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Asia-focused bank Standard Chartered Plc said it will invest $500m as a cornerstone investor in Agricultural Bank of China’s IPO in Hong Kong.

AgBank is seeking to raise more than $20bn in a Hong Kong and Shanghai IPO, and sources had previously told reporters that Standard Chartered would invest $500m.

The listing is expected to value AgBank at about $150bn. Standard Chartered will be buying just over two percent of the shares on offer in the IPO and will get a stake of about 0.3 percent in the enlarged bank.

The two banks have signed an agreement to develop new business opportunities together.

“For Standard Chartered, this deal has a lot of potential. However, the payback could be well into the future and more near term concerns over (the) Chinese economy slowing may weigh on Standard Chartered’s share price in the meantime,” said Bruce Packard, analyst at Seymour Pierce in London.

The bank, which is based in London but derives over four-fifths of its profits from Asia, aims to take advantage of AgBank’s extensive domestic network, in return providing its partner with access to its international footprint.

This could include access to capital markets, international trade corridors, financial markets and consumer finance sectors, and share information, research and staff training, Standard Chartered said.

AgBank is the last of China’s big four banks to list its shares and the first to do so without first bringing in a major foreign strategic investor. The commercial bank, started in 1951, has over 23,000 branches and about 2.6 million corporate customers and 320 million retail customers.

Standard Chartered said it will pay for the stake from its internal cash resources, which is likely to shave about 10 basis points off its Core Tier 1 capital ratio of 8.9 percent at the end of 2009, analysts estimated.

World stocks hit a 2-1/2 week low on Tuesday while oil and the euro also
slipped as investors grew nervous over the funding situation of banks
about to repay 442 billion euros ($545.5 billion) to the European
Central Bank.

Banks must repay the money borrowed a year ago at
rock bottom rates on Thursday, leaving a potential liquidity shortfall
in the financial system of over 100 billion euros.

The ECB holds
a three-month tender on Wednesday which many in the market expect will
be tapped as banks scramble to pay back the one-year funds. Expectations
are that 210 billion euros will be allotted at the offer.

“There’s
concern over the ECB expiry of the massive liquidity facilities member
state banks have been enjoying … We’re seeing a real sense of
uncertainty about the market at the moment, a real lack of conviction,”
IG Markets analyst Ben Potter noted.

“When we have that there’s a
natural tendency for the market to drift lower, which is what we’re
seeing.”

The state of banks will become clearer when the details
of bank stress tests are published next month.

Sources told
Reuters on Monday more than 100 banks in Europe will be examined in a
second round of stress tests to gauge how they can handle shocks to the
financial system. MSCI world equity index fell 1 percent while the
FTSEurofirst 300 index lost 1.6 percent.

Emerging stocks dropped
by 1.8 percent.

Chinese stocks fell 4 percent to a 14-month low
as investors started pulling funds from the market to prepare for a
major initial public offering by Agricultural Bank of China, pointing to
tight liquidity in China’s markets.

Euro suffers
The euro fell 0.4
percent to $1.2224 while it fell to record lows of 1.3250 against the
safe-haven Swiss francs.

The euro lost 1.3 percent to 108.25
yen, just shy of eight-year lows around 108.05 set earlier this month.

“Investors
are nervous, shifting their attention back to Europe because a massive
amount of money will move there,” said Hideki Hayashi, global economist
at Mizuho Securities in Tokyo.

“The euro could revisit its
eight-year low against the yen.”

The dollar rose 0.4 percent
against a basket of major currencies.

 U.S. crude oil fell 2.2
percent after forecasts indicated tropical storm Alex would skirt the
main production region in the U.S. Gulf of Mexico, limiting disruptions
to a few precautionary shutdowns.

The government said on Tuesday it was cutting police red tape by
scrapping two targets introduced by the ousted Labour administration
ahead of budget cuts expected to see a reduction in officers.

