* Index rose to 5.6, bucking foreast for fall to 5.2

  * Consumer morale boost follows surprise rise in business sentiment

  * Stable consumption vital to keeping Germany out of recession

  * Poor interest rates see Germans favour spending over saving

  * Retailers satisfied with first Saturday of Xmas shopping - HDE (Adds quotes, data from retail association)

  By Alexandra Hudson

  BERLIN, Nov 28 (Reuters) - German consumer morale brightened for a second month heading into December, as willingness to spend rose to its highest level since January, despite a darkening long-term economic outlook and easing income expectations, a survey showed on Monday.

  For those anxious that Europe's powerhouse economy might be tipping towards recession, the GfK index bucked forecasts for a fall to give another rare piece of good news like last week's surprise increase in the Ifo index of business confidence.

  The survey's headline figure, based on a survey of 2,000 Germans, rose to 5.6 from an upwardly revised reading of 5.4 in November. Analysts had forecast a fall to 5.2 in a Reuters poll.

  The sub-index tracking willingness to buy jumped to 40.3 points from 31.2 the previous month, although readings for the economic outlook and income expectations both fell.

  " When considering what to do with their money at the moment consumers are tending to purchase items that will hold value, such as property or consumer durables, rather than put their money in the bank," the GfK institute said in its report.

  The GfK said Germans planned to spend on average around 241 euros on Christmas presents this year, just below the previous year's level.

  German retailers said they were satisfied with the first Saturday of Christmas shopping, with tablet computers, smartphones and 3D television sets proving popular choices, according to association HDE.

  HDE Managing Director Stefan Genth said November trading was not quite as good as last year and there was " room for improvement " , but that retailers were very optimistic for the decisive weeks to come .

  GfK predicted private consumption would still grow in 2012, albeit at a slower rate than the 1.5 p ercent forecast for 2011.

  " After the Christmas season, we see cautious optimism ," Klaus Wuebbenhorst, CEO of GfK SE told journalists in Frankfurt.

  " However, that's all with certain conditions. We don't have a crystal ball we can look into to see how the debt crises in Europe and the U.S. will develop . "

 

  SPENDING VS SAVING

  An increasing wariness of financial institutions amid a worsening sovereign debt crisis and disappointment at low interest rates on offer, had left Germans less likely to save.

  " This does not mean that Germans are burning through their savings. They are saving, but not so much as before, " said Wuebbenhorst.

  The GfK institute added that a robust labour market in which unemployment is expected to fall further next year, and income expectations still standing above their long-term average, had all helped to support spending.

  " The domestic economy is fulfilling its role as a key crutch for business activity in Germany. Stable private consumption is a key requisite for Germany to continue to grow and avoid recession given the backdrop of falling export expectations."

  For consumers' positive mood to continue, politicians needed to regain their trust and demonstrate their ability to act decisively to deal with the crisis, the GfK added.

  Germany posted likely economic growth of 3 percent this year, continuing its stellar rebound from the 2008/09 financial crisis. Expansion will slow next year however, with estimates ranging from around 0.5 to 1 percent as spiralling debt woes of Germany's euro zone partners take their toll on exports and domestic confidence.

  The GfK's economic outlook sub-index stood at -7.2, its worst reading since August 2009, and a direct result of fears over the debt crisis. However, the institute also noted that German consumers, like the country's surprisingly optimistic firms, could help Germany show more resilience than expected.

  Thursday's key Ifo business sentiment indicator showed the mood improved unexpectedly in November for the first time in nearly half a year. Ifo economist Klaus Abberger told Reuters the November index showed the debt crisis had not yet reached the real economy and Germany had a good chance of avoiding recession this winter..

LONDON, Nov 28 (Reuters) - European shares extended gains Monday, led by banks, on optimism euro zone leaders will unveil fresh solutions to help resolve the region's debt crisis, ahead of a summit next week.

  At 1454 GMT, the FTSEurofirst 300 index of top European shares was up 3.5 percent at 939.26, and had hit a day's high of 939.96 points.

  Technical factors added weight to the move as the index had sold off nearly 8 percent in the preceding two weeks.

  Banks were among the top gainers with the STOXX Europe 600 Banking Index up 5.7 percent. (Reporting by Brian Gorman)

 

WASHINGTON, Nov 28 (Reuters) - New U.S. single-family home sales rose in October and the supply of homes on the market fell to its lowest level since April of last year, showing some healing in the battered housing sector.

