Struggling Pawlenty exits White House race (Reuters)

WASHINGTON (Reuters) – Former Minnesota Governor Tim Pawlenty became the first major casualty in the marathon presidential campaign on Sunday while fellow Republicans Michelle Bachmann and Rick Perry built momentum in the race.

Pawlenty, once seen as a strong contender for the Republican nomination to face Democratic President Barack Obama in the November 2012 election, dropped out a day after a disappointing showing in Iowa's straw poll, a key early test of strength among his party's candidates.

Former Massachusetts governor Mitt Romney is the early front-runner in the Republican race, but he must fend off a surging Bachmann -- who won the poll -- and Perry, the governor of Texas who announced his candidacy on Saturday in South Carolina.

Some experts felt Romney may benefit most from the departure of Pawlenty -- neither of whom are favorites of the conservative Tea Party movement that likes Bachmann and Perry.

Pawlenty touted a record of balancing the budget, cutting spending and down-sizing government in Minnesota, but his "nice guy" image failed to gain traction after entering the race in May, particularly among Republican conservatives.

"I wish it would have been different. But, obviously, the pathway forward for me doesn't really exist. And so we're going to end the campaign," Pawlenty told the ABC program "This Week" after his distant third-place finish in the Iowa straw poll.

"You know, I'm from a small state. I don't have a big national financial network or political network," he said.

Bachmann won the Iowa straw poll on Saturday with 29 percent of the vote, with Ron Paul, a congressman from Texas, was second with 28 percent and Pawlenty at 14 percent. Romney was on the straw ballot but did not participate.

The straw poll is a nonbinding mock election that serves as an early gauge of strength in the state that holds the first 2012 Republican nominating contest -- the Iowa caucuses scheduled for next February.

In a round of appearances on the Sunday morning U.S. news programs, Bachmann, a U.S. congresswoman from Minnesota, defended her credentials to be president and called herself a leader in the U.S. Congress fighting against Obama's agenda.

Critics question her accomplishments in the U.S. Congress.

"So being a governor and having governor-level experience isn't the number-one requirement. It's really, who is the person? What is their character?" Bachmann said on ABC.

"What I've demonstrated is that I have a core set of principles that I believe in. I'll fight for them. That's what we need in a president of the United States because a president is more than just a manager," Bachmann added.

'SOMETHING DIFFERENT'

Pawlenty said that what he brought as a candidate was "a rational, established, credible, strong record of results" as a two-term governor in Minnesota. "But I think the audience, so to speak, was looking for something different," he added.

University of Minnesota political scientist Larry Jacobs said Pawlenty's departure "shows the Republican voter is angry and has moved in a pretty conservative direction."

On NBC's "Meet the Press," Bachmann sidestepped a question on whether she would seek the endorsement of fellow Minnesotan Pawlenty. "I'll be calling him today to wish him well. And he brought a very important voice to the race. I have a lot of respect for the governor," Bachmann said.

Perry's candidacy could steal support from Bachmann, replacing her as Romney's top rival and potentially bridging the gap between the party's establishment center and right-wing activists.

Pawlenty had been seen as a Republican candidate who could attract vital support from independent voters wary of more conservative candidates in a general election against Obama.

He raised $4.3 million in the most recent quarter, on par with other Republicans jockeying to run against Obama but lagging well behind the $18 million brought in by Romney.

But in an ominous sign, some donors to Pawlenty's campaign began to express second thoughts about supporting him.

"Well, there's a lot of factors that go into a successful campaign. Obviously, we had some success raising money, but we needed to continue that, and Ames was a benchmark for that. And if we didn't do well in Ames, we weren't going to have the fuel to keep the car going down the road," he said.

(Additional reporting by Lisa Lambert and Eric Beech in Washington and Todd Melby in Iowa; Editing by Jackie Frank)

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Murdoch exits London home with arm around Brooks (Reuters)

LONDON (Reuters) – News Corp Chief Executive Rupert Murdoch exited his London home on Sunday with his arm around embattled newspaper chief Rebekah Brooks, and told Reuters that she was his first priority.

Murdoch, who flew into Britain earlier on Sunday to deal with an escalating phone-hacking scandal at his News of the World tabloid that Brooks used to edit, answered: "This one," gesturing at Brooks, when asked what his first priority was.

The two, both smiling, then went into the Stafford hotel opposite Murdoch's apartment in the upmarket Mayfair area of London.

(Reporting by Paul Sandle)

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Top Republican Cantor exits budget talks (AP)

WASHINGTON – House Majority Leader Eric Cantor pulled out of talks with Vice President Joe Biden on a deficit reduction-debt ceiling deal, saying they had reached an impasse over Democratic demands for tax increases to be paired with spending cuts wanted by the GOP.

