By Alan Wheatley, Global Economics Correspondent

  BEIJING (Reuters) - The earthquake that devastated northeast Japan displaced the country's main island by 2.4 metres and even tilted the axis of the Earth by nearly 10 centimetres. The shock sounds awesome but it was imperceptible. History suggests the same will be true of the economic impact.

  The instinctive reaction when viewing the extensive damage and frantic efforts to secure damaged nuclear reactors is to assume economic havoc will follow.

  But researchers who have studied similar disasters in rich countries reach a reassuring conclusion: human resilience and resourcefulness, allied to an ability to draw down accumulated wealth, enable economies to rebound quickly from what seem at first to be unbearable inflictions - be it the September 11, 2001, attacks on New York or Friday's 8.9-magnitude earthquake, the worst in Japan's history.

  Japan itself provides Exhibit No. 1 in foretelling the arc of recovery. A 6.8-magnitude temblor struck the western city of Kobe on January 17, 1995, killing 6,400 people and causing damage estimated at 10 trillion yen, or 2 percent of Japan's gross domestic product.

  The importance of Kobe's container port, then the world's sixth-largest, and the city's location between Osaka and western Japan made it more significant for the economy than the more sparsely populated region where the latest quake and tsunami struck. Extensive disruption ensued, yet Japan's industrial production, after falling 2.6 percent in January 1995, rose 2.2 percent that February and another 1.0 percent in March. GDP for the whole of the first quarter of 1995 rose at an annualised rate of 3.4 percent.

  " Despite the scale of the disaster, it is hard to find much evidence in the macroeconomic data of the effects of the Kobe earthquake," said Richard Jerram, chief Asian economist at Macquarie in Singapore and a veteran Japan-watcher.

  Indeed, Takuji Okubo, chief Japan economist at Societe Generale in Tokyo, noted that Japan's economy grew by 1.9 percent in 1995 and 2.6 percent in 1996, above the country's trend growth rate at the time of 1.5 percent. Private consumption, government spending and, especially, public fixed investment all grew above average in 1995 and 1996, Okubo said in a report. By analogy, the medium-term impact on growth from the latest quake was also likely to be positive, he said.

  Today's circumstances are, of course, different. Japan's economy has floundered in the intervening 16 years and its public finances have deteriorated. On paper, the country, is perhaps less well prepared at this stage of the economic cycle to pick itself up off its feet.

  But Mark Skidmore, an economics professor at Michigan State University, attaches greater importance to a rich society's capacity to constantly adapt to the risks it faces. In the case of Japan, prone to regular earthquakes, this means improving its disaster response systems and adopting the latest techniques to help buildings withstand shocks.

  Most of the damage wrought in Japan was by the ensuing tsunami, for which there was no time to prepare, and not by collapsing buildings - even though the quake was 1,000 times more powerful than the Kobe one.

  " We don't know yet how devastating this is going to be economically, or even in terms of human casualties, but Kobe was able to rebound very quickly and I think there is the same potential here," Skidmore said in a telephone interview.

  Skidmore and Hideki Toya from Nagoya City University in Japan have examined data for 151 countries over the period 1960-2003 and found that countries with higher levels of income, education and financial development suffer fewer losses from a natural disaster. Other researchers have reached similar conclusions.

  " As incomes rise in a society, you can devote more resources to safety. So economies that have relatively high exposure to earthquakes or hurricanes start taking the precautions they need. Japan is among the best prepared in the world because they have high exposure and high income," Skidmore said.

  OPENNESS TO TRADE

  Countries with an openness to trade are also better able to cope with disasters because they create supply chains as well as commercial and diplomatic relationships that prove to be important. A well-oiled, well-financed government that can spring into action and limit the spillovers of the disaster is also crucial. This bodes well for Japan.

  " They have the resources. They have the social and economic and government infrastructure to effectively utilise the resources that may come in from outside as well as internally. They can focus not just insurance but also government assistance to respond effectively," Skidmore said.

  Another U.S. academic who has studied the lessons from Kobe, the late George Horwich of Purdue University, noted that media reports said it could take the city as long as a decade to recover. In the event, within 15 months manufacturing in Kobe was at 98 percent of its pre-disaster trend imports had fully recovered within a year and exports were back at 85 percent capacity and 79 percent of shops had reopened by July 1996.

  " Natural disasters in large advanced economies tend not to significantly reduce current aggregate output or induce an associated rise in the general price level. In geographically dispersed economies, disasters are almost always localised events. But in any economy, it is the capital stock, not output, that is directly reduced by the disaster," he wrote in a paper published in 2000.

  Horwich concluded that physical capital is the most visible contributor to economic recovery but human capital is the dominant economic resource. And Japan has that in spades.

  " Destroy any amount of physical capital, but leave behind a critical number of knowledgeable human beings whose brains still house the culture and technology of a dynamic economy, and the physical capital will tend to re-emerge almost spontaneously," he said.

  The 2008 earthquake in the western Chinese province of Sichuan, which killed nearly 90,000 people, is in line with the academic finding that strong institutions and human capital are central to the process of recovery.

  As a developing country, China had not made enough buildings earthquake-resistant. Many schools crumbled. Yet the ruling Communist Party mobilised vast resources for rescue, relief and reconstruction. As a result, according to a government think tank, the disaster actually added an estimated 0.3 percentage point to China's GDP growth in 2008. Less than three years on, the office charged with reconstruction has been disbanded, its work complete, an official said on Sunday.

  Compare and contrast with Haiti, the most impoverished country in the Western Hemisphere. The 7.0 magnitude quake that struck on January 12, 2010, was much less powerful than that in Japan, but it killed at least 250,000 people, injured 300,000, left 1.5 million homeless and wrecked large parts of the capital, Port-au-Prince.

  With weak finances and no emergency fund to tap, Haiti's economy slumped at least 5 percent last year, and the release of billions of dollars in international aid has been too slow to settle the homeless and get basic services running again, let alone spur an economic recovery. A cholera epidemic and political instability over contested elections reflect the failures of reconstruction efforts and in turn have made recovery even more difficult.

  Haiti's woes confirm the findings of numerous researchers that poverty, high unemployment, limited access for the poor to basic services and a lack of strong national and local institutions amplify the economic blow of natural disasters.

  " The impacts of natural disasters on society and the environment are substantially greater in less developed countries," according to a paper by Reinhard Mechler, who heads the research group on disasters and development at the International Institute for Applied Systems Analysis near Vienna.