  The Commerce Department on Monday said that sales edged up 1.3 percent to a seasonally adjusted 307,000-unit annual rate, which was the fastest pace in five months yet still below analysts' expectations. The supply of new homes in the market would last 6.3 months at the current pace of sales.

  Still, the median sales price fell 0.5 percent, casting a pall on the market's outlook as potential buyers can be spooked by falling prices. (Reporting by Jason Lange Editing by Theodore d'Afflisio) (jason.lange@thomsonreuters.com +1 202 310 5487 Reuters Messaging: jason.lange.reuters.com@reuters.net))

* Supply fears on mounting Iran tension, sanctions talk

  * Stock markets buoyed by hopes of euro zone debt deal

  * German, French push for greater euro zone integration

  * Strong consumer spending in the U.S. lends support

  * Coming Up: U.S. new home sales at 1500 GMT (Updates prices paragaph 4)

  By Christopher Johnson

  LONDON, Nov 28 (Reuters) - U.S. crude oil jumped sharply to around $100 per barrel on Monday as concerns over possible disruption to Middle East oil supplies overshadowed worries over a worsening economic outlook for the euro zone.

  Brent crude futures for January rose $3.09 per barrel to a high of $109.49 before easing back to around $109 by 1440 GMT.

  U.S. oil's gain was even stronger, boosted by a healthy start to U.S. consumer spending ahead of the key year-end holiday season, with prices up $3.97 to a high of $100.74 before easing back to around $99.25.

  " Tension with Iran and talk of a European oil ban on Iranian oil is raising concerns of supply problems," said Christophe Barret, global oil analyst at Credit Agricole. " There is also some optimism over talk of a closer fiscal union among core euro zone states, although this would be a long way away."

  Markets got an early boost from a report suggesting the International Monetary Fund was preparing a 600 billion euro ($800 billion) rescue plan for Italy.

  Oil held on to its gains even after the IMF said it was not in any discussion with Italian authorities on a financing plan due to a weaker dollar and supply worries.

  Rising stock markets helped support sentiment on hopes that Germany and France, the euro zone's biggest economies, could find ways of imposing tighter budget control. .

  U.S. President Barack Obama was due to press senior European Union officials on Monday to reach a solution to the emergency that Moody's says now threatens the credit standing of all European government bond ratings.

  IRAN OUTLOOK

  Iran's parliament voted on Sunday to reduce diplomatic relations with Britain, with one lawmaker saying Iranians angered by London's latest sanctions could storm the British embassy as they did the U.S. mission in 1979.

  Europe is edging towards an Iranian oil embargo, despite worries a ban would hit euro zone members hardest, boost oil prices and force Iran to rely on China to buy more crude at discounted prices.

  Olivier Jakob at Petromatrix said an EU boycott of Iranian crude oil could exacerbate the region's economic problems:

  " The higher crude prices that Europe will need to pay for its crude oil will contribute to make the European economic crisis worse," Jakob said.

  James Zhang, oil analyst at Standard Bank, agreed, saying any moves towards a European embargo of Iranian crude was likely to put extra upward pressure on oil prices:

  " The timing of such an embargo could hardly be worse, as European crude inventories are at multi-year lows," Zhang said. " Even relatively small disruptions could cause spikes in flat prices and term structures."

  ($1 = 0.7536 euros) (Additional reporting by Cho Mee-young in Seoul and and Seng Li Peng in Singapore editing by William Hardy)

By Svetlana Kovalyova

  MILAN (Reuters) - A rapidly growing population, climate change and degradation of land and water resources are likely to make the world more vulnerable to food insecurity and challenge the task of feeding its people by 2050, the United Nations' food agency said.

  The world would have to boost cereals output by 1 billion tonnes and produce 200 million extra tonnes of livestock products a year by 2050 to feed a population projected at 9 billion people, up from 7 billion now, according to U.N. estimates.

  Intensive farming of the past decades has helped to feed millions of hungry people but it has often led to degradation of land and water systems on which food production depends, the U.N. Food and Agriculture Organisation (FAO) said on Monday.

  " These systems at risk may simply not be able to contribute as expected in meeting human demands by 2050. The consequences in terms of hunger and poverty are unacceptable. Remedial action needs to be taken now," FAO Director-General Jacques Diouf said.

  A quarter of the earth's land is highly degraded, another 8 percent is moderately degraded, while 36 percent is stable or slightly degraded and 10 percent ranked as improving, the FAO said in its report - State of the World's Land and Water Resources for Food and Agriculture.

