Shares, euro rebound, Italy bond sale in focus


LONDON (Reuters) - Reassurance from the U.S. Federal Reserve about its stimulus program helped stabilize the euro and European shares on Wednesday, as Italy prepared to test the reaction to its inconclusive election in the bond market.


Italy will auction up to 6.5 billion euros of new 5- and 10-year bonds at around 1000 GMT after gridlocked elections reignited fears about the euro zone debt crisis.


"Markets have started to price in risks of ungovernability of the country in the coming months, with possible domino effects on the rest of the euro area," said Newedge economist Annalisa Piazza.


"Political instability is expected to prevail ...and even a grand coalition government would be seen only as a temporary option, probably not able to continue the so-much needed reforms process."


Having fallen sharply on Tuesday following the Italian stalemate, European shares <.fteu3> rebounded 0.4 percent as trading resumed with 0.8 percent rises in Milan's FTSE MIB <.ftmib> and Spain's IBEX <.ibex> the leading the gains.


The mood was helped after Federal Reserve Chairman Ben Bernanke defended the U.S. central bank's monetary stimulus on Tuesday, easing financial market worries over a possible early retreat from bond purchases.


The euro also regained ground, rising 0.2 percent to $1.3085 having hit a seven-week low of $1.3017 on Tuesday.


In the bond market Italian yields, which rise as prices fall, inched up again, while German government bonds , a favourite of risk-adverse investors, also added to this week's hefty gains.


"Italy remains the centre of attention and I can't see it getting any better," one trader said. "Supply will be the main focus and ... it could be a bit of a problem."


(Editing by Anna Willard)



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India Ink: What the Rail Budget 2013-14 Means for Passengers

Indian Railways Minister Pawan Kumar Bansal presented the railways budget for the financial year 2013-14 in Parliament in New Delhi on Tuesday.

This was the first time in 17 years that a politician from the Indian National Congress made the railways budget speech, as the ministry has frequently been offered to allies in coalition governments.

The minister did not announce additional unpopular passenger fare hikes, as the fares were hiked last month, but he did announce increases to a score of other charges, which mean the overall price many passengers pay will increase.

Here are some of the measures which could impact the estimated 25 million people who ride the trains every day.

  • Supplementary fare charges will be increased, including ticket cancellation charges, tatkal (or last-minute booking) charges and super fast train reservation charges.
  • 26 new passenger trains will be introduced.
  • 67 new express trains will be introduced.
  • Frequency of 24 trains will be increased.
  • Online railway bookings will now be available nearly round-the-clock on the Indian Railways website, or from 12:30 a.m. until 11:30 p.m.
  • Improved online service support will allow 7,200 tickets to be booked per minute.
  • 120,000 users will be able to access the online system at any one time, an improvement over the existing 40,000 users.
  • Green initiatives on trains, including “bio toilets,” will be introduced.
  • There will be improvements in infrastructure and quality of food. Some trains will have wi-fi facilities.
  • The 152,000 positions now vacant in the railways will be filled.
  • Eight new units of the railway protection force, or R.P.F., will be introduced to improve the safety of women on trains, and 10 percent of the recruits will be women.
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    The Bachelor's Sean Lowe Reveals Final Two






    The Bachelor










    02/25/2013 at 10:30 PM EST







    From left: AshLee, Lindsay and Catherine


    Kevin Foley/ABC(3)


    And then there were two.

    After three incredible dates in Thailand with the remaining women, The Bachelor's Sean Lowe faced a difficult decision at the end of Monday's episode: Would he send home AshLee, Catherine or Lindsay?

    Keep reading to find out who got a rose – and who was left heartbroken ...

    Sean said goodbye to early favorite AshLee in a surprising elimination that left her virtually speechless.

    Visibly upset, AshLee left Sean's side without saying goodbye. She even asked him to not walk her to the waiting car that would take her away.

    But Sean did get to explain. "I thought it was you from the very beginning," he said. "This was honestly the hardest decision I've ever had to make ... I think the world of you. I did not want to hurt you."

    "This wasn't a silly game for me," AshLee said as the car drove away. "This wasn't about a joy ride. It wasn't about laughing and joking and having fun."