  INDIAN OCEAN TSUNAMI

  Another case in point is Aceh, at the northern tip of the Indonesian island of Sumatra, which bore the brunt of the Indian Ocean tsunami of December 26, 2004.

  Of the 230,000 people killed by the speeding, towering waves, 167,000 were from Aceh, which suffered total damage of about $4.5 billion. A big relief effort was launched, but more than two years later a report from the Asian Development Bank Institute said key reconstruction targets had not been met and coordination among the many government agencies and international donors was poor.

  With Aceh accounting for just 2 percent of Indonesia's economy, the catastrophe was not enough to move the needle of the country's GDP. But, as with Haiti, the shortcomings of the region's recovery stood In stark contrast to the experience in Kobe.

  After the initial loss of output, disasters in advanced economies do not invariably result in a boost to economic activity.

  Gus Faucher, director of macroeconomics at Moody's Economy.com, a consultancy, has cited the aftermath of Hurricane Katrina, which devastated New Orleans in 2005: the city did not experience an economic bounce because so many residents left, government aid was slow to arrive and insurance payments were low.

  But, as a rule of thumb, reconstruction jobs and the influx of emergency assistance apply balm to an economy's wounds. Take the 6.7 magnitude Northridge quake near Los Angeles in 1994 that killed 57 people, injured 9,000 and resulted in about $40 billion in property damage.

  Daniel Blake, an economics professor at California State University Northridge, found a year later that the $18 billion in aid and insurance payments made by the federal government actually jump-started the area's fragile economy after four years of recession.

  And after the 1989 Loma Prieta earthquake, which severely damaged major roads around the San Francisco Bay, an official estimate put the Bay Area's lost economic output at between $181 million and $725 million, a fraction of its 1989 gross regional product of $174 billion. Indeed, the California Trade and Commerce Agency later found that the Bay Area even managed to do better than many parts of the state in weathering the early 1990s recession.

  A more recent example is that of Chile, where 500 people died in an 8.8 magnitude quake in February 2010 that caused an estimated $30 billion hit to the economy due to damaged infrastructure and property and lost productivity.

  Both the government and central bank trimmed their growth outlooks after the quake, estimating it could shave around 0.25 to 0.5 percentage point off annual growth. But the economy grew about 5.2 percent in 2010, within the original range of projections. With the state only halfway through its rebuilding programme, GDP growth this quarter is likely to accelerate to around 8 percent.

  " The impact of reconstruction on growth is becoming stronger as time goes on," said Finance Minister Felipe Larrain, who financed an $8.4 billion recovery package with a mix of bond issues, higher royalties levied on mining companies and savings from a boom in copper, Chile's principal export.

  So what does all this mean for Japan?

  Pete Wilson, California's governor at the time of the Northridge quake in 1994, says it was important to cut through red tape. By waiving the requirement for environmental impact hearings and setting incentives for building contractors, Wilson told Reuters he managed to reopen Interstate 10, then the world's busiest road, in just over two months. Some had feared it would take two years.

  Chile's experience shows that a government is perfectly justified in resorting to deficit spending to cushion a natural disaster because of the shot in the arm it delivers to the economy, said Alfredo Coutino, Latin America director for Moody's Analytics.

  " If one lesson can be learned from Chile's case, it is that Japan's government has to make a quick move in terms of implementing the reconstruction with a variety of funding sources: issue debt, reallocation of public resources, and international aid," he said.

  Japan's problem is that its gross public debt, equal to about twice GDP, is already the heaviest in the world. With an ageing population posing an ever-growing burden on Japan's public finances, rating agencies have sounded the alarm and warned of possible downgrades unless politicians bury the hatchet and come up with a plan to reduce the debt over the medium term.

  " The earthquake should lead to somewhat expansionary fiscal policy. However, due to its already large deficit, it is unlikely that the Japanese government would plan a large scale fiscal stimulus," said Okubo, the Societe Generale economist.

  YEN WILD CARD

  The reaction of the yen in coming weeks is another wild card in assessing the impact on Japan's economy. The Bank of Japan, which meets on Monday, is widely expected to pledge as much money as needed to prevent the repercussions of the quake from destabilising financial markets and the banking system.

  Economists also expect the central bank will signal its readiness to ease monetary policy further -- even though its policy rate is already near zero -- if the damage from the quake threatens Japan's fragile economic recovery.

  That prospect would normally weaken the yen, but economists are keenly aware that the Japanese currency gained sharply in the weeks after the Kobe catastrophe. It rose from 96 per dollar in late February and briefly punched through 80 to an all-time high on April 19, 1995, before reversing course after the BOJ cut interest rates.

  Trade tensions with the United States were a driving force in 1995 and are absent today. A rush to bring capital back to Japan, especially by insurers anticipating large claims, was also a factor post-Kobe and could be again. But Jerram, the Macquarie economist, doubted that history would repeat itself.

  " Significant yen repatriation that could push the currency higher and, at an extreme, disrupt global markets, looks unlikely," he said.

  Another " known unknown" is whether serious damage to the Fukushima Daiichi nuclear plant will cause countries including Britain, China and Italy to reappraise plans to boost investment in nuclear power. If they do, it would be logical to expect higher oil, natural gas and coal prices.

  " A serious accident like that will have repercussions in all countries with nuclear," Bertrand Barre, scientific adviser to French nuclear reactor maker Areva, told Reuters.

  If there are clear lessons, we will apply them. We need to take time to work out the consequences and act.

  Japan's earthquake is just the latest in a series of unwanted shocks for the world economy, which is still far from having shaken off the fallout of the 2008 global financial crisis. Political turmoil in North Africa has reduced oil supplies from Libya and raised the spectre of wider disruptions to deliveries from the Middle East.

  Food prices have climbed to record highs. The euro zone debt crisis is far from over, with bond yields for Greece, Ireland and Portugal at seemingly unsustainable levels. Policy makers in the main economies who have slashed interest rates close to zero and run up huge budget deficits would appear to have little ammunition left to fire if consumer, business and investor confidence takes a dive because of Japanese quake.

  But economists at J.P. Morgan said it was important to bear in mind that most, if not all of these shocks will prove to be temporary and are unfolding against a backdrop of very strong fundamental supports for growth, including booming industrial production, improving labour markets and a 17 percent rise in global share prices since September.

  The bank has recently trimmed its forecasts for the United States and the euro zone but its projection for global growth in the first half of 2011 remains at a rate of 3.7 percent, which is 1 percentage point above trend.