  Water scarcity is growing as salinisation and pollution of groundwater, as well as degradation of water bodies and water-related ecosystems, rise, the report said.

  In many large rivers, only 5 percent of former water volumes remain in-stream and some rivers such as China's Huang He (Yellow River) no longer reach the sea year-round. Large lakes and inland seas have shrunk and half the wetlands of Europe and North America no longer exist, the Rome-based FAO said.

  With the increasing competition for land and water for food and feed in agriculture as well as industry and urban development uses, the challenge of providing sufficient food for everyone has never been greater, it said.

  Almost 1 billion people are now undernourished, with 578 million people in Asia and 239 million in sub-Saharan Africa, the FAO said.

  In developing countries, even if agricultural output doubled by 2050 as expected to feed the world, one person in 20 would still risk being undernourished, an equivalent to 370 million hungry people, most of whom would be in Africa and Asia, it said.

  STEPS TO TAKE

  Future agricultural production would have to rise faster than population growth for nutrition to improve and for food insecurity and hunger to recede, the FAO said.

  That would have to occur largely on existing farming land with improvements coming from sustainable intensification that uses land and water efficiently without harming them, it said.

  There have been warning signs of a slowdown of agricultural output growth rates in many areas to only half of what they were during the green revolution, it said, referring to a period in the 1960s and 1970s when farm yields got a boost through intensive practices and new seed varieties.

  Innovative farming practices such as conservation agriculture, agro-forestry, integrated crop-livestock systems and integrated irrigation-aquaculture systems can help boost food production while limiting impacts on ecosystems, it said.

  Most irrigation systems across the world perform below their capacity, so improving the efficiency of water use by farmers with improved management of resources and modern technology would be crucial, the FAO said.

  Gross investment needs between 2007 and 2050 for irrigation development and management are estimated at almost $1 trillion, while land protection and development, soil conservation and flood control would require around $160 billion in the same period, the report said.

  (Reporting by Svetlana Kovalyova Editing by Anthony Barker)

By Dave Graham

  MEXICO CITY (Reuters) - Slowly but surely, drug cartels have ground down support for Mexico's ruling conservatives with a trail of dead over the past five years.

  Now, President Felipe Calderon's National Action Party (PAN) is trying to use the same gangs as a quick fix for its fading hopes of re-election next year - by painting rivals for the presidency as corrupt and in the pockets of the cartels.

  Calderon's term in office has been dominated by a bloody conflict with drug traffickers that has claimed 45,000 lives, eroding support for the PAN and turning the drugs war into a make-or-break issue for July's presidential elections.

  Latest surveys show his party is headed for defeat. The PAN is trying hard to taint the image of its bitter rival, the centrist opposition Institutional Revolutionary Party (PRI).

  Last month Calderon said some PRI members might consider deals with drug gangs, stirring up claims by critics of the opposition party that it made secret pacts to keep the peace in the 71 years it ruled Mexico until 2000.

  And on Tuesday the office of Calderon's attorney general said it was investigating whether a drug cartel pressured voters to back the PRI in a state election on November 13.

  John Bailey, a political scientist at Georgetown University in Washington, said Calderon had played a " double game" by calling for unity in the fight against organized crime - then suggesting his rivals were complicit with the gangs.

  " Going negative is ugly, but it's effective," he said. " I don't think Calderon has clean hands on this at all."

  But Calderon is well aware that most Mexicans want to root out drug gangs - and reject making deals with them.

  Voters like Mayra Lara, a 29 year-old business manager in Mexico City, say they would have to think very hard before voting for a party that was allegedly colluding with criminals.

  " How can you trust a government that supports drug traffickers, drug traffickers who are up to their necks in violence, recruiting young folk and the rest of it?" she said.

  So far, the mud-slinging has not hurt the PRI's main presidential hopeful, the telegenic former governor of the State of Mexico, Enrique Pena Nieto. Polls give the 45-year-old around twice the support of his nearest rivals.

  Unless the PAN can make the mud stick to Pena Nieto or people close to him, it may not matter much in 2012 if the PRI's reputation suffers, said Federico Berrueto, director general of pollster Gabinete de Comunicacion Estrategica.

  " Pena Nieto is not seen as a traditional PRI politician," said Berrueto. " And when it comes to the presidency, the party is less important than the person."

  DOUBTS ON DEMOCRACY

  The closeness of the election in Michoacan two weeks ago made it ideal for raising the spectre of foul play.