    She added: "It's hard to say goodbye to Sean because I let him in ... It's the ultimate [rejection]."

    Check back Tuesday morning for Sean Lowe's blog post to read all about his Thailand dates and why he chose to send AshLee home

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    Koop, who transformed surgeon general post, dies


    With his striking beard and starched uniform, former Surgeon General Dr. C. Everett Koop became one of the most recognizable figures of the Reagan era — and one of the most unexpectedly enduring.


    His nomination in 1981 met a wall of opposition from women's groups and liberal politicians, who complained President Ronald Reagan selected Koop, a pediatric surgeon and evangelical Christian from Philadelphia, only because of his conservative views, especially his staunch opposition to abortion.


    Soon, though, he was a hero to AIDS activists, who chanted "Koop, Koop" at his appearances but booed other officials. And when he left his post in 1989, he left behind a landscape where AIDS was a top research and educational priority, smoking was considered a public health hazard, and access to abortion remained largely intact.


    Koop, who turned his once-obscure post into a bully pulpit for seven years during the Reagan and George H.W. Bush administrations and who surprised both ends of the political spectrum by setting aside his conservative personal views on issues such as homosexuality and abortion to keep his focus sharply medical, died Monday at his home in Hanover, N.H. He was 96.


    An assistant at Koop's Dartmouth College institute, Susan Wills, confirmed his death but didn't disclose its cause.


    Dr. Richard Carmona, who served as surgeon general a decade ago under President George W. Bush, said Koop was a mentor to him and preached the importance of staying true to the science even if it made politicians uncomfortable.


    "He set the bar high for all who followed in his footsteps," Carmona said.


    Although the surgeon general has no real authority to set government policy, Koop described himself as "the health conscience of the country" and said modestly just before leaving his post that "my only influence was through moral suasion."


    A former pipe smoker, Koop carried out a crusade to end smoking in the United States; his goal had been to do so by 2000. He said cigarettes were as addictive as heroin and cocaine. And he shocked his conservative supporters when he endorsed condoms and sex education to stop the spread of AIDS.


    Chris Collins, a vice president of amFAR, the Foundation for AIDS Research, said many people don't realize what an important role Koop played in the beginning of the AIDS epidemic.


    "At the time, he really changed the national conversation, and he showed real courage in pursuing the duties of his job," Collins said.


    Even after leaving office, Koop continued to promote public health causes, from preventing childhood accidents to better training for doctors.


    "I will use the written word, the spoken word and whatever I can in the electronic media to deliver health messages to this country as long as people will listen," he promised.


    In 1996, he rapped Republican presidential hopeful Bob Dole for suggesting that tobacco was not invariably addictive, saying Dole's comments "either exposed his abysmal lack of knowledge of nicotine addiction or his blind support of the tobacco industry."


    Although Koop eventually won wide respect with his blend of old-fashioned values, pragmatism and empathy, his nomination met staunch opposition.


    Foes noted that Koop traveled the country in 1979 and 1980 giving speeches that predicted a progression "from liberalized abortion to infanticide to passive euthanasia to active euthanasia, indeed to the very beginnings of the political climate that led to Auschwitz, Dachau and Belsen."


    But Koop, a devout Presbyterian, was confirmed after he told a Senate panel he would not use the surgeon general's post to promote his religious ideology. He kept his word.


    In 1986, he issued a frank report on AIDS, urging the use of condoms for "safe sex" and advocating sex education as early as third grade.


    He also maneuvered around uncooperative Reagan administration officials in 1988 to send an educational AIDS pamphlet to more than 100 million U.S. households, the largest public health mailing ever.


    Koop personally opposed homosexuality and believed sex should be saved for marriage. But he insisted that Americans, especially young people, must not die because they were deprived of explicit information about how HIV was transmitted.


    Koop further angered conservatives by refusing to issue a report requested by the Reagan White House, saying he could not find enough scientific evidence to determine whether abortion has harmful psychological effects on women.


    Koop maintained his personal opposition to abortion, however. After he left office, he told medical students it violated their Hippocratic oath. In 2009, he wrote to Senate Majority Leader Harry Reid, urging that health care legislation include a provision to ensure doctors and medical students would not be forced to perform abortions. The letter briefly set off a security scare because it was hand delivered.


