KABUL (Reuters) - Afghan President Hamid Karzai said on Tuesday seven areas, including a key city in a Taliban stronghold in the south, would be among the first to be transferred from NATO forces to Afghan control in July.

  Karzai said the relatively peaceful provinces of Bamiyan and Panjshir, the western city of Herat, areas around the capital Kabul, part of Laghman province nearby and Mazar-i-Sharif in the north would be secured by Afghan forces alone from July.

  The city of Lashkar Gah in volatile Helmand province in the south, long a stronghold of the Taliban, was included in the list.

  (Reporting by Hamid Shalizi Editing by Paul Tait)

Brent trades around $115,less than $5 away from 2-½ yr high

  Middle East uncertainty keeps trading volumes low

  Brent oil may briefly drop to $113.07/bbl-technicals

  Coming Up: API U.S. weekly inventory report (Adds analyst comments)

  By Alejandro Barbajosa

  SINGAPORE, March 22 (Reuters) - Brent crude futures were steady near $115 on Tuesday, supported by a spreading unrest in the Middle East, while uncertainty about demand from the world's No. 3 consumer Japan capped gains.

  Oil prices over the past week have seesawed. It was first pulled down by the immediate negative effect on energy demand from Japan's strongest earthquake on record and investor pessimism about the country's growth prospects.

  But from the second half of last week, oil got a boost from the realisation that hydrocarbons will have to compensate for the loss of nuclear capacity and from the escalation of geopolitical tensions in North Africa and the Mideast Gulf.

  Anti-aircraft fire rang out across Tripoli for a third night on Monday, but air attacks on Libya are likely to slow, a U.S. general said, as Washington holds back from being sucked into the country's civil war. [ID:nLDE72L00C]

  " It now seems likely that there will be a significant loss of Libyan oil supplies for some time," said Ric Spooner, chief market analyst at CMC Markets.

  " This will reduce the buffer of excess capacity and increase the oil market's vulnerability to any new supply shocks which may emerge. This may see a risk premium being maintained in the oil price for some time."

  Brent crude for May < LCOc1> gained 14 cents to $115.10 a barrel at 0546 GMT, less than $5 from a 2-1/2-year high near $120 reached last month. U.S. crude for May < CLc2> , the most liquid contract before the expiry of April later on Tuesday, shed 3 cents to $103.06.

  Libyan rebels, who had been driven back towards their eastern Benghazi stronghold before the air attacks halted an advance by Gaddafi's forces, have so far done little to capitalise on the campaign -- raising fears the war could grind to a stalemate. < ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

  More on Middle East unrest: [ID:nTOPMEAST] [nLDE71O2CH]

  US military leads on Libya but for how long? [nN19235888]

  Libya Graphics http://link.reuters.com/neg68r

  Technical analysis on Brent [ID:nL3E7EM03B]

  ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

  Oil prices rose about 1 percent on Monday, the first day of trading after U.N.-backed western powers kicked off a military campaign in Libya. Total crude trading volumes remained well below average, continuing last week's trend and underscoring the uncertainty facing the market, brokers and analysts said.

  Venezuela's Oil Minister Rafael Ramirez said there was no need for an emergency OPEC meeting despite the military attacks on Libya. Some of the group's members have already increased production partly to compensate for the disruption to Libyan supplies. [ID:nN21284635]

  But turmoil is also reaching countries close to Saudi Arabia, the world's top oil exporter and home to most of OPEC's spare production capacity.

  YEMEN, SYRIA UNREST

  In Yemen, top generals, ambassadors and some tribes threw their support behind anti-government protesters in a major blow to President Ali Abdullah Saleh's efforts to ride out demands for his immediate exit.

  Meanwhile, unrest spread in southern Syria with hundreds of people demonstrating against the government in three towns near the main city of Deraa, but authorities did not use force to quell the latest protests.