  The western state has been ravaged by drug gangs and the PRI candidate for governor defeated Calderon's older sister by just 43,000 votes - out of about 3 million eligible voters.

  Then a tape was leaked to the Mexican media in which a man identified as a leader of local cartel La Familia said voters in his district had to back the PRI or face reprisals.

  It was not clear how the recording was made, or how it came into the hands of the media, raising questions about the evidence, said Javier Oliva, a political scientist at the National Autonomous University of Mexico (UNAM).

  The man on the tape also stated the leftist Party of Democratic Revolution (PRD), which ruled Michoacan for the past decade, had ties with drug gangs. Hours after it was broadcast, the attorney general's office said it would investigate.

  The PRI leadership has denied cutting deals with drug gangs, but its record of corruption during the party's long and often authoritarian hold on power has made it an easy target.

  The end of PRI rule in 2000 is seen by many as the start of democracy in Mexico, faith in which has been tested during the drug war. A study published in October by pollster Latinobarometro showed only 40 percent of Mexicans felt democracy was the best political system. That figure was down 9 percentage points from 2010 and the lowest in Latin America apart from Guatemala.

  Many Mexicans feel the war has infringed on their freedoms.

  On Friday, human rights activists filed a complaint with the International Criminal Court in The Hague against Calderon, accusing him and other officials of allowing subordinates to kill, torture and kidnap civilians in the war.

  Michoacan, Calderon's home state, has been a crucial battleground in the conflict. It was there that he launched the drug war shortly after taking office in December 2006.

  And Michoacan was where in 2009, weeks before mid-term elections, Calderon's government arrested 35 public officials on suspicion of ties to drug traffickers. Many were from the PRD. The case against nearly all of them later collapsed.

  ACCUSING THE ACCUSER

  The PAN needs to produce results fast in the drug war.

  A survey by pollster Mitofsky published this month showed just 14 percent of Mexicans think Calderon, who is barred by law from serving a second term, would win the conflict.

  Despite this, two thirds of voters want the next president to continue the war, according to a separate September study called Citizenry, Democracy and Drug Violence (CIDENA).

  An hour before the attorney general's office announced its probe, the PAN issued a statement questioning the PRI's desire to fight crime. PAN senator Ruben Camarillo urged the PRI to come clean about the party's reported links with drug gangs.

  " I want to hear those voices from the PRI that have kept silent about the accusations and the clear evidence," he said.

  The PRI has hit back, accusing the PAN of having its own ties with drug cartels, and the PRD has joined the fray.

  With so many accusations swirling about, all parties are likely to end up with their reputations damaged unless Mexico steps up faltering efforts to bring corrupt officials to book, Mexican political analyst Fernando Dworak said.

  " If they don't, we'll have a demagogue waiting to take over as has happened in other Latin American countries," he said.

By Michael Georgy and Qasim Nauman

  ISLAMABAD (Reuters) - Pakistan ratcheted up pressure on NATO on Monday over a cross-border attack that killed 24 Pakistani soldiers at the weekend, threatening to drastically reduce cooperation on peace efforts in Afghanistan.

  The incident has complicated Washington's bid both to ease a crisis in relations with Islamabad and stabilise the region as it tries to wind down the war in Afghanistan.

  " This could have serious consequences in the level and extent of our cooperation," military spokesman Major General Athar Abbas told Reuters.

  Pakistan has a long history of ties to militant groups in Afghanistan so it is uniquely positioned to help bring about a peace settlement, a top foreign policy and security goal for the Obama administration.

  Washington believes Islamabad can play a critical role in efforts to pacify Afghanistan before all NATO combat troops pull out in 2014, so it can't afford to alienate its ally.

  Pakistan shut down NATO supply routes into Afghanistan in retaliation for the weekend shooting incident, the worst of its kind since Islamabad allied itself with Washington in 2001.

  " We have been here before. But this time it's much more serious," said Farzana Sheikh, associate fellow of the Asia programme at Chatham House in London.

  " The government has taken a very stern view. It's not quite clear at this stage what more Pakistani authorities can do, apart from suspending supplies to NATO forces in Afghanistan."

  Adding a new element to tensions, and a diplomatic boost for Islamabad, Pakistan's ally China said it was " deeply shocked" by the incident and expressed " strong concern for the victims and profound condolences for Pakistan."