    Koop served as chairman of the National Safe Kids Campaign and as an adviser to President Bill Clinton's health care reform plan.


    At a congressional hearing in 2007, Koop spoke about political pressure on the surgeon general post. He said Reagan was pressed to fire him every day, but Reagan would not interfere.


    Koop, worried that medicine had lost old-fashioned caring and personal relationships between doctors and patients, opened his institute at Dartmouth to teach medical students basic values and ethics. He also was a part-owner of a short-lived venture, drkoop.com, to provide consumer health care information via the Internet.


    Koop was born in the New York City borough of Brooklyn, the only son of a Manhattan banker and the nephew of a doctor. He said by age 5 he knew he wanted to be a surgeon and at age 13 he practiced his skills on neighborhood cats.


    He attended Dartmouth, where he received the nickname Chick, short for "chicken Koop." It stuck for life.


    Koop received his medical degree at Cornell Medical College, choosing pediatric surgery because so few surgeons practiced it.


    In 1938, he married Elizabeth Flanagan, the daughter of a Connecticut doctor. They had four children, one of whom died in a mountain climbing accident when he was 20.


    Koop was appointed surgeon-in-chief at Children's Hospital in Philadelphia and served as a professor at the University of Pennsylvania School of Medicine.


    He pioneered surgery on newborns and successfully separated three sets of conjoined twins. He won national acclaim by reconstructing the chest of a baby born with the heart outside the body.


    Although raised as a Baptist, he was drawn to a Presbyterian church near the hospital, where he developed an abiding faith. He began praying at the bedside of his young patients — ignoring the snickers of some of his colleagues.


    Koop's wife died in 2007, and he married Cora Hogue in 2010.


    He was by far the best-known surgeon general and for decades afterward was still a recognized personality.


    "I was walking down the street with him one time" about five years ago, recalled Dr. George Wohlreich, director of the College of Physicians of Philadelphia, a medical society with which Koop had longstanding ties. "People were yelling out, 'There goes Dr. Koop!' You'd have thought he was a rock star."


    ___


    Ring reported from Montpelier, Vt. Cass reported from Washington. AP Medical Writers Lauran Neergaard in Washington and Mike Stobbe in New York contributed to this report.


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    Bernanke to face Fed critics in testimony to Congress


    WASHINGTON (Reuters) - Federal Reserve Chairman Ben Bernanke faces the first of two days of congressional testimony that will subject the Fed's controversial bond-buying program to tough scrutiny and gauge his confidence in the resilience of the U.S. economy.


    Coming just a week after the Fed's meeting minutes sent U.S. stocks reeling by suggesting the central bank could pull back its economic stimulus earlier than had been expected, and a day after another sharp stock market drop, investors are certain to hang on every word.


    Beginning with the U.S. Senate Banking Committee on Tuesday, the scholarly Fed chief will be quizzed by some bitter critics of the aggressive steps he has championed to spur growth. On Wednesday, he will appear before the House Financial Services Committee.


    "His opinion remains that there is still not enough growth, that high unemployment is a cyclical issue, that there is not enough inflation," economists at TD Securities in New York said in a note to clients. "He will keep the pedal to the metal deep into 2013."


    The Fed chairman's prepared testimony is scheduled to be released at 10 a.m. (1500 GMT) on Tuesday, followed by a lengthy question-and-answer session. By tradition, he will issue the same statement on Wednesday before facing the House panel.


    FIRST, DO NO HARM


    Lawmakers in both chambers will seek his comment on the likely impact of $85 billion in across-the-board government spending cuts that are set to take effect on March 1.


    Bernanke is likely to repeat his line that the indiscriminate axe they take to the budget will hurt the recovery, and argue that it would be better to cut the deficit over time and avoid the risk of a near-term fiscal shock.


    Lawmakers will also question him about the Fed's bold bond- buying program, which has tripled the size of the central bank's balance sheet to $3 trillion since 2008.


