Tuesday, 9 September 2014

TOP NEWS Saudi Arabia's clerics condemn IS but preach intolerance

DUBAI (Reuters) - When Saudi Arabia's Grand Mufti Sheikh Abdulaziz Al al-Sheikh described Islamic State and al Qaeda as "kharijites" last month, he was casting them as the ultimate heretics of Muslim history, a sect that caused the faith's first and most traumatic schism.

That sort of rhetoric aimed at expelling militants from the Muslim mainstream has grown increasingly common among top Saudi clerics in recent weeks as they work to counter an ideology that threatens their political allies in the Al Saud dynasty.

But while Saudi Arabia's official Wahhabi school of Sunni Islam attacks Islamists as heretical and "deviant", many of its most senior and popular clergy preach a doctrine that encourages intolerance against the very groups targeted by IS in Iraq.

The arch conservatives Abdulrahman al-Barrak and Nasser al-Omar, who has more than a million followers on Twitter, have accused Shi'ites of sowing "strife, corruption and destruction among Muslims".

Sheikh Saleh al-Luhaidan was sacked as judiciary head in 2008 for saying owners of media that broadcast depravity have forsaken their faith, a crime punishable in Sharia law by death, but he remains a member of the kingdom's top Muslim council.

Abdulaziz al-Fawzan, a professor of Islamic law and frequent guest on the popular al-Majd religious television channel, has accused the West of being behind the Sept. 11, 2001 attacks on the United States, saying "these criminals want to take control over the world".

Such opinions, which echo the views of militants in Iraq, are not unusual in Saudi Arabia, which applies Sharia Muslim law, has beheaded 20 people in the past month, and where clerics oversee a lavish state-funded religious infrastructure.

Saudi Arabia and its ultra conservative Wahhabi school are often seen in the West as the ideological wellspring of al Qaeda, which has staged attacks across the world and of Islamic State, which has beheaded hostages in Syria and Iraq.

It is a viewpoint vociferously denied by the Saudi establishment, including the ambassador to London, Prince Mohammed bin Nawaf, who wrote last month that it "does not even faintly correspond" with Wahhabi teachings.

The Al Saud are sensitive to such criticism not only because of the costs of suppressing a militant insurgency a decade ago that killed hundreds, but because their legitimacy rests partly on religious credentials underwritten by Wahhabi clerics.

Saudi authorities point to the influence of the radical wing of the Muslim Brotherhood in developing modern jihadi thinking, but play down Riyadh's decades of support for Islamists around the world as a counterweight to anti-royal leftist ideology.

The government's inability or reluctance to crack down on expressions of intolerance towards non-Sunnis has led some Saudi liberals and foreign analysts to ask if the kingdom is committed to tackling radicalism's roots, or only its symptoms.

"It's their definition of extremism we may not agree with. It is still very mainstream to call Shi'ites infidels. That's not seen as extremist," said Stephane Lacroix, author of Awakening Islam, a book about Islamism in Saudi Arabia.

JIHAD

When the Al Saud first raised a state near Riyadh in the mid 18th century, they did so with the support of a local preacher, Mohammed ibn Abd al-Wahhab, whose purist doctrine is often known as Wahhabism, a term rejected by those who follow it.

Wahhabi ideology is focused on eliminating incorrect doctrine, particularly when it appears to undermines monotheism, a category that includes Shi'ite reverence for the Prophet Mohammed's descendents and the Christian belief in a trinity.

Like Shi'ites, the Kharijites wanted Mohammed to be replaced as leader of the Muslims by his son-in-law, Ali, but they later assassinated him for compromising with the early Sunnis. That act won them the enmity of both Islam's main sects.

Wahhabi clergy offer legitimacy and public support to a king who styles himself "custodian of the two holy mosques", and leave all matters of governance and foreign policy to him so long as his edicts do not contradict Muslim law.

In return, the ruling family has given them top government jobs, control over Saudi Arabia's Sharia Muslim law, great influence over social issues and public morality, and funds for foreign evangelism and massive Wahhabi seminaries.

Riyadh, which sees itself as a protector of Sunnis against Shi'ite factions manipulated by an expansionist Iran, has given arms and cash to Syrian rebels fighting President Bashar al-Assad, a member of the Alawite sect close to Shi'ites.

But it also sees militant groups among the rebels, including IS and the Nusra Front, as a threat to its own security, fearing that thousands of Saudi nationals who have gone to fight there will be radicalised and target their own country.

It has declared both groups illegal and imposed long prison terms for any who offer them support, help them raise money or join them to fight.

That position is backed by the Wahhabi establishment, which has declared the struggle in Syria a jihad, or holy war, for the Syrian people, but not for Saudis, and repeatedly urged citizens not to go to fight.

"Peace and war have to be directed by the government and the king himself. As for those encouraging others to go and fight, I don't agree with it at all. It doesn't comply with our religion and it's not legal," said Sheikh Abdulmohsen Al al-Sheikh, a former member of the Sharia faculty at Mecca's Umm al-Qura seminary.

The militants, in turn, often cite Wahhabi clerics from the 18th and 19th century, but they regard their modern successors as tools of the Saudi government, which they have vowed to topple with the slogan "kadimoun" or "we are coming".

"The jihadis stopped citing senior mainstream Saudi clerics many years ago," said Thomas Hegghammer, a research fellow at the Norwegian Defense Research Establishment and author of Jihad in Saudi Arabia.

Even the few Saudi clerics who once supported al Qaeda, and are now in prison in the kingdom, are shunned by IS because of its own rift with the older militant group, he said.

However, there are clearly contacts between some lower-level clerics and militants in Iraq and Syria. The authorities said last month they had detained mosque imams who urged people to go and join the fight and prepared sermons for use by IS fighters.

Another cleric was sentenced to five years in prison in August for "glorifying" extremist ideology and urging others to go to Syria to fight. Thousands of Saudis are believed to have joined militant groups in Syria and Iraq.

LIBERAL SAUDIS

Over the past decade, the authorities have tried to hem in radical clergy by imprisoning or sacking those who overtly support militancy. They have vetted Friday sermons and restricted the power to issue fatwas (religious rulings) to the 21 members of the Council of Senior Scholars.

This does not go far enough for liberal Saudis. They believe the clergy's willingness to use highly sectarian language and voice contempt or hatred for non-Muslims fuels radical ideology.

"The only way to fight al Qaeda and Islamic State is by being transparent and open about it. We have a problem: some of our teachings promote militancy and we don't need those teachings any more," said Jamal Khashoggi, head of a television news channel owned by a prince.

Some school textbooks, many of which are written by clerics, still feature strong sentiments against non-Muslims despite Riyadh's pledge to purge the curriculum of intolerant language.

King Abdullah has pushed more tolerant interpretations of Wahhabi thought, appointing Shi'ites to the Shoura Council which advises on policy and calling for a new center to study Islam's sects to be built in Riyadh, to the chagrin of some Wahhabis.

However, he has also been quoted in a 2006 U.S. embassy cable released by WikiLeaks as attacking Shi'ites for "worshipping stones, domes and statues" and has done little to rein in clerical attacks on the sect.

"Anti-Shi'ism in Saudi religious discourse is extremely strong. So Saudis are open to understanding and accepting those justifications for militancy," said Lacroix.

Supporters of the Al Saud argue they have to tread carefully when dealing with conservative clerics. They say the ruling family is more liberal than most Saudi citizens, and is wary of provoking public anger.

But liberal Saudis and some foreign analysts say that is not the case, and argue that if the government really wanted to reduce intolerant religious discourse, it could readily do so.

"When the government wants things to be done, they will be done," said Mohammed al-Zulfa, a former member of the Shoura Council and an early public advocate of allowing women to drive.

(Editing by William Maclean and Paul Taylor)



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TOP NEWS Dollar General to go hostile with $9.1 billion Family Dollar bid: sources

NEW YORK (Reuters) - U.S. retailer Dollar General Corp (DG.N) is preparing to go hostile as soon as this week in its bid to buy rival Family Dollar Stores (FDO.N), taking its $9.1 billion offer directly to shareholders after being spurned twice by its smaller rival, people familiar with the matter said on Tuesday. 

Dollar General could launch a tender offer for Family Dollar as soon as Wednesday, these people said, asking not to be named because the matter is not public.

