murdochs) -- but as a business crisis it is immense and immensely more significant," said Claire Enders, head of the Enders Analysis research group.

By the time James Murdoch took over at News International, News Corp's British newspaper stable, in 2007, the alleged hacking practices were over, but the scandal had hardly begun, and it fell to Murdoch this week to close the 168-year-old paper at the center of the scandal.

At the heart of the problem, Enders says, is a sense that, after years of wielding a peculiar influence over British politics, James Murdoch and the rest of his company do not know how to handle a situation where they are in the wrong.

"This siege mentality is just not right," she said."They have got to accept that other people in the world have got something to tell them. But that is just not a personality trait one has ever seen from them.

"Their attitude is 'We are better, we're different', and I'm afraid the word 'better' is no longer going to apply if these allegations are proven."

HIP-HOP RECORD LABEL

Born in 1972, James Murdoch dropped out of Harvard in 1995to start a hip-hop record label and once billed himself as a professional cartoonist. Few then would have tipped him to overtake his elder siblings to stand in line to inherit News Corp.

Just 12 years later, he took control of the Asian and European operations of News Corp, which wields influence from Hollywood to Hong Kong and owns not only Britain's biggest-selling paper, the Sun, but also the film studio 20th Century Fox, the U.S. cable network Fox, the television network Star TV, publisher Harper Collins and the Wall Street Journal.

Whether he can match Rupert Murdoch's consummate empire-building ability in the long term is yet to be seen, but James has already shown hints of sharing his 80-year-old father's bullish approach to business.

Smart and clean-cut, James is capable of charming interviewers and the public, but inspires fear among many of those who work for him. He keeps a model of the Star Wars villain Darth Vader outside his London office.

"When James was in the building, you could almost hear the Darth Vader music," said a former News International editor.

"He came across on his TV interview this week as a nice, thoughtful guy. And he may be that. But he's a scary man around the office," said the editor, who declined to be named.

When News Corp's Internet business was founded in the early days of the dot-com boom, James became president. But as boom turned to bust, he moved on to Hong Kong-based Star TV before becoming chief executive of BSkyB in 2003.

That move was initially met with accusations of nepotism, but he quickly impressed analysts and investors by broadening the company from a pure pay-TV offering to include broadband and telephony. But like his father, the younger Murdoch has courted controversy. He stirred up a storm in August 2009 when he used a keynote speech at a major TV festival for a blistering attack on Britain's state-owned broadcaster, the BBC, echoing his father Rupert's speech from the same platform 20 years earlier.

James was promoted to run News Corp's international business from New York in March this year, a move seen as confirming his status as heir to the media empire. But he has still not moved from London, where all of his direct reports are based.

TV OVER PRINT MEDIA

The younger Murdoch has always favored the more profitable television and entertainment arms of the business over the traditional print media on which his father founded the empire.

But growing popular and political anger over the voicemail hacking saga has raised the chances of a delay in government approval for News Corp's bid to buy out the 61 percent of BSkyB that it does not already own.

Prime Minister David Cameron's right-of-center government had already given informal blessing to the takeover, despite criticism that it gave Murdoch too much media power.

Before the controversy worsened, formal approval had been expected within weeks. But a decision now seems likely to take months. "James Murdoch has not handled the situation well. He surely did know, certainly by 2008, what was going on," Peter Burden, the author of a book on the News of the World, told Reuters. "The problem is they're all very loyal to each other, the Murdochs and their people," he said, in reference to the company's decision to back Rebekah Brooks, a close confidante and editor of the News of the World at the time many of the offences were alleged to have happened.

"James didn't grasp the enormity of the situation. A few months ago he said 'We've put it in a box now and it's contained', and of course he couldn't have been more wrong."

Beyond pure financial concerns, the Murdochs appear also to have also damaged their once untouchable position in British politics, where leaders of political parties openly courted Rupert Murdoch's support.

Andy Coulson, a former editor of the News of the World who quit in January as spokesman for Prime Minister David Cameron, was arrested on Friday over the scandal.

"They don't understand that you can't assume the kind of power they've had in this country without actually behaving as if you're part of the fabric," said Enders.

"And what that means is -- if your employee becomes an employee of the prime minister, you have some responsibility toward that employee being a credit to the prime minister rather than a discredit. They don't get that connection."

James Murdoch needs to show that he does.

(Editing by Kevin Liffey)

Toys R Us IPO now expected in 2012: sources (Reuters)

NEW YORK (Reuters) – The initial public offering of Toys R Us, the world's largest toy retailer, is now expected in 2012, two sources told Reuters.

The company filed for an IPO of up to $800 million in May 2010. It had contemplated coming public in the first half of 2011, but delayed its IPO after lackluster holiday sales. It later contemplated a July IPO.

Toys R Us has made it through the U.S. Securities and Exchange Commission review process, so it could technically launch an IPO any time it wants -- yet it is expected to delay the offering until next year, one of the sources said.

The sources declined to be named as the information is not public. Toys R Us declined to comment.

(Reporting by Dhanya Skariachan and Clare Baldwin; Editing by Richard Chang)

Analysis: Belt-tightening may squeeze economy, markets (Reuters)

NEW YORK (Reuters) – Two years removed from its worst recession since World War Two, the U.S. economy is still struggling to create jobs, and things could get even tougher if all the talk of belt-tightening in Washington becomes reality.

Data on Friday showed hiring ground to a near halt last month, driving the jobless rate up to 9.2 percent and casting doubt on whether a sluggish U.S. recovery would soon pick up steam.

This all but ensures the Federal Reserve will keep interest rates at record lows well into 2012. But help probably won't be as forthcoming from Congress and the White House, which are locked in battle over cutting a $1.4 trillion budget deficit.

The problem is one of timing: Economists and investors fear that with weak labor and housing markets causing consumers to tighten their own belts, the last thing the economy needs is an aggressive dose of austerity from the federal government.

"The U.S. government has its work cut out for it," said Douglas Borthwick, managing director at Faros Trading in Stamford, Connecticut. "U.S. fiscal problems have been put off for so long that the government has to cut spending at a time when the economy is unable to absorb it."

As a share of output, the $1.4 trillion budget gap expected for the fiscal year ending in September is one of the largest since World War Two.

President Barack Obama and Republican leaders are aiming for savings of $2 trillion to $4 trillion over 10 years but are at odds over the right mix of spending cuts and tax hikes.

A deal is needed by August 2 in order to lift the $14.3 trillion cap on government borrowing.

While that's not an astronomical amount for a $14 trillion economy, it still amounts to tighter policy at a time that many economists say requires even more aggressive federal spending.

Much depends on the size, scope and timing of spending cuts. If they are large enough and take effect next year, they will depress corporate earnings and weigh on equity markets, according to Credit Suisse U.S. equity strategist Doug Cliggott.

Solid corporate earnings and loose monetary and fiscal policies have helped the S&P 500 index double in value since early 2009.

"We really are in a bind here," Cliggott said, "We have to start addressing the deficit, and if it means a rough stretch for corporate profits and the equity market, then they go through a rough stretch. Putting it off is not the answer."

WALKING THE TIGHTROPE

Fed Chairman Ben Bernanke and others have urged lawmakers to reduce the deficit but to back-load the most draconian spending cuts or tax hikes to shield the fragile economy.

