UPDATE 1-Major U.S. banks close to big settlement on home loans

n" readability="60">Dec 31 (Reuters) - U.S. regulators are close to securing another multibillion-dollar settlement with the largest banks to resolve allegations that they unlawfully cut corners when foreclosing on delinquent borrowers, a source familiar with the talks said.

The settlement with five big banks would be part of a larger deal that the Office of the Comptroller of the Currency hopes will include 14 banks and total about $10 billion, the source said.

Such a settlement would address an outstanding issue that was left unsettled after the $25 billion deal that the banks reached in February with the Justice Department, housing authorities, and state attorneys general.

In 2011, the OCC had separately required the big banks to "look back" and compensate borrowers wrongfully foreclosed upon in 2009 and 2010. It appears that the case-by-case analysis is proving too cumbersome, and the banks are instead opting for a lump-sum settlement.

The top five mortgage lenders -- Bank of America Corp , Wells Fargo & Co, JPMorgan Chase & Co, Citigroup Inc and Ally Financial Inc -- may reach a deal in the coming days, the source said.

The largest banks would pay the majority of the $10 billion target. That money would be paid out to a group of borrowers foreclosed upon during the period of time covered by the review, said the source, who was not authorized to speak publicly.

The OCC and the banks are still negotiating how to calculate individual payouts, the source said, adding that regulators will give the banks credit for compensation they have already given borrowers as part of ongoing foreclosure reviews.

The New York Times first reported the pending deal.

"The Office of the Comptroller of the Currency is committed to ensuring the Independent Foreclosure Review proceeds efficiently and to ensuring harmed borrowers are compensated as quickly as possible," the OCC said in a statement.

Ally, Wells Fargo, JPMorgan, Bank of America and Citigroup declined to comment.

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CORRECTED-EPA faces legal battles, might take easy confirmation road

(Corrects name of environmental group to Natural Resources Defense Council from National Resources Defense Council in 10th paragraph)

* Pollution rules for power plants likely to draw challenges once finalized

* Acting administrator could continue without confirmation

* Agency has had mostly success in DC court of appeals

By Valerie Volcovici

WASHINGTON, Dec 30 (Reuters) - Regardless of who takes the reins, the U.S. Environmental Protection Agency will likely face continued legal battles in President Barack Obama's second term as it tries to finalize pollution rules for power plants, analysts said.

EPA Administrator Lisa Jackson, who spearheaded the Obama administration's regulation of carbon emissions, said on Thursday she will step down after almost four years.

Her tenure was marked by opposition from industry groups and Republican lawmakers to the EPA's first-ever crackdown on carbon emissions, as well as other anti-pollution measures.

Analysts said whoever succeeds Jackson will probably face a spate of lawsuits to challenge rules that the EPA will finalize governing power plants, industrial sources and oil and gas production.

"This is shaping up to be four years of litigation," said Christopher Guith, vice president for policy at the U.S. Chamber of Commerce's Energy Institute.

Given the partisan divide, Guith said, legislators would struggle to draft laws that could serve as alternatives to the EPA's pending suite of carbon and air regulation.

"As we look to an even more divided Congress, the action will be in the federal courts," he said.

The U.S. Court of Appeals for the District of Columbia circuit, which hears most challenges to federal environmental rules, is likely to be busy as industry groups and states bring their cases against the EPA's rules after they are finalized.

The court sided with the agency in most of the recent challenges, most notably upholding its decision to use the Clean Air Act to regulate carbon dioxide emissions.

David Doniger, policy director of the Natural Resources Defense Council's Climate and Clean Air Program, said this could bolster the EPA as it tackles rules that may be more controversial than those rolled out under Jackson.

"The agency has a very good batting record on the clean air side. Carbon and climate (regulations) have come through completely unscathed," he said.

CARETAKER ADMINISTRATOR?

After the EPA was a political lightning rod during the first Obama administration, the president is likely to seek out a safe, possibly internal choice as Jackson's successor, or to avoid the confirmation process altogether.

"There are just so many arrows pointed at this agency," said Susan Tierney, managing principal and energy and environment specialist at Boston-based Analysis Group

Bob Perciasepe, deputy EPA administrator, will take over on an interim basis and could continue in that role indefinitely.

He previously worked at the EPA during the Clinton administration, specializing in water and air quality. Before rejoining the agency, Perciasepe was a top official at the National Audubon Society, a major conservation group.

Tierney said she expects the EPA to stay the course on its current agenda, especially as the agency faces some court-ordered deadlines to finalize rules, such as for coal ash, industrial waste from coal-fired plants and ozone standards.

PRIORITY ON CLIMATE CHANGE?

Some environmentalists have criticized Obama for being too timid on climate issues during his first term. But in his acceptance speech on election night in November the president gave a nod to climate change, raising hopes for more activism.

The White House may lean on the EPA to tackle one of the largest sources of U.S. greenhouse gas emissions, the current fleet of power plants, said Jeremy Symons, senior vice president at the National Wildlife Federation.

"The president has made clear that climate change is one of his top three priorities for the second term, so that means EPA needs to do its job," Symons said.

This, he said, means the agency needs to finalize the rules for new power plants and the standards for limiting carbon emissions from existing power plants.

The NRDC's Doniger said once the EPA meets an April 2013 legal deadline to finalize the greenhouse gas rules for new power plants, it will then have to address standards for existing plants.

The EPA has to start promptly in the beginning of the second term, said Doniger, because the rulemaking process is "a multistep process that will take time."

The controversial task will almost certainly trigger lawsuits because the rules will target a large number of domestic power plants and could jeopardize electric reliability.

"It's high stakes litigation when you are talking about bringing 40 percent of generation under regulations. That's disastrous," the Chamber's Guith said.

Guith said that while the EPA does have the authority to regulate carbon dioxide using the Clean Air Act, its rules are too difficult for industry - forcing the litigation.

"This EPA has been so aggressive in pushing the envelope by way of the compliance timeline that it has made itself more vulnerable to lawsuits," he said.

The EPA may also face legal challenges from environmental groups and certain states. The NRDC, the Environmental Defense Fund and the Sierra Club joined a group of nine states led by New York that threatened to sue the EPA last year to propose air pollution standards for oil and gas drilling.

They said that the drilling, transportation and distribution resulted in a significant release of methane, a potent greenhouse gas that is not regulated by federal rules.

Doniger said the group is trying to negotiate a timeline with the EPA to set a rule but could sue the agency if it doesn't agree a schedule by February. (Additional reporting by Ayesha Rascoe; Editing by Gary Hill)

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UPDATE 3-US approves J&J drug-resistant tuberculosis treatment

* Sirturo uses new mechanism to fight TB

* Blocks enzyme TB bacteria need to survive

* Will carry warning about risks, including death

By Toni Clarke

Dec 31 (Reuters) - U.S. health regulators have approved a new Johnson & Johnson drug for patients with tuberculosis who do not respond to other treatments, the company said.

The drug is the first in 40 years to tackle the disease using a new mechanism of action, according to J&J. The drug blocks an energy-producing enzyme that tuberculosis bacteria need to survive.

The U.S. Food and Drug Administration approved the drug, chemically known as bedaquiline and to be marketed as Sirturo, on Monday following a positive review by an advisory panel last month.

Tuberculosis is an air-spread infection that usually attacks the lungs but it can also affect the brain, the spine and the kidneys.

In 2011, nearly 9 million people around the world became sick with TB, according to the Centers for Disease Control and Prevention, and there were 1.4 million TB-related deaths. The disease requires six to nine months of drug treatment.

TB is more prevalent now than at any time in history, FDA Commissioner Margaret Hamburg wrote in a blog on the FDA website. This drug will help treat and cure patients who are putting themselves and others at serious health risk, she said.

The drug itself has significant potential risks, she wrote, and will carry a warning about an increased rate of death observed in patients who received it.

Her comments followed those of the FDA advisers who found the drug to be effective, though they noted that more deaths were seen in the group of patients who took bedaquiline in combination with standard treatments than in the group that took standard drugs alone.

Doctors Without Borders said that the drug was a "potential game changer" against drug-resistant forms of the disease and an important milestone in fighting TB.

Multidrug-resistant tuberculosis is caused by strains of the bacterium that have become resistant to at least isoniazid and rifampin, the two most potent drugs for TB.

Support has not been unanimous. Consumer advocacy group Public Citizen earlier this month said it had written to the FDA because of the risks of death asking it not to approve of the drug, which received a fast approval.

DETAILS FROM TRIAL

Chrispin Kambili, medical affairs leader for bedaquiline at J&J's Janssen Therapeutics unit, said in a recent interview that the company is studying the difference in death rates but has so far seen no common pattern.

Almost every death was due to a different cause, including a motor vehicle accident. What was unusual, he said, was the low rate of death in the placebo group.

Advisers to the FDA expressed concern that a greater number of patients had elevated liver enzymes, a potential sign of liver toxicity, and elongated QT levels, an electrical irregularity in the heart that can cause sudden death.

But Kambili said none of the patients died due to serious QT prolongation and there was no unifying findings in the data.

Kambili said J&J's drug is designed for a relatively small portion of patients - some 650,000 - who do not respond to existing therapies.

And while investment analysts at Cowen and Co have forecast peak annual sales of the product at a relatively modest $300 million, the drug is important from a public health standpoint, Kambili said.

J&J shares were 0.1 percent higher to $69.56 in late morning trading on the New York Stock Exchange.

