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  1. #51
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    Post Lawmakers seek elusive compromise to escape debt debacle

    Top Republicans and Democrats worked behind the scenes on Wednesday on a compromise to avert a crippling U.S. default, looking to salvage a last-minute deal from rival debt plans that have little chance of winning congressional approval on their own.

    With financial markets increasingly on edge, the White House said it saw no alternative to striking a deal to raise the government's borrowing limit by an August 2 deadline to allow the world's largest economy to keep paying all of its bills.

    "People keep looking for off-ramps. They don't exist," White House spokesman Jay Carney told reporters, saying the government would be "running on fumes" after the deadline unless the limit was raised.

    Even if a deal is reached to lift the $14.3 trillion debt ceiling, a budget plan that flinches from hefty cuts in the deficit may result in a downgrade of the top-notch U.S. credit rating. This would push up U.S. borrowing costs and rattle global investors.

    The faltering moves to break the deadlock are weighing on markets. Along with the uncertainty, Wall Street was hit by weak earnings and lackluster economic data, suffering its worst day in eight weeks.

    "The market is beginning to show real concerns in terms of a default. I don't think it's going to happen ... (but) are we headed for a downgrade? That is becoming more of a possibility as each day goes by," said Peter Cardillo, chief market economist at Avalon Partners in New York.

    The dollar rebounded after a sell-off this week but policy makers in countries from Japan to France fretted over how a crisis of confidence in U.S. solvency could spill into the international economy.

    Worried investors shifted funds into gold and the Swiss franc, traditional safe havens that both rose to record highs in dollar terms.

    The Treasury will lay out a plan in the next few days for how the government will operate if the August 2 deadline is missed.

    Leaders in the Republican-controlled House of Representatives and Democratic-controlled Senate scrambled to find common ground but complications with their competing plans could send attempts at a compromise right down to the wire.

    "You're going to have to make sure that you can have a spending cut package that can pass both chambers -- there's going to be some work to do there," senior White House adviser David Plouffe said on the PBS show "NewsHour."

    Senate Democratic Leader Harry Reid, House Speaker John Boehner, the top Republican in Congress, and Senate Republican Leader Mitch McConnell have been talking about how to break the impasse, several lawmakers said.

    President Barack Obama, a Democrat, opposes the two-step Boehner plan because it would extend borrowing authority only temporarily, risking a rerun of the standoff in the run-up to the November 2012 election when Obama will seek a second term.


    Boehner, facing a mutiny by Republican lawmakers aligned with the fiscally conservative Tea Party movement, has been feverishly canvassing support for a vote on Thursday on his reworked deficit reduction bill. It is expected to be close.

    At a morning meeting, he appeared to be firming up support from several wavering lawmakers as he told them to "get your ass in line" behind what he has described as the best chance to win the deep spending cuts that Republicans seek.

    Reid says Boehner's plan would be "dead on arrival" in the 100-seat Senate. On Wednesday, 53 senators -- all 51 Democrats and the two independents who usually vote with them -- signed a letter to Boehner saying they would not back his bill.

    But Boehner's negotiating position could be strengthened if his measure gets the 217 votes needed in the House. If it fails, Boehner would be weakened and his job may be on the line.

    Senate Democratic aides said they hoped support would grow for Reid's one-step remedy, which Obama backs, if Boehner's plan is killed, either by the House or Senate.

    If Congress does not increase the debt limit, the United States could eventually suffer its first full government default. That could put its faltering economic recovery into reverse and send shock waves through the global economy.

    Analysts expressed confidence a compromise can be reached.

    "We continue to believe it is overwhelmingly likely that a debt deal is passed without a crisis," Eurasia Group said in a briefing note. "The two sides have furnished proposals that significantly overlap and leave room for compromise."

    Reid said he could easily modify his own bill to incorporate elements of Boehner's bill in a way that could win support from both parties in the Senate. This would improve the chances for a compromise that has so far been elusive.

