Syria faces growing world pressure to halt bloodshed (Reuters)

BEIRUT (Reuters) – Jordan's King Abdullah told Syria's President Bashar al-Assad on Monday he should step down and the European Union added pressure with more sanctions after the Arab League's surprise decision to suspend Damascus for its violent crackdown on protests.

Syria looks ever more isolated, but still has the support of Russia, which said the Arab League had made the wrong move and accused the West of inciting Assad's opponents.

Despite the diplomatic pressure, there was no let-up in violence and at least two people were killed, activists said.

The anti-Assad unrest, inspired by Arab revolts elsewhere, has devastated Syria's economy, scaring off tourists and investors, while Western sanctions have crippled oil exports.

Jordan's King Abdullah said Assad should quit. "I believe, if I were in his shoes, I would step down," he told the BBC.

Syrian Foreign Minister Walid Moualem said the League's decision, due to take effect on Wednesday, was "an extremely dangerous step" at a time when Damascus was implementing an Arab deal to end violence and start talks with the opposition.

Syria has called for an emergency Arab League summit in an apparent effort to forestall its suspension.

Nabil Elaraby, the organization's secretary general, said he had delivered the request to rulers of Arab League states and 15 members would have to approve in order to hold a summit, according to Egypt's state news agency MENA.

The League's suspension is a particularly bitter blow for Assad who has always seen himself as a champion of Arab unity. But adding to the injury, the Cairo-based League plans to meet Syrian dissident groups on Tuesday.

Even so, Elaraby said on Sunday it was too soon to consider recognizing the Syrian opposition as the country's legitimate authority.

Elaraby met representatives of Arab civil society groups on Monday and agreed to send a 500-strong fact-finding committee, including military personnel, to Syria as part of efforts to end the crackdown on demonstrators and dissenters.

"Syria agreed to receive the committee," said Ibrahim al-Zafarani, of the Arab Medical Union.

Moualem said Syria had withdrawn troops from urban areas, released prisoners and offered an amnesty to armed insurgents under an initiative agreed with the Arab League two weeks ago.

Yet violence has intensified since then, especially in the central city of Homs, pushing the death toll in eight months of protests to more than 3,500 by a U.N. count. Damascus says armed "terrorist" gangs have killed 1,100 soldiers and police.

Syria's ban on most foreign media makes it hard to verify events on the ground.

SHOOTING, TANK FIRE

In the latest violence, security police shot dead activist Amin Abdo al-Ghothani in front of his nine-year-old son at a roadblock outside the town of Inkhil, a grassroots organization known as the Local Coordination Committees said.

In Homs, residents said renewed tank shelling killed a teenager and wounded eight people in the restive Bab Amro district. Students in the Damascus suburb of Erbin chanted "God is greater than the oppressor," according to a YouTube video.

Moualem described Washington's support for the Arab League action as "incitement," but voiced confidence that Russia and China would continue to block Western efforts to secure U.N. Security Council action, let alone any foreign intervention.

"The Libya scenario will not be repeated," he said.

It was the Arab League's decision to suspend Libya and call for a no-fly zone that helped persuade the U.N. Security Council to authorize a NATO air campaign to protect civilians, which also aided rebels who ousted and killed Muammar Gaddafi.

The Arab League made no call for military action, but its disciplining of Syria is deeply embarrassing to a nation touted by its Baathist leaders as the Arab world's "beating heart."

Syrian state television said millions of Syrians protested at the League decision in Damascus and other cities on Sunday.

Crowds also attacked Saudi, Turkish and French diplomatic missions in Syria after the Arab League announcement.

Moualem apologized for the assaults, which have worsened already tense ties between Syria and its former friend Turkey.

"We will take the most resolute stance against these attacks and we will stand by the Syrian people's rightful struggle," Turkish Foreign Minister Ahmet Davutoglu told the Turkish parliament, saying Damascus could no longer be trusted.

Non-Arab Turkey, after long courting Assad, has lost patience with its neighbor. It now hosts the main Syrian opposition and has given refuge to defecting Syrian soldiers.

Turkey's stance has stung its former friends in Damascus.

"The implementation of the Arab plan must be accompanied by the securing of borders by neighboring countries," Moualem Said. "I mean here specifically the flow of weapons from Turkey and the transfer of money to the leaders of armed groups."

EU SANCTIONS

The European Union extended penalties to 18 more Syrians linked with the crackdown on dissent and approved plans to stop Syria accessing funds from the European Investment Bank.

EU foreign policy chief Catherine Ashton said she was in touch with the Arab League to work on an approach to Syria, but the 27-nation body appears set against military intervention.

"This is a different situation from Libya," British Foreign Secretary William Hague said in Brussels, where EU foreign ministers were meeting. "There is no United Nations Security Council resolution and Syria is a much more complex situation."

Syria, which borders Israel, is Iran's main Arab ally and has strong ties with Shi'ite Hezbollah guerrillas in Lebanon and the Islamist Hamas movement that rules the Gaza Strip.

Russian Foreign Minister Sergei Lavrov, whose country joined China to block a U.N. resolution critical of Syria in October, criticized the Arab League's decision.

Russia, an arms supplier to the Syrians, has urged Assad to implement reforms but opposes sanctions and has accused the United States and France of discouraging dialogue in Syria.

"There has been and continues to be incitement of radical opponents (of Assad) to take a firm course for regime change and reject any invitations to dialogue," Lavrov said.

The Arab League also plans to impose unspecified economic and political sanctions on Syria and has urged its members to recall their ambassadors from Damascus.

Assad still has some support at home, especially from his own minority Alawite sect and Christians, wary of sectarian conflict or Sunni Muslim domination if he were to be toppled.

Despite some defections, the Syrian military has not emulated its counterparts in Egypt and Tunisia in abandoning long-serving presidents faced with popular discontent.

The government has acknowledged that sanctions are hurting, but it is not clear whether this will force any policy change.

Chris Phillips of the Economist Intelligence Unit in London said Syria's economy was "slowly bleeding to death."

(Additional reporting by Khaled Yacoub Oweis and Suleiman al-Khalidi in Amman, Steve Gutterman in Moscow, Tulay Karadeniz in Ankara, Dominic Evans in Beirut, Ayman Samir in Cairo and Justyna Pawlak in Brussels; Writing by Alistair Lyon; Editing by Jon Hemming)

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Cardinals stun Texas, force World Series to Game 7 (AP)

ST. LOUIS – Hours after David Freese's home run plunked down on the grass patch beyond the center field wall, long after the ballpark emptied, a message still burned bright on the scoreboard: "See you TOMORROW NIGHT for Game 7 of the World Series!"

Whatever happens, whether the St. Louis Cardinals or Texas Rangers win, they'll have a hard time topping Thursday night.

"You had to be here to believe it," St. Louis manager Tony La Russa said.

In one of the greatest thrillers in baseball history, the Cardinals twice rallied when they were down to their last strike of the season. First, Freese saved them with a two-run triple in the ninth, then Lance Berkman delivered a tying single in the 10th.

And when Freese led off the bottom of the 11th with his shot to beat Texas 10-9 and stomped on the plate, this Game 6 had already been stamped forever.

"Turned out to be one for the ages," said Daniel Descalso, who keyed a Cardinals comeback.

A Series that was dismissed by many around the country before it began for lacking glamour teams suddenly has turned into must-see TV. And fans can savor the prospect of the first World Series to reach Game 7 since 2002, when the Angels beat the Giants.

After it was over, La Russa wasn't willing to announce his starter — many believe it will be ace Chris Carpenter on three days' rest for only the second time in his career.

"I learned what my body's going to feel like, what my stuff's going to be like," Carpenter said. "You go out there and you make pitches. We'll see what happens."

Matt Harrison is set to start for Texas. Derek Holland, who pitched shutout ball into the ninth inning in Game 4, could've been ready on regular rest after Wednesday's rainout. Instead, Texas manager Ron Washington used him in relief.

Home teams have won the last eight Game 7s in the World Series, a streak that started with the Cardinals beating Milwaukee in 1982.

Oh, and this: By far, the Cardinals have won the most Game 7s in Series history, going 7-3.

"There is tomorrow, now, for us," Cardinals star Albert Pujols said.

A sloppy game that made for terrible viewing turned terrific in the late innings. Freese added to the lore created by the Carlton Fisk homer in Game 6 of the 1975 Series and Bill Buckner's error in Game 6 of the 1986 Series.

"A ridiculous game, weird game," Texas second baseman Ian Kinsler said. "But I bet it was fun for the fans. We just came out on the wrong end."

To Freese, who was raised in the St. Louis area and was MVP of the NL championship series, it all reminded him of a game-ending home run Jim Edmonds hit in the 2004 playoffs.

"Growing up or whatever, and you see stuff like that happen, those become memories," said Freese, who immediately donated his bat and jersey to the Hall of Fame.

