France's Hollande juggles trade, human rights in Moscow

PARIS (Reuters) - President Francois Hollande wants to boost trade ties with Moscow and will have to balance that with French concerns over Russia's human rights record during a debut Moscow visit on Thursday that could prove a diplomatic obstacle course.

An encounter in Paris last June between the newly elected Socialist Hollande and Russia's Vladimir Putin bristled with tension, unlike the cosy meetings between Putin and Hollande's conservative predecessors Nicolas Sarkozy and Jacques Chirac.

Aides on both sides want to avoid the full-frontal clash on rights that marked German Chancellor Angela Merkel's trip to Moscow last year, when she accused Moscow of stifling dissent.

Moreover, with the French economy edging closer to recession and domestic demand moribund, Hollande needs all the outside help he can get to kick-start growth, and will be pushing for Russian business to step up investment in France.

Yet everything from Moscow's support of Syrian leader Bashar al-Assad, in defiance of the West, to Putin's very public relish at French actor Gerard Depardieu's decision to take Russian nationality for tax reasons means the scope for misunderstandings is great.

"You can get on with someone without loving them," veteran Russia specialist Helene Carrere d'Encausse said of the strained pragmatism she saw defining the visit, whose high point is an 06.00 a.m. EST joint news conference with Hollande and Putin.

Hollande aides insist that, aside from Syria, the positions of Paris and Moscow converge in several areas - notably on Mali, where Russia has backed a U.N. resolution which is a key part of French efforts to extricate its soldiers and put African troops in the front line against al Qaeda allies.

RIGHTS RECORD

Russia sees Tuesday's move by major powers to offer Iran some sanctions relief in return for a halt of some atomic work as a sign that France and other Western states are moving closer to its thinking on an issue that has divided the U.N. Security Council for years.

"In bilateral ties I see no major problems," said Alexei Pushkov, head of foreign affairs committee in the Russian parliament's lower chamber.

"From my contacts with the French lawmakers I get the impression they have a calm attitude towards Russia. Of course there is come criticism, but not to the extent that can be heard in the U.S. Congress or the German Bundestag," he added.

French officials insist Putin's embrace of Depardieu after his decision to seek exile from French taxes on the rich will not jar relations - even with the actor's outing this weekend to the Chechnya region where rights groups accuse security services of extrajudicial killings and other abuses.

But Hollande is under pressure at home to raise human rights concerns including the fate of Putin critics such as Mikhail Khodorkovsky, 49, once Russia's richest man and now serving 13 years jail on fraud and tax evasion charges.

"The last year has been the worst for human rights in Russia in recent memory, and Hollande should not miss this chance to persuade Putin to turn things around," said Rachel Denber of New York-based Human Rights Watch, pointing to new laws which she said restricted public assembly and Internet content in Russia.

The two leaders may broach delicate energy issues, with the European Union seeking to wind down its gas reliance on Russia and Moscow angry over EU efforts to force dominant suppliers such as Russia's Gazprom to sell off infrastructure.

But Paris is keener to focus on raising Russian investment in France, which at around one billion euros only accounts for a 12th of the value of French investment in Russia.

While no major deal is due to be announced, small economic cooperation pacts, plans to facilitate visas and student exchanges are likely to be announced.

(Additional reporting by Gabriela Baczynska in Moscow; Writing by Mark John; Editing by Jon Boyle and Michael Roddy)

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Kerry, Russian counterpart Lavrov talk about Syria

BERLIN (AP) — U.S. Secretary of State John Kerry and his Russian counterpart, Sergei Lavrov, met for the first time Tuesday, spending more than an hour discussing the civil war in Syria and other joint matters.

State Department spokeswoman Victoria Nuland said the two met for an hour and 45 minutes, spending more than half that time on Syria in what she called a "really serious and hardworking session."

Kerry and Lavrov discussed how they could implement the so-called Geneva Agreement, which is designed to get the Syrian government and rebels to plan a transitional government for the time after President Bashar Assad leaves office.

That discussion comes two days before nearly a dozen nations, excluding Russia, meet in Rome Thursday with the Syrian opposition to continue to try and find a way forward on resolving the conflict that has cost nearly 70,000 lives.

Lavrov told Russian newswires that his talks with Kerry were "quite constructive."

"I have a feeling that President Barack Obama's second administration, in the foreign policy field led by John Kerry, will try to play a more constructive role in all those areas," Lavrov said.

On Syria, Lavrov said the two reaffirmed their "intention to do all Russia and the U.S. can do.

"It's not that everything depends on us, but we shall do all we can to create conditions for the soonest start of a dialogue between the government and the opposition."

The Syrian foreign minister was in Moscow on Monday and expressed willingness to meet with opposition leaders.

The Syrian National Coalition is skeptical about outside help from the West and threatened to boycott the Rome meeting until a series of phone calls and meetings between Kerry and his ambassadors and Syrian opposition leaders repaired the schism. The council now says it will attend the meeting, but is hoping for more concrete offers of help, including military assistance, which the United States and others have been unwilling to supply.

Kerry told reporters in London on Monday that when he was chairman of the Senate Foreign Relations Committee, he asked the Obama administration to consider supplying arms to the Syrian rebels. But now he noted that he is an administration official and has to follow administration policy.

Despite urging from Pentagon leaders including Defense Secretary Leon Panetta, President Barack Obama has opposed lethal aid.

Earlier in Berlin, Kerry told young Germans of his adventures as a 12-year-old son of an American diplomat in divided postwar Berlin, and urged them to be true to their ideals and values as Europe struggles to emerge from economic doldrums and deal with the threat of terrorism.

Speaking at a town hall meeting, Kerry spoke a few sentences of passable German to the delight of a crowd in a packed Internet cafe before regaling the audience with tales of his boyhood in Berlin in 1954.

He recalled a clandestine bicycle ride into communist East Berlin. "I saw the difference between east and west. I saw the people wearing darker clothing. There were fewer cars. I didn't feel the energy or the movement."

When he returned home, Kerry said, his father "got very upset with me and said: 'You could have created an international incident. I could have lost my job.' So I lost my passport, and I was grounded and I never made another trip like that."

Today, Kerry said: "I never forgot and now it's vanished. Now, so many other countries have followed with this spirit of giving life to people's individual hopes and aspirations."

Kerry urged Germans to be tolerant of all points of view.

"People have sometimes wondered about why our Supreme Court allows one group or another to march in a parade even though it's the most provocative thing in the world and they carry signs that are an insult to one group or another," he said. "The reason is, that's freedom, freedom of speech. In America you have a right to be stupid. ... And we tolerate it. We somehow make it through that."

Kerry also took the opportunity to plug a New England clothing line after one audience member complimented him on his pink tie. A graduate of the noted St. Paul's School in New Hampshire and Yale University, Kerry extolled the sartorial virtues of Vineyard Vines, a Connecticut purveyor of — in its own description — "preppy" clothes that has a pink whale for a logo.

"I don't own any stock in the company," he said to laughter.

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Iran: Ignore US opposition to Pakistani gas deal

TEHRAN, Iran (AP) — Iran's top leader told the visiting Pakistani president on Wednesday that the two countries should ignore U.S. opposition to construction of a gas pipeline.

Supreme Leader Ayatollah Ali Khamenei said Iran was the only secure source of energy that can meet Pakistan's needs.

Pakistani President Asif Ali Zardari was visiting Tehran to finalize a long-awaited gas pipeline deal with Iran.

The U.S. is against the project because it wants to isolate Iran economically over fears that the country might ultimately be able to develop a nuclear weapon. Tehran denies the charge, saying its nuclear program is for peaceful purposes.

"One should resolutely pass these objections," Iran's state TV quoted Khamenei as telling Zardari. "The Islamic Republic of Iran is the only secure source of energy in this region and we are ready to meet Pakistan's needs in this field."

Pakistani leaders have vowed to press ahead with the pipeline despite U.S. opposition, saying the deal is vital to supplying gas to the energy-starved country. Iranian media say Tehran has agreed to provide a $500 million loan to help finance construction of the pipeline on the Pakistan side of their shared border.

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AP INTERVIEW: Iraq PM warns Syria war could spread

BAGHDAD (AP) — Iraq's prime minister warned Wednesday that a victory for Syria's rebels will spark sectarian wars in his own country and in Lebanon and will create a new haven for al-Qaida that would destabilize the region.

The comments by Prime Minister Nouri al-Maliki in an interview with The Associated Press marked one of his strongest warnings yet about the turmoil that toppling Syrian President Bashar Assad could create in the Middle East.

It comes as his government confronts growing tensions of its own between the Shiite majority and an increasingly restive Sunni minority nearly a decade after the U.S.-led invasion of Iraq.

Fighting in Syria has sharp sectarian overtones, with predominantly Sunni rebels battling a regime dominated by Alawites, an offshoot Shiite Islam.