    "There will be sufficient cooperation so a bill will pass that allows the debt limit to be lifted, with deficit reduction," Democratic Senator Max Baucus said.

    Both sides acknowledge similarities between their plans.

    Reid's measure has a concession aimed at winning Republican support -- no tax increases. It also cuts more spending than Boehner's proposal, according to an independent assessment.

    Tea Party groups have called on Republican lawmakers to reject any compromise, including the Boehner plan.

    A Tea Party rally outside the Capitol in Washington drew about 40 participants, including presidential candidate Herman Cain, who urged Republican leaders to "hold the line" in demanding spending cuts and opposing tax increases.

    "Government's too big. That's what this is about," said one protester, Kathy Smith from Fairfax, Virginia.


    Boehner rushed to revise his two-step proposal after an analysis by the non-partisan Congressional Budget Office found it would cut spending by $350 billion less than the $1.2 trillion over 10 years he had claimed.

    His new plan, which may make it easier for him to obtain backing from fiscal conservatives, reduces the debt ceiling increase to a maximum of $900 billion, covering the nation's borrowing needs until about November. A technical tweak boosts the projected spending cuts to $917 billion.

    Some analysts say the government may have enough cash on hand to pay bills until the middle of the month but the Obama administration says the August 2 deadline is unavoidable.

    Several House Democrats planned a news conference for Thursday to urge Obama to invoke an obscure clause of the U.S. Constitution to raise the debt ceiling on his own if needed.

    The White House has dismissed this idea of using the 14th Amendment but Obama has a range of unilateral options he can take.

    "A default or downgrade on U.S. debt would cause considerable problems for Japan's financial system," said Hidetoshi Kamezaki, a board member of the Bank of Japan.

    France's budget minister, Valerie Pecresse, urged Washington to come to an agreement.

    "The global economy needs an American agreement," Pecresse said.

  2. #52
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    Post EURO GOVT-High Italian funding costs keep investors on edge

    Italian funding costs hit 11-year high at auction

    * Yields rise across the Italian, Spanish curves

    * Outlook for risk assets hangs on U.S. debt debate

    LONDON, July 28 (Reuters) - Italian bond yields rose across the curve in a volatile trading session on Thursday, after high auction yields inflamed worries about the country's debt burden against the nervy backdrop of U.S. politicians flirting with a default.

    Safe-haven German debt made only limited gains, but rose to within a tick of the highest settlement close since last November as continued deadlock in talks over raising the U.S. debt ceiling supported demand for triple-A assets.

    This highlighted the prevailing unease among market participants over how and when the sweeping rescue plan announced last week to save Greece and ease contagion concerns will be implemented.

    "There's no clear timeline at this point ... There's a vacuum in the market, and market sentiment wasn't that good to start off with owing to the debt discussions in the U.S," said Elwin de Groot, senior strategist at Rabobank.

    "Overall it's a pretty bad cocktail."

    Italy has continued to feel pressure from markets because the package of euro zone anti-crisis measures did not include an increase in the size of the bloc's rescue fund, analysts said.

    This is seen as essential if the European Financial Stability Facility is to provide assistance for Italy, the region's third-largest economy.

    Italy issued 10-year debt at the highest yield in 11 years early in the session. While high yields were widely expected, markets were disappointed that the chunky returns on offer didn't draw in stronger bidding. As a result, the bonds underperformed in secondary markets after the sale as primary dealers tried to pass on the issues to end investors.

    Cash yields hit a session high of 5.99 percent, but later recovered some ground to stand at 5.84 percent into the European close.

    A trader said he had doubts Italy could defend the 6 percent line for too long, as many investors prefer to stay on the sidelines.

    "From the way the market has been behaving over the past month, I think there's just fast money moving around. I don't think there's too much real money getting involved here because there's just too much uncertainty," the trader said.

    Monument Securities strategist Marc Ostwald said Italian yields could only come down sustainably if the EFSF's size was increased and its power boost approved smoothly in European parliaments.