Tremendous theater, that is, except for Texas. The Rangers were that close to winning their first championship.

"I understand it's not over till you get that last out," Texas manager Ron Washington said. "I was just sitting there praying we got that last out. We didn't get it."

This was just the third time that a team one out from elimination in the World Series came back to win the game, according to STATS LLC. The New York Mets did it with Buckner's mistake and wound up winning the championship. In 1911, the New York Giants rallied past the Philadelphia A's in Game 5, but lost the next game.

Freese's tying triple off the wall and just over right fielder Nelson Cruz came on a 1-2 pitch from closer Neftali Feliz. In the 10th, after Josh Hamilton had homered to give Texas a two-run lead, Berkman's two-strike, two-out single made it 9-all.

"Initially I was like `Are you kidding me? My first AB off Feliz in this situation ever,'" Freese said. "I just beared down, got a pitch to hit. Initially I thought I hit it pretty good, I thought (Cruz) was going to grab it, so just a lot of emotions on that one."

Berkman came through on a 2-2 pitch from Scott Feldman, finishing off a two-run rally in the 10th.

"I was one strike away," Feldman said. "That pitch there, I didn't quite get it in enough and he was able to get enough of the bat on it to knock it into center field."

Busch Stadium was still in frenzy when Freese opened the 11th with his homer off Mark Lowe. Freese thrust his arm in the air as he rounded first base, and the crowd was delirious.

"Just an incredible feeling, seeing all my teammates at the dish waiting for me," said Freese, whose shirt was torn off during the celebration.

Texas trudged off the field as Freese circled the bases, having been so close to that elusive title. Much earlier, team president Nolan Ryan was high-fiving friends in the stands as Adrian Beltre and Cruz opened the seventh with home runs that helped Texas take a 7-4 lead.

"I'm not going to lose any sleep over it," Hamilton said. "We're just going to do everything we can to prepare. Guys are already talking about it. We're ready for Game 7. Shake it off and come back tomorrow. That's just our mentality. But it goes both ways. Seems like they had that mentality. too."

Allen Craig's solo homer in the eighth began the Cardinals' comeback. Jake Westbrook wound up with the win.

NOTES: Texas was 0 for 11 with two outs and runners in scoring position in the Series until Kinsler's RBI double. ... Berkman hit his first Series home run. He was moved up a spot to cleanup for this game. ... David Eckstein, MVP of the 2006 Series for St. Louis, threw out the first ball. ... Ninety-year-old Hall of Famer Stan Musial rode in on a golf cart during pregame festivities. ... The crowd of 47,325 was a record for 6-year-old Busch Stadium.

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Zoellick: World economy in new danger zone (Reuters)

WASHINGTON (Reuters) – The head of the World Bank said Wednesday the world had entered a new economic danger zone and that Europe, Japan and the United States all need to make hard decisions to avoid dragging down the global economy.

"Unless Europe, Japan, and the United states can also face up to responsibilities they will drag down not only themselves but the global economy," World Bank President Robert Zoellick said in a speech at George Washington University.

"They have procrastinated for too long on taking the difficult decisions, narrowing what choices are now left to a painful few," he said, according to a prepared text of his remarks, which come ahead of meetings of the World Bank and International Monetary Fund next week.

The meetings of global finance and development leaders in Washington will focus on Europe's debt crisis and the risk of a Greek default, which has led to growing alarm in financial markets.

Mixed signals from European leaders have escalated concerns the 17-nation euro zone may be unable to unite behind a common approach to tackle the crisis.

Zoellick said European countries were resisting difficult truths about their common responsibilities, Japan had held off on needed economic and social reforms, and political differences in the United States were overshadowing efforts to cut record budget deficits.

Just as those very countries had called on China to be a responsible global stakeholder as a rising economic power, so too should they act responsibly to get a handle on their own economic problems, Zoellick said.

"The time for muddling through is over," Zoellick said.

"If we do not get ahead of events; if we do not adapt to change; if we do not rise above short-term political tactics or recognize that with power comes responsibility, then we will drift in dangerous currents."

The World Bank chief said emerging market nations would not sit on the sidelines as advanced economies try to right themselves.

"The story then won't be about tectonic shifts that have made emerging markets the new engines of the global economy," he said. "It will be about tectonic shifts that have left developed countries slamming on the brakes."

TECTONIC SHIFTS

Zoellick focused on the shifting global landscape in which emerging economies were playing a greater role in the world economy -- and in development.

He said developed countries had yet to fully recognize the global shifts and still operated under a "do what I say, not what I do" policy. They preached fiscal discipline but failed to rein in their own budgets, and advocated debt sustainability while their own debts were at record highs, he said.

Zoellick also said it was time to rethink foreign aid.

While aid remained a life or death issue for millions of people around the world, it had also become a vehicle for helping poorer countries develop and grow, he said.

"In a world 'Beyond Aid' assistance would be integrated with -- and connected to -- global growth strategies, fundamentally driven by private investment and entrepreneurship," he said. "The goal would not be charity, but a mutual interest in building more poles of growth."

He said development also meant tapping the power of women by eliminating gender inequality.

"We will not release the full potential of half of the world's population until globally we address the issue of equality; until countries, communities, and households around the world acknowledge women's rights and change the rules of inequality," Zoellick said.

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World stocks rally on Fed hopes, dollar down (Reuters)

NEW YORK (Reuters) – World stocks jumped and the dollar fell on Tuesday as dismal U.S. data spurred hopes the Federal Reserve may offer more economic stimulus.

Financial markets have been in turmoil over the past month on concerns the United States may be headed for another recession and as the euro zone's debt crisis has worsened.

World stocks, as measured by the MSCI All-Country World Index, and Wall Street's benchmark Standard & Poor's 500 index are on track for their worst month since 2008, after the collapse of Lehman Brothers.

The MSCI All-Country World Index jumped 1.7 percent, while the S&P 500 gained more than 2 percent. Data from China showing factory sentiment was not as weak as expected helped boost world shares overnight.

In the latest disappointing news on the U.S. economy, factory output in the U.S. central Atlantic region contracted again in August and new home sales fell to a five-month low in July.

Equity investors are taking a "bad news is good news" approach, though, betting that the data may spur more action from the Fed. Stocks staged a rally in the fourth quarter of last year, when the Fed announced a $600 billion bond-buying program.

"People are putting money on the Fed saying something and buying stocks ahead," said King Lip, chief investment officer at Baker Avenue Asset Management in San Francisco.

There is concern, however, that investors are overly optimistic, and many strategists have noted the U.S. economy has improved since a year ago.

Speculation is widespread in financial markets that Fed Chairman Ben Bernanke will use his Friday speech at a central banker conference in Jackson Hole, Wyoming, to signal a new monetary offensive to support a faltering U.S. economy.

Bernanke, however, is most likely to outline gradualist measures, which would disappoint those looking for a big bang approach such as a fresh round of bond buying, known as QE3.

"The market is really geared up for the idea of additional asset purchases to at least be put on the table when Bernanke speaks," said Brian Dolan, chief strategist at Forex.com in Bedminster, New Jersey. "I'm not sure it will play out that way, but that's what the market is betting on now."

The Fed chairman looks set to discuss ways the central bank could tweak the Fed's balance sheet as a means to put further pressure on medium and long-term interest rates and anchor them at low levels. These could be implemented in September and October at coming Fed meetings.

On Wall Street, the Dow Jones industrial average was up 198.71 points, or 1.83 percent, at 11,053.36. The Standard & Poor's 500 Index was up 23.00 points, or 2.05 percent, at 1,146.82. The Nasdaq Composite Index was up 62.63 points, or 2.67 percent, at 2,408.01.

Gold prices fell 2 percent, sharply retreating from a record of more than $1,900 an ounce in Asia trading, as a broad recovery in equity markets and riskier assets took the steam out of a bullion surge that many saw as overdone.

Spot gold was down 2.4 percent at $1,851.29 an ounce

Stimulus measures like those previously undertaken by the Fed increase the amount of dollars in the system, driving down the currency's value, which helps U.S. exports, and prompting investors to seek higher returns elsewhere.

The dollar edged down 0.3 percent against a basket of currencies.

Bonds, which normally move inversely to stocks, saw some light buying after the weak data on speculation the Fed will act to spur the economy, but the strength in equities appeared to be keeping a lid on their rally.

The benchmark U.S. 10-year note was up 2/32 in price, its yield edging down to 2.106 percent from 2.11 percent late on Monday.

In the oil market, prices bounced in choppy trading, supported early by the manufacturing data from China and Europe. Brent October crude rose 71 cents to $109.07 a barrel.

BANK BORROWING COSTS HIT

Ongoing fears of European banks' exposure to heavily indebted European nations like Greece and Italy are making it more expensive for banks to fund themselves in short-term funding markets.