Police
minister Nick Herbert said sweeping away bureaucracy would allow
officers to “do more with less” but accepted that “substantial” funding
cuts were on the way to help tackle Britain’s record budget deficit.

The
Home Office, responsible for the 43 police forces in England and Wales,
faces losing around a quarter of its budget by 2015 as part of
austerity plans unveiled by Chancellor George Osborne in his emergency
budget last week.

“It’s absolutely clear that it’s going to be
very tough, that the budgets are going to fall, and that police forces
are going to have to share the burden of reducing the deficit,” Herbert
told BBC radio.

He said an immediate priority was to increase
efficiency, noting that local forces still ran separate procurement
programmes and ran their own IT systems.

A review of pay and
conditions for the 144,000 officers in England and Wales, and scrapping
two of the Labour government’s targets would also help save money, he
said.

One of the targets to go is the National Policing Pledge,
introduced in 2008, which includes commitments to answer emergency 999
calls within 10 seconds and for neighbourhood police teams to spend 80
percent of their time visibly in their area.

The other is a
target announced in March 2009 to improve public confidence in policing.

Herbert said there was evidence that officers had been tied up
dealing with the “huge bureaucracy which the last government created in
their target culture”.

“It is a paradox that we have seen the
recruitment of record numbers of police officers in the last few years,
and yet the public still say to us they don’t see them on the streets,”
he said.

“That is why sweeping away that bureaucracy … is a
very important part of the agenda of delivering more for less.”

Hugh
Orde, president of the Association of Chief Police Officers, told BBC
radio that some low-priority services would have to be reduced and
accepted that police numbers would fall.

“We’ll have to look at
how we can do things more efficiently … The rub comes when we look at
the numbers, with 83 percent of the police budget being people, sadly we
will lose people, in my prediction, over the next few years,” he said.

Most Asian stock markets rose on Monday, with Europe set to follow, as
fears eased that Washington would draft a harsh bill for regulating the
banking sector and after an unremarkable conclusion to a Group of 20
leaders’ summit.

 G20 leaders meeting in Toronto agreed to take
their own paths to ensuring economic growth and left room to move at
their own pace, trying to balance contrasting priorities by pledging to
halve budget deficits by 2013 without stunting growth.

 The
heads of the G20 rich and developing nations also promised to clamp down
on risky behaviour by banks without restricting lending, and agreed to
give banks more time to adopt tougher rules.

 That followed an
historic overhaul of financial regulations by U.S. lawmakers on Friday,
with banks forced to spin off swap trading operations. Banks will be
able to keep most of their books but will be barred from commodity,
equity and some credit default swaps.

 “I don’t see much
substance from G20,” said Lin Yuhui, deputy general manager of Jinhui
Futures.

 “Basically it’s saying everyone is back to minding
their own business, just like before the crisis,” Lin said.

 The
MSCI index of Asia Pacific shares outside Japan rose 0.6 percent, with
financial shares outperforming. Hong Kong stocks led the way, rising 0.4
percent.

 Financial bookmakers said Europe’s main benchmark
indexes would likely head in the same direction, with spreadbetters
expecting Britain’s FTSE 100, Germany’s DAX and France’s CAC- 40 to open
as much as 0.9 percent higher.

 U.S. stock futures were
slightly weaker, however.

 Investors will have to weather a
welter of U.S. data this week, including June jobs numbers on Friday,
consumer confidence, pending home sales and some early earnings reports.

 U.S. economic data has been mixed in recent weeks, raising
doubts about the strength of its recovery.

 In Tokyo, the Nikkei
share average fell 0.5 percent, extending falls after closing last week
below a key support level and booking its biggest weekly loss in a
month with an indecisive outcome likely in an upper house poll next
month.

 A muted reaction to the G20 meeting didn’t help, with
the Japanese market slipping across the board.

 Wall Street had
finished almost unchanged on Friday, although financial stocks had
gained on relief the U.S. financial regulation bill would not inhibit
Wall Street profits as much as had been feared.