Assad's main allies are Shiite Iran and the Shiite militant group Hezbollah in Lebanon.

Al-Maliki too is a Shiite and his sect dominates Iraq's government.

His comments reflect growing fears by many Shiites in Iraq and elsewhere that Sunnis would come to dominate Syria should Assad be pushed from power.

The toppling of Assad would deal a serious blow to the regional influence of Syria's patron Iran, which has built increasingly strong relations with Iraq's Shiite-dominated government.

Iraq has tried to maintain a neutral stance toward the civil war in Syria, saying that the aspirations of the Syrian people should be met through peaceful means.

Speaking from his office in a Saddam Hussein-era palace inside Baghdad's heavily guarded Green Zone, al-Maliki reiterated his stance that foreign military intervention is not a solution to ending the crisis in Syria.

He called on outside countries to "be more reasonable regarding Syria."

"If the world does not agree to support a peaceful solution through dialogue ... then I see no light at the end of the tunnel.

"Neither the opposition nor the regime can finish each other off," he said. "If the opposition is victorious, there will be a civil war in Lebanon, divisions in Jordan and a sectarian war in Iraq."

Al-Maliki, 62, has long been accused by many Sunnis of promoting his Shiite sect at their expense and for being too closely aligned with neighboring Iran.

His government has faced two months of unexpectedly resilient protests from the Sunni minority, whose members held many senior positions in Saddam's regime and lost their political prominence to the Shiites after he was ousted in the 2003 U.S.-led invasion.

The Sunni rallies, which have been largely peaceful, erupted in Iraq's western Sunni heartland of Anbar in late December following the arrest of bodyguards assigned to Finance Minister Rafia al-Issawi, one of the most senior Sunni politicians in government.

Although the detentions were the spark for the demonstrations, the rallies tap into deeper Sunni grievances, drawing on feelings of discrimination at the hands of al-Maliki's government.

Al-Maliki and his political allies initially dismissed the protesters. But as their rallies gained strength and spread throughout parts of Iraq where Sunnis are concentrated, the stern-faced premier began to offer concessions.

His government bowed to one of the protesters' early demands and released more than 2,000 detainees, including some held without charge. He also set up a committee to examine other grievances.

He vowed Tuesday to let the protests continue as long as they remain peaceful.

But he made a point of distinguishing between the protesters and the political leaders who back them.

He also suggested, as he has done in the past, that outside influences — an apparent allusion to predominantly Sunni countries such as Turkey and the Gulf states — are helping to fuel the unrest.

"What is going on in Iraq is connected to what is happening in the region. It is also connected to the results of the so-called the Arab Spring and some sectarian policies in the region," he said.

"Our patience will continue because we believe that there are people in these provinces that are patriotic and they reject sectarianism, believe in the unity of the country and denounce the voices uttering sectarian words."

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Associated Press writer Sameer N. Yacoub contributed.

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Follow Adam Schreck on Twitter at http://twitter.com/adamschreck

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US, Europe move to expand role in Syrian conflict

ROME (AP) — The United States and some European allies are edging closer to direct involvement in Syria's civil war with plans to deliver meals, medical kits and other forms of nonlethal assistance to the rebels battling President Bashar Assad.

The U.S., Britain, France and Italy aren't planning to supply the Free Syrian Army with weapons or ammunition. But moves are afoot to significantly boost the size and scope of their aid to the political and military opposition. Such decisions could be announced as early as Thursday at an international conference on Syria in Rome.

Britain and France are keen to give the rebels the means to protect themselves from attacks by Assad's forces, including Scud missiles fired in recent days against the city of Aleppo, U.S. and European officials say.

Assistance could mean combat armor, vehicles and other equipment not deemed to be offensive, the officials said. It could include training in battlefield medical care and the protection of human rights, they said.

For now, the Obama administration is advancing more modestly. It is nearing a decision whether to give ready-made meals and medical supplies to the opposition fighters, who have not received direct U.S. assistance.

U.S. Secretary of State John Kerry was expected to announce the new contributions at the Rome conference, in addition to tens of millions of dollars intended for rule of law and governance programs.

The shifts in strategy are part of a step-by-step process that could lead to direct military aid to carefully screened members of the Free Syrian Army if the nearly 2-year conflict continues. Some 70,000 people have died in the fighting.

The European Union last week renewed an arms embargo against Syria for three months. But foreign ministers made clear that the decision could be reviewed while they look at ways to increase pressure on Assad to leave.

Washington has provided $385 million in humanitarian aid to Syria's war-weary population and $54 million in communications equipment, medical supplies and other nonlethal assistance to Syria's political opposition. The U.S. also has screen rebel groups for Turkey and American allies in the Arab world that have armed rebel fighters.

No U.S. dollars or provisions have gone directly to rebels. That decision reflects concerns about forces that have allied themselves with more radical Islamic elements since Assad's initial crackdown on peaceful protesters in March 2011.

Kerry said Wednesday in Paris that both the U.S. and Europe want a negotiated solution to the crisis and would speak to the leaders of the Syrian National Coalition about that. He also said the world must be prepared to do more to support the rebels and he accused Assad's government of engaging in "criminal behavior."

"We want their advice on how we can accelerate the prospects of a political solution because that is what we believe is the best path to peace, the best way to protect the interests of the Syrian people, the best way to end the killing and the violence," he said at a news conference with French Foreign Minister Laurent Fabius.

"That may require us to change President Assad's current calculation," Kerry said. "He needs to know that he can't shoot his way out of this. And so we need to convince him of that, and I think the opposition needs more help in order to be able to do that."

Fabius offered a similar assessment.

"The situation is unbearable and we need to find the means to a transition and for Assad's departure," he said. "We agree all of us on the fact that Mr. Bashar Assad has to quit."

Britain's Foreign Office also said it would increase its support for Syria's opposition.

The possibility of a sudden change in U.S. strategy comes as President Barack Obama begins a second term and Kerry succeeds Hillary Rodham Clinton as the top U.S. diplomat.

Freed from the constraints of a re-election campaign, administration officials say there is greater leeway now for new approaches than last year, when Obama rebuffed a plan by Clinton, then-CIA Director David Petraeus and then-Defense Secretary Leon Panetta to arm the Syrian rebels.

The administration remains cautious, officials say, and is resisting European pressure to expand military aid to include the kind of items that Britain and France are considering.

Few Americans want to see their country dragged into another war of complicated loyalties and sectarian rivalries in the Muslim world, a little more than a year after leaving Iraq and with 66,000 U.S. combat troops still in Afghanistan.

Administration officials say they don't have enough assurances that rebel units under the sway of Islamic fundamentalists won't turn their weapons on Israel or other U.S. allies and fragile states in the region.

Lebanon is torn by some of the same internal sectarian divisions as Syria and Jordan is struggling with its political reform path.

Iraq's prime minister, Nouri al-Maliki, warned on Wednesday that a victory by Syrian rebels would lead to more fighting in Iraq and a new haven for al-Qaida.

Greater instability in any of Syria's neighbors would pose a whole new set of problems.

Still, officials said the U.S. was considering a gradually upgraded involvement in Syria to bolster moderate forces within the rebel ranks and help the fledgling political opposition win greater backing among Syrians, especially minority groups that have remained largely loyal to Assad and his government.

Debate within the administration on how best to accomplish these goals has increased in recent months as diplomatic efforts have failed to end the war. The Syrian opposition insists that only weapons, intelligence support and other forms of military aid truly can tip the balance.

U.S. Sen. Marco Rubio, a potential 2016 presidential candidate, urged the administration to consider lethal aid.

"We should want the best organized, the best equipped and most dominant groups in the opposition to be groups that are friendlier to our national interests," Rubio, a Florida Republican, said Wednesday at the Washington Institute for Near East Policy.

The position is similar to one Kerry held as a senator, and one he reminded reporters of this week when he proposed the creation of opposition safe zones and suggested providing rebels with U.S. weaponry.

But in his first month as secretary of state and on his first official trip overseas, the 2004 presidential candidate has been vaguer.

"We have a lot of ideas on the table, and some of them, I am confident, will come to maturity by time we meet in Rome," Kerry said this week. "Others may take a little more of a gestation period, but they're no less part of the mix and part of the discussion.

"What I can tell you is we are determined that the Syrian opposition is not going to be dangling in the wind wondering where the support is or if it's coming, and we are determined to change the calculation on the ground for President Assad."

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Klapper reported from Washington. Associated Press writers Kenneth Thomas in Washington, Sylvia Hui in London, and Silvie Corbet in Paris contributed to this report.

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Mexican union boss arrest sounds warning to reform foes

MEXICO CITY (Reuters) - The arrest of Mexico's best-known trade union leader on fraud charges has thrown down the gauntlet to powerful interests standing between President Enrique Pena Nieto and his plans to shake up Latin America's second-biggest economy.

