Japan's policy veteran Motegi likely to serve as trade minister: media

TOKYO (Reuters) - Incoming Japan Prime Minister Shinzo Abe is likely to pick policy veteran Toshimitsu Motegi as trade minister, who will also take charge of energy and other key economic policies, media reported on Tuesday.

Motegi, 57, a former policy affairs chief for the Liberal Democratic Party (LDP), will tackle energy problems after last year's Fukushima nuclear crisis, as well as issues such as the U.S.-led Trans-Pacific Partnership (TPP) free trade pact, public broadcaster NHK said.

Motegi was a leading member of the LDP's panel tasked with drafting an economic revival plan aimed at tackling the strong yen, deflation and preventing Japanese firms from shifting overseas.

The LDP returned to power in the December 16 election for the lower house, calling for radical monetary easing and big spending on public works.

First elected to parliament in 1993 as a member of a small opposition party, Motegi joined the LDP shortly thereafter and has served posts including parliamentary vice-minister for the trade ministry and senior vice-minister for foreign affairs.

Motegi's formal appointment is likely to be made on December 26, when Abe is expected to be elected as prime minister in parliament and form a new cabinet.

(Reporting by Tetsushi Kajimoto)

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Two killed as passenger plane lands in Myanmar rice field

YANGON (Reuters) - Two people were killed and 10 wounded in northeast Myanmar on Tuesday when a passenger plane missed an airport runway in heavy fog and landed in a rice paddy, state television said.

The pilot of the Air Bagan plane touched down beyond Heho airport in Shan state, killing one passenger and a motorcyclist on the ground, MRTV said.

MRTV had earlier reported the dead passenger was an 11-year-old boy but the airline later confirmed the deceased was a female tour guide.

Four foreigners -- two Americans, a South Korean and a Briton -- and the pilot were among the injured. The plane was carrying 63 passengers, 51 of whom were foreigners.

Air Bagan is one of five airlines operating domestic routes in Myanmar.

Owned by Tay Za, a local tycoon blacklisted by the United States for his alleged links to former military regime, Air Bagan was the country's first privately run carrier when it was established in 2004.

(Reporting by Aung Hla Tun; Editing by Martin Petty and Daniel Magnowski)

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Former South African president Mandela "much better": Zuma

JOHANNESBURG (Reuters) - Former South African president and anti-apartheid hero Nelson Mandela is looking much better after more than two weeks in hospital, President Jacob Zuma said on Tuesday.

Zuma, who visited Mandela on Christmas Day, said in a statement that doctors were happy with the progress the elder statesman was making.

"We found him in good spirits. He was happy to have visitors on this special day and is looking much better. The doctors are happy with the progress that he is making," said Zuma.

The 94-year-old Nobel Peace laureate has been in hospital in Pretoria for more than two weeks after being admitted for routine tests. He then underwent surgery to remove gallstones.

Mandela, who came to power in historic elections in 1994 after decades struggling against apartheid, remains a symbol of resistance to racism and injustice at home and around the world.

He has a history of lung problems dating back to when he contracted tuberculosis while in jail as a political prisoner. But this is his longest stay in hospital since he was released from prison in 1990.

He spent time in a Johannesburg hospital in 2011 with a respiratory condition, and again in February this year because of abdominal pains though he was released the following day after a keyhole examination showed there was nothing serious.

Zuma, who has just been re-elected as president of the ruling African National Congress party, last week described Mandela's condition as serious.

"The Mandela family truly appreciates all the support they are receiving from the public. That is what keeps them going at this difficult time," said Zuma.

Periodic statements from the presidency continue to stress that the veteran politician is responding to treatment. No date has been given for his release from hospital.

Mandela spent 27 years in prison, including 18 years on the windswept Robben Island off Cape Town.

After his release, he used his popularity to push for reconciliation between whites and blacks. This reconciliation is the bedrock of the post-apartheid "Rainbow Nation".

Sworn in as South Africa's first black president in 1994, Mandela stepped down in 1999 after one term in office and has largely been absent from public life for the last decade.

His fragile health has prevented him from making any public appearances in South Africa, though he has continued to receive high-profile domestic and international visitors, including former U.S. president Bill Clinton in July.

(Reporting by Sherilee Lakmidas; Editing by Andrew Osborn)

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Afghans seek policewoman's motive for killing U.S. contractor

KABUL (Reuters) - An Iranian-Afghan policewoman who killed a U.S. contractor at the police headquarters in Kabul may have been motivated by a personal grudge, said security officials, who were also probing possible Taliban or al Qaeda involvement.

The officials said the woman named as Narges seemed wracked with remorse over the shooting. They said she held an Iranian passport but offered no evidence that Iran may have orchestrated the attack.

She arrived at police headquarters on Monday morning and headed to a bathroom where she loaded a pistol and hid it under her long scarf, they said. She then approached the American police trainer as he was walking to a canteen and shot him in the ribs.

"After she shot the American, she pointed her pistol to other policemen who rushed to arrest her. But her weapon jammed," one top police official told Reuters. "Her prime target could have been senior officials in the compound."

It appeared to be the first time that a female member of Afghanistan's security forces had carried out such an attack.

At least 52 members of the NATO-led International Security Assistance Force (ISAF) have been killed this year by Afghans wearing police or army uniforms, in so-called insider attacks.

Also known as green-on-blue attacks, the incidents have undermined trust between coalition and Afghan forces who are under mounting pressure to contain the Taliban insurgency before most NATO combat troops withdraw by the end of 2014.

"This was a very organized shooting," said the top police official. "There must have been bigger hands involved... At this stage, we can only say that she could have been brainwashed either by the Taliban or al Qaeda."

Virginia-based DynCorp International described the killing of its employee, police mentor Joseph Griffin, 49, as a tragedy.

"The loss of any team member is tragic but to have this happen over the holidays makes it seem all the more unfair," the company said on its website.

IRANIAN PASSPORT

There had been no indication that Narges posed any threat during her six years on the job and officials had believed she was dedicated to improving security in her troubled country.

They invested in the mother of three, sending her on a law enforcement training course in Egypt and giving her responsibility for promoting women's rights in the police force, senior police officials told Reuters.

"She is a religious person with a clean background. That's why we didn't have surveillance on her," said the top police official. "It's very difficult to have surveillance on thousands of people in the police force to see who is doing what."

Authorities were examining her phone records on Tuesday. At a press conference, Interior Ministry officials presented what they said was her Iranian passport, which identified her as Narges Rezaeimomenabad.

Interior Ministry spokesman Sediq Sediqqi said she had obtained an Afghan national identity card when she married her husband, an Afghan who works in the ministry's criminal investigation department.

"She is in a terrible condition now and crying, sighing deeply and asking herself why she did it," said the top police official. "She keeps saying 'shoot me dead'."

(Additional reporting by Mirwais Harooni and Miriam Arghandiwal; Editing by Tom Pfeiffer)

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Syria envoy seeks peace as clashes rage

BEIRUT (Reuters) - International envoy Lakhdar Brahimi pursued mediation efforts in Damascus on Tuesday, but there was no pause in the bloodletting as Syrian Christians marked a bleak Christmas Day with prayers for peace.

"We are here in a cave that symbolizes Syria right now," said a priest standing beside a nativity scene in a grotto.

"It is cold here but the door is open to all refugees," he told Syrian state TV. "Amid the hunger, cold and deprivation, we still have hope for peace and love for our country."