"The idea seems to be that reducing the deficit will somehow produce jobs," said Kathy Jones, fixed income strategist at Charles Schwab. "I'm not sure there's a direct correlation there. We need to allow growth now, because stronger growth will help the long-term fiscal outlook."

That's clear in Europe. Facing default, Greece's parliament last week adopted a package of large and unpopular spending cuts and tax hikes in exchange for international aid.

But economists and investors fear the austerity will make it difficult for the country to grow its way back to health.

Britain, too, has been more aggressive than the United States in cutting spending and raising taxes, and the pace of growth slowed to 1.6 percent in the 12 months to March. Markets are even starting to bet the central bank may have to act by pumping more money into the economy.

David Semmens, U.S. economist at Standard Chartered, said the 2012 election may clip even the biggest deficit hawks' wings, as lawmakers won't want to lose votes. A rising jobless rate is an impediment for Obama's reelection chances.

"I think any spending cuts will be aimed at 2013," he said.

But history does suggest a commitment to fiscal probity is required for long-term economic health. Cliggott said countries with debt-to-output ratios above 90 percent have traditionally grown at slower rates than those with stronger finances.

"It shows the tightrope that has to be walked," said Greg McBride, senior financial analyst at Bankrate.com. "We've got to rein in the government red ink so we don't in coming years face a day of reckoning. But it's a balancing act, because if you rein it in too much, it will plunge us into recession."

(Editing by Leslie Adler)

Murdoch flies to London to tackle phone-hack crisis (Reuters)

LONDON (Reuters) – Rupert Murdoch was expected to fly to London to tackle a scandal engulfing his media empire while journalists prepared the last edition of a best-selling weekly they say he has sacrificed to protect plans to expand his television business.

The planned visit of the News Corp chief executive coincided with calls on Prime Minister David Cameron to speed up an inquiry into phone-hacking allegations which could jeopardize Murdoch's proposed takeover of a British broadcaster.

It has also unearthed allegations journalists working for Murdoch and others paid police for information and raised questions about relations between politicians, including Cameron, and powerful media owners like Murdoch.

Alan Rusbridger, editor of the left-leaning Guardian newspaper, said the past week had seen a whirlwind of stunning political, business and judicial developments.

"We've had both the prime minister and the leader of the opposition making the kind of statements that a week ago would have seemed suicidal for politicians, essentially conceding they had turned a blind eye to the abuse of press power because they wanted to keep in with Rupert Murdoch," he said in a video on the Guardian's web page.

News Corp, whose shares have fallen over the scandal, declined to comment on 80-year-old Murdoch's agenda.

A spokeswoman for News International, its British media arm, denied allegations an executive might have destroyed evidence relevant to a police inquiry into the allegations its reporters hacked into the telephones of relatives of troops killed in action and a string of celebrities several years ago.

News International chief Rebekah Brooks, 43, indicated more revelations may emerge in comments to News of the World staff on Friday, a day after she told them the 168-year-old newspaper had become "toxic" and would be shut.

"Eventually it will come out why things went wrong and who is responsible. That will be another very difficult moment in this company's history," Brooks said on Friday, according to a recording carried by Sky News.

Murdoch has brushed off calls for Brooks to resign due to her editorship of News of the World during some of the alleged hacking incidents.

She denies knowledge of the practice during her watch on the paper, hugely popular due to its celebrity gossip, campaigns and photos of scantily-clad young women.

Cameron, a friend and neighbor of Brooks, joined calls for her to step down on Friday at a news conference at which he admitted politicians had been in thrall to media for years and ordered a public inquiry.

Analyst Claire Enders said Newscorp was vulnerable. "As a business crisis it is immense," she told Reuters.

JOURNALISTS ANGRY

The Guardian newspaper said police were investigating evidence a News International executive may have deleted millions of emails from an internal archive in an apparent attempt to obstruct investigations.

The News International spokeswoman said the allegation was "rubbish," adding: "We are cooperating actively with police and have not destroyed evidence."

Journalists working on Sunday's last edition of the News of the World were angered by the loss of their jobs, saying they had been made scapegoats to protect NewsCorp's expansion in television.

"There are 280 journalists there who have absolutely nothing to do with the things that may have gone on many, many years in the past," chief subeditor Alan Edwards told the British Broadcasting Corporation.

A banner had been hung outside the newspaper's headquarters in east London, saying: "Break up the Murdoch Empire."

Neil Ashton, News of the World football correspondent told reporters before his final shift on the paper a lot of people on the paper wanted answers: "Rupert Murdoch is coming to London to restructure his company ... I don't know what the future holds."

Brooks denied the company, which many assume will fill the gap left by the News of the World by extending publication of its Sun daily to Sundays, was combining a cost-saving measure with a bid to remove a threat to its expansion in television.

British police on Friday arrested Andy Coulson, the former spokesman for Cameron who had resigned as News of the World editor in 2007 after one of his reporters and a private investigator were convicted of hacking into the phones of aides to the royal family.

Coulson has also said he knew nothing about the phone hacking.

PUBLIC INQUIRY

Cameron announced a full public inquiry into the hacking allegations at a hastily-convened news conference on Friday in which he was forced to defend his judgment in hiring Coulson.

The opposition Labour Party said on Saturday Cameron needed to appoint a judge quickly to get the inquiry going to avoid evidence disappearing, pointing to the Guardian reports.

"The clock runs out at the end of today," Labour Deputy Leader Harriet Harman told the BBC. "We ought to take precautionary measures."

A spokesman for Cameron said he was moving as quickly as possible. "We have already approached the Lord Chief Justice who will propose the judge," the spokesman said, adding that any destruction of evidence would be a criminal matter.

Cameron's opponents seek to block Murdoch's bid for the 61 percent of broadcaster BSkyB NewsCorp does not already own on the grounds it would give him too much political clout.

But allegations senior editors were involved in illegally accessing thousands of voicemail messages, and paying police for information, to get scoops, has raised questions about whether Murdoch's group is a "fit and proper" owner for BSkyB.

After years of allegations about hacking the voicemail of celebrities and politicians in search of stories, the scandal reached a tipping point earlier this week when it was alleged that in 2002 the paper had listened to the voicemail of Milly Dowler, a missing schoolgirl who was later found murdered, and even deleted some of her messages to make way for more.

That claim, and allegations that a growing list of victims included Britain's war dead and the families of those killed in the 2005 London transport bombings, outraged readers and caused many brands to pull advertising from the title.

A source familiar with his plans said Murdoch, who began his British media arm in the 1960s, was likely to arrive in London on Sunday morning.

Analysts and investors said the 14 billion dollar takeover deal could be jeopardized if British regulators impose tougher rules in response to new concerns around News Corp's dominance in British media.

Cameron indicated a new assertiveness toward the Murdoch empire by withholding overt endorsement of News Corp's bid for BSkyB on Friday.

"This scandal is not just about some journalists on one newspaper," he said. "It's not even just about the press. It's also about the police. And, yes, it's also about how politics works and politicians too."

News of the World and other newspapers have been accused of paying the police for information. Police said on Friday they had arrested a 63-year-old man in Surrey, southern England over allegations of inappropriate payments to police.

The prime minister's close links with those at the heart of the scandal mean he has been damaged by it but analysts say that with probably nearly four years until a parliamentary election he is unlikely to be sunk by it.