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UPDATE 2-Publisher Tribune emerges from bankruptcy

* Former Fox Ent. Chairman Liguori may be CEO

* New board includes former execs of Yahoo, Disney

* Co includes 23 TV stations, 8 dailies

Dec 31 (Reuters) - U.S. media giant Tribune Co, owner of the Los Angeles Times and the Chicago Tribune, emerged from bankruptcy on Monday, ending four years of Chapter 11 reorganization.

Chicago-based Tribune's said on Sunday that its portfolio would include eight major daily newspapers and 23 TV stations.

As part of the Chapter 11 exit, the company closed on a new $1.1 billion senior secured term loan and a new $300 million asset-based revolving credit facility.

The term loan will be used to fund certain payments under the plan of reorganization and the revolving credit facility will be used to fund ongoing operations, the company said.

Upon exiting bankruptcy, Tribune will have issued to former creditors a mix of about 100 million shares of new class A common stock and new class B common stock and new warrants to purchase shares of new class A or class B common stock.

Chief executive Eddy Hartenstein will remain in his role until the new board ratifies the company's executive officers.

The company announced a seven-person board that includes Hartenstein, former Fox Entertainment chairman Peter Liguori, former Yahoo interim CEO Ross Levinsohn and Peter Murphy, Walt Disney's former top strategic planning executive.

Liguori is expected to be named Tribune's new CEO.

In November, Tribune received regulatory approval from the Federal Communications Commission to transfer its broadcast licenses to the owners who would take it over after emerging from bankruptcy.

The company's reorganization plan was confirmed by the Delaware bankruptcy court in July.

The case is In re: Tribune Co et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141.

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UPDATE 4-Publisher Tribune emerges from 4-year bankruptcy

* Former Discovery Comms COO Liguori expected to be CEO

* New board includes former execs of Yahoo, Disney

* LA Times could fetch $130 mln in auction-analyst

* Company includes 23 TV stations, 8 dailies

By Liana B. Baker and Ashutosh Pandey

Dec 31 (Reuters) - U.S. media giant Tribune Co emerged from bankruptcy on Monday, ending four years of Chapter 11 reorganization and potentially setting itself up for a future without newspapers.

Tribune's controlling owners, which include hedge funds Oaktree Capital and Angelo, Gordon & Co, and JPMorgan Chase & Co intend to sell most, if not all, of its newspapers and already have expressions of interest for The Los Angeles Times, The Orlando Sentinel and others, Reuters has reported.

For now at least, the Chicago-based company said its portfolio would include eight major daily newspapers and 23 TV stations.

Tribune's newspapers remain profitable despite the falloff in readers and advertising. Veteran newspaper analyst John Morton, President of Morton Research, estimated the Los Angeles Times could fetch $130 million at an auction, while the Chicago Tribune could garner $86 million in a sale.

Oaktree is the biggest Tribune shareholder, owning about 23 percent of the company while Angelo Gordon and JP Morgan each hold a 9 percent stake.

"Tribune will emerge as a dynamic multi-media company with a great mix of profitable assets, powerful brands in major markets, sufficient liquidity for operations and investments and significantly less debt," Chief Executive Eddy Hartenstein said in a statement.

As part of the Chapter 11 exit, the company closed on a new $1.1 billion senior secured term loan and a new $300 million asset-based revolving credit facility.

The term loan will be used to fund certain payments under the plan of reorganization and the revolving credit facility will be used to fund ongoing operations, the company said.

Tribune's most actively traded debt, a $5.5 billion loan due in May 2014, was most recently trading at 83 cents on the dollar, according to Thomson Reuters data.

Upon exiting bankruptcy, Tribune will have issued to former creditors a mix of about 100 million shares of new class A common stock and new class B common stock, and new warrants to purchase shares of new class A or class B common stock.

Hartenstein will remain CEO until the new Tribune board names a new management team. Peter Liguori, a former Discovery Communications chief operating officer, is expected to be named CEO.

The company announced a seven-person board that includes Hartenstein, Liguori, former Yahoo CEO Ross Levinsohn and Peter Murphy, Walt Disney's former top strategic planning executive.

Tribune is expected to focus on building its TV operations. In its portfolio, it owns WGN America, a national feed of Tribune's Chicago TV stations that it distributes through cable and satellite to more than 76 million U.S. homes.

Horizon Media analyst Brad Adgate said WGN could expand its base by 20 million to 25 million homes if it adds original programming to its lineup.

Tribune's TV operations are estimated to account for $2.85 billion of the company's $7 billion valuation, while its publishing assets are estimated to represent $623 million, according to a report by its financial advisor, Lazard. The rest of its value resides in assets including its 30 percent stake in the Food Network and its cash balance.

In November, Tribune received regulatory approval from the Federal Communications Commission to transfer its broadcast licenses to the owners who would take it over after emerging from bankruptcy.

Real estate magnate Sam Zell stunned the media industry when he took the company private in 2007 in an $8.2 billion leveraged buyout that burdened the company with debt and that many observers warned would be disastrous. Tribune was forced into bankruptcy in 2008.

The company's reorganization plan was confirmed by the Delaware bankruptcy court in July.

The case is In re: Tribune Co et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141.

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Cash payouts to fall as banks squeeze bonus pots

* Some may reward staff with recovering toxic assets

* Overall bonuses may be down as much as 30 percent

* Bankers to stay put due to job cuts

By Sarah White and Anjuli Davies

LONDON, Dec 31 (Reuters) - Many European banks are likely to limit the cash portion of this year's staff bonuses as rocky markets, tighter capital rules and costly scandals take their toll.

Under pressure from politicians, regulators and shareholders, firms are shifting further away from the big upfront handouts of the boom years. Some are expected to opt for a mixture of shares and risky assets - the kind which provoked the global financial crisis in 2008 but in some cases are now regaining value.

Britain's Barclays already capped cash awards at 65,000 pounds ($105,000) for 2011 payouts, and those types of limits will feature again at several firms, bankers and headhunters said.

In total, 2012 bonuses could be down by as much as 30 percent on 2011 levels, senior managers believe, and the structure of awards is changing as regulators press the banks to clamp down on short term rewards.

"I'm sure there will be lots of different structures this year with different products, and attempts to cap the cash element. Either way bonuses will be down," said Stephane Rambosson, managing partner of executive search firm Veni Partners.

In the past year the industry has been caught up in a series of scandals ranging from mis-selling of financial products and a failure to prevent money laundering to the rigging of the Libor interest rate. Regulators have slapped heavy fines on a number of banks and disgruntled customers are following up with civil law suits.

All this is affecting the size and shape of bonuses.

"It's a mix of politicians and regulators wanting (pay) to be down and wanting to see an impact in the media, and also banks' new business models, which will mean that people will get paid less in future," Rambosson said.

During the crisis, many assets such as sub-prime mortgages became essentially worthless as no one would buy them, fearing that the borrowers would default. But as the crisis eased, some have begun to regain value - albeit from near zero levels - and banks are now using these assets and other risky type of bonds to reward their staff.

Credit Suisse is examining yet more ways to include different types of products as part of its 2012 bonus round, according to two sources familiar with the matter. The bank declined to comment.

As long as four years ago, the Swiss bank paid a group of employees with some of the riskiest assets on its balance sheet as their bonus, and unveiled a similar programme for 2011 awards. Know as PAF2, the plan linked bonuses for 5,500 senior bankers to about $5 billion in illiquid assets that fell in value in the crisis.

This form of payout can be attractive, and the value of some of the assets has grown again, netting paper gains for the bankers - some of whom even jumped at a chance to buy more of the risky assets in the past year.

But this programme and others like it, where bankers are paid in shares, make it harder to cash in straight away, with stock rewards for instance deferred for several years, or in some cases such as at HSBC, until certain employees leave or retire.

European Union rules force banks to defer at least 40 percent of a bonus for at least three years, though many firms are now going further than this, partly trying to counter the public outcry over big bonuses after the crisis.

NO EXCITEMENT THIS YEAR

Expectations over bonuses are already low as banks put the final touches to bonus pots and decide how they will be allocated in the first quarter.

Only at a handful of firms are some bankers hopeful of doing slightly better. Goldman Sachs, for instance, put aside more money for pay in the first nine months of 2012 than in the year before. Staff there are due to find out about rewards at the end of January.

But most top investment banks have been cutting back drastically this year to cope with stricter capital rules and weak revenues, leading to mass layoffs this year and prompting some such as UBS and Royal Bank of Scotland to ditch entire businesses.

That will force pay levels down too, as well as bring more changes to bonus structures, while many banks will also be concerned about appeasing shareholders who rebelled against reward plans for 2011.

"No one is very excited this year," said one banker in London, who wished to remain anonymous. "Bankers still do a lot better than most people but pay is very different today than it was five years go. It is not as attractive career as it was."

Germany's Deutsche Bank decided earlier this year to defer any part of an employee's bonus above 200,000 euros, and further restricted how much of that payout would be in cash.

Since then, its new chief executives Anshu Jain and Juergen Fitschen have warned that pay will drop as they crack down on a risk-taking culture driven by short-term gain - possibly signalling further tweaks to pay structures.

Others like Barclays, fined in the Libor rate rigging scandal this year which forced the departure of boss Bob Diamond, will also be keen to show a fresh attitude to pay.

Few bankers are likely to collect their 2012 rewards and jump ship as they might have in fatter years, however, or quit if they don't get what they had hoped for as more job cuts loom.

"We are just expecting zeroes," said another investment banker in London. "But this doesn't make me rethink my career as there is nowhere else to go right now."