More than 44,000 Syrians have been killed since a revolt against President Bashar al-Assad erupted 21 months ago, igniting an increasingly sectarian conflict that broadly pits a Sunni Muslim majority against Assad's Alawite minority.

Christians, many of whom have been reluctant to join what they see as an Islamist-tinged insurgency, feel threatened.

Bishop John Kawak, speaking on state TV, said the Christmas holiday was "a symbol for the rebirth of the nation". He condemned "terrorism", the government's term for the rebellion.

Brahimi met some dissidents who are tolerated by Assad but rejected by the mainstream opposition and by rebels fighting to oust him, a day after he held talks with the Syrian president.

There was no word on any progress in the U.N.-Arab League' envoy's drive to end violence that has intensified in recent months as Assad uses airpower and artillery against rebel gains.

Raja Naser, secretary general of the National Coordination Body, said after meeting Brahimi that the envoy planned a week of meetings in Damascus and would stay until Sunday.

"There is still a lot of concern but there is also great hope that these meetings with other Syrian officials will result in some agreements or positive developments," he said.

But most opposition groups appear frustrated with Brahimi's quest for a deal on a transitional government. He has not clarified any role for Assad, whose foes say he must simply go, arguing that too much blood has been shed for any other outcome.

GULF PLEA

Gulf Arab leaders, who have long called for Assad's removal and some of whom have helped the rebels with guns and money, urged swift world action to halt the "massacres" and violations of international law in Syria.

The pro-opposition Syrian Observatory for Human Rights reported clashes and government shelling in hotspots across the country, including towns on the eastern outskirts of Damascus.

Abu Nidal, a spokesman for the Rebel Military Council in Damascus, said fighters had killed the head of a local security branch in the capital's suburb of Jaramana, home to a large Christian and Druze population.

In his Christmas message to the world on Tuesday, Pope Benedict encouraged Syrians not to lose hope for peace.

"May peace spring up for the people of Syria, deeply wounded and divided by a conflict which does not spare even the defenseless and reaps innocent victims," he said.

"I appeal for an end to the bloodshed, easier access for the relief of refugees and the displaced, and dialogue in the pursuit of a political solution to the conflict."

Hundreds of thousands of Syrians have fled abroad to escape the daily violence. Those who remain face severe shortages of food, fuel and other essentials as winter weather takes a grip.

Syrian activists offered a message of solidarity with Christians despite rising tensions in central Hama province, where rebels have demanded that Christian villages let them enter to force out the army and pro-Assad "shabbiha" militias.

"We say to the Christians, you are our brothers and our beloved, and your holiday is our holiday," said Abu Faisal, a Hama activist who posted a Christmas message on the Internet.

"The rebels are surrounding (the Christian town) Muhardeh to get rid of Assad's soldiers and shabbiha, but we have not forgotten your honorable stance when you took care of our refugees when the army entered Hama," he said.

"We will not accept that you are targeted by hatred, you are our brothers and our friends."

(Additional reporting by Philip Pullela in Vatican City and Asma Alsharif in Manama)

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Gulf Arabs decry Iran "interference" in region

MANAMA (Reuters) - Six U.S.-allied Gulf Arab states demanded on Tuesday that Iran end what they called interference in the region, reiterating a long-held mistrust of their main rival.

The Islamic Republic denies trying to subvert Saudi Arabia and its wealthy Gulf neighbors.

A communique issued at the end of a two-day summit of the Saudi-led Gulf Cooperation Council (GCC) also urged action to halt mass killings and violations of international law in Syria.

The oil-producing GCC states wield influence out of proportion to their sparse populations due in part to global energy and investment links, generous international aid and Saudi Arabia's role as home to Islam's two holiest sites.

"The council expressed its rejection and condemnation of the continuing Iranian interference in the affairs of the Gulf Cooperation Council's states and called on Iran to stop these policies," the communique said.

On the conflict in Syria, the statement, read out by GCC Secretary-General Abdulatif al-Zayani, added: "We ask the international community for serious and swift moves to stop these massacres and these severe attacks".

Kuwait said it would host an international humanitarian donor conference for Syria in late January, amid concern for millions of Syrians suffering war, homelessness and winter cold.

"LOTS OF MEDDLING"

Gulf Arab leaders have long called for Syrian President Bashar al-Assad to step down, and in November the GCC recognized a newly-formed opposition coalition as the legitimate representative of the Syrian people.

The communique did not elaborate on Iran, but the most common Gulf Arab complaint about alleged Iranian meddling in the region relates to Bahrain, which has repeatedly accused Tehran of interference in its internal politics.

Iran sees the Gulf as its own backyard and believes it has a legitimate interest in expanding its influence there.

Bahraini Foreign Minister Khalid Bin Ahmed Bin Mohammed Al Khalifa told reporters Iran posed a "very serious threat".

"Politically, (there is) lots of meddling in the affairs of GCC states; an environmental threat to our region from the technology used inside nuclear facilities; and there is of course the looming nuclear program," he said, referring to Iran's disputed atomic work.

"So the threat level is quite high, but we are ready if faced with circumstances that require action."

While not racked by disturbances on the scale of Syria or Egypt, Bahrain has been volatile since pro-democracy protests led by its Shi'ite Muslim majority erupted last year.

Scattered smoke plumes rose from Bahrain's Sitra and Sanabis districts on Tuesday, apparently caused by youths burning tires, but no major demonstrations were reported by activists.

Bahrain's Sunni Muslim rulers brought in Saudi and United Arab Emirates forces last year to help quell the protests, and Shi'ite power Iran condemned the move, saying it could lead to regional instability. Bahrain has accused Iran of being behind the unrest. Tehran denies this.

GCC FORCE LONG SEEN AS INEFFECTIVE

Bahrain's Shi'ites say they are marginalized politically and economically, a charge the government denies. It has rejected the protesters' main demand for an elected government.

The summit statement said the GCC would set up a unified military command to tighten defense cooperation but offered few details of a project long prey to sensitivities about sovereignty. Security in the waterway, through which 40 percent of the world's seaborne oil exports passes, has been dominated for decades by the United States.

But uprisings against long-standing governments across the Middle East and rivalry with Iran over the conflict in Syria have stirred calls among Gulf Arabs to speed up long-stymied efforts to integrate their own foreign and security policies.

The GCC said it had "supported the creation of a unified military command that organizes and plans and leads the ground, naval and air forces."

The communique did not elaborate. But Mustafa Alani, a security analyst, told Reuters that he understood the idea was to have a standing command rather than a functioning one, and that it would only operate in times of crisis.

The GCC already has a pan-GCC military force -- the 9,000-strong Peninsula Shield, created in 1986 and based in Saudi Arabia. It took part in the 1991 Gulf war and was deployed in Kuwait during the U.S.-led invasion of Iraq in 2003.

But the Saudi-based force is widely seen as ineffective. Gulf Arab states have faced a host of obstacles to military integration, including a lack of common equipment, their own reliance on their U.S. ally and concern among some states about potential Saudi dominance of any joint military effort.

(Reporting by Asma Alsharif; Writing by William Maclean; Editing by Alistair Lyon)

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Egypt expected to pass constitution; currency limits imposed

CAIRO (Reuters) - Egypt is expected to announce on Tuesday that voters approved a new Islamist-backed constitution, and the government slapped limits on carrying cash abroad to save the economy from collapse after weeks of street violence and political disarray.

President Mohamed Mursi, an Islamist elected this year after a 2011 revolution toppled long-serving autocrat Hosni Mubarak, has been accused by liberal, leftist and Christian opponents of ramming through a basic law mixing religion with politics.