For a generation, even presidents shied away from taking on teachers' union boss Elba Esther Gordillo, making her Mexico's most prominent female politician and a formidable enemy to those who accused her of fostering corruption rather than education.

Pena Nieto, who has been in office for less than three months, crossed that line on Tuesday when police arrested Gordillo and three other people with her at Toluca airport near Mexico City.

Mexican television showed Gordillo, 68, wearing a prison uniform and standing behind bars as a state prosecutor formally charged her with embezzling around $200 million from union coffers and using the money to pay for U.S. property, luxury goods, designer clothes, works of art and plastic surgery.

She is not allowed to apply for bail under the charges.

Gordillo, who deferred comment to her lawyers, faces a maximum jail sentence of 30 years, though prisoners can apply to be moved to house arrest at age 70.

"It is clearly a criminal case," Attorney General Jesus Murillo said in a television interview. "The case is very solid."

A former grandee of the ruling Institutional Revolutionary Party, or PRI, Gordillo has denied accusations of corruption.

She was snared a day after Pena Nieto signed a law aimed at improving education standards that she had opposed because it would weaken her union's clout.

The Mexican president is preparing to launch a series of ambitious measures that aim to overhaul taxes, open up state oil giant Pemex to more private capital and ease tycoon Carlos Slim's tight grip on Mexico's telecommunications industry.

"The fundamental point is that resistance by the de facto powers to reform will be confronted with energy and determination," Federico Berrueto, director general of Mexican polling firm GCE, said after Gordillo's arrest.

In Mexico, the "de facto powers" refer to various entrenched interests that include Slim's business empire and dominant broadcaster Televisa, run by Emilio Azcarraga.

Both have repeatedly fought off regulatory efforts to loosen the control they wield over their respective markets.

The government is due to unveil a major telecommunications proposal in the next few days, while separate initiatives on overhauling Pemex and boosting Mexico's weak tax take are expected to go to Congress during the second half of 2013.

The education law signed by Pena Nieto on Monday still faces a fight from Gordillo's union because it requires a secondary law to be implemented.

Changes to the energy sector could face resistance from the Pemex union so Gordillo's arrest was also interpreted as a government warning to other labor bosses that they too might face close scrutiny.

BAD BLOOD

Although Gordillo is unpopular in Mexico, her arrest has also stirred fears that Pena Nieto could be leaning toward the authoritarian past of the centrist PRI, which ruled Mexico continuously from 1929 to 2000.

Brasil Acosta, a PRI congressman from Pena Nieto's home turf, the State of Mexico, said the party had to be careful that the case against Gordillo was not brought for the wrong reasons.

"If it isn't legally proven, we'll be looking at an act of political repression, which would be dangerous," he said.

Carlos Salinas, who was president from 1988 to 1994, removed two troublesome union leaders as he embarked on his own historic reform drive, but his administration ended mired in allegations of graft.

Appointed by Salinas in 1989, Gordillo became one of the most controversial figures in Mexico.

She has been widely criticized for her lavish lifestyle and she became more vulnerable after splitting with the PRI ahead of the 2006 presidential election, when the party suffered its biggest-ever defeat.

"I imagine he (Pena Nieto) was looking to land a decisive blow against someone, and she was the easiest target," political analyst Denise Dresser told Mexican television.

Gordillo was taken to Santa Martha Acatitla women's prison on the edge of Mexico City on Tuesday night.

NO GAMES

The PRI, reviled by many Mexicans as corrupt and heavy-handed by the time it lost power in 2000, pledged to mend its ways after Pena Nieto recovered the presidency last year.

The former State of Mexico governor vowed to usher in greater accountability and transparency, and his allies are portraying the investigation into Gordillo as part of the new PRI's broader efforts to clean up Mexico.

"They send a clear message. We're not playing games when it comes to governing," said Alejandra Del Moral, a 29-year-old PRI congresswoman.

Gordillo has long been a symbol of the PRI's cozy relationship with trade unions and established interests, which critics blame for fomenting inefficiency and helping to keep the economy lagging behind its emerging market peers.

Opposition lawmakers quickly argued that to realize lasting change Pena Nieto must go further than just arresting Gordillo.

"Today we're going to demand that Pena Nieto carries on with the others in the way he started with Elba Esther," said Armando Rios Piter, a senator for the leftist Party of the Democratic Revolution, or PRD. "There are hundreds and perhaps thousands who represent this model of corruption."

Among these, he said, is Carlos Romero Deschamps, head of the oil workers' union at Pemex and also a PRI senator.

Revamping the state-run Pemex is one of the toughest tasks facing Pena Nieto. Created when the PRI nationalized the oil industry in 1938, the company became a symbol of Mexican self-reliance and his party has been very reluctant to touch it.

Romero Deschamps has denied taking part in corruption and fought off such allegations in the past, and both the PRD and the conservative National Action Party, or PAN, called for an investigation into his wealth after Gordillo's arrest.

With no outright majority in Congress, Pena Nieto needs support from opposition parties for any major reform of Pemex. They are likely to seek concessions in exchange for votes.

(Additional reporting by Gabriel Stargardter and Lizbeth Diaz; Editing by Kieran Murray, Simon Gardner and Paul Simao)

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American, US Airways executives face gentle questioning in Congress

WASHINGTON (Reuters) - Executives from American Airlines and US Airways Group Inc on Tuesday faced gentle questions from lawmakers about their planned merger, with some expressing concern about losing hubs in their districts.

US Airways Executive Vice President Stephen Johnson and American Airlines General Counsel Gary Kennedy defended the proposed $11 billion transaction by saying the companies had largely complementary networks, so little competition would be lost.

The Justice Department's Antitrust Division will review the deal to ensure it complies with antitrust law. Congress has no formal role in that process.

The executives faced few questions on what has been the primary concern about the merger - whether the deal would mean higher prices for the flying public.

Representative John Conyers, a Michigan Democrat, though, said he was concerned a reduced number of airlines would leave them room to control the market.

And he asked if the deal was really needed to compete, as the companies said. "While American is still in bankruptcy, it is poised to successfully reorganize. Moreover, US Airways posted record profits. This suggests that both airlines are perfectly capable of surviving, even thriving, as stand-alone airlines," he said.

Representative Thomas Marino, a Pennsylvania Republican, asked Johnson and Kennedy if they planned to raise prices. US Airways' Johnson said they would not go up but that he did not know if they would go down.

Pressed on what would happen to prices in the first six months to a year after the deal closed, American's Kennedy said: "We don't know. The airline industry is a very competitive industry with very thin margins."

Several of the lawmakers used the hearing to either pitch a local area as an airline hub or defend their city's value as an existing hub.

US Airways has three hubs — Charlotte, North Carolina, Philadelphia and Phoenix; American has five — New York, Los Angeles, Chicago, Dallas and Miami.

Representative Steven Cohen, a Tennessee Democrat, lamented the loss of Memphis as a hub after Delta merged with Northwest, noting a sharply pared flight schedule and job losses. Representative Keith Rothfus, a Republican from Pennsylvania, noted similar woes after US Airways cut Pittsburgh as a hub.

Representative Luis Garcia, a Florida Democrat, asked for reassurances that Miami would remain a hub, while Representative Blake Farenthold, a Texas Republican, noted the large number of hubs and asked: "What assurance can you give us that you're not going to shut one of those babies down?"

American's Kennedy replied, "We have a high level of confidence that the hubs that we have today will remain in place."

If approved, the deal would be the third major U.S. airline merger since 2008.

Kennedy said the transaction had been endorsed by labor unions and the boards of both companies and would give them badly needed financial stability.

Both executives cited the Delta deal to buy Northwest in 2008 and the United purchase of Continental in 2010, saying that consumers wanted to fly one airline to their destination, not several, and that this preference hampered smaller carriers.

The new company, to be called American Airlines, would become the largest U.S. air carrier, with 23 percent of available seats. That compares with Delta at 20 percent, United at 18 percent and Southwest at 18 percent, Johnson said in his written testimony.

Lawmakers from a Senate Judiciary subcommittee will hold a hearing on March 19. The witness list for that has not yet been released.

(Reporting By Diane Bartz; Editing by Steve Orlofsky)

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Pharmacist sentenced to 2 years Pa. steroids case

PITTSBURGH (AP) -- A pharmacist has been sentenced to 2½ years in federal prison after pleading guilty to helping a former Pittsburgh Steelers team doctor illegally distribute anabolic steroids in an investigation spun off from a national crackdown on the performance enhancing drugs.

William Sadowski, 47, of Robinson Township, pleaded guilty in November to conspiracy to possess with intent to distribute anabolic steroids and human growth hormones, or HGH, and was sentenced Tuesday by Senior U.S. District Judge Maurice Cohill Jr.