  In Japan, smoke and steam rose from two of the most threatening reactors at Japan's quake-crippled nuclear plant on Tuesday, suggesting the battle to avert a disastrous meltdown and stop the spread of radiation was far from won. [ID:nL3E7EL23A]

  Away from the plant, mounting evidence of radiation in vegetables, water and milk stirred concerns among Japanese and abroad despite officials' assurances that the levels were not dangerous.

  Japan will allow the release of an additional 22 days worth of crude oil from privately held reserves, the trade ministry said. The trade ministry had already allowed the release of 1.26 million kilolitres from reserves, or three days worth of demand, last week. [ID:nLHE7EF00I]

  Also supportive to products values were analyst expectations that weekly reports on U.S. oil inventories will show gasoline and distillate stockpiles fell last week. [EIA/S]

  Industry group the American Petroleum Institute will publish inventory statistics for the week ended March 18 on Tuesday, followed by U.S. government data from the Energy Information Administration on Wednesday. (Reporting by Alejandro Barbajosa Editing by Himani Sarkar)

(Adds quotes, details)

  By Ben Blanchard

  BEIJING, March 22 (Reuters) - Japan's devastating earthquake will have a limited impact on bilateral trade between China and Japan as the Japanese economy will bounce back quickly, the Chinese Commerce Ministry said on Tuesday.

  China was Japan's biggest trading partner and export destination as of the end of last year. In 2010, bilateral trade between China and Japan totalled $303.06 billion, according to ministry data.

  " The disaster-hit northeastern part of Japan accounts for a substantial proportion of GDP, about 8 percent of Japan's total," ministry spokesman Yao Jian told a news briefing.

  " At the same time this area has a concentration of several electronics, automobile and petrochemical industries. These products contribute quite a lot to China's trade volumes. So in the short term there will be an impact on bilateral trade."

  Imports from Japan such as integrated circuits, raw steel materials and auto parts will be affected, he said.

  But Yao said the impact on bilateral trade will be limited as " Japan's economy will bounce back quickly" .

  He added that Chinese companies and Japanese manufacturers in China could turn to domestic supplies.

  " Inventory is sufficient to guarantee normal production," Yao said. " Japanese companies in China can also find producers domestically to make up (supplies) to bolster production."

  China's exports to Japan such as apparel, commodities and electronics will also be affected, but this will only be for a limited time, Yao added.

  Japan faces a mammoth disaster relief and reconstruction effort after its worst-ever earthquake triggered a tsunami that devastated the country's northeastern coast, killing thousands and spawning a severe nuclear crisis.

  The government, which has been juggling relief work with a race to avert a catastrophic meltdown at a crippled nuclear plant, has yet to estimate the damage or say how much it may spend on reconstruction and where it will find the money.

  Economists are certain the cost will exceed that of the 1995 earthquake in Kobe, estimated at $100 billion.

  Yao would not be drawn on the impact on Chinese imports of Japanese food. China has tightened checks after Japan found higher than normal levels of radiation in some food products.

  " China imports very little Japanese food," he said, adding his ministry was not in charge of safety checks.

  China imported $593 million in agricultural products from Japan last year, accounting for just 0.33 percent of Japan's total exports to China.

  Yao also said the political unrest in Libya was having a big impact on Chinese investments in the oil-rich nation.

  He said the return of most Chinese working there due to the instability in Libya had hurt ongoing investments and operations, adding that China has 50 projects worth $18.8 billion in Libya. (Additional reporting by Huang Yan, Writing by Sui-Lee Wee and Sugita Katyal)

* Rio iron ore chief says cyclones, Japan disaster hitting sector

  * Says too early to determine full impact of Japanese crisis

  * Eyes early start to massive Guinea iron ore mine (Adds details, quotes)

  By James Regan and Rebekah Kebede

  PERTH, March 22 (Reuters) - Iron ore supplies remain scarce as markets begin to realise the huge scale of reconstruction required in quake-hit Japan, but prices are dropping as demand shrinks on tightening moves by top consumer China, global miner Rio Tinto said.