Family Dollar, which already has a deal to sell to Dollar Tree Inc (DLTR.O) for $8.5 billion, has rejected Dollar General's unsolicited approaches citing antitrust risks.

Representatives for Dollar General and Family Dollar both declined to comment.

Dollar General's expected hostile move could lead to a protracted takeover battle involving the nation's three largest U.S. dollar-store operators, at a time when these retailers are facing increasing competition from retailers like Wal-Mart and Target Corp (TGT.N).

In its most recent offer made last week, Dollar General had added a $500 million break-up fee and increased the number of stores it is willing to sell to get antitrust approval to 1,500 from 700.

Dollar General believes these new terms eliminated the antitrust risk for Family Dollar, people familiar with the matter said. But the rival rejected the sweetened bid, saying it still did not give the company sufficient protection.

Family Dollar wants Dollar General to assume the entire risk of a deal getting shot down by U.S. regulators through a so-called "hell or high water" clause before agreeing to negotiate. Such a clause will commit the company to doing whatever it takes to complete the deal, such as carrying out any divestiture that antitrust regulators ask for.

But Dollar General is not willing to offer such an assurance, partly because doing so could leave the retailer at the mercy of the antitrust regulators, who could demand huge divestitures, according to people familiar with the matter.

Dollar General also believes it has already offered far more divestitures than is necessary to secure regulatory approval, the people said. While it is willing to sell off up to 1,500 stores if required by the U.S. Federal Trade Commission, it still believes that the FTC will ask for far fewer to be divested, around 700, these people added.

Some shareholders have questioned if Dollar General can find buyers for the stores that regulators would require them to sell. But the people familiar with the matter said there is a long list of potential buyers for such assets, including a handful of small box retailers such as Fred's, Happy Dollar and Five Below, as well as private equity firms. These buyers could be interested in dividing up the assets, the people said.

A combined Dollar General-Family Dollar would have nearly 20,000 stores across 46 U.S. states and annual sales in excess of $28 billion.

Family Dollar said it expects the FTC to challenge a deal with Dollar General, as it could lead to higher prices in areas where only the two retailers are present. The company said more than 6,000 Family Dollar stores have a Dollar General store within three miles. Many of those locations also do not have a third competitor, Wal-Mart Stores Inc (WMT.N).

Dollar General has played down its rival's antitrust concerns, saying that Wal-Mart was the primary driver for its pricing decisions, not Family Dollar.

The FTC would want to make sure that whoever buys the divested stores would be able to keep them open and profitable, said Claudia Higgins, an antitrust expert with the law firm Kaye Scholer, who is not involved in the deal.

Higgins said that she had seen instances where a failure to find an appropriate buyer for divested assets did lead to the collapse of a deal but that this was not common and tended to happen in specialized industries.

"Seems to me that somebody who runs drug stores would know how to run a store that sells sundries. Or the owner of a small grocery store. Or a private equity company that owns retailers," she said.

Last week, Dollar Tree said it amended its merger agreement with Family Dollar to include a commitment to divest as many stores as necessary to clear antitrust hurdles. It had previously agreed to divest 500 stores.

(Additional reporting by Diane Bartz in Washington; Editing by Miral Fahmy and Stephen Coates)



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TECHNOLOGY Tech, equipment makers join U.S. 'net neutrality' debate

LAS VEGAS (Reuters) - Regulating internet providers more like public utility companies could hurt the Internet and the U.S. economy, more than two dozen network technology and equipment makers have told U.S. Commerce Secretary Penny Pritzker.

Thirty-three companies including Cisco Systems Inc, Intel Corp and International Business Machines Corp joined the chorus of citizens, activists, lawmakers and companies debating how the U.S. government should regulate Internet service providers (ISPs).

Other companies signing a letter to Pritzker published on Tuesday included Alcatel Lucent SA, Ericsson, Nokia Oyj's network arm NSN, Panasonic Corp of North America and CommScope Holding Co Inc.

The Federal Communications Commission (FCC) is considering so-called "net neutrality" rules that would determine how ISPs such as Comcast Corp and Verizon Communications Inc manage web traffic on their networks.

FCC Chairman Tom Wheeler has proposed rules that would allow ISPs to charge content companies to ensure their websites or applications load smoothly and quickly, as long as such deals are deemed "commercially reasonable."

Critics, including popular video streaming service Netflix Corp and numerous advocacy groups, argue the plan would threaten less deep-pocketed content providers by potentially relegating them to "slow lanes" on the web.

MORE POWER

Instead, they call on the FCC to reclassify broadband as a telecommunication service rather than the less-regulated information service it is now, saying the move would give more power to the FCC to stop potential violators of net neutrality.

ISPs and Republicans, both in Congress and at the FCC, have rejected the idea.

On Tuesday, 33 telecom network and tech makers, who are members of the Telecommunications Industry Association and the National Cable and Telecommunications Association and who depend on ISPs for business, spoke out against the reclassification idea as well.

"A sudden shift from the existing light-touch approach – which has been an unqualified success and the basis for billions of dollars in investments – to the prescriptive regime of Title II would be extremely disruptive to the broadband marketplace," they wrote, referring to the legal authority the FCC would use to reclassify ISPs.

Experts have disagreed on whether or how reclassification would adequately prevent pay-for-priority deals.

Wheeler has not proposed reclassification as the solution, but has not taken it off the table as a potential option.

FCC is collecting public comment on the tentatively proposed rules until Sept. 15 and will hold several public workshops on various aspects of the regulations in the following weeks.

Senate Judiciary Committee Chairman Patrick Leahy will hold a hearing on the issue of net neutrality on Sept. 17.

(Editing by David Holmes)



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TOP NEWS Ukraine death toll edges up despite ceasefire, more POWs freed

KIEV/MARIUPOL Ukraine (Reuters) - Five Ukrainian servicemen have been killed in the past four days, the military said on Tuesday, underscoring the strains in a ceasefire between government forces and pro-Russian separatists that officials insist is still broadly holding.

The ceasefire, agreed on Friday, is part of a peace plan meant to end a five-month conflict that has killed more than 3,000 people and caused the sharpest confrontation between Russia and the West since the Cold War.

Russia, accused by Kiev and the West of sending troops into eastern Ukraine and arming the rebels, urged the two sides in the conflict to begin talks soon on the region's final political status. It denies accusations of intervening in the conflict.

Under the terms of the ceasefire, Ukrainian military spokesman Andriy Lysenko said the rebels had so far released 648 prisoners-of-war to the government side. He said the Ukrainian side was working to secure the release of a further 500 POWs.

A rebel leader, Andrei Purgin, told Interfax news agency he expected an exchange of 36 more POWs on Tuesday.

The ceasefire largely held overnight into Tuesday despite sporadic violations, including in rebel-held Donetsk, the region's largest city, where government forces hold the airport. A woman was wounded in Donetsk overnight, officials said.

Lysenko said the death toll among servicemen since the start of the ceasefire now stood at five, with 33 wounded.

At the weekend, one woman was killed and at least four other civilians were wounded when government forces came under heavy shelling near the port of Mariupol on the Sea of Azov.

Both sides say they are observing the ceasefire and blame each other for any violations.

"Russian troops and terrorists are continuing their brazen violations of the conditions of the ceasefire, shooting at the positions of the Ukrainian forces, including with heavy weaponry," defense analyst Dmytro Tymchuk, who has close ties to the Ukrainian military, said in a statement.

RUSSIAN CRITICISM

Speaking in Moscow, Russian Foreign Minister Sergei Lavrov accused the Ukrainian forces of preparing a strike against the rebels, based on what he said were reports of a "heavy concentration" of troops in an area northeast of Donetsk.

Lavrov also said Moscow hoped talks could start soon on the status of southeast Ukraine, where the rebels have declared two "people's republics" outside Kiev's control.

Kiev has said it could grant greater autonomy to the mainly Russian-speaking region, which is home to much of Ukraine's heavy industry and accounts for about 18 percent of its economic output, but firmly rules out independence.

Russian Prime Minister Dmitry Medvedev was quoted on Tuesday as saying his government would support domestic firms targeted by Western sanctions over Russia's role in Ukraine.

The European Union formally adopted a package of new sanctions targeting Russia's energy sector on Monday but said their entry into force would be delayed to allow time to assess whether the ceasefire in Ukraine was working.