 Underlining the
less-than-decisive conclusion to the G20 summit, Angel Gurria, head of
the Organisation for Economic Co-operation and Development, said the
“incipient recovery” offered policy choices but also made it harder to
find common ground.

 “When the house was on fire, we all knew
what to do: get a hose,” Gurria told G20 leaders.

 Asian debt
spreads narrowed after widening in the previous four sessions, with
investors encouraged to buy riskier assets after the G20 leaders
committed to cutting budget deficits.

 The Asia ex-Japan iTraxx
investment-grade index narrowed 7 basis points (bps) from Friday to
132/134, a Singapore-based trader said. CHINA MUTES YUAN TALK

 Signalling
the difficulties groups such as the G20 have in addressing matters
crucial to global economic imbalances, China succeeded in having a line
praising its decision to move towards a more flexible exchange rate
removed from the G20 communique.

 Beijing maintains debate about
the yuan has no place in international forums, and did not want even a
positive reference to the currency to set a potential precedent for
singling its currency out.

 The People’s Bank of China set the
yuan’s daily mid-point at 6.7890 against the dollar on Monday, a new
post-2005 revaluation high.

 The yuan has risen about 0.5
percent in the past week since the PBOC said on June 19 that it was
unshackling the currency from its two-year-old peg to the dollar, but
gains have been kept in check by big state-owned banks and any further
appreciation is expected to be glacial.

 Japan’s retail sales in
May rose 2.8 percent from a year ago, their slowest annual pace since
January, in a sign consumption driven by government stimulus spending
may be slowing. Retail sales had been surging since the start of the
year, helped by government subsidies for durable goods.

 Investors
seeking to cut long positions in favour of the greenback had the dollar
on the defensive on Monday. The euro held gains as the focus shifted to
the sustainability of a U.S. recovery from euro zone debt worries.

 The
dollar index edged up 0.1 percent to 85.43, holding above last week’s
low of 85.09. The dollar hovered near a five-week trough against the yen
after data released on Friday showed U.S. gross domestic product in the
first quarter grew more slowly than expected.

 “I have a
feeling in my bones that perhaps Friday was the start of the market
questioning the viability of the U.S. as the safe haven,” said Tim
Lovell, an economist at ICAP in Sydney. Higher commodities and the
subdued U.S. dollar helped the Australian and New dollars. The
Australian dollar held firm at around $0.8750. U.S. crude oil futures
briefly rose to their highest in nearly eight weeks at $79 a barrel as
tropical storm Alex forced Mexico to reduce oil exports and some U.S.
producers to evacuate platforms and curb output.

 China’s key stock index was down 0.6 percent by midday Monday, with volume slipping further as tight liquidity conditions worsened by Agricultural Bank of China’s looming stock offering starved the market of momentum for near-term gains.

 The Shanghai Composite Index (SSEC) ended the morning at 2,537.2 points, slipping for a fourth day in a row after a rally at the start of last week on the yuan’s surge.

 Analysts said the index was likely to stick to its recent narrow range unless it was jarred by a major news event, while tightening liquidity would continue to restrict volume.

 “The low volume is due to the lack of liquidity in the market. With Agricultural Bank’s listing set to take a lot of funds from the market, the liquidity situation is likely to continue to tighten,” said Wen Lijun, analyst at Nanjing Securities.

 Agricultural Bank is due to set the price range for the Shanghai portion of its dual Shanghai-Hong Kong offering later on Monday.

 Shanghai’s benchmark stock index has faltered repeatedly at the psychologically key 2,600-point mark that has thwarted attempts to rally this month, although tests of the downside have found support around 2,500 points.

 China’s stock market remains one of the world’s worst performers this year, down more than 23 percent after the authorities set policies to ease speculation in the red-hot property sector. The index is down 18 percent on the quarter.