  The damage from the massive earthquake and tsunami in Japan held wide implications for the mining sector, Sam Walsh, Rio Tinto's iron ore division chief, told an industry conference.

  " The impact of the Japanese earthquake and tsunami have been many and diverse and they affect us," Walsh said on Tuesday. " Some steel mills have suspended operations and suppliers of heavy equipment, such as Hitachi, have been impacted."

  He said that large plants, including ones operated by General Motors were running out Japanese component parts.

  " There is a large reconstruction ahead, the magnitude of which is only just being realised," Walsh said.

  Demand for iron ore and steel is expected to rebound when Japan starts rebuilding everything from homes to power plants and analysts say Japan's steel capacity, at more than 130 million tonnes, can support the reconstruction.

 

  < ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

  Japan disaster in figures: http://link.reuters.com/ser58

 

  Japan steel exports, markets:http://link.reuters.com/bes58r

  Iron ore prices: http://link.reuters.com/vum68r

  ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

 

 

  Spot iron ore prices < .IO62-CNI=SI> have lost 15 percent since hitting record highs in mid-February as slow steel demand in China, the biggest producer and consumer, curbed buying.

  Worries that disruptions in steel production in Japan would cut demand from the world's second-biggest buyer of the raw material in the near term pushed prices even lower.

  Walsh said Rio Tinto's first-quarter iron ore production would be hit by a string of cyclones that lashed its mining operations in Australia last month.

  " We have only just regained momentum and our quarterly production report will highlight the impact," he said.

 

  EXPANSION SETBACK

  Rio Tinto mines 225 million tonnes of iron ore annually, mostly in the Pilbara region of Australia, making it the world's no. 2 producer behind Brazil's Vale .

  Australia's other big iron ore miners are BHP Billiton , and Fortescue Metals Group .

  Those companies are also expected to show production was curtailed by the storms, which flooded rail lines and forced ports to suspend operations.

  The majority of the iron ore mined in the Pilbara is shipped to China, followed by Japan and South Korea.

  Walsh later told reporters Japan's disaster could set back some of Rio Tinto's expansion plans if access to mining equipment, such as heavy machinery and truck tyres, became difficult.

  Fortescue, for its part, said its expansion plans were on track as it buys very little mining equipment from Japan.

  Until recently, Japan was the largest buyer of Australian ore, but has been supplanted by China.

  Walsh painted a bright future for iron ore producers, saying the outlook warranted spending billions of dollars to expand mines in Australia and build new ones in Africa and India.

  The company's Simandou iron ore mine project in Guinea -- touted by Rio Tinto as the single largest iron ore mine -- would be developed ahead of the current end-2015 target date if infrastructure restraints such as rail line construction could be overcome, according to Walsh.

  The mine will have capacity to yield about 95 million tonnes of iron ore a year, he said.

  Countering Walsh's positive outlook, Citibank analyst Daniel Hynes forecast the global iron ore market was headed for oversupply over the next few years and would see a 100-million tonne surplus by 2015.

  The surplus would result from large production increases by Rio Tinto and other miners, he said. (Additional reporting by Manolo Serapio Jr. in Singapore)

* Nikkei up over 3 pct, down around 7.5 pct since quake

  * Up close to 4 pct at intraday high, futures also firm

  * Yen around 81 per dollar, market on intervention watch

  * Asia shares edge up, U.S. stocks gain 1.5 pct on M& A

  * Oil rises on Middle East supply worries (Adds details on Nikkei average)

  By Alex Richardson

  SINGAPORE, March 22 (Reuters) - Japanese stocks jumped nearly 4 percent on Tuesday amid reports of progress in stabilising an earthquake-damaged nuclear plant, and the yen was broadly weaker on the prospects for further intervention by major central banks.

  Shares elsewhere in Asia posted modest gains, after bouncing on Monday when Tokyo markets were closed for a holiday. Support came from U.S. stocks, which were buoyed on Monday by AT& T's move to buy Deutsche Telecom .