    Evidence of deep structural reforms would be needed then to cap them at more comfortable levels, he said.

    Spanish bonds , also seen suffering from concerns about the implementation of the rescue deal, were up over 5 bps, trading at 6.05 percent.


    U.S. politicians have yet to find a compromise on a deal to lift the country's borrowing limit to avoid default before an Aug. 2 deadline.

    Even if a deal is reached, a budget plan that does not include hefty deficit cuts may result in a downgrade of the United States' AAA credit rating.

    Given that most investors hold U.S. Treasuries because there are few other AAA-rated alternatives, a risk-averse environment would probably see outflows from equities into fixed income.

    "If the U.S. retains benchmark status, which seems likely, the rise in funding costs is not likely to be that dramatic," said Charles Diebel, head of market strategy at Lloyds.

    "The risk is that investment behaviours and market technicalities overreact and prompt some form of liquidity crisis in the short term but we would suggest this is a tail risk at best."

    In the event a deal was struck, the risk premium priced into Treasury debt could unwind, driving the yield gap between German and U.S. bonds wider, and boosting riskier assets in the short term, analysts said.

  3. #53
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    Post Mood tense as debt talks go down to wire

    A bitter mood prevailed on Capitol Hill as lawmakers struggled on Saturday to find a compromise measure to lift the nation's $14.3 trillion debt, as talks to avert a ruinous default went down to the wire.

    A day after the Republican-controlled House of Representatives passed a bill to cut the deficit and raise the ceiling on government borrowing, the debt saga shifted to the Democratic-led Senate where lawmakers scrambled for a deal.

    Senate Democrats pushed ahead with their own plan, but sought to attract bipartisan support by adding some elements of a proposal offered by Senate Republican leader Mitch McConnell.

    But Senate Republicans appeared to have the votes to block that bill and the House quickly crushed the Democrats' proposal before the Senate acted on it, rejecting the measure 246 to 173 in a fast-tracked vote set by the Republican leadership.

    Back-channel talks held the best hope for a compromise.

    President Barack Obama was to meet in the afternoon with Senate Democratic leader Harry Reid and the House Democratic leader Nancy Pelosi. McConnell also wants to meet with the White House.

    Unless Congress raises the debt ceiling, the government would be barred from further borrowing after Tuesday, according to the U.S. Treasury, and could quickly run out of money to pay all its bills.

    The world has watched with growing alarm as political gridlock in Washington has brought the world's largest economy close to an unprecedented default, threatening to plunge financial markets and economies around the globe into turmoil.

    Forty-three Senate Republicans signed a letter rejecting Reid's plan, a sign the measure does not have the support needed to clear a 60-vote procedural hurdle in the Senate.

    "What will they vote for? Do they have any ideas? Let me know," Reid said on the Senate floor.

    Democrats hope to convince some Republicans who signed their letter to allow the bill to clear the hurdle, at which point they could change it, a Democratic aide said.


    McConnell called on Reid to move up a vote on the Democratic plan that had been set for 1 a.m. EDT (0500 GMT) on Sunday so the two sides could begin talks with the White House.

    "We can't do it by ourselves, it has to have the only person in America who can sign something into law," McConnell said.

    Obama used his weekly radio and Internet address to urge lawmakers to strike a deal and head off what he has said would be an "inexcusable" default.

    In a vote scheduled to send a message to Senate Democrats, the Republican-controlled House defeated a version of the Reid plan, which fell well short of the supermajority vote needed for quick passage.

    The drawn-out standoff has put the United States at risk of losing its top-notch AAA credit rating. A ratings downgrade could prompt global investor flight from U.S. bonds and the dollar, raising borrowing costs for Americans when the economy is already frail, growing at an anemic rate of 1.3 percent in second quarter, according to government data.

    U.S. stocks endured their worst week in a year as the uncertainty made investors shy away from riskier assets and the dollar slumped to a record low against the safe-haven Swiss franc. Much worse could be in store if a U.S. debt deal doesn't appear to be on track by the time markets open on Monday.