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MIDEAST DEBT-UAE risks slowing property recovery with mortgage cap

* UAE caps home loans at 50 pct of property value for expats

* Central bank sets cap at 70 pct for UAE citizens

* Aims to prevent any repeat of real estate bubble

* But rules may dampen residential market sales

* Unclear if rules will be implemented strictly

By Praveen Menon and Mirna Sleiman

DUBAI, Dec 31 (Reuters) - Last September, people lined up for hours in a square outside the headquarters of leading Dubai real estate developer Emaar Properties, waiting for a chance to buy units in a luxury apartment complex.

The complex, in a fashionable area of downtown Dubai, had not yet been built. But the buyers, who included foreigners from Europe and Asia as well as local citizens, were so keen to get hold of the apartments that they were willing to sign up based on construction plans.

Some were hoping to make money even before the units were completed, by selling on their ownership if property prices rose. The scene recalled, on a smaller scale, Dubai's property bubble of the mid-2000s, when frenzied speculation sent real estate prices soaring.

By introducing caps on mortgage lending, the UAE's central bank signalled this week that it was determined not to allow another bubble to form.

The rules could ensure that the wealthy country grows in a more stable manner than it has done over the past decade of boom and bust. But they could also hurt a fledgling recovery in the property market - and the abrupt way in which they were introduced illustrates the risks of doing business in an unpredictable regulatory environment.

"There was no consultation on this...it was unilaterally decided by the central bank," said one Abu Dhabi commercial banker, who declined to be named because of the political and commercial sensitivity of the issue.

"It makes no sense to limit lending to expats when the property market has just begun to see a revival."

CIRCULAR

A circular sent to commercial banks by the central bank on Sunday says mortgage loans for foreign individuals should not exceed 50 percent of the property value for a first purchase of a home, and 40 percent for second and subsequent homes.

The caps for UAE citizens were set at 70 percent for a first home and 60 percent for subsequent ones.

Foreigners, most of them working in the country, account for about 80 percent of the UAE's population of roughly 8 million, and are major buyers in designated areas where they are permitted to own property.

Gaurav Shivpuri, head of capital markets at consultancy Jones Lang LaSalle MENA, said about 30 to 40 percent of home and commercial property sales in the UAE were through mortgages. Bankers estimate about 60 to 70 percent of mortgage customers in the country are expatriates.

So the central bank's new regulations, which resemble those imposed in some other countries including Singapore, could have a major impact on the real estate sector.

"If and when such measures are implemented, they could well take some of the fizz out of the residential market from a sales perspective," Chavan Bhogaita, head of the markets strategy unit at National Bank of Abu Dhabi.

"However, looking at this with a longer-term or strategic view, one could argue that such a move would help to remove speculators from the market - which would certainly be a positive aspect."

The question being asked by many UAE bankers and real estate developers this week is whether the central bank may have acted too soon, in which case it risks stifling a property market recovery that has only become apparent in the last few months.

UAE property prices plunged over 50 percent between 2008 and 2011, triggering a corporate debt crisis in Dubai that forced the restructuring of billions of dollars of loans. In 2012, residential prices in parts of Dubai began to pick up and developers are again laying plans for high-end projects.

Mohammed Ali Yasin, managing director at NBAD Securities, said he did not think the new rules would end the recovery of the property market, but they might slow it.

"Banks, which are currently lending up to 85 percent of the property value, will face challenges to deal with this new mortgage cap," he said. He added that about 40 percent of bank lending in the UAE was to real estate firms.

REGULATION

Another worrying aspect of the circular was its abruptness; several commercial bankers said they were caught off guard by the move, and called day-long meetings on the last day of the year to assess the impact on their business.

Many said they needed to find out details that were not given in the brief circular. For example, no time frame for implementation of the rules was specified, and it was not clear if the rules would affect existing mortgages.

"This only came yesterday so it's still early to analyse the implications. We're still examining the impact of it," said Suvo Sarkar, general manager for retail banking at Emirates NBD , Dubai's biggest bank.

"We will be contacting the central bank very soon to clarify a few things like time frame for implementation."

Central bank officials could not be reached to comment on Sunday or Monday. But the suddenness of the circular raised questions over whether the central bank was coordinating closely with other parts of the government.

Abu Dhabi's state tourism development company, TDIC, signed a deal with Abu Dhabi Islamic Bank earlier in December to start offering investors 100 percent mortgages of up to 30 million dirhams ($8.2 million) for purchases of luxury homes on the emirate's Saadiyat Island, local media reports said.

It is not clear whether the new mortgage rules will be strictly imposed; the central bank has previously tried to regulate the lending of commercial banks, only to back off after the banks protested.

The central bank announced in April that from Sept. 30, banks would have to limit their exposure to state-linked entities. Some big banks were above the limits when the deadline passed, and in December, the central bank announced it was suspending the rules while it consulted banks.

Expectations that the new mortgage rules could meet the same fate may have limited falls in the share prices of UAE property developers and banks on Monday. Emaar dropped only 1.6 percent.

In a statement the company, which is partly state-owned, said it welcomed the new rules.

"The decision by the central bank regarding mortgage limits will contribute to strengthening the property sector by encouraging serious buyers to invest in the country's property sector," it said.

"Emaar has recorded a strong response to its property launches this year, and we expect the trend to continue in 2013 by drawing on the positive growth of the economy and growing demand for homes in premium lifestyle communities."

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Major banks close to $10 bln settlement on home loans - NYT

n">Dec 31 (Reuters) - U.S. regulators are nearing a $10 billion settlement with several banks that would end the government's efforts to hold lenders responsible for faulty foreclosure practices, the New York Times reported, citing people with knowledge of the talks.

Under the settlement currently being discussed, about $3.75 billion would go to people who have already lost their homes, the New York Times said.

The latest settlement would be potentially more than a broad pact agreed in February between state attorneys general and five large banks. That set aside $1.5 billion in cash relief.

In February, Bank of America Corp, Wells Fargo & Co , JPMorgan Chase & Co, Citigroup Inc and Ally Financial Inc agreed to a $25 billion government settlement to release them from claims over faulty foreclosures and the mishandling of requests for loan modifications.

The New York Times said 14 banks are now involved in the latest settlement talks with the U.S. authorities, including the five that had agreed to a similar settlement in February. The paper did not name other banks. ()

A deal could be reached by the end of the week between the 14 banks and the nation's top banking regulators, led by the Office of the Comptroller of the Currency, four people with knowledge of the negotiations told the newspaper.

As per the settlement being negotiated, $6 billion would come from banks to be used for relief for homeowners, including reducing their principal, helping them refinance and donating abandoned homes, the New York Times said.

Also, the banks will have to hire independent consultants to comb through loan records to determine whether the banks illegally charged fees, forced homeowners to take out costly insurance or miscalculated loan payment amounts, according to the newspaper.

Wells Fargo spokesman Ancel Martinez had no immediate comment on the New York Times report when contacted by Reuters, while JPMorgan spokesman Joseph Evangelisti declined to comment.

None of the other banks named in the report could immediately be reached for comments by Reuters outside of regular U.S. business hours.

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UPDATE 1-Publisher Tribune to emerge from bankruptcy on Dec. 31

* Former Fox Ent. chairman Liguori may get CEO job

* New board to include former execs of Yahoo, Disney

* Reorganized company includes 23 TV stations, 8 dailies

Dec 31 (Reuters) - U.S. media giant The Tribune Co, owner of the Los Angeles Times and the Chicago Tribune, said late on Sunday it will emerge from bankruptcy on Dec. 31, ending four years of Chapter 11 reorganization.

Chicago-based Tribune said it will emerge from the Chapter 11 process with a portfolio of profitable assets that will include eight major daily newspapers and 23 TV stations. The company will also have a new board of directors.

"Tribune will emerge as a dynamic multi-media company with a great mix of profitable assets, powerful brands in major markets, sufficient liquidity for operations and investments and significantly less debt," Eddy Hartenstein, Tribune's chief executive officer, said in an email to employees. "In short, Tribune is far stronger than it was when we began the Chapter 11 process."

As part of the Chapter 11 exit, the company will close on a new $1.1 billion senior secured term loan and a new $300 million asset-based revolving credit facility.

The term loan will be used to fund certain payments under the plan of reorganization and the revolving credit facility will be used to fund ongoing operations, the company said.

Upon exiting bankruptcy, Tribune will have issued to former creditors a mix of about 100 million shares of new class A common stock and new class B common stock and new warrants to purchase shares of new class A or class B common stock.

The current chief executive officer, Eddy Hartenstein, will remain in his role until the new board ratifies the company's executive officers.

The company announced a seven-person board that includes Hartenstein, former Fox Entertainment chairman Peter Liguori, former Yahoo interim CEO Ross Levinshohn and Peter Murphy, Walt Disney's former top strategic planning executive.

Liquori is expected to be named Tribune's new chief executive officer.

In November, Tribune received regulatory approval from the Federal Communications Commission (FCC) to transfer its broadcast licenses to the owners who will take over the company when it emerges from bankruptcy.

The company's plan of reorganization was confirmed by the Delaware bankruptcy court in July. Tribune's emergence from bankruptcy was conditional on the FCC approving the transfer of the broadcast licenses to new owners.

The case is In re: Tribune Co et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141.

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REFILE-UPDATE 3-US Senate, House ag committees in deal to avert milk price spike

* Proposal adds year to expired 2008 law; Monday vote possible

* Follows rising alarm about potential milk price doubling

* Plan creates new dairy subsidy program keyed on feed cost

* Another year of costly 'direct payment' subsidy to growers

By Jim Wolf

WASHINGTON, Dec 30 (Reuters) - Farm-state lawmakers have agreed to a one-year extension of the expiring U.S. farm law that, if enacted, would head off a possible doubling of retail milk prices to $7 or more a gallon in early 2013.