  " People are getting a bit more relaxed, the Japan situation seems to be getting under control and it is a case for rebuilding now," said Martin Angel, a dealer at Patersons Securities in Australia.

  Oil prices edged up, following a 1 percent rise in the previous session as widening unrest in the Middle East intensified fears of supply disruptions.

  Gold also edged higher supported by a weak dollar and violence in the Middle East that boosted its safe-haven appeal.

 

  MSCI's index of Asia-Pacific shares outside Japan rose 0.3 percent, bolstered by arise in the Dow Jones industrial average and broader S& P 500 of 1.5 percent.

  Tokyo's Nikkei share average rose close to 4 percent in early dealings before edging back to stand up over 3 percent. Nikkei futures traded in Osaka and Chicago posted similar gains.

  " Global value funds together with long-only investors are piling right in the middle of the index today, chasing big, liquid stocks attracted by cheap valuations," said Tetsuro Ii, CEO of Commons Asset Management.

  The Nikkei is trading at a price-to-book ratio of 1.1, appealing to value investors , compared with 2.2 for the U.S. benchmark S& P 500, Thomson Reuters Starmine data shows.

  The Nikkei is down around 7.5 percent from its close on March 11, the day northeastern Japan was struck by a 9.0 magnitude earthquake and a 10-metre tsunami that left at least 21,000 people dead or missing and crippled a nuclear power plant.

  On Tuesday, technicians working inside an evacuation zone around the stricken plant 240 km (150 miles) north of Tokyo had managed to attach power cables to all six reactors and start a pump at one of them to cool overheating nuclear fuel rods.

  But rising smoke and haze from two of the most threatening reactors suggested the battle to avert a disastrous meltdown was far from won, and mounting evidence of radiation in vegetables, water and milk stirred more concerns about the long-term impact.

 

  DEFENCELESS DOLLAR

  The yen traded around 81.00 per dollar and it eased against the euro to around 115.20.

  Last week, expectations insurance firms and others would repatriate yen to pay for quake reconstruction drove the Japanese currency to a record 76.25 per dollar before the Group of Seven rich nations stepped in on Friday.

  The dollar on Tuesday skidded as investors embraced leveraged risk trades in stocks and commodity-linked currencies such as the Australian dollar .

  The euro rose to highs not seen since November at $1.4240 , while the dollar index broke down through support at 75.631, the low hit in the aftermath of the Federal Reserve's second round of quantitative easing.

  " Though much of the focus has been on JPY and the chances of further coordinated intervention, the USD is barely able to defend itself," said David Watt, a senior currency strategist at RBC Capital Markets.

  Benchmark 10-year Japanese government bond futures fell 0.27 point to 139.47, while the 10-year yield edged up 0.4 basis point to 1.245 percent.

  " I expect the 10-year JGB yield will move around 1.2 percent. I was selling JGBs last week but I started to buy a little bit this week," said a fund manager at a U.S. asset management firm.

  " The earthquake is going to have a big impact on the macro economy. We are going to see soft economic data in coming months. Reconstruction demand will not come until a few months later and power shortage is likely to curtail growth."

  U.S. crude oil futures rose 34 cents to $102.67 a barrel and Brent crude rose 20 cents to $115.16. Gold rose to around $1,430 an ounce. (Additional reporting by Hideyuki Sano and Antoni Slodkowski in Tokyo, Wayne Cole in Sydney and Victoria Thieberger in Melbourne)

(Refiles to remove extra dateline)

  BEIJING, March 22 (Reuters) - China plans to include local government finances in its national budget, Finance Minister Xie Xuren said on Tuesday, the latest step in efforts to get to grips with local debt that some analysts see as a risk to economic stability.

  Xie did not provide further details or announce a time frame for the change.

  China's official debt was about 17 percent of gross domestic product at the end of last year, putting it at the low end of debt loads in developing and developed countries. But that does not include hidden debt at the local-government level, which estimates suggest have reached as high as 10 trillion yuan ($1.52 trillion), or another 25 percent of GDP.