  " China believes that Pakistan's independence, sovereignty and territorial integrity should be respected and the incident should be thoroughly investigated and be handled properly," Foreign Ministry spokesman Hong Lei said in a statement on the ministry's website.

  Pakistan has been trying to move closer to Asian powerhouse China as ties with the United States have suffered.

  China and Pakistan call each other " all-weather friends" and their close ties have been underpinned by long-standing wariness of their common neighbour, India, and a desire to hedge against U.S. influence across the region.

  On Saturday, NATO helicopters and fighter jets attacked two military outposts in northwest Pakistan, killing the 24 soldiers and wounding 13 others, the army said.

  Pakistan's military denied reports that NATO forces in Afghanistan had come under fire before launching the attack. Abbas said the attack lasted two hours despite warnings from Pakistani border posts.

  " They were contacted through the local hotline and also there had been contacts through the director-general of military operations. But despite that, this continued," he said.

  After a string of deadly incidents in the largely lawless and confusing border region, NATO and Pakistan set up a hotline that should allow them to communicate in case of confusion over targets and avoid friendly fire.

  " TRAGIC, UNINTENDED"

  NATO described the killings as a " tragic, unintended incident" and said an investigation was underway. A Western official and an Afghan security official who requested anonymity said NATO troops were responding to fire from across the border.

  Pakistan's military said the strike was unprovoked and has reserved the right to retaliate.

  Both explanations are possibly correct: that a retaliatory attack by NATO troops took a tragic, mistaken turn in harsh terrain where differentiating friend from foe can be difficult.

  An Afghan Taliban commander, Mullah Samiullah Rahmani, said the group had not been engaged in any fighting with NATO or Afghan forces in the area when the incident took place.

  But he added Taliban fighters control several Afghan villages near the border with Pakistan.

  A similar cross-border incident on Sept 30, 2010, which killed two Pakistani service personnel, led to the closure of one of NATO's supply routes through Pakistan for 10 days.

  The attack was the latest perceived provocation by the United States, which infuriated and embarrassed Pakistan's powerful military in May with a unilateral special forces raid that killed al Qaeda leader Osama bin Laden.

  Last month, U.S. Secretary of State Hillary Clinton visited Islamabad and held a town hall meeting to try and win over Pakistanis, held talks with her counterpart and urged all sides to seek peace in Afghanistan.

  She also repeated U.S. calls for Pakistan to crack down on militants, especially those who cross the porous border to attack American forces in Afghanistan.

  Any goodwill from that trip probably evaporated after the NATO-led International Security Assistance Force (ISAF) strike, which triggered a fresh wave of anti-U.S. sentiment in Pakistan.

  OBAMA EFFIGY Burnt

  The main Pakistani association that delivers fuel to NATO forces in Afghanistan said it would not resume supplies any time soon in protest against the NATO strike.

  In the Mohmand region, where the attack took place, hundreds of angry tribesmen yelled " Death to America." About 200 lawyers protested in Peshawar city, some burning an effigy of Obama.

  Newspaper editorials were equally strident.

  " We have to send a clear and unequivocal message to NATO and America that our patience has run out. If even a single bullet of foreign forces crosses into our border, then two fires will be shot in retaliation," said the mass-circulation Urdu language Jang newspaper.

  The NATO strike has shifted attention away from what critics say is Pakistan's failure to go after militants.

  Pakistan vowed to back the U.S. global war on militancy launched after al Qaeda's September 11, 2001, attacks on the United States, and won billions of dollars in aid in return.

  But the unstable, nuclear-armed country has often been described as an unreliable ally, and the United States has had to resort to controversial drone aircraft strikes against militants on Pakistani territory to pursue its aims.

  U.S. frustrations grew so much that Obama ordered the raid that killed bin Laden in Pakistan be kept secret, knowing it could make the United States even more unpopular in Pakistan.

  The NATO supply route is one of the levers Pakistan has over Washington.

  Pakistan is the route for nearly half of NATO supplies shipped overland to troops in Afghanistan. Land shipments account for about two thirds of the alliance's cargo.

  Pakistani Taliban militants opposed to Pakistan's alliance with the United States often open fire on trucks carrying supplies to NATO forces in Afghanistan.

  Thousands of trucks are now stranded near the border and in other areas, sitting ducks for militants.

By Laila Bassam

  BEIRUT (Reuters) - Tens of thousands of Syrians protested on Monday in state-backed rallies against unprecedented economic sanctions imposed by the Arab League over President Bashar al-Assad's military crackdown on popular unrest.