The extension would end a 32-month attempt to update farm subsidies dating from the Depression era, when farmers were crushed by low prices and huge crop surpluses, to meet today's high-wire challenges of tight food supplies, high operating costs and volatile markets.

House Agriculture Committee Chairman Frank Lucas, an Oklahoma Republican, said on Sunday he hoped the legislation would be passed by Congress and signed by President Barack Obama by Tuesday to avoid higher prices for milk in grocery stores.

The bill was listed among measures that could be called for a vote on Monday in the House of Representatives although action was not guaranteed.

Despite consensus on the need to extend the farm bill, lawmakers continue to discuss how long the extension should be.

Representative Tom Cole, an Oklahoma Republican, told reporters late on Sunday a nine-month farm bill extension was being considered as part of deal being crafted in the Senate to stave off the "fiscal cliff" of automatic tax hikes and spending cuts that begin kicking in on Jan. 1.

"There's good chance that if there is a package out of the Senate, it will include something on the farm bill. The easiest thing to get done would be nine months of current law," Cole said.

A second Republican, Representative Steven LaTourette, said a nine-month extension could be part of the fiscal cliff package or could move separately if the fiscal talks fail.

House Republican leaders refused to call a vote during the fall on a full-scale, $500 billion farm bill on grounds it might fail because it did not cut spending enough.

Grain, soybean and cotton growers would get another round of the $5 billion "direct payment" subsidy that all sides agreed to kill in a new farm bill. The payments are made regardless of need. Reformers say the payments are unjustified when crop prices and farm income are at near-record levels.

DISASTER MONEY AND A NEW DAIRY PROGRAM

Also in the extension, lawmakers would revive agricultural disaster-relief programs that ran out of money a year ago and create a new dairy subsidy program. It would compensate dairy farmers whenever milk prices are low and feed prices are high. The so-called margin protection program would require farmers to limit production to avert a long run of low dairy prices.

Traditionally, the dairy program sets a minimum price for milk through government purchase of butter, cheese and dry milk. If Congress does not act, the dairy support price will revert on Tuesday to the level dictated by an outmoded 1949 law and which is roughly double the price now paid to farmers.

The potential retail milk price has been estimated at $6 to $8 a gallon versus current levels near $3.50.

Agriculture Secretary Tom Vilsack, during an interview broadcast by CNN, said higher milk prices - if it comes to that - would ripple throughout all commodities "if this thing goes on for an extended period of time."

Senator Debbie Stabenow, chairwoman of the Senate Agriculture Committee, said the "responsible short-term farm bill extension ... not only stops milk prices from spiking, but also prevents eventual damage to our entire agriculture economy."

TWO FALLBACKS IF EXTENSION FALTERS

House Republican leaders readied two alternatives, if needed, to the one-year extension. One was a one-month extension of the now-expired 2008 farm law without disaster funds or the new dairy program and the other was a one-month suspension of the dairy provisions of the 1949 law.

It was not clear which bill would be called for debate, a farm lobbyist said on Sunday. A small-farm activist said any package passed by Congress must include rural economic development funds and money for soil conservation on "working lands," the largest of USDA's conservation programs.

"If a new farm bill doesn't pass this Congress, we'll soon hold another mark-up and just keep working until one is enacted next year," said Stabenow, a Michigan Democrat.

It would be the first time on record that Congress began drafting a farm bill during a two-year session and had to carry it into the following session, congressional researchers said. Hearings on the new farm bill began April 21, 2010.

HOUSE, SENATE DISPUTE ON BIG CUTS

While dairy producers generally support the so-called margin-protection program as the answer to high feed costs, processors and foodmakers oppose it. They say it is wrong-minded in its premise of curtailing production when prices are low, and it will destroy a healthy export market for dairy products.

The rejuvenated disaster programs would cover losses from this year's widespread drought, especially for livestock producers, although tree farmers, honey bees and farm-raised fish are also covered. Maximum payment would be $100,000.

Senators passed a farm bill in June estimated to save $23 billion over 10 years, with most of the cuts in crop subsidies and conservation programs. The House Agriculture Committee approved a bill with $35 billion in cuts in July, half of it in food stamps for the poor - the biggest cut in food stamps in a generation.

Fiscally conservative House Republicans have called for larger cuts in farm subsidies and food stamps while some House Democrats opposed any food stamp cuts.

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UPDATE 1-Market Chatter-Corporate finance press digest

n" readability="46">Dec 31 (Reuters) - The following corporate finance-related stories were reported by media on Monday:

* Guardian Media Group Plc has received expressions of interest for its Auto Trader subsidiary that could lead to a 600 million pounds ($967.68 million) windfall for the struggling newspaper group, the Telegraph reported. ()

* Mumbai-based billionaire Ajay Piramal's eponymous Piramal Group is in advanced talks to buy U.S. private equity firm TPG Capital Management LP's 20.27 percent stake in India's largest truck financier, Shriram Transport Finance Co Ltd , for around 35 billion rupees, the Economic Times reported citing two people with direct knowledge of the negotiations. ()

* Shares of Australia's Sundance Resources Ltd surged more than 17 percent on Monday after the Republic of Congo granted it a key mining permit and following reports China's Hanlong Group plans to complete its long-delayed $1.4 billion takeover by March.

* Taiwan's Chinatrust Commercial Bank is in talks with U.S. investment fund Lone Star Funds and other shareholders of Tokyo Star Bank to take over the Japanese lender for some 50 billion yen ($580.75 million)Japanese media reported on Sunday.

* Carlo Tassara Group, former majority owner of Polish bank Alior Bank SA, is expected to name advisors this week to sell its remaining stake in the company, Il Sole 24 Ore newspaper reported on Sunday.

* Consolidation of European banks is not yet at an end, and Germany's sector with its many small banks will have to change, the co-chief executive of Deutsche Bank AG told a German newspaper.

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UPDATE 1-U.S. Senate confirms Galante as FHA chief despite losses

* FHA acting chief Galante overcomes concerns about losses

* Republican senator dropped opposition after changes pledged

By David Lawder

WASHINGTON, Dec 30 (Reuters) - The U.S. Senate on Sunday confirmed the head of the Federal Housing Administration in her position despite mounting losses the mortgage funding agency that some fear could eventually lead to a taxpayer bailout.

In a 69-24 vote, the Senate confirmed Carol Galante as an assistant secretary of the Department of Housing and Urban Development. Galante, a former affordable housing developer in San Francisco, had been running the FHA in an acting capacity since July 2011.

The FHA, a key source of mortgage funding for first-time home buyers and those with modest incomes, backs $1.1 trillion in U.S. home mortgages. Last month it reported a projected shortfall of $16.3 billion due to souring loans that it insured during the housing market downturn during the past several years.

An independent audit suggested that the FHA would require taxpayer funding for the first time in its 78 years, though that won't be decided until February when the Obama administration releases its next budget proposal.

In response to the shortfall, the agency raised the premiums it charges on guaranteed loans by one-tenth of a percentage point, adding, on average, about $13 to a borrower's monthly mortgage payment.

Senator Tim Johnson, the Democrat who heads the Senate Banking Committee, said Galante was "highly qualified" and attributed the FHA's problems to legacy loans that were still threatening the agency's finances.

"It is important that the FHA have a confirmed management team in place to continue oversight of these legacy loans," Johnson said prior to the vote.

Following the collapse of the private subprime mortgage market during the 2007-2009 financial crisis, FHA-backed loans took over as the sole financing source for nearly all of the lower end of the U.S. housing market, which has continued to struggle.

The deteriorated finances had caused some Senate Republicans not to support Galante, who prior to her current position ran multifamily housing programs for HUD.

She joined the agency in 2009 after serving as president of Bridge Housing Corp, the largest non-profit developer of affordable housing in California.

But Republican Senator Bob Corker, who had been one of her biggest critics, publicly dropped his opposition to her confirmation after she sent him a letter pledging to take certain steps to improve the agency's finances, including tightening lending standards for buyers with lower credit scores and limiting the amount of money that could be borrowed in the FHA's reverse-mortgage program.

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Italian tax police targets jeweller Bulgari-report

MILAN | Mon Dec 31, 2012 5:14am EST

MILAN Dec 31 (Reuters) - Italian police have carried out checks at Rome jeweller Bulgari to assess whether the group owned by French luxury conglomerate LVMH regularly declared income tax in Italy, a newspaper reported.

Italian authorities have intensified their efforts to collect taxes this year and have already targeted foreign companies, such as Google and Facebook to assess whether their Italian divisions are paying their taxes.

The Corriere della Sera on Monday reported that police completed a tax inspection last week, alleging Bulgari did not declare income in Italy to the tune of around 70 million euros ($92.55 million).

"We have always complied with fiscal regulations in Italy and abroad," Bulgari family member Francesco Trapani, who heads LVMH's jewellery and watch division, told the newspaper.

The report, which cites a police document, said controls focused on the last five years through 2011, the year when LVMH bought Bulgari in a all-share deal worth 3.7 billion euros.

Trapani said Bulgari has always collaborated with Italian authorities and emerged unscathed from past fiscal controls.

Bulgari was not immediately reachable for further comment.

View the original article here

Market Chatter-Corporate finance press digest

n">Dec 31 (Reuters) - The following corporate finance-related stories were reported by media on Monday:

* Mumbai-based billionaire Ajay Piramal's eponymous Piramal Group is in advanced talks to buy U.S. private equity firm TPG Capital Management LP's 20.27 percent stake in India's largest truck financier, Shriram Transport Finance Co Ltd , for around 35 billion rupees, the Economic Times reported citing two people with direct knowledge of the negotiations. ()

* Shares of Australia's Sundance Resources Ltd surged more than 17 percent on Monday after the Republic of Congo granted it a key mining permit and following reports China's Hanlong Group plans to complete its long-delayed $1.4 billion takeover by March.