    The Fed, which cut overnight interest rates to near zero more than four years ago, is currently buying $85 billion a month in government and mortgage-backed bonds to keep longer- term borrowing costs low and spur the economy's recovery. The Fed has said it would continue to purchase bonds until it sees a substantial improvement in the outlook for the labor market.


    That still appears a long way off. In January, the jobless rate ticked up a tenth of a percentage point to 7.9 percent.


    Many Republicans have criticized the Fed's aggressive easing of monetary policy for risking inflation and asset bubbles, and for facilitating excessive government spending by keeping the nation's borrowing costs low.


    Some of the same concerns have resonated within the central bank.


    Minutes of the Fed's January 29-30 policy meeting, released last week, showed that a number of officials felt the potential risks posed by buying bonds could warrant tapering or ending the program before hiring picks up. However, several others argued there was a danger in halting it prematurely.


    Financial markets are keen to find out where Bernanke stands. Expectations that he would offer reassuring words, coupled with fears that Europe's debt crisis could grow worse, led on Monday to the biggest drop in the yield on the benchmark 10-year U.S. Treasury note since November.


    "You are probably going to hear a message that does not lean so heavily on the costs" of bond buying," said Michael Feroli, an economist with JPMorgan in New York.


    (Reporting by Alister Bull; Editing by Tim Ahmann and Jan Paschal)



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    India Ink: On Kissing, Bollywood, and Rebellion

    Gardiner Harris’s recent piece in the New York Times made me do a double take, not just because of the attachment of the word “bombshell” before Katrina Kaif, which to me is somewhat like using “razor-sharp” as the defining adjective for President George W. Bush, but because of the cultural “Rubicon-crossing” significance attributed to a scene in “Jab Tak Hai Jaan:”

    A pivotal screen kiss reflected the changing romantic landscape here. Kissing scenes were banned by Indian film censors until the 1990s, and Shah Rukh Khan, a Bollywood heartthrob who is one of the world’s biggest movie stars, has been teasing Indian audiences in dozens of films since then by bringing his lips achingly close to those of his beautiful co-stars. But his lips never touched any of theirs until he kissed the Bollywood bombshell Katrina Kaif in “Jab Tak Hai Jaan,” which was released in December 2012.

    Mr. Khan tried to soften the impact by saying in a published interview that his director made him do it. But the cultural Rubicon had been crossed.

    As a longtime pop culture buff and dispassionate observer of screen-kisses, while I may agree with the author’s observation of Shah Rukh Khan’s lips historically tending toward those of his heroine’s but never quite getting there, like the limit of a function, I firmly dispute the notion that Mr. Khan’s tepid liplock has given the kiss the acceptability it did not have before. That’s because kisses have been in mainstream Indian movies since the late 1920s with reigning screen diva, Devika Rani’s kiss with her off-screen husband, Himanshu Rai, for a full four minutes in “Karma” (1933) being the veritable stuff of legends.

    It is true, of course, that Indian movies have had far more people chasing each other around the trees than kissing, and that is primarily because of the dictates of the dreaded censor board, the cheerless cinematic embodiment of the Nehruvian ideal of big-government intruding into every aspect of national life, which made directors move the camera away at strategic moments to two flowers touching each other.

    But around the time when I started watching movies, which was the mid-1980s, kisses and intimacy were very much part of big-banner Bollywood, be it in “Ram Teri Ganga Maili” (1985) or “Janbaaz” (1986) or “Qayamat Se Qayamat Se Tak” (1986) and the truly shuddering scene in “Dayavan” (1988) between the venerable Vinod Khanna and an upcoming actress by the name of Madhuri Dixit, a sequence responsible for many VCRs getting jammed due to excessive pausing and replaying (or so my unscientific survey tells me).

    Then of course, there was Aamir Khan establishing his reputation for commitment to detail and the embracing of variety by kissing Juhi Chawla in “Qayamat Se Qayamat” (1986) and “Love Love Love” (1986), Pooja Bhatt in “Dil Hai Ki Manta Naheen” (1991), Pooja Bedi in “Jo Jeeta Hai Sikander” (1992) and then Karishma Kapoor in “Raja Hindustani” (1997) for a full 40 seconds, if experts are to be believed.

