U.S. alert as Hurricane Irene threatens East Coast (Reuters)

SANTO DOMINGO (Reuters) – Hurricane Irene posed a potential threat to the entire U.S. East Coast from Florida to New England, U.S. officials said on Tuesday, as forecasters tried to predict where the powerful storm might hit over the next week.

U.S. Federal Emergency Management Agency (FEMA) Administrator Craig Fugate and National Hurricane Center Director Bill Read issued the warning as Irene swept up from the Caribbean on a northwest track toward the United States.

"We're going to have a very large tropical cyclone move up the Eastern Seaboard over the next five to seven days," Read told a conference call in which he spoke along with Fugate.

The FEMA chief said residents all along the East Coast should be alert not only to a potential direct landfall but also to the risk of torrential rains, high winds and flooding that Irene could bring.

"We're saying the entire East Coast," Fugate said.

Irene, now a Category 2 storm, was heading on Tuesday over the Turks and Caicos Islands and southeastern Bahamas. It was expected to become a major Category 3 storm, with winds over 111 mph, by Wednesday and could possibly intensify further to a Category 4 as it neared the southeast U.S. coast by Friday.

Calling Irene a "very large storm," Read said the Miami-based NHC's "best guess" forecast at the moment was that the hurricane would approach the coast of the Carolinas on Saturday morning as a major storm, of Category 3 or upward on the five-step Saffir-Simpson scale of intensity.

Read said the storm will skirt south Florida but added that after the Carolinas, the New England region of the East Coast could also be at particular risk.

"We're going to potentially see tropical storm-force conditions, very hazardous beach conditions," Fugate said, adding evacuations of coastal areas could be needed.

Irene, the first hurricane of the busy 2011 Atlantic season, looks set to be the first hurricane to hit the United States since Ike pounded the Texas coast in 2008.

At 11 a.m. (1500 GMT), Irene had top winds of 100 miles per hour and was 70 miles south of Grand Turk Island in the Turks and Caicos and 50 miles north northwest of Puerto Plata, Dominican Republic.

Hurricane force winds extended outward up to 50 miles from Irene's center and tropical storm force winds extended out up to 205 miles, the NHC said.

(Additional reporting by Jane Sutton and Tom Brown in Miami, Reuters in San Juan: Ben Berkowitz in New York; Writing by Pascal Fletcher; Editing by Philip Barbara)

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Moody's threatens Spain rating cut (Reuters)

MADRID (Reuters) – Rating agency Moody's put Spain on review for a possible downgrade on Friday, adding to concerns that a Greek rescue package has done little to halt the spread of Europe's debt crisis.

Moody's move to place the Aa2 government bond rating on review cited concerns over growth and said funding costs would continue to be high in the wake of euro zone leaders' bolder moves to curb the Greek crisis last week.

That added to a sense that Spain - and Italy - are still firmly in the firing line, and the euro and Spanish bond prices fell in response.

Particular focus rested on Spain's regional governments, many of whom are struggling with burgeoning debt loads after a decade of reckless spending. Analysts fear control over regions' debt loads is slipping out of the central government's grasp.

Regional authorities will miss their collective budget deficit target by up to 0.75 percent of gross domestic product (GDP), Moody's said, hampering the central government's program of austerity to reduce the overall shortfall.

"Regional governments' finances may prove difficult to control due to structural spending pressures, particularly in the healthcare sector," Moody's said in a release.

International investors are concerned the euro zone's fourth largest economy, hamstrung by anemic growth rates and high unemployment, will fail to put its fiscal house in order and need a Greek-style bailout. Nerves about that have sent bond yields to their highest level in over a decade.

Moody's current rating for Spain is in line with fellow rating agency S&P's AA setting, while Fitch Ratings has the country one notch higher at AA+

PERMANENT BURDEN

The euro fell more than 40 pips against the dollar in response and Spanish bond yields rose. Spain's cost of borrowing over ten years is now 6.11 percent compared to the 7 percent level broadly seen as unsustainable for the euro zone governments at risk in the crisis.

The country's rating remains at a high investment grade, far above those of Greece, Portugal and Ireland.

But while Moody's said any cut for Spain would likely be limited to one notch, it said the Greek package had signaled a clear shift in risk for bondholders across the euro zone.

"The trigger is that the (Greek) deal last week has not really rebuilt confidence across the euro zone so Spain is still on their radar screens with costs rising," said Giada Giani, analyst at U.S. bank Citi.

The Spanish Treasury said the external arguments supporting the ratings review relied excessively on short-term market developments in a letter sent to investors on Friday morning and seen by Reuters.

"Moody's assumes that the current high yields that have been generated by the resolutions around the Greek crisis will become a permanent burden on non-AAA sovereign funding costs," the Treasury said.

Spanish bank shares also fell over 2.4 percent as Moody's placed the debt and deposit ratings of five Spanish banks, including the euro zone's biggest bank Santander, on review for downgrade, in line with the sovereign.

RESCUE FUND CONCERNS

While the Greek rescue package set a precedent for private sector participation in future restructuring in the euro area, Moody's highlighted concerns about when or how the euro zone's rescue fund (EFSF) would be able to engage more strongly in battling the crisis.