The police also face questions over why an initial investigation into phone hacking was closed after royal correspondent Clive Goodman and a private detective were jailed in 2007.

(Additional reporting by Sudip Kar-Gupta in London; writing by Philippa Fletcher; editing by Ralph Boulton)

Three banks in Illinois, Colorado close: FDIC (Reuters)

WASHINGTON (Reuters) – U.S. authorities closed three banks on Friday, bringing the total number of foreclosures in 2011 to 51.

First Chicago Bank & Trust of Chicago, Illinois, with just under $960 million in total assets, was closed, the Federal Deposit Insurance Corp said. Northbrook Bank & Trust Company of Northbrook, Illinois, will assume all of the deposits of First Chicago's seven branches.

FDIC also said Colorado Capital Bank of Castle Rock, Colorado, was shut and First-Citizens Bank & Trust Company of Raleigh, North Carolina, would assume its deposits.

Colorado Capital Bank of Castle Rock had seven branches and $717.5 million in total assets.

Another Colorado bank, Signature Bank of Windsor, also closed, FDIC said. Points West Community Bank of Julesburg, Colorado, will assume the failed bank's deposits. Signature Bank had three branches and about $67 million in total assets.

The pace of failures is slowing as the banking industry recovers from the 2007-2009 financial crisis. The FDIC expects the total number of failures this year to be less than in 2010.

In 2010, 157 banks failed, following 140 failures in 2009.

Most of the banks that have failed this year have had less than $1 billion in assets as community banks continue to struggle with the weak economy and many are facing problems related to their exposure to the commercial real estate market.

On May 24, the FDIC released quarterly data showing that profits are at their highest level since the financial crisis took hold.

(Reporting by Alina Selyukh; Editing by Gary Hill)

Lexus to lose top spot in U.S. luxury car market (Reuters)

CHICAGO (Reuters) – Toyota Motor Corp's (7203.T) brand Lexus will end its streak of 11 years as the top luxury brand in the U.S. market due to lost sales in the aftermath of the Japan earthquake and tsunami, said Mark Templin, Lexus Division general manager.

Templin said Lexus U.S. sales will fall about 17 percent to around 190,000 vehicles in 2011.

The United States is the biggest market for Lexus.

All Lexus models, except the RX 350 crossover sport utility vehicle, are made in Japan.

Templin said the Cambridge, Ontario plant that makes the RX 350 will be back at full capacity in September.

Most Japanese plants assembling Lexus models have already returned to full strength.

However, the RX 450h hybrid SUV will not be at full production until October. The hybrid is typically 15 percent to 20 percent of RX sales in the U.S. market.

Lexus U.S. sales fell 38 percent in June as dealers ran out of key products. At the end of the month, dealers had about half their normal stock.

"June was the bottom of the trough, and we've turned the corner. We see the rest of the year being much better for us," Templin said, speaking to reporters at a Lexus media event in Chicago.

Lexus sales tumbled 18 percent in the first half of 2011 to 88,010, and German rivals BMW (BMWG.DE) and Daimler AG's (DAIGn.DE) Mercedes-Benz sprinted by.

BMW's sales rose 13 percent to 113,705, and Mercedes-Benz climbed 7 percent to 110,926. If 2011 full year results end as expected, it would be the first time that BMW has outsold Lexus in the U.S. since 1997.

Templin shrugged off the significance of losing the luxury sales crown, and when asked if Lexus could reclaim the top spot in 2012, he said.

"Whether we're No. 1 or not, I don't care. We've never focused on that. We won't change our plan midyear because someone else is selling more cars than us."

BUICK SYNDROME?

Industry analyst Aaron Bragman of IHS Automotive Insight said on Friday the slump at Lexus goes deeper than a shortage of vehicles. He suggested that Lexus could suffer from the same stigma as did General Motors Co's (GM.N) Buick brand for the past several decades: old people's car.

Bragman said it would be "quite a challenge" for Lexus to reclaim No. 1 in luxury sales in 2012 even with full production because its lineup is not as alluring as it once was and it relies heavily on two models, the RX 350 and ES 350 sedan, a spinoff of the Toyota Camry.

The RX so far this year accounts for 45 percent of Lexus U.S. sales and the ES sedan 19 percent.

"Like Toyota, they've lost their momentum. They have an aging buyer base, and a lot of their dealers are afraid they will become the next Buick. Their new products haven't resonated with younger buyers."

The median buyer age for Lexus is in the mid-50s, and Templin said he is comfortable with that because it is a result of high loyalty.

Sportier models such as the IS sedan and CT hybrid sedan are attracting younger owners, said Templin.

(Editing by Bernie Woodall; editing by Carol Bishopric)

(This story was corrected to show name for Lexus hybrid model is RX 450h. Also adjusts quote to show June was the bottom of the trough.)

Exclusive: South Sudan says can live off credit if north blocks (Reuters)

JUBA, Sudan (Reuters) – South Sudan can survive on credit, using its oil as collateral, if the north goes ahead with its threat to block pipelines after the south secedes on Saturday or if war between them breaks out again, officials told Reuters.

Such economic independence may give the new state an edge in tortured negotiations over oil rights with its old civil war foe which has received 50 percent of the revenues from southern oil for six years and which wants pipeline fees after secession.

"In case the south is forced not to export its own oil through the existing pipeline infrastructure through the north, we will use our resources to continue to live ... The south can still survive without a problem," the south's Director General of Energy Arkangelo Okwang told Reuters.

"If we are forced not to export our crude, we will definitely use some of our (oil) blocks to ensure we have roots," he said, roots meaning money for the government.

The south produces about three quarters of Sudan's roughly 500,000 barrels of oil output and depends on oil for 98 percent of its revenue. The south funnels its oil through northern pipelines to Sudan's only commercial port on the Red Sea coast.

Diplomats and southern officials have said it is unlikely the north's President Omar Hassan al-Bashir will shut down those pipelines as the country is so dependent on oil revenues and which already faces debts of about $38 billion.

The south is due to split away at midnight tonight local time (5 p.m. EDT), a separation it won in a 2005 peace deal that ended decades of civil war with the north.

The territories are yet to agree on how they will handle oil revenues and payments, among other disputes -- a situation that has unnerved diplomats who fear a return to war.

The conflict fought over ideology, ethnicity, resources and religion killed an estimated 2 million people and left a legacy of deep mistrust between the two sides.

OFFERS OF CREDIT

Senior officials told Reuters a number of institutions had approached the south offering it credit in exchange for oil.

"A resource is a resource, and we have the resources. We have the petroleum resources... They are there. They are like financial guarantors for a country like south Sudan," Okwang said.

Such deals would allow the south the time to build a link southwards to an existing pipeline through Kenya, bypassing north Sudan altogether. [ID:nLDE7661N3]

One Western diplomat said he knew that "there have been approaches" from parties to set up agreements that would allow the south to use future oil sales as collateral if the exports were shut down but did not name the groups.

"We are a sovereign state. We will borrow money. We have oil in the ground. We have a lot of friends who are prepared to offer us money," Information Minister Barnaba Marial Benjamin told Reuters.

Southern officials say they would be willing to pay a transit fee to use the north's pipeline, but insist that they will stop "sharing" oil revenues from the moment they secede. They have also said accepting credit offers would be a last resort, a contingency plan, if the north shuts its pipeline.