    In the 2000s, there were movies that had 17 kissing scenes in them, and an actor by the name of Emran Hashmi had made kissing a calling card in each of his movies, earning the sobriquet “serial kisser.”

    I don’t want to keep on inserting citations to prior art — after all, this is not a journal paper — but my point is that by 2012, when “Jab Tak Hai Jaan” came to pass, Indian audiences had been quite desensitized to on-screen kissing.

    In other words, it is no big whoop. Or should I say, no big “mwah.”

    So if it’s not the influence of movies, why then do we see more public displays of affection (of which kissing is but one manifestation) in Indian cities today than say 10 or 20 years ago?

    Here is my explanation: The last decade or so has seen a social revolution in urban India. More men and more women are working together. There are more coeducational institutions than ever before. Social media have allowed people to find others with similar interests and points of view, subverting traditional social walls that prevent free interaction, and then they could keep in touch discreetly, through cellphones and instant messaging. (In my day, we had to use the single rotary phone kept in the living room, making it impossible to have a secret conversation.)

    As a result, there are more opportunities for meeting people and maintaining relationships. This naturally leads to more unmarried couples or couples that are not married to each other.

    Getting a room every time one wants to kiss one’s partner or hold hands is neither financially viable nor practically feasible. Budget hotels are loath to rent rooms to couples without proof of “marriage” because of the fear of police raids. Some even collude with crooked cops to do a bit of extortion, since couples are willing to pay to avoid being hauled to the police station. Being outside, in parks and deserted spaces, does not totally protect couples from the police, but at least it is better than being busted at a hotel.

    Hence what one sees as increased public displays of affection is merely the inevitable effect of an increasing number of young couples in urban India, who, because of an antiquated legal system with ill-defined notions of “public decency,” unfortunately find themselves unable to have safe spaces of their own.

    The biggest threat to their safety is not the police but young men described in Mr. Harris’s piece, those who “often sit and stare hungrily at kissing couples,” India’s increasingly angry and volatile class of getting-it-nots, those that desperately wish to have but do not, who see these displays of affection as arrogant flaunting of privilege. Many of these frustrated young men coalesce to form mobs of moral police, who then attack couples, especially women, in public places under the comforting banner of protecting Indian tradition.

    And so an important cultural battle rages on, in the parks and in pubs and in other common spaces, one that reflects one of modern India’s defining conflicts, that between ordinary people in pursuit of individual happiness and a legal and social system that insists on imposing, interfering and getting in their way — where a kiss is no longer just a kiss but a small symbol of unintentional rebellion.

    By the light of day, Arnab Ray is a research scientist at the Fraunhofer Center For Experimental Software Engineering and also an adjunct assistant professor at the Computer Science department of the University of Maryland at College Park. Come night, he metamorphoses into blogger, novelist (“May I Hebb Your Attention Pliss” and “The Mine”) and columnist. He is on Twitter at @greatbong.

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    Relive the Best One-Liners and Tweets from the Oscars!









    02/25/2013 at 12:00 AM EST



    Jennifer Lawrence tumbled – to a standing ovation. Ben Affleck tearfully won Best Picure for Argo. And you all loved – or loved to hate – Oscar host Seth MacFarlane.

    Yep, the Oscars are over, but it doesn't mean we're done talking about it! You can relive the best of the night! Check out what celebs, readers (and you!) had to say about the musical numbers, speeches – and a certain reigning Sexiest Man Alive! – on Twitter last night.

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    Stock index futures point to flat to higher open

    LONDON (Reuters) - Stock index futures pointed to a mixed open on Wall Street on Monday, with futures for the S&P 500 and Nasdaq 100 up 0.1 and 0.2 percent respectively by 0856 GMT, while those for Dow Jones were steady.


    * The U.S. stock market closed higher on Friday, with the S&P 500 adding 13.18 points, or 0.88 percent, to 1,515.60 <.spx>, after comments from Fed officials allayed fears that the central bank would curtail stimulus measures.


    * Prospects of continued stimulus also lifted Asian and European equity markets on Monday, with the EuroSTOXX 50 benchmark of euro zone blue chips up 0.7 percent <.stoxx50e>. However, uncertainty over the outcome of Italian elections, which close on Monday, kept a lid on the gains.