Mursi says the charter has sufficient guarantees of minority rights, and that quickly enacting it will bring an end to the uncertainty and unrest plaguing Egypt since Mubarak's ouster in the wave of revolts across the Middle East and North Africa.

The referendum result appears to be in little doubt, and opposition groups which marched for weeks against the new charter did not announce plans for any major demonstrations to mark the official announcement.

Unofficial tallies from Mursi's Muslim Brotherhood showed the charter was approved by a 64 percent majority. The electoral commission will announce the official result at 1700 GMT.

In a move aimed at preventing capital flight and a potential bank run, the government banned people from carrying more than $10,000 in foreign currency cash in or out of the country.

A growing sense of crisis has gripped Egypt's polarized society, with a rush by Egyptians to take out savings from banks compounding worries about the future of its battered economy. On Monday, Standard and Poor's cut Egypt's long-term credit rating.

Hours ahead of the results announcement, Prime Minister Hisham Kandil told the nation of 83 million the government was committed to taking steps to heal the economy.

"The main goals that the government is working towards now is plugging the budget deficit, and working on increasing growth to boost employment rates, curb inflation, and increase the competitiveness of Egyptian exports," he said.

The government says its opponents are contributing to the economic crisis by prolonging the state of unrest. Mursi's opponents say by pushing through the contentious text he has made it harder to build a consensus needed for economic reform.

The central bank said on Monday it would take steps to "safeguard" bank deposits, without giving any details. Some Egyptians have withdrawn cash from accounts out of concern that the authorities might freeze deposits. Rumors are rife.

"I have been hearing that the central bank is going to take over all our bank deposits to pay wages for government employees given the current deteriorating economic situation," said Ayman Osama, father of two young children.

He said he had taken out the equivalent of about $16,000 from his account this week and planned to withdraw more, adding that he had also told his wife to buy more gold jewellery.

"I am not going to put any more money in the bank and neither will many of the people I know," he said.

It was not immediately possible to say how much people were withdrawing, with one senior banker saying there was not enough information available to make an estimate.

CRISIS MODE

"This is a political, economic and security crisis which requires serious work for the interests of Egypt," opposition leader Amr Moussa wrote on his Facebook page.

If the "yes" vote is confirmed, a parliamentary election will follow in about two months, setting the stage for yet another electoral battle between the surging Islamists and their fractious liberal and leftist opponents.

The referendum will be the Islamists' third electoral victory since the fall of Mubarak, after parliamentary and presidential elections. However, secularist and liberal opposition members hope they can organize better this time.

The opposition says the constitution, crafted mostly by Mursi's Islamist allies, fails to guarantee personal freedoms and rights for women and minorities. The government denies this.

Hossam El-Din Ali, a 35-year-old newspaper vendor in central Cairo, said he agreed the new constitution would help bring some political stability but like many others he feared the possible economic austerity measures lying ahead.

"People don't want higher prices. People are upset about this," he said. "There is recession, things are not moving. But I am wishing for the best, God willing."

Without broad support, Mursi will find it hard to implement reforms needed to secure a $4.8 billion loan from the International Monetary Fund.

Shortly before the referendum, Mursi introduced hikes on the sales tax on a range of goods and services from alcoholic beverages, cigarettes and mobile phone calls to automobile licenses and quarrying permits. However, he withdrew them within hours under criticism from his opponents and the media.

(Additional reporting by Patrick Werr and Tamim Elyan; Writing by Maria Golovnina; Editing by Peter Graff)

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Pope gives advice as Italians prepare for bitter campaign

ROME (Reuters) - Pope Benedict sent a political Christmas greeting to Italians on Tuesday as they head into an election campaign expected to be brutal and bitter: think, cooperate for the common good and don't discard values when making big choices.

The pope, in his Christmas greetings in 65 languages, said in his special message to Italians that he hoped the spirit of the day would "make people reflect, favor the spirit of cooperation for the common good and lead to a reflection on the hierarchy of values when making the most important of choices".

Italy holds national elections on Feb 24-25 to choose a new parliament and a new government.

Given that Italy's Catholic Church has turned its back on former Prime Minister Silvio Berlusconi - who is trying to make a comeback even though his previous terms were mired in sex scandals and judicial woes - Benedict's words could be far less general and casual than they appear at first glance.

"It's not a specific endorsement for (Prime Minister Mario) Monti but it comes pretty close, given the well-known esteem the outgoing prime minister enjoys (at the Vatican)," the Italian news agency Ansa said of the pope's words.

Monti has urged Italians to join a debate on their country's future. He declared his availability to lead a reform-minded centrist alliance to seek a second term to complete the economic reform program begun when he took office just over a year ago.

He may yet stay on the sidelines, outside elected office, but still exercising substantial influence over a new centrist grouping that could at the very least help shape the agenda of the next government.

The Church has been embarrassed by the scandals surrounding Berlusconi but at the same time fears the unknown of what a leftist government might do on issues such as gay marriage and euthanasia.

SOBER AND STEADY

The former EU Commissioner - once labeled Supermario for his effectiveness in the job - goes to mass every Sunday with his wife of 40 years and has impressed the Vatican with his calmness, sobriety and what the Church sees as a genuine desire to fix Italy's economic problems and avoid social unrest of the kind seen in Greece.

Significantly, one of the ministers in Monti's outgoing technocrat government is Andrea Riccardi, founder of the internationally prestigious Catholic peace and charity group, the Sant' Egidio Community.

Riccardi is very influential among Catholics in Italy and could help deliver the Catholic vote for Monti or anyone else who promises to continue his policy of economic reform.

Italy's Catholic Church used to support Silvio Berlusconi as a bulwark against leftist governments. But it has made it clear to Berlusconi that this time there will be no blessing.

In its reaction to Berlusconi's decision to return to politics, Famiglia Cristiana, an influential Catholic magazine with one of Italy's largest weekly circulations, likened him to a "dinosaur" who could throw "the whole country into chaos".

The magazine accused him of selling Italians a mirage and trying to lure them with populist promises, such as the abolition of property taxes on primary residences.

Monti, demonstrating the kind of sobriety the Church says Italy needs, has said no one loves taxes but if the property levy is abolished for opportunistic electoral reasons, the move would throw accounts so out of whack that future governments would have to re-introduce it at a higher rate.

Berlusconi's adversaries accuse him of wanting to return to front-line politics to protect his business interests and regain partial and temporary immunity in trials for corruption and paying for sex with a minor.

Cardinal Angelo Bagnasco, head of the Italian Bishops Conference, has made it clear where he stands on the issue.

"I am shocked by the irresponsibility of people who want to look after their own affairs while the house is still on fire," Bagnasco said.

(Reporting by Philip Pullella; editing by Patrick Graham)

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Kazakh military plane crashes, all 27 on board killed

ALMATY (Reuters) - A military transport plane crashed in southern Kazakhstan on Tuesday, killing all 27 people on board, the RIA news agency quoted a senior Kazakh emergencies ministry official as saying.

"The plane has burnt up, only some of its fragments remain," RIA quoted the head of the regional emergencies department as saying.

Kazakh TV channel KTK said the plane had disappeared from radar screens at about 1900 local time (1300 GMT) as it was making a descent near the city of Shymkent, the capital of the South Kazakhstan Region.

Kazakhstan's KNB security service said the plane, bound for Shymkent from the capital Astana, belonged to its border troops.

