MOSCOW, July 19 (Reuters) - Following are key passages of the draft of a communique prepared for a meeting on Friday of finance ministers and central bankers from the Group of 20 economies in Moscow.

  This text, seen by Reuters, updates an earlier item with passages where the agreed wording is final. The phrase in square brackets remains subject to review:

  1. We the G20 Finance Ministers and Central Bank Governors, met to discuss the current global economic developments and prepare for our Leaders' summit in September.

  2. Since we last met, the global outlook has somewhat weakened on account of slower growth in some large emerging market economies and the recession in the euro area. As previously, the global recovery remains fragile and uneven, with unemployment continuing to be high in many countries. A range of factors continue to weigh on global growth prospects, including post-financial crisis deleveraging in the private sector and impaired credit intermediation, fiscal drag and still incomplete rebalancing of global demand, as well as structural impediments to growth in some countries.

  In addition, policy uncertainty has recently triggered an increase in financial markets volatility and financial conditions have tightened. This has mostly affected emerging market economies, and some of them experienced a large increase in local bond yields, depreciation of currencies and liquidity pressures against the backdrop of reversing capital flows.

  3. To address these challenges and to place the global economy on a path to stronger, more sustainable and more balanced growth, we are building on our recent policy actions by developing a comprehensive St. Petersburg Action Plan.

  We agreed that its near-term priority is to boost jobs and growth by further reducing financial market fragmentation and moving decisively towards a banking union in Europe, continuing monetary support where needed, implementing medium-term fiscal strategies [including in the U.S. and Japan], calibrating the pace and composition of fiscal consolidation plans to economic conditions and fiscal space, rebalancing global demand, and taking measures to support growth, stability and resilience in emerging market economies.

  We agreed that to boost jobs and growth over the medium term, the St. Petersburg Action Plan must include a comprehensive series of structural reforms that will increase labour force participation, employment and productivity. To this end, we have reviewed our structural reforms agenda and agreed to address the gaps in our commitments with reforms that clearly contribute to our collective objectives of strong, sustainable and balanced growth.

  4. Achieving a stronger and sustainable recovery while ensuring fiscal sustainability in advanced economies remains critical. As agreed progress is being made in developing credible, ambitious and country-specific medium-term fiscal strategies for the St. Petersburg Summit. These strategies will be sufficiently flexible, to take into account near-term economic conditions, so as to support economic growth and job creation while putting debt as a share of GDP on a sustainable path.

  5. We are determined to continue progress with rebalancing of global demand, which requires internal rebalancing through structural reforms and exchange rate flexibility. We reiterate our commitments to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals and avoid persistent exchange-rate misalignments. We will refrain from competitive devaluation and will not target our exchange rates for competitive purposes. We will resist all forms of protectionism and keep our markets open. Large surplus economies should consider taking further steps to boost domestic sources of growth, while deficit economies should implement measures to improve competitiveness.

  6. Monetary policy should be directed toward domestic price stability and continuing to support economic recovery according to the respective mandates of central banks. We recognise the support that has been provided to the global economy in recent years from accommodative monetary policies including unconventional monetary policies. We remain mindful of the risks and unintended negative side effects of extended periods of monetary easing. Future changes to monetary policy settings will continue to be carefully calibrated and clearly communicated. We reiterate that excess volatility of capital flows and disorderly movements in exchange rates have adverse implications for economic and financial stability.

* FTSEurofirst 300 ends flat

  * Tech sector weighs after disappointing U.S. earnings

  * Electrolux surges on outlook upgrade

  * Pharma falls as China widens investigation

  By Alistair Smout

  LONDON, July 19 (Reuters) - European shares chalked up a fourth straight week of gains but ended flat on Friday, dampened by fresh weakness in the technology sector as a mixed earnings season on both sides of the Atlantic intensified.

  The European tech sector fell 0.7 percent on the day, making it the worst-performing sector after software firm Microsoft and Internet giant Google both posted weak numbers.

  That weighed on chip maker ARM, down 2.6 percent, ahead of its results next Wednesday, while software firm SAP dropped 2.3 percent after several analysts cut targets on the stock in light of its recent results.

  SAP was the worst-performing stock on the German DAX , which closed down 0.1 percent.

  By the close, the pan-European FTSEurofirst 300 was down 0.01 percent at 1,209.00, although up 1.1 percent on the week.