One of the key factors driving Western anger over Moscow's role was the downing of a Malaysian airliner over eastern Ukraine in July. All 298 people on board were killed. The West blamed the separatists, saying they were using advanced Russian weapons. Russia denied the allegation and blamed Ukraine.

The Dutch Safety Board said on Tuesday Malaysia Airlines flight MH17 had broken apart due to impact from a large number of fragments, in a report that Malaysia's prime minister and several experts said suggested it was shot down from the groundThe report did not assign blame.

PEACE HOPES

In eastern Ukraine, Mariupol, the main flashpoint along with Donetsk, was quiet on Tuesday, one day after President Petro Poroshenko paid a brief visit to show solidarity with a city the rebels had appeared intent on capturing before the ceasefire.

Poroshenko told cheering residents on Monday he had ordered reinforcements to the city and promised to deal a "crushing defeat" to rebels massed nearby if they tried to advance again in violation of the ceasefire deal.

"After that bombardment (on Saturday night) we have had two quiet days and I am hoping it will stay that way. This war is taking its toll on everyone and I am hoping this will end soon," Evgeny, a 22-year-old student, told Reuters on Tuesday.

Not everybody was impressed by Poroshenko's visit to Mariupol, which is important for Ukraine's steel exports but lies in the largely Russian-speaking region of Donetsk where many people blame Kiev, not the rebels, for the conflict.

"Poroshenko came yesterday to scare people, to talk about cannons and rockets. To me Ukraine is ready to break the ceasefire and keep on shooting its own citizens, Kiev will be responsible if this town is destroyed," said pensioner Leonid.

(Additional reporting by Gabriela Baczynska in Donetsk and by Amsterdam and Moscow bureaux; Writing by Gareth Jones; Editing by Ralph Boulton)



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TECHNOLOGY Apple counts down to launch of smartwatch, bigger iPhone

(Reuters) - Apple Inc (AAPL.O) is expected to unveil its first new device in four years, the iWatch, in a gala event on Tuesday that may also mark its long-awaited entry into mobile payments and deliver a larger iPhone.

The company's shares rose nearly 2 percent to $100.22 in heavy trading.

Analysts say the new iPhone is likely to help Apple gain market share against mobiles running Google Inc's (GOOGL.O) Android platform by offering something Apple previously lacked — larger screens.

The iPhone 6 is expected to be available with a 5.5-inch or 4.7-inch screen, a step up from the current models' 4 inches. It may also boast extra-tough screens made from scratch-resistant sapphire material.

Fans of the iPhone are already lining up outside the Apple store on New York's Fifth Avenue to be among the first to get their hands on the new device, even though the phones typically arrive in stores around 10 days after their launch.

Cowen & Co analysts said they expected Apple to price its top-end iPhone at $499 and to reduce the price of its existing models.

Apple has struck deals with credit card providers such as Visa Inc (V.N) and MasterCard Inc (MA.N), the Wall Street Journal reported last week, allowing consumers to use the mobile payment feature of their gadgets for shopping. (http://on.wsj.com/1Bf9Vn3)

It might also finally be showtime for Apple's smartwatch, or iWatch — the company's first new device since the iPad in 2010 and the first to be launched by Tim Cook since he became chief executive in 2011. [ID:nL1N0R62SW]

Apple has hired renowned industrial designer Marc Newson to work with Jonathan Ive in its design team. Newson, who has designed products from aircraft to watches, has been called "arguably the most influential industrial designer of his generation" by the New York Times. (http://nyti.ms/1qCtqCz)

The company has invited top fashion editors and bloggers in unprecedented numbers to its launch gala as it tries to forge closer ties to the fashion world that may prove crucial to the success of a wearable device.

Bernstein Research analyst Toni Sacconaghi estimated that if Apple were to sell 30 million iWatches at $250 each, it would add about $7.5 billion to its revenue.

Rival electronics giants such as Sony Corp (6758.T), Samsung Electronics Co Ltd (005930.KS), LG Electronics Inc (066570.KS) and Qualcomm Inc (QCOM.O) have already launched smartwatches, albeit without much success.

The Cowen & Co analysts estimated that Apple could sell 15 million to 20 million iWatches in 2015.

Cook, who opened a Twitter account last year on the same day that Apple launched its 5S and 5C smartphones, trumpeted Tuesday's event with an early morning tweet: "Looking forward to a great day in Cupertino! Join us at 10am Pacific."

(Additional reporting by Soham Chatterjee and Lehar Maan in Bangalore and Edwin Chan in San Francisco; Editing by Robin Paxton)



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TECHNOLOGY Quindell wins libel lawsuit against short seller

Sept 9 (Reuters) - British IT outsourcing firm Quindell Plc QPP.L said on Tuesday it had won a libel lawsuit against U.S.-based short-seller Gotham City Research LLP, which had raised questions about the company's revenue model and profit quality.



Quindell, which initiated legal action against the short-seller in April, said that following the High Court ruling in London the process to evaluate damages due to the company would begin in November.



Shares of Quindell jumped 11.5 percent to 184 pence in early trading, one of the biggest rises on the London Stock Exchange.



The stock had lost 72 percent of its value since Gotham City published a report on its website in April.



"We are pleased that following the co-ordinated shorting attack led by Gotham and others, we have been able to successfully win judgement from the High Court in our claim for libel against Gotham," Quindell Vice Chairman Tony Bowers said in a statement.



Short-sellers borrow stock and then sell it in expectation the price will fall, aiming to cover their position at a profit.



Gotham City published a similar report in July on Spanish wireless network provider Gowex GOW.MC, questioning its revenue reporting and the competence of its managers.



Gowex said a week later it would file for bankruptcy, after its chief executive said the company's accounts for at least four years were unfaithful and that he was responsible for the misrepresentation.



(Reporting by Abhiram Nandakumar in Bangalore; Editing by Mark Potter)





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TECHNOLOGY Japan's Toshiba to invest about 200 billion yen a year in chip business

TOKYO (Reuters) - Japanese conglomerate Toshiba Corp will maintain an annual investment of around 200 billion yen ($1.9 billion) into its chip business beyond the current business year, Chief Executive Hisao Tanaka said on Tuesday.



Speaking at the opening ceremony of its chip fabrication plant No. 5 in Yokkaichi, western Japan, Tanaka also said the company was seeking operating profit of more than 200 billion yen in the current year, which ends in March 2015.



Tanaka said boosting sales and profit in Toshiba's semiconductor unit was a greater priority than becoming No. 1 in the NAND flash memory chip market, where Korean rival Samsung Electronics Co Ltd is currently top, ahead of Toshiba.



Toshiba built Fab No. 5 along with chip partner SanDisk Corp, splitting the cost evenly. Tanaka said that most of the 200 billion yen the company had earmarked for investment in its chip business this year would be spent on Yokkaichi.



(Reporting by Reiji Murai; Editing by Clarence Fernandez)





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NEW VIDEO: G-Unit – Watch Me

G-Unit release a video for 'Watch Me'.



G-Unit keep the momentum going and deliver a brand new visual for 'Watch Me'.



It is directed by Eif Rivera. This is taken from 'The Beauty Of Independence' EP out now. Be sure to check out their 13 minute freestyle on Funkmaster Flex's show



Download and watch video below…







DOWNLOAD » http://akpraise.com/wp-content/uploads/2014/09/G-Unit_Watch_Me_OFFICIAL_VIDEO_Via_Akpraise.com_.mp4

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TECHNOLOGY Rakuten says to buy U.S. rebate site operator Ebates for $1 billion

TOKYO (Reuters) - Japanese e-commerce firm Rakuten Inc (4755.T) said on Tuesday it would buy U.S. Internet discounter Ebates Inc for $1 billion, extending an acquisition spree in a deal whose logic has been questioned by analysts and investors alike.

The move underlines Rakuten's ambitions to grow overseas after recent international purchases worth over $1.2 billion. But shares in Japan's biggest e-commerce firm have fallen 5.4 percent since it said over the weekend it was considering the deal amid doubts about how it beds in another big acquisition.

Hiroshi Mikitani, Rakuten's billionaire chief executive, said on Tuesday the purchase was an opportunity for his company to get access to Ebates' U.S. customers. The San Francisco-based firm operates websites handling rebates and coupons issued by retailers like Amazon.com Inc (AMZN.O) and Best Buy Co Inc (BBY.N).