The commander of the country's border guards, Turganbek Stambekov, was among those on board, it said on its site (www.knb.kz). The plane was carrying a crew of seven as well as 20 servicemen.

KTK TV quoted its sources as saying the Antonov An-72 plane had plunged to the ground in bad weather from an altitude of about 800 meters.

It broadcast footage of an eyewitness saying he had heard a loud explosion and had seen flames at the crash site.

(Reporting by Dmitry Solovyov; Additional reporting by Mariya Gordeyeva; Editing by Andrew Osborn)

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Eight killed in Yemen clashes; attacks in capital target officers

SANAA (Reuters) - At least six militants and two soldiers were killed in Yemen on Tuesday in fighting near a damaged oil pipeline east of the capital Sanaa, a defense ministry official and residents said.

Separately, gunmen and bombers targeted three senior military officers and the transport minister in a series of attacks in the capital Sanaa.

In one incident, two gunmen riding a motorbike shot dead Brigadier Fadel Mohammed Ali, an adviser to the minister of defense, outside the ministry's offices in Sanaa, a police source said. Further details were not immediately available.

Gunmen fired at the home of Transport Minister Waed Batheeb, wounding two of his guards, a transport ministry official said. A colonel was seriously wounded in an attack by gunmen and another officer survived a thwarted bomb attack on his car.

The fighting in turbulent Maarib province broke out when government troops backed by air strikes tried to secure the pipeline and repair damage inflicted last month by local militants, the official said.

He added that the army controlled the area surrounding the pipeline after Tuesday's clashes.

Yemen's oil and gas pipelines have repeatedly been sabotaged by Islamist fighters or tribesmen since an uprising erupted last year, causing fuel shortages and slashing export earnings for the impoverished country.

Yemen's stability is a leading security goal for the United States and Gulf Arab allies because of its strategic position next to top oil exporter Saudi Arabia and shipping lanes, and because it is home to one of the most active wings of al Qaeda.

Under an agreement reached earlier this month between tribal chiefs and the government, tribes in Maarib were meant to stop militants from attacking the pipeline in return for a halt to air strikes in the area.

A local official said troops were deployed on Tuesday after tribesmen failed to secure the pipeline or to hand over fighters involved in the killings of 17 army officers and soldiers in an ambush earlier in December. They were killed while inspecting the pipeline.

The affiliation of the militants in Maarib is unclear. Local sources said some had links to al Qaeda, while others were involved in kidnapping foreigners to pressure the government to release jailed kinsmen.

OFFICER WOUNDED IN CAPITAL

Yemen-based Al Qaeda in the Arabian Peninsula has mounted operations in Saudi Arabia and attempted attacks against the United States, which has stepped up strikes by drones.

In the capital, the ministry of defense said one man was arrested on Tuesday for planting a bomb in the car of an officer at the Central Security Forces. The attempt to blow up the car was foiled, the ministry said. Colonel Sameer al-Gharbani, an officer in the Republican Guard, was critically wounded in an attack by unidentified gunmen, a source at the Guard said.

The string of attacks happened less than a week after President Abd-Rabbu Mansour Hadi overhauled the armed forces as part of a Gulf-brokered power-transfer plan that helped ease former President Ali Abdullah Saleh from power in February.

(Reporting by Mohammed Ghobari; Writing by Mahmoud Habboush and William Maclean; Editing by Peter Graff)

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Iraqi president in hospital after suffering stroke

BAGHDAD (Reuters) - Iraqi President Jalal Talabani, a Kurd who has mediated among Shi'ite, Sunni and Kurdish parties, was in hospital on Tuesday after suffering a stroke that left him in "critical but stable condition", government officials and lawmakers said.

Without Talabani, Iraq would lose an influential peace-maker who often eased tensions in the fragile power-sharing government and negotiated in the growing rift over oil between Baghdad and the OPEC member country's autonomous Kurdistan region.

Reports on his medical condition varied. Three government sources said he was in critical condition, but his office said the 79-year-old president was stable under intensive medical supervision after receiving treatment for blocked arteries.

"President Talabani has suffered a light stroke. His condition is stable now and doctors are closely monitoring him and if they decide he should be transferred outside then he'll go," veteran Kurdish politician Mahmoud Othman, a close Talabani associate who was in the Baghdad hospital.

Talabani had been suffering from ill health much of this year and received medical treatment overseas several times in the last two years.

Prime Minister Nuri al-Maliki visited the hospital earlier on Tuesday.

TOUGH TIMES AHEAD?

Under Iraq's constitution, the parliament should elect a new president if the post becomes vacant and Iraq's power-sharing deal calls for the presidency to go to a Kurd while two vice presidents are shared by a Sunni Muslim and a Shi'ite Muslim.

Political analysts said former Kurdistan prime minister Barham Salih is favored candidate to replace Talabani should the president be incapacitated.

But his exit from Iraqi politics would come at a sensitive time and any succession would be complicated, a year after the last American troops left the country.

"He is the most moderate among Iraqi politicians and the most able to defuse political shocks. I do not think any one will be able to fill his position as a president and as a politician," Iraqi analyst Ibrahim al-Sumaidaie said.

Iraq law would see one of the vice presidents take over Talabani's duties before the parliamentary vote. But Iraq's Sunni Vice President, Tareq al-Hashemi, is a fugitive outside of the country after he fled to escape charges he ran death squads. He was sentenced to death in absentia.

Any parliament vote would also be complex, with Maliki locked in a struggle with Sunni, Kurdish and some Shi'ite rivals in the power-sharing government. Talabani was crucial in helping the Shi'ite leader survive a no-confidence motion directed against him earlier this year.

Talabani also recently helped ease a military stand-off between Maliki's central government and the autonomous Kurdistan president, Masoud Barzani, in their long-running dispute over oil-field rights and internal boundaries.

But that situation remains sensitive after both regions sent troops to reinforce positions along their internal frontier.

A veteran of the Kurdish guerrilla movement, Talabani survived wars, exile and infighting in northern Iraq to become the country's first Kurdish president a few years after the 2003 invasion that toppled Saddam Hussein.

(Additional reporting by Raheem Salman, Aseel Kami and Isabel Coles; Writing by Patrick Markey; Editing by Michael Roddy)

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Iran defiant on enrichment ahead of possible nuclear talks

DUBAI (Reuters) - Iran will not stop higher-grade uranium enrichment in response to external demands, its top nuclear energy official was quoted as saying on Tuesday, signaling a tough bargaining stance ahead of planned new talks with world powers.

The West wants Iran to halt enrichment of uranium to a fissile concentration of 20 percent as it represents a significant step closer to the level that would be required to make nuclear bombs. Iran says it needs this higher-grade uranium to run its medical research reactor in Tehran.

Israel has threatened air strikes on Iran if its nuclear work is not curbed through diplomacy or sanctions, raising the specter of a Middle East war damaging to the global economy.

Iran "will not suspend 20 percent uranium enrichment because of the demands of others," said Fereydoun Abbasi-Davani, head of Iran's Atomic Energy Organisation, the Iranian Students' News Agency (ISNA) reported.

Iran "will produce 20 percent enriched uranium to meet its needs and for however long it is required."

He did not specify what he meant by "needs". Western diplomats say Iran already has made sufficient amounts to fuel its Tehran Research Reactor for several years. Abbasi-Davani has in the past said Iran plans to build another research reactor.

The European Union quickly responded to Abbasi-Davani's comments, saying Iran must come to grips with increasing international disquiet over the ultimate purpose of its uranium enrichment program to resolve the protracted dispute.