* Taiwan's Chinatrust Commercial Bank is in talks with U.S. investment fund Lone Star Funds and other shareholders of Tokyo Star Bank to take over the Japanese lender for some 50 billion yen ($580.75 million)Japanese media reported on Sunday.

* Carlo Tassara Group, former majority owner of Polish bank Alior Bank SA, is expected to name advisors this week to sell its remaining stake in the company, Il Sole 24 Ore newspaper reported on Sunday.

* Consolidation of European banks is not yet at an end, and Germany's sector with its many small banks will have to change, the co-chief executive of Deutsche Bank AG told a German newspaper.

View the original article here

U.S. Senate confirms Federal Housing Administration chief

WASHINGTON | Sun Dec 30, 2012 3:45pm EST

WASHINGTON Dec 30 (Reuters) - The U.S. Senate on Sunday confirmed the head of the Federal Housing Administration in her position despite mounting losses from souring loans at the mortgage funding agency that some fear could eventually lead to a taxpayer bailout.

In a 69-24 vote, the Senate confirmed Carol Galante as an assistant secretary of the Department of Housing and Urban Development. Galante had been running the FHA in an acting capacity since July 2011.

The FHA, a key source of mortgage funding for first-time home buyers and those with modest incomes, backs $1.1 trillion in U.S. home mortgages. Last month it reported a projected shortfall of $16.3 billion due to souring loans that it insured during the housing market downturn during the past several years.

An independent audit suggested that the FHA would require taxpayer funding for the first time in its 78 years, though that won't be decided until February when the Obama administration releases its budget.

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Publisher Tribune to emerge from bankruptcy on Dec. 31

n">Dec 31 (Reuters) - U.S. media giant The Tribune Co, owner of the Los Angeles Times and the Chicago Tribune, said late on Sunday it will emerge from bankruptcy on Dec. 31, ending four years of Chapter 11 reorganization.

Chicago-based Tribune said it will emerge from the Chapter 11 process with a portfolio of profitable assets that will include eight major daily newspapers and 23 TV stations. The company will also have a new board of directors.

As part of the Chapter 11 exit, the company will close on a new $1.1 billion senior secured term loan and a new $300 million asset-based revolving credit facility.

The term loan will be used to fund certain payments under the plan of reorganization and the revolving credit facility will be used to fund ongoing operations, the company said.

Upon exiting bankruptcy, Tribune will have issued to former creditors a mix of about 100 million shares of new class A common stock and new class B common stock and new warrants to purchase shares of new class A or class B common stock.

The current chief executive officer, Eddy Hartenstein, will remain in his role until the new board ratifies the company's executive officers.

In November, Tribune received regulatory approval from the Federal Communications Commission (FCC) to transfer its broadcast licenses to the owners who will take over the company when it emerges from bankruptcy.

The company's plan of reorganization was confirmed by the Delaware bankruptcy court in July. Tribune's emergence from bankruptcy was conditional on the FCC approving the transfer of the broadcast licenses to new owners.

The case is In re: Tribune Co et al, U.S. Bankruptcy Court, District of Delaware, No. 08-13141.

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UAE central bank limits home loans to foreigners -sources

By Stanley Carvalho and Praveen Menon

DUBAI | Sun Dec 30, 2012 2:15pm EST

DUBAI Dec 30 (Reuters) - The United Arab Emirates central bank has decided to limit mortgage loans for foreigners buying residential real estate in the country to 50 percent of the property's value, banking and real estate industry sources said on Sunday.

The restriction is contained in a circular issued to commercial banks, the sources said, speaking on condition of anonymity because of the sensitivity of the issue.

Central bank officials could not be contacted for comment.

The central bank's instructions to commercial banks are often issued through circulars that are not provided to the public.

The central bank's move appears to be an effort to ensure that another bubble in UAE real estate does not develop. Property prices plunged by more than 50 percent between 2008 and 2011, triggering a corporate debt crisis in Dubai that forced the restructuring of billions of dollars of debt.

This year, residential prices in parts of Dubai began to recover and property developers laid plans for new high-end projects; the central bank may want to head off the wild speculation that characterised the last property boom.

However, bankers said they were shocked by the circular, which could hurt confidence in the real estate market's recovery and hurt the share prices of property developers and banks.

"They are trying to regulate banks, but are controlling consumers by giving them limited choices," a senior executive at a local bank told Reuters. "It will lead to less investment by end-users."

An Abu Dhabi-based analyst said, "If implemented, this will impact on the real estate sector. After the property market improved, some banks had started lending up to 85 percent on some projects."

The analyst added, "It's positive when we look at the financial and lending perspective, but the question is whether this lending cap is practical."

A real estate industry source said that in addition to the 50 percent cap for foreigners, a 70 percent limit had been introduced on mortgages for UAE citizens. But it is not clear whether the caps are recommendations or absolutely mandatory, the source said.

Expatriates make up the vast majority of the UAE's population of roughly 8 million. Foreigners are allowed to buy property in designated areas; many from countries such as Iran and India have done so because they see the UAE as a haven from political and economic instability in the region.

It is not clear if the 50 percent mortgage cap for foreigners applies to citizens of other Gulf Arab states, who have been keen buyers of Dubai property.

The UAE central bank has previously sought to regulate the lending of commercial banks to reduce risk, only to back off after the banks protested.

The central bank announced in April this year that from Sept. 30, banks would have to obey caps on their exposure to state-linked entities. Some major banks remained above the limits when the deadline passed, and earlier this month, the central bank announced it was suspending the rules while it consulted further with banks.

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UPDATE 1-US Senate, House ag committees in deal to avert milk price spike

* Proposal will add 1 yr to expiring bill; no timing on vote

* Follows rising alarm about potential milk price doubling

* Another year of costly direct subsidies to growers

By Jim Wolf

WASHINGTON, Dec 30 (Reuters) - Farm-state lawmakers have agreed to a one-year extension of the expiring U.S. farm bill that, if enacted, would head off a possible doubling of retail milk prices to $7.OO or more a gallon in 2013.

The compromise measure resulted from bipartisan discussions in the House of Representatives' Agriculture Committee and talks with colleagues in the U.S. Senate, Frank Lucas of Oklahoma, the House panel's chairman, said in a statement Sunday.

"It is not perfect - no compromise ever is - but it is my sincere hope that it will pass the House and Senate and be signed by the President by January 1," Lucas, a Republican, said.

It was not immediately clear whether House and Senate leaders would bring the measure to a vote soon enough to avoid putting the so-called "dairy cliff" milk price spike into action.

Separately, lawmakers are working on a last-ditch effort to avert the similarly timed "fiscal cliff," when the biggest tax increases ever to hit Americans are set to start, paired with significant federal spending cuts

U.S. Agriculture Secretary Tom Vilsack, in an interview with CNN taped Friday and aired on Sunday, urged Congress to come up with such a solution, if only an extension of the old law that expired nearly three months ago, lest milk prices start rising after Jan. 1, 2013.

Absent a new bill or an extension of current law, milk prices would revert to rules set in 1949, the last "permanent" farm legislation in the United States. Government price supports would kick in, based on production costs 64 years ago, plus inflation. The potential retail milk price has been estimated at $6.00 to $8.00 a gallon versus current levels near $3.50.

Lucas said in the statement that time had run out in Congress' current session to enact a new five-year farm bill, as farm-state lawmakers and the dairy lobby had hoped.

Vilsack told CNN that soaring milk prices - if it comes to that - would ripple throughout all commodities "if this thing goes on for an extended period of time."

The price of milk will not double on Jan. 1, if Congress fails to act. Instead, prices would rise gradually as supplies are removed from normal markets and land instead in U.S. Department of Agriculture storage facilities.

With supplies more scarce in normal marketing channels, some milk distributors and dairy product manufacturers could have turned to imported supplies.

The Department of Agriculture is reviewing a range of options for administering programs should a permanent law become legally effective on Jan. 1, a spokesman said on Friday.

The Senate passed its new five-year farm bill in June, and the House Agriculture Committee followed with a version in July.

But the House bill, with large cuts in food-stamp funding for lower-income Americans, has never been brought to a vote by the full House. The Senate and House have for months remained far apart on the issues of food stamps and crop subsidies.

Lucas said the year-long extension "provides certainty to our producers and critical disaster assistance to those affected by record drought conditions."

It would also mean another round of the direct subsidies to farmers that cost about $5 billion a year, and that both sides of debate had agreed earlier to eliminate.

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Democrats, Republicans apart on key 'fiscal cliff' issues-Reid

WASHINGTON | Sun Dec 30, 2012 2:24pm EST

WASHINGTON Dec 30 (Reuters) - U.S. Senate Majority Leader Harry Reid said on Sunday that Democrats and Republicans still had key differences in talks to avert a looming year-end "fiscal cliff," and he had not been able to make a counteroffer to the latest Republican proposal.

"I've had a number of conversations with the president and at this stage we're not able to make a counteroffer," Reid said on the Senate floor.

He said that as the day wears on, Democrats may be able to make such an offer.

"I think that the Republican leader has shown absolutely good faith. It's just that we're apart on some pretty big issues," Reid added.

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EPA faces legal battles, might take easy confirmation road

* Pollution rules for power plants likely to draw challenges once finalized

* Acting administrator could continue without confirmation

* Agency has had mostly success in DC court of appeals

By Valerie Volcovici

WASHINGTON, Dec 30 (Reuters) - Regardless of who takes the reins, the U.S. Environmental Protection Agency will likely face continued legal battles in President Barack Obama's second term as it tries to finalize pollution rules for power plants, analysts said.