The deal is in line with Mikitani's plans to reduce Rakuten's reliance on the domestic market. Japan accounts for around 90 percent of revenues, but growth prospects are constrained by a shrinking population and weak consumer spending.

"This acquisition is Rakuten's first step into the U.S. market with an open form shopping site," Mikitani said at a news conference. "I hope through this acquisition we can take steps to change the internet shopping industry."

But observers like Hiroyuki Fukunaga, CEO of investment advisors Investrust, have questioned the value of the Ebates acquisition. "Investors will wonder whether this deal would be cost-effective when in the U.S. there's already a giant like Amazon," Fukunaga said.

High-profile acquisitions in recent years have included free messaging application Viber for $900 million, and Canadian e-book reader Kobo for $315 million. Mikitani is trying to transform Rakuten from a pure e-commerce firm into a one-stop-site for a global audience, along the lines of Amazon.

Rakuten already offers online services such as financing, travel, shopping and online video. It also recently announced it would set up a Japanese low-cost carrier with Malaysian budget carrier Air Asia.

"Mikitani keeps doing bolt-on acquisitions," said a person with direct knowledge of Rakuten's acquisitions. "He doesn't necessarily have a big plan on what he wants to do with all of the deals. Some of his recent deals are with smaller second-tier players, not top companies."

Rakuten filed a shelf registration to issue up to 100 billion yen ($940 million) in bonds to cover the acquisition, which is expects to close next month. It plans to use the proceeds for operating cash, capital spending and other purposes.

Analysts have said Rakuten's balance sheet is sufficiently strong that the latest purchase should not be a problem for the company, which also has ready access to bank financing.

As of end-June, Rakuten had 412.4 billion yen in cash against debts 390 billion yen. It used bank loans for the Viber purchase and cash for its $315 million purchase in 2010 of Canadian e-book reader Kobo.

(Editing by William Mallard and Kenneth Maxwell)



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TECHNOLOGY Salesforce says malware could have targeted its users

(Reuters) - Business software maker Salesforce.com Inc said a malware designed to steals users log-in credentials could have targeted some of its users.



Salesforce currently had no evidence that any of its customers were hit by the Dyre malware, which was identified on Sept. 3, the company said in post on its website. (http://sforce.co/1qBenJy)



The malware, also known as Dyreza, usually targets customers of large financial institutions and resides on infected systems, Salesforce said.



"This is not a vulnerability within Salesforce," the company said.



The company's shares were unchanged at $60.40 in midday trading on the New York Stock Exchange.



(Reporting by Soham Chatterjee in Bangalore; Editing by Savio D'Souza)





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TECHNOLOGY Siemens to delist from London, Swiss exchanges

FRANKFURT (Reuters) - German engineering group Siemens will delist its shares from the London and Swiss stock exchanges because of low trading volumes there, it said on Tuesday.

"Following the delisting of Siemens ADS from the New York Stock Exchange in mid-May 2014 and the SEC deregistration in August, the delisting from the Swiss and London Stock Exchanges is the logical next step," Chief Financial Officer Ralf Thomas said in a statement.

Siemens said 2013 trading volume in London was less than 3 percent and on the SIX Swiss exchange was less than 1 percent of its worldwide trading volume.

It said the London Stock Exchange delisting was expected to take effect in early October, and the SIX delisting in January 2015 at the earliest.

(Reporting by Georgina Prodhan; Editing by Ludwig Burger)


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TECHNOLOGY SafeCharge raises forecasts, pays first dividend

LONDON (Reuters) - Online payments company SafeCharge raised its profit forecast on Tuesday and announced its first dividend payment since listing on the London stock market this year.



Shares in the company rose 4 percent to 224p by 0720 GMT, having increased in value by more than a third since joining London's Alternative Investment Market in April.



"The directors are pleased to announce that both revenues and EBITDA for the full year to December 31, are expected to be materially ahead of current market expectations," the company said.



SafeCharge provides payment services to online businesses in sectors including sports betting and the foreign exchange trading sector. It is majority owned by Israeli entrepreneur Teddy Sagi.



Revenue in the first six months of 2014 increased by 77 percent to $34.4 million and earnings before interest, tax, depreciation and amortization (EBITDA) more than doubled to $10.8 million.



Shore Capital, the company's broker, is now forecasting EBITDA of $23 million over the year as a whole, upgrading an earlier estimate of $20.8 million.



The company is looking at expansion through acquisition and has a cash balance of $142 million.



(Writing by Keith Weir; Editing by David Goodman)





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TECHNOLOGY Intel's CEO says its costly tablet chip strategy has paid off

SAN FRANCISCO (Reuters) - Intel Corp's (INTC.O) plan this year to pay manufacturers to use its processors to make tablets was boosting the chipmaker's market share, Chief Executive Officer Brian Krzanich said on Tuesday, adding that he hoped to avoid such a costly strategy with smartphones.

After falling behind rival chipmakers in mobile in recent years, Krzanich set a goal for Intel's chips to be used in 40 million tablets in 2014, up from 10 million the previous year.

To reach it, Intel is paying manufacturers some of the initial engineering cost of developing tablets using its chips, hoping those companies will continue to use them for future devices.

The vast majority of tablets are made with processors based on rival technology from Britain's ARM Holdings Plc (ARM.L).

"We've made good progress getting into tablets," Krzanich told reporters ahead of the annual Intel Developer Forum in San Francisco. "We've gone from nothing to something where I consider us a real tablet manufacturer."

Investors have pushed shares of Intel to decade highs, partly on bets that the global slump in personal computer demand that began with Apple Inc's (AAPL.O) introduction of the iPad four years ago is hitting bottom.

Shares of Intel have surged about 35 percent so far this year, far more than the Standard & Poor's 500's increase of 8 percent.

Intel would not say how much it was spending to coax tablet makers into using its chips. But reflecting an ongoing struggle to break into smartphones and tablets, the company's mobile and communications group's second-quarter revenue fell 83 percent to $51 million, and the unit had an operating loss of $1.12 billion.

Krzanich said he hoped to avoid using costly subsidies when he sets a new goal for smartphone chip shipments for 2015.

Intel's upcoming Sofia smartphone chip includes a 3G version for low-cost devices in developing countries like China as well as a version with 4G for the United States.

"It's a product built for the right price point," Krzanich said.

At Tuesday's event, Intel was expected to highlight its determination to become a player in a growing wave of wearable computing gadgets like smart watches and fitness trackers.

Intel has been working with design company Opening Ceremony to launch a fashion bracelet with semiprecious gems, communications features and wireless charging.

In March, Intel bought fitness bracelet maker Basis Science. Last week it announced plans to work with fashion accessory retailer Fossil Group (FOSL.O) to develop more wearable computing devices.

(Reporting by Noel Randewich; Editing by Lisa Von Ahn)

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TECHNOLOGY Alibaba talks corporate governance to potential IPO investors

(Reuters) - Alibaba Group Holding Ltd (IPO-BABA.N) founder Jack Ma on Monday surprised potential investors at a standing-room only event in New York by addressing governance concerns over the Chinese e-commerce giant, including a controversial 2010 spin-off of its online payment service.

Ma made the remarks at a luncheon at the Waldorf Astoria hotel in New York in front of hundreds of hedge funds, mutual funds and other institutional investors, as the company kicked off a two-week, multi-city marketing blitz for its initial public offering.

Alibaba was expecting about 500 investors to attend the first stop on the roadshow, but some 800 showed up, forcing some into overflow rooms.

Alibaba is seeking to raise more than $21 billion in the largest-ever U.S. technology IPO, valuing the company at up to $163 billion. It expects to price the IPO at $60 to $66 per American Depositary Share, which are scheduled to start trading on the New York Stock Exchange later this month.

Industry analysts had expected Alibaba to try for a valuation in excess of $200 billion, ranking it among the 20 largest publicly traded companies in the United States. The marketing effort, which will take Alibaba on a globe-trotting tour, will help determine whether the company will price above its initial range and come closer to that valuation.

Several investors who spoke with Reuters before and after the event said they went into the presentation with a series of questions about Alibaba, ranging from concerns about its corporate governance and transparency, to plans for U.S. acquisitions and growth. They said they did not learn anything new during the lunch - of boxed turkey sandwiches - but came away feeling the event was well-choreographed.