  It has bounced 8.8 percent from its June low as the U.S. Federal Reserve sought to dispel anxiety that the withdrawal of stimulus would come too soon, a message that was reiterated this week by Chairman Ben Bernanke.

  " For Google, their model for making money is getting to maturity, so they're getting hit, and all the tech stocks are a bit lower on that," Lucas Roux de Luze, sales trader at TJM Partners, said.

  " More generally, the sentiment of the market is that after a great run on the back of Bernanke's comments and decent earnings, we're consolidating a little bit."

  A strong start to the European results season has been tempered by earnings disappointments towards the end of the week, with Vopak sharply lower, down 5 percent, after the oil and chemical storage firm was forced to cut its full-year outlook.

  So far, 53 percent of companies on the STOXX Europe 600 that have reported have beaten or met expectations, compared to 73 percent on the U.S. S& P 500, Thomson Reuters StarMine data showed. However, Electrolux jumped 5.3 percent after posting in-line results and raising its outlook.

  " Corporate earnings are quite mixed, so we don't have a clear direction on that front," Myrto Sokou, analyst at Sucden Financial, said.

  " We might see a phase of consolidation, with equity markets trading sideways for next week."

  Along with tech firms, pharmaceuticals also suffered, down 0.7 percent and led lower by Belgium's UCB . It fell 2.3 percent after saying it had been visited by Chinese authorities investigating bribery allegations already made against British heavyweight GlaxoSmithKline.

By David Sheppard and Josephine Mason

  NEW YORK, July 19 (Reuters) - The U.S. Federal Reserve is " reviewing" a landmark 2003 decision that first allowed regulated banks to trade in physical commodity markets, it said on Friday, a move that may send new shockwaves through Wall Street.

  The one-sentence statement suggests the Fed is taking a much deeper, wide-ranging look at how banks operate in commodity markets than previously believed, amid intensifying scrutiny of everything from electricity trading to metals warehouses.

  While the Fed has been debating for years whether to allow banks including Morgan Stanley and JPMorgan to continue owning assets like oil storage tanks or power plants, Friday's surprise statement suggests it is also reconsidering whether all bank holding firms should be able to trade raw materials such as gasoline tankers and coffee beans.

  By referencing its initial decision a decade ago permitting Citigroup's Phibro unit to trade oil cargoes - setting a precedent for a dozen more banks that followed suit - the Federal Reserve has put in question a key profit center for Wall Street's top players, which have already seen multibillion-dollar commodity revenues shrink in the face of new regulations.

  On Tuesday, the Senate Banking Committee is holding its first hearing on the issue, asking whether so-called " Too Big to Fail" banks should be taking on additional risks like moving tankers of crude oil or operating power plants.

  Amid growing frustration in Washington over regulators' failure to push through new rules five years after the financial crisis, the Fed's widening area of enquiry came as a shock.

  " They must be feeling some pressure on this issue if they've felt compelled to issue a public statement," said Saule Omarova, associate professor of law at the University of North Carolina at Chapel Hill School of Law, who will appear at the hearing.

  " Are they using this opportunity to in fact review the entire position of banks in physical commodity markets?"

  The pressure may intensify as the U.S. power market regulator levies record fines over manipulating power markets. It levied a $453 million penalty against Barclays this week and is in talks to settle charges against JPMorgan, which is alleged to have used power plants that it owned or operated to game markets.

  " The Federal Reserve regularly monitors the commodity activities of supervised firms and is reviewing the 2003 determination that certain commodity activities are complementary to financial activities and thus permissible for bank holding companies," the Federal Reserve said, its first public statement since a 2012 Reuters report brought the issue to light. (Full story:).

  A Federal Reserve spokesperson declined to elaborate or provide any details on the scale or timing of the review.

  Spokespeople for Goldman Sachs and Morgan Stanley declined to comment on the Fed statement.

  PHIBRO SET PRECEDENT

  In 2003, the Federal Reserve issued a letter to Citigroup, which had been seeking permission to allow its Phibro unit - acquired in 1998 - to continue trading in physical energy markets. The Bank Holding Company Act (BHC Act) normally prohibits banks from engaging in non-financial activities, but Citi had argued that the activities should be allowed.

  Regulated commercial banks had long been permitted to trade in commodity derivatives such as futures, but at the time did not enjoy the same freedom in physical markets, unlike investment banks like Goldman Sachs and Morgan Stanley.