U.S. bank debt costs are also being pressured in unsecured bond markets. The cost for interbank borrowing -- measured by three-month Libor, or the London interbank offered rate -- rose to 0.31178 percentage point on Tuesday.

European banks are facing higher dollar funding costs as U.S. money fund investors, nervous about exposures to peripheral euro zone countries, reduce the length and amount of loans to banks in the region.

The Thomson Reuters Peripheral Euro Zone Banks Index ended down 1.1 percent at 51.61 and is down 25 percent year-to-date.

(Reporting by Caroline Valetkevitch; Additional reporting by Ashley Lau, Steve Johnson, Frank Tang and Emily Flitter in New York and Jan Harvey in London; Editing by Leslie Adler)

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Syria defies world reproach with new army raids (AP)

By ELIZABETH A. KENNEDY and SUZAN FRASER, Associated Press Elizabeth A. Kennedy And Suzan Fraser, Associated Press – 2?mins?ago

BEIRUT – Turkey's foreign minister said he met President Bashar Assad for more than six hours on Tuesday to discuss "concrete steps" Syria should take to stop its violent crackdown on anti-government protesters.

Meanwhile, the Syrian army launched a series of new raids around the country, which activists said killed 22 people.

Ahmet Davutoglu, speaking to reporters on his return to Turkey from Damascus, said the talks were cordial but did not say what steps they had discussed or whether Assad had agreed to consider them.

"We discussed ways to prevent confrontation between the army and the people in the most open and clear way," the Turkish foreign minister said.

Assad is facing growing international condemnation over the regime's deadly crackdown on a 5-month-old uprising. Envoys from India, Brazil and South Africa are also headed to Damascus to press for an end to the violence.

The visit by Davutoglu is significant because Ankara until recently had close ties to Damascus. But Turkey has become increasingly critical of its neighbor over the bloodshed.

Syria's state-run SANA news agency said Assad told Davutoglu the Syrian government will be relentless in its pursuit of "terrorist groups" to safeguard stability and security in the country. Syrian authorities blame the unrest on extremist and terrorist groups seeking to destabilize the country, as opposed to true-reform seekers. But the protesters being killed are mostly unarmed and peaceful.

SANA said Assad also pledged to press ahead with reforms. But promises reform have rung hollow, especially since they have been coupled with a bloody campaign against civilians.

Human rights groups said Tuesday that at least 22 people, including several children, were killed across Syria Tuesday.

Tanks stormed villages outside the besieged city of Hama and two towns in Idlib province, which borders Turkey, activists said.

A rights activist near Hama said military operations in the town of Tibet el-Imam just north of the city killed at least five children, four of them from the same family.

"They were playing in the fields when they were struck by gunfire," the activist said on condition of anonymity for fear of reprisals.

There was heavy machine-gun fire and reports of at least three deaths in the eastern city of Deir el-Zour, which also has been a flashpoint in recent days. Four people were also killed in the town of Binnish in the north, and several others in the central city of Homs.

The reports were confirmed by the activist network the Local Coordination Committees and the London-based Syrian Observatory for Human Rights.

The LCC said a total of eight children were killed across the country Tuesday.

Syria has blocked nearly all outside witnesses to the violence by banning foreign media and restricting local coverage that strays from the party line that the regime is fighting thugs and religious extremists who are acting out a foreign conspiracy.

In Washington, State Department spokesman Mark Toner lauded Davutoglu's visit and said Secretary of State Hillary Rodham Clinton had spoken with the Turkish foreign minister.

"They did talk about the situation in Syria, you know, and we believe it's another opportunity to send yet another strong message to Assad that this crackdown on peaceful protesters cannot stand," Toner said Monday.

Egypt's Foreign Minister Mohammed Amr joined Arab countries in warning Damascus, saying: "The situation in Syria is heading to the point of no return." In a news conference in Cairo Tuesday, Amr urged Syrian government to carry out nationwide reforms and ending the crackdown.

India's U.N. Ambassador Hardeep Singh Puri said his country's representative is scheduled to arrive in Damascus on Tuesday and will join representatives from Brazil and South Africa for a meeting with Syria's foreign minister to appeal for an end to the crackdown and to promote democratic reforms.

The Syrian regime has shown no signs of scaling back its crackdown despite Damascus' increasing diplomatic isolation. Saudi Arabia, along with Bahrain and Kuwait in the Gulf, recalled their ambassadors this week.

In an editorial published Tuesday, the Al Baath newspaper of Syria's ruling Baath party said the regime was hopeful that Turkey and the Gulf Arab nations will "quickly correct their stands."

The latest wave of bloodshed started a week ago, on the eve of the Muslim holy month of Ramadan, when tanks and snipers laid siege to Hama, which had largely freed itself from government control earlier this year.

Residents were left cowering in their homes, too terrified to peek through the windows. The city is haunted by memories of the regime's tactics: In 1982, Assad's father and predecessor, Hafez, ordered the military to quell a rebellion by Syrian members of the conservative Muslim Brotherhood movement there, sealing off the city in an assault that killed between 10,000 and 25,000 people.

Since the start of Ramadan, more than 300 people have been killed in cities including Hama and Deir el-Zour, an oil-rich but largely impoverished region known for its well-armed clans and tribes whose ties extend across eastern Syria and into Iraq.

On Monday, Assad replaced his defense minister with the army chief of staff, saying Gen. Ali Habib was being removed from his post because of health problems.

But some analysts said the general was unhappy with the crackdown.

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Analysis: World economy wobbles as markets push policymakers (Reuters)

By Alan Wheatley, Global Economics Correspondent Alan Wheatley, Global Economics Correspondent – 2?hrs?42?mins?ago

LONDON (Reuters) – The message from this week's market rout is crystal-clear: investors have lost confidence in their politicians, who urgently need to do something dramatic to reduce risks to the global economy.

By some measures, the world economy is in better shape to withstand shocks than it was in the aftermath of the failure of investment bank Lehman Brothers nearly three years ago.

Corporate earnings are robust, banks have thicker capital cushions, big emerging markets are still expanding strongly and there has been no repeat of the global liquidity squeeze that sent the dollar soaring in late 2008.

Indeed, after this week's 8.5 percent slump in global equities, a rebound might not be far off. Wall Street initially rose on Friday after the U.S. economy created 117,000 jobs last month, more than expected, only to slide back into the red.

Any relief is likely to be short-lived until politicians get ahead of the markets and show they are tackling the root cause of the malaise -- excessive sovereign debt.

"People have just become spooked by a crass failure of political leadership," said George Magnus, senior economic adviser at UBS in London.

In Magnus's view, the first-half slowdown in U.S. growth -- an important contributor to the current loss of confidence -- was inevitable given how long it will take households to reduce their own debt mountain and rebuild savings.

But he said markets wanted an end to the "political dysfunction" all too evident in the protracted wrangling over the U.S. debt ceiling and the euro zone's inadequate response to the debt crisis gripping the periphery of the 17-member group.

"There are economic solutions to economic problems, but no politicians are stepping up to the plate," he said.

NO URGENCY

The Group of 20 leading economies and the Group of Seven rich nations impressed investors in late 2008 and 2009 by coordinating interest rate cuts and expanding fiscal policy to cushion the post-Lehman freefall in the global economy.

But now, deficit-spending is the perceived problem, not the solution, in both the United States and the euro zone, while interest rates are already close to zero. With little ammunition left in the armory, governments are displaying concern but not enough urgency for the likes of impatient investors.

"There is probably no consensus within the G7 on how to address this," said a source in Japan familiar with G7 negotiations. "Each country is too busy with their own problems to talk about cooperation."

Market mayhem leading to weaker growth in the rich world would naturally be negative for emerging economies.

Jun Ma, an economist with Deutsche Bank in Hong Kong, estimated that a downward revision of 1 percentage point to growth in the United States and the European Union would trim Chinese growth by 1 percentage point, too.

So what happens next?

In the United States, with budget policy now effectively off limits until after the November 2012 presidential election, some analysts believe the Federal Reserve will eventually embark on a third round of large-scale asset purchases, dubbed quantitative easing (QE), if unemployment remains too high for comfort.

The unemployment rate dipped to 9.1 percent from 9.2 in July, but that was because discouraged job-seekers gave up the hunt for work.

"With fiscal policy close to exhaustion and any remaining scope for flexibility apparently compromised by the recent bipartisan agreement on the debt ceiling, the responsibility for providing any additional support to the U.S. economy rests very much with the Fed," said Russell Jones, an economist with Westpac in Sydney.

In a note to clients, Jones said it was probably too early for the Fed to announce a full programme of QE at its policy-setting meeting next week.

But he said the central bank could reinforce its easy policy stance in the interim by taking steps to anchor long-term interest rates in order to spur investment and spending.