Asked what fee might be acceptable, Okwang declined to name a specific limit but said it must fall within international standards, as with other landlocked countries like Chad that must export oil through their neighbours.

"We need to stick to international standards, so we are not abnormally treated," Okwang said.

South Sudan has talked to Toyota Kenya about the possibility of linking to a proposed regional oil corridor to help export crude from fields far from the north, a southern energy official said on Thursday.

(Editing by Louise Ireland and Andrew Heavens)

Jobs growth stalls, setting back recovery hopes (Reuters)

WASHINGTON (Reuters) – U.S. jobs growth ground to a near halt in June as employers hired the fewest workers in nine months, frustrating hopes the economy would bounce back quickly from a slowdown in the first half of the year.

Nonfarm payrolls rose only 18,000, the Labor Department said on Friday. It was the weakest reading since September and below even the most pessimistic forecast in a Reuters poll of economists.

The dismal report, which showed the unemployment rate climbing to a six-month high of 9.2 percent, stood in stark contrast with recent data on manufacturing and retail sales that had shown activity starting to perk up.

"This report has dashed hopes that the economy was about to accelerate again," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. "It is showing a much bleaker picture than other indicators and we must hope that it is overstating the extent of the slowdown."

Investors, who had positioned for a fairly strong number after a bullish reading on private hiring from payrolls processor ADP, took a dim view of the report and sold U.S. stocks. Global equities retreated from five-week highs and oil prices slumped.

But prices for Treasury debt rallied on views the Federal Reserve would keep overnight interest rates near zero well into next year. The dollar rose against a broad basket of currencies as investors turned risk averse.

Adding to the weak tenor of the report, the department said the economy created 44,000 fewer jobs in April and May than previously thought.

GOVERNMENT BLEEDS JOBS

Government was the biggest drag in June, but the weakness was widespread and could pressure the Fed to consider further action to help the economy. Officials, however, have set a high bar after completing a $600 billion bond-buying program last week.

Still, economists are holding to their belief that the economy will soon pull away from its first-half soft patch and do not see a new recession on the horizon.

Joel Naroff of Naroff Economic Advisors in Holland, Pennsylvania, noted that other recent data has been more positive. "We haven't seen the economy faltering further, instead we have seen the economy coming back," he said.

Motor vehicle manufacturers are ramping up production as a shortage of parts from Japan eases and retailers reported better-than-expected sales in June. In addition, gasoline prices have dropped 38 cents from their lofty levels in May, which should bolster consumer spending.

The employment data dealt a blow to the Obama administration, which has struggled to get the economy to absorb the 14.1 million unemployed Americans. The economy is the top concern among voters and will feature prominently in President Barack Obama's bid for re-election next year.

Two years after the recession ended, employment is still nearly 7 million jobs below its January 2008 peak. At the employment growth pace of the last three months, it would take nearly seven years to replace the lost jobs.

The data could stiffen the resolve of Democrats to push for near-term stimulus as they seek a deal with Republicans to cut the U.S. budget deficit.

In an appearance at the White House, Obama said an impasse in budget negotiations that is blocking a needed increase in the nation's debt limit had contributed to the reluctance by businesses to hire.

"The sooner we get this done, the sooner that the markets know that the debt limit ceiling will have been raised," he said.

Republicans pointed the blame at Democrats.

"Today's report is more evidence that the misguided 'stimulus' spending binge, excessive regulations, and an overwhelming national debt continue to hold back private-sector job creation in our country," House of Representatives Speaker John Boehner said in a statement.

WORKWEEK SHRINKS, EARNINGS WEAK

The private sector added 57,000 jobs last month, while government employment shrank 39,000 -- the eighth straight monthly decline -- as local and state governments continued to wield a budget ax.

Factory payrolls rebounded 6,000 after contracting in May for the first time in seven months, reflecting a step-up in motor vehicle production. Construction employment fell 9,000 last month after declining 4,000 in May.

The length of the average workweek fell to 34.3 hours from 34.4 hours. Employers have been reluctant to extend hours because of the uncertainty surrounding the recovery and the decline suggested they were facing little pressure to increase hiring soon.

Temporary help, another leading indicator of future hiring, fell for a third straight month.

Average hourly earnings slipped a penny, the first decline since November and more evidence that wage-driven inflation is not a risk. Over the past year, earnings have risen only 1.9 percent.

(Editing by Andrea Ricci)

Poll: Dealers expect unemployment to ease through '12 (Reuters)

NEW YORK (Reuters) – Economists at top financial institutions expect the U.S. unemployment rate to fall in 2011 and 2012 despite a surprisingly weak jobs report on Friday, a Reuters poll found on Friday.

Though the economists at primary dealers are calling for unemployment to remain at historically high levels through 2012, they ascribe only a 20 percent chance of the Federal Reserve undertaking another stimulus program of Treasuries purchases in the next two years, the poll found.

Most of the economists at primary dealers -- the 20 large financial institutions that do business directly with the Fed -- expect stubbornly high unemployment will contribute to the U.S. central bank holding official interest rates at current levels near zero through the first half of next year.

The poll was conducted after the government said on Friday that the unemployment rate rose to a six-month high of 9.2 percent in June, while non-farm payrolls grew by a mere 18,000 last month.

The lackluster jobs growth stunned most economists, as the median of forecasts was for growth of 90,000.

"It is a pretty jarring result, especially on the back of a weak May report," said Omair Sharif, U.S. economist with RBS Securities in Stamford, Connecticut. "But we know that a number of data sets are going to improve in the third quarter, especially in respect to the factory sector with auto production and so on.

"There is some evidence that things started to pick up in the second half of June," Sharif said.

In Friday's poll, the median of forecasts from 14 of the 18 economists who answered the primary dealer poll was for the U.S. unemployment rate to dip to 8.7 percent by the end of 2011.

The median of forecasts from 17 of the dealers was for a further dip to 8.4 percent by the middle of 2012, while the median from 18 of the dealers was a rate of 8.1 percent by the end of 2012.

Not all of the economists who responded to the poll answered all the questions.

"We have not adjusted our future outlook on monetary policy noting (June payrolls) could be related to transitory factors, and we will keep watching the data throughout the summer months before changing any of expectations," said Justin Lederer, Treasury analyst at Cantor Fitzgerald in New York.

The median of forecasts from 16 of the dealers gave a 20 percent chance the Fed will do a "QE3" type stimulus program in the next two years. That compares with a median of 10 percent in a similar poll conducted June 3.

The Fed's latest $600 billion program of Treasuries purchases, dubbed QE2, ended last week.

Thirteen of the 18 primary dealers who answered the poll expect the Fed to hold official interest rates steady at the current range of zero to 0.25 percent through the first half of 2012. A poll conducted on June 22 produced similar results, with 14 of 19 dealers calling for the Fed to keep rates on hold through the first half of next year.

Friday's payrolls data "provides more support for the view that the Fed will be on hold for a long time," said Dean Maki, chief economist at Barclays Capital in New York.

(Additional reporting by Emily Flitter and Pam Niimi; Editing by )

Toys R Us IPO now expected in 2012: sources (Reuters)

NEW YORK (Reuters) – The initial public offering of Toys R Us, the world's largest toy retailer, is now expected in 2012, two sources told Reuters.