Sadowski has acknowledged helping Dr. Richard Rydze illegally distribute the body-building substances and other drugs used to prevent their negative side effects or, at least, mask their use. On Tuesday, the married father of two told the judge he let greed and profit cloud his judgment.

"I started worrying more about the bottom line than doing the right thing the right way," Sadowski said, tearfully.

Rydze, 62, has denied wrongdoing, pleaded not guilty and is awaiting trial in the alleged steroids conspiracy that began a few months after the Steelers cut him from their medical staff in 2007 after more than two decades.

The team and Rydze have previously said he didn't supply steroids to Steelers players, though the investigation that targeted Rydze and Sadowski spun off from a national probe that included Applied Pharmacy Services in Mobile, Ala., which was identified as a supplier in U.S. Sen. George Mitchell's landmark 2007 report on steroid use in Major League Baseball.

The Alabama pharmacy was raided in August 2006 and shut down by the federal Drug Enforcement Agency. Its customer list included baseball players, including Gary Matthews Jr., some World Wrestling Entertainment personalities, and former heavyweight boxing champ Evander Holyfield, who has denied using steroids, let alone obtaining them from APS. The Alabama raid resulted in the conviction of five staff pharmacists, and several doctors across the country who obtained steroids illegally through the pharmacy.

Assistant U.S. Attorney Matthew Kall argued that Sadowski deserved prison to deter other pharmacists, and because he knew he was operating his Pittsburgh-based ANEWrx pharmacy illegally.

"He was essentially living a double life," Kall said, referring to 20 friends and family members there to support Sadowski.

Among other things, Kall said Sadowski "took over" the Alabama pharmacy's business once it shut down. Sadowski also faces sentencing March 4 in Allegheny County Common Pleas Court for filing fraudulent Medicare claims at a previous pharmacy, Kall said.

Sadowski's defense attorney in that case, James Wymard, attended the federal court sentencing and said he's hopeful Sadowski's sentence on those charges, filed by the Pennsylvania attorney general's office, will run concurrent to the federal sentence.

Federal prosecutors said Sadowski's pharmacy was licensed to dispense prescription drugs in at least 44 states and that he hired a registered nurse, John Gavin, 51, to "research the status of criminal prosecutions across the county for illegal distribution of anabolic steroids and HGH." Sadowski's pharmacy allegedly developed drug combinations, or "stacks," that included steroids, HGH and other substances — many used to legitimately treat breast cancer and other maladies — that, when taken with the steroids, were meant to prevent their undesirable side effects.

Gavin has previously pleaded guilty and is scheduled for sentencing March 26.

Rydze's patient base was so broad in Pittsburgh that federal authorities took the unusual step of having FBI agents from Ohio investigate. Kall, the prosecutor who handled Tuesday's sentencing, is also based in Cleveland, where U.S. Attorney's spokesman Michael Tobin declined comment on the sentencing.

Among other things, Rydze had a contract to perform physicals for the agents who worked at the Pittsburgh FBI office, and at least one staff member in the U.S. Attorney's Office in Pittsburgh was a patient of Rydze's. Neither that person nor any FBI agent is accused of obtaining steroids from the doctor.

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Afghans hold anti-U.S. rally following abuse claims

Maiden Shar, AFGHANISTAN (Reuters) - More than five hundred men marched through the capital of Afghanistan's restive Wardak province on Tuesday in an outburst of anger against U.S. special forces accused of overseeing torture and killings in the area.

Shouting "Death to America", "Death to Obama" and "Death to special forces", the protesters called for the immediate withdrawal of the American soldiers and threatened to join the Taliban if their demand was not met.

A spokesman for Afghan President Hamid Karzai announced on Sunday that all U.S. special forces must leave Wardak province within two weeks following the accusations that Afghans working for them had tortured and killed innocent people.

Karzai's demand could further complicate talks between the United States and Afghanistan over the presence of American troops once most NATO forces leave the country by the end of 2014.

Reuters interviewed dozens of residents of Wardak and Afghan government officials who alleged that Afghan men working with a small unit of U.S. special forces had illegally detained, tortured and killed suspected insurgents.

A U.S. defense official in Washington said a review in recent months in cooperation with Afghanistan's Defense Ministry and National Directorate of Security (NDS) intelligence agency found no involvement of Western forces in any abuse.

The peaceful two-hour protest began on Tuesday at the offices of the Wardak provincial council shortly after it held a meeting.

"If the situation remains like this, this province will collapse very soon," said protester Haji Abdul Qadim. "People will join the insurgency very soon because of the abuses of these forces."

In another incident that could feed local hostility to the American forces in Wardak, a Swedish organization which runs health clinics across Afghanistan accused the U.S. military on Tuesday of occupying and damaging one of its facilities.

The incident occurred before dawn on February 11, the Swedish Committee for Afghanistan (SCA) said in a statement.

"Foreign soldiers entered the ... health facility by force, tied up and blindfolded the guard on duty, and occupied the facility," the statement said.

Doors and windows were broken and medical equipment was destroyed, SCA director Andreas Stefansson said.

It was the second time one of SCA's clinics had been occupied by foreign forces since October, when soldiers spent three days in another Wardak clinic.

After the October incident, NATO's International Security Assistance Force (ISAF) had told them it would ensure it did not happen again, Stefansson said.

"What we are seeking is that they actually live up to what they say," Stefansson said.

A spokesman for ISAF said the latest operation was carried out in conjunction with Afghan forces and aimed at detaining an insurgent leader who had taken refuge inside the clinic.

ISAF said the building was not marked as a medical facility and they had compensated residents for the damage.

Stefansson also said a group of Afghan special forces had bullied and threatened the lives of health workers at the Maidan Shar hospital several days earlier.

(Reporting by Mirwais Harooni; Writing by Dylan Welch; Editing by Tom Pfeiffer)

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Low-key departure as pope steps down and hides away

VATICAN CITY (Reuters) - Pope Benedict slips quietly from the world stage on Thursday after a private last goodbye to his cardinals and a short flight to a country palace to enter the final phase of his life "hidden from the world".

In keeping with his shy and modest ways, there will be no public ceremony to mark the first papal resignation in six centuries and no solemn declaration ending his nearly eight-year reign at the head of the world's largest church.

His last public appearance will be a short greeting to residents and well-wishers at Castel Gandolfo, the papal summer residence south of Rome, in the late afternoon after his 15-minute helicopter hop from the Vatican.

When the resignation becomes official at 8 p.m. Rome time (1900 GMT), Benedict will be relaxing inside the 17th century palace. Swiss Guards on duty at the main gate to indicate the pope's presence within will simply quit their posts and return to Rome to await their next pontiff.

Avoiding any special ceremony, Benedict used his weekly general audience on Wednesday to bid an emotional farewell to more than 150,000 people who packed St Peter's Square to cheer for him and wave signs of support.

With a slight smile, his often stern-looking face seemed content and relaxed as he acknowledged the loud applause from the crowd.

"Thank you, I am very moved," he said in Italian. His unusually personal remarks included an admission that "there were moments ... when the seas were rough and the wind blew against us and it seemed that the Lord was sleeping".

CARDINALS PREPARE THE FUTURE

Once the chair of St Peter is vacant, cardinals who have assembled from around the world for Benedict's farewell will begin planning the closed-door conclave that will elect his successor.

One of the first questions facing these "princes of the Church" is when the 115 cardinal electors should enter the Sistine Chapel for the voting. They will hold a first meeting on Friday but a decision may not come until next week.

The Vatican seems to be aiming for an election by mid-March so the new pope can be installed in office before Palm Sunday on March 24 and lead the Holy Week services that culminate in Easter on the following Sunday.

In the meantime, the cardinals will hold daily consultations at the Vatican at which they discuss issues facing the Church, get to know each other better and size up potential candidates for the 2,000-year-old post of pope.

There are no official candidates, no open campaigning and no clear front runner for the job. Cardinals tipped as favorites by Vatican watchers include Brazil's Odilo Scherer, Canadian Marc Ouellet, Ghanaian Peter Turkson, Italy's Angelo Scola and Timothy Dolan of the United States.

BENEDICT'S PLANS

Benedict, a bookish man who did not seek the papacy and did not enjoy the global glare it brought, proved to be an energetic teacher of Catholic doctrine but a poor manager of the Curia, the Vatican bureaucracy that became mired in scandal during his reign.

He leaves his successor a top secret report on rivalries and scandals within the Curia, prompted by leaks of internal files last year that documented the problems hidden behind the Vatican's thick walls and the Church's traditional secrecy.

After about two months at Castel Gandolfo, Benedict plans to move into a refurbished convent in the Vatican Gardens, where he will live out his life in prayer and study, "hidden to the world", as he put it.