  The Fed agreed with Citi, saying that trading in real commodities would allow the banks to " transact more efficiently with customers" . It said the trading must be " complimentary" to their main activities, contribute to the public good and should not pose a " substantial risk" to the bank.

  That decision, which came at the start of a decade-long boom in commodity trading, opened the door to a dozen more applications from global giants like Deutsche Bank and domestic players like Wells Fargo. With many of the permits, the Fed gave greater and greater leeway in what and how they could trade.

  " Maybe the Fed can openly say we think these activities are systemically risky unless they're cut back but I don't know what's going through the Fed's head," said one commodity regulation expert who declined to be named. " This came out of the blue. This has taken everyone by surprise."

  Since converting to bank holding companies at the height of the financial crisis, Goldman Sachs and Morgan Stanley have also been subject to the holding company rules.

  But up until now, the Fed's focus was believed to be on their ownership of assets, a more clearly controversial issue.

  Under the 1999 decision to repeal part of the Glass-Steagall Act, ending the forced separation of commercial and investment banking, any non-regulated bank that converted to holding company status after 1999 would be allowed to continue to own and invest in assets, as long as they held them prior to 1997. The banks have argued that their activities are " grandfathered" in, or that they are simply merchant banking investments.

  It is not clear that argument will hold up under political pressure, which is intensifying ahead of a nominal September deadline for Goldman and Morgan to comply with the rules.

  " Reviewing Wall Street's expansion into commercial activities is essential," Senator Sherrod Brown, a Democrat from Ohio, said in a statement. " Congress, regulators, and the public need to understand what has happened in the 14 years since the financial floodgates were opened, and reconsider what we want banks to do."

  Large industrial consumers of aluminum have accused banks of boosting prices of the metal through their control of London Metal Exchange warehouses, which have been slow to deliver metal to customers, boosting premiums for physical metal and earning big profits on rent for storing the metal.

  Four U.S. congressmen wrote to Federal Reserve Chairman Ben Bernanke on June 27 expressing their concern about the issue, and asking for more information on the Fed's position.

  Both Goldman Sachs and JPMorgan have explored selling their warehouse businesses they bought in 2010 in recent months, although it is not clear if that is because of increased regulatory pressure.

  GETTING PHYSICAL

  As commodity prices surged over the past decade, a host of global investment banks piled into the market, pressuring the former duopoly of Goldman and Morgan. At their peak in 2008 and 2009, revenues in the sector reached some $15 billion.

  But pressures have mounted over the past few years as regulators crack down on proprietary trading, new capital measures limit trading books and bonus caps shrink.

  Commodity revenue from the top investment banks fell to about $6 billion in 2012, consultants Coalition estimated.

  While banks generate much of that revenue from trading derivatives - selling indexes to investors or hedging prices for an oil company - many have delved deeply into physical markets in order to get better information on markets, leverage their positions or offer more options to customers.

  For instance, many banks are involved in " supply and offtake" arrangements with refineries, providing crude oil to the plant and then selling gasoline or diesel in the market.

  The Federal Reserve has generally allowed banks to trade in most major physical commodity markets so long as there is a similar futures contract for the commodity, which means it is regulated by the Commodity Futures Trading Commission. Crude oil and gasoline, for instance, are allowed but iron ore is not.

  Friday's statement calls that into question.

  While some consumer groups have been critical of the sway that banks can exert on commodity markets by owning key pieces of infrastructure, it is unclear how many would support barring them from trading commercial markets entirely.

  " I want them to have physical business because they play a positive role in the business on balance by providing financing," said one senior executive in the metals market who has been critical of the banks' warehouse ownership.

* Microsoft, Google tumble after results miss

  * S& P 500 ends at record high for second day

  * GE jumps after profit beats

  * Dow, S& P 500 post fourth week of gains

  * Dow off 0.03 pct, S& P up 0.2 pct, Nasdaq off 0.7 pct

  By Caroline Valetkevitch

  NEW YORK, July 19 (Reuters) - The Dow and Nasdaq stock gauges fell on Friday as disappointing results from Microsoft and Google dragged on the market, while the S& P 500 index edged up to end at a second straight record high.

  Stronger-than-expected results from General Electric Co and oilfield services company Schlumberger NV helped the S& P 500 index to offset the tech losses and to post a fourth week of gains.

  For the week, the Dow rose 0.5 percent, the S& P added 0.7 percent and the Nasdaq fell 0.3 percent. The benchmark S& P is up 18.6 percent for the year.