    * With days left before $85 billion is slashed from U.S. government budgets, the White House on Sunday issued more dire warnings about the harm the cuts will do to Americans. But Republicans, who advocate budget cuts, said the warning was overplayed and called on President Barack Obama to apply what is known as the "sequester" in a more careful way, rather than slashing budgets across the board.


    * A relatively light calendar features the Chicago Fed's national activity index for February at 1330 GMT, alongside earnings from Autodesk Inc and Lowe's Companies.


    * Barnes & Noble Inc Chairman Leonard Riggio is considering a bid for the company's bookstore business, the Wall Street Journal reported on Sunday, citing people familiar with the situation.


    * Disney's movie "Brave" won the Oscar on Sunday for Best Animated Feature.


    * BlackRock Inc. , the world's largest money manager, has got approval from the U.S. securities regulator to list a copper-backed exchange-traded fund, potentially getting the jump on JPMorgan, whose listing of a similar product has been delayed by industry objections.


    * Knight Capital Group , which recently agreed to be bought for $1.4 billion by Getco Holding Co, has struck a deal to sell its credit-brokerage unit to Stifel Financial Corp , according to a person familiar with the matter.


    * Hewlett-Packard Chairman Ray Lane and fellow board members plan to meet with about 20 of the computer maker's big investors Monday in hopes of heading off a campaign to unseat Lane and two other directors, the Wall Street Journal reports.


    * Office Depot Inc said late on Friday that following talks with the largest holder of its common stock, Starboard Value LP, it is extending the deadline for nominating candidates for its board at its annual meeting.


    * Dick's Sporting Goods Inc shares could rise 23 percent within the next year if the largest publicly traded U.S. sporting goods retailer continues to boost profit at a mid-teens percentage rate, Barron's said.


    (Reporting By Toni Vorobyova; Editing by Hugh Lawson)



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    Insurgents Launch 4 Attacks in Afghanistan







    KABUL — Afghan intelligence agents on Sunday gunned down a man in a sport utility vehicle that officials said had been packed with explosives, foiling what they described as an attempt to set off a massive explosion in a neighborhood of narrow streets lined with foreign embassies.




    Around the same time, Taliban suicide attackers set off three separate car bombs in a pair of provinces near the capital. But they inflicted minimal damage, according to officials, and the toll from the Sunday violence was low — apart from the two attackers and one suspect killed, two security guards and a police officer were slain and five other people wounded, including one attacker who managed to flee.


    Zabiullah Mujahid, a spokesman for the Taliban, said the insurgents were behind the three successful bombings. But he disavowed knowledge of the attempt in Kabul, saying Taliban commanders in the city had no plans to launch an attack on Sunday.


    While it is not unusual for the Taliban to deny having a hand in a failed attack, much about the attempted bombing Sunday remained murky, with officials hailing Afghan security forces for acting quickly but offering only the barest details about how the man said to be a bomber was spotted.


    Gen. Mohammed Ayoub Salangi, the police chief of Kabul, said the suspect was in a Toyota sport utility vehicle and was trying to pass through a checkpoint when he was recognized by agents from the country’s intelligence service, the National Directorate of Security.


    The man “was gunned down,” General Salangi said. The agents had to act quickly, he added, saying that there was no time to inspect the vehicle or question the suspect because that would have given him the chance to detonate the explosives.


    General Salangi, who in an earlier statement said there were two men in the car, did not say how or why the agents recognized the man. But he added that the car bomb was quickly defused by experts from the Security Directorate and carted away.


    The bombing attempt, in the Wazir Akbar Khan neighborhood, did briefly cause some of the embassies to lock down the streets on which they are located and on which they control security. The spot were the man was shot were was less than a mile from the U.S. Embassy and the headquarters of the American-led coalition, neither of which offered any comment.


    Earlier in the day, in Jalalabad, a city in eastern Afghanistan, a single bomber in a Toyota Corolla directly targeted the Security Directorate, officials said, detonating his explosive-laden vehicle outside a building used by the spy agency. Two guards were killed and a third was wounded, said Hazrat Mohammad Mashraqiwal, a police spokesman in Jalalabad.