COMMON EURO ZONE BONDS TO COME?

As for the euro zone, heavy selling this week of Spanish and Italian bonds is raising pressure on European leaders to massively expand the bloc's emergency financial rescue fund.

Currently at 440 billion euros, it would need to be doubled or tripled to cover economies as big as Italy and Spain, whose cost of borrowing hit fresh euro lifetime highs on Friday. The two countries' 10-year bonds were yielding about 4 percentage points more than those of Germany, the euro zone benchmark.

Magnus at UBS said that, apart from expanding the fund, the issuance of common euro zone bonds was a minimum requirement if political leaders wanted to end the crisis once and for all.

European Economic and Monetary Affairs Commissioner Olli Rehn said on Friday officials would look at longer-term options, including the idea of euro zone bonds, and would present a report after the summer.

But big powers Germany and France have hitherto opposed such a radical step, arguing that it would sap fiscal discipline and raise their own borrowing costs, alienating voters.

But Philip Whyte, a senior research fellow at the Center for European Reform in London, said it was illusory to believe that Italy -- the latest target of uneasy investors -- could restore confidence by its own reform commitments alone.

"The fate of Italy - and, by extension, the euro zone - is likely to be determined as much as by decisions in Berlin and Brussels as by those in Rome. It is becoming harder to see how the polarization of yields within the euro zone can be reversed unless European leaders adopt a common Eurobond," he said in a note.

The political implications of such a development would be momentous. But it would not be the first time that muscular markets have forced policy makers to do their bidding.

"As Lenin once said, 'there are decades when nothing happens, and there are weeks when decades happen'. We fear that the current unraveling in Europe means that we might be in the latter category," GaveKal Dragonomics, a research outfit based in Hong Kong, said in a report.

(Additional reporting by Leika Kihara in Tokyo, editing by Mike Peacock)

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World growth at risk as service sector slows (Reuters)

LONDON/WASHINGTON (Reuters) – Growth in much of the world's service sector was anemic in July as firms around the world worried about the debt crisis in Europe and the U.S. as a well as slowing consumer demand, business surveys showed on Wednesday.

World stocks tumbled, with the U.S. S&P 500 stock index falling to a new low for the year as worries grew that fiscal cutbacks and stagnating output would prolong a global economic slowdown and aggravate Europe's debt crisis.

The vast U.S. services sector expanded at its weakest pace since February 2010, with an index from the Institute for Supply Management falling to 52.7 in July from 53.3 in June. Employment conditions also weakened, boding poorly for a closely-watched U.S. jobs report on Friday.

A report on private payrolls from ADP on Wednesday showed 114,000 new jobs were created last month, but economists believe the official government figures due Friday will show a gain of only 85,000 in total payrolls following two dismal months.

"The U.S. economy is stagnating," said Greg Salvaggio, senior vice president at Tempus Consulting. "Clearly the job outlook is deteriorating right now."

Published the day after a deal on a U.S. fiscal package, the surveys followed figures on Monday which painted no brighter a picture for the global manufacturing sector.

In Europe, the dominant services industry was also under pressure last month, growing at the slowest pace in nearly two years.

The 17-nation euro zone's services PMI slid to 51.6 as Germany and France, the continent's two largest economies which had propped up the tepid growth, saw their indexes slip closer to the 50 point mark that divides growth from contraction.

ITALY AND SPAIN SLOW

Italy's contraction deepened while Spain slipped into negative territory and both countries faced pressures in financial markets.

Italian service sector activity contracted in July for the second month running and business expectations were the lowest for over two years, while Spain's index fell to 46.5 from 50.2 in June.

"Italy and Spain softening is to be expected due to nerves but it makes the fiscal challenge facing them look even more difficult, particularly if we see the numbers stay around these levels for several months," said Victoria Cadman, economist at Investec.

Markets are squarely targeting Italy, the euro zone's third-largest economy, concerned by its weak growth and political instability. Prime Minister Silvio Berlusconi is due to speak to parliament to try and calm fears that have led the country to the edge of a Greek-style financial crisis. [ID:nL6E7J30LE]

Italy's economy would be too big for the euro zone's existing rescue funds to bail out and the turbulence has caused alarm across the euro zone and beyond.

Despite the slew of weak data from across the euro zone, the European Central Bank raised interest rates by 25 basis points to 1.5 percent last month, the second such increase this year, but is now seen holding steady until the fourth quarter.

The ECB aims to keep inflation, which was at 2.5 percent last month, just below 2.0 percent. The composite output price index eased to a six-month low of 53.0 from June's 53.9, suggesting firms were holding back on price rises.

"Disappointing economic data on both sides of the Atlantic, as well as surging Italian and Spanish bond yields, has seen risk appetite plummet as pessimism about the global recovery starts to take hold with a vengeance," CMC Markets analyst Michael Hewson said.

Britain surprised markets with its service sector growing at a four month high on strong growth in new business.

CHINA BRAKES

China's fledgling services sector grew in July at its slowest in three months as new orders ebbed, in the latest sign that tight monetary policy is reining in the world's second-biggest economy.

"Service sector activity growth moderated in July, reflecting the effect of monetary tightening and property cooling measures," said Qu Hongbin, an economist at HSBC.

Beijing has raised interest rates five times since October and lifted the deposit reserve requirement ratio nine times but in India, where the central bank has also tightened policy, service sector growth was at a three-month high.

(Editing by Clive McKeef)

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Analysis: World poorly placed to meet new economic crisis (Reuters)

LONDON/FRANKFURT (Reuters) – With financial markets in turmoil and economic growth slowing, policymakers around the world may once again be forced to cooperate to try to head off a crisis, as they did successfully in 2008-2009. But this time, they have fewer good options.

Central banks have less room to ease monetary policy than they did three years ago; cash-strapped governments cannot afford to boost spending as much; and political disarray in some countries may make concerted global policymaking harder.

"What can you do? On monetary policy, clearly no one agrees with anyone. On fiscal policy, everyone is blocked," said Deutsche Bank economist Gilles Moec.

By some measures, the global situation is not nearly as bad as it was in 2008. Banks have strengthened themselves since the collapse of Lehman Brothers and the world is still far from a recession; JPMorgan may have cut its forecast for 2012 U.S. growth this week but it still expects an expansion of 1 percent.

Global stocks have dropped nearly 10 percent in the last month but MSCI's world equity index is still 90 percent above its 2009 low.

"I know people are saying that this feels very much like 2008 but I don't think we are there. In 2008, you could point at the problem in the banking sector and there were failed banks," said Nomura economist Jens Sondergaard.

Still, the trends have clearly turned negative. National purchasing managers indexes around the world have dropped near or below the "boom or bust" threshold separating economic growth from contraction. This week's slide of British government bond yields to record lows underlines both investor nervousness and a grim growth outlook.

In some ways, the situation is more worrying than it was in 2008: There is widespread concern about the risk of a downgrade of the U.S. sovereign credit rating, and a bond market attack on Italy, the euro zone's third-biggest economy, has called into question the long-term viability of the zone. Valuations of U.S. and European bank shares are back around levels hit at the time of Lehman's collapse.

"The difference (between 2008 and now) is that this is not only a currency and banking crisis, you have now a currency, banking and sovereign crisis," said Sylvain Broyer, analyst at European financial firm Natixis.

The Swiss central bank's shock decision to cut interest rates on Wednesday to fight the rapid appreciation of the Swiss franc was seen by some analysts as a possible precursor to concerted efforts by central banks in the Group of 20 nations to stabilize markets.

Steen Jakobsen, chief economist at European investment bank Saxo Bank, said the G20 nations were likely for now to leave it up to their central banks, which can act relatively flexibly and quickly, to handle market turmoil.

But if the economic climate keeps worsening, perhaps with another 10 percent fall by global stocks, G20 governments may be pushed into making a concerted pledge of action to protect markets and growth, as they did at a London summit in April 2009, he said.

G20

By displaying solidarity among world leaders and promising $1.1 trillion for global lending institutions and trade financing, the London summit succeeded in reassuring investors enough to support a recovery in markets and economic growth.

Now, however, it may be harder for governments to show such solidarity. President Barack Obama has been weakened politically, and his economic policy options narrowed, by his battle to push up the U.S. debt ceiling.

Some big countries are further along in their election cycles, complicating decisions. Important elections are due in the United States, Germany and France over the next couple of years, as well as a leadership change in China.

"The maneuverability of governments is much less than it was in the last crisis. A lot of people want to be seen not to be caving in to pressure," Jakobsen said.

During the 2008-2009 crisis, the International Monetary Fund played a major role in coordinating the global response, but there are now signs of internal division, with powerful emerging economies criticizing the policies of Western governments.