  Since acknowledging the problem of local debt last year, China has been trying to cast more light on local government finances, asking banks to fully disclose how much they have lent to provinces and cities.

  " We will establish and improve a pre-warning system on risk associated with local government debt," Xie said, speaking at an Asian Development Bank forum in Beijing. " We will unify local government revenues and expenses in our budgetary system."

  This was an expansion on his comments this month during the annual parliamentary session, when he said the government would account for all expenses and revenues in the national budget.

  Xie also told the forum that China would improve division of the country's revenues between central and local governments, to ensure it was in line with respective expenditures.

  Since reforming the country's tax system in 1994, local governments have received a dwindling share of national revenue, even as their spending obligations have increased. (Reporting by Langi Chiang and Simon Rabinovitch Editing by Chris Lewis) ($1 = 6.565 Chinese Renminbi)

By Mayumi Negishi and Kazunori Takada

  TOKYO (Reuters) - Smoke and steam rose from two of the most threatening reactors at Japan's quake-crippled nuclear plant on Tuesday, suggesting the battle to avert a disastrous meltdown and stop the spread of radiation was far from won.

  The world's worst nuclear crisis in 25 years playing out 240 km (150 miles) north of Tokyo was triggered by a huge earthquake and tsunami on March 11 that left at least 21,000 people dead or missing.

  Technicians working inside an evacuation zone around the stricken Fukushima Daiichi plant on Japan's northeast Pacific coast have attached power cables to all six reactors and started a pump at one of them to cool overheating nuclear fuel rods.

  But Kyodo news agency said steam appeared to be rising from reactor No. 2 and white haze was detected above reactor No. 3. There have been several blasts of steam from the reactors during the crisis, which experts say probably released a small amount of radioactive particles.

  Plant operator Tokyo Electric Power Co (TEPCO) said later the smoke had turned to steam and it was deemed safe to continue work in bringing the plant under control.

  Away from the plant, mounting evidence of radiation in vegetables, water and milk stirred concerns among Japanese and abroad despite officials' assurances that the levels were not dangerous.

  TEPCO said radiation was found in the Pacific Ocean nearby , not surprising given rain and the hosing of reactors with seawater. Some experts said it was unclear where the used seawater was ultimately being disposed.

  Radioactive iodine in the sea samples was 126.7 times the allowed limit, while caesium was 24.8 times over, Kyodo said. That still posed no immediate danger, TEPCO said.

  " It would have to be drunk for a whole year in order to accumulate to one millisievert," a TEPCO official said, referring to the standard radiation measurement unit. People are generally exposed to about 1 to 10 millisieverts each year from background radiation caused by substances in the air and soil.

  Japan has urged some residents near the plant to stop drinking tap water after high levels of radioactive iodine were detected. It has also stopped shipments of milk, spinach and another vegetable called kakina from the area.

  Experts say readings are much lower than around Chernobyl after the 1986 accident in Ukraine.

  The World Health Organisation (WHO) said the radiation impact was more serious than first thought, when it was expected to be limited to 20-30 km (12-19 miles) from the plant.

  However, WHO regional spokesman Peter Cordingley told Reuters there was no evidence of contaminated food reaching other countries.

  Japan is a net importer of food but it also exports fruit, vegetables, dairy products and seafood, with its biggest markets in Hong Kong, China and the United States.

  China said it was monitoring food imports from Japan and South Korea is expanding inspection of Japanese food. Australia's food regulator said the risk was negligible and no extra restrictions on Japanese food were in place.

  Despite the concerns about elevated radiation readings, Japan said there was no need to extend a 20-km (12-mile) evacuation zone around the plant.

  More than 170,000 people have been moved out of the zone since the 9.0 magnitude earthquake and 10-metre (30-ft) tsunami smashed into the nuclear complex.