  State television showed rallies " supporting national unity and rejecting foreign interference" in the capital Damascus and the second city of Aleppo. There were demonstrations also in the eastern cities of Deir al-Zor and Hasaka, the TV said.

  The Arab League approved the sanctions against Syria on Sunday, the toughest imposed against a member state, isolating Assad's government over repression now in its ninth month which the United Nations says has killed 3,500 people.

  The European Union said the sanctions were a further " reaction to the regime's brutality and unwillingness to change course," and Britain said they could help enlist support at the United Nations for action against Damascus.

  But Syria's closest trading partners, Lebanon and Iraq, said they would not support the Arab League measures, and the actual economic impact could be less severe than proposed.

  " We do not agree with these sanctions and we will not go along with them," Lebanese Foreign Minister Adnan Mansour told Reuters in Beirut.

  Lebanon believes along with Iraq that the sanctions - which fall short of a full trade embargo - could harm their interests. On Monday, the Arab League appealed to Damascus, offering " a review of all of the measures" if Syria drops its opposition to an Arab plan to end the crackdown.

  Anti-Assad activists in Syria said on Sunday that security forces had killed at least 24 civilians, many in a town north of Damascus that has become a focus for the protests. Others were killed in raids on towns in the province of Homs.

  FIGHTING BACK

  " The indications are not positive ... the sanctions are still economic but if there is no movement on the part of Syria then we have a responsibility as human beings to stop the killings," Sheikh Hamad bin Jassim al-Thani, Qatar's prime minister and foreign minister, told reporters.

  " Power is not worth anything when a ruler kills his people," he said after 19 of the League's 22 members meeting in Cairo on Sunday approved a decision to enforce sanctions immediately.

  Along with peaceful protests, some of Assad's opponents are fighting back. Army defectors are grouped loosely under the banner of a Syrian Free Army and more insurgent attacks on loyalist troops have been reported in the last several weeks.

  The sanctions include a travel ban on top Syrian officials and a freeze on assets related to Assad's government. They are aimed at halting dealings with Syria's central bank and investment in the country, Sheikh Hamad said.

  He added that non-member Turkey, which attended the Arab League meeting, would also honour some of the measures, dealing a further blow to a Syrian economy already reeling from sanctions imposed by the EU and United States.

  UNITED NATIONS " SILENCE"

  Arab nations wanted to avert a repeat of what happened in Libya, where a U.N. Security Council resolution led to NATO air strikes. Sheikh Hamad warned Arab states that the West could intervene in Syria if it felt the League was not serious.

  British Foreign Secretary William Hague said the Arab League sanctions demonstrate that " the regime's repeated failure to deliver on its promises will not be ignored."

  Hague said Britain hoped the move would help break what he called United Nations silence " on the ongoing brutality taking place in Syria," after Russia and China thwarted Western efforts to pass a U.N. Security Council resolution on Syria.

  The sanctions represented the toughest Arab League action against a member state since Egypt's expulsion in 1978 over its peace accord with Israel. Cairo was later readmitted.

  Assad, who inherited power from his father in 2000, said in an interview this month that he would continue the crackdown and blamed the unrest on outside pressure to " subjugate Syria."

  Many Arab leaders have become increasingly concerned by a series of " Arab Spring" revolts that have toppled the rulers of Tunisia, Egypt and Libya.

  MERCHANT CLASS

  One Western diplomat said Assad could for now count on support from China and Russia at the United Nations but they may change position if he intensifies the crackdown and if the Arab League campaigns for international intervention.

  China and Russia have oil concessions in Syria. Moscow also has a little-used naval base in the country and provides military advisers to the Syrian army.

  " The sanctions are likely to lose Assad support among those in Syria who have been waiting to see whether he will be able to turn things around, such as merchants who could now see their businesses take more hits," the diplomat said.

  The president of the Union of Arab Banks, a division of the Arab League, said the sanctions would hit Syria's central bank, which has " big deposits" in the region, especially the Gulf.

  Arab ministers were spurred to action by worsening violence in Syria and by the Assad government's failure to meet a deadline to admit Arab League observers and take other steps to end its crackdown on the uprising.

  Syrian official media quoted an undated letter by Syrian Foreign Minister Walid al-Moualem to the Arab League as saying Damascus viewed the plan for outside monitors as interference.

  Syrian officials blame the violence on armed groups targeting civilians. Government security forces say 1,100 of their members have been killed.