"Iran has to address the immediate key concern, which is the issue of 20 percent enrichment, by taking an initial comprehensive confidence-building step in this area, thereby creating space for more diplomacy and negotiations," the spokesman for EU foreign policy chief Catherine Ashton said.

In his statements, Abbasi-Davani signaled renewed Iranian defiance in negotiations with world powers expected to resume soon. But he did not appear to categorically rule out that Tehran at some point could shelve higher-grade enrichment.

The powers - the United States, France, Britain, Germany, China and Russia - also want Iran to shut down the Fordow underground site where its 20 percent enrichment is carried out.

Nuclear expert Mark Fitzpatrick, of the International Institute for Strategic Studies, said about Abbasi-Davani's comments: "This hard line doesn't bode well for success in the next round of talks, where stopping the 20 percent enrichment is just one of the steps Iran will be asked to take."

BEHIND THE SCENES

But others suggested Abbasi-Davani's comments, and those of other Iranian officials, were intended more for public consumption at home and abroad.

Iranian foreign and security policies are ultimately decided by clerical Supreme Leader Ayatollah Ali Khamenei.

"What matters is not stay-the-course statements like these but whether behind the scenes the Supreme Leader and his entourage, and the Obama White House, step out of their shadow and agree to direct bilateral talks," Mark Hibbs, of the Carnegie Endowment think tank, said.

Iranian foreign ministry spokesman Ramin Mehmanparast said Iranian and EU officials had held discussions regarding the time and place of the next negotiations between the powers and Iran.

"If there is an agreement, it will be announced," Mehmanparast said in his weekly news conference.

The EU spokesman said the six powers are still waiting for an Iranian answer regarding a possible date for new talks: "We made contact last week and suggested getting together for another round. We are waiting to hear the response."

Though Israel has threatened to bomb Iranian nuclear sites, Vice Prime Minister Moshe Yaalon said the Jewish state had noticed renewed U.S.-led efforts to curb Iran's nuclear work since President Barack Obama's re-election last month, including preparation for possible military action.

He also cited contacts among the powers and Iran about holding new negotiations and ongoing sanctions against Iran.

Iranian media quoted Foreign Minister Ali Akbar Salehi as saying that any calls for direct talks between the U.S. and Iran were meaningless as long as Washington continued to exert pressure on Iran through sanctions and other measures.

In October, the New York Times reported that secret exchanges between U.S. and Iranian officials had yielded agreement "in principle" to hold one-on-one talks. Both Iran and the United States denied that the two countries had scheduled direct bilateral negotiations on the nuclear program.

(Additional reporting by Fredrik Dahl in Vienna and Justyna Pawlak in Brussels; Editing by Mark Heinrich)

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In second verdict, war crimes court acquits Congolese

THE HAGUE (Reuters) - Congolese militia leader Mathieu Ngudjolo Chui was acquitted at the Hague war crimes court on Tuesday, after prosecutors failed to prove he ordered atrocities in eastern Congo a decade ago.

Delivering only its second verdict in 10 years of existence, the International Criminal Court (ICC) found Ngudjolo not guilty of ordering killings during a war in Ituri district in 2003. In its first ever verdict, delivered in July, the court had jailed an opposing commander, Thomas Lubanga Dyilo, for 14 years.

Ngudjolo had been accused of war crimes and crimes against humanity, including overseeing killings, rape and pillage. His prosecutors will appeal the verdict and, though the court said Ngudjolo should be freed in the meantime, it was not immediately clear that he could leave the ICC detention facility for now.

The judges said they had no doubt the people of Ituri suffered the massacres described at Ngudjolo's trial and critics of the ICC called for better prosecutions in future in order that victims and their surviving relatives should have justice.

"The people trusted the International Criminal Court more than our national courts," said Emmanuel Folo of Ituri human rights group Equitas. "After this decision, for those who were victims of this, there is a feeling of disappointment. The victims feel forgotten, abandoned by international justice."

The acquittal also raised doubts about the case against Ngudjolo's better known co-accused, Germain Katanga. Judges extended Katanga's trial last month in a move that some observers said might raise the probability of a conviction.

The violence in Ituri was a localized ethnic clash over land and resources among myriad conflicts that spun out of the wider war in Democratic Republic of Congo from 1998 to 2003.

Some rebels involved in the current M23 insurgency in neighboring North Kivu province were involved in fighting in Ituri - among them M23 leader Bosco Ntaganda, who is himself on the ICC wanted list for war crimes alleged in Ituri in 2003.

Prosecutors accused Ngudjolo of ordering fighters to block roads around the village of Bogoro in February 2003 in order to kill civilians attempting to flee and said civilians, including women and small children, were burned alive inside their homes.

Two hundred people were killed during and after the attack on the village when ethnic Lendu and Ngiti fighters destroyed the homes of the village's mainly Hema inhabitants.

Describing the prosecution case as relating to a "a very concise incident", international criminal lawyer Nick Kaufmann, said: "The prosecution failed to investigate the chain of command adequately as far as the attack in Bogoro is concerned."

The ICC judges stressed that atrocities had been committed during the conflict, but said the witnesses prosecutors had chosen to testify to Ngudjolo's involvement were not credible.

"This does not in any way throw into question what befell the people of that area on that day," presiding judge Bruno Cotte said.

UNLIKELY TO BE OVERTURNED

Legal experts said it was unlikely the acquittal would be overturned because new evidence cannot be introduced at appeal. Appeals panels rarely reassess the credibility of witnesses.

Until then, it was not immediately clear where Ngudjolo might go. He remains under a United Nations travel ban dating from his indictment. The Netherlands, where he has been detained since 2008, is not obliged to take him in from prison. A Congo government spokesman said he saw no reason for Congo not to take Ngudjolo back but suggested it may wait until after the appeal.

"The acquittal of Ngudjolo leaves the victims of Bogoro and other massacres by his forces without justice for their suffering," said Geraldine Mattioli-Zeltner, international justice advocacy director at New York-based Human Rights Watch.

"The ICC prosecutor needs to strengthen its investigations of those responsible for grave crimes in Ituri, including high-ranking officials in Congo, Rwanda, and Uganda who supported the armed groups fighting there."

Luis Moreno Ocampo, who stepped down as chief prosecutor this year, failed to convince judges to approve some of his requests for arrest warrants or for cases to be tried in relation to the Congo conflicts.

In May, the ICC refused to issue an arrest warrant for Sylvestre Mudacumura, a militia leader operating in the Kivu provinces, saying his charge sheet was not detailed enough.

Judges last month split the cases against Katanga and Ndgujolo, postponing a verdict on the former until next year and giving prosecutors time to build a case centered around the claim that Katanga was part of a criminal plan to commit war crimes.

That decision, which would allow Katanga to be convicted even if he had not himself committed or ordered war crimes, has been appealed by the defense and criticized by scholars and by dissenting judge Christine van den Wyngaert. She said the decision would cause Katanga "irreparable prejudice".

Thomas Lubanga, the court's first convict, was sentenced to 14 years earlier this year for his role in recruiting child soldiers to another side in the same conflict in Ituri.

Some observers said the different outcomes of the trials for militia leaders from different tribes could cause new friction.

"Lubanga was a Hema leader, and the acquittal of a Ngudjolo, a Lendu, just after the conviction of a Hema could exacerbate tension between the two ethnicities in Ituri," Jennifer Easterday of the Open Society Justice Initiative said.