  " At the moment, there is no need to expand the evacuation area," Chief Cabinet Secretary Yukio Edano told a briefing.

  Latest available readings from an area 10 km (6 miles) outside the evacuation zone show a level of 110 microsieverts per hour in the air, well below a level that would cause health risks but much higher than normal background levels.

  " We will have to monitor these levels carefully, but this of course does not cause harm to anyone's immediate health, and will not damage anyone's health in the future," Edano said.

  PLANT SITUATION MAY BE STABILISING

  Experts have offered a glimmer of hope in Japan's darkest time since World War Two, saying the situation appeared to be improving at the Fukushima plant, especially after more advances than setbacks in the past 48 hours.

  " Things are beginning to trend in the right direction. TEPCO will need to get electrical power back on line to all six reactors and they will have to make sure that components are working," said Mark Prelas, director of research for the Nuclear Science and Engineering Institute at the University of Missouri.

  The priority on Tuesday will be patching up the No. 2 reactor so electricity, already connected, can be turned on. By Tuesday morning, reactor No. 1 was receiving power and No. 5 had both electricity and working cooling pumps.

  Toshiba said it had sent 100 engineers to help.

  The U.S. Nuclear Regulatory Commission said the crisis appeared close to stabilising.

  The prospects of a nuclear meltdown in the world's third-biggest economy -- and its key position in global supply chains, especially for the automobile and technology sectors -- rattled investors worldwide last week and prompted rare joint currency intervention by the G7 group of rich nations.

  Tokyo stocks were up at more than 3 percent in the early afternoon after a holiday on Monday, following a rise in global stocks as progress in the nuclear crisis revived risk appetite. The yen slid on speculation of more G7 intervention.

  Damage from the earthquake and tsunami is estimated at $250 billion (153 billion pounds), making it the world's costliest natural disaster.

  DEVASTATED NORTH

  The official death toll exceeded 9,000, Kyodo cited police as saying, but with 12,654 reported missing it is certain to rise.

  Police say more than 15,000 people probably died in Miyagi prefecture, one of four that took the brunt of the tsunami.

  The quake and tsunami obliterated towns, which are now wastelands of mud and debris, leaving more than 350,000 people homeless.

  Japanese are famed for resilience, though, and there was none of the chaos or looting that major disasters often spark.

  In one devastated northern town, Rikuzentakata, rebuilding has begun. Steel structures, with walls and wood floors, have been erected at a hilltop school, to provide temporary housing.

  There is widespread admiration for the workers facing high radiation dosages on the front line at Fukushima. Some have wept with tension and relief after finishing their shifts.

  (Additional reporting by Paul Eckert in Tokyo, Jon Herskovitz and Chisa Fujioka in Kamaishi, Sui-Lee Wee in Beijing Jungyoun Park in Seoul, Alister Doyle in Oslo, Scott DiSavino in New York and Kate Kelland in London Writing by Rob Birsel and Jason Szep Editing by John Chalmers and Dean Yates)

TOKYO (Reuters) - Following are main developments after a massive earthquake and tsunami devastated northeast Japan and crippled a nuclear power station, raising the risk of uncontrolled radiation.

  - Japan's Trade Minister says it is hard to say the situation around the quake-stricken Fukushima Daiichi nuclear plant is heading in a safe direction as steam appeared to be rising on Tuesday from the plant's reactor number 2 and a white haze was rising from reactor number 3.

  * Tokyo Electric Power Co (TEPCO), operator of the stricken Fukushima plant, says the steam from the reactors is not problematic and it has resumed work on restoring power to reactors Nos. 1, 2, 3 and 4.

  - The World Health Organisation says the detection of radiation in food is a more serious problem than first expected, and food contamination is not a localised problem. It says, however, there is no evidence of contaminated food from Fukushima reaching other countries.

  - TEPCO says a small trace of radiation had been found in the Pacific sea waters nearby, but officials stressed the levels were minute and posed no immediate danger.