    Senate Democrats' debt-limit proposal, which would cut deficits by $2.2 trillion over 10 years, was revised by Reid to incorporate parts of a "backup plan" first proposed by McConnell. As envisioned, Obama would be given authority to raise the debt ceiling in three stages to cover U.S. borrowing needs through the 2012 elections when he is running for a second term.

    Senate Democrats and Republicans agree about the main contours of the deal. The main point of contention remains what sort of mechanism should be in place to ensure that Congress will agree to further budget savings after a special committee makes recommendations, an aide said.

    Republicans want the enforcement mechanism to be another debt limit vote late this year or early next year, while Democrats have proposed automatic tax hikes and spending cuts.

    Obama says any plan that would require another showdown over the debt limit in a few months would be unacceptable because it would lead to economic uncertainty, putting a damper on jobs and growth.

    With Republicans pushing to have the White House join the talks, Vice President Joe Biden, who has a rapport with McConnell from his years in the Senate, could emerge as a key player in final negotiations.

    Unless there is major progress toward a debt deal, the U.S. Treasury could be forced on Sunday before Asian markets open to detail plans on which bills the government would pay if Tuesday's deadline is missed. Analysts believe it will stop other government spending to ensure bondholders are paid to avert a wide-scale financial crisis.

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    Post Britain, Japan warn of disaster if no U.S. debt deal

    (Reuters) - British and Japanese officials warned Sunday of disastrous consequences for the global economy if last-minute talks among lawmakers in Washington failed to agree on raising the U.S. borrowing limit and averting a debt default.

    Governments across the world fear that because of the key role of the U.S. dollar in global banking and trading systems, there could be severe instability when Asian financial markets reopen Monday if a U.S. debt deal is not in sight by then.

    In Washington, Senate Minority Leader Mitch McConnell, the top Senate Republican who is playing a key role in the debt talks, said "we're very close" to a $3 trillion deal that would raise the debt ceiling while cutting the U.S. budget deficit.

    But a senior White House official warned that an agreement was "not there yet."

    "If they get this one wrong and there's a default -- we don't expect that, we think that they will sort this out -- but if that were to happen, it has consequences for every family and every business in this country and all across the world," said Danny Alexander, Chief Secretary to the British Treasury.

    "I think in the end the politicians on Capitol Hill can see that the precipice they are looking over is one that they are going to step back from," Alexander told BBC television.

    "But it is something that would have a big effect on the global financial system and on the global economy, where the United States is one of our major trading partners, that could have really big implications for the United Kingdom."

    In Tokyo, sources familiar with Japan's international and monetary affairs said they were increasingly concerned that markets might be too optimistic about prospects for a lasting solution to the crisis.

    Japanese officials still hope Washington can strike a deal and if that proves impossible, will give priority to interest payments to international holders of U.S. Treasury debt to limit the immediate market impact, the sources said.

    But Tokyo's concern is that if the crisis drags on without a clear and long-term solution, markets may be thrown into turmoil in the same way that they suffered when U.S. investment bank Lehman Brothers collapsed in September 2008.

    "If there is a default, the impact on global markets will be huge," said one of the sources, who declined to be named because of the sensitivity of the matter.

    Another Japanese source said, "Nobody thought Washington would let Lehman collapse. But look what happened."

    U.S. lawmakers have set themselves a Tuesday deadline to reach agreement and the U.S. Treasury has said it will run out of borrowing room on that day, although analysts think the government may have enough cash to keep servicing its debt and paying its bills through the middle of this month.


    Britain is the third largest foreign holder of U.S. Treasury debt and Japan is the second largest. China is the biggest with well over $1 trillion invested in U.S. Treasuries; about two-thirds of its $3.2 trillion of foreign exchange reserves are estimated to be held in dollar assets.