Having both a retired and a serving pope at the same time proved such a novelty that the Vatican took nearly two weeks to decide his title and form of clerical dress.

He will be known as the "pope emeritus," wear a simple white cassock rather than his white papal clothes and retire his famous red "shoes of the fisherman," a symbol of the blood of the early Christian martyrs, for more pedestrian brown ones.

(Reporting By Tom Heneghan; editing by Philip Pullella and Giles Elgood)

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Whitey Bulger Was the Kramer of Fugitive Neighbors

For a while there, Whitey Bulger was one of the most wanted men in America. You would think the head of the Irish mob who turned into a fugitive rat would generally keep to himself, keep a low profile, and not to talk to the neighbors. Turns out, Whitey Bulger was an extremely nosey neighbor.

RELATED: Whitey Bulger's Girlfriend Won't Have to Testify Against Him After Guilty Plea

In an excerpt posted at Salon today from their new book, Whitey: The Life of America's Most Notorious Mob Boss, Dick Lehr and Gerard O'Neill reveal just how much Bulger and his girlfriend, Cathy Greig, perhaps hyper-socialized in their apartment complex while living life on the run from federal prosecuters in Santa Monica, California. Bulger would knock on the door of Josh Bond, his apartment's general manager, pretty regularly and come in for a chat. Of course, Bond knew them by their aliases, Charlie and Carol Gasko, and not by their real names. At first, Josh was reluctant to have this strange man in his house so often, but he eventually complied. Through Bulger's regular visits, the two developed an odd friendship: 

Josh, then, was yin to Whitey’s yang—with a natural reserve that was actually refined as a result of working in the service industry. Josh’s job required a helpful, friendly demeanor as he dealt with people all day long, but as a matter of survival he self-consciously developed the ability to smile and project the appearance of being attentive when in fact he was zoning out. Plus, he’d learned to say little and ask few questions, because that would simply extend conversations. This served Whitey perfectly—talking to someone bright and youthful but without the kind of inquiring mind that might create problems. He’d arrive home in the afternoon—his lunch break when working the hotel desk—and then would come the knock, and in would come Whitey. “He would start talking,” Josh said. “Talk about anything.” Talk until Josh stood up. “Okay, I got to go back to work.”

By this account, some have drawn a strange connection. The New York Observer's Hunter Walker was the first connect Bulger an Bond to Kramer and Jerry:

RELATED: Would You Recognize Whitey Bulger's Girlfriend, Catherine Greig?

Kramer was always the annoying-but-loveable next door neighbor that Jerry put up with, not unlike Bulger and Bond. The big difference is one man was a former crime boss and murderer. The other was, well, the other is Kramer. 

RELATED: Whitey Bulger Pleads Not Guilty on 19 Murder Charges

Bulger eventually started giving Bond unsolicited gifts, and he stuck by surprisingly strict rules of decorum. After receiving one Christmas present from Bulger, Bond was chastised for not writing a thank you note. Fans of The Wire are nodding, flashing back to the scenes where the Barksdale organization would run their meeting according to Robert's Rules of Order. 

RELATED: Strauss-Kahn's Fame in New York City Came After His Arrest

The whole excerpt eventually goes on to detail how, exactly, the FBI and U.S. Marshalls found Bulger in his sunny retirement in Santa Monica. It's one of the best things you'll read today. 

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Head of Mexico's powerful teachers' union arrested

MEXICO CITY (AP) — The head of Mexico's powerful teachers' union was arrested at an airport outside Mexico City Tuesday for alleged embezzlement, with federal officials accusing her using union funds to pay for plastic surgery, rent a private plane and even pay her bill at Neiman Marcus.

Attorney General Jesus Murillo Karam said that Elba Esther Gordillo, who has led the 1.5 million-member National Union of Education Workers for 23 years, was detained in Toluca on charges that she embezzled about 2 billion pesos (about $160 million) from union funds.

Gordillo's arrest marks the downfall of a colorful woman long seen as a kingmaker and power-behind-the-scenes in Mexican politics. It comes a day after President Enrique Pena Nieto signed Mexico's most sweeping education reform in seven decades into law, seeking to change a system dominated by Gordillo in which teaching positions could be sold or inherited.

"We are looking at a case in which the funds of education workers have been illegally misused, for the benefit of several people, among them Elba Esther Gordillo," Murillo Karam said.

Prosecutors say the funds were drained from union accounts and later channeled through accounts in Switzerland and Lichtenstein. They said they had detected a whopping $2.7 million in purchases at Neiman Marcus using those funds, as well as $17,000 in U.S. plastic surgery bills and the purchase of a million-dollar home in San Diego.

"Between 2008 and 2012, there was systematic embezzlement of union accounts," Murillo Karam said.

Gordillo made little attempt to hide her extravagant, opulent lifestyle with designer clothing and accessories, a habit that drew heated criticism in a country where public

The overhaul of Mexico's education system was Pena Nieto's first major proposal since taking office Dec. 1 and was considered a political blow to Gordillo.

The plan moves much of the control of the education system to the federal government from the teachers' union. Gordillo was elected to another six-year term as union leader in October. She was the only candidate and there was not a single dissenting vote.

For years, she has beaten back attacks from union dissidents, political foes and journalists who have seen her as a symbol of Mexico's corrupt, old-style politics. Rivals have accused her of corruption, misuse of union funds and even a murder, but prosecutors who investigated never brought a charge against her.

She was expelled from Pena Nieto's Institutional Revolutionary Party in 2006 for supporting other parties' candidates and the formation of her own New Alliance party.

Gordillo's arrest recalled the 1989 arrest of another once-feared union boss, Joaquin Hernandez Galicia, known as "La Quina." The longtime head of Mexico's powerful oil workers union, Hernandez Galicia was arrested during the first months of the new administration of then-President Carlos Salinas.

Like Gordillo, Hernandez Galicia's power was believed to represent a challenge to the president, and his arrest was interpreted as an assertion of the president's authority. He was freed from prison after Salinas de Gortari left office.

In 1988, he criticized Salinas' presidential candidacy and threatened an oil workers' strike if Salinas privatized any part of the government oil monopoly, Petroleos Mexicanos, or Pemex. On Jan. 10, 1989, — about a month after Salinas took office — soldiers used a bazooka to blow down the door of Hernandez' home in the Gulf Coast city of Ciudad Madero.

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Traumatized Malians desperately in need of aid, says U.N.

UNITED NATIONS (Reuters) - Malians in the country's vast desert north are scared and in desperate need of aid, traumatized at the hands of Islamist extremists and fearful of ethnic reprisals by government troops, a senior U.N. humanitarian official said on Tuesday.

John Ging, director of operations for the U.N. Office for the Coordination of Humanitarian Affairs, said a U.N. appeal for $373 million to fund aid operations in the West African state had so far only received $17 million.

Mali's Tuareg rebels seized control of the Saharan north last year but were pushed aside by better-armed al Qaeda-affiliated Islamist groups, which imposed severe sharia (Islamic law) including stoning for adulterers, amputations for thieves, forcing women to don veils and banning music and smoking.

A French-led military operation started last month has since driven insurgents from northern towns such as Gao and Timbuktu, and is now focused on the remote northeast mountains and desert that includes networks of caves, passes and porous borders.

"People are in fear, people are traumatized, the brutality ... moved men to tears. It's really very raw and heartfelt," Ging told reporters at the United Nations in New York after returning from a four-day visit to northern Mali.

"They're fearing both the return of the extremists and also they fear reprisals," he said, referring to worries that Malian troops will carry out ethnic reprisals against light-skinned Tuaregs and Arabs associated with the Islamists.

Malian troops have already been accused by international human rights groups of revenge killings of suspected Islamist rebels and sympathizers in retaken areas.

A U.N.-backed African force, known as AFISMA, is due to take over leadership of the military operation when France begins to withdraw forces from its former West African colony. Once combat operations end, the U.N. Security Council is considering converting AFISMA to a peacekeeping force, diplomats say.

Ging said some 431,000 people had so far fled northern Mali. "Those that were displaced, they do not feel yet that it is safe to return. The people who never left don't feel it's safe," he said. "It's most definitely safer than it was."

During his visit, Ging said he had met boys with amputated limbs and heard horrific stories of rape and harrowing accounts of other atrocities. He said the priority of the people was security, to get help for the agricultural industry and to rebuild the education system.

(Reporting by Michelle Nichols; Editing by Doina Chiacu)

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White House, Republicans dig in ahead of budget talks

WASHINGTON (Reuters) - Positions hardened on Wednesday between President Barack Obama and Republican congressional leaders over the budget crisis even as they arranged to hold last-ditch talks to prevent harsh automatic spending cuts beginning this week.

Looking resigned to the $85 billion in "sequestration" cuts starting on Friday, government agencies began reducing costs and spelling out to employees how furloughs will work.