(Additional reporting by Joe Bavier in Abidjan and Pascal Fletcher; Editing by Michael Roddy and Alastair Macdonald)

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South Africa's Zuma boosted by Ramaphosa return in ANC win

BLOEMFONTEIN, South Africa (Reuters) - South Africa's ruling African National Congress (ANC) re-elected President Jacob Zuma as its leader on Tuesday, setting him up for seven more years as head of state of Africa's biggest economy.

Nelson Mandela's 100-year-old liberation movement also chose respected businessman Cyril Ramaphosa as his deputy, seeking to repair the image of a Zuma administration battered by corruption scandals and strikes and facing growing discontent among the poor black majority.

More than 4,000 ANC delegates crammed into a marquee in the central city of Bloemfontein erupted into wild cheers when Zuma was confirmed in the top party post after comfortably seeing off a challenge by Deputy President Kgalema Motlanthe.

Given the ANC's dominance at the ballot-box less than two decades after the end of apartheid, 70-year-old Zuma is virtually assured a second, five-year term as President of South Africa in 2014 elections.

The rand briefly edged higher against the dollar, reflecting relief among investors at the prospect of policies remaining largely unchanged.

After the vote, the beaming president, who secured 2,995 votes out of 3,977 cast, walked on stage to shake hands with his fellow 'comrades' - a label reflecting the ANC's roots in the communist-backed struggle against decades of white-minority rule.

Zuma, a polygamous Zulu traditionalist, came to power in 2009 amid the first recession in 18 years and has had a chequered economic record, culminating in violent labor unrest in the mines this year that triggered two downgrades in South Africa's credit ratings.

He has also been dogged by personal scandals, including fathering a child by the daughter of a close friend. Despite this, his popularity within the party is overwhelming.

"I don't care what people say about Jacob Zuma," said Sinovuyo Kley, a delegate from the impoverished Eastern Cape. "When you hear him sing, you know he is one with the people. He speaks our language and knows our struggles."

RAMAPHOSA RETURNS

Zuma's re-election had looked likely for much of the year, making the main talking point of the five-day Bloemfontein conference the political renaissance of Ramaphosa after a decade-long absence to focus on his business interests.

Attention was also diverted by the arrest of four whites on suspicion of a plot to bomb the meeting and execute Zuma and top ministers as part of a plan to carve an independent Afrikaner state out of Mandela's "Rainbow Nation".

Having risen to prominence as a charismatic union leader in the 1980s, Ramaphosa became the ANC's main negotiator in the talks that led to historic all-race elections in 1994 and Mandela's appointment as South Africa's first black president.

He was also tipped as a successor to the revered Mandela - now 94 and recovering in hospital from a lung infection - but gradually removed himself from politics when the job went to party stalwart Thabo Mbeki in 1999.

It was unclear just how much impact Ramaphosa's inclusion in Zuma's inner circle could have on the ANC government.

Some analysts say he should help push through plans to lift long-term economic growth and stop South Africa's competitive slide against fast-growing economies in Asia and South America.

However, others who know his business style told Reuters he tended not to throw his weight around in company board-rooms, suggesting he might avoid challenging South Africa's politically powerful unions.

"He is surprisingly quiet and non-confrontational on boards," one person who knows Ramaphosa said.

Others suggest that his ranking as South Africa's second richest black businessman could limit his appeal to the legions of poor and jobless who are increasingly doubting the ANC's post-apartheid promise to deliver "a better life for all".

LOOMING DOWNGRADE

"Looking further ahead, we remain doubtful that Zuma can oversee the reforms needed to pull the South African economy out of its current rut," said Shilan Shah, Africa economist at UK-based Capital Economics.

There is precious little time to make an impact, with Fitch expected in January to follow Moodys and Standard & Poor's in cutting South Africa's credit rating because of concerns about sluggish growth, forecast at 2.5 percent this year.

"The leadership issue is never really decisive for the market," said Nomura emerging markets analyst Peter Attard-Montalto. "It's always interested in policy and that's far more what the ratings agencies are looking at."

Zuma may also find his Bloemfontein victory dance cut short, with a poll published this week putting his nationwide approval rating at 52 percent, in contrast to 70 percent for the outgoing Motlanthe. This reflects just how much the internal politics of the ruling ANC is insulated from daily realities.

The opposition Democratic Alliance (DA) is starting to make in-roads into ANC support at local and regional level despite its reputation among many black South Africans as the party of white privilege. The DA said it had been inundated with membership inquiries within an hour of Zuma being re-elected.

Even within his own party, young South Africans are snapping at Zuma's heels, demanding political and economic change for a generation that has little memory of apartheid but which remains at the sharp end of 25 percent unemployment.

"The young people of South Africa are tired of promises and need action for economic freedom in our lifetime," the ANC Youth League, which had backed Motlanthe, said in a statement.

(Additional reporting by Jon Herskovitz, David Dolan, and Stella Mapenzauswa; Writing by Ed Cropley; Editing by Pascal Fletcher and Matthew Tostevin)

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Russia expects Obama visit despite "mini-crisis" in ties

MOSCOW (Reuters) - U.S. President Barack Obama is likely to visit Russia in the first half of 2013 despite a "mini-crisis" in relations over U.S. moves to punish Russians accused of rights abuses, a Kremlin aide said on Tuesday.

Russia's President Vladimir Putin has been angered by the U.S. Congress passing the so-called Magnitsky Act which will bar entry to alleged Russian human rights violators and freeze any assets they hold in the United States.

Obama signed the legislation last week. But, signaling that the Kremlin does not want the spat to block efforts to improve relations, foreign policy aide Yury Ushakov said Putin stood by an invitation for the U.S. president to visit Russia.

"We reckon that Obama's visit could take place in the first half of next year," he told a news briefing.

The Russian parliament has given initial approval to a tit-for-tat law barring Americans accused of human rights violations from entering the country, and the "reset" in relations which Obama called for four years ago has not gone as well as hoped.

Lawmakers have also proposed banning adoption of Russian children by Americans, a move backed by Russia's Children's Rights Commissioner, Pavel Astakhov.

The proposal has upset Kremlin critics and human rights activists, and two government ministers called on Tuesday for restraint over such a move. Foreign Minister Sergei Lavrov said the ban would be wrong and Education Minister Dmitry Livanov criticized the idea on Twitter.

"The logic is like 'an eye for an eye', but the logic is wrong, as children could suffer harm if they cannot find adoptive parents in Russia," he said.

Any such ban would go back on a bilateral agreement ratified in June on rules for U.S. citizens adopting Russian children.

MINI-CRISIS

Both Obama and Putin have signaled, since winning presidential elections this year, that they want U.S.-Russian ties to warm up, and Putin invited Obama to visit soon after the U.S. election last month.

Obama is expected to come to Russia in September anyway, for a Group of 20 summit in St Petersburg, but a separate visit for a bilateral summit would send a positive signal to Moscow about his intentions.

Obama visited Russia in 2009, and struck up a good rapport with then-President Dmitry Medvedev. The "reset" led to the signing of a new nuclear-arms reduction treaty, but Obama has a more difficult relationship with Putin.

The Magnitsky Act was drawn up because of U.S. concern over the death in a Russian prison of anti-corruption lawyer Sergei Magnitsky in 2009. It has outraged Russian politicians and members of parliament.

"This is an unfriendly move," Ushakov said at Tuesday's briefing. "These moves cannot be left unanswered."

"The Americans have created a mini-crisis out of nothing. We are losing time for the normal development of relations," he said. "Now we need to spend some time getting through this mini-crisis."