 Heavily weighted banking stocks were mixed, with slightly more than half of those listed on the Shanghai and Shenzhen exchanges rising after recent declines.

 Merchants Bank was up 1.5 percent, Bank of Communications gained 0.8 percent and Pudong Development Bank rose 0.4 percent.

 Heavyweight Industrial and Commercial Bank of China was 0.7 percent lower.

 Volume remained thin, falling to 21 billion yuan from Friday morning’s 25 billion yuan.

Hong Kong Steady
Hong Kong stocks recovered from the weekly low they touched on Friday with defensive counters such as telecoms and utilities lifting the benchmark Hang Seng Index slightly higher.

 China Unicom, the top gainer, rose 4.9 percent and China Resources Power rose 3.3 percent.

 Property shares received a boost after local newspaper, The Standard, reported that developer Sino Land sold nearly HK$3 billion worth of apartments on Saturday in a project in the city. Sino Land rose 1.7 percent.

 The Hang Seng Index was up 0.35 percent or 72.42 points at 20,763.21. The China Enterprises Index rose 0.21 percent to 11,890.19.

 Chinese thermal coal companies fell after the National Development and Reform Commission on Friday asked major coal miners to keep term coal prices steady to help control inflation, a trader at a European bank said.

 Yanzhou Coal was down 5.3 percent while China Coal fell 5.2 percent.
 (US$1=HK$7.76=6.83 yuan)

India’s opposition parties are gearing up for a national strike to protest the government’s move to hike fuel prices, putting pressure on Prime Minister Manmohan Singh’s coalition before the next parliament’s session.

 Last Friday’s hikes in petrol, diesel and kerosene were seen as a bold reform with which to attack India’s fiscal deficit and that also play well at the G20 summit in Toronto, which has urged the phasing out of fossil fuel subsidies.

 Opposition parties — and members of Singh’s coalition — have slammed the hike as an attack on people’s pockets. The main opposition Hindu nationalist Bharatiya Janata Party (BJP) is coordinating a strike with smaller, regional parties.

 “A nationwide strike is on the cards,” Prakash Javdekar, a spokesperson for the BJP told Reuters, without saying when such as a strike could take place.

 Opposition parties, though, are divided on many issues and may face obstacles in uniting against the government.

 Adjusting fuel prices to market rates could also stoke headline inflation that is already in double digits, and could spell trouble for Singh’s government trying to pass bills in the next session of parliament in July.

 Singh’s Congress party-led government comfortably fended off a challenge to its rule in a parliamentary vote in April over tax rises in the budget.

 But efforts to push bills, including one which is crucial to a civilian nuclear deal with the United States, have been blocked by opposition protests and unruly allies.

 The CPI(M), India’s biggest Communist party, told Reuters it will take also “mass action” but has not decided whether it will join an India-wide strike.

 “Politically, the Congress is saying that double-digit inflation will have to be tolerated in the short run. It is this line of thinking that has emboldened the (government) to raise oil prices,” the Financial Express wrote in an editorial on Monday.

Afghanistan’s untapped mineral deposits could be worth up to $3 trillion, the country’s mines minister said on Friday, higher than a recent U.S. estimate.

 Officials from the U.S. Department of Defense said this month that Afghanistan’s mineral wealth could top $1 trillion, a finding that could reshape the country’s economy and help U.S. efforts to bolster the war-battered government.

 “According to our estimation, the potential value of the mineral deposits are something between one until three trillion dollars,” Afghan Mines Minister Wahidullah Shahrani told BBC radio.

 Shahrani is in London for a “road show” on Friday at which Afghanistan aims to boost interest in its major iron ore deposit and other minerals.

 “We are planning to develop a number of major strategic mineral deposits such as iron ore, copper, lithium, oil and gas in the next two to three years,” Shahrani said.

 Asked if the deposits could be exploited when Afghan and NATO-led forces are fighting Taliban insurgents, Shahrani said: “Fortunately we have got different deposits in different parts of the country… The deposits which are going to be developed in the near future are all located in some of the most secure areas of the country.”