Last month, Brazilian and Indian directors of the IMF warned the Fund's management against pouring more large sums of aid into the euro zone debt crisis, while official Chinese media have denounced U.S. politicians as globally irresponsible over the debt ceiling dispute.

These tensions may complicate G20 agreements on action in several areas:

- Joint currency intervention. This is the most likely initial form of G20 cooperation because well-tried mechanisms for it already exist; central banks could send a message that they want stability in markets by intervening massively to stop appreciation of the Swiss franc or Japanese yen.

But China and the rest of the world are still far from agreeing on a more fundamental problem in the global currency system -- the value of the Chinese yuan.

- Coordinated interest rate cuts. In October 2008, six Western central banks cut interest rates in a coordinated move, while China also eased policy.

Global central bankers may signal an easier policy bias when they meet in Jackson Hole in the United States on August 25-27. But coordinated rate cuts look unlikely in the foreseeable future because some central banks such as the U.S. Federal Reserve have very little room left to cut, and central banks are also at different stages in their monetary cycles. The European Central Bank began tightening this year, criticizing Fed policy as too loose; China may still be in tightening mode.

A weakening economy might eventually push the Fed and the Bank of England into printing more money through "quantitative easing." But this would almost certainly not be part of any coordinated G20 move; China and other emerging economies sharply criticized U.S. quantitative easing last year as destabilizing for markets.

- Expansionary fiscal policy. During the 2008-2009 crisis, the G20 did not resolve differences over fiscal policy; Germany resisted U.S. pressure to boost government spending more. But the London summit in 2009 still produced a pledge of "an unprecedented and concerted fiscal expansion" by G20 states, which cheered markets.

Such a pledge is extremely unlikely now, with the euro zone and the United States desperate to reassure investors that they can bring sovereign debt down to manageable levels.

Markets are hoping fiscally strong G20 members may spend more to help weak ones. Germany could change tack and support a major expansion of the euro zone's 440 billion euro bailout fund in order to provide a precautionary credit line to Italy. [ID:nLDE77017G] China might invest more of its $3.2 trillion foreign exchange reserves in euro zone sovereign debt.

Both these measures might be discussed by the G20 and could have a quick, dramatic effect on markets. But they would face some political opposition within the contributing governments, and would not necessarily change the long-term outlook for economies.

(Writing by Andrew Torchia)

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World economy to keep strong but risks abound: Reuters poll (Reuters)

LONDON (Reuters) – The world economy should expand steadily this year and next thanks mainly to prospering emerging powers, a Reuters poll showed, but fiscal troubles lurking in Europe and potentially the United States risk blowing this view apart.

The quarterly survey of more than 350 economists from all over the world showed a dimmer outlook for most of the rich-world Group of Seven economies since the last survey in April.

Only Germany, booming thanks to buoyant exports, is expected to post growth averaging more than 3 percent this year. Elsewhere, fiscal austerity in Europe and growing debt fears have soured analysts' sentiment.

By contrast, emerging powers like China have enjoyed near double-digit annual growth rates since the global recession -- but they face risks of their own, struggling to contain rampant inflation that has accompanied fervent growth.

Economists pointed to the fiscal crisis raging in the euro zone's peripheral countries and the political deadlock in the United States surrounding an increasingly urgent lift to the country's legal debt ceiling as the biggest risks to global economic growth.

"If the (euro zone) debt crisis is mishandled, it's a major threat. But it's a threat comparable to the mishandling of the U.S. sovereign debt crisis. It's six and two threes," said Willem Buiter, chief economist at Citi.

The poll showed the world economy expanding 4.1 percent this year and 4.3 percent next year, little changed from April's survey.

Buiter said that authorities in emerging markets are largely behind the curve in monetary policy, which could leave open the prospect that their boom could become a bubble and then a bust -- but not for a couple of years.

While economists cut their U.S. economic outlook compared with a poll published last month, they still see the United States performing better this year than struggling European peers like Britain, Italy and France.

They saw the U.S. economy growing an average 2.5 percent this year, before picking up to 3.0 percent next year -- comfortably in excess of the sub-2 percent growth rates seen for this year for Europe's G7 members, excluding Germany.

"It was the surge in oil and gasoline prices that hurt the (U.S.) economy the most in the first half, and now that they're down, that should take the weight off," said Mark Zandi, chief economist of Moody's Analytics.

The dimming U.S. outlook has had a knock-on effect for Canadian growth prospects this year, with economists applying a hefty downgrade to their quarterly growth profiles.

DEFAULT?

Still, the focus over the next few months will be averting sovereign defaults in both the euro zone and the United States. While the euro zone question is one of fundamental solvency, most notably in Greece, the U.S. problem is a political one.

Economists remain confident that U.S. lawmakers will reach a deal to raise the government's debt ceiling. All but two of 40 economists polled said a deal would be reached.

"They will squeak something out, but the odds of failure have increased," said Chris Lowe, chief economist for FTN Financial and one of the economists surveyed.

The poll was conducted from Friday to Wednesday and was completed before House Republican leader Eric Cantor said President Barack Obama walked out of a meeting on Wednesday evening, escalating concerns about the negotiations.

Lawmakers disagree over budget deficit reduction measures that are a condition for extending the legal $14.3 trillion borrowing limit -- needed so the U.S. government can fund its commitments next month.

In Europe, Greek Prime Minister George Papandreou said the euro zone and International Monetary Fund must quickly approve a bailout to avoid a collapse of Greece's economic reform plans.

While Germany has recently topped the European -- and G7 -- growth charts, peripheral strugglers like Greece, Ireland, Spain and Italy will drag hard on the euro zone's economic performance.

The 17-nation bloc's economy will probably grow just 0.4 percent per quarter from here until next April. That would be slower than the 0.8 percent rise seen in the first quarter of this year.

Economists in the poll also left their 2011 and 2012 growth forecasts unchanged at 2.0 and 1.7 percent, respectively. By contrast, the German GDP growth outlook for this year and next was 3.4 percent and 1.9 percent.

"Germany's growth will remain above average, by historic and euro zone standards, so long as the euro zone doesn't totally fall apart and leave just a core group of countries remaining," said Timo Klein, an economist at IHS Global Insight.

Unlike Germany, Britain's economy probably struggled to generate meaningful growth in the second quarter and its prospects ahead look likely to be jaded by fierce fiscal austerity measures and high inflation.

JAPAN RECOVERS

Japan's recovery from the March 11 earthquake and tsunami that killed at least 21,000 people looks likely to proceed at a faster pace than thought even last month, helped by a restoration of factory output.

Although Japan, the world's third-largest economy likely contracted for a third straight quarter in April-June, it is likely to emerge from recession this quarter as it shakes off supply constraints more quickly than expected, according to the poll of around 30 economists.

"Automakers are pushing forward production plans and companies are making efforts to limit the impact of summer power shortages on output," said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

"We expect factory output to normalize in July-September."

(Additional reporting by reporters in London, Toronto, Tokyo, New York, Berlin, Paris and Rome, Editing by Ross Finley, Anna Willard and Leslie Adler)

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Special Report: Inside Rebekah Brooks' News of the World (Reuters)

LONDON (Reuters) – "It was the kind of place you get out of and you never want to go back again." That's how one former reporter describes the News of the World newsroom under editor Rebekah Brooks, the ferociously ambitious titian-haired executive who ran Britain's top-selling Sunday tabloid from 2000 to 2003.

Journalists who worked there in that period describe an industrialized operation of dubious information-gathering, reporters under intense pressure attempting to land exclusive stories by whatever means necessary, and a culture of fear, cynicism, gallows humor and fierce internal competition.

"We used to talk to career criminals all the time. They were our sources," says another former reporter from the paper who also worked for Murdoch's daily tabloid, the Sun. "It was a macho thing: 'My contact is scummier than your contact.' It was a case of: 'Mine's a murderer!' On the plus side, we always had a resident pet nutter around in case anything went wrong."

The 168-year-old paper published for the last time last Sunday after exposure of its widespread use of phone-hacking triggered a scandal that has engulfed Rupert Murdoch's UK newspaper group News International, its New York-based parent company News Corp, and Britain's political classes and police.

Brooks, one of two top Murdoch executives who resigned on Friday, has maintained she neither sanctioned nor knew about the phone hacking. The Guardian newspaper reported the paper's targets went beyond celebrities to include murdered schoolgirl Milly Dowler and the bereaved relatives of dead soldiers. Murdoch has apologized personally to the Dowler family.

Four former employees of Britain's best-selling Sunday tabloid have told Reuters that Brooks' denials are simply not credible. They say people on the paper's newsdesk, the hub that directs news coverage, were regularly grilled about the top stories by Brooks and later by her successor Andy Coulson, who resigned over the phone-hacking scandal in 2007 and went on to become Prime Minister David Cameron's spokesman.