EPA Administrator Lisa Jackson, who spearheaded the Obama administration's regulation of carbon emissions, said on Thursday she will step down after almost four years.

Her tenure was marked by opposition from industry groups and Republican lawmakers to the EPA's first-ever crackdown on carbon emissions, as well as other anti-pollution measures.

Analysts said whoever succeeds Jackson will probably face a spate of lawsuits to challenge rules that the EPA will finalize governing power plants, industrial sources and oil and gas production.

"This is shaping up to be four years of litigation," said Christopher Guith, vice president for policy at the U.S. Chamber of Commerce's Energy Institute.

Given the partisan divide, Guith said, legislators would struggle to draft laws that could serve as alternatives to the EPA's pending suite of carbon and air regulation.

"As we look to an even more divided Congress, the action will be in the federal courts," he said.

The U.S. Court of Appeals for the District of Columbia circuit, which hears most challenges to federal environmental rules, is likely to be busy as industry groups and states bring their cases against the EPA's rules after they are finalized.

The court sided with the agency in most of the recent challenges, most notably upholding its decision to use the Clean Air Act to regulate carbon dioxide emissions.

David Doniger, policy director of the National Resources Defense Council's Climate and Clean Air Program, said this could bolster the EPA as it tackles rules that may be more controversial than those rolled out under Jackson.

"The agency has a very good batting record on the clean air side. Carbon and climate (regulations) have come through completely unscathed," he said.

CARETAKER ADMINISTRATOR?

After the EPA was a political lightning rod during the first Obama administration, the president is likely to seek out a safe, possibly internal choice as Jackson's successor, or to avoid the confirmation process altogether.

"There are just so many arrows pointed at this agency," said Susan Tierney, managing principal and energy and environment specialist at Boston-based Analysis Group

Bob Perciasepe, deputy EPA administrator, will take over on an interim basis and could continue in that role indefinitely.

He previously worked at the EPA during the Clinton administration, specializing in water and air quality. Before rejoining the agency, Perciasepe was a top official at the National Audubon Society, a major conservation group.

Tierney said she expects the EPA to stay the course on its current agenda, especially as the agency faces some court-ordered deadlines to finalize rules, such as for coal ash, industrial waste from coal-fired plants and ozone standards.

PRIORITY ON CLIMATE CHANGE?

Some environmentalists have criticized Obama for being too timid on climate issues during his first term. But in his acceptance speech on election night in November the president gave a nod to climate change, raising hopes for more activism.

The White House may lean on the EPA to tackle one of the largest sources of U.S. greenhouse gas emissions, the current fleet of power plants, said Jeremy Symons, senior vice president at the National Wildlife Federation.

"The president has made clear that climate change is one of his top three priorities for the second term, so that means EPA needs to do its job," Symons said.

This, he said, means the agency needs to finalize the rules for new power plants and the standards for limiting carbon emissions from existing power plants.

The NRDC's Doniger said once the EPA meets an April 2013 legal deadline to finalize the greenhouse gas rules for new power plants, it will then have to address standards for existing plants.

The EPA has to start promptly in the beginning of the second term, said Doniger, because the rulemaking process is "a multistep process that will take time."

The controversial task will almost certainly trigger lawsuits because the rules will target a large number of domestic power plants and could jeopardize electric reliability.

"It's high stakes litigation when you are talking about bringing 40 percent of generation under regulations. That's disastrous," the Chamber's Guith said.

Guith said that while the EPA does have the authority to regulate carbon dioxide using the Clean Air Act, its rules are too difficult for industry - forcing the litigation.

"This EPA has been so aggressive in pushing the envelope by way of the compliance timeline that it has made itself more vulnerable to lawsuits," he said.

The EPA may also face legal challenges from environmental groups and certain states. The NRDC, the Environmental Defense Fund and the Sierra Club joined a group of nine states led by New York that threatened to sue the EPA last year to propose air pollution standards for oil and gas drilling.

They said that the drilling, transportation and distribution resulted in a significant release of methane, a potent greenhouse gas that is not regulated by federal rules.

Doniger said the group is trying to negotiate a timeline with the EPA to set a rule but could sue the agency if it doesn't agree a schedule by February.

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Stung Bankia investors look to courts for justice

* Official inquiry into Bankia debacle unlikely

* Small savers say they were swindled

* Judge in legal probe has yet to open formal lawsuit

By Sonya Dowsett

MADRID, Dec 30 (Reuters) - Spanish savers and pensioners who have seen their money wiped out by investing in state-rescued lender Bankia are likely to seek redress in court rather than wait for any official inquiry, which looks increasingly unlikely.

About 350,000 stockholders will share the pain of the bank's European bailout, many of them bank clients who were sold the shares through an aggressive marketing campaign for its stock market flotation in 2011.

Shares in the lender, rescued by the state in May in Spain's biggest ever bank bailout, fell to record lows on Friday, tumbling over 40 percent from the start of the week after it emerged losses on bad loans were worse than expected. The stock has fallen 85 percent since its IPO.

"Going to the courts and seeing if a judge can bring us justice is the only path left to us," said Maricarmen Olivares, whose parents lost 600,000 euros ($793,300) they made from selling her father's car workshop by investing in Bankia preference shares.

Neither of the two main political parties want to push for a full investigation into Bankia's demise, which could draw attention to their own role in a debacle that has driven Spain to the brink of an international rescue, commentators say.

"Investigations work when a political party has something to gain over another. In this case, no-one has anything to gain," said Juan Carlos Rodriguez, of consultancy Analistas Socio Politicos.

"I don't see the big parties investigating this because if there have been errors committed, they have been committed by both sides."

The Socialist Party was in power when Bankia was formed in 2010 from an ill-matched combination of seven regional savings banks, a union that concentrated an unsustainable exposure to Spain's collapsed property sector.

Immense political pressure from the then government forced Bankia executives to push ahead with an initial public offering in July 2011 as Spain sought to bring private capital into its banking system and avoid a European bailout.

Then chairman, Rodrigo Rato, a former chief of the International Monetary Fund, had strong links to the centre-right Popular Party (PP) and was finance minister in a previous PP administration.

A small political party, UPyD, forced the High Court in July to open an investigation into whether Rato, ousted when the bank was nationalised in May, and 32 other former board members are guilty of fraud, price-fixing or falsifying accounts.

Investigating magistrate Fernando Andreu has so far not brought charges against anyone and could still drop the case.

"WE WON'T SEE OUR MONEY AGAIN"

Rato appeared in a private session before the judge on Dec. 20 where he denied any blame for what happened.

Rato, who cannot legally speak to the press because he is the subject of a court investigation, has kept a low profile since the bank rescue in May. Protesters gathered outside the court on the day of his declaration wearing masks of his face.

The probe centres around Bankia's stock market listing, the formation of the lender from the seven savings banks and the gaping capital shortfall revealed at the bank after the state takeover in May.

Rato and 23 others including bank executives and cabinet ministers were called to testify before a parliamentary committee in July this year where Rato said he had a clear conscience and had done things properly.

"That was just window-dressing by the PP following the outcry over the Bankia disaster," said a Socialist Party source.

The opposition Socialists called for a full parliamentary investigation in May, but the ruling PP blocked it, the Socialist Party source said. A PP spokeswoman said any investigation of Bankia should be carried out through the courts, not the government.

A government source said any investigative process would not fall to the government, but to the courts.

Bankia, alongside other Spanish banks, sold billions of euros of preference shares and subordinated debt to high street clients, many of whom say they were tricked into parting with their savings and are seeking compensation.

The investigating magistrate is not including the mis-selling of preference shares - hybrid instruments that fall between a share and a bond - in the probe.

Holders of preference shares at Bankia will incur losses of up to 46 percent as part of the European bailout, receiving shares rather than cash in exchange.

"We won't see our money again, that's for sure. They'll give us shares, but shares with no value or credibility in a nationalised bank," said Olivares, who said she had heard nothing from the bank as to how much their losses would be.

The losses each investor will have to take has yet to be decided, a Bankia spokesman said, adding that hybrid debtholders at all rescued banks had to take losses, not just at Bankia.

A source close to the court investigation said there would certainly be scope for a separate wider probe into the mis-selling of preference shares, not just at Bankia, but throughout Spain's savings banks.

Olivares, like many other small savers at Spain's state-rescued banks, claims her parents were sold the preference shares as a kind of high-interest savings account and that the bank staff did not explain the risks attached.

The government is in the process of setting up an arbitration process to compensate Bankia clients who can prove that they were duped into buying preference shares, Economy Minister Luis de Guindos said last week.

But many ordinary Spaniards who lost their life savings through the Bankia rescue say this is not enough and they want answers as to what happened to their money.

"We want justice, at least some kind of recognition that we were swindled," said Raimundo Guillen, a 50-year-old electricity station worker who put 30,000 euros in preference shares with Bankia under the impression they were a form of savings account.

"It's as if they've stolen your wallet - blatantly, with their face uncovered."

View the original article here

Obama skeptical of NRA proposal to put more guns in schools

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UPDATE 1-Obama skeptical of NRA proposal to put more guns in schools

* Obama says will not prejudge recommendations on reducing violence

* Says majority of Americans are skeptical of having "more guns in schools"

By Jeff Mason

WASHINGTON, Dec 30 (Reuters) - President Barack Obama said in an interview broadcast on Sunday he hopes to get new U.S. gun control measures passed during the first year of his second term and is skeptical of a proposal by the National Rifle Association (NRA) gun lobby to put armed guards in schools.