Expectations were low that a White House meeting on Friday between Obama and congressional leaders, including Republican foes, would produce any deal to avoid the cuts.

Public services across the country - from air traffic control to food safety inspections and education - might be disrupted if the cuts go ahead.

Put into law in 2011 as part of an earlier fiscal crisis, sequestration is unloved by both parties because of the economic pain it will cause, but the politicians cannot agree how to stop it.

A deal in Congress on less drastic spending cuts, perhaps with tax increases too, is needed by Friday to halt the sequestration reductions, which are split between social programs cherished by Democrats and defense spending championed by Republicans.

Obama stuck by his demand that Republicans accept tax increases in the form of eliminating tax loopholes enjoyed mostly by the wealthy as part of a balanced approach to avoiding sequestration.

"There is no alternative in the president's mind to balance," White House spokesman Jay Carney told reporters.

Obama wants to end tax breaks for oil and gas companies and the lower "carried interest" tax rate enjoyed by hedge funds.

But Republicans who reluctantly agreed to raise income tax rates on the rich to avert the "fiscal cliff" crisis in December are in no mood for that.

"One thing Americans simply will not accept is another tax increase to replace spending reductions we already agreed to," said Senate Republican leader Mitch McConnell.

In one of the first concrete effects of the cuts, the administration took the unusual step of freeing several hundred detained illegal immigrants because of the cost of holding them.

Republicans described that move by Immigration and Customs Enforcement (ICE) as a political stunt aimed at scaring them into agreeing to end the sequestration on Obama's terms.

The issue looked like it might become more controversial on Wednesday when The Associated Press reported that the Homeland Security Department official in charge of immigration enforcement and removal had announced his resignation on Tuesday just after news of the immigrants' releases came out.

But ICE said the report was "misleading." The official, Gary Mead, told ICE weeks ago of his retirement in April after 40 years of federal service, a spokeswoman said. Earlier, Carney denied the White House had ordered the immigrants' release.

Friday's White House meeting will include McConnell and the other key congressional leaders: Senate Democratic leader Harry Reid, House of Representatives Democratic leader Nancy Pelosi, and House Speaker John Boehner, the top U.S. Republican.

'BELATED FARCE'?

The chances of success were not high.

One congressional Republican aide criticized the White House for calling the meeting for the day the cuts were coming into effect. "Either someone needs to buy the White House a calendar, or this is just a - belated - farce. They ought to at least pretend to try."

Unlike during other fiscal fights in Congress, the stock market is taking the sequestration impasse calmly.

U.S. stocks rose, with major indexes posting their best daily gains since early January, as Federal Reserve Chairman Ben Bernanke remained steadfast in supporting the Fed's stimulus policy and data pointed to economic improvement.

On Thursday, the Senate is expected to vote on competing Democratic and Republican ideas for replacing the sequestration. Both measures are expected to be defeated.

The Republican plan unveiled late on Wednesday would let the sequestration go into effect on Friday, but require Obama to submit an alternative $85 billion spending reduction plan to Congress by March 15, thus allowing more flexibility on how the cuts would be carried out.

Congress would have until March 22 to reject the proposal, in which case the original sequestration would remain in place. Democrats were still studying it. But on Tuesday, Senate Majority Leader Harry Reid said new revenues needed to be part of any substitute plan.

The Democratic proposal would replace the across-the-board cuts mainly with tax increases on the rich coupled with spending cuts. Some of those would be achieved by eliminating crop subsidies for large agricultural companies. More savings would be through minor defense cuts in later years.

Republicans have vowed to block any tax increases for deficit reduction.

Bernanke said sequestration was too drastic an approach for reducing the budget deficit.

"What I am advising is a more gradual approach. I'm not saying we should ignore the deficit. I am not saying we shouldn't deal with long-term fiscal issues, but I think that from the perspective of our recovery, a more gradual approach would be constructive," he told a House Financial Services Committee hearing.

Among many warnings from the Obama administration of possible damage to public services, the Air Force said its Thunderbirds exhibition flying team is expected to be grounded if sequestration happens.

The Pentagon will put most of its 800,000 civilian employees on unpaid leave for 22 days, slash ship and aircraft maintenance and curtail training.

But the full weight of sequestration will take place over seven months, allowing Obama and the Republicans time to work out a deal after the cuts begin this week.

White House spokesman Carney said sequestration would officially start just before midnight on Friday night if no deal were reached.

Government agencies began to tell employees how sequestration will force them to take furloughs. The Environmental Protection Agency acting head, Bob Perciasepe, told employees in an email that the agency did not know how much of its budget will be cut but it was working on an estimate of 5 percent.

"What might that mean for our employees? If the sequester order requires a 5.0% cut, the impact could be up to 13 furlough days," he said. That would likely mean four furlough days by June 1, he said.

(Additional reporting by Mark Felsenthal, Rick Cowan and Valerie Volcovici; Writing by Alistair Bell; Editing by Tim Dobbyn and Lisa Shumaker)

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Battling a scandal, Britain's deputy PM under pressure in vote

LONDON (Reuters) - Fewer than 100,000 residents of an English town that hardly anyone outside Britain has heard of will vote on Thursday in an election that could help determine the political fate of the country's deputy prime minister and, ultimately, its government.

The poll to choose a member of parliament for Eastleigh may prove make-or-break for Nick Clegg's leadership of the Liberal Democrats, the junior member of Britain's two-party coalition.

"Most by-elections are events of only fleeting interest. Some are sufficiently dramatic to linger a while in the memory. Only a few truly matter. Eastleigh could be one of these," Peter Kellner, the president of YouGov, the pollster, said.

On Wednesday, during last-minute campaigning in Eastleigh, Clegg predicted his party was "on the cusp of a great victory".

If he is right, the pressure he is facing, from the media and from within his own party, may ease. But if his Conservative coalition partners pip the Liberal Democrats, or the UK Independence Party pulls off a surprise victory, his leadership may be challenged ahead of a party conference next week.

Many Liberal Democrat supporters have become disenchanted with their party's alliance with the Conservatives, arguing it has betrayed core values on the altar of political expediency. Much of that criticism has been directed at Clegg.

"If the Tories do win, then we may well look back in years to come as the contest that marked the beginning of the end of the current coalition," said YouGov's Kellner.

NOT REFLECTIVE OF NATIONAL TREND

The Eastleigh vote does not reflect national sentiment - the opposition Labour party leads in the polls nationally with the Liberal Democrats trailing in third or fourth place.

Most opinion polls show Clegg's party the narrow favorite to win, with the Conservatives running a close second and UKIP third. But its lead in the polls - 5 percent - is within the margin of error and a last-minute swing in favor of the Conservatives could rob it of victory.

The election comes at a time when Clegg's leadership of his leftist party, without whom the rightist Conservatives cannot govern or pass legislation, also faces specific pressures.

A sex scandal that has ensnared Chris Rennard, his party's former chief executive, has raised difficult questions for Clegg about what he knew about the imbroglio and when and how he dealt with it, amid accusations of a cover-up.

Rennard strongly denies the accusations, which center on allegations of sexual misconduct towards female party workers, while Clegg says he was only previously aware of "non-specific" and "anonymous" allegations which could not be acted upon.

The circumstances surrounding the Eastleigh vote, which comes almost two and a half years before a general election, are embarrassing for Clegg's party.

The seat, one of 650 in Britain's lower house of parliament, was won by the Liberal Democrats in 2010. But the victor, Chris Huhne, who went on to become energy minister, had to resign on February 4 after a lawsuit over a speeding offence.

Huhne pleaded guilty to perverting the course of justice and now faces jail.

(Editing by Louise Ireland)

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Senate approves Lew as new Treasury chief

WASHINGTON (Reuters) - The Senate Finance Committee on Tuesday backed President Barack Obama's nominee to head the U.S. Treasury, Jack Lew, despite some concerns about his perks from previous employers, clearing the way for a confirmation vote in the full Senate.

With the 19-5 vote, about half the panel's 11 Republicans opposed Lew's nomination. Senate Democratic leader Harry Reid said he was hoping to consider Lew's nomination on Wednesday, but was still seeking agreement with Republicans.

Five Republicans on the committee also voted against Timothy Geithner, the previous Treasury secretary, who left last month.

Some Republicans hold deep reservations about the nomination and it is unclear whether they will throw up procedural hurdles to the vote. Nevertheless, Lew is expected eventually to win confirmation in the Senate, where Democrats hold a 53-45 majority.

Senate approval would pitch Lew into the heated budget battle between the White House and congressional Republicans. Both sides oppose the estimated $85 billion in across-the-board government spending cuts set to take effect on Friday, but disagree about alternatives.

Previously Obama's chief of staff and budget director for both Obama and former President Bill Clinton, Lew is a policy wonk who has spent much of his career in public service in Washington. But some observers have questioned his financial expertise and international credentials.