  The high-profile tech sector disappointments prompted investors to lock in profits Friday after upbeat company results on Thursday and reassuring comments from Federal Reserve Chairman Ben Bernanke sent the Dow and S& P to record closing levels.

  Microsoft Corp was the biggest drag on all three major indexes, with the Nasdaq registering the day's steepest declines. Google Inc also weighed on the S& P 500 and Nasdaq. Both reported earnings that fell short of expectations.

  " It seems like (tech) may be the one area where companies haven't gotten expectations sufficiently reduced," said Eric Kuby, chief investment officer at North Star Investment Management Corp in Chicago.

  " Stocks like Microsoft and Google I think were probably at the point where they had traded so nicely into earnings that people were really looking for something positive to be said."

  On Friday, Microsoft slumped 11.4 percent to $31.40, while Google lost 1.5 percent to $896.59. The S& P tech sector led declines, falling 2 percent.

  The Dow Jones industrial average was down 4.80 points, or 0.03 percent, at 15,543.74. The Standard & Poor's 500 Index was up 2.72 points, or 0.16 percent, at 1,692.09. The Nasdaq Composite Index was down 23.66 points, or 0.66 percent, at 3,587.61.

  Analysts' estimates for corporate earnings have been reduced so much that investors believe the targets for the most part should be easily beaten.

  Through Friday, of the 104 companies in the S& P 500 that have reported earnings for the quarter, 65.4 percent have reported earnings above analyst expectations, while 51 percent have topped revenue estimates, according to Thomson Reuters data.

  Analysts expect S& P 500 companies' second-quarter earnings to have grown 2.9 percent from a year earlier, with revenue up 1.1 percent, according to Thomson Reuters data.

  Also in the tech sector, Advanced Micro Devices Inc tumbled 13.1 percent to $4.03 after the company said gross margins would fall, even as the chipmaker forecast stronger-than-expected revenue growth in the third quarter.

  Encouraging earnings reports from other companies helped to offset the tech losses. Shares of General Electric rose 4.6 percent to $24.72 while shares of Schlumberger gained 5.4 percent to $82.74.

  Whirlpool Corp climbed 8 percent to $128.91 after raising its full-year outlook.

  Intuitive Surgical Inc slid 6.8 percent to $392.66 after the company cut its 2013 sales forecast and said U.S. regulators had issued a warning after an inspection of its facilities.

  Volume was roughly 5.9 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, below the average daily closing volume of about 6.4 billion this year.

  Advancers outpaced decliners on the NYSE by a ratio of nearly 15 to 14 in Friday's session, while decliners outpaced advancers on the Nasdaq by about 12 to 11.

LONDON, July 19 (Reuters) - UK equities paused early on Friday with momentum slowing after profit misses from U.S. tech bellwethers took the gloss off a positive run registered by the banking sector.

  By 0709 GMT, the FTSE 100 fell 13.87 points, or 0.2 percent, to 6,620.49 points after having closed at its highest level since May 30 on Thursday, boosted by upbeat economic data in the UK and United States and earnings from U.S. banks.

  " With volumes fairly light and no major economic releases today, we expect UK markets to be a touch softer heading into the weekend," said Mark Ward, head of trading at Sanlam Securities.

  He said the catalyst for profit taking was the weak updates provided from U.S tech firms such as Google, Intel , Microsoft and eBay.

  " Whilst the U.S. banks' numbers have been generally strong, the rest cannot be said for other sectors. Last night, both eBay and Intel both fell after disappointing forecasts," he added. (Reporting by David Brett Editing by Sudip Kar-Gupta)

SYDNEY (Reuters) - The former head of the U.S. Central Intelligence Agency said he is aware of hard evidence that Huawei Technologies Co Ltd has spied for the Chinese government, the Australian Financial Review newspaper reported on Friday.

  Michael Hayden, also the former head of the U.S. National Security Agency (NSA), said in an interview with the paper that Huawei had " shared with the Chinese state intimate and extensive knowledge of the foreign telecommunications systems it is involved with" .

  " I think that goes without saying," he was quoted as saying.

  The newspaper reported Hayden said intelligence agencies have hard evidence of spying activity by the world's No. 2 telecoms equipment maker. It did not detail that evidence.

  Huawei, founded in 1987 by former People's Liberation Army officer Ren Zhengfei, has repeatedly denied being linked to the Chinese government or military or receiving financial support from either.