The company filed for an IPO of up to $800 million in May 2010. It had contemplated coming public in the first half of 2011, but delayed its IPO after lackluster holiday sales. It later contemplated a July IPO.

Toys R Us has made it through the U.S. Securities and Exchange Commission review process, so it could technically launch an IPO any time it wants -- yet it is expected to delay the offering until next year, one of the sources said.

The sources declined to be named as the information is not public. Toys R Us declined to comment.

(Reporting by Dhanya Skariachan and Clare Baldwin; Editing by Richard Chang)

Private hiring jumps, sparking recovery hopes (Reuters)

WASHINGTON (Reuters) – U.S. private companies hired more than double the expected number of workers in June, strengthening views the economy will pick up in the second half of 2011.

A drop in the number of Americans filing applications for unemployment benefits last week also offered hope for the labor market, although they remain too high to signal robust growth.

Payrolls processor ADP said on Thursday private sector employment increased 157,000 after a modest 36,000 gain in May, and beating economists' expectations for a 68,000 rise.

With gasoline prices falling, automakers cranking up production and the decline in house values moderating, the dark clouds over the U.S. economy are starting to lift.

While economists think the economy is pulling out of its first-half slump, they foresee only a modest recovery ahead.

"It's generally a confirmation that the weakness we saw in the May data was more in the way of a bump in the road rather than falling off into some abyss," said David Resler, chief economist at Nomura Securities International in New York.

"The soft patch will prove to be a temporary one, but that doesn't mean we'll be roaring ahead with growth."

The government had been expected to report on Friday that nonfarm payrolls increased 90,000 last month after rising only 54,000 in May, according to a Reuters survey taken last week.

However, the ADP report had some financial institutions, including BNP Paribas and Deutsche Bank, bumping up their forecasts.

"While it is just one month's number, it suggests that maybe what happened was a pause in the economic expansion and as we head into the summer months we're going to pick up some momentum," said Joel Prakken, chairman at Macroeconomic Advisers, joint producers of the ADP employment report.

Initial claims for state unemployment benefits dropped 14,000 to 418,000 last week, the Labor Department said. The decline was more than economists's expectations for a fall to 420,000.

Stocks in Wall Street rose on the data, while government bond prices fell. The dollar was down against a basket of currencies.

Separately, several U.S. retailers reported better-than-expected sales gains in June, a sign they were successful luring shoppers with discounts without undercutting revenue.

Macy's Inc, Costco Wholesale Corp, Target Corp and Gap Inc all beat Wall Street estimates.

Though jobless claims fell last week, they remained above 400,000, a level that is usually associated with a stable labor market, for a 13th straight week.

The four-week moving average of unemployment claims, a better measure of underlying trends, fell 3,000 to 424,750.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 43,000 to 3.68 million in the week ended June 25.

The number of people on emergency unemployment benefits declined 44,183 to 3.26 million in the week ended June 18, the latest week for which data is available. A total of 7.46 million people were claiming unemployment benefits during that period under all programs, down 61,327 from the prior week.

(Additional reporting by Leah Schnurr in New York)

Murdoch stuns critics, shuts down scandal-hit paper (Reuters)

LONDON (Reuters) – In a breathtaking response to a scandal engulfing his media empire, Rupert Murdoch moved on Thursday to close down the News of the World, Britain's biggest selling Sunday newspaper.

As allegations mounted this week that its journalists had hacked the voicemails of thousands of people, from child murder victims to the families of Britain's war dead, the tabloid had hemorrhaged advertising and alienated millions of readers.

Yet no one, least of all the 168-year-old paper's staff, was prepared for the drama of a single sentence that will surely go down as one of the most startling turns in the 80-year-old Australian-born press baron's long and controversial career.

"News International today announces that this Sunday, 10 July 2011, will be the last issue of the News of the World," read the preamble to a statement from Murdoch's son James, who heads the British newspaper arm of News Corp.

Hailing a fine muck-raking tradition at the paper, which his father bought in 1969, James Murdoch told its staff that the latest explosion of a long-running scandal over phone hacking by journalists had made the future of the title untenable:

"The good things the News of the World does ... have been sullied by behavior that was wrong. Indeed, if recent allegations are true, it was inhuman and has no place in our Company. The News of the World is in the business of holding others to account. But it failed when it came to itself.

"This Sunday will be the last issue of the News of the World ... In addition, I have decided that all of the News of the World's revenue this weekend will go to good causes.

"We will run no commercial advertisements this weekend."

Steven Barnett, professor of communications at Westminster University, said he was "gobsmacked":

"Talk about a nuclear option," he told Reuters.

"It will certainly take some of the heat off immediate allegations about journalistic behavior and phone hacking."

Tom Watson, a member of parliament from the opposition Labor party who had campaigned for a reckoning from the paper over the phone hacking scandal, said: "This is a victory for decent people up and down the land.

"I say good riddance to the News of the World."

GOVERNMENT TIES

There was no immediate response from members of Prime Minister David Cameron's Conservative-led government, which has found itself embarrassed by the avalanche of allegations this week after it gave its blessing in principle to News Corp's takeover bid for broadcaster BSkyB.

It was unclear whether the company would produce a replacement title for the lucrative Sunday market, in which, despite difficult times for newspaper circulations, the News of the World is still selling 2.6 million copies a week.

One option, analysts said, might be for its daily sister paper the Sun to extend its coverage to a seventh day.

News of the World journalists were stunned. Anger may be directed at top News International executive and Murdoch confidante Rebekah Brooks, who edited the paper a decade ago during the period of some of the gravest new allegations.

"We didn't expect it at all. We had no indication. The last week has been tough...none of us have done anything wrong. We thought we were going to weather the storm," said one News of the World employee who asked not to be named.

The scandal had deepened with claims News of the World hacked the phones of relatives of British soldiers killed in action in Iraq and Afghanistan.

The military veterans' association broke off a joint lobbying campaign with the paper and said it might join major brands in pulling its advertising.

The British Legion said it could not campaign with the News of the World on behalf of the families of soldiers "while it stands accused of preying on these same families in the lowest depths of their misery."

Signaling how far the racy, flag-waving title has alienated a core readership already horrified by suggestions its reporters accessed the voicemails not only of celebrities and politicians, but also of missing children and crime victims, an online boycott petition had garnered hundreds of thousands of signatures.

TELEVISION TAKEOVER

The Conservative-led government had already backed a deal for News Corp to buy out the 61 percent of BSkyB it does not already own, and says the two cases are not linked. But U.S. shares in News Corp fell over 5 percent on Wednesday, though they recovered somewhat in a stronger general market on Thursday.

Formal approval for the deal had been expected within weeks after the government gave its blessing in principle. But it now seems unlikely for months, although officials denied suggestions that they were delaying a decision because of the scandal.

"The Secretary of State has always been clear that he will take as long as is needed to reach a decision. There is no 'delay' since there has been no set timetable for a further announcement," a government spokesman said. Some British media reported that a decision was now expected in September.

Critics, notably on the left of British politics, say giving Murdoch full control of Sky television would concentrate too much media power in his hands and risk skewing political debate.

Cameron has proposed inquiries into the newspaper and into the wider issue of ethics in the cut-throat, and shrinking, news business. Arguments over privacy, free speech and the power of the press have already stirred heated debate this year.

However, critics called Cameron's move to set up official inquiries a tactic to push the embarrassing affair far into the future. The precise form of those inquiries is still unclear.