    Saturday the official People's Daily newspaper, the mouthpiece of the Chinese Communist Party, castigated the U.S. handling of the debt crisis in an editorial as "irresponsible" and "immoral."

    It said the U.S. democratic system was to blame for the "farce," claiming that "not a single representative has considered the world, and even U.S. national interests are being banished from the mind."

    Friday a senior economic policymaker in the euro zone, who declined to be named, told Reuters he was optimistic Washington would solve the problem but expressed surprise and anger that U.S. politicians were "playing chicken" with an issue of such importance for the global economy.

    Euro zone leaders are struggling to control sovereign debt crises in several countries in their region, and the U.S. debt problem is making this more difficult by adding to upward pressure on the yields of government bonds in those weak states.

    If there is no U.S. debt deal by Monday morning, central banks around the world are expected to stand ready to provide emergency supplies of money to commercial banks in case the banks become too nervous to lend to each other.

    Japan's first defense will be to ensure that Japanese financial institutions have a sufficient supply of dollars, the sources in Tokyo indicated.

    The Bank of Japan believes Japanese commercial banks have sufficient dollar cushions but will use its dollar swap arrangement with other central banks to prevent a dollar squeeze in case of market turmoil.

    In late June, the U.S. Federal Reserve agreed to extend liquidity swap arrangements with other major central banks until August 1, 2012.

    The Japanese central bank is also prepared to flood markets with yen through its open market operations in case interbank borrowing costs spike, BOJ officials say.

    In Europe, there were minor signs of strain in the money markets last week with some banks becoming unable to take out longer-term dollar loans, but the effect was small since banks still expected Washington would reach a deal.

    The European Central Bank already offers unlimited euro loans to banks in some of its money market operations as part of its response to past crises, and it could use that policy to cope with any market problems this week.

    A spokesman for the Swiss central bank said, "The Swiss National Bank is ready to react appropriately at any time to market disruptions."

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    Post HSBC heads for $11 billion profit as revamp takes shape

    (Reuters) - HSBC Holdings Plc (HSBA.L) should unveil a half-year profit of near $11 billion (6 billion pounds) on Monday, flat from a year earlier as weak investment bank trading and wobbly U.S. and European economies offset growth in Asia.

    New HSBC CEO Stuart Gulliver is overhauling Europe's biggest bank by slashing costs by up to $3.5 billion, selling its U.S. credit card arm and other assets, and retreating from countries where it is sub-scale.

    The aim is to sharpen the focus on Asia and investors want to see progress made on that plan.

    HSBC is the first of Britain's big banks to report and should show a pretax profit for the six months to the end of June of $10.9 billion, compared with $11.1 billion a year earlier, according to the average of forecasts from 12 banks and brokerages polled by Reuters.

    Earnings will be hurt by a slump in fixed income trading in the second quarter, which has hit rivals including Credit Suisse (CSGN.VX) particularly hard. Revenue from HSBC's global banking and markets unit is likely to fall 8 percent on the year to $10 billion, analysts at Citi forecast.

    A stuttering U.S. economy could also slow the improvement in bad debts at HSBC's U.S. consumer loans portfolio, which it is running down, analysts said.

    Gulliver unveiled his far-reaching plan in May to slash costs and cut back in retail banking to revive flagging profits and returns.

    Gulliver intends to sell HSBC's U.S. credit card portfolio, which has more than $30 billion in assets, a move which would free up capital. Capital One Financial Corp (COF.N) and Wells Fargo (WFC.N) are among the bidders, sources have said.

    Another suitor could be Barclays (BARC.L).

    HSBC is also looking to sell upstate New York branches as it shrinks its network of 475 U.S. branches. Altogether it is looking to sell, shut or slim down retail banking in 39 countries. So far, it has said it will exit Russia and Poland.

    The bank is likely to axe thousands of jobs as part of the overhaul, but it is probably too early to see an improvement in the cost line, analysts said.