Akram Yosri, a managing partner at 3iCapital Group, said he had hoped to find out more about how the company planned to grow globally, and particularly how it plans to compete with Amazon.com Inc (AMZN.O) and eBay Inc (EBAY.O) in the United States.

"Did I learn anything? Absolutely not," he said.

But Yosri and other investors said they found Ma to be impressive, with some describing the former English teacher who founded the company in his apartment as "charismatic". In his 10-minute remarks, Ma emphasized how the company serves small businesses in China and addressed issues of governance, investors said.

Alibaba accounts for about 80 percent of all online retail sales in China, where rising Internet usage and an expanding middle class helped the company generate gross merchandise volume of $296 billion in the 12 months ended June 30. Revenue in the June quarter increased 46 percent to $2.54 billion from a year earlier, faster than the 38.7 percent growth in the previous quarter.

But the company has seen its share of controversy, in particular over governance and the outsized influence of its founder and senior managers. Ma holds deep sway over executive and board appointments at the company, an influence that is set to strengthen further after it goes public.

In 2010, a decision to spin off Alipay to a company Ma controlled also led to objections from major investors, including Yahoo Inc (YHOO.O) and SoftBank Corp (9984.T).

Ma surprised investors at the event by talking about the move unprompted.

"Ma said it was a tough decision and time will prove it was a good one," one investor at the luncheon said, referring to the Alipay decision. Two other investors who had flown from Toronto to attend the roadshow said they understood Ma's comments to mean, "'Trust me on this one.'"

An Alibaba spokesman declined comment.

Alibaba has been billed as one of the hottest IPOs of the year, eliciting the kind of anticipation among investors that was last seen in 2012 when Facebook Inc (FB.O) went public in a $16 billion offering.

Alibaba's draw was evident on Monday. Investors waited on long lines for elevators, making some fret about being able to make it to the venue on time and other hotel guests wondering about the cause of the commotion. Among the investors attending the event was Mario Gabelli, CEO of Gabelli Asset Management.

The event, which started later than expected, kicked off with a video about the company. Executive Vice Chairman Joe Tsai presented some slides; Ma's remarks followed.

Management took questions from investors. But 3i's Yosri said all questions were screened. He said he was disappointed they didn't take "the tough New York questions."

EARLY START

Alibaba executives and bankers started their day early, with a management presentation to about 300 salespeople for the six banks underwriting its offering. They gathered at Citigroup Inc's (C.N) offices on Greenwich street in Lower Manhattan for an hour, according to the source familiar with the meeting.

Besides Citigroup, Credit Suisse Group AG (CSGN.VX), Deutsche Bank AG (DBKGn.DE), Goldman Sachs Group Inc (GS.N), JPMorgan Chase & Co (JPM.N) and Morgan Stanley (MS.N) are the joint bookrunners for Alibaba's IPO. Rothschild is Alibaba's independent equity adviser.

Tsai fielded questions and did the main presenting to the sales force at the Citigroup meeting, according to the source.

Alibaba is selling 123.1 million of the 320.1 million ADS shares slated for the IPO. Shareholders including Ma, Tsai and Yahoo are offering the remainder.

The company plans a Tuesday presentation at the Four Seasons hotel in Boston, according to a person who saw an invitation.

(Reporting by Liana B. Baker and Jessica Toonkel in New York; Additional reporting by Michael Erman; Editing by Lisa Von Ahn and Bernard Orr)



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TOP NEWS New Iraq oil minister faces security challenge, Kurdish dispute

DUBAI (Reuters) - Iraq's new oil minister is a veteran politician who will need to deploy all his experience to resolve disputes over Kurdish oil production and allay foreign investor fears about Islamist militia control in northern oil fields.

Adel Abdul-Mehdi, a former finance minister and vice president who was given the oil portfolio in a new government approved by parliament on Monday, is seen as welcoming foreign investment and business in Iraq.

Some Iraqi Kurdish sources say they also view him as a relatively conciliatory figure who might bring a more positive atmosphere to tense talks between Baghdad and the Kurdistan region over rights to oil production.

But he faces a daunting task, taking over when Islamic State militants are in control of swathes of land and a few oilfields in northwestern Iraq, while the Kurds are defying Baghdad by exporting crude directly via the Mediterranean port of Ceyhan.

In addition to those grave security and political challenges, he must also overcome foreign concerns over Iraq's entrenched bureaucracy and poor infrastructure -- a legacy of years of sanctions, war and internal conflict.

Any policies which Abdul-Mehdi pushes will have to run a gauntlet of sectarian tensions as the OPEC member's new leaders struggle to keep the country united.

"The challenges ahead of the new minister are very big and very wide," said Samuel Ciszuk, analyst at the Swedish Energy Agency.

POLITICS

Abdul-Mehdi has heavyweight political credentials which could help him. A member of a family involved in politics since the days of the Iraqi monarchy, he was in the Baath party briefly in the 1960s before Saddam Hussein seized power, then became a prominent Marxist and ultimately an Islamist.

A Shi'ite, he is a senior leader in the Supreme Iraqi Islamic Council, one of Iraq's main Shi'ite parties that has traditionally strong ties with the Kurds.

The Kurdish connection may go some way to defusing the long-running dispute between Baghdad and the regional Kurdish capital of Arbil over natural resources and territory.

The Kurds began exporting oil in May via an independent pipeline. Iraq has asked a U.S. court to seize $100 million worth of Kurdish crude oil on a tanker near Texas, and has threatened to sue potential buyers of the cargo.

Abdul-Mehdi "is an old politician who has held many posts. He is a man of dialogue and trust. I do believe he may be the best bridge between Baghdad and Arbil," said Mithal Alusi, a secular lawmaker. "He was the best choice."

A Kurdish source said: "He is a conciliatory figure. He never had any anti-Kurd rhetoric like other Shi'ite politicians, and has frequently visited the Kurdish Regional Government. I think this might be good for the Kurds."

Former deputy prime minister for energy affairs Hussain al-Shahristani - seen by the Kurds as leading a hostile policy against independent Kurdish oil development and exports - was not named for any energy-related post in Iraq's new cabinet.

Some observers see this as a goodwill gesture, showing the new government of Prime Minister Haidar al-Abadi may be willing to resolve its row with Arbil over oil resources and revenues as a step towards boosting national output.

"The main challenge now for Iraq's oil sector is to achieve a common national policy along with the required supporting legislation to enable the massive investments needed to achieve the country's production potential," Majid Jafar, chief executive of the UAE's Crescent Petroleum, told Reuters.

In addition to his domestic political challenge, Abdul-Mehdi will need to deal with the foreign oil firms which Iraq needs to exploit its oil reserves.

"The industry definitely wants somebody who understands contractual negotiations and the technicality of the oil industry," Ciszuk said.

Abdul-Mehdi does not have an oil industry background, but he was finance minister in 2004-2005. His website says he has degrees in political science and political economy from France, and previously worked as an economist.

SOUTH

Iraq originally set an overall oil production capacity target of 12 million barrels per day by 2020, rivaling that of top oil exporter Saudi Arabia, after it signed service contracts in 2009-2010 to develop its giant southern oilfields.

Oil majors working in Iraq include BP, ExxonMobil, and Royal Dutch Shell. The southern oilfields remain under Baghdad's control and untouched by the violence.

But crumbling infrastructure, red tape and a lack of clear oil legislation have stunted investor interest. Iraq failed to reach its targets and Baghdad has now reduced the overall capacity target to 8.5-9 million bpd, after negotiating revised plateau production rates with oil companies.

All of Iraq's oil exports now come from the south, with frequent bomb attacks on the northern Kirkuk-Ceyhan pipeline halting exports from there since February.

Abdul-Mehdi will lead efforts to raise oil exports beyond their current level of 2.4 million bpd, and will work with oil companies on developing Iraq's southern oilfields to boost output above 3.2 million bpd.

"In terms of what the minister has to deal with, it is really a continuation of the past and current challenges -- ensuring that the obligations of the government are met in executing the technical service agreements," said one oil industry source.

That includes ensuring foreign oil companies are protected and that decisions on contracts for service work, such as building new pipelines or drilling wells, are not being held up by administrative issues, the source added.

(Additional reporting by Ned Parker in Baghdad; Editing by Andrew Torchia and Dominic Evans)



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TOP NEWS Saudi Arabia hosts talks with U.S., regional allies on Thursday

DUBAI (Reuters) - Saudi Arabia will hold talks about militant violence in the region on Thursday with the United States and Muslim allies, the kingdom announced on Tuesday, in an apparent attempt to support international efforts to tackle crises in Iraq and Syria.