  " Put differently, the shocks to date would have to magnify considerably to push global growth below this trendline." the J.P. Morgan economists said in their latest Global Data Watch publication.

  (Additional reporting by Braden Reddall in San Francisco, Simon Gardner in Santiago and Kieron Murray in Mexico City)

By Mohammed Abbas

  AJDABIYAH, Libya (Reuters) - Rebels fighting the forces of Muammar Gaddafi in the east of Libya retreated from the oil town of Brega on Sunday after heavy bombardment delivered government forces another battlefield success.

  " The rebels have left Brega. It is evacuated," said 33-year-old anaesthesiologist Osama Jazwi. At about 10:30 a.m. (0830 GMT) the bombardment started. " We saw, it was on the main gate," Jazwi told Reuters by telephone.

  Abdul Hakim, also a resident of the bombarded town, told Reuters that the rebels had left. There were no details of the Gaddafi forces attack immediately available.

  Earlier, Libyan television had said that the rebels had retreated. " Brega has been cleansed of armed gangs," a military source was quoted on Libyan state TV as saying.

  At the nearby town of Ajdabiyah, retreating rebel soldiers were demoralised.

  " He's out of Brega. He's on the way, maybe in half an hour his rockets will reach us here," said rebel fighter, Masoud Bwisir, at the western gate of the town.

  " There's no uprising any more," said rebel Nabeel Tijouri, whose heavy machine gun had been destroyed in the fighting. " The other day we were in Ras Lanuf, then Brega, the day after tomorrow they will be in Benghazi." Further east down the strategic coastal road, Gaddafi troops had already pushed rebels from Ras Lanuf after attacking the oil port in an assault pitting tanks and planes against rebels armed with light weapons and machineguns mounted on pick-up trucks.

  " Obama, you can have as much oil as you like just send in the marines to get rid of Gaddafi," said one fighter, who only gave his name as Younis, asking U.S. President Barack Obama for military assistance.

  One senior rebel officer, who declined to be identified, was furious. " These guys won't listen. They are driving me crazy. There's no one in command. We had (the town of) Bin Jawad, but they just wouldn't listen, I'm being driven crazy," he said.

  " The Libyan people need help. We're in danger. The east is in danger," Abdel Hadi Omar, a civilian rebel volunteer, speaking in Ajdabiyah, said.

  " The Libyan people can't cope with Gaddafi's weapons. We have people but we don't have means," he told Reuters.

  Brega had been alive with rumour that Gaddafi forces would be advancing shortly, mounting another overwhelming show of military force. Many families had fled.

  On the outskirts, some rebels had made preparations in armed vehicles to defend the town in this barren landscape dotted with oil terminals that divides the west with Tripoli as its capital from the rebel-held east and Libya's second city of Benghazi.

  WATCHFUL FROM DESERT

  This correspondent had noted that the coastal road appeared thinly protected by rebel soldiers and said in Brega there was a feeling that the town could fall at any moment. Rebels said their soldiers were watchful from positions in the desert.

  " This will be their next target. They will be coming here next," Rafah Farsi, 31, an oil worker and one of the few residents to remain in Brega, said on Saturday night.

  " It saddens me seeing people fleeing their own homes for safety," a tearful Farsi told Reuters. " Ras Lanuf was a residential area and now it's destroyed, why?"

  In the local barber's shop in Brega, a revolutionary poster celebrating the uprising against Gaddafi had been replaced by a poster of the flamboyant and autocratic leader.

  Several customers said they were prepared to welcome Gaddafi forces out of self-preservation rather than loyalty.

  But Ali Zwei, 41, said he would not join them along the streets. " These people have no principles. How can you wave a flag for someone who bombs his own people. If our brothers around Libya can't stand with us now, then when?" he said.

  There was growing support for the scenario that Gaddafi's push east could leave him fighting a prolonged guerrilla war.

  " We don't care how long it takes, five years or 10 years. The gate has been opened," said Bashir Warshfani, 30, a rebel in military fatigues and wearing a keffiyeh.

  " If I die, my brother takes my place, if he dies, my neighbour. Gaddafi will only get this country when he kills us all," he said, lifting his shirt to show the entry and exit wound of a bullet that was freshly bandaged.

  (Reporting by Mohammed Abbas Writing by Peter Millership Editing by Louise Ireland)

TOKYO (Reuters) - Following are main developments after an 8.9 magnitude earthquake that struck northeast Japan on Friday and set off a tsunami.

  - Death toll expected to exceed 10,000 from the quake and tsunami, public broadcaster NHK says. Strong aftershocks persisting in the stricken area.

  - Kyodo reports 10,000 people in one town unreachable.

  - Tokyo Electric Power Company (TEPCO) says radiation levels at the Fukushima Daiichi nuclear power plant, which is 240 km (150 miles) north of Tokyo, have risen above the safety limit but says this posed no " immediate threat" to human health. An explosion blew the roof off at reactor No. 1.

  - Chief Cabinet Secretary Yukio Edano says there is the risk of an explosion at another building housing the No. 3 reactor, although this is unlikely to affect the reactor's core container. He said fuel rods may have been partially deformed but a meltdown is unlikely to have occurred.

  * TEPCO is preparing to put sea water into the No.2 reactor at its Fukushima Daiichi nuclear power plant, Jiji news agency says. TEPCO, Japan's largest electric utility, is already injecting sea water into the No.1 and No.3 units at the plant to cool them down and reduce pressure inside reactor container vessels.

  - Authorities have set up a 20-km (12-mile) exclusion zone around the Fukushima Daiichi plant and a 10 km (6 miles) zone around another nuclear facility close by. Around 140,000 people have been moved from the area, while authorities prepared to distribute iodine to protect people from radioactive exposure.

  - About 300,000 people evacuated nationwide and almost two million households without power in the freezing north, domestic media say.

  - Prime Minister Naoto Kan approves power outage plan by TEPCO that begins on Monday to address power shortage. TEPCO says the rollover blackout to affect three million customers, including large factories of all industries, buildings, households.

  - Meteorologists say the wind will keep blowing from the south, which could affect residents north of the power plant.

  - France recommends its citizens leave the Kanto region that includes Tokyo and six other prefectures in its vicinity, citing the risk of further earthquakes and uncertainty about the situation at its damaged nuclear plants.

  - A Japanese official said there were 190 people within a 10-km radius of the nuclear plant when radiation levels rose and 22 people have been confirmed to have suffered contamination.