  - China and South Korea say they will toughen radioactivity tests on imports of Japanese food, and Japan tells four prefectures near the nuclear plant to halt shipments of spinach.

  - Government also bans milk shipments from Fukushima province.

  - Government says Japanese food produced outside the nuclear crisis zone is safe.

  - Official death toll from earthquake and tsunami 8,450 with 12,931 missing. Police say more than 15,000 feared dead in Miyagi prefecture alone.

  - The U.N. atomic agency chief said on Monday that Japan's nuclear situation remained very serious but that he had no doubt the country would " effectively overcome" the crisis.

  - Japan's nuclear safety agency says it sees risk of radioactive dust being inhaled by workers at Fukushima Daiichi nuclear power plant, but there are no signs that has happened yet.

  - Firefighters postponed spraying Japan's badly damaged nuclear reactor No. 3 with seawater on Monday after a plume of grey smoke was seen over the structure, the government says.

  - Engineers have re-established power cables to all six reactors.

  - If engineers are unable to cool the reactor, the last option would be entombing the plant with concrete and sand to prevent a catastrophic radiation leak, the method used at Chernobyl in Ukraine in 1986.

  - Tests detect radiation above the national safety level in spinach and milk produced near the Fukushima plant. A sample of tap water from Tokyo shows a tiny level of radioactive.

  - The health ministry said that radiation levels exceeded safety standards in Fukushima and nearby Ibaraki prefecture. It said it had prohibited the sale of raw milk from Fukushima prefecture.

  - The earthquake and tsunami will depress growth briefly before reconstruction kicks off and gives the beleaguered economy a boost, the World Bank says in a report.

By Maria Golovnina and Michael Georgy

  TRIPOLI (Reuters) - Anti-aircraft fire rang out across Tripoli for a third night on Monday, but air attacks on Libya are likely to slow, a U.S. general said, as Washington holds back from being sucked into the Libyan civil war.

  State television said several sites had come under attack in the capital. Western powers had no confirmation of fresh strikes in a U.N.-mandated campaign to target air defences, enforce a no-fly zone and protect civilians from Muammar Gaddafi's forces.

  Rebels, who had been driven back towards their eastern Benghazi stronghold before the air attacks halted an advance by Gaddafi's forces, have so far done little to capitalise on the campaign -- raising fears the war could grind to a stalemate.

  But Washington, wary of being drawn into another war after long campaigns in Iraq and Afghanistan, has ruled out specific action to overthrow Gaddafi, though France said on Monday it hoped the Libyan government would collapse from within.

  " My sense is that -- that unless something unusual or unexpected happens, we may see a decline in the frequency of attacks," General Carter Ham, who is leading U.S. forces in the Libyan operation, told reporters in Washington.

  President Barack Obama, facing questions at home about the United States military getting bogged down in a third Muslim country, said Washington would cede control of the Libyan operation in days.

  " We anticipate this transition to take place in a matter of days and not in a matter of weeks," Obama told a news conference during a visit to Chile.

  He did not spell out which nation or organisation would take charge, but Britain and France took a lead role in pushing for the intervention in Libya. The missile strikes have already been extensive enough to have destroyed much of Libya's air defences.

  Libyan state television reported that several sites in Tripoli had been subject to new attacks by what it called the " crusader enemy." " These attacks are not going to scare the Libyan people," said a state television broadcast.

  Anti-aircraft gunfire rang out throughout the night and pro-Gaddafi slogans echoed around the city centre. Cars sped through Tripoli streets honking wildly.

  Al Jazeera television said radar installations at two air defence bases in eastern Libya had been hit. However, a French armed forces spokesman said France, which has been involved in strikes in the east, had no planes in the air at the time.

  Meanwhile, residents in two besieged rebel-held cities in western Libya, Misrata and Zintan, said they had been attacked by Gaddafi's forces. Security analysts have said they believe government troops will try to force their way into civilian areas to escape attack from the air.

  In Misrata, residents said people had gone out into the streets to try to stop Gaddafi's forces entering the city.