  Hayden is a director of Motorola Solutions, which provides radios, smart tags, barcode scanners and safety products. Huawei and Motorola Solutions Inc had previously been engaged in intellectual property disputes for a number of years.

  Huawei Global Cyber Security Officer John Suffolk described the comments made by Hayden as " tired, unsubstantiated defamatory remarks" and challenged him and other critics to present any evidence publicly.

  " Huawei meets the communication needs of more than a third of the planet and our customers have the right to know what these unsubstantiated concerns are," Suffolk said in a statement emailed to Reuters. " It's time to put up or shut up."

  The report came a day after Britain announced it would review security at a cyber centre in southern England run by Huawei to ensure that the British telecommunications network is protected.

  In October 2012, the U.S. House of Representatives' Intelligence Committee urged American firms to stop doing business with Huawei and ZTE Corp., warning that China could use equipment made by the companies to spy on certain communications and threaten vital systems through computerised links.

  The Australian government has barred Huawei from involvement in the building of its A$37.4 billion (22.5 billion pounds) National Broadband Network.

  (Reporting By Jane Wardell Editing by Paul Tait)

LONDON, July 19 (Reuters) - European stock index futures pointed to a weaker start on Friday as disappointing results from major U.S. technology companies, such as Microsoft and Google, were seen hurting sentiment.

  At 0601 GMT, futures for the Euro STOXX 50, Britain's FTSE 100, Germany's DAX and France's CAC were 0.2 to 0.3 percent lower.

* Dollar slips vs yen on long liquidation

  * Drop in Tokyo shares leads to position squaring

  * Near term focus on Japan election on Sunday

  By Masayuki Kitano

  SINGAPORE, July 19 (Reuters) - The yen rose on Friday as investors squared their books ahead of Japan's upper house election this weekend, which could clear the legislative path for Prime Minister Shinzo Abe's aggressive economic reform drive.

  Recent opinion polls have shown that Abe's ruling bloc remains on track to take a hefty majority in the upper house, putting an end to a " twisted parliament" in which the opposition controls the upper chamber.

  That result would give Abe more freedom to push his agenda to revive the economy through decisive monetary easing, public spending and structural reform, and could keep the yen on the defensive.

  The market has probably factored in the likelihood of Abe's ruling bloc gaining a majority in the upper house, and such a victory for Abe is unlikely to alter prevailing market patterns, said Junya Tanase, chief FX strategist for JPMorgan Chase in Tokyo.

  " I don't think there will be any direct reaction in that case, but a trend toward higher share prices and a weaker yen will probably continue," he said.

  The dollar fell 0.4 percent versus the yen to 100.08 yen , having pulled back from an intraday high of 100.87 yen hit earlier in the session.

  However, the greenback is still up more than 15 percent against the yen on the year.

  The yen has been weakened by the Bank of Japan's drastic monetary expansion, while the dollar has been supported by expectations that the U.S. Federal Reserve could start scaling back its monetary stimulus later this year.

  A trader for a Japanese bank in Singapore said market players seemed wary of putting bearish bets on the dollar against the yen ahead of Sunday's election.

  " I am not seeing or hearing anyone going short (the dollar) into the weekend or wanting to," the trader said.

  With expectations so high, anything less than a sweeping victory by the ruling bloc, which consists of Abe's Liberal Democratic Party (LDP) and junior coalition partner New Komeito, could lead to disappointment and lift the yen, market players say.

  The dollar initially pushed higher versus the yen on Friday, with one Tokyo-based trader saying the rise was partly caused by demand for dollars at the 0100 GMT Tokyo fixing. Such demand is often a result of dollar-buying by Japanese importers.

  Traders said the dollar later slipped back from its intraday high after Japan's Nikkei share average reversed from its early rise to an eight-week high, and fell by as much as 2.7 percent.

  Such falls in equities can increase risk aversion, and spark demand for the yen - a traditional safe-haven currency.

  The euro eased 0.2 percent against the yen to 131.41 yen . Earlier on Friday, the euro hit a seven-week high of around 132.10 yen on trading platform EBS.

  Against the dollar, the euro edged up 0.2 percent to $1.3136 .