    Later on Sunday, a pair of bombers in another car laden with explosives tried to enter the district governor’s compound in Baraki Barak district of Logar Province, south of Kabul. But they were stopped by police officers guarding the compound, prompting one man to jump and make a run for it and the other to set off the car bomb, said Abdul Rahim Amin, the governor.


    One police officer was wounded in the attack, along with the man who fled.


    Earlier in Logar, around dawn, a minivan packed with explosives was set off at a police post near the provincial capital, Pul-e-Alam. One police officer was killed and two others wounded, an official said.


    Sharifullah Sahak contributed reporting.


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    Investors face another Washington deadline

    NEW YORK (Reuters) - Investors face another Washington-imposed deadline on government spending cuts next week, but it's not generating the same level of fear as two months ago when the "fiscal cliff" loomed large.


    Investors in sectors most likely to be affected by the cuts, like defense, seem untroubled that the budget talks could send stocks tumbling.


    Talks on the U.S. budget crisis began again this week leading up to the March 1 deadline for the so-called sequestration when $85 billion in automatic federal spending cuts are scheduled to take effect.


    "It's at this point a political hot button in Washington but a very low level investor concern," said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. The fight pits President Barack Obama and fellow Democrats against congressional Republicans.


    Stocks rallied in early January after a compromise temporarily avoided the fiscal cliff, and the Standard & Poor's 500 index <.spx> has risen 6.3 percent since the start of the year.


    But the benchmark index lost steam this week, posting its first week of losses since the start of the year. Minutes on Wednesday from the last Federal Reserve meeting, which suggested the central bank may slow or stop its stimulus policy sooner than expected, provided the catalyst.


    National elections in Italy on Sunday and Monday could also add to investor concern. Most investors expect a government headed by Pier Luigi Bersani to win and continue with reforms to tackle Italy's debt problems. However, a resurgence by former leader Silvio Berlusconi has raised doubts.


    "Europe has been in the last six months less of a topic for the stock market, but the problems haven't gone away. This may bring back investor attention to that," said Kim Forrest, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.


    OPTIONS BULLS TARGET GAINS


    The spending cuts, if they go ahead, could hit the defense industry particularly hard.


    Yet in the options market, bulls were targeting gains in Lockheed Martin Corp , the Pentagon's biggest supplier.


    Calls on the stock far outpaced puts, suggesting that many investors anticipate the stock to move higher. Overall options volume on the stock was 2.8 times the daily average with 17,000 calls and 3,360 puts traded, according to options analytics firm Trade Alert.


    "The upside call buying in Lockheed solidifies the idea that option investors are not pricing in a lot of downside risk in most defense stocks from the likely impact of sequestration," said Jared Woodard, a founder of research and advisory firm condoroptions.com in Forest, Virginia.


    The stock ended up 0.6 percent at $88.12 on Friday.


    If lawmakers fail to reach an agreement on reducing the U.S. budget deficit in the next few days, a sequester would include significant cuts in defense spending. Companies such as General Dynamics Corp and Smith & Wesson Holding Corp could be affected.


    General Dynamics Corp shares rose 1.2 percent to $67.32 and Smith & Wesson added 4.6 percent to $9.18 on Friday.


    EYES ON GDP DATA, APPLE


    The latest data on fourth-quarter U.S. gross domestic product is expected on Thursday, and some analysts predict an upward revision following trade data that showed America's deficit shrank in December to its narrowest in nearly three years.


    U.S. GDP unexpectedly contracted in the fourth quarter, according to an earlier government estimate, but analysts said there was no reason for panic, given that consumer spending and business investment picked up.


    Investors will be looking for any hints of changes in the Fed's policy of monetary easing when Fed Chairman Ben Bernake speaks before congressional committees on Tuesday and Wednesday.


    Shares of Apple will be watched closely next week when the company's annual stockholders' meeting is held.


    On Friday, a U.S. judge handed outspoken hedge fund manager David Einhorn a victory in his battle with the iPhone maker, blocking the company from moving forward with a shareholder vote on a controversial proposal to limit the company's ability to issue preferred stock.


    (Additional reporting by Doris Frankel; Editing by Kenneth Barry)



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