Putin has described the legislation as an attempt by Washington to "reap some political dividends at home".

(Additional reporting by Sonia Elks; Writing by Alexei Anishchuk; Editing by Louise Ireland and Timothy Heritage)

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Russia eyes Syria evacuation as rebels take Damascus district

BEIRUT (Reuters) - Russia sent warships to the Mediterranean to prepare a potential evacuation of its citizens from Syria, a Russian news agency said on Tuesday, a sign President Bashar al-Assad's key ally is worried about rebel advances now threatening even the capital.

Moscow acted a day after insurgents waging a 21-month-old uprising obtained a possible springboard for a thrust into Damascus by seizing the Yarmouk Palestinian camp, an urban zone just 2 miles from the heart of the city, activists said.

The Syrian opposition has scored significant military and diplomatic gains in recent weeks, capturing several army installations across Syria and securing formal recognition from Western and Arab states for its new coalition.

Despite those rebel successes, bloodshed has been rising with more than 40,000 killed in a movement that began as peaceful street protests but has transformed into civil war.

Assad's pivotal allies have largely stood behind him and Iran, believed to be his main bankroller in the conflict, said there were no signs of Assad was on the verge of being toppled.

"The Syrian army and the state machine are working smoothly," Deputy Foreign Minister Hossein Amir-Abdollahian said in Moscow on Tuesday.

But Russia, Assad's primary arms supplier, has appeared to waver with contradictory statements over the past week stressing opposition to Assad stepping down and airing concerns about a possible rebel victory.

Russia's Interfax news agency quoted unnamed naval sources on Tuesday as saying that two armed landing craft, a tanker and an escort vessel had left a Baltic port for the Mediterranean Sea. Russia has a naval maintenance base in the Syrian port of Tartus, around 250 km (155 miles) northwest of Damascus.

"They are heading to the Syrian coast to assist in a possible evacuation of Russian citizens ... Preparations for the deployment were carried out in a hurry and were heavily classified," the Russian agency quoted the source as saying.

Assad and his minority Alawite sect retain a solid grip on most of the coastal provinces of Tartus and Latakia, where their numbers are high. But the mostly Sunni Muslim rebels now control wide swathes of rural Syria, have seized border zones near Turkey in the north and Iraq to the east, and are pushing hard to advance on Damascus, Assad's fulcrum of power that sits close to the western frontier with Lebanon.

It was not possible to independently verify the Interfax report, which came a day after Russia confirmed that two citizens working in the Latakia province were kidnapped along with an Italian citizen. About 5,3000 Russian citizens are registered with consular authorities in Syria.

YARMOUK A "RED LINE"

In Damascus, activists reported overnight explosions and early morning sniper fire around the Palestinian refugee camp of Yarmouk. The Yarmouk and Palestine refugee "camps" are actually densely populated urban districts home to thousands of impoverished Palestinian refugees and Syrians.

"The rebels control the camp but army forces are gathering in the Palestine camp and snipers can fire in on the southern parts of Yarmouk," rebel spokesman Abu Nidal said by Skype.

"Strategically, this site is very important because it is one of the best doors into central Damascus. The regime normally does not fight to regain areas captured any more because its forces have been drained. But I think they could see Yarmouk as a red line and fight back fiercely."

Syria hosts half a million Palestinian refugees, most living in Yarmouk, descendants of those admitted after the creation of Israel in 1948. Damascus has always cast itself as a champion of the Palestinian struggle, sponsoring several guerrilla factions.

The battle in Yarmouk was one of a series of conflicts on the southern edges of Damascus, as the rebels try to seal off the capital in their campaign to end 42 years of rule over the major Arab state by the Assad family.

Both Assad's government and the rebels have enlisted and armed divided Palestinian factions.

Streams of refugees have fled Yarmouk. Many have headed to central Damascus while hundreds more have crossed into Lebanon.

"We walked out on foot without our belongings until we reached central Damascus. We got in a taxi and drove straight for the border," said 75-year-old Abu Ali, speaking at the Lebanon's Masnaa border crossing.

Abu Ali said around 70 percent of Yarmouk residents had fled and many had slept rough on the streets of Damascus.

MEDICAL SHORTAGES, EXTREME HUNGER

Around 200 people died in Syria on Monday alone, according to the British-based Syrian Observatory for Human Rights, which has a network of activists across the nation. Violence has risen sharply, and with it humanitarian conditions are deteriorating.

The World Health Organisation said around 100 people were being admitted daily to the main hospital of Damascus and that supplies of medicines and anesthetics were scarce.

It also reported a rise in cases of extreme hunger and malnutrition coming from across Syria, including the insurgent-dominated rural areas outside the capital, where Assad has unleashed warplanes to try to dislodge rebel units.

Aid organizations say fighting has blocked their access into many conflict zones, and residents in rebel-held areas in particular have grappled with severe food and medical shortages.

Fighting raged across Syria on Tuesday, with fighter jets and ground rockets bombarding rebel-controlled eastern suburbs of the capital and army forces shelling a town in Hama province after clashes reignited there over the weekend.

The Syrian government severely restricts media access into the country, making it difficult to report events on the ground.

An news team for the American NBC network who were kidnapped after entering Syria through the rebel-held northern border returned to Turkey on Tuesday after being freed in a gunfight.

NBC chief foreign correspondent Richard Engel said his team was held by an unidentified band for five days, and the men were subjected to psychological torture including mock shootings.

He said he had a "very good idea" who his captors were.

"This was a group known as the shabbiha. This is a government militia. These are people who are loyal to President Bashar Assad," he said on NBC, adding that the kidnappers spoke openly about their allegiance to the Damascus government.

(Additional reporting by Oliver Holmes, Erika Solomon and Dominic Evans in Beirut, Stephanie Nebehay in Geneva, Afif Diab in Masnaa, Lebanon, Susan Heavey in Washington; Editing by Mark Heinrich)

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Egyptian prosecutor's resignation angers Brotherhood

CAIRO (Reuters) - Egypt's public prosecutor resigned under pressure from his opponents in the judiciary, dealing a blow to President Mohamed Mursi and drawing an angry response on Tuesday from the Islamist leader's supporters in the Muslim Brotherhood.

Seeking to keep pressure on Mursi, the main opposition coalition staged protests against an Islamist-backed draft constitution that has divided Egypt but which looks set to be approved in the second round of a referendum on Saturday.

A few hundred protesters made their way through the streets of Cairo chanting "Revolution, revolution, for the sake of the constitution" and calling on Mursi to "Leave, leave, you coward".

But as the protest got under way, the numbers were well down on previous demonstrations.

Mursi obtained a 57 percent "yes" vote for the constitution in a first round of the referendum last weekend, state media said, less than he had hoped for.

The opposition, which says the law is too Islamist, will be emboldened by the result but is unlikely to win the second round, to be held in districts seen as even more sympathetic towards Mursi's Muslim Brotherhood.

Protesters broke into cheers when the public prosecutor appointed by Mursi last month announced his resignation late on Monday.

In a statement on its Facebook page, the Muslim Brotherhood, which propelled Mursi to power in elections in June, said the enforced resignation of public prosecutor Talaat Ibrahim was a "crime".

The Supreme Judiciary Council, which governs the country's judicial system, should refuse to accept the prosecutor's resignation, the Brotherhood said.

Further signs of opposition to Mursi emerged when a judges' club urged its members not to supervise Saturday's vote. But the call is not binding and balloting is expected to go ahead.