The world's No. 1 oil exporter is unnerved by the rapid advance of Islamic State -- a militant group that has overrun swathes of Iraq and Syria -- and fears it could radicalize some of its own citizens and lead to attacks on the U.S.-allied government.



"The meeting will tackle the issue of terrorism in the region and the extremist organizations that stand behind it and the means of addressing it," a statement carried on the official Saudi Press Agency said.



It said the participants would include Egypt, Turkey, Jordan and member states of the six-country Gulf Coopertion Council (GCC), which in addition to the kingdom comprises Bahrain, the United Arab Emirates, Kuwait, Oman and Qatar.



Arab League foreign ministers agreed on Sunday to take all necessary measures to confront the Islamic State.



President Barack Obama, who has authorized weeks of air strikes in Iraq to check advances by Islamic State fighters, would like Gulf Arab states to consider military action as well, and would like to see them support Sunni Muslim moderates in Iraq and Syria who could undermine the appeal of Islamic State.



U.S. Secretary of State John Kerry is to travel to Saudi Arabia and Jordan in the coming week for talks with Gulf leaders to determine whether they are prepared to back up their anti-jihadist rhetoric with action.



(Reporting by Reem Shamseddine, Writing by William Maclean,; Editing by Ralph Boulton)





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TOP NEWS Scottish nationalist leader says nothing new in London power offer

EDINBURGH (Reuters) - Scottish nationalist leader Alex Salmond said on Tuesday there was nothing new in London's offer of greater powers to Scotland and that the unionist campaign was falling apart ahead of next week's referendum.



Salmond said the offer of more powers that has been endorsed by Britain's three main political parties was "a-back-of-the- envelope non-plan".



"There's actually nothing new in this package whatsoever. This is a retreading, a repackaging, a re-timetabling of what they said in the Spring," he told reporters in Edinburgh.



"This is a day the 'No' campaign finally fell apart," he added.



(Reporting by Angus MacSwan, writing by Guy Faulconbridge, editing by Stephen Addison)





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TOP NEWS China says Turkey will decide in its 'own interests' on missile system

BEIJING (Reuters) - China said on Tuesday that Turkey would decide in its "own interests" after Turkish President Tayyip Erdogan said the country was in talks with France on buying a missile defense system following disagreements with Beijing.



U.S. and NATO officials have said Turkish collaboration on the system with China, which was originally awarded the tender, could raise questions of compatibility of weaponry and of security.



The missile deal constituted normal trade cooperation, Chinese Foreign Ministry spokeswoman Hua Chunying told a daily news briefing.



"The relevant Chinese company's cooperation with Turkey is normal military trade cooperation. We believe that the Turkish side will make a decision that accords with its own interests," Hua said when asked whether the deal was still on.



Franco-Italian Eurosam, which is owned by Franco-Italian missile maker MBDA and France's Thales, came second in a tender last September, losing out to China Precision Machinery Import and Export Corp's (CPMIEC) $3.4 billion offer.



Erdogan said the disagreements were about joint production and know-how during negotiations over the missile defense system.



The choice of CPMIEC for the project irked Western allies as the company is under U.S. sanctions for violations of the Iran, North Korea and Syria Non-proliferation Act.



U.S. Defense Secretary Chuck Hagel, who told a defense industry forum last week that Russia and China were working hard to close a weapons technology gap with the United States, was in Ankara on Monday.



Last month, Turkey invited firms in the tender, including Eurosam and U.S.-listed Raytheon Co, the maker of Patriot missiles which came in third, to extend the validity of their bids, indicating Ankara was still considering alternative offers but stopped short of discussing problems with the Chinese deal.



In May, Turkish officials told Reuters on condition of anonymity that China had not met the tender's conditions.



(Reporting by Ben Blanchard; editing by Nick Macfie)





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TOP NEWS Dutch Safety Board says MH17 broke apart after impact with many objects

THE HAGUE (Reuters) - Malaysian Airlines flight MH17 broke apart over Ukraine due to impact from a "large number of high-energy objects", the Dutch Safety Board said on Tuesday in a preliminary report consistent with the theory it was shot down by a missile.

The crash over pro-Russian rebel-held territory in eastern Ukraine on July 17 killed 298 people, two thirds of them from the Netherlands.

The report, published on Tuesday, said MH17 crashed due to external objects penetrating the fuselage. "There are no indications that the MH17 crash was caused by a technical fault or by actions of the crew," it said.

Although the report did not mention a missile, impact with a large number of fragments would be consistent with a "proximity" warhead, designed to explode in the air and hurl shrapnel at its target, said Tim Ripley, a defense analyst with Jane's Defence Weekly magazine.

Such warheads can be fitted to a number of missiles, including the Russian-made BUK surface-to-air missile that Ukraine and Western allies including the United States say was fired by separatists who probably targeted the airliner by accident.

Dutch investigators were unable to reach the crash site because of fighting between pro-Russian militants and Ukrainian government forces.

The early findings were based on data retrieved from the cockpit voice recorder, the flight data recorder, satellite and other images, and radar information. Rebels turned over the recorders after recovering them in the wreckage.

A series of photographs of the wreckage detailed in the report showed multiple shrapnel impacts.

Kiev and its Western allies, including the United States, say separatists were supplied from Russia with a BUK missile, a giant, advanced system with enough range to hit an airliner at cruising height.

The separatists have mostly denied ever possessing such missiles, although one separatist leader told Reuters in July that they did in fact have one on the day the plane was shot down. Moscow denies supplying the rebels with weapons.

U.S. President Barack Obama said the day after the crash that "evidence indicates that the plane was shot down by a surface-to-air missile that was launched from an area that is controlled by Russian-backed separatists inside of Ukraine".

The Dutch report is "an initial, provisional sequence of events" and it could take up to a year for a final report to be concluded, the board said. A separate Dutch criminal investigation has been launched to determine if charges should be brought against individual culprits.

Nearly two months after the crash, Tuesday's release is several weeks past a 4 week timeframe generally required by the International Civil Aviation Organization. Extra time was given due to the complex nature of the MH17 case.

(Reporting by Anthony Deutsch; Editing and additional reporting by Peter Graff)

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TOP NEWS Iraq's Shi'ite militia, Kurds use U.S. air strikes to further own agendas

SULEIMAN BEG Iraq (Reuters) - A small group of people pick through putrefying human remains laid out on plastic sheets by the side of a road in northern Iraq, searching for any trace of missing friends and relatives.

Some had brought spades to help dig up the mass grave near Suleiman Beg after the town was retaken from Sunni Islamic State militants who held the area until last week.

"They (Islamic State) slaughtered him simply because he was Shi'ite," said Jomaa Jabratollah, hauling the remnants of his friend, a truck driver, into a coffin, having identified him from the lighter in his breast pocket. "We must take revenge".

Helped by the United States and Iran, Kurdish forces and Shi'ite militia are finally beating back Islamic State militants who overran most Sunni Arab areas in northern and central Iraq nearly three months ago.

But the aftermath illustrates the unintended consequences of the U.S. air campaign against Islamic State.

Kurdish and Shi'ite fighters have regained ground, but Sunni Muslims who fled the violence are being prevented from returning home and some have had their houses pillaged and torched.

Rather than help keep the nation together, the air strikes risk being used by different factions for their own advantage in Iraq's sectarian and ethnic conflicts.

The fallout also risks worsening grievances that helped Islamic State find support amongst Iraq's Sunnis, and allows the militant group to portray the U.S. strikes as targeting their minority sect. That may make it more difficult to bring Sunnis on side and convince them to fight the militants.

"NO WAY BACK"

The unlikely coalition of Kurdish peshmerga fighters, Shi'ite militias and the U.S. air force won a major victory when it broke a siege of the Shi'ite Turkman town of Amerli last week and drove Islamic State from 25 nearby Sunni towns and villages.

But the aftermath is far from what the Americans envisioned. Smoke now rises from those Sunni villages, where some houses have been torched by Shi'ite militia. Others are abandoned, the walls daubed with sectarian slogans.

"There is no way back for them: we will raze their homes to the ground," said Abu Abdullah, a commander of the Shi'ite Kataib Hizbollah militia in Amerli.