Labor opposition leader Ed Miliband has called for the BSkyB deal to be referred to the Competition Commission and said that Brooks, Murdoch's most senior British newspaper executive, should quit: "The prime minister has a very close relationship with a number of the people involved in this," said Miliband.

"He should ignore those relationships and come out and say the right thing because that is what the country expects."

PERSONAL TIES

So far, Murdoch has said he will stand by Brooks, 43, who edited the paper from 2000 to 2003, when some of the gravest cases of phone hacking are alleged to have taken place. She is a also a regular guest of the prime minister, and enjoys good relations with previous Labor leaders in power until last year.

Senior politicians from all parties, including Cameron and Miliband, rubbed shoulders with Murdoch, Brooks and other News Corp executives at Murdoch's exclusive annual summer party last month, underlining the power his organization wields.

Both Miliband and Cameron chose former News International employees as media advisers, although Cameron's choice of Andy Coulson, who succeeded Brooks as News of the World editor, has caused the prime minister the more obvious problems.

Coulson quit the paper over the first hacking case in 2007 and went to work as Cameron's spokesman. He resigned from the prime minister's office in January as police reopened inquiries.

The main accusations are that journalists, or their hired investigators, took advantage of often limited security on mobile phone voicemail boxes to listen in to messages left for celebrities, politicians or people involved in major stories.

Disclosure that the practice involved victims of crime came when police said a private detective working for the News of the World in 2002 hacked into messages left on the phone of murdered schoolgirl Milly Dowler while police were still looking for her.

Police have also been criticized over allegations officers took money from the News of the World for information. London's Evening Standard newspaper said on Thursday that police officers took more than 100,000 pounds ($160,000) in payments from senior journalists and executives at the paper.

Analysts believe the global Murdoch empire, which includes Fox television and the Wall Street Journal, can weather a storm of reproach from advertisers, readers and politicians in Britain -- though there were signs of international ramifications.

In Murdoch's native Australia, the leader of the Greens party said he wants the government to examine the ramifications on Australia of the phone hacking scandal.

The secretary general of the Council of Europe, Thorbjorn Jagland, said it was concerned by allegations of breaches of privacy. He said: "Governments need to act resolutely to fight and to prevent violations of this fundamental right, whilst actively protecting and promoting freedom of speech."

(Writing by Alastair Macdonald)

Samsung quarterly profit falls as weak LCDs overshadow mobiles (Reuters)

SEOUL (Reuters) – Profit at Samsung Electronics, the world's largest maker of memory chips and televisions, fell by a quarter as weak earnings at its flat screen unit dragged, underlying the conglomerate's struggle to return to last year's record profit.

A bleak outlook for computers and TVs and a wobbly global economy is overshadowing robust sales of Samsung's new version of its flagship Galaxy S smartphone, which has emerged as a major competitor to Apple Inc's blockbuster iPhone.

Samsung, one of the first major global technology firms to kick off quarterly earnings, is expected to have become the world's top smartphone vendor in the second quarter, ending Nokia's more than 10-year reign.

"(The forecast) is slightly better than what the market had been expecting as many had been slashing their forecasts recently due to losses from the LCD (liquid crystal display) division," said Kim Young-chan, an analyst at Shinhan Investment Corp.

"It will be again smartphones which will lead earnings recovery in the second half of this year, although competition may get toughen again in the third quarter when Apple introduces a new iPhone."

Samsung's shares closed 2 percent lower, underperforming a 0.4 percent rise in the market. The shares, which have one "hold" recommendation and no "sell" ratings among 46 analysts tracking the company, have risen nearly 9 percent so far this month, beating a 3 percent rise in the broader market.

"Optimism for the second half is somewhat reflected in its recent share move and now investors are bit concerned about falling chip prices," said Kim Sung-in, an analyst at Kiwoom Securities.

Samsung boasts a market capitalization of $134 billion, bigger than the combined value of Sony Corp, Nokia, Toshiba Corp, Panasonic Corp and LG Display.

Samsung, which worked out how to make black and white TVs in the 1970s by tearing apart Japanese models, overtook Sony as the world's most popular consumer electronics brand in 2005.

On Thursday, Samsung estimated its quarterly operating profit at 3.7 trillion won ($3.5 billion), compared with a consensus forecast of 3.9 trillion won by analysts surveyed by Thomson Reuters I/B/E/S.

That would be down 26 percent from a record 5.01 trillion won a year ago and up 25 percent from the preceding quarter.

The profit was expected to show a downside surprise of 6 percent to 3.6 trillion won, according to Thomson Reuters SmartEstimates, which places more weight on recent forecasts by top-rated analysts. Samsung will provide detailed quarterly results later this month.

"I think the operating profit figure is not that bad and the stock market may not view this as a negative signal," said Chun Nam-Joong, fund manager at Consus Asset Management. "However, in the third quarter, it's difficult to expect the LCD business to swing to profit and the memory chip business may not grow strongly."

In its mainstay chips business, Samsung is expected to miss its second-quarter shipment guidance of a mid-teen percentage rise for DRAM chips used in computers and a more than 30 percent gain for NAND chips used in mobile phones and tablets.

Demand for personal computers is slowing and smartphone production was crimped by the Japanese earthquake in March.

RISING HANDSETS, WEAK LCD

Samsung's handset business, which saw its profit halved just a year ago due to a lack of compelling products to compete against the iPhone, staged a strong comeback to become its major profit center.

Its Galaxy S II has sold more than 3 million units since its debut in late April. Some analysts expect the phone running on Google's Android platform to become Samsung's best-ever model with potential sales of 20 million units this year.

Samsung might have sold 19 million smartphones in the second quarter in total and should easily beat its 2011 smartphone sales target of 60 million units, analysts said.

The company's biggest drain on earnings remains its underperforming Liquid Crystal Display business. The operation vies for the top position with local rival LG Display. Each company has about one-quarter of the global market, which is grappling with oversupply and weak demand.

Reflecting a growing urgency to turn around the business, Samsung recently named the head of its semiconductor business to take over from LCD chief Chang Wonkie and combined the underperforming operation with the chip division.

"The LCD business itself is likely to report a loss in the third quarter again. But factoring in earnings from Samsung Mobile Display, it will likely post a slight profit," said Kang Jeong-won, an analyst at Daishin Securities.

The restructuring is also aimed at improving business relations with its component customers, as Samsung is roiled in escalating legal disputes with Apple over their flagship smartphone and tablet devices.

This week, Apple, Samsung's biggest customer, filed a U.S. trade complaint to block Samsung from importing a variety of electronics devices, less than one week after Samsung sought to stop imports of Apple's popular iPads and iPhones.

(Additional reporting by Hyunjoo Jin, Kim Yeon-hee and Ju-min Park; Editing by Jonathan Hopfner Hopfner and Anshuman Daga)

New Greek aid package awaits private sector buy-in (Reuters)

ROME/FRANKFURT (Reuters) – International bankers and European Union officials made no progress on Thursday in securing a private sector contribution for a second bailout of Greece and bond yields climbed on concern about the scheme.

The managing director of the Institute of International Finance (IIF), a group representing around 400 banks and financial organizations, met representatives from the European Central Bank, the Greek government and the euro zone in Rome to try to break a deadlock over how private creditors might voluntarily maintain their exposure to Greek sovereign debt.