"They went in and they were cross-examined for two hours every day. And it was all about the genesis of all the stories," the first ex-reporter, who worked at the paper for seven years, told Reuters.

The News of the World's reporting methods were first questioned when it published a story about an injury to Prince William's knee in 2005, prompting fears his aides' voicemail messages were being intercepted. The royal family complained to police. More than a year later the paper's royal editor Clive Goodman and private detective Glenn Mulcaire were jailed for six months for conspiracy to access phone messages.

Coulson, by then the newspaper's editor, resigned immediately, although like Brooks he has repeatedly denied any knowledge of phone-hacking. Until recently, the paper continued to maintain that the hacking was isolated to Goodman.

Former employees say that's hard to believe, not only because of the story approval process, but also because budgets were so tightly controlled that payments for such services would not have gone unnoticed.

"It's simply not conceivable that somebody who was editor wouldn't have known," says the journalist who spent seven years at the paper, covering general news.

Neither Brooks nor Coulson could be reached for comment, and News International declined comment for this story beyond saying: "There are numerous views from former employees and we are not going to counter each one."

Reuters is a competitor of Dow Jones Newswires, the financial news agency that News Corp acquired along with the Wall Street Journal in 2007.

SURVIVALISTS

When Brooks became editor, at age 31, she had a brief to broaden the paper's appeal by intensifying the focus on celebrity and showbusiness news and publishing fewer of the harder stories the paper had been known for -- politicians caught taking illegal drugs or footballers caught with their pants down. More and more front pages were taken over by stories about C-list celebrities, such as contestants in the TV reality show "Big Brother," to the irritation of the old guard.

At the same time, the pressure to get exclusive stories was so intense that dubious practices were barely questioned. "They were 'dodgy business HQ'. I'm not sure if people even realized it was illegal. It was a don't-get-caught culture," said the reporter of seven years' standing. New staff would be given the cold shoulder until they'd proved themselves to be "thoroughly disreputable" so their colleagues could trust them.

"It was no place for anyone to pipe up and say: 'This doesn't seem ethical to me.' That would have made you a laughing stock."

Journalists didn't explicitly ask for private investigators to get involved in their work, but help would be provided if a reporter got stuck on a promising story. "How it arrived on your desk was a bit of a mystery. You didn't know and you didn't ask," said the reporter. "Every week, somebody's mobile phone records, somebody's landline records, sometimes even somebody's medical records. It was common enough not to be notable."

A fifth former News International employee who worked with News Of the World journalists at this time said its reporters were under "unbelievable, phenomenal pressure," treated harshly by bosses who would shout abuse in their faces and keep a running total of their bylines. Journalists were driven by a terror of failing. If they didn't regularly get stories, they feared, they would be fired. That meant they competed ruthlessly with each other.

Because the News of the World was a Sunday paper, where a hot story on Tuesday could be useless five days later, pressure was much more intense than at the Sun, said the ex-journalist who worked at both titles.

"The News of the World was much more secretive than the Sun. At the Sun, you knew what was going on, what people were working on. In the News of the World you never knew what anyone was working on. They'd send you out to a job and wouldn't tell you what it was for. It'd be: 'You're going to meet a man. Don't ask his name and whatever you do don't get him excited. Just take his statement and leave,'" he said.

"You became a complete survivalist."

Reporters say they lived in constant fear of byline counts which weeded out those who had filed the fewest stories. "They were always seeking to get rid of people because it was a burn-out job. Their ideal situation was you work your nuts off for six months and they let you work there another six months," said the general news reporter.

"Every minute you spent there you felt that your employer hated you."

DESTROYING LIVES

Charles Begley, an ex-News of the World reporter, has spoken out about the bullying culture. He said he felt close to breaking-point when, three hours after the September 11, 2001 attacks on New York's twin towers, he was ordered to appear at the paper's daily conference dressed in a Harry Potter outfit he had been given to help the tabloid capitalize on the craze for the books about the boy wizard.

"At that time, we were working on the assumption that up to 50,000 people had been killed," he said then, according to tapes published in 2002 by the Daily Telegraph of a conversation between him and assistant news editor Greg Miskiw. "I was required to parade myself around morning conference dressed as Harry Potter."

It was during this conversation that Miskiw made a comment that was to become notorious in Britain: "That is what we do -- we go out and destroy other people's lives."

Contacted for this story, Begley said he did not wish to comment further on his experiences but stood by statements he made at the time.

The reporter who worked on both the Sun and the News of the World recalls that at one stage, every journalist in the News of the World newsroom was ordered to apply to become a contestant on "Big Brother," in the hope the paper could do an undercover report on it.

"Someone came round the office with all these application forms and we were all given a three-line whip to try to get on that bloody show. They were desperate to get someone on there and 'expose' it all. Everyone was moaning about it," he said.

The same journalist also described how four reporters were sent off as a punishment to spend a stint on a crack-ridden estate in Bristol and write a feature about it. They never went, he said.

Matt Driscoll, a sports reporter sacked in April 2007 while on long-term sick leave for stress-related depression, was later awarded 800,000 pounds ($1.3 million) for unfair dismissal. The employment tribunal found that he had suffered from a culture of bullying led by then-editor Coulson.

"Nobody ever felt secure there and that's the way they liked it. On the edge, scared, insecure," said the general news reporter.

SAVING MONEY

Contrary to a popular perception that the tabloid threw large sums of money around to get stories, the news budget was extremely tightly controlled, the journalists said. One described how entire expense reports might be struck through with a red line without any reason given.

Readers who supplied a front-page story would typically be paid about 10,000 pounds, while story pitches negotiated by a publicist would command at least twice that. Smaller user-submitted stories would fetch a couple of hundred pounds. On Saturday afternoon, when it was too late for a reader to sell a story to another paper, their fee would often be reduced.

This is another reason it was hard to believe senior editors were not aware of phone hacking and other expensive illegal services provided by outsiders, the ex-reporters told Reuters. Mulcaire, the private investigator later jailed for phone hacking, was paid more than 100,000 pounds a year by the News of the World.

"No newspaper editor would not know what a 102,000 pound budget was used for. They knew about every 50 quid," said the long-term freelancer.

Eavesdropping on voicemail or obtaining call logs was initially a money-saving measure, according to the former employees. Rather than committing a reporter to stake out a venue for as long as it took to catch out a couple having an affair, for example, voicemails could first be scrutinized to establish the time and place of a rendez-vous, saving the reporter time and the paper money.

As its uses became apparent, it was employed more and more. The general news reporter said he was first shown how to listen in to people's cellphone voicemail by a colleague in the 1990s.

"It became the course of first resort rather than last," the long-term freelancer told Reuters.

CYNICAL

But the focus on celebrities and reality television stars was causing problems inside the paper.

"It was a ridiculously cynical approach to news," says Peter Burden, author of the 2008 book "News of the World? Fake Sheikhs & Royal Trappings." "They just thought: here are these endless people that Joe Public are interested in because of 'Big Brother', and they thought they could do what the hell they liked with them and they raided them rotten, them and their families."

Editors would then often use damaging stories as bargaining chips, trading them for future access to public figures or to build relationships with stars. Often, the paper would drop the story they had altogether and publish something more sympathetic.

"It would be things like: 'We know you were sleeping with your secretary but we'll keep it out of the paper if you give us the story about how you were given away as a child," said the long-term freelancer.

"They used to call stories 'levers'," said the general news reporter. "They weren't necessarily interested any more in using the story you'd proved or got past the lawyers. They were interested in using the story as leverage in order to get a different story. Sometimes the kind of story that you would bargain as an alternative wasn't actually the truth. It annoyed a lot of reporters.

"It was relationship-building for them. Basically, she (Brooks) was trading in your hard work to be friends with influential PRs. They used the stories to bank credit with influential people. It then made the whole raison d'etre of the place something different."

MACHO CULTURE

Brooks did little to change the paper's culture. Former employees say she could equal her male counterparts in swearing, and would join the men for a drink in the pub. She could also be fearsome, intimidating even the aggressive Miskiw.

"Part of that macho culture was that you would laugh at the risk and the dodgy illegality you might find yourself involved in," said the general news reporter.

It became practically a matter of honor not to use respectable journalistic methods, the reporters said.

"The whole idea of having friendly relations with someone and getting them on the record -- that was just weird. You had to get stuff on someone and then confront them," he said.

In Brooks's resignation statement on Friday, she said: "I feel a deep sense of responsibility for the people we have hurt ... I now need to concentrate on correcting the distortions and rebutting the allegations about my record as a journalist."

(Additional reporting by Olesya Dmitracova and Stephen Mangan in London and James Mackenzie in Rome; Editing by Simon Robinson and Sara Ledwith)

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5 NKoreans fail steroids test at women's World Cup (AP)

FRANKFURT, Germany – North Korea officials blame traditional medicine using musk deer glands for five of their players testing positive for steroids at the Women's World Cup in soccer's biggest doping scandal in nearly two decades.