 Shahrani said the Afghan government had recently restructured the Ministry of Mines, introduced new legislation and committed to a mining industry transparency initiative to make sure that revenue from mining operations was collected in an open manner.

 Afghanistan has significant deposits of copper, iron ore, niobium, cobalt, gold, molybdenum, silver and aluminum as well as sources of fluorspar, beryllium and lithium, among others, a task force studying the country’s resources found recently.

 Experts cautioned the challenge to exploiting Afghanistan’s mineral wealth was huge and could take decades to overcome. The country has little mining infrastructure, is in the midst of a wrenching war and has a reputation for government corruption.

 (Reporting by Adrian Croft; editing by James Jukwey)

The question has puzzled leaders ranging from Henry Kissinger, said to have once asked who he should call to reach Europe, to Barack Obama. It has become all the more pertinent as the European Union tries to fill what is widely viewed as a leadership vacuum during the euro zone’s sovereign debt crisis.

 Two leaders are formally representing the EU at the G20 summit this weekend, EU President Herman Van Rompuy and European Commission President Jose Manuel Barroso.

 But the U.S. president called neither of them when he wanted to get his message across to the EU at the height of the crisis in May. Instead, he called German Chancellor Angela Merkel and French President Nicolas Sarkozy.

 That underlined how the balance of power is shaping up since the start of the crisis and following an institutional shake-up under the Lisbon treaty that went into force in December.

 In the reshaped political landscape, power is divided between the executive European Commission and the European Council — as well as the European Parliament — but they are heavily dependent on France and Germany shaping decisions.

 “If you look at the performance of the European leadership and system since the start of the euro zone crisis, there’s no way you can give them full marks,” said Thomas Klau, an analyst at the European Council on Foreign Relations think tank.

 “But the crisis has showcased the importance of the Franco-German couple. In most cases a Franco-German agreement is what becomes the template for a European agreement.”

Setting the agenda

 Time and again in the crisis, Merkel and Sarkozy have held bilateral talks during EU summits or just before them that shaped the agreements reached by the entire 27-country bloc.

 In the most recent example, decisions they took at talks in Berlin on June 14 paved the way to agreement at a Brussels summit three days later on the broad outlines of plans to tighten budget rules and reinforce economic policy coordination.

 Sarkozy accepted that moves to closer policy coordination should involve all 27 EU member states and not just the 16 that use the euro, and dropped demands for a dedicated euro zone secretariat which Berlin opposed.

 This highlighted how Germany now dominates the relationship and the EU as a whole.

 “It’s clear that when it comes to a response to the euro zone crisis, Germany is managing to stamp its view on the others,” said Simon Tilford, chief economist at the Centre for European Reform think tank in London.

 This leadership role comes with responsibilities. As Europe’s largest economy, Berlin is the biggest contributor to the euro zone’s 750 billion euro ($920 billion) financial safety net for countries struggling in the debt crisis.

 It is not a role Germany is entirely comfortable with, especially as many Germans oppose bailing out more profligate member states and Merkel, whose popularity has sunk, is widely seen as more focused on internal matters than before.

 The French are also uneasy about the relationship and what they regard as a “creeping unilateralism” on the Germans’ part, but they have little choice but to cooperate, diplomats say.

 “The German-French tandem is not working properly but there is just no other option,” said Janis Emmanouilidis of the European Policy Centre think tank.

Speaking with one voice

 The European Commission and the European Council, the institution which represents all the member states and is headed by Van Rompuy, are also doing their best to show solidarity.

 The Commission is working closely with the French and the Germans, as well as with the Council, to come up with proposals for containing the crisis which began in Greece and has threatened to spread to other euro zone countries.

 Commission officials say many of their proposals have been adopted by the member states and that cooperation is good. But relations with France and especially Germany have been strained at times, with Berlin and Brussels trading open jibes.