It was the latest in a series of meetings in recent weeks, but there is little sign of the parties reaching a deal. Thursday's meeting, which explored a possible buyback of Greek debt, broke up with no conclusion.

To avoid a debt default by Greece, euro zone finance ministers are trying to put together a second international bailout by mid-September. A private sector debt rollover, in which investors would buy new Greek bonds as existing ones matured, is an important part of the new rescue plan.

Until Thursday, efforts had focused on a French proposal to roll over up to 70 percent of Greek debt maturing before the end of 2014, with a portion of that going into new 30-year Greek bonds that would be guaranteed by other AAA securities.

But attention has now shifted to the possibility of buying back Greek debt, or switching existing Greek bonds for longer-dated ones, which could trigger a default.

In a statement, the IIF said participants had discussed "debt buy-back approaches," but did not go into details.

Reflecting fading hopes for a breakthrough, one banking source commented before the meeting: "The circus moves to Rome."

Partly because of the insistence of the European Central Bank, governments and banks have been trying to put together a debt rollover that would not prompt credit rating agencies to declare a default -- even a limited or "selective default." But that is proving very difficult.

Asked about such a possibility at a news conference after the ECB raised euro zone interest rates by a quarter of a percentage point to 1.5 percent, President Jean-Claude Trichet said: "We say 'no' to selective default or credit event."

Dutch Finance Minister Jan Kees de Jager told a Dutch newspaper on Thursday that if pressure needed to be put on the private sector to ensure its involvement was substantial, then that would just have to be done, despite the implications.

"I think we need to accept that a voluntary contribution is not realistic," he told Het Financielle Dagblad. "If a compulsory contribution from the banks leads to a short and isolated (credit) rating event, then that is not so bad."

BOND YIELDS RISE

Yields on government bonds of indebted euro zone states rose to euro-era highs on Thursday because of concern that any scheme to have private investors pay in a rescue of Greece could be applied to the debt of other countries too.

Portuguese two-year bond yields rose more than a percentage point after rising by more than 4 percentage points on Wednesday following Moody's downgrade of Portuguese debt to "junk." Irish 10-year bond yield jumped more than 0.7 percentage point to 13.42 percent. The euro weakened marginally to 1.4280.

In Frankfurt, the ECB said its rate hike was aimed at curbing inflation, but the move will also increase borrowing costs and pressure on banks in Greece, Ireland and Portugal, as well as other at-risk euro zone states such as Spain.

Trichet said the bank had decided to suspend Portugal's requirement to post collateral for credit operations, a move to soften the burden on Lisbon.

Despite pressure on Spain, Madrid showed it could still fund itself in the markets at affordable rates, attracting strong demand on Thursday for 3 billion euros of three- and five-year bonds, helped by Spanish banks which traditionally purchase their own country's debt.

BAILOUT

The next bailout of Greece, which follows agreement in May 2010 on 110 billion euros of emergency loans, is expected to total around 115 billion euros ($164 billion) and aim to fund Athens until late 2014, when it should return to markets.

Of the total, euro zone governments want the private sector to provide 30 billion euros via the debt rollover. Greece itself would provide a further 30 billion euros to the package by selling state assets, and the remainder would come from the EU and the International Monetary Fund.

Euro zone finance ministers will discuss the outlines of the new plan in Brussels on July 11, but no firm decisions are expected because the private sector's role remains unclear.

In Berlin, Jean-Claude Juncker, the chairman of the 17-member Eurogroup, added his voice to criticism by EU leaders of ratings agencies following Moody's downgrade, saying he favored the creation of a European credit ratings body.

Michel Barnier, the European commissioner for financial regulation, has suggested the licenses of ratings agencies operating in Europe could be revoked if they don't adhere to new, stricter EU rules on their operations.

(With additional reporting by Frankfurt bureau, DeepaBabington in Rome, Martin Santa in Bratislava; writing by LukeBaker; Editing by Andrew Torchia/Ruth Pitchford)

Pimco's El-Erian gives "low probability" of QE3 (Reuters)

NEW YORK (Reuters) – Pimco chief Mohamed El-Erian on Thursday put low odds on a third round of U.S. monetary stimulus unless there is a "major further deterioration" in the U.S. economic outlook.

"We would assign a low probability (at) this stage to QE3 given the general recognition that the forward-looking cost-benefit analysis has shifted away from the potential benefits and toward greater costs and risk," El-Erian, co-chief investment officer of Pimco, said in a live blogging question and answer session on Reuters.com.

"Therefore, it would take a major further deterioration in the economic outlook, combined with a willingness by the Fed to take greater reputational and political risks," he said.

Pimco, which manages $1.2 trillion in assets, is home to the world's largest bond fund.

El-Erian's outlook follows the June 22 forecast of fellow Pimco Co-Chief Investment Officer Bill Gross that the Federal Reserve would hint at a third round of bond purchases, or QE3, at the Jackson Hole meeting in August.

Also on June 22, the U.S. Federal Reserve cut its forecast range for U.S. economic growth to 2.7-2.9 percent from 3.1-3.3 percent. It offered no hint it would offer further monetary support via quantitative easing.

At the end of June its quantitative easing program, which consisted of purchasing $600 billion worth of U.S. debt, also known as QE2, expired.

The row in Washington over the United States' debt ceiling and a potential downgrade to its AAA credit rating has drawn global attention to the health of the economy and whether it needs more government help.

The three major credit rating agencies have all put the U.S. government on warning that it faces a downgrade if debt payments are missed come August 2, when the U.S. Treasury says it will have exhausted its financial resources.

The U.S. Congress has the authority to raise the country's borrowing limit.

El-Erian said a cut to the U.S. credit rating would be disruptive to a "global economy that is constructed with the U.S. at its core. Or to be even more blunt, the U.S. is the core of the core."

If the rating were cut, global financial markets would become more volatile with the risk of major re-allocations of capital both within and across borders, El-Erian said.

"And it would severely weaken the standing of the global public goods provided by the U.S., encouraging greater economic and financial fragmentation," El-Erian wrote.

However, if a QE3 program were to materialize, El-Erian predicted it would take the form of "renewed asset purchases combined, possibly, with various forms of partial interest rate ceilings."

In the event no agreement is reached between the White House and the Republican-controlled Congress, El-Erian pointed to the safety of gold.

"The likely consequences for markets would include a simultaneous sell off in equities, bonds and the currency. Gold would most likely benefit from the flight to quality," he wrote.

He added that central banks have in recent months increased their purchases of gold as a way of incrementally diversifying their reserves away from the U.S. dollar on fears it will weaken further.

Spot gold prices are up 24 percent in the year since Fed Chairman Ben Bernanke floated the idea of launching QE2 at the Kansas City Fed's annual economic symposium in Jackson Hole, Wyoming in 2010.

Gold is off its all-time high of $1,575 per ounce hit in May, but currently trading around $1,528.

For a link to the live Q&A postings on Reuters.com, click on http://reut.rs/mUDcFg

(Reporting by Daniel Bases and Jennifer Ablan; Editing by Kenneth Barry and Andrew Hay)

New jobless claims fall last week (Reuters)

WASHINGTON (Reuters) – New U.S. claims for unemployment benefits fell more than expected last week, government data showed on Thursday, but distortions associated with the holiday weekend and a government shutdown in one state made it difficult to get a clear view of the labor market.