Obama assigned Vice President Joe Biden to lead a task force to come up with proposals on guns at the beginning of 2013 after the massacre of 20 children and six adults by a gunman at an elementary school in Newtown, Connecticut, this month.

"I'd like to get it done in the first year. I will put forward a very specific proposal based on the recommendations that Joe Biden's task force is putting together as we speak. And so this is not something that I will be putting off," Obama told NBC's "Meet the Press" in an interview taped on Saturday.

"I am not going to prejudge the recommendations that are given to me. I am skeptical that the only answer is putting more guns in schools. And I think the vast majority of the American people are skeptical that that somehow is going to solve our problem," he said.

The influential NRA has said new gun laws are not a good answer and has called for some form of armed guards to be present in all U.S. schools.

Obama, who said the shooting was the worst day of his presidency, attended a memorial service for the Newtown victims and promised he would take swift action to prevent further massacres like that one from being repeated.

The president has faced criticism for failing to take on the gun lobby after other mass shootings that have occurred during his time in office. While bristling at the criticism, the president has indicated that this time something will get done.

"I'm going to be putting forward a package and I'm going to be putting my full weight behind it. And I'm going to be making an argument to the American people about why this is important and why we have to do everything we can to make sure that something like what happened at Sandy Hook Elementary does not happen again," he said in the interview.

"And the question then becomes whether we are actually shook up enough by what happened here that it does not just become another one of these routine episodes where it gets a lot of attention for a couple of weeks and then it drifts away. It certainly won't feel like that to me."

Gun control is a divisive issue in the United States, where the right to bear arms is enshrined in the Constitution, and the NRA has significant political sway.

Proponents of tighter gun laws hope that not having to run for re-election again will give Obama a strengthened hand, but any legislative measures would have to pass the Republican-controlled House of Representatives, which has been reluctant to support initiatives proposed by the Democratic president.

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New airline operating licences in Saudi may take 3-6 months

* Qatar Airways, Gulf Air can enter domestic market

* Part of major liberalisation of aviation sector

* Adjusting subsidies to Saudi carriers will be key

* Fast-expanding Qatar Airways may be tough competitor

* Licence could help Gulf Air diversify

By Asma Alsharif and Praveen Menon

JEDDAH/DUBAI, Dec 29 (Reuters) - Foreign airlines may need about three to six months to obtain operating licences letting them enter Saudi Arabia's domestic aviation market, a spokesman for the General Authority for Civil Aviation (GACA) said on Saturday.

GACA announced on Friday that Qatar Airways and Bahrain's national carrier Gulf Air had become the first foreign airlines to obtain carrier licences under which they would be able to run local and international flights in the kingdom.

Fourteen foreign and local companies had applied for the licences, which mark a major reform of the aviation market in Saudi Arabia, the biggest Arab economy and by far the largest country in the Gulf geographically.

Currently, only national carrier Saudi Arabian Airlines and budget airline National Air Services serve a domestic market of about 27 million people. Foreign carriers can only fly in and out of Saudi Arabia, not within the country.

Over 54 million passengers passed through Saudi Arabia's 27 airports last year, up 13.6 percent from 2010, according to GACA data. But the kingdom has one of the smallest airline networks in the region relative to its size, and passengers have complained about the limited range of flights as well as the quality of service.

In a statement to Reuters on Saturday, the GACA spokesman said Qatar Airways and Gulf Air were working on final procedures for their operating licences.

He did not comment on whether other firms among the 14 that applied for carrier licences might eventually be successful. The 14 included firms fully owned by Saudis, Gulf-Arab firms, and consortiums of Saudi-Gulf and Saudi-Chinese companies.

OPPORTUNITY

Over the past year, Saudi Arabia has taken steps to liberalise its economy in several areas in an effort to create jobs and diversify away from heavy dependence on oil. For example, it is trying to develop a home mortgage industry.

Earlier this month the information minister said GACA would be allowed to grant permission for airlines to raise their fares under certain circumstances, and that fuel prices at Saudi airports would be reviewed to ensure fairer competition.

Abdulwahab Abu Dahesh, a Saudi financial analyst, said he believed the government would also remove subsidies now provided to existing Saudi airlines.

"This has to happen in 2013 because there will be no competition unless that problem is solved," he said. "This needs to be resolved before these firms start operations."

Qatar Airways could be a strong competitor in Saudi Arabia. It is growing rapidly, and in October became the first major Gulf airline to announce plans to join the oneworld alliance, a global group of carriers which cooperate in areas such as route networks, frequent flyer schemes and procurement.

Akbar Al Baker, chief executive of Qatar Airways, has said he is interested in the possibility of launching an airline in Saudi Arabia.

By contrast, Gulf Air has been struggling; last month it cut an order for Boeing planes and revised a deal with Airbus as it restructured its fleet to reduce pressure on its finances.

Nevertheless, Riyadh has been supporting Manama politically and economically during the social unrest that has plagued Bahrain since last year. A Saudi operating licence could help Gulf Air by letting it diversify beyond its weak home market.

Officials for Qatar Airways and Gulf Air declined to comment on the airlines' plans when contacted by Reuters on Saturday.

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Argentina asks U.S. court to block payouts for debt holdouts

* Appeal challenges ruling for holdout creditors

* Argentina says order would harm future debt swaps

* Federal appeals court in NY to consider Argentina case

By Nate Raymond and Jonathan Stempel

NEW YORK, Dec 29 (Reuters) - Argentina is urging a U.S. appeals court to reverse an order requiring the country to pay $1.33 billion to creditors who did not participate in its two debt restructurings, a legal case that could have huge ramifications for global debt markets.

Lawyers for Argentina's government said in court papers filed late on Friday that a trial judge was "wrong to ignore the chorus of voices" who opposed his November order on payments to so-called "holdout" creditors.

Those payments, to a court-controlled escrow account, would threaten the service of $24 billion in restructured debt, Argentina's lawyers wrote in papers filed in the 2nd U.S. Circuit Court of Appeals in New York.

"There is no authority permitting a U.S. court to order a sovereign to bring its immune assets into the United States in order to 'turn over' or distribute them to its creditors," lawyers for the Argentine government said in the 69-page filing.

The appeals court is expected to decide next year whether to force Argentina to pay the $1.33 billion to investors in the defaulted debt. The decision could have broad impact on the ability of governments to raise money by selling bonds and on strained countries' response to economic crises.

The case stems from Argentina's $100 billion sovereign debt default 11 years ago. Argentina is trying to avoid paying the holdout creditors, who refused to take part in massive debt restructurings in 2005 and 2010.

About 92 percent of the bonds were restructured, giving holders between 25 cents and 29 cents on the dollar.

But the holdouts, led by Elliot Management Corp affiliate NML Capital Ltd and the Aurelius Capital Management funds, demanded to be paid in full. Argentina calls the holdouts "vultures" and has resisted.

The case has run for years in U.S. courts. Oral arguments before the 2nd Circuit on the appeal are set for Feb. 27, 2013.

A decision against Argentina would deal a setback to President Cristina Fernandez, who is trying to avert the fallout of a potential technical default on tens of billions of dollars of debt.

In a statement late on Friday, an NML spokesman said Argentina was well placed to compensate the holdouts, citing its "more than $43 billion in foreign currency reserves" and billions more in other resources.

"Today's filing by the Republic once again demonstrates Argentina's irrational persistence in evading its contractual obligations and the orders of U.S. courts," said Peter Truell, a spokesman for NML.

Also on Friday, the U.S. government filed a friend-of-the-court brief in support of Argentina's bid for the appeals court to reconsider its October ruling that found Argentina had improperly discriminated against bondholders who did not participate in the debt swaps.

The U.S. government said countries needed leverage to garner broad creditor support for a restructuring. It cited the recent debt exchange in Greece as an example of a situation in which holdouts can threaten orderly bond restructurings.

JUDICIAL REPRIEVE

Following the appeals court's October decision, U.S. District Judge Thomas Griesa in Manhattan on Nov. 21 commanded Argentina to put the payments for the holdouts into escrow by Dec. 15.

But on Nov. 28, the 2nd Circuit gave Argentina a reprieve, saying it did not need to make the escrow payment for now.

The battle has even extended to the 2-1/2 month seizure of the Argentine naval vessel ARA Libertad in Ghana at the request of NML. The boat was freed on Dec. 19 following a ruling by an international admiralty tribunal.

In its court papers, Argentina said that if Griesa's orders were allowed to stand, "we may very well see the end of such restructurings and enter an era where debt crises are unresolvable. This will increase litigation, not reduce it."

At the same time, the country's lawyers said Argentina understood the appeals court's desire to resolve the litigation, and "is prepared to do what it can to end it."

Argentina's lawyers said Fernandez was "prepared once again" to ask Argentina's Congress to end the litigation by treating the holdout bondholders the same as those who participated in the 2010 debt swap.

In a separate court filing, lawyers for holders of restructured bonds said that holdouts should not be treated better than "innocent" bondholders who took part in the swaps. The restructured bondholders include funds managed by Gramercy Financial Group LLC and BlackRock Inc, according to the court papers from the group.

The case is NML Capital Ltd et al v. Argentina, 2nd U.S. Circuit Court of Appeals, No. 12-105.

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UPDATE 1-Argentina asks U.S. court to block payouts for debt holdouts

* Appeal challenges ruling for holdout creditors

* Argentina says order would harm future debt swaps

* Federal appeals court in NY to consider Argentina case

By Nate Raymond and Jonathan Stempel

NEW YORK, Dec 29 (Reuters) - Argentina is urging a U.S. appeals court to reverse an order requiring the country to pay $1.33 billion to creditors who did not participate in its two debt restructurings, a legal case that could have huge ramifications for global debt markets.