FIFA President Sepp Blatter said Saturday that after two players were caught during the tournament this month, FIFA tested the rest of the North Korean squad and found three more positive results.

"This is a shock," Blatter said at a news conference. "We are confronted with a very, very bad case of doping and it hurts."

Colombia's reserve goalkeeper Yineth Varon was provisionally suspended in late June for failing an out-of-competition test before the World Cup. The Colombian Football Federation said she had hormonal treatment that led to a failed drug test, the first doping case in the history of the women's World Cup.

FIFA annually spends some $30 million on 35,000 doping tests. Despite the cases at the women's World Cup, "doping really is a marginal, fringe phenomenon in football," Blatter said.

The last doping case at a major event came at the men's 1994 World Cup in the United States, when Diego Maradona was kicked out after testing positive for stimulants.

FIFA has already met with a North Korean delegation and heard arguments that the steroids were accidentally taken with traditional Chinese medicines based on musk deer glands to treat players who had been struck by lightning on June 8 during a training camp in North Korea.

The case will be taken up by FIFA's disciplinary committee. Players, male or female, face a ban of up to two years for such infractions.

Defenders Song Jong Sun and Jong Pok Sim tested positive for steroids after North Korea's first two group games and were suspended for the last match. The team was eliminated in the first round after losses to the United States and Sweden and a draw with Colombia.

Blatter said the North Korean federation "wrote to us and they presented their excuses. They said that a lightning strike was responsible for this."

The names of the three other players would only be made public at a later stage, FIFA said.

The gland in question comes from musk deer living in a large swathe of Asia from Siberia to North Korea. The hairy 4-centimeter gland is usually cut open to extract a liquid that is used for medical purposes.

Doping officials have been concerned about such naturally occurring substances in recent years. During the run-up to the 2010 World Cup in South Africa, FIFA's concerns focused on African plants that could players an unfair advantage by providing energy boosts or helping to heal muscle injuries.

FIFA investigators who discovered evidence of doping in the North Korean samples were in uncharted territory as such steroids had not previously been encountered. Experts from the World Anti-Doping Agency were called in to confirm the breach of doping rules.

"It was very complex," FIFA's chief medical officer Jiri Dvorak said. He added that the medical officer of the North Korea team provided a sample of the medicine to help their analysis.

The musk gland extract "it is not part of the world of doping," Dvorak said. "It is really the first case in which this has been discovered."

The North Koreans first mentioned the lightning incident after losing their opening match to the United States. When North Korean officials were asked later, they refused to elaborate on the circumstances.

North Korean coach Kim Kwang Min said after their first match against the United States that "more than five" players were sent to the hospital. Goalkeeper Hong Myong Hui, four defenders and some of the midfielders were the players most affected, Kim said.

"The physicians actually said the players were not capable of playing in the tournament," Kim said through an interpreter.

Dvorak said the information was still sketchy.

"We saw some pictures with ambulances and saw that some players were taken from the pitch, but that is all we have," he said.

FIFA also got information from North Korea about the initial hospital treatment of the players and "this very first report did not include the traditional Chinese medicine," Dvorak said.

The tournament ends Sunday with the final between the United States and Japan.

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Murdoch in Britain as News of the World prints last edition (AFP)

LONDON (AFP) – Media baron Rupert Murdoch flew into London on Sunday to take personal charge of the phone-hacking scandal that felled his News of the World tabloid, as Britons rushed to buy the final edition of the paper.

Reading a copy of the last edition of Britain's biggest-selling weekly, Murdoch was whisked into the headquarters of publisher News International, which produced News of the World, in a chauffeur driven car.

The 80-year-old flew in from the United States amid a growing crisis in his media empire after a slew of new hacking allegations emerged this week which sparked national outrage and prompted the shock decision to axe the paper.

The scandal has intensified pressure on the bid by his News Corp. media empire to take full control of satellite broadcaster BSkyB, and there were fresh calls for a delay to the proposed deal as Murdoch arrived.

The News of the World hit the newsstands for the last time Sunday, ending 168 years of scoops and scandal with the headline "Thank You and Goodbye" and an apology for having "lost our way".

Staff gathered outside the building in an emotional scene, at which editor Colin Myler paid tribute to a "wonderful team of people".

But the closure of the paper looked unlikely to end the hacking row, and as Murdoch arrived in London there was fresh pressure for a postponement to the BSkyB takeover.

Opposition Labour party leader Ed Miliband said the the public would not accept that a group which engaged in "terrible practices" be allowed to take over BSkyB while a police investigation was still ongoing.

He threatened to force a vote in parliament on suspending consideration of the proposed takeover until the criminal probe into hacking is complete.

The deal must be delayed following the "disgusting revelations" about the "terrible practices" at the News of the World, he said.

The idea that News Corp. "should be allowed to take over BSkyB, to get that 100 percent stake, without the criminal investigation having been completed... frankly that just won't wash with the public," he told BBC television.

News Corp's bid to buy the 61 percent of BSkyB that it did not already own originally looked set to go through in the coming days, but the government has now suggested that it could be delayed for several months amid the furore.

Late Saturday, Myler led staff out of the News of World's offices in Wapping, east London, after an emotional day preparing the final edition.

"I want to pay tribute to this wonderful team of people here, who, after a really difficult day, have produced in a brilliantly professional way a wonderful newspaper," Myler told reporters outside.

More than 200 staff now face an uncertain future after Murdoch's shock and while Myler's comments sparked cheers, some people were in tears.

He held up the final front page, a montage of some of the paper's best-known splashes and a message saying: "After 168 years, we finally say a sad but very proud farewell to our 7.5 million loyal readers."

Inside, the paper charted its finest moments under the banner "World's Greatest Newspaper -- 1843-2011", from investigations by the "Fake Sheikh" to a controversial campaign against paedophiles.

Stocks of the paper were running low at newspaper kiosks on Sunday, despite the final print run having been increased to five million copies to cope with demand, as Britons rushed to buy a souvenir copy.

"I think it's a bit of a shame since it has been around many, many years and it's part of British culture but they were wrong for what they were doing," Shareen Geral, a 26-year-old make-up artist told AFP as she picked up a copy at a London kiosk.

The "Screws", as the News of the World is affectionately known, made its name with sensational scoops about sex, crime and celebrities.

But it has been dogged by allegations of phone hacking for years and claims this week that a murdered girl and the families of dead soldiers were targeted turned the row into a national scandal.

The dramatic events of the past week have intensified pressure on Cameron, particularly the arrest on Friday of his ex-media chief Andy Coulson, who edited the News of the World from 2003 to 2007 before working for the prime minister.

The 43-year-old was detained on suspicion of involvement in phone hacking and illegal police payments and has been released on bail until October.

Cameron employed Coulson after he quit the News of the World in 2007, following the jailing of one of the paper's journalists and a private investigator over hacking.

Coulson has always denied wrongdoing, but he was forced to resign as Cameron's director of communications in January this year because of ongoing hacking revelations.

Rebekah Brooks, the head of News International and a former editor of the News of the World, has also faced calls to quit but Murdoch has given her his full support.

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Britain's News of the World to shut after scandal (AFP)

LONDON (AFP) – Media mogul Rupert Murdoch dramatically ordered the closure of the News of the World tabloid Thursday as a spiralling scandal over illegal phone hacking threatened to taint the rest of his business empire.

The axing of the 168-year-old tabloid, which will print its last edition on Sunday, comes after it faced claims that it hacked the phones of a murdered girl, dead soldiers' families, celebrities, politicians and royals.

"Having consulted senior colleagues, I have decided that we must take further decisive action with respect to the paper," said Murdoch's son James, chairman of News International, the British newspaper wing of Rupert Murdoch's News Corp.

"This Sunday will be the last issue of the News of the World," he added.

The final edition would be free of advertising and any proceeds from the paper would go "to causes and charities that wish to expose their good works to our millions of readers," he said in a statement.

Prime Minister David Cameron -- who had himself faced pressure for his ties to Murdoch's empire -- said the closure of the paper should not distract from an ongoing police investigation into the hacking.

"What matters is that all wrongdoing is exposed and those responsible for these appalling acts are brought to justice," Cameron's Downing Street office said in a statement.

"As the Prime Minister has made clear, he is committed to establishing rigorous public inquiries to make sure this never happens in our country again."

Cameron's former communications director Andy Coulson was editor of the tabloid at the time of much of the hacking.

James Murdoch admitted that the paper, known for its racy diet of sex and scandal but also for its undercover investigations, had lied to parliament and to the public in its earlier statements on the long-running scandal.

He said that if allegations that a private investigator working for the tabloid hacked the voicemail of Milly Dowler, a 13-year-old girl who was later found murdered, were true, they were "inhuman".