* China to achieve 7.5 pct growth target this year - poll
* China copper premiums point to steady demand
* Coming Up: G20 finance ministers meeting

(Adds comment, detail, updates prices)
By Melanie Burton
SINGAPORE, July 19 (Reuters) - London copper rose on Friday
after U.S. Federal Reserve Chairman Ben Bernanke again reassured
investors that the central bank was flexible on the timing for
ending its stimulus program.
Suggestions that the Fed may maintain its economic stimulus
longer than previously expected had triggered a cross commodity
rally earlier this month as more liquidity tends to support
appetite for riskier assets.
But even with looser U.S. monetary policy, slowing demand
growth in top copper consumer China suggests upside potential is
limited, said Dominic Schnider of UBS Wealth Management in
Singapore.
" When you look at China, there's not really any indication
that you could see demand accelerating without fresh stimulus
which is unlikely to be the case. Given oversupply, we have to
consider copper prices falling back to $6,300 in the second
half," he said.
Three-month copper on the London Metal Exchange
climbed 0.62 percent to $6,942.75 a tonne by 0216 GMT. It is
down slightly for the week after two consecutive weeks of gains.
The most-traded November copper contract on the Shanghai
Futures Exchange rose 0.93 percent to 50,000 yuan
($8,100) a tonne.
Copper prices drew support from Bernanke's testimony before
Congress in which he reiterated that the Fed would only start
phasing out its stimulus once it is sure the economy is strong
enough to stand on its own.
Data from the world's top economy shows new claims for
jobless benefits fell last week and factory activity picked up
in the Mid-Atlantic region in early July, signs of a stronger
economy that could prompt the Fed to ease its accommodative
monetary policy.
Moody's Investors Service raised the U.S. sovereign outlook
to stable from negative and affirmed the country's triple-A
rating on Thursday, citing steady growth despite reduced
government spending.
The market is also keeping an eye on the health of the
world's No.2 economy, China, for further trading cues.
China will hit its growth target of 7.5 percent this year,
though it is unlikely to gain traction next year as the
government trades short-term growth for long-awaited reforms, a
Reuters poll showed.
Still, demand for copper in China was steady, with premiums
for physical copper in the local market rising to around 40 yuan
against the front-month futures contract, against a discount
seen earlier this month.

Base metals prices at 0216 GMT
Metal Last Change Pct Move YTD pct chg
LME Cu 6942.75 42.75 +0.62 -12.44
SHFE CU FUT NOV3 50000 460 +0.93 -13.31
HG COPPER SEP3 3.15 0.02 +0.49 -99.14
LME Alum 1809.50 4.50 +0.25 -12.63
SHFE AL FUT OCT3 14335 25 +0.17 -6.58
LME Zinc 1864.25 7.75 +0.42 -9.66
SHFE ZN FUT OCT3 14550 -995 -6.40 -6.40
LME Nickel 13990.00 -10.00 -0.07 -18.45
LME Lead 2041.50 5.00 +0.25 -12.76
SHFE PB FUT 13880.00 35.00 +0.25 -8.98
LME Tin 19488.00 -57.00 -0.29 -16.72
LME/Shanghai arb^ -294
($1 = 6.1413 Chinese yuan)

(Reporting by Melanie Burton Additional reporting by Manolo
Serapio Jr. Editing by Himani Sarkar)

(Adds analysis, quotes, stocks on the move)

  SYDNEY, July 19 (Reuters) - Australian shares fell 0.6 percent on Friday, dragged down by blue chip mining stocks and a slide in blasting systems supplier Orica Ltd after it cut full-year earnings guidance.

  BHP Billiton Ltd and Rio Tinto Ltd lost 1.4 percent and 1.6 percent respectively after China steel futures edged lower. The shaky demand outlook in the world's top iron ore consumer cast doubt on the sustainability of miners' recent gains.

  Orica slumped 14 percent to a four-year low of A$18.05 after the mining services company said it expected 2013 financial year net profit after tax (NPAT) to fall 10 percent on the year before.

  The S& P/ASX 200 index lost 28.7 points to 4,963.5 in subdued trade, where 183.7 million shares had changed hands by 0136 GMT. The benchmark rose 0.2 percent on Thursday.

  " It's the ongoing issue of what is the Fed going to do and how do we interpret it? And one day people are happy about it and other days they're not," said Damien Boey, equity strategist at Credit Suisse.

  The market has rebounded from a trough of 4,632.3 points hit on June 25 as receding worries about the Federal Reserve tapering its quantitative easing programme bolstered investor sentiment.

  However, it has not been able to break above resistance at 5,012, the July 12 high and the 61.8 percent retracement level of its fall from a five-year peak of 5,249.6, set on May 15, to the June low.