The Virginia Republican said in a statement that the Republican-dominated House simply won't support tax increases, and that he wouldn't participate in the budget meeting scheduled for Thursday. Cantor said that it's time for President Barack Obama to weigh in directly on the budget because Democrats insist on negotiating some tax increases.

Sen. Jon Kyl of Arizona, who is representing Senate Republicans in the talks, also dropped out. White House press secretary Jay Carney declared the talks "in abeyance" but said they had been successful in identifying areas of common ground.

The GOP moves seem aimed at drawing Obama more directly into the talks. Cantor expressed frustration earlier this week that the president had not been more involved. Whether the tactic generates hard feelings that could jeopardize an agreement remains to be seen.

House Speaker John Boehner, an Ohio Republican, met with Obama Wednesday night at the White House to discuss the debt limit, Carney said.

Senate Majority Leader Harry Reid shrugged off Cantor's announcement. "I'm disappointed that he would walk out, but obviously he felt he couldn't do any more and wanted to kick it up to Boehner," he said.

Officials have said repeatedly in recent days they expected that those involved in the Biden-led talks would turn their work over to Obama, Boehner and other congressional leaders by week's end.

In the wake of Cantor's announcement, both Democrats and Republicans publicly doubled down on positions that are at odds with achieving an agreement.

"President Obama needs to decide between his goal of higher taxes or a bipartisan plan to address our deficit," said Senate Republican leader Mitch McConnell, R-Ky. "He can't have both."

"It will take Democratic votes to pass any debt-ceiling agreement," said Sen. Chuck Schumer, D-N.Y. "As a result, certain things are going to have to be true. We cannot make cuts to Medicare benefits. We have to allow for revenues like wasteful subsidies for ethanol and oil companies. And we have to do something on jobs."

Cantor said that plenty of progress has been made in identifying trillions of dollars in potential spending cuts to accompany legislation to raise the $14.3 trillion cap on the government's ability to borrow money. Passage of the legislation this summer is necessary to meet the government's obligations to holders of U.S. Treasuries. The alternative is a market-shaking, first-ever default on U.S. obligations.

Senate Finance Committee Chairman Max Baucus, D-Mont., said that including tax increases on the wealthy is only fair, and that he's disappointed that Cantor has left the talks.

Baucus said that almost every deficit reduction deal in the past has involved a mix of tax increases and spending cuts. He said upper income Americans have seen a significant increase in wealth, so balancing the budget only through cuts in programs that serve the middle class and the poor is not fair.

"Revenues must be included so everyone can participate in addressing a critical national problem," Baucus said.

Cantor said that once the tax issue is solved, negotiators could quickly seal agreement.

"It is time for the president to speak clearly and resolve this tax issue," Cantor said. "Once resolved, we have a blueprint to move forward to trillions of spending cuts and binding mechanisms to change the way things are done around here."

The Biden-led group has been meeting since early May, trying to come up with areas of agreement on curbing a budget deficit that's requiring the government to borrow more than 40 cents of every dollar it spends. Areas of tentative agreement include trimming farm subsidies, auctioning electromagnetic spectrum to communications companies, and cutting student loan subsidies.

But with Republicans unwilling to accept some higher taxes — even in the wake of a sweeping Senate vote to eliminate the ethanol tax subsidy — Democrats were unwilling to agree to tougher steps like curbing Medicare and Medicaid.

All along, it was anticipated that the Biden group would only be able to get so far and that the toughest decisions, such as taxes and cuts to federal health care programs, would be kicked upstairs. Obama and Boehner sealed agreement in April on legislation to fund the government through the end of September.

"I would to expect to hear from (Obama)," Boehner said Thursday. Of Cantor's decision, the House speaker said: "I understand why he did what he did. I think those talks could continue if they're willing to take the tax hikes off the table."

There are only 5 1/2 weeks remaining until an Aug. 2 deadline for enacting an increase in the nation's debt limit to prevent a U.S. default. Economists warn that could damage the nation's credit rating and force the government to pay higher interest rates to continue to borrow the $125 billion a month it needs to finance its operations.

But increasing the borrowing cap is a politically poisonous vote for lawmakers, especially the tea party-backed Republicans controlling the House. Even while there's agreement between Obama and top congressional leaders that the debt cap simply has to be raised, a majority of the public — especially core conservative GOP supporters — says the debt limit shouldn't be lifted.

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Associated Press writer Ricardo Alonso-Zaldivar contributed to this report.

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