    Pretax profit will include a negative adjustment on the value of debt the bank carries, expected to be around $600 million. Underlying profit of $11.5 billion would be up almost a fifth from a year ago.
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    Post Top lawmakers seal debt deal but hurdles remain

    (Reuters) - President Barack Obama on Sunday announced a last-minute deal to raise the U.S. borrowing limit and urged lawmakers to "do the right thing" and approve the proposed agreement to avert a catastrophic default.

    Laying out the endgame in the crisis just two days before a deadline to lift the U.S. debt ceiling, the White House and both Republican and Democratic leaders in Congress said the compromise would cut about $2.4 trillion from the deficit over the next 10 years.

    Now that top lawmakers have sealed a deal, both the Senate and House of Representatives are expected to vote on Monday. While Senate approval is likely, the agreement's fate may be less certain in the House.

    After weeks of acrimonious impasse and with the final outcome hinging on support from recalcitrant lawmakers, Obama pressured both sides to carry to fruition the accord hammered out behind closed doors.

    "The leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default -- a default that would have had a devastating effect on our economy," Obama told reporters at the White House.

    "I want to urge members of both parties to do the right thing and support this deal with your votes over the next few days," Obama said.

    The plan involved a two-step process for reducing the U.S. deficit. The first phase calls for about $900 billion in spending cuts over the next decade and the next $1.5 trillion in savings must be found by a special congressional committee. Congress must act by December 23, 2011, under the deal.

    Republicans had insisted on deep spending cuts before they would consider raising the $14.3 trillion limit on U.S. borrowing, turning a normally routine legislative matter into a dangerous game of brinkmanship.

    Financial markets showed immediate signs of relief after becoming unnerved in recent days as lawmakers neared an August 2 deadline to raise the limit on America's borrowing or risk the world's largest economy running out of money to pay its bills.

    The Japanese stock index rose 1.8 percent, U.S. stock futures built on earlier gains and the U.S. dollar rose modestly against the yen and the Swiss franc. Gold fell more than 1 percent, indicating investors had begun to shift out of safe havens.

    "For the rally to be durable, markets will need more than this downpayment agreement," said Mohamed El-Erian, co-chief investment officer at PIMCO, the world's biggest bond fund.

    "They will look to a more coherent fiscal reform to emerge from the second step and, more generally, for additional measures to remove structural impediments to growth and jobs," he said.

    While the deal means the United States is unlikely to default, it is far from certain whether the plan agreed by the White House and lawmakers goes far enough in reducing the deficit to appease credit ratings agency S&P, which has threatened to strip America of its top-notch AAA rating.

    A deal would ease the immediate crisis but repercussions will be felt for years to come. Bitter brinkmanship has turned dysfunction seemingly into the norm in Washington, undercut America's stature as the world's capitalist superpower and set the stage for a deeply ideologically 2012 presidential race when President Barack Obama is seeking re-election.


    Congressional leaders will now have to gauge whether they have the votes to pass the deal -- which has sharp spending cuts and no new taxes -- in the Senate and the House. In the house the political calculus is complicated by the entrenched opposition of some members affiliated with the conservative Tea Party movement.

    House of Representatives Speaker John Boehner, who will face opposition from those conservatives in his ranks, told Republicans he backed the accord but that it was not the "greatest deal in the world." Already, some conservatives in his party said they would not sign on.

    Democratic Leader Nancy Pelosi, a leading liberal considered crucial to delivering enough Democratic votes to offset Republican defections, suggested earlier that the terms under negotiation would be a tough sell in her party.

    But in the Senate, passage appeared more certain.

    "I am relieved to say that leaders from both parties have come together for the sake of our economy to reach a historic, bipartisan compromise," Senate Democratic Leader Harry Reid said on the Senate floor.

    Senate Republican Leader Mitch McConnell followed, saying: "We can assure the American people tonight that the United States of America will not for the first time in our history default on its obligations," McConnell said.