  - Nuclear safety agency rates the incident a 4 on the 1 to 7 International Nuclear and Radiological Event Scale, less serious than Three Mile Island, which was a 5, and Chernobyl at 7.

  - Quake triggered tsunami up to 10 metres (30 feet). Waves swept away homes, crops, vehicles and submerged farmland.

  - Bank of Japan to hold policy meeting on Monday. It has extended a total of 55 billion yen to 13 financial institutions in the quake-struck northeast of Japan since Saturday.

  - Japan's ruling and opposition parties to discuss temporary tax rise to fund quake relief, Kyodo news agency says.

  - Toyota Motor Co to suspend operations at all 12 factories on Monday.

  - Total insured loss could be up to $15 billion, equity analysts covering the industry say. Disaster-modelling company AIR Worldwide estimates the insured losses from the Japan earthquake at between $14.5 billion and $34.6 billion.

  - Tokyo Stock Exchange to trade as normal on Monday.

  - Disaster has sent oil, metals, and grain prices sliding on fears over its impact on demand, deepening their biggest decline in months yen rose broadly on risk aversion by Japanese investors and expectations of repatriations by Japan's insurance companies oil prices slide more than $3 a barrel.

By Yoko Kubota

  RIKUZENTAKATA, Japan (Reuters) - A wrecked airplane lies nose-deep in splintered wood from homes in the port of Sendai. An hour's drive away, workers in white masks and protective clothing scan thousands of people for radiation.

  Two days after a ferocious earthquake and tsunami submerged Japan's northeast coast, killing thousands and leaving millions of people without electricity or running water, many are struggling to comprehend the scale of the disaster.

  " Is it a dream? I just feel like I am in a movie or something," said Ichiro Sakamoto, 50, in Hitachi, a city in Ibaraki Prefecture. " Whenever I am alone I have to pinch my cheek to check whether it's a dream or not."

  In Sendai, a city of one million, survivors and rescue workers picked through piles of rubbish mixed with wood and other debris from buildings and homes, searching for belongings and removing bodies.

  Some hoarded supplies. A queue of cars waiting for fuel stretched 2 km (1.2 miles) in Sendai. About 300 people crowded into a supermarket, and about 40 lined up at Circle K Sunkus, a convenience store.

  " There have been tsunami before but they were just small. No one ever thought that it could be like this," said Michiko Yamada, a 75-year-old in Rikuzentakata, a nearly flattened village in far-northern Iwate prefecture.

  " The tsunami was black and I saw people on cars and an old couple get swept away right in front of me."

  Many bodies were discovered under rubble on Sunday in Yamada's village, where about 5,000 homes were submerged, Kyodo News reported. In nearby Otsuchi village, the town office was swept away with the mayor and local officials apparently inside.

  A 60-year-old man was found floating on a piece of roof about 15 km (9 miles) offshore from Fukushima prefecture. Hiromitsu Shinkawa was airlifted and in " good condition" after being swept out to sea with his home, Kyodo said.

  South of Sendai in Koriyama in Fukushima Prefecture, tens of thousands of people evacuated from areas around a crippled nuclear power plant were scanned for radiation exposure.

  Although the government insists radiation levels are low a day after an explosion in the main building of the plant, 240 km (150 miles) north of Tokyo, white-masked workers in protective hats and gowns used handheld scanners to people for radiation.

  " It's quite scary," said 17-year-old Masanori Ono, queuing at one Koriyama evacuation centre.

  About 10,000 people were feared killed by the earthquake. and as many as 20,820 buildings were either destroyed or badly damaged. The death toll could go higher. Local governments had lost contact with tens of thousands of people, Kyodo said.

  NEIGHBOURHOODS SWEPT AWAY

  As the government marshalled 100,000 soldiers in the rescue effort, doubling its earlier number, reports of dramatic losses trickled in.

  A nursing home with 30 elderly residents had been washed away in Ofunato, a small northern coastal city. The town of Minamisanriku was practically flattened. Authorities failed to locate over half its 17,500 people.

  In Rikuzentakata, survivors scrambled to retrieve their belongings, at times clambering over uprooted trees, overturned cars and marooned boats.

  Several Rikuzentakata neighbourhoods were completely gone, creating a vast muddy wasteland with only the sturdiest buildings left intact. Bodies found by rescue workers and soldiers were covered with blankets and marked with wooden sticks with red and yellow flags, waiting to be removed.

  " We cannot fully grasp the extent of the damage," said Futoshi Toba, the village mayor, whose wife is missing. " Water, food, gasoline and kerosene - these are all lacking. We will do our best to secure them."

  Cars were flipped. Mud and wood filled a train station. A family photo stuck out of the muddy ground near one destroyed home. Like many remote, rural Japanese villages, Rikuzentakata was already on decline, its population of 24,500 had been ageing and local industry shrinking.

  " There is no real industry here and the rate of older people is growing while the population has been shrinking," said Tsuneo Onodera, 71. " More young people will leave the city."

  About 1,340 people took refuge at a local shelter overnight in a school in near-freezing temperatures. Inside, people slept curled up in the cold, covered in blankets. Some sat on chairs around heaters, talking with family and friends.

  Worried relatives checked an information board on survivors, some weeping, others whispering and huddling in a group.

  " I am looking for my parents and my older brother," Yuko Abe, 54, said in tears. " Seeing the way the area is, I thought that perhaps they did not make it....I also cannot tell my siblings that live away that I am safe, as mobile phones and telephones are not working."

  About 350,000 people have been evacuated nationwide, including 140,000 from areas near the nuclear plant in Fukushima Prefecture.

  In Tokyo, where many have long feared another powerful earthquake of the scale that killed about 140,000 people in 1923, residents watched seemingly endless televised footage of fires, collapsed buildings and the deadly waves.

  " Even in the bar, we kept staring at the news," said Kasumi, a 26-year-old woman meeting a friend for a drink in the central district of Akasaka on Saturday night. " I looked at the tsunami swallowing houses and it seemed like a film."

  (Additional reporting by Chris Meyers in Sendai. Writing by Jason Szep, editing by Jonathan Thatcher and Mathew Veedon)

By Ange Aboa

  ABIDJAN (Reuters) - Security forces loyal to Ivory Coast's Laurent Gbagbo launched a ground and airborne assault on Saturday to drive fighters backing his rival for the presidency out of a suburb of Abidjan, military officials said.

  The attack was the first time helicopters had been deployed in support of an operation in the Abobo neighbourhood, the site of fighting between the two sides over recent weeks.