 Van Rompuy has found his own niche, taking charge of a task force overseeing moves to tighten budget discipline and economic policy cooperation to prevent further crises.

 He has helped smooth relations between Sarkozy and Merkel, diplomats say, and fills a gap left by a decline in the influence of Luxembourg Prime Minister Jean-Claude Juncker, who chairs meeting of euro zone finance ministers.

 He has a further chance to strengthen his position when Belgium takes over the EU presidency on July 1. Belgium is expected to run a smooth presidency, but it may not have a coalition government for weeks following an election on June 13.

 The EU leaders appear to have learnt lessons from the errors they made at the start of the crisis when their action — or lack of it — was widely seen as a sign of weakness and some of their comments heightened alarm on financial markets.

 “The good news is that even this confused and ill-advised bunch was eventually forced to come together and approve unprecedented measures to rescue the euro from disaster,” the Brussels Centre for European Policy Studies think tank said.

 Agreement on the safety net, and a 110 billion euro support package for Greece, has helped ease markets’ concerns but traders still have long-term worries that the austerity moves being announced across Europe will stymie growth.

 Obama has expressed such concerns — and been rebuffed by EU European leaders. But analysts see a danger of a new recession in Europe if it fails to tackle imbalances between stronger performing countries such as Germany and weaker states.

 “Unless they address the underlying issues, there could be defaults and recession,” Tilford said.

  For more on the EU, double-click on [EU/LOOK]
 (Editing by Andrew Roche)

Britain’s top share index fell early on Thursday as renewed doubts about the sustainability of a global recovery dented commodity stocks, and banks weakened as risk appetite ebbed.

By 0759 GMT, the FTSE 100 was 33.54 points, or 0.7 percent, lower at 5,145.04 after falling 1.3 percent on Wednesday to its lowest closing level in nearly two weeks.

Miners were the main drag on the index, weighed by a downbeat assessment on the U.S. economy from the U.S. Federal Reserve, with Rio Tinto and Xstrata among the heaviest fallers, down 2.3 percent and 1.6 percent respectively.

In a statement at the end of a two-day meeting, the Fed scaled back its assessment of the pace of recovery, taking note of pockets of weakness, and also issued a cautionary note about volatile financial markets in light of Europe’s debt woes.

“The negative tone on the speed and strength of the recovery from the Federal Reserve is infringing on investors’ expectations and there is a sense that there will be a long period of anaemic growth,” said Henk Potts, analyst at Barclays Wealth.

The shaky demand outlook offset optimism inn the mining sector prompted by political developments after Australia appointed its first woman prime minister, Julia Gillard, who offered to end a dispute over a controversial “super profits” mining tax, which is threatening $20 billion worth of investment and has unnerved voters.

Energy stocks also slipped, pulled lower by a slight retreat in the price of crude. Royal Dutch Shell and BG Group fell 0.8 percent and 1 percent respectively.

Austerity bites
Analysts said austerity measures like those announced by Britain’s finance minister, George Osborne, on Tuesday were also adding to the gloom.

“There’s a huge bill to be paid off for the measures implemented to help solve the financial crisis, and now that bill’s landing on the mat, and investors are looking ahead to five years of fiscal tightening,” Potts at Barclays Wealth said.

Banks were also depressed by doubts on the recovery. Royal Bank of Scotland fell 1.5 percent while Barclays lost 1.7 percent.

Stocks perceived as relatively immune to economic stagnation like supermarkets and utilities outperformed. Morrison Supermarkets added 0.7 percent while National Grid gained 0.3 percent.

No important domestic data were due for release Thursday, so investor attention will be on a batch of U.S. pointers including May durable goods orders and the latest weekly jobless claims, both due at 1230 GMT.
 (Editing by Dan Lalor)

The Council of Europe on Tuesday denounced a “climate of fear” in Chechnya, a decade after the Kremlin regained control of the mainly Muslim region in southern Russia from separatist rebels.