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    Euro falls more than 1 percent versus dollar

    Aug 1 (Reuters) - The euro extended declines against the dollar to hit a more than one-week low on Monday, as stock losses and weak U.S. manufacturing data dented risk appetite.

    The euro fell as low as $1.4190 on trading platform EBS EUR=EBS, the weakest since July 21. It was last at $1.4198, down 1.4 percent

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    Post Putin says U.S. is "parasite" on global economy

    (Reuters) - Russian Prime Minister Vladimir Putin accused the United States Monday of living beyond its means "like a parasite" on the global economy and said dollar dominance was a threat to the financial markets

    "They are living beyond their means and shifting a part of the weight of their problems to the world economy," Putin told the pro-Kremlin youth group Nashi while touring its lakeside summer camp some five hours drive north of Moscow.

    "They are living like parasites off the global economy and their monopoly of the dollar," Putin said at the open-air meeting with admiring young Russians in what looked like early campaigning before parliamentary and presidential polls.

    US President Barack Obama earlier announced a last-ditch deal to cut about $2.4 trillion from the U.S. deficit over a decade, avoid a crushing debt default and stave off the risk that the nation's AAA credit rating would be downgraded.

    The deal initially soothed anxieties and led Russian stocks to jump to three-month highs, but jitters remained over the possibility of a credit downgrade.

    "Thank god," Putin said, "that they had enough common sense and responsibility to make a balanced decision."

    But Putin, who has often criticized the United States' foreign exchange policy, noted that Russia holds a large amount of U.S. bonds and treasuries.

    "If over there (in America) there is a systemic malfunction,

    this will affect everyone," Putin told the young Russians.

    "Countries like Russia and China hold a significant part of their reserves in American securities ... There should be other reserve currencies."

    U.S.-Russian ties soured during Putin's 2000-2008 presidency but have warmed significantly since his protégé and successor President Dmitry Medvedev responded to Obama's stated desire for a "reset" in bilateral relations.


    Casually dressed in khaki trousers and a striped white shirt, Putin flew by helicopter to the tented camp as part of a string of appearances that are being closely watched in the run-up to the elections.

    He did not say whether he plans a return to the Kremlin or will stand aside for Medvedev, his partner in Russia's leadership tandem, to run for a second term.

    But young people crowding round Putin, caught up in the campaigning spirit created by huge portraits of Putin hung from trees, were not shy about saying who they wanted as president.

    "Russia's next president will be small, bald and look like Putin," 17-year-old Ilya Mzokov joked with reporters. Asked why Medvedev was not paying a visit to the summer camp, he said: "Only serious people come here."

    Youngsters chanted Putin's name and applauded his remarks as he strolled round the camp, where US-style business seminars, extreme sports and political mudslinging were among the topics on offer.

    Putin, whose macho image appeals to many Russians, briefly swung himself up the first half of a climbing wall, filmed by a gaggle of state television cameras.

    Nashi, which means "Our People," was created by the Kremlin to counter popular dissent after youth activism helped topple a pro-Moscow government in Ukraine's 2005 Orange revolution.

    The group has worked to spread a personality cult around Putin and regularly campaigns against Kremlin critics.

    Opinion polls show Putin, still widely viewed as the country's paramount leader, retains near 70 percent approval.

    But his United Russia party is trying to reverse a slide in popularity before December parliamentary polls, hoping to use a strong showing there to help Putin in the March 2012 presidential vote.
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    Post U.S. rating at risk of negative outlook: Fitch

    (Reuters) - Fitch Ratings does not rule out slapping a negative outlook on the U.S. AAA rating when it concludes a review of the country later this month, the agency's top analyst for the United States said on Tuesday.

    David Riley told Reuters in an interview that the ongoing review will take into account the "positive" outcome of a debt agreement achieved by lawmakers on Tuesday and prospects for the U.S. economy, which have disappointed Fitch.

    "The downward revisions of the GDP were bigger than we expected and a source of concern," Riley said. "There could be a rating action which could include a revision of the outlook. I certainly couldn't rule that out."