  Gbagbo has refused to step down after a November election which Alassane Ouattara won, according to U.N.-certified results. Ensuing violence has claimed several hundred lives and prompted close to half a million Ivorians to flee their homes.

  Officials said several hundred soldiers, some armed with rocket-propelled grenades, were taking part in an operation backed by armoured vehicles and two reconnaissance helicopters.

  " There was firing all over the place around the Plateau-Dokui (a local square) between 1300 and 1400," said Abobo resident Idrissa Diarrassouba. " A child was hit in the hand by a bullet and houses were struck by bullets."

  The latest African Union effort to mediate in the crisis failed this week, adding to fears of a return to civil war in the world's top cocoa grower.

  Allies of Gbagbo, who contends that the results of the poll were rigged, refused to accept an AU proposal for a national unity government led by Ouattara.

  International sanctions such as a ban on European ships using Ivorian ports, together with the near-collapse of the local banking sector, mean supplies of Ivory Coast's cocoa to world markets have virtually dried up.

  U.N. diplomats told Reuters on Friday there were discussions in the U.N. Security Council about setting up an escrow account for Ivory Coast's cocoa revenues that would allow Ouattara to benefit from funding once the trade restarted.

  However, they said it was not clear whether the plan would win sufficient support within the Council, or was practicable given the closeness of many in the local cocoa sector to Gbagbo.

  " Obviously this is what we're all looking at now -- how to get the cocoa money away from Gbagbo so that Ouattara's government can use it," a diplomat said.

  " The one big problem with the idea is that the cocoa suppliers aren't necessarily supporting Ouattara."

  (Additional reporting by Loucoumane Coulibaly in Abidjan and Louis Charbonneau at the United Nations Writing by Mark John Editing by Kevin Liffey)

By Ange Aboa

  ABIDJAN (Reuters) - Security forces loyal to Ivory Coast's Laurent Gbagbo launched a ground and airborne assault on Saturday to drive fighters backing his rival for the presidency out of a suburb of Abidjan, military officials said.

  The attack was the first time helicopters had been deployed in support of an operation in the Abobo neighbourhood, the site of fighting between the two sides over recent weeks.

  Gbagbo has refused to step down after a November election which Alassane Ouattara won, according to U.N.-certified results. Ensuing violence has claimed several hundred lives and prompted close to half a million Ivorians to flee their homes.

  Officials said several hundred soldiers, some armed with rocket-propelled grenades, were taking part in an operation backed by armoured vehicles and two reconnaissance helicopters.

  " There was firing all over the place around the Plateau-Dokui (a local square) between 1300 and 1400," said Abobo resident Idrissa Diarrassouba. " A child was hit in the hand by a bullet and houses were struck by bullets."

  The latest African Union effort to mediate in the crisis failed this week, adding to fears of a return to civil war in the world's top cocoa grower.

  Allies of Gbagbo, who contends that the results of the poll were rigged, refused to accept an AU proposal for a national unity government led by Ouattara.

  International sanctions such as a ban on European ships using Ivorian ports, together with the near-collapse of the local banking sector, mean supplies of Ivory Coast's cocoa to world markets have virtually dried up.

  U.N. diplomats told Reuters on Friday there were discussions in the U.N. Security Council about setting up an escrow account for Ivory Coast's cocoa revenues that would allow Ouattara to benefit from funding once the trade restarted.

  However, they said it was not clear whether the plan would win sufficient support within the Council, or was practicable given the closeness of many in the local cocoa sector to Gbagbo.

  " Obviously this is what we're all looking at now -- how to get the cocoa money away from Gbagbo so that Ouattara's government can use it," a diplomat said.

  " The one big problem with the idea is that the cocoa suppliers aren't necessarily supporting Ouattara."

  (Additional reporting by Loucoumane Coulibaly in Abidjan and Louis Charbonneau at the United Nations Writing by Mark John Editing by Kevin Liffey)

MOSCOW, March 12 (Reuters) - Russia's Prime Minister Vladimir Putin on Saturday said the Sakhalin-2 project will increase liquefied natural gas (LNG) supplies to the tsunami-hit Japan if needed, Russian news agencies reported.

  Putin said he had ordered the LNG deliveries to be increased " if there is such a request" . (Reporting by Vladimir Soldatkin Editing by Louise Ireland)

  2011-03-12 17:23:37

By Stanley White

  TOKYO (Reuters) - Japanese Finance Minister Yoshihiko Noda said on Saturday that it would be hard to compile an emergency budget before the end of March, after a massive earthquake struck Japan the previous day.

  The quake, the most powerful since Japan started keeping records 140 years ago, sparked a powerful tsunami that struck its northeast coast, probably killing at least 1,300 people and damaging two nuclear reactors.

  Japan is already the most heavily indebted major economy in the world, meaning any additional borrowing by the government to pay for repairs after the earthquake could be closely scrutinised by financial markets.

  " We have people working right now on different relief operations," Noda told reporters at a briefing.

  " Considering that we would have to pull some people from these operations to compile an extra budget, it's unlikely to happen before the end of the fiscal year," which is on the last day of this month.

  The government could easily use reserves in the budget, but it would take time to estimate the cost of the damage, which is needed to consider the size of an extra budget, Noda also said.

  When asked what measures the government is considering if Japanese stocks, bonds and the yen are unstable on Monday, Noda said he wanted to monitor financial markets closely.

  For people living in the most damaged areas, the government will extend indefinitely the March 15 deadline for filing personal income tax returns, Noda also said.

  Just hours before the quake struck, Prime Minister Naoto Kan was rejecting demands that he resign, his political future looking increasingly bleak and unable even to muster enough support to ensure the passage of bills needed to enact the new budget.

  But after the tremor, politicians pushed for an emergency budget to fund relief efforts, with Kan urging them to " save the country," Kyodo reported.

  Noda said that he welcomed opposition parties' willingness to cooperate and that the country had to unite in response to the devastating damage from the earthquake.

  (Editing by Chris Gallagher)

* Long iPad 2 lines sign of still-robust demand

  * Version 2 considered an improvement, but not revolution

  * Analyst warns of bubble, glut in tablet market

  * Best Buy says some stores ran out within minutes (Adds details on iPad components, comments from Wal-Mart and Best Buy, and details from San Francisco launch)

  By Gabriel Madway and Sinead Carew

  SAN FRANCISC0/NEW YORK, March 11 (Reuters) - Thousands of people thronged Apple stores on both U.S. coasts as the iPad 2 went on sale on Friday, signaling a strong appetite for a device that dominates the fledgling market it created.