 Kidnappings of opponents of Kremlin-appointed leader Razman Kadyrov regularly go unpunished, families of suspected fighters are targeted and the media and civil society are intimidated, the pan-European human rights watchdog said in a report.

 “The authorities put in place continue to maintain a climate of widespread fear, despite the undeniable success in the field of reconstruction and significant improvement infrastructure,” a Council of Europe statement said.

 The situation in Chechnya is “the most serious and most delicate from the point of view of protection of human rights and the affirmation of the rule of law throughout the geographical area covered by the Council of Europe”, it said.

 Despite the criticism of its actions, Russia backed the resolution, saying it was an improvement on earlier reports because it criticised the tactics of the rebels and gave the Kremlin credit for achieving economic and social progress.

 “The report was of high enough quality. In any case it is better than past reports from the assembly,” said Konstantin Kosachyov, head of Russia’s parliamentary delegation at the Council of Europe, speaking on Russian news channel Rossiya-24.

 After two wars since the mid-1990s, near-daily attacks by Islamist rebels plague Chechnya and nearby provinces in Russia’s North Caucasus, a border region adjacent to the energy transport routes of the South Caucasus and nearby Turkey.

 Russian and foreign human rights groups say poverty, exacerbated by high unemployment and endemic corruption, is a major factor fuelling tension and pushing young people to join Islamist insurgents.

 But the actions of authorities are in some cases aggravating the situation, the report said.

 “The disappearances of government opponents and defenders of human rights remain largely unpunished, ” said the report submitted by Swiss Liberal Democrat Dick Marty and passed by a majority in the Council’s Parliamentary Assembly.

 At least 536 people disappeared in Chechnya between 2006 and 2009 of whom 287 were never found, he said.

 Marty, a former prosecutor, said Russia had to assume its responsibility, while recognising its need to fight terrorism.

 The 47-nation Council of Europe was the only international body to punish Moscow over the 1999-2000 war in Chechnya, suspending the Russian delegation’s right to vote, although it was restored in 2001 to promote dialogue.

 The resolution reiterated that Russia had been sanctioned more than 150 times since 2005 by the European Court of Human Rights for the death, disappearances or torture of Chechens often attributed to its armed forces.

 The Council called on Russia to continue to prosecute violators of human rights and urged its member states to “provide adequate protection to exiled Chechens”.

 Kadyrov, largely credited by the Kremlin for rebuilding the republic after years of war, has vowed to continue pursuing Islamist fighters until they “are completely destroyed”.

 The Council said there were strong indications that the Chechen authorities, or people close to them, were directly implicated in the murder of Umar Israilov in Vienna. Chechen exile Israilov was shot dead on the street in January last year after shopping for groceries.

 (Additional reporting by Conor Humphries and John Irish; Writing by John Irish; editing by Paul Taylor)

Weak May U.S. housing data undercut stocks and sent U.S. Treasuries up, while Europe grappled with a fresh tremor to its banking system after Fitch downgraded French bank BNP Paribas.

 The downgrade hit Europe’s banking stocks, leading to the end of a nine-day rally and pushed prices for gold higher on safe-haven flows.

 The rally fueled by China’s weekend announcement to emphasize a flexible currency rather than the de facto peg to the U.S. dollar appeared to have fully dissipated.

 U.S. crude oil futures edged lower in choppy trading, curbed by a stronger greenback and lowered expectations about a demand boost in China brought by its move toward currency flexibility.

 Sales of previously owned U.S. homes fell 2.2 percent month over month in May, well below expectations for a rise of 5.5 percent. Analysts said the data bodes ill for the months ahead, now that a key homeowner tax credit has expired.

 “Clearly there’s a large supply of homes on the market. Prices are a little firmer than they were a year ago, but it’s still a buyers market. The tax incentives are not a permanent fix for housing. We will need to see improved employment before we see a sustained recovery in housing.” said Gary Thayer, chief strategist at Wells Fargo Advisors in St. Louis.