'NOT ANOTHER ACOLYTE'

The top Republican on the Finance Committee, Senator Orrin Hatch, said he supports Lew as head of the Treasury Department in deference to Obama, but has "serious reservations" about him.

"I hope we end up with the Jack Lew of the Clinton administration, not just another acolyte of the Obama White House," Hatch said before the panel vote.

At a hearing on his nomination earlier this month, Republicans also grilled Lew about an investment he once held in a fund linked to the Cayman Islands and a nearly $1 million dollar bonus he received from Citigroup in 2009 just before the bank got a taxpayer-funded bailout.

In addition, Senator Charles Grassley, the No. 2 Republican on the Finance Committee, said he was unsatisfied with Lew's response to questions about a $1.4 million loan he received while working as an executive with New York University.

"If Mr. Lew will not answer our questions now, why should we on this committee expect him to answer any questions if he's confirmed?" Grassley said before voting against Lew.

TAX PRIORITIES

Lew has said revamping the U.S. tax code would be a top priority if he wins confirmation. The tax system was last fully overhauled in 1986, though prospects for achieving tax reform are clouded by Washington's constant fiscal fights and conflict over whether new revenue is needed to cut budget deficits.

He will also deal with implementing new financial regulations, China's growing economic clout and winding down government-controlled mortgage finance giants Fannie Mae and Freddie Mac.

In addition, he may have to start paying more attention to Europe, where financial markets are on edge over election results in Italy that some analysts fear could exacerbate the euro zone's debt crisis.

Lew answered at least 444 written questions from the senators on the Finance Committee on these matters and others. Geithner was required to answer fewer than half that number when he was seeking confirmation.

While a few lawmakers, including Senator Jeff Sessions, the top Republican on the Budget Committee, plan to vote against Lew when his confirmation gets to the full Senate, Senate Democrats believe they have the requisite 60 votes to get Lew through the process even if some hurdles are raised.

(Additional reporting by Rachelle Younglai; Editing by Todd Eastham)

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China likely to appoint expert on North Korea, Japan as foreign minister

BEIJING (Reuters) - China is likely to appoint an expert on Japan and North Korea as its next foreign minister, three independent sources said, in a measure of Beijing's resolve to improve difficult relationships with two of its closest neighbors.

Barring last-minute changes, Wang Yi, 59, China's ambassador to Japan from 2004 to 2007, was likely to be appointed foreign minister during the annual full session of parliament next month, the sources said.

A fluent Japanese speaker, he was China's main representative to the six-party talks on North Korea from 2007-2008, and was a counselor and later minister counselor at the Chinese Embassy in Tokyo from 1989 to 1994.

"China is sending a signal that Sino-Japanese relations will be the most important of important issues," a source with ties to the leadership told Reuters, requesting anonymity to avoid repercussions for speaking to foreign reporters.

Tensions over uninhabited islands in the East China Sea - claimed by Beijing as Diaoyu and by Tokyo as Senkaku - flared last year, raising fears of a miscalculation and an unintended military confrontation.

Wang was to replace Yang Jiechi, 62, who was tipped to be promoted to foreign policy tsar as one of five state councillors, the sources said. The post is senior to that of foreign minister.

The source with ties to the leadership said deteriorating ties with Japan could be improved.

"Wang Yi is like Zhou Enlai - a modest gentleman with a scholarly bearing," the source said, referring to China's first premier and foreign minister. "He will exercise restraint, is rational and wise."

The islands, also claimed by Taiwan, are one of several maritime territorial disputes involving China that have worsened as Washington shifts its security focus to Asia.

Wang's two immediate predecessors were former ambassadors to Washington before taking over the foreign policy portfolio.

But mending fences with Tokyo will be no easy task.

"Japan must first recognize the Diaoyus are disputed," a second source said. "If Japan insists there is no dispute, then what is there to talk about?"

Since 2008, Wang has been minister of the cabinet's Taiwan Affairs Office, which implements policy towards the self-ruled democratic island Beijing claims as its own.

During his time in that role, he has overseen steadily warming ties with Taiwan, including the signing of landmark trade and economic agreements.

From 2007 to 2008, Wang was China's point man on six-party talks involving the two Koreas, the United States, Japan and Russia aimed at curbing Pyongyang's nuclear ambitions.

North Korea conducted a third nuclear test on February 12 and is ready to go ahead with a fourth and possibly fifth test.

China is the North's only major ally and while it appears to be exasperated with the isolated state's belligerent behavior and is likely to agree with U.N. sanctions, it is not likely to cut food or fuel supplies.

"Wang Yi is familiar with the North Korean issue, but it is complicated and more difficult (to resolve) than scaling the heavens unless the United States is willing to help," the second source said.

Vice Foreign Minister Zhang Zhijun, 60, was widely expected to become minister of the Communist Party's International Department, which deals with foreign political parties, including Pyongyang's ruling Workers' Party of Korea, the sources said. Zhang was vice minister of the department from 2000 to 2009.

Another vice foreign minister, Cui Tiankai, 60, was to be named ambassador to the United States, the sources said.

(Additional reporting by Ben Blanchard; Editing by Raju Gopalakrishnan)

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Saban: 4 arrested Bama players dismissed from team

TUSCALOOSA, Ala. (AP) — Four players for two-time defending national champion Alabama have been dismissed from school following their arrests after two robberies on campus.

University spokeswoman Deborah Lane said Wednesday that linebackers D.J. Pettway and Tyler Hayes, safety Eddie Williams and H-back Brent Calloway are no longer enrolled after a judicial review.

Crimson Tide coach Nick Saban had earlier said the players "are no longer associated with the football program."

"Their actions do not reflect the spirit and character that we want our organization to reflect," Saban said. "It's obviously very disappointing and unacceptable what happened.

"I also think I'm really proud over the last five years that our team has done a very good job with their personal responsibility and how they've represented the university. Some people learn by words, some people learn by consequences, some people can't learn."

Pettway, Williams and Hayes are charged with two counts of second-degree robbery. Williams and Calloway, who was not accused in the robberies, are charged with fraudulent use of a credit card.

Williams confessed to robbing a student who was punched in the head and face and kicked in the ribs and back. He said Pettway and Hayes watched him commit another robbery from a nearby vehicle about an hour later, according to court documents.

Hayes, 18, admitted to participating in the first robbery and watching the second, court documents said.

Williams and Calloway, both 20, are scheduled for preliminary hearings on March 19 in Tuscaloosa District Court.

Those two and 18-year-old Pettway have requested youthful offender status.

The first student reported having his Apple Macbook Pro stolen from his backpack. Both sustained mild concussions, cuts on the face and heavy swelling, and had items stolen, according to court documents.

All four players were backups last season for Alabama, which has won three of the past four BCS titles. Williams didn't play in 2012, but he was one of the nation's top prospects the previous year and moved from receiver to safety.

Saban also updated the status of four other players regarding injury or suspension.

Cornerback John Fulton and wide receiver Kevin Norwood are not participating in offseason conditioning workouts with turf toe injuries. Saban said both are uncertain for spring practice.

Saban said Fulton had surgery after the season and the recovery time is typically about three months. Alabama opens spring practice on March 16.

He said receiver Marvin Shinn has left the team and fellow receiver Danny Woodson is suspended for violating team rules and won't participate in spring practice.

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Yahoo memo sparks debate on pros and cons of working at home

LONDON (Reuters) - An internal memo at Yahoo Inc introducing a ban on working from home has sparked a debate on whether remote working leads to greater productivity and job satisfaction or kills creativity and is just a chance to slack off.

Working remotely has become commonplace due to technology and has been welcomed particularly by people with young families or those facing long and expensive commutes.

Statistics from the U.S. Bureau of Labour show nearly 25 percent of full-time workers did some work at home in 2010.

A survey by the Confederation of British Industry (CBI) found 59 percent of UK companies in 2011 offered some kind of teleworking, a jump from 13 percent in 2006, with small companies leading the trend to help cut office costs.

But Yahoo Chief Executive Marissa Mayer has ruled that staff can no longer work from home from June this year, as outlined in the widely leaked internal memo which appeared on newspaper websites and online forums on Tuesday.

"Some of the best decisions and insights come from hallway and cafeteria discussion, meeting new people, and impromptu team meetings. Speed and quality are often sacrificed when we work from home," said the memo attributed to Yahoo human resources head Jacqueline Reses.

Asked about the memo, a Yahoo spokesman said the company does not comment on internal matters.

Mayer, 37, who returned to work two weeks after the birth of her first child last year, was brought to Yahoo from Google to revive the company's diminishing fortunes.

Her decision to clamp down on remote working met a wall of criticism from proponents of a flexible workplace to improve the work-life balance, boost motivation, and keep women at work.