  Hordes of fans -- some of whom had queued up overnight -- formed raucous pre-sale lines, and attracted curious onlookers, in the chilly rain in Manhattan, and in San Francisco.

  The crowds erupted as a sea of blue-shirted Apple staff threw open the doors at 5 p.m. and gave high-fives to the first iPad shoppers in Manhattan and San Francisco.

  The turnout underscores how demand for Apple's tablet remains strong nearly a year after the original proved a smash hit, single-handedly creating the tablet market, and inspiring a wave of imitators from Motorola to Research in Motion.

  More than 800 queued outside the Apple store on Manhattan's Fifth Avenue ahead of the launch, hoping to be among the first to get the thinner, lighter and faster iPad that Chief Executive Steve Jobs unveiled last week to strong reviews.

  " I wanted to be a part of it," said Andrew Christian, 26, a pharmacy technician from the Bronx who was No. 11 in line after waiting all night in the rain.

  He lined his sneakers with plastic Apple bags.

  Shares of Apple rose, $5.32, or 1.5 percent, to close at $351.99.

  Wall Street anticipates a strong start to the iPad 2, on par with the original iPad, though some analysts were more bullish. Ticonderoga Securities' Brian White said Apple could potentially sell 1 million iPads over the weekend -- roughly matching sales in their first month on the market in 2010.

  " It looks to me like it's going to be a very strong launch," he said.

  More than 500 people descended on Apple's flagship San Francisco store.

  Andrew Lee and his wife got to the store at 4 a.m. and each bought two iPads -- the maximum allowed.

  " One for me, one for my wife, one for each of our kids," Lee said as he gamely posed for a picture from the crowd of swarming photographers.

  The lines were in themselves a spectacle. More than 100 onlookers gathered just to watch the activity outside the store in Manhattan.

  " It's curious to see how people can get so fanatic. It's interesting. I don't know whether it's good or not," mused Giordano Cioni, 23, who is on vacation.

  APRIL 2010, REDUX

  Wal-Mart spokesman Ravi Jariwala said the world's largest retailer expected to sell every iPad it can get from Apple, from about 2,300 stores across the country. Best Buy spokeswoman Paula Baldwin said some of its outlets ran out of the tablet and its accessories within 10 minutes.

  Analysts say the 10-inch touchscreen iPad 2 has been improved incrementally, not reinvented wholesale. It is thinner, faster and adds a pair of cameras for video chat.

  Like its predecessor, the iPad 2's main chip is designed by Apple. The iPad 2 also includes chips from Broadcom and Texas Instruments, as well as flash memory from Toshiba Corp, according to an analysis by iFixit, a company which provides repair services for Apple products.

  The benchmarks for the iPad 2 are clear. The first iPad sold 300,000 units on its first day, 500,000 in the first week, and crossed the 1 million unit mark in 28 days.

  Given that the iPad 2 will be available in far more stores to start than the original model, Wall Street would be surprised if the device fails to outpace its predecessor in the early going.

  In addition to being sold at more than 200 Apple outlets in the United States, the iPad 2 was available starting on Friday in the stores of AT& T and Verizon Wireless, as well as Best Buy, Target Corp and Wal-Mart Stores Inc.

  Unlike last year, Apple did not take orders ahead of the release, so anyone wanting to be among the first to get the new iPad will have to journey to a store. That may help bulk up store lines, providing Apple the buzz it craves and is expert at generating.

  That buzz may prove important as rivals gear up for their own full-blown assault on the same market.

  Tablet sales are expected to surge to more than 50 million units this year, with Apple capturing more than 70 percent of the market. The iPad 2 hits store shelves in more than two dozen additional countries on March 25.

  Apple is releasing the second version of the iPad before many of its rivals have even brought their first tablets to market. Apple sold 15 million iPads last year, generating $9.5 billion in sales, and had the tablet market largely to itself.

  The iPad remains the most affordable tablet on the market, starting at $499.

  JPMorgan analyst Mark Moskowitz warned this week of a potential bubble forming in the market as early as this year, as Apple's rivals make more tablets than consumers will buy.

  He said supply could outstrip demand by as much as 36 percent in 2011 -- a whopping 17.2 million units.

  Blackberry maker RIM and Hewlett-Packard Co are set to release tablets in coming months. Some analysts believe RIM and HP could provide Apple with some competition, because both devices offer unique software, and both have formidable sales channels.

  And although Samsung Electronics and Motorola have launched tablets, neither appears to poised to give the iPad a run for its money. (Additional reporting by Dhanya Skariachan in New York) (Editing by Edwin Chan, Richard Chang and Carol Bishopric)

By Caroline Valetkevitch

  NEW YORK, March 11 (Reuters) - It may be too close for comfort for stock investors.

  After seeing oil prices skyrocket from days of turmoil in Libya, investors now must grapple with political protests in the world's top oil exporter, Saudi Arabia, and the impact of the biggest earthquake on record to strike Japan.

  The S& P 500 was trading below its 50-day moving average this week, and is within reach of support at 1,275, a low touched in late January.

  The confluence of events is making investors increasingly cautious. The market's recent weakness revived talk a correction is near, analysts said, even though stocks recovered on Friday from early losses to finish the day higher with the Dow back above 12,000 and the S& P 500 back above 1,300.

  Stocks have rallied sharply since the start of September, with the S& P 500 still up 24 percent for that period, but have faltered in the last two weeks. At Friday's close, the Standard & Poor's 500 Index was down 1.3 percent for the week.

  " Oil prices were already moving higher before unrest in the Mideast, and if we do have something that is pronounced in Saudi Arabia -- and I don't think that's a high probability -- but if we do, the cards are off the table as far as where prices could go," said Thomas Villalta, portfolio manager for Jones Villalta Asset Management in Austin, Texas.

  " The impact from that is, I think you've got a chance for another recession."

  Protests in Saudi Arabia were more muted than what some had anticipated on Friday. Concerns arose that planned " Day of Rage" protests in the country could lead to further instability in the Middle East and North Africa.

  INFLATION AND THE FED

  The jump in crude oil prices to 2 1/2-year highs has raised anxiety about their dampening effect on the economy.

  Given those concerns, investors will be tuned into any comments on energy from the Federal Reserve when it releases a statement following its policy meeting next Tuesday.

  European Central Bank President Jean-Claude Trichet warned last week about inflation risks, and surprised investors by saying the bank may raise interest rates as soon as next month.

  The U.S. central bank is unlikely to hint at policy changes next week, and is expected to keep interest rates near zero.