 In mid-morning New York trade, the Dow Jones industrial average fell 7.56 points, or 0.07 percent, at 10,434.85. The Standard & Poor’s 500 Index lost 2.36 points, or 0.21 percent, at 1,110.84.

 Rising technology shares helped keep the Nasdaq Composite Index up 5.12 points, or 0.22 percent, at 2,294.21.

 MSCI’s all-country world index fell 0.5 percent, looking set for its first loss since June 7. The benchmark has gained more than 7 percent since then.

 European share, however, lost ground with the FTSEurofirst 300 of leading shares down 0.4 percent to 1,050.70.

 After Fitch’s move on BNP Paribas sent its shares down 2.75 percent, the entire sector weakened, with the STOXX Europe 600 banks index off 1.9 percent.

 “Now everybody thinks that BNP is one of the most solid banks, so the heat is more on SocGen and Credit Agricole, and the latter gave a grim update on its exposure to Greece today,” said IG analyst Philippe De Vandiere.

 Credit Agricole warned of worse-than-expected losses at its Greek unit Emporiki and said it would take a big writedown.

 Earlier, Japan’s Nikkei closed down 1.2 percent, a day after bouncing to a one-month high.

 CURRENCY MOVE

 Investors reassessed the impact of China’s plan for more currency flexibility and grew skeptical about how much Beijing would allow the yuan to rise.

 “People gave much more weight to the currency move than it deserved,” said Koen De Leus, economist at KBC Securities.

 The funding concerns in European banks led to a second day of losses for the euro against the U.S. dollar. The currency dropped 0.31 percent to $1.2268.

 The euro barely reacted to the German Ifo business climate index, which hit a two-year peak in June, while the expectations index fell.

 The dollar fell 0.45 percent at 90.59 versus the yen.

 British Finance Minister George Osborne unveiled spending cuts and tax rises in the tightest budget in a generation. He cut growth forecasts only slightly but slashed borrowing projections more than expected.

 The pound, however, erased earlier losses against the greenback to rise 0.28 percent to $1.4789.

 In the credit markets, benchmark 10-year U.S. Treasuries rose 8/32 of a point in price, pushing the yield down to 3.219 percent.

 Europe’s 10-year Bund yield was down 5.9 bps at 2.691 percent.

 U.S. light sweet crude oil rose 16 cents to $77.98 per barrel, while spot gold rose $9.10, or 0.74 percent, to $1240.70. Gold is off Monday’s all-time high of $1,264.90.

Former Societe Generale trader Jerome Kerviel used convincing lies to mask his risky, unauthorised bets, an ex-boss has told a Paris court.

The 33-year-old Kerviel, whom SocGen blamed for a Ä4.9bn ($6.07bn) trading loss in 2008, made bets without bosses knowing, former supervisor Eric Cordelle added.

“Jerome was always able to come up with reasons, convincing explanations. He lied from start to finish and every time he said something, it was believable,” Cordelle told the court in the Palais de Justice.

Although Kerviel has never denied his unauthorised bets that reached an estimated Ä50bn, he has insisted his superiors knew what he was doing. SocGen has argued Keviel acted alone and egregiously and should be punished.

Kerviel risks five years in prison and a Ä375,000 fine if found guilty of charges of breach of trust, computer abuse and forgery.

Cordelle, who lost his job after the scandal broke in early 2008, was appointed head of the trading desk where Kerviel worked in 2007.

He admitted to the court he did not really understand the inner workings of the desk and therefore could not monitor it effectively.

“I didn’t have the resources or the knowledge to do it. I didn’t necessarily understand the trader lingo,” he said, adding that the workload was so heavy there was no time to stop over a single anomaly.

Cordelle is appealing against his dismissal by SocGen in an employment tribunal, he told the court, citing “a lack of resources and training” at the bank.