"The package has not relieved market concerns over the position of such sovereigns because (i) it sets a precedent for private sector participation in future sovereign debt restructurings in the euro area, and (ii) while an expansion of powers has been proposed for the EFSF, it is not clear when the powers will be implemented," the agency said.

Moody's placed the Aa2 rating of Spain's bank restructuring fund, the FROB, on review for possible downgrade as its debt is underwritten by the sovereign.

The agency also downgraded the ratings of six Spanish regions reflecting the deterioration in their fiscal and debt positions. The regions were Castilla-La Mancha, Murcia, Valencia, Catalonia, Andalusia and Castilla y Leon.

It placed a further seven regional debt ratings under review for downgrade.

The Spanish government has set a deficit target of 1.3 percent of gross domestic product for the 17 regions for this year and next, but some of their new governors say this will be impossible due to previous leaders' fiscal mismanagement.

"That the regions are going to overshoot is clear," said Antonio Garcia Pascual, chief economist for Southern Europe at Barclays Capital in London.

"The question will be whether the central government can create a buffer which is big enough to offset that effect, and that is going to be complicated. In the fourth quarter all the skeletons will start to come out of the closet."

According to a Deutsche Bank study, if all the regions with a deficit above 3 percent in 2010 follow Catalonia's lead in missing the deficit target by a third, it would inflate the overall public deficit by 0.64 percentage points.

The government is aiming for an overall public deficit of 6.0 percent of GDP this year, compared to 9.2 percent of GDP in 2010 -- something that also largely depends on growth.

Data on Friday showed Spain's unemployment inched down to 20.9 percent in the second quarter, remaining by far the highest in the EU.

"There seems to be an indication that there's some stabilization, but the key point is the labor market remains extremely distressed," economist at RBS Silvio Peruzzo said.

(Additional reporting by Paul Day; Writing by Sonya Dowsett; editing by Patrick Graham)

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Rebels brace for attacks as Gaddafi threatens Europe (Reuters)

DAFNIYA/AL-QAWALISH, Libya (Reuters) – Rebel fighters braced for further attacks on Saturday from forces loyal to Muammar Gaddafi after the Libyan leader staged a show of support at home and threatened to strike his enemies abroad.

Rebels in Misrata said the death toll in the western town, a longtime insurgent stronghold, had risen to seven from six, with at least 17 wounded, after a heavy attack by Gaddafi artillery the day before.

A rebel spokesman in the town on the Mediterranean coast, who gave his name as Youssef, told Reuters: "The situation is calm today in Misrata. Yesterday seven rebels were killed. We expect fighting this evening."

Rebels have advanced on two fronts against Gaddafi forces in recent days, but government troops have fought back and Gaddafi has also sought to encourage his forces.

In a defiant speech late on Friday, Gaddafi threatened to export the war to Europe in revenge for the NATO-led military campaign against him, and to crush his enemies.

The "traitors" ranged against him in Libya and elsewhere will "fall under the feet" of the Libyan masses, he said.

In Tripoli and 800 km (500 miles) to the south in the desert town of Sabha, tens of thousands -- swelled by representatives of the tribes of the region -- gathered for Friday prayers in what appeared to be an attempt to show that Gaddafi enjoys widespread support in the areas he still controls despite the rebel gains of recent weeks.

Gaddafi supporters rallied in Tripoli's Green Square, underscoring his refusal to step down after four decades in power and five months of fighting.

Speaking on Libyan television, Gaddafi threatened to send hundreds of Libyans to carry out revenge attacks in Europe.

"Hundreds of Libyans will martyr in Europe. I told you it is eye for an eye and tooth for a tooth. But we will give them a chance to come to their senses," he said in an audio speech.

HEAVY FIRE

While the insurgents have advanced on two fronts, rebels in Misrata have come under heavy artillery fire from Gaddafi's forces.

A rebel sympathizer in Misrata told Reuters opposition forces had been moving closer to neighboring Zlitan, one of a chain of government-controlled towns blocking their advance to Tripoli.

As they advanced, pro-Gaddafi troops inside the city fired rounds of explosives to block their progress, the sympathizer said in an email.

"The rebels are waiting for NATO backup or for Gaddafi forces to run out of ammunition to make a move to take the city center," he said.

On the other major front, in the Western Mountains region southwest of Tripoli, NATO warplanes bombed forces loyal to Gaddafi several times on Friday, their bombs landing about 3 km (2 miles) east of the village of Al-Qawalish, according to one rebel fighter.

After weeks of static fighting, the rebels have made significant advances this week: pushing west from Misrata to within 13 km (8 miles) of Zlitan, where large numbers of pro-Gaddafi forces are based, and seizing the village of Al-Qawalish in the southwest.

Taking Al-Qawalish brings them closer to having control of a major highway into the capital.

Rebel advances over the last two weeks have allowed normal life to resume in towns no longer within shelling distance of Gaddafi's troops.

Rebels staged a military parade on Friday evening in Zintan, driving tanks through the streets of town in the Western Mountains. People fired rifles in the air including one small boy who opened fire with a Kalashnikov assault rifle while perched on his father's shoulders.

(Additional reporting by Lamine Chikhi in Sabha, Joseph Nasr in Berlin, Tarek Amara in Tunis; Writing by Giles Elgood)

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