Initial claims for state unemployment benefits dropped 14,000 to a seasonally adjusted 418,000, the Labor Department said.

Economists polled by Reuters had forecast claims dropping to 420,000 from a previously reported 428,000. The prior week's figure was revised up to 432,000.

The data has as no bearing on the government's closely watched employment for June, scheduled for release on Friday and expected to show that nonfarm payrolls increased 90,000 last month after rising only 54,000 in May.

While the improvement in claims at the start of the third quarter could be hopeful sign that conditions were now in place for the economy to regain the momentum lost in the first half, the report itself does not offer a clear read of the labor market.

A Labor Department official said given Monday's Independence Day holiday, California and Virginia had provided partial estimates. In addition, the department had to make estimates for four states and territories.

The data also included about 2,500 claims from state employees in Minnesota following the shutdown on Thursday of the state government.

It was the 13th straight week that claims have been above 400,000, a level that is usually associated with a stable labor market.

The four-week moving average of unemployment claims, a better measure of underlying trends, fell 3,000 to 424,750.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 43,000 to 3.68 million in the week ended June 25.

The number of people on emergency unemployment benefits declined 44,183 to 3.26 million in the week ended June 18, the latest week for which data is available. A total of 7.46 million people were claiming unemployment benefits during that period under all programs, down 61,327 from the prior week. (Reporting by Lucia Mutikani, Editing by Andrea Ricci)

Private hiring jumps, sparking recovery hopes (Reuters)

WASHINGTON (Reuters) – U.S. private companies hired more than double the expected number of workers in June, strengthening views the economy will pick up in the second half of 2011.

A drop in the number of Americans filing applications for unemployment benefits last week also offered hope for the labor market, although they remain too high to signal robust growth.

Payrolls processor ADP said on Thursday private sector employment increased 157,000 after a modest 36,000 gain in May, and beating economists' expectations for a 68,000 rise.

With gasoline prices falling, automakers cranking up production and the decline in house values moderating, the dark clouds over the U.S. economy are starting to lift.

While economists think the economy is pulling out of its first-half slump, they foresee only a modest recovery ahead.

"It's generally a confirmation that the weakness we saw in the May data was more in the way of a bump in the road rather than falling off into some abyss," said David Resler, chief economist at Nomura Securities International in New York.

"The soft patch will prove to be a temporary one, but that doesn't mean we'll be roaring ahead with growth."

The government had been expected to report on Friday that nonfarm payrolls increased 90,000 last month after rising only 54,000 in May, according to a Reuters survey taken last week.

However, the ADP report had some financial institutions, including BNP Paribas and Deutsche Bank, bumping up their forecasts.

"While it is just one month's number, it suggests that maybe what happened was a pause in the economic expansion and as we head into the summer months we're going to pick up some momentum," said Joel Prakken, chairman at Macroeconomic Advisers, joint producers of the ADP employment report.

Initial claims for state unemployment benefits dropped 14,000 to 418,000 last week, the Labor Department said. The decline was more than economists's expectations for a fall to 420,000.

Stocks in Wall Street rose on the data, while government bond prices fell. The dollar was down against a basket of currencies.

Separately, several U.S. retailers reported better-than-expected sales gains in June, a sign they were successful luring shoppers with discounts without undercutting revenue.

Macy's Inc, Costco Wholesale Corp, Target Corp and Gap Inc all beat Wall Street estimates.

Though jobless claims fell last week, they remained above 400,000, a level that is usually associated with a stable labor market, for a 13th straight week.

The four-week moving average of unemployment claims, a better measure of underlying trends, fell 3,000 to 424,750.

The number of people still receiving benefits under regular state programs after an initial week of aid dropped 43,000 to 3.68 million in the week ended June 25.

The number of people on emergency unemployment benefits declined 44,183 to 3.26 million in the week ended June 18, the latest week for which data is available. A total of 7.46 million people were claiming unemployment benefits during that period under all programs, down 61,327 from the prior week.

(Additional reporting by Leah Schnurr in New York)

Japan core machinery orders up, recovery under way (Reuters)

TOKYO (Reuters) – Japan's core machinery orders rose in May at the fastest pace in four months in a sign that capital expenditures will stay firm and support the economic recovery as the country rebuilds from a devastating earthquake and tsunami.

The rise in machinery orders, a leading indicator of capital expenditure, supports the Bank of Japan's view that the economy will resume a moderate recovery by autumn as companies restore supply chains and factory output rebounds, suggesting the central bank can afford to keep its easy policy on hold.

But the government maintained its cautious view that machinery orders -- a highly volatile data series -- are only just picking up with some sectors still weak, indicating that any rise in capital spending will be moderate.

Export orders fell in May, suggesting that a softening in global growth, and particularly in Asian economic activity, is clouding the outlook for Japan's export-reliant economy just as it is shaking off supply constraints after the March disaster.

"In addition to reconstruction-related demand, overseas economies, and especially solid demand from Asia, will probably continue to boost corporate capital spending," said Yuichiro Nagai, economist at Barclays Capital in Tokyo.

"But the risks will be whether a slowdown in the global economy accelerates and whether the third extra budget to deal with the quake is compiled by around October or November."

GLOBAL SLOWDOWN A RISK

The 3.0 percent increase in May core machinery orders matched a median market forecast and was the biggest since a 4.0 percent increase in January.

The March disaster so far has not significantly damaged corporate interest in spending, with the BOJ's June tankan survey last week showing big firms plan to increase capital expenditure by 4.2 percent in the current fiscal year that began in April.

"Capital spending is likely to remain one of the bright spots in the economy in the near term, compared to weak components such as consumption, as reconstruction demand and increased public works spending are likely to support," said Takeshi Minami, chief economist at Norinchukin Research Institute.

But there are some reasons to be concerned about the outlook for capital expenditure and production. Japan's Purchasing Managers Index (PMI) for manufacturing slowed slightly in June as new orders stagnated.

PMI indexes for China, Hong Kong and Singapore also showed declines in domestic new orders in June, partly as China takes steps to slow inflation.

The 3.0 percent increase in May machinery orders only offset a 3.3 percent fall in April. It would take a 31.3 percent jump in June for orders to achieve companies' forecast of a 10.4 percent rise in the second quarter, which would be very tough, a government official told reporters on Thursday.

Some auto and machinery manufacturers appeared to be delaying capital spending due to the quake, the official said, suggesting there could be lingering damage from the disaster.

Export orders fell 6.6 percent in May to mark a third straight month of declines, boding ill for Japanese companies that rely heavily on demand from fast-growing Asian economies.

Still, the BOJ is expected to hold off on easing policy further and to revise its assessment of the economy upward at a rate review next week, encouraged by a pickup in factory output and the recovery in business sentiment.

In a sign that wounds inflicted by the March 11 magnitude 9.0 earthquake and deadly tsunami were largely healing, Japan's industrial output jumped in May by the most in nearly 60 years, suggesting a "V-shaped" recovery.

But a political stalemate, as unpopular Prime Minister Naoto Kan clings to office after promising to quit, risks slowing recovery efforts as it could delay budgets to fund disaster relief. The standoff with opposition parties could also delay legislation needed to issue bonds to cover the budget deficit.

(Additional reporting by Stanley White, Editing by Tomasz Janowski)