The area is now held by Kurdish peshmerga and Shi'ite militia, who have become the most powerful forces on the ground, rather than the Iraqi army, whose northern divisions collapsed this summer when Islamic State attacked.

By the time IS was expelled from around Amerli, many Sunni civilians had fled, fearing for their lives. They have few places to go and are too frightened to return.

"If a regular army were holding the area we could return, but as long as the militias are there we cannot," said a 30-year-old displaced Sunni resident of one village near Amerli, who asked to remain unnamed. "They would slaughter us on the spot."

He admitted some villagers had supported IS, but said it was only one or two for every 70 to 80 households, and that the rest were innocent civilians who were too scared to stand against the militants or had nowhere else to go.

Sunni Turkman al-Muradli and his family left Suleiman Beg the day after it fell to Islamic State in June and moved to a Kurdish-controlled town nearby. A month later, their 21-year-old son was abducted.

The next time they saw him was in a video on the internet captioned "arrest of an Islamic State member", which appears to show their son being beheaded by Shi'ite militia fighters.

His weeping mother insisted he was an innocent student and said her son's killers had phoned her demanding $2,000 to return the corpse without a head, which the caller claimed to have taken to Baghdad as a trophy.

"We cannot return. Even if the Shi'ite army and militia withdraw, Islamic State will come back and the same will happen all over again," said the mother.

The mayor of Tuz Khurmato confirmed the account and said at least four other Sunnis had been abducted in the area in recent weeks, presumably by Shi'ite militia. At least one other video has circulated online of Shi'ite militiamen brandishing the heads of alleged Islamic State fighters.

Pictures online, also allegedly from Amerli, show two militia fighters posing with a pair of charred corpses.

A 42-year-old Shi'ite volunteer said it would eventually be safe for Sunnis to return and that no more than ten houses of known Islamic State members had been deliberately destroyed.

"The Sunnis will come back to their villages but not now: after a few months," he said.

"Since there is no confidence between Sunni and Shi'ite any more, they need guarantees from a third party, maybe the Kurds, then we can live peacefully together again, as we were."

ETHNIC TENSIONS

Sunni Arabs are also feeling a backlash in villages where they used to live alongside Kurds, who accuse them of collaborating with Islamic State.

Kurds, who are also mostly Sunni but identify first and foremost with their ethnicity, have taken back at least 127 villages since the start of the U.S. air campaign, some of which were home to Arabs too.

In one such village, returning Kurds have sprayed over the word "apostate" on the walls of houses and written "Kurdish home" instead. Arab households remain empty.

Kurds in the Makhmour area, from which IS was pushed out in August, say they no longer trust Arabs enough to live with them.

"All my neighbors were Arabs. Now most of them are with Islamic State," said Abdul Rahman Ahmed Abdullah, a member of the Kurdish security services from the village of Baqirta, south of Arbil. "We cannot be mixed together. The only solution is for them to leave."

SOLIDARITY SHORT-LIVED

During the operation to reach Amerli, Kurds gave passage to Shi'ite militia through territory they control and allowed them to use their bases, where they fired artillery at IS positions side by side in an unusual show of solidarity.

"Amerli united Iraqis," said Taleb Jaafar Mohammed, a Shi'ite Turkman teacher, holding a pistol in one hand and a string of prayer beads in the other.

But even during the operation, there were cracks in the coalition: Shi'ite militia and Kurdish forces fought under their own banners and the least visible flag was that of Iraq.

Now that the common enemy has been pushed back, the alliance is unraveling. Kataib Hizbollah, which controls access to Amerli, is denying Kurds entry to the town and one peshmerga commander described the militia as the "Shi'ite IS".

The tensions reflect a struggle for territory which the Shi'ite-led government in Baghdad claims, but the Kurds want as part of their autonomous region in the north of the country.

"This land is ours: they are an occupying force," said Sirwan, a Kurdish fighter, when asked about the Shi'ite militia presence. "There will be bigger problems than Islamic State in this area."

(Editing by Giles Elgood)



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TOP NEWS Ukraine death toll edges up despite ceasefire

KIEV/MARIUPOL Ukraine (Reuters) - Four Ukrainian servicemen have been killed since the start of a ceasefire between government forces and pro-Russian separatists last Friday in eastern Ukraine, a defense ministry official was quoted on Tuesday as saying.

The ceasefire is part of a peace plan intended to end a five-month-old conflict the United Nations says has killed more than 3,000 people. It has also caused the sharpest confrontation between Russia and the West since the Cold War.

The ceasefire largely held overnight into Tuesday despite sporadic violations, including in rebel-held Donetsk, the region's largest city, where government forces hold the airport. A woman was wounded in Donetsk overnight, officials said.

The head of the defense ministry's military-medical department in Kiev, Vitaly Andronaty, said four servicemen had been killed and 29 injured since Friday evening, Interfax news agency reported.

It was the first official confirmation of military deaths since the ceasefire began.

In a separate statement, the press center of the Ukrainian military's "Anti-Terrorist Operation" said the armed forces had suffered no casualties overnight into Tuesday.

At the weekend, one woman was killed and at least four other civilians were wounded when government forces came under heavy shelling near the port of Mariupol on the Sea of Azov.

Both sides say they are observing the ceasefire and blame each other for any violations.

"Russian troops and terrorists are continuing their brazen violations of the conditions of the ceasefire, shooting at the positions of the Ukrainian forces, including with heavy weaponry," defense analyst Dmytro Tymchuk, who has close ties to the Ukrainian military, said in a statement on Tuesday.

HOPING FOR PEACE

The other major flashpoint, Mariupol, was quiet on Tuesday, a day after President Petro Poroshenko paid a brief visit to show solidarity with the strategic port that the pro-Russian rebels appeared intent on capturing before the ceasefire.

Poroshenko told cheering residents on Monday he had ordered reinforcements to the city and promised to deal a "crushing defeat" on the rebels massed nearby if they tried to advance again in violation of the ceasefire deal.

"After that bombardment (on Saturday night) we have had two quiet days and I am hoping it will stay that way. This war is taking its toll on everyone and I am hoping this will end soon," Evgeny, a 22-year-old student, told Reuters on Tuesday.

Not everybody was impressed by Poroshenko's visit to Mariupol, which is important for Ukraine's steel exports but lies in the largely Russian-speaking region of Donetsk where many people blame Kiev, not the rebels, for the conflict.

"Poroshenko came yesterday to scare people, to talk about cannons and rockets. To me Ukraine is ready to break the ceasefire and keep on shooting its own citizens, Kiev will be responsible if this town is destroyed," said pensioner Leonid.

Rebel leader Andrei Purgin told Interfax the rebels expected an exchange of 36 prisoners of war between the two sides on Tuesday. The exchange of POWs is one of the conditions of the peace plan agreed last Friday by envoys in Minsk.

The Organization for Security and Cooperation in Europe (OSCE), which is monitoring the ceasefire, has urged the two sides to begin serious talks on a political settlement for eastern Ukraine but they remain far apart.

Purgin said the rebels continued to insist on independence for their self-proclaimed "people's republics" of Donetsk and Luhansk. Kiev says they must stay within Ukraine.

Kiev and its Western backers accuse Russia of sending troops and arms across the border in support of the rebels. Moscow denies the charges.

(Writing by Gareth Jones; Editing by Dominic Evans)



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TOP NEWS Dreams on hold, Brazil's 'new middle class' turns on Rousseff

SAO PAULO (Reuters) - The streets of Jardim São Luis, a poor and violent neighborhood near the edge of São Paulo, have not been this quiet in years. And that is exactly why Valeria Rocha is so worried.

Arms folded, she scans the racks of baby clothes in her small store before flicking a glance towards the empty sidewalk.

"Just a year ago this area used to be packed with shoppers but nowadays it's all empty, my store included," she said.

After a decade of economic growth and welfare policies that lifted more than 30 million Brazilians out of poverty, Jardim São Luis and other tough neighborhoods across Brazil had high hopes for the future.

But a faltering economy and mounting frustration over poor public services are dimming the outlook for Brazil's "new middle class."

As that happens, leftist President Dilma Rousseff is watching a once-loyal base - and her chances of re-election next month - slip away. Her main rival, environmentalist Marina Silva, has surged in the polls and is favored to win a likely second-round runoff against Rousseff.