Lawyers for Argentina's government said in court papers filed late on Friday that a trial judge was "wrong to ignore the chorus of voices" who opposed his November order on payments to so-called "holdout" creditors.

Those payments, to a court-controlled escrow account, would threaten the service of $24 billion in restructured debt, Argentina's lawyers wrote in papers filed in the 2nd U.S. Circuit Court of Appeals in New York.

"There is no authority permitting a U.S. court to order a sovereign to bring its immune assets into the United States in order to 'turn over' or distribute them to its creditors," lawyers for the Argentine government said in the 69-page filing.

The appeals court is expected to decide next year whether to force Argentina to pay the $1.33 billion to investors in the defaulted debt. The decision could have broad impact on the ability of governments to raise money by selling bonds and on strained countries' response to economic crises.

The case stems from Argentina's $100 billion sovereign debt default 11 years ago. Argentina is trying to avoid paying the holdout creditors, who refused to take part in massive debt restructurings in 2005 and 2010.

About 92 percent of the bonds were restructured, giving holders between 25 cents and 29 cents on the dollar.

But the holdouts, led by Elliot Management Corp affiliate NML Capital Ltd and the Aurelius Capital Management funds, demanded to be paid in full. Argentina calls the holdouts "vultures" and has resisted.

In the papers filed on Friday, Argentina said it is willing to resolve the litigation by reopening the restructuring offer, a move that would require legislative permission but that would likely be rejected by plaintiffs.

"The executive is prepared to once again present to Congress a proposal that definitively treats all holdout creditors on the same terms as participants in the Republic's 2010 exchange offer," the filing says.

"The Republic has already made two debt restructuring offers that plaintiffs chose to reject. It cannot present a proposal that treats holdout creditors better than exchange bondholders."

LONG-RUNNING CASE

In a separate court filing, lawyers for holders of restructured bonds said that holdouts should not be offered better terms than "innocent" bondholders who took part in the swaps. The restructured bondholders include funds managed by Gramercy Financial Group LLC and BlackRock Inc, according to the court papers from the group.

The case has run for years in U.S. courts. Oral arguments before the 2nd Circuit on the appeal are set for Feb. 27, 2013.

A decision against Argentina would deal a setback to President Cristina Fernandez, who is trying to avert the fallout of a potential technical default on tens of billions of dollars of debt.

In a statement late on Friday, an NML spokesman said Argentina was well placed to compensate the holdouts, citing its "more than $43 billion in foreign currency reserves" and billions more in other resources.

"Today's filing by the Republic once again demonstrates Argentina's irrational persistence in evading its contractual obligations and the orders of U.S. courts," said Peter Truell, a spokesman for NML.

There was no immediate reaction comment from Argentina.

Also on Friday, the U.S. government filed a friend-of-the-court brief in support of Argentina's bid for the appeals court to reconsider its October ruling that found Argentina had improperly discriminated against bondholders who did not participate in the debt swaps.

The U.S. government said countries needed leverage to garner broad creditor support for a restructuring. It cited the recent debt exchange in Greece as an example of a situation in which holdouts can threaten orderly bond restructurings.

JUDICIAL REPRIEVE

Following the appeals court's October decision, U.S. District Judge Thomas Griesa in Manhattan on Nov. 21 commanded Argentina to put the payments for the holdouts into escrow by Dec. 15.

But on Nov. 28, the 2nd Circuit gave Argentina a reprieve, saying it did not need to make the escrow payment for now.

The battle has even extended to the 2-1/2 month seizure of the Argentine naval vessel ARA Libertad in Ghana at the request of NML. The boat was freed on Dec. 19 following a ruling by an international admiralty tribunal.

In its court papers, Argentina said that if Griesa's orders were allowed to stand, "we may very well see the end of such restructurings and enter an era where debt crises are unresolvable. This will increase litigation, not reduce it."

The case is NML Capital Ltd et al v. Argentina, 2nd U.S. Circuit Court of Appeals, No. 12-105.

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CORRECTED-Employer wins relief from U.S. contraceptives mandate

(Corrects in paragraph 3 to make clear that injunction is second by a federal appeals court, not first)

* Couple says contraceptives provision violates their faith

* Court found "substantial burden" on religious exercise

By Jonathan Stempel

Dec 29 (Reuters) - A divided federal appeals court has temporarily barred the U.S. government from requiring an Illinois company to obtain insurance coverage for contraceptives, as mandated under the 2010 healthcare overhaul, after the owners objected on religious grounds.

More than 40 lawsuits are challenging a requirement in the Patient Protection and Affordable Care Act that requires most for-profit companies to offer workers insurance coverage for contraceptive drugs and devices and other birth control methods.

Friday's 2-1 order by a panel of the 7th U.S. Circuit Court of Appeals in Chicago in favor of Cyril and Jane Korte was the second by a federal appeals court to temporarily halt enforcement against people who said it violated their faith, said Edward White, a lawyer for the Roman Catholic couple.

The 7th Circuit suggested that the couple's legal challenge might eventually prevail.

Its order came two days after U.S. Supreme Court Justice Sonia Sotomayor declined to block the provision's enforcement against companies controlled by the family of Oklahoma City billionaire David Green.

The U.S. Department of Justice, which had defended the contraceptives provision, did not immediately respond on Saturday to a request for comment.

The Kortes, who own the construction firm Korte & Luitjohan Contractors, had sought to drop a health insurance plan for 20 non-unionized workers that included coverage for contraception, and substitute a different plan consistent with their faith.

But the Obama administration's healthcare law did not allow the change, and the Kortes said that violated the First Amendment to the U.S. Constitution and the federal Religious Freedom Restoration Act, or RFRA.

In issuing an injunction, the 7th Circuit majority said the Kortes had established a reasonable likelihood of success on the merits of their RFRA claim, and that the government had not yet justified the apparent "substantial burden" on their religious exercise.

The court also said the couple had established irreparable harm, because absent an injunction they would have to choose between maintaining insurance coverage they considered inappropriate or facing substantial financial penalties.

"Business owners who are objecting to the mandate are not objecting to people using contraceptives, but that they have to arrange for and pay for it," White, a lawyer with the American Center for Law and Justice, said in a phone interview. "The federal government shouldn't tell business owners they have to contract to buy what they see as immoral services and goods."

Judges Joel Flaum and Diane Sykes comprised the 7th Circuit majority.

Judge Ilana Rovner dissented. She said the Kortes were "multiple steps" removed from the contraceptives services because it was their company paying for the coverage, and because it would be a worker, her doctor and the insurer involved in the decisions about the services and their funding.

The Kortes' case is expected to continue in the 7th Circuit.

Neither the 7th Circuit nor Sotomayor ruled on the merits of their respective cases. The legal standard for obtaining an injunction from the Supreme Court is much higher.

The case is Korte et al v. Sebelius, 7th U.S. Circuit Court of Appeals, No. 12-3841. (Reporting by Jonathan Stempel in New York; Editing by Peter Cooney)

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Russian jet splits apart after landing, none killed - airport

MOSCOW | Sat Dec 29, 2012 8:36am EST

There may have been injuries among crew of the Tupolev Tu-204 jet, spokeswoman Yelena Krylova said in televised comments.

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Brazil proposes looser fiscal rules to spur growth

* Law enacted in 2000, ended series of economic crises

* Government struggling to make 2012 fiscal target

SAO PAULO Dec 29 (Reuters) - Brazil's government has proposed changes to a fiscal responsibility law that set the foundation for a decade of economic prosperity in Latin America's largest economy, two local newspapers said on Saturday.

The changes would make it easier for the government to cut Brazil's high tax burden and enact other stimulus measures after two years of slow economic growth, but they could also rattle investors who fear President Dilma Rousseff has been too quick to modify bedrock economic principles.

Changing part of the law enacted in 2000 would remove "the shackles of economic policy," an unnamed source from the finance ministry told Estado de Sao Paulo newspaper.

A finance ministry spokesman did not respond to an emailed request for comment.

Rousseff's economic team included the proposed changes in a bill aimed at fiscal reform at the state level on Friday, the newspapers said. That day, the government also posted a deficit of 5.5 billion reais ($2.7 billion) for November, jeopardizing its ability to meet a closely watched annual fiscal target.

The government needs to post a primary surplus of 31.5 billion reais in December to meet the target, and on Friday passed a decree that would allow it to dip into its sovereign wealth fund if tax income is lower than expected this month.

Rousseff has dished out tax breaks and intervened in state-run companies to cut electricity costs as she tries to boost growth, but the measures have dragged down government revenues.

The fiscal responsibility law put an end to a series of financial crises that rocked Brazil in the 1980s and 1990s. Brazil's finances are much more solid now, but any change to the text could unsettle investors.

At the same time her commitment to fiscal responsibility is being questioned, Rousseff has been under pressure to make even deeper structural reforms since economic growth slowed to a mere 0.6 percent in the third quarter of 2012.

Those efforts have drawn criticism from the TCU, a government agency that audits public spending, according to stories in Folha de Sao Paulo and Estado de Sao Paulo newspapers on Saturday.

The government believes altering the fiscal responsibility law would remove such constraints. Congress will consider the proposal after February, the papers said.

Despite slow growth and the increasingly unlikely fiscal target, many aspects of Brazil's economy still seem healthy compared to much of the developed world.

Unemployment remains near a record low, the debt to gross domestic product ratio has fallen below that of the United States and many European economies, and Rousseff is popular among voters who believe the economy will eventually improve.

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