  " The Fed is essentially on autopilot. I think the market is correct in assuming they will do everything it takes, including initiating a 'quantitative easing part three,' if they have any evidence this economy doesn't have an escape velocity," said Joseph Battipaglia, market strategist at Stifel Nicolaus, in Yardley, Pennsylvania.

  Next week also brings readings on inflation in the U.S. Producer Price Index and the U.S. Consumer Price Index, as well as data on industrial production.

  QUAKE FALLOUT AND TECHNICALS

  The massive earthquake and deadly tsunami in Japan, a top energy consumer, hit other markets hard on Friday.

  It triggered an increase in risk aversion, with nervous Japanese liquidating investments overseas and bringing capital back to yen-denominated assets, according to WhatsTrading.com options strategist Frederic Ruffy.

  The dollar fell 1.2 percent to 81.87 yen, while shares of the CurrencyShares Japanese Yen Trust rose 1.3 percent to $120.62.

  For the week, the Dow Jones industrial average fell 1 percent, the S& P 500 slid 1.3 percent and the Nasdaq lost 2.5 percent.

  Besides a break below the 50-day moving average earlier this week, the S& P 500 fell below a long-standing trendline, suggesting the benchmark index has lost momentum and that the recent rally may be losing steam.

  " That behavior tells you demand has weakened, which puts odds on further downside in the near term," said Chris Burba, short-term market technician at Standard & Poor's in New York.

  If the S& P 500 falls below 1,275, the next support area is 1,227 to 1,177, he said.

  " It looks increasingly likely at least pullback is under way," he said.

  (Wall St Week Ahead runs every Friday. Questions or comments on this column can be e-mailed to: caroline.valetkevitch(at)thomsonreuters.com) (Reporting by Caroline Valetkevitch Additional reporting by Doris Frankel in Chicago Editing by Jan Paschal)

TOKYO (Reuters) - Following are main developments after an 8.9 magnitude earthquake that struck northeast Japan Friday and set off a tsunami.

  - More than 1,700 people likely dead or missing from the quake and tsunami, Kyodo news agency says.

  * Kyodo says 9,500 people in one town unreachable.

  - Radiation leaks from a damaged nuclear plant after an explosion blows off the roof, raising fears of a meltdown at the facility north of Tokyo.

  - The government says it has expanded the evacuation area around the Fukushima Daiichi nuclear power plant to a 20 km radius from 10 km.

  - Chief Cabinet Secretary Yukio Edano says there was an explosion and radiation leak at Tokyo Electric Power Co's (TEPCO) Fukushima nuclear power plant Saturday, but not inside the reactor container. He says there was no major change in the level of radiation after the explosion.

  - Jiji news agency says three workers suffer radiation exposure near Fukushima nuclear plant.

  * Nuclear safety agency rates the incident a 4 on the 1 to 7 International Nuclear and Radiological Event Scale, less serious than Three Mile Island, which was a 5, and Chernobyl at 7.

  - TEPCO plans to fill the leaking reactor with sea water to cool it down and reduce pressure in the unit, Edano says.

  - Quake triggers tsunami up to 10 metres (30 feet), with waves sweeping away homes, crops, vehicles and submerging farmland.

  - Bank of Japan will hold policy meeting Monday and announce decision on same day. The central bank vows to do utmost to ensure financial market stability.

  - Toyota Motor Co says it will suspend operations at all 12 factories Monday.

  - Total insured loss could be up to $15 billion, equity analysts covering the industry say.

  - Disaster sends oil, metals, and grain prices sliding on fears over its impact on demand, deepening their biggest decline in months yen rises broadly on risk aversion by Japanese investors and expectations of repatriations by Japan's insurance companies oil prices slides more than $3 a barrel.

  - Tokyo Stock Exchange plans to open for trading as normal Monday.

  * Quake, tsunami rattle investors over impact on economy

  * Japanese rebuilding expectations spurs rebound in stocks

  * Yen rises on expectations of fund repatriation

  * Long-dated U.S. bond prices fall on Japan fears (Updates with close of U.S. markets)

  By Herbert Lash

  NEW YORK, March 11 (Reuters) - Japan's massive earthquake and devastating tsunami hit commodities prices on Friday, but equity investors threw off their initial fears as they reassessed damage to the world's third-largest economy.

  Early in the session markets reeled as television images revealed the destruction in Japan's north east after the country's biggest earthquake on record left at least 1,000 dead. For details see [ID:nL3E7EB239].

  But some viewed the market's reaction as having gone too far too fast, and that a rebuilding of Japan could be good for a wide range of markets.

  " It's generally a mistake for people to be too reactive to a natural disaster like this," said Howard Ward, a fund manager at the GAMCO Growth Fund.

  Caterpillar Inc < CAT.N> and other heavy equipment makers saw their stocks rise, and gold turned higher after the U.S. dollar weakened against the euro. Copper prices steadied by the close, recovering from an earlier three-month low.

  The yen soared as the magnitude 8.9 quake spurred a safety bid. The Japanese currency could rise further next week if insurers scramble to raise cash by selling foreign assets, such as U.S. government debt, a potential move bond investors also were monitoring. [ID:nN11210639]

  The quake, the most powerful since Japan started keeping records 140 years ago, sparked at least 80 fires in coastal cities and towns, Kyodo said. Japanese nuclear power plants and oil refineries were shut and one refinery was ablaze.

  Thanos Bardas, a portfolio manager at Neuberger Berman in Chicago, said the U.S. government bond market was totally confused, caught like a deer in the headlights.

  " The long-term response is counterintuitive," he said. " You have this event risk that drives people into Treasuries, but on the other hand you have things that need to be rebuilt so that means maybe higher global growth and higher yields, globally."

  U.S. crude < CLc1> dipped below $100 before paring some losses. Japan is the world's third-largest energy consumer and imports almost all its energy needs.

  MSCI's all-country world index of global stocks < .MIWD00000PUS> fell to a five-week low but then rose 0.2 percent in late trade.

  Japanese equity futures fell 3.3 percent, but some investors said shares may not suffer a deep slide because major cities and manufacturing facilities were not damaged. [.T]

  Tsunami warnings were lifted for some densely populated Asia Pacific countries previously thought to be at risk. [ID:nL3E7EB1U4]

  The quake shut refineries and other industrial facilities in Japan, driving oil lower. North Sea Brent was poised to post a weekly loss for the first time in seven weeks, with U.S. crude on track to end down for the first week in four.