  " I still think the market is going to go down, but what people would like to see is a real sign of stimulus from America and China. If you get that, then the market will crack above 5,000," Boey said.

  The financial sector reversed early gains to drag on the index. Australia and New Zealand Banking Group Ltd and Westpac Banking Corp each shed 0.5 percent.

  Elsewhere, defensives helped to pare losses. Biotechnology company CSL Ltd added 0.5 percent while flagship telecommunications provider Telstra Ltd rose 0.8 percent.

  New Zealand's benchmark NZX 50 index slipped 0.1 percent or 3 points to 4,560.4.

  STOCKS ON THE MOVE

  * Billabong International Ltd rocketed 13.7 percent to a 2-1/2 month high of A$0.415. The embattled surfwear company said it cannot accept a Centerbridge and Oaktree refinancing proposal.

  Shares were high in response to its refinancing deal with Altona earlier in the week.

  (0135 GMT)

  * Santos Ltd tumbled 4.1 percent to A$13.67 after the company lowered its full-year production forecast.

  (0135 GMT)

  (Reporting by Thuy Ong Editing by Eric Meijer and Stephen Coates)

* Stocks lower across Asia, Nikkei down 1.1 percent

  * Yen bounces off lows as Nikkei comes under pressure

  * More reflationary policies seen if Abe wins upper house vote

  By Ian Chua

  SYDNEY, July 19 (Reuters) - Japanese shares skidded from a two-month peak on Friday in a sudden reversal sparked by profit-taking ahead of a weekend election that should see Prime Minister Shinzo Abe gain control of the upper house of parliament.

  There are worries that a big victory for Abe would allow him to prioritise nationalist policies at the expense of painful structural reform, though markets are hopeful such an outcome will not materialise.

  Tokyo's Nikkei slid 1.1 percent, having swung from gains of more than 1 percent to a fall of 2.7 percent. It was still up 1 percent for the week.

  Traders said profit-taking by some large players pushed the index negative, which then tripped large sales of stock futures that fuelled the selloff. Thin conditions in the market exaggerated the moves.

  " A lot of potential good election news has been priced in, so people are coming in to sell futures, probably hedging some upside," said a senior trader at a foreign bank in Tokyo.

  Markets across Asia were also softer, but far less volatile.

  MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.4 percent, with South Korea's KOSPI and Australia's ASX 200 index both 0.5 percent lower. Hong Kong's Hang Seng index shed 0.4 percent.

  Japan's ruling Liberal Democratic Party (LDP) and its New Komeito Party (NKP) coalition partner are expected to win resoundingly at Sunday's upper house election.

  " The outcome from this weekend's upper house elections will help determine the ability of the Abe administration to deliver on structural reforms and its long-term growth strategy," Barclays Capital analysts wrote in a report.

  " If the LDP-NKP coalition wins control of the upper house and receives a decent mandate for reform, we would remain comfortable with our USD/JPY forecast profile of 103 in 3 months and 105 in 12 months."

  Friday's sudden pullback in the Nikkei led investors to quickly unwind short yen positions, helping the Japanese currency bounce off lows.

  That saw the dollar fall back to 100.36, from a one-week high of 100.86. The euro slipped to 131.55 from a seven-week high of 132.10 yen.

  Against the dollar, the euro was little changed at $1.3107 , having retreated from this week's peak around $1.3179.

  Investors are also keeping an eye on a G20 meeting of central bankers and finance ministers taking place in Moscow, looking for reassurance as China rebalances its economy and the Federal Reserve looks to reduce stimulus.

  Fed Chairman Ben Bernanke said this week the U.S. central bank still expects to start scaling back its massive bond purchase programme later this year, yet he kept the option of changing that plan if the economic outlook were to deteriorate.

  Latest data on the U.S. economy suggested the recovery was on track, with factory activity in the Mid-Atlantic region picking up in early July, while new claims for jobless benefits fell last week.

  Bernanke told the Senate Banking Committee on Thursday it was too soon to judge if recent " mixed" signals from the U.S. economy would prompt the central bank to delay plans to trim its bond buying this year.

  His pledge to be flexible soothed global financial markets this week and helped drive Wall Street to record closing highs.

  Commodity markets also took heart, with copper recovering from a one-week trough to $6,935 a tonne, while gold bounced to $1,285 an ounce from this week's low of $1,270.41.

  U.S. crude held near 16-month highs above $108 a barrel, further underpinned by signs of a stronger U.S. economy.