  " When they gathered in the centre, the Gaddafi forces started shooting at them with artillery and guns," said the resident, who gave his name as Saadoun. He said nine people were killed.

  Zintan, near the Tunisian border, faced heavy shelling, two witnesses said, forcing residents to flee to mountain caves. Several houses were destroyed and a mosque minaret destroyed.

  " New forces were sent today to besiege the city. There are now at least 40 tanks at the foothills of the mountains near Zintan," Abdulrahmane Daw told Reuters by phone from the town.

  The reports could not be independently verified.

  DIPLOMATIC SETBACK

  The United States and its allies have run into some criticism for the intensity of the firepower it unleashed on Libya, including more than 110 Tomahawk missiles on Saturday.

  Arab League chief Amr Moussa, who backed the U.N. resolution supporting military intervention, has questioned the methods used, while Russian Prime Minister Vladimir Putin compared the air campaign to " medieval crusades."

  Libyan rebels have welcomed the air strikes and say they are coordinating with the Western powers launching air strikes.

  But there was little sign at the vanguard of battle in east Libya that this communication extended to forward rebel units.

  Western powers say they are not providing close air support to rebels or seeking to destroy Gaddafi's army, but rather only protecting civilians, as their U.N. mandate allows, leaving disorganised rebel fighters struggling to make headway.

  " If we don't get more help from the West, Gaddafi's forces will eat us alive," rebel fighter Nouh Musmari told Reuters.

  Security analysts say it is unclear what will happen if the Libyan leader digs in, especially since Western powers have made clear they would be unwilling to see Libya partitioned between a rebel-held east and Gaddafi-controlled west.

  " There is still a real risk of a protracted stalemate, with neither side wanting to negotiate. So the endgame remains very unclear," said Jeremy Binnie, a senior analyst with IHS Jane's.

  British Prime Minister David Cameron said the operation would not drag into another Iraq-style conflict.

  " This is different to Iraq. This is not going into a country, knocking over its government and then owning and being responsible for everything that happens subsequently," Cameron said during a parliamentary debate on Libya.

  " This is about protecting people and giving the Libyan people a chance to shape their own destiny," he said.

  In an appearance on Libyan television on Sunday, Gaddafi promised his enemies a " long war."

  GADDAFI NOT TARGETED, WEST SAYS

  Officials in Tripoli said that one missile on Sunday, which they said was intended to kill Gaddafi, had destroyed a building in his compound, heavily bombed in 1986 by the United States.

  " It was a barbaric bombing," said government spokesman Mussa Ibrahim, showing pieces of shrapnel that he said came from the missile. " This contradicts American and Western (statements) ... that it is not their target to attack this place."

  A Libyan government spokesman also said that foreign attacks had killed many people by bombing ports and Sirte airport.

  " You saw that place (Sirte airport)," Mussa Ibrahim told a news conference. " It's a civilian airport. It was bombarded and many people were killed. Harbours were also bombarded."

  Cameron said there were no plans to target Gaddafi. " The U.N. resolution is limited in its scope, it explicitly does not provide legal authority for action to bring about Gaddafi's removal from power by military means," he told parliament.

  " We will help fulfil the U.N. Security Council (resolution), it is for the Libyan people to determine their government and their destiny, but our view is clear, there is no decent future for Libya with Colonel Gaddafi remaining in power."

  French Foreign Minister Alain Juppe said he hoped Libyans themselves would topple Gaddafi: " When will the regime collapse? It is quite possible that, given the weakness of the regime, it will break up from within."

  (Reporting by Mohammed Abbas and Angus MacSwan in Benghazi, Maria Golovnina and Michael Georgy in Tripoli, Hamid Ould Ahmed and Christian Lowe in Algiers Tom Perry in Cairo, John Irish in Paris, Missy Ryan in Washington, Matt Spetalnick in Rio de Janeiro Writing by Myra MacDonald Editing by Alison Williams)