  The oil market also monitored a planned day of protests in top oil exporter Saudi Arabia and the violence in Libya, where oil exports have been disrupted.

  " From an oil pricing perspective, the situation in Japan is likely to result in a negative impact on crude oil prices and a positive for refined products," said Dominick Chirichella, senior partner at the Energy Management Institute in New York.

  Brent crude futures for April delivery < LCOc1> settled down $1.59 at $113.84 a barrel. U.S. crude futures for April delivery < CLc1> fell $1.54 to settle at $101.16 a barrel.

  European shares fell to a 2011 closing low, with insurers among the hardest hit, but U.S. stocks rose, led by a 1.6 percent gain in the S& P energy index < .GSPE> and refining shares. Valero Energy Corp < VLO.N> was up 6.3 percent and Tesoro Corp < TSO.N> up 8.5 percent.

  Wall Street was helped by a 1.0 percent rise in U.S. retail sales in February, the largest gain in four months, as shoppers stepped up purchases of autos, clothes and other goods even as they spent more for gasoline. [ID:nN11250325]

  News that U.S. consumer sentiment fell to its lowest level in five months in early March as gas prices rose later took some of the glow off the retail sales report. [ID:nN10186886]

  The Dow Jones industrial average < .DJI> closed up 59.79 points, or 0.50 percent, at 12,044.40. The Standard & Poor's 500 Index < .SPX> rose 9.17 points, or 0.71 percent, at 1,304.28. The Nasdaq Composite Index < .IXIC> added 14.59 points, or 0.54 percent, at 2,715.61.

  The dollar fell 1.2 percent to 81.87 yen < JPY=EBS> , its biggest one-day decline since Dec. 3, while the yen also rallied against the euro, pound and Swiss franc.

  Gold pushed higher, underpinned by the Japan quake and Mideast turmoil.

  U.S. Treasury debt prices dropped on fears that Japanese insurers may need to sell bonds to pay for damages. [ID:nN11241248]

  The benchmark 10-year U.S. Treasury note < US10YT=RR> shed 10/32 in price to yield 3.40 percent. (Reporting by Rodrigo Campos, Robert Gibbons, Karen Brettell, Emily Flitter, Steven C. Johnson, Nick Olivari and Carole Vaporean in New York Writing by Herbert Lash)

By Jeremy Gaunt, European Investment Correspondent

  LONDON, March 12 (Reuters) - Market risk looms just about everywhere in the coming week, from Japan's devastating earthquake to euro zone debt travails, Middle East turmoil and rising scepticism about U.S. Treasuries.

  It would normally be enough to send investors scurrying into safe havens. There have been some moves of that sort and are bound to be more.

  But enough of the risk is related to government bonds to make that option less attractive than normal. Cash, meanwhile, offers negligible returns.

  So, equities have remained relatively resilient. World stocks have come off highs, but are still clinging to year-to-date gains thanks primarily to the developed markets.

  How long this remains the case will depend on a broad swathe of unknowns, some of which may become clearer in the week ahead.

  First, Japan. The massive quake and tsunami that hit on Friday will have an economic impact and could enlarge the fiscal deficit.

  The yen also rose after an initial fall on the prospects of post-quake investment repatriation.

  The disaster may also put some pressure on the Bank of Japan, which said it was cutting its two-day meeting short next week to just Monday.

  It cannot do anything with rates per se even if it wanted to because the current target is just 0.05 percent. It has, however, promised to ensure market stability.

  Japan's stock market, meanwhile, has been something of a favourite with global investors this year. The broad TOPIX index was up more than 8.5 percent for the year in mid-February before the recent pull back and Friday's quake-related sell-off.

  Analysts suggested that companies based in and around the main damage area could suffer losses on Monday but that construction firms would get a boost.

  Financial markets bounced back fairly quickly after the 1995 quake that devastated Kobe and caused $100 billion in damage. ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic on Kobe market reaction: http://r.reuters.com/jec58r ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

 

  DERIDING DEBT

  It is, meanwhile, getting to crunch time with the euro zone debt crisis.

  European leaders agreed on Saturday to strengthen the euro zone bailout fund, make its loans cheaper and lower the interest rate on funds extended to Greece.

  But they still have work to do to shore up the indebted periphery and convince the market that they have got to the root of their financial problems.

  " This is an important step in dealing with the Eurozone sovereign debt crisis, but it will prove to be only a temporary reprieve if countries do not deliver the required action on public finances, banks and boosting long-term competitiveness," said Howard Archer at IHS Global Insight.

  EU finance ministers meet in the coming week to work on a comprehensive package of anti-crisis measures, and it is all scheduled to be agreed at a full EU summit on March 24/25.

  But there remains something of a disconnect between the slow, measured pace adopted by the EU and markets' desire to get the problem under control.

  Yield spreads -- the gaps in borrowing costs -- between Germany and debt-ridden outliers such as Greece and Portugal are blowing out again and the cost of insuring that debt is rising.

  Investors are clearly expecting that Portugal will soon join Greece and Ireland in applying for a bailout. Markets were unimpressed, for example, with new spending cuts announced by Portugal on Friday to try to restore confidence.

  Ten-year bond yields held at euro lifetime highs.

  The key will be whether the EU package is deemed as too overtly a sticking plaster and not one that addresses some of the deep, underlying problems of the zone's finances.

  John Stopford, head of fixed income at Investec Asset Management, said the EU would eventually come up with a series of improvements but they would just be steps in a process and " the underlying problems haven't gone away" .

 

  TURNING TO TREASURIES

  The other major " event" of the week ahead will be the U.S. Federal Reserve's rate meeting on Tuesday.

  It is not expected to make any changes in interest rates, but surging oil prices are deepening divisions inside the Fed over how to deal both with potential inflation and an economy that is still far from running at potential.

  Any sign that the " inflation" side is beginning to cause concern could have a sharp impact on U.S. government debt, which is already under some pressure.

  PIMCO, the world's biggest bond fund, said on Wednesday it had dumped all of the U.S. government-related debt in its flagship Total Return fund.

  The problem is that U.S. debt is offering very little yield and has the potential to sell off if either the economic recovery gathers pace or inflation takes off.

  " There is not much value in the vast majority of U.S. Treasuries," said Charlie Morris, head of absolute returns at HSBC Global Asset Management.

  A lot will depend on the price of oil, which fell on Friday on concern that the Japanese earthquake would hit global economic sentiment, but which has otherwise driven higher on the revolts in North Africa and the Middle East.