Last month, 13 of 14 people interviewed in Jardim São Luis said they were sure they would not vote for Rousseff, but could not point to a clear alternative. Just a week later, after the first televised debate between the candidates, 8 of 10 people interviewed said they had already decided to vote for Silva or would strongly consider it. The other two were still unsure.

Silva, who grew up poor on a rubber plantation, has emerged as the anti-establishment candidate in this campaign. Within three weeks of entering the race late following the death of her party's original candidate, she is in striking distance of becoming the first Afro-Brazilian woman to lead Brazil.

"Marina is humble, like us," said 60 year-old fruit vendor Ana Luiza de Souza in Jardim São Luis. "Dilma did what she could, now it's time for something new."

HIGH EXPECTATIONS

Brazil's emerging middle class is a defining legacy of Luiz Inacio Lula da Silva's 2003-2010 presidency, a period of rapid economic growth that slashed poverty rates and fueled a massive surge in consumer spending.

It is the lowest-earning yet most populous segment of Brazil's broadly-defined middle class, which ranges from the very comfortable to those who in developed countries would be described as the working poor.

Defined as those with a monthly household income of three to five minimum wages - about $960 to $1,600 - it includes millions who are hovering just above the poverty line but whose spending habits have been transformed.

About 108 million people, or nearly 54 percent of the population, are in the increasingly influential demographic, a key target group in the tight presidential race.

Many live in neighborhoods like Jardim São Luis. Here, higher wages and newfound access to credit during last decade's economic boom opened the door to once-unattainable goods and services.

In time, new cars trundled up the neighborhood's hilly side streets, where bare brick houses were remodeled and filled with new furniture and televisions. For the first time, many residents bought smartphones and brand-name clothes.

By the time 2010's presidential election came around, economic growth was running at 7.5 percent, the future looked promising, and most of the neighborhood voted for Rousseff, largely because she was Lula's hand-picked successor.

But four years later, the economy is stagnant, inflation is stubbornly high at 6.5 percent and much of the middle class is fuming. That anger boiled over in June of last year, when more than a million Brazilians took to the streets in anti-government protests.

"Lula changed Brazil a hell of a lot and everyone thought things would follow on the same path with Dilma. They didn't. This year not many people around here are going to give her another chance," said Ricardo Matavelli, a furniture assembler in Jardim São Luis.

Even Lula now faces criticism from some voters who fear the economic improvements of the last decade could simply disappear.

"I trusted Lula and Dilma when they said things would keep getting better. Not anymore. Everything is just getting worse," said Rocha, who as a child rarely saw her mother because she had to work long hours to support the family. Today she too works seven days a week tending to her business.

OVERPROMISED FUTURE

The euphoria over owning a new car only lasts so long.

Many Brazilians, including Rocha, face a heavy debt burden with higher interest rates. After buying an apartment and a car, she has been unable to pay off her credit card bill, store debt and personal loans, and is now on a credit watch list.

While unemployment remains near historic lows, the specter of job losses looms as businesses including retailers and carmakers begin to cut back.

"It was as if these people were overpromised a future that didn't arrive," said Renato Meirelles, head of research firm Data Popular, which surveys Brazil's middle and lower classes.

"When it became clear that the growth we saw in 2010 was actually the peak and not just the beginning, people began to worry that their hopes for the future would not be realized."

For Rocha, those hopes included renovating her home. Others in the neighborhood planned to open a small business or enroll their children in modest private schools.

To be sure, many Brazilians are sticking with Rousseff. Her Workers' Party maintains strong loyalty among poorer and rural Brazilians, who are the main beneficiaries of government welfare programs, housing subsidies and educational grants.

"The poor are still a very, very big group, and even if she loses some ground there, it will provide her with a means of support," said Carlos Melo, a political scientist with business school Insper in São Paulo.

Silva's rise in opinion polls could also slow or even reverse as she comes under attack from rival candidates and lays out her policies in greater detail.

But Rousseff, who just over a month ago seemed a safe bet for re-election, is undoubtedly in a tough fight.

According to a new poll by research firm Datafolha, 35 percent of people with a household income of between two and five minimum wages - near the bottom of the new middle class - would not vote for Rousseff under any circumstances, up from 27 percent late last year. The number rises to 44 percent for those who earn five to ten minimum wages.

Similar trends have unfolded in other developing countries such as India, where anger among the emerging middle class over slowing economic growth helped launch Narendra Modi, a former tea peddler, into power earlier this year.

STADIUMS OR SCHOOLS

Economic stagnation has not affected everyone in Jardim São Luis equally but frustration runs deep over the quality of public services such as schools, daycare centers and healthcare.

And two months after the World Cup soccer tournament, resentment is still simmering over the billions of dollars the Rousseff government spent to host the event.

As Jose Ides, an out-of-work salesman and lifelong Jardim São Luis resident, put it, "When the people ask for another hospital or a school they can't find the money. But when someone wants to build a stadium, there it is."

While the amount spent on stadiums pales in comparison to Brazil's social spending, the World Cup highlighted the weakness of public services and for many is a symbol of skewed priorities.

"You have a population of poor people and here we are putting on a show," Ides said. "That's where Dilma lost my vote."

(Editing by Todd Benson and Kieran Murray)



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TOP NEWS Hundreds die as heaviest rain in 50 years catch India, Pakistan off guard

MUZAFFARABAD/SRINAGAR (Reuters) - The heaviest rains to fall on Kashmir in 50 years caught Indian and Pakistani authorities off guard, with criticism of their disaster preparedness growing on Tuesday as the number of dead hit 420 and thousands remained trapped on rooftops.

On the Indian side of the heavily militarized de facto border that divides the Himalayan region, more than 2,000 villages and the city of Srinagar were submerged.

"The damage is shocking, people have been stranded on rooftops of their homes for the last three days in some parts of Kashmir," a senior official of National Disaster Response Force said in New Delhi.

The official, who requested anonymity, said he would have deployed disaster response teams in Kashmir before the floods if his office had been given accurate weather predictions.

"We were all caught off guard because there was not a single warning issued by the weather office. The flash floods took us by surprise," he said.

India's metrological department forecast heavy rains in Kashmir last week, but the Central Water Commission, which issues flood advisories, has been criticized by Indian media for not warning the state.

A massive rescue operation led by the military was under way in both countries

Some 22,000 people have been evacuated from their homes in India, where 217 have so far been reported dead.

The flooding is the first major humanitarian emergency under new Indian Prime Minister Narendra Modi, who called it a "national disaster". It comes at a difficult time for Pakistani Prime Minister Nawaz Sharif, who has faced weeks of street protests aimed at forcing his resignation.

Soldiers rescued families using boats and airlifting them from rooftops by helicopter after the river Jhelum breached embankments in Srinagar, but many more remained stranded.

India has hundreds of thousands of soldiers stationed in Kashmir, manning the border and conducting counter-insurgency operations against separatist militants in a decades-old conflict that claimed thousands of lives at its peak but has cooled off in recent years.

"Fortunately it is not raining in Kashmir today and we are now getting a chance to send our teams across the region to help tens of thousands of people who have been displaced," Indian defense ministry spokesman Sitanshu Kar said.

In Pakistan, 203 people were reported killed by the flash floods in Kashmir and other northern areas of the country.

Saeed Qureshi, an official at the State Disaster Management Authority (SDMA), said the volume of rainfall had rendered contingency plans useless.

"Nobody can fight with nature," said Qureshi. "We had made a contingency plan, identifying vulnerable populations along the banks of rivers and torrents, but rains with unexpected density wreaked havoc on the hilly areas beyond our imaginations."

Qureshi said so far 64 deaths had been reported, 29 of them from the Haveli district that straddles the Line of Control (LoC) separating disputed Kashmir between India and Pakistan.  

"The amount of rainfall in a day was a staggering 400 millimeters in Haveli which had no parallel in the past 50 years," he said, adding that his organization was badly in need of more resources.

The International Federation of Red Cross and Red Crescent Societies said this year's monsoon rains have killed more than 1,000 people in India alone.

When flash floods two years ago in the Himalayan Indian state of Uttarakhand killed 5,000 people, including many Hindu pilgrims, disaster relief authorities were again criticized for their slow response.

(Additonal reporting by Rupam Jain Nair in NEW DELHI; Editing by Frank Jack Daniel)



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