    Riley stressed that the debt deal agreed by Republicans and Democrats in Washington -- which avoided an imminent debt default and promised deficit reduction measures of at least $2.1 trillion over 10 years -- is a positive development but "won't be enough to stabilize the level of public debt" in relation to the size of the U.S. economy.

    He said Fitch gave a "partial thumbs up" to the plan.

    The deal includes initial spending cuts of 917 billion and additional savings of $1.5 trillion that will be recommended by a congressional committee by the end of the year.

    "Even if the congressional committee is successful and agree on 1.5 trillion (in deficit-reduction measures), more will likely be required to be agreed over the coming years," Riley said.

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    Post Moody's confirms U.S. rating at Aaa, outlook negative

    (Reuters) - Moody's Investors Service on Tuesday confirmed its Aaa rating of the United States, citing the decision to raise the debt limit, but assigned a negative outlook that could pressure lawmakers to cut the U.S. deficit.

    Moody's decision came a few hours after rival Fitch Ratings upheld its AAA rating of the United States. Fitch also warned the world's largest economy must cut its debt burden to avoid a future downgrade.

    Standard & Poor's, which many predict will cut its rating, has yet to give its opinion of the deficit reduction and debt ceiling deal hammered out in Washington and signed into law on Tuesday.

    S&P, like Moody's prior to Tuesday's decision, also had the rating on review for a possible downgrade. Moody's negative outlook means a downgrade is still possible in the next 12 to 18 months.

    The budget deal allows the U.S. Treasury to keep servicing U.S. debt obligations, pay soldiers and make social security payments.

    "Today's agreement is a first step toward achieving the long-term fiscal consolidation needed to maintain the US government debt metrics within Aaa parameters over the long run," Moody's said in a statement.

    With the debt ceiling issue solved, the agency is now focusing on the long-term challenges to U.S. public finances, burdened by a deficit that has reached about 9 percent of the country's economy -- close to the highest since World War II.

    The Senate approved the $2.1 trillion deficit-reduction plan in a 74 to 26 vote. It passed the Republican-controlled House of Representatives on Monday, warding off the specter of a catastrophic U.S. debt default.

    The bill lifts the debt ceiling enough to last beyond the November 2012 elections, calls for $2.1 trillion in spending cuts spread over 10 years and creates a bipartisan joint House and Senate committee to recommend a deficit-reduction package by late November. It does not include any tax increases.

    Moody's said that while the combination of the congressional committee process and automatic triggers provides a mechanism to induce fiscal discipline, this framework is untested.

    "They are simply saying they are waiting to see what develops with the new deficit budget commission. It is certainly reasonable given the U.S.'s fiscal position. Now that we are past the deficit issue, the fiscal issues over the long run will be the story," John Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina.

    U.S. markets were closed by the time Moody's issued its decision.

    The dollar, already falling against the Swiss franc after weak economic data, fell to an all-time low in the wake of Fitch's statement. However, the greenback held steady against the euro, which is struggling with a sovereign debt crisis of its own.

    "Because it had been discussed as a possibility, I think the market was ready for this (Moody's). The market is now much more focused on the employment number on Friday morning and economic fundamentals and how deep is this soft patch. The U.S. market is focused on Europe, the weakness in Europe and on Friday's number," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

    On Friday the U.S. jobs report is forecast to show 85,000 new jobs were created in July, up slightly from the prior month with the unemployment rate holding steady at a hefty 9.2 percent.

    "As the U.S. economy slows down, the deficit reduction is not a real deficit reduction, because GDP ends up being lower so the debt reduction ends up being smaller," said Aroop Chatterjee, currency strategist at Barclays Capital in New York.

    "That is an additional factor on the minds of markets when they are looking at this, in terms of the debt deal, is what is done in Congress really meaningful in keeping the probability of a downgrade low? And in our view, the probability of a downgrade continues to be pretty high," he said.

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