"The News of the World is in the business of holding others to account. But it failed when it came to itself," he added. "Wrongdoers turned a good newsroom bad and this was not fully understood or adequately pursued."

James Murdoch said the conviction in 2007 for phone hacking of the paper's royal correspondent Clive Goodman and private investigator Glenn Mulcaire had failed to cure the problem.

The closure of the paper sparked immediate speculation that Rupert Murdoch was offering it as a sacrificial victim to save his bid for control of pay-TV giant BSkyB, which is the subject of a government decision.

There has also have been reports in recent weeks that Murdoch was planning to replace the News of the World in any case with a Sunday version of The Sun, his daily tabloid, which is Britain's biggest selling newspaper.

A News International spokeswoman would not comment when asked by AFP whether a "Sunday Sun" was planned.

The spokeswoman said the News of the World employed 200 staff, adding: "They will be able to apply for other jobs within the company."

The death blow for the News of the World came on Thursday when veterans' charity the Royal British Legion dropped its campaign partnership with the paper over claims in the Daily Telegraph that an investigator hired by the tabloid may have accessed the voicemails of relatives of dead soldiers.

Supermarket giant Sainsbury's, mobile phone operator O2, energy supplier Npower and high street stores Dixons, Boots and Specsavers had joined a growing list of companies to pull advertising from the paper.

Meanwhile Scotland Yard said up to 4,000 people may have had their voicemails accessed by the News of the World and added that it was probing claims that the paper had paid policemen for information.

Cameron on Wednesday promised an inquiry into the phone hacking scandal, including into allegations that police failed to properly investigate the allegations when they were first made several years ago.

But opposition leader Ed Miliband on Thursday urged the prime minister to distance himself from two former editors of the paper during the period covered by the scandal.

Cameron has dined on several occasions with Rebekah Brooks, now chief executive of News International and a former editor of the paper.

Coulson, who succeeded Brooks as editor, quit as Cameron's media chief in January over the claims after being questioned by police.

Murdoch notably abandoned his support for the Labour party and backed Cameron's Conservatives ahead of a general election last year.

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News of the World shutting down amid scandal (AP)

LONDON – News International James Murdoch says he's satisfied that embattled executive Rebekah Brooks had no knowledge of phone hacking while she was editor of the scandal-ridden News of the World.

His comments came just hours after the Murdoch media empire unexpectedly jettisoned the News of the World on Thursday, the best-selling tabloid at the center of the phone hacking scandal.

The tabloid, long known for its dubious undercover reporting techniques, had gravely offended the British public by hacking into the cell phone voicemail of a missing teenage girl, possibly even interfering with the police investigation into her murder.

But Murdoch expressed confidence in Brooks' leadership during an interview broadcast on British media.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

LONDON (AP) — The Murdoch media empire unexpectedly jettisoned the News of the World on Thursday, the best-selling tabloid at the center of an ugly phone hacking scandal.

The tabloid, long known for its dubious undercover reporting techniques, had gravely offended the British public by hacking into the cell phone voicemail of a missing teenage girl, possibly even interfering with the police investigation into her murder.

What was an acceptable, if illegal, tactic used to gather scoops on drug-using celebrities, philandering politicians or cheating film stars suddenly became completely unacceptable when missing children, the relatives of soldiers slain in Afghanistan or the families of victims of London's 2005 terror attacks were targeted.

Rupert Murdoch's son, James Murdoch, who heads European operations for the paper's parent company, said the 168-year-old weekly newspaper would publish its last edition on Sunday, without ads. The closure was spurred in part by the decision by many large advertisers to withdraw their ads in protest of the paper's gross intrusions of privacy.

News International says shuttering the scandal-wracked News of the World will cost about 200 tabloid staffers their jobs. Journalists at the paper had no advance word of the decision.

However, some analysts said decision may make strategic business sense for Rupert Murdoch if it allows him to salvage a controversial bid to fully take over the broadcaster British Sky Broadcast in a deal estimated at 12 billion pounds ($19 billion). Murdoch might even be able to fill the gap left by the News of the World with one of his other media properties.

"News Corp. has taken a bold decision to stop printing the News of the World and close the title. Mr. Murdoch was clearly not willing to jeopardize his bid for BSkyB," said markets analyst Louise Cooper of BGC Partners in London. "Murdoch has shown what a brilliant operator he really is."

She said the financial impact of the paper's closure will be small to parent company, far less than the value wiped off of News International's stock price by the hacking scandal.

News International spokeswoman Daisy Dunlop denied rumors that The Sun, the News of The World's sister paper that publishes Monday through Saturday, would become a seven-day operation to pick up the slack and restore Murdoch's financial position in the vital Sunday market.

"It's not true at the moment," she said.

She said employees laid off in the closure will be able to apply for other jobs within the sprawling media company.

The news of the shutdown and mass job loss sparked outrage at the paper's headquarters, especially because Rebekah Brooks — the editor in charge at the time, now one of Murdoch's top lieutenants — is keeping her highly paid executive position as News International chief.

The abrupt decision to shut the newspaper follows an extraordinary three days in which multiple revelations about intrusive phone hacking cost the paper its advertising base and reader support. The tabloid was found to have hacked into the phone message of a teenage murder victim and was suspected of targeting the relatives of slain soldiers in its quest to produce attention-grabbing headlines.

Britons of all stripes said they were disgusted and revolted by the Rupert Murdoch-owned newspaper's tactics and British lawmakers held an emergency debate on Parliament on Wednesday in which many condemned the paper.

The tabloid's executives had already admitted the widespread hacking of cell phones used by celebrities, film stars, royal aides and politicians and reached cash settlements with prominent victims. But the intrusion into — and possible interference with — an ongoing murder investigation of a child proved to be the final straw in losing the public's trust.

Police are now examining 4,000 names of people who may have been targeted by the paper.

Murdoch said in a memo to staff that all revenue from the final issue, which will carry no ads, would go to "good causes."

The announcement took British media-watchers — and the newspaper's staff — by surprise.

The News of the World, which sells close to 3 million copies a week, has acknowledged that it hacked into the mobile phone voice mails of politicians, celebrities and royal aides. A reporter and a private investigator working for the paper were jailed for phone hacking in 2007.

But in recent days the allegations have expanded to take in the phones of missing children who were found slain, the relatives of terrorist victims and families of soldiers killed in Afghanistan.

James Murdoch said if the allegations were true, "it was inhuman and has no place in our company."

"Wrongdoers turned a good newsroom bad," he said, "and this was not fully understood or adequately pursued."

"While we may never be able to make up for distress that has been caused, the right thing to do is for every penny of the circulation revenue we receive this weekend to go to organizations — many of whom are long-term friends and partners — that improve life in Britain and are devoted to treating others with dignity," he said.

Shares in News Corp. were up 1.6 percent at $18.22 on the Nasdaq index in New York, though they have fallen from above $18.50 since Tuesday.

Some of the tabloid's tactics had involved illegal payoffs to police officers for tips and information.

The Independent Press Complaints Commission announced a review Thursday into the corruption charges, which are apparently based on information provided to London police this week by the tabloid.

Police Commissioner Paul Stephenson said Thursday that any officers who took illegal payments should face criminal prosecution.

"I am more than ashamed — I am determined to see them in a criminal court," Stephenson said.

The involvement of the independent commission means police will have impartial outside help in determining whether officers should face corruption charges.

Deborah Glass, deputy commissioner of the Independent Police Complaints Commission, said she will personally supervise the investigation into the possible News of the World payoffs. She said she wants to assure the public that the police have done everything possible to identify offenders.

Many in Britain have long assumed that some police got bribes from journalists. The practice was admitted in 2003 by Rebekah Brooks, then the editor of The Sun — another Rupert Murdoch tabloid — and now chief or Murdoch's U.K. newspaper operations, in testimony before Parliament. But details about suspected corruption are starting to emerge because of the increased focus on shoddy journalistic practices at Britain's highly competitive tabloids.

Brian Paddick, a former senior police commander, told the BBC that journalists used to make clandestine cash payoffs to police in envelopes handed over at a drive-thru fast food restaurant near the News International headquarters in London.

Sometimes the reporters sought information about celebrities in trouble — Paddick cited a 2010 car crash in north London involving singer George Michael, who was using marijuana and alcohol at the time — and sometimes they were making deals regarding ongoing police investigations.

Paddick said sometimes payoffs were "jeopardizing serious criminal investigations by giving out confidential information that could be useful to criminals."

Police officials have said only a handful of police are suspected of receiving payments, but declined to say how many.

Paddick, a former London mayoral candidate who may run again in 2012, said one journalist said he had paid 30,000 pounds ($50,000) for police information.

"All of this is done in a very clandestine way," said Paddick, who added he had never personally seen money being exchanged.

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