"It's incredibly disappointing," said Jennifer Owens, spokeswoman for website Working Mother, adding most women were delighted when a pregnant Mayer took over the helm of Yahoo.

"Her plan ... is to lead her workforce back to the last century by banning work-from-home policies across the company."

STEP BACKWARDS

Richard Branson, head of Virgin Group, said the move by Yahoo! undermined the trust that staff would get their work done wherever, without supervision, as working is no longer 9-5.

"This seems a backwards step in an age when remote working is easier and more effective than ever," Branson wrote in a blog on the Virgin website.

"If you provide the right technology to keep in touch, maintain regular communication and get the right balance between remote and office working, people will be motivated to work responsibly, quickly and with high quality."

Britain's BT Group, one of the first UK companies to adopt teleworking, said about 69,000 of its 89,000 staff were equipped to work flexibly of which about 9,400 are home workers.

The company said this led to benefits like accommodation savings, increased productivity and reduced sick absence, adding 99 percent of women returned to BT after maternity leave.

"Our flexible working policies can also achieve a better balance between work and family commitments, which can be especially important for those with young families or caring responsibilities," a BT spokesman said.

Flexible working was cited in a careerbuilder.com survey released last month as one of the most important factors in job satisfaction and staying with a company.

The Harris Interactive survey of 3,900 U.S. workers between November 1 and 30 last year found 59 percent said flexible schedules were important and 33 percent cited the ability to work from home over having an office or a company car.

Guy Bailey, CBI's head of employee relations, said flexibility can be a real win-win for companies and their staff, acting as a recruitment and retention tool for businesses and letting staff balance their working and home lives.

"However, it needs to work for both parties, so home-working arrangements will understandably vary from company to company," he told Reuters.

A 2011 survey of 1,500 workers in 15 European nations commissioned by Microsoft Corp found only 52 percent of people trust colleagues to work productively away from the office.

This was reflected in comments by some former employees of Yahoo who backed Mayer, saying she was making the right call because many employees were abusing the system.

Several unnamed ex-employees told the website Business Insider that Yahoo's large remote workforce led to "people slacking off like crazy, not being available, and spending a lot of time on non-Yahoo projects."

(Reporting by Belinda Goldsmith, editing by Paul Casciato)

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Fiery balloon accident kills 19 tourists in Egypt

LUXOR, Egypt (AP) — The terror lasted less than two minutes: Smoke poured from a hot air balloon carrying sightseers on a sunrise flight over the ancient city of Luxor, it burst in a flash of flame and then plummeted about 1,000 feet to earth. A farmer watched helplessly as tourists trying to escape the blazing gondola leaped to their deaths.

Nineteen people were killed Tuesday in what appeared to be the deadliest hot air ballooning accident on record. A British tourist and the Egyptian pilot, who was badly burned, were the sole survivors.

The tragedy raised worries of another blow to the nation's vital tourism industry, decimated by two years of unrest since the 2011 revolution that toppled autocrat Hosni Mubarak. The southern city of Luxor has been hit hard, with vacant hotel rooms and empty cruise ships.

It also prompted accusations that authorities have let safety standards decline amid the political turmoil and infighting, although civil aviation officials said the balloon had been inspected recently and that the pilot may have been to blame, jumping out rather than stopping the fire.

Authorities suspended hot air balloon flights, a popular tourist attraction here, while investigators determined the cause.

The balloon was carrying 20 tourists — from France, Britain, Belgium, Japan and Hong Kong — and an Egyptian pilot on a flight over Luxor, 510 kilometers (320 miles) south of Cairo, officials said. The flights provide spectacular views of the ancient Karnak and Luxor temples and the Valley of the Kings, the burial ground of Tutankhamun and other pharaohs.

According to initial indications, the balloon was in the process of landing after 7 a.m. when a cable got caught around a helium tube and a fire erupted, according to an investigator with the state prosecutor's office.

The balloon then ascended rapidly, the investigator said. The fire detonated a gas canister and the balloon plunged about 300 meters (1,000 feet) to the ground, crashing in a sugar cane field outside al-Dhabaa village just west of Luxor, a security official said.

Both the investigator and the security official spoke on condition of anonymity because they were not authorized to talk to the media.

"I saw tourists catching fire and they were jumping from the balloon," said Hassan Abdel-Rasoul, a farmer in al-Dhabaa. "They were trying to flee the fire but it was on their bodies."

One of those on fire was a visibly pregnant woman, he said.

Amateur video taken from another balloon and shown on Al-Jazeera Mubasher television showed the balloon's final moments.

Smoke is seen rising for several seconds from the gondola, silhouetted against the risen sun. The balloon itself catches fire with a flash, and in an instant, it bursts and falls as a fireball to the ground, trailing smoke. Egyptians on the balloon filming the scene can be heard crying and gasping in horror at the sight.

The bodies of the tourists were scattered across the field around the remnants of the balloon, as rescue officials collected the remains.

The crash immediately killed 18, according to Luxor Gov. Ezzat Saad. Two Britons and the pilot were taken to a hospital, but one of the Britons died of his injuries soon after.

Among the dead were nine tourists from Hong Kong, four Japanese — including a couple in their 60s — two French, a Belgian and a second Briton, according to Egyptian officials, although there were conflicting reports on the nationality of the 19th victim.

The toll surpasses what was believed by ballooning experts to be the deadliest accident in the sport's 200-year history: In 1989, 13 people were killed when their hot air balloon collided with another over the Australian outback near the town of Alice Springs.

Luxor has seen crashes in the past. In 2009, 16 tourists were injured when their balloon struck a cellphone transmission tower. A year earlier, seven tourists were injured in a similar crash.

After the 2009 accident, Egypt suspended hot air balloon flights for several months and tightened safety standards. Pilots were given more training, and a landing spot was designated for the balloons.

The head of the Civil Aviation Administration, Mohammed Sherif, told The Associated Press at the scene of the crash that the pilot had just renewed his license in January.

"Each time we renew the license, we check up the balloon and we test the pilot," Sherif said.

An aviation official, speaking on condition of anonymity because he wasn't authorized to talk to reporters, blamed the pilot, saying initial results of the investigation showed he jumped out when the fire began, instead of shutting off valves that would have prevented the gas canister from exploding.

But the crash raised accusations that standards have fallen. Mohammed Osman, head of the Luxor's Tourism Chamber, blamed civil aviation authorities, who are in charge of licensing and inspecting balloons, accusing them of negligence.

"I don't want to blame the revolution for everything, but the laxness started with the revolution," he said. "These people are not doing their job, they are not checking the balloons and they just issue the licenses without inspection."

The Civil Aviation Ministry, like much of the government administration, has seen political disputes since President Mohammed Morsi came to power in June as Egypt's first freely elected leader.

The ministry was long dominated by military officers or former officers, some of whom have resented control by a civilian president, particularly one from the Muslim Brotherhood. In other ministries, observers say Brotherhood members have been appointed, or included as volunteers, in many posts.

One civil aviation ministry official told the AP that standards have fallen since civilians were brought in to some middle-ranking positions. The official said inspections have become more lax, taking place once a month instead of weekly. The official spoke on condition of anonymity in order to talk about the industry.

The crash added to the woes for residents of Luxor. Scared off by the turmoil and tenuous security following the uprising, the number of tourists coming to Egypt fell to 9.8 million in 2011 from 14.7 million the year before, and revenues plunged 30 percent to $8.8 billion. Last year saw a slight rise, but most tourists go to the beach resorts of the Red Sea, staying away from Nile Valley sites like Luxor.

That has been devastating for the local economy, with some government estimates saying that 75 percent of the labor force is connected to tourism. Luxor's hotels are about 25 percent full in what is supposed to be the peak of the winter season.

Poverty swelled at the country's fastest rate in Luxor. In 2011, 39 percent of its population lived on less than $1 a day, compared with 18 percent in 2009, according to government figures.

Mohammed Haggag, owner of Viking, a company that runs seven balloons in Luxor, said the flight shutdown meant that the whole industry was suffering for one pilot's mistake.

"Why the mass punishment? Do you stop all flights when you have a plane crash?" he said. "You will cut the livelihoods for nearly 3,000 human beings who live on this kind of tourism."

Khaled Wanis, the owner of a shop selling tourist trinkets near Luxor Temple, said the past two years have been the worst he has ever seen.

"I can spend a week or 10 days before a customer knocks my door," he said. "Since I heard the news today, I felt ache in my heart.

"The general feeling is that Egypt is hard to visit and this is not a safe place to visit. The accident will only add to this feeling," Wanis said. "We are begging for tourists. Now, they get killed, so what do you expect?"

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Associated Press writers Haggag Salama in Luxor, Kelvin Chan in Hong Kong, Jill Lawless in London and Angela Charlton in Paris contributed to this report.

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