If the constitution passes next weekend, national elections can take place early next year, something many hope will help end the turmoil that has gripped Egypt since the fall of Hosni Mubarak nearly two years ago.

The National Salvation Front opposition coalition said there were widespread voting violations in the first round and called for protests to "bring down the invalid draft constitution".

The Ministry of Justice said it was appointing a group of judges to investigate complaints of voting irregularities around the country.

DEMONSTRATIONS

Opposition marchers headed for Tahrir Square, cradle of the revolution that toppled Mubarak, and Mursi's presidential palace, still ringed with tanks after earlier protests.

A protester at the presidential palace, Mohamed Adel, 30, said: "I have been camping here for weeks and will continue to do so until the constitution that divided the nation, and for which people died, gets scrapped."

The build-up to the first round of voting saw clashes between supporters and opponents of Mursi in which eight people died. Recent demonstrations in Cairo have been more peaceful, although rival factions clashed on Friday in Alexandria, Egypt's second biggest city.

On Monday evening, more than 1,300 members of the General Prosecution staff gathered outside the public prosecutor's office, demanding Ibrahim leave his post.

Hours later, Ibrahim announced he had resigned. The crowd cheered "God is Great! Long live justice!" and "Long live the independence of the judiciary!" witnesses said.

The closeness of the first-round referendum vote and low turnout give Mursi scant comfort as he seeks to assemble support for difficult economic reforms.

OPPOSITION BOOST

"This percentage ... will strengthen the hand of the National Salvation Front and the leaders of this Front have declared they are going to continue this fight to discredit the constitution," said Mustapha Kamal Al-Sayyid, a professor of political science at Cairo University.

Mursi is likely to become more unpopular with the introduction of planned austerity measures, polarizing society further, Sayyid told Reuters.

To tackle the budget deficit, the government needs to impose tax rises and cut back fuel subsidies. Uncertainty surrounding economic reform plans has already forced the postponement of a $4.8 billion loan from the International Monetary Fund. The Egyptian pound has fallen to eight-year lows against the dollar.

Mursi and his backers say the constitution is needed to move Egypt's democratic transition forward. Opponents say the document is too Islamist and ignores the rights of women and of minorities, including Christians who make up 10 percent of the population.

Demonstrations erupted when Mursi awarded himself extra powers on November 22 and then fast-tracked the constitution through an assembly dominated by his Islamist allies and boycotted by many liberals.

The referendum has had to be held over two days because many of the judges needed to oversee polling staged a boycott in protest. In order to pass, the constitution must be approved by more than 50 percent of those voting.

(Additional reporting by Tamim Elyan and Edmund Blair; Writing by Giles Elgood; Editing by Robin Pomeroy)

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China appoints new top official for export powerhouse Guangdong

GUANGZHOU (Reuters) - China announced on Tuesday the appointment of rising star Hu Chunhua as Communist Party boss for the southern export powerhouse of Guangdong, the country's richest and most liberal province.

Hu will take over from reform-minded politician Wang Yang, who worked to reduce Guangdong's reliance on exports and grappled with rising social tensions among migrant workers and villagers fighting land grabs and graft.

The Guangdong Party Secretary post is one of the most prominent provincial leadership roles in China, and has served as a springboard for many politicians towards more senior national posts.

Hu's appointment was announced in a brief statement carried by the official Xinhua news agency. It said Wang Jun would replace Hu as party chief in Inner Mongolia. The article did not say where Wang Yang, seen by many in the West as a beacon of political reform, will be moved to.

Reuters reported last month that Hu, the former Inner Mongolia party chief, was tipped to take over as party chief in Guangdong.

Hu, 49, is part of the so-called "sixth generation" of potential national leaders born in the 1960s, after the generations headed by Mao Zedong, Deng Xiaoping, Jiang Zemin, Hu Jintao and Xi Jinping.

Hu Chunhua spent two decades in restive and remote Tibet, where he learned to speak Tibetan, rare for a Han Chinese official. While there, he came under the wing of Hu Jintao, the outgoing Chinese president.

The two Hus are not related despite sharing a family name.

In Inner Mongolia, Hu Chunhua, also known as "Little Hu", has been referred to as a future president. While there, Hu Chunhua oversaw rapid economic growth and dealt successfully with protests last year by ethnic Mongols.

Guangdong, however, poses a stiff challenge for Hu given its national prominence as a key economic engine, encompassing the "world's factory" of the Pearl River Delta, rapid social and industrial transformation, social unrest and corruption.

"It will be a very big jump for him," said a foreign diplomat in Guangzhou who noted the province's relatively assertive citizenry and closer scrutiny from media outlets in Hong Kong.

Hu Chunhua came to Inner Mongolia following a brief stint in Hebei, the arid province which surrounds Beijing, where he was rapidly moved after a scandal over tainted milk in which at least six children died and thousands became ill.

Hu Chunhua remains something of an enigma, even in China. He has given few clues about his deeper policy beliefs. One of the best known things about him is that he does not appear to dye his hair jet-black like many Chinese politicians.

In meetings with the public, Hu comes across as low-key and self effacing, in line with an image of a loyal, humble Communist Party member. People who have met him describe him as relaxed and easy-going.

Despite having a reputation as a moderate and a reformer, Hu Chunhua sent back to jail Inner Mongolia's most notable Mongol dissident, Hada, almost as soon as he completed a 15-year sentence for separatism in late 2010.

(Reporting by James Pomfret in Guangzhou and Sui-Lee Wee in Beijing; Editing by Ron Popeski)

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Mandela "looking much better", to stay in hospital

JOHANNESBURG (Reuters) - Former South African President Nelson Mandela is "looking much better" after being treated for a lung infection and gallstones, but he would remain in hospital for the time being for extra care, a presidency spokesman said on Tuesday.

The country's first black president and anti-apartheid hero, who is 94, was admitted to a Pretoria hospital on December 8 after being flown from his home village of Qunu in a remote, rural part of the Eastern Cape province.

He was treated initially for a recurrent lung infection and then had a successful procedure to have gallstones removed.

Presidency spokesman Mac Maharaj said he visited Mandela on Tuesday. "He is looking much better," he said in a statement, adding that the Nobel Peace laureate had spoken to him.

Doctors were satisfied with his progress, Maharaj said.

"They say there is no crisis, but add that they are in no hurry to send him home just yet," he added.

"He is 94 years old and needs extra-ordinary care. If he spends more days in hospital, it is because that necessary care is being provided," Maharaj said.

Mandela spent 27 years in apartheid prisons, including 18 years on the windswept Robben Island off the coast of Cape Town.

He was released in 1990 and went on to use his unparalleled prestige to push for reconciliation between whites and blacks as the bedrock of the post-apartheid "Rainbow Nation".

He stepped down in 1999 after one term in office and has been largely removed from public life for the last decade.

(Reporting By Xola Potelwa; Writing by Pascal Fletcher)

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Central African Republic rebel alliance issues ultimatum to government

BANGUI (Reuters) - An alliance of rebel groups that has seized control of several towns in Central African Republic in recent days has threatened to overthrow President Francois Bozize if he fails to fully implement a five-year-old peace deal.

The resurgence of rebel activity risks sparking a new spiral of violence in the minerals-rich nation where several groups have fought low-level insurgencies since 2005.

The rebel alliance - made up of breakaway factions from the CPJP, UFDR and CPSK rebel groups in the north of the country which signed a peace treaty with the government in 2007 - said the government must fully implement the terms of that deal.

In a statement issued on Monday, the alliance demanded, among other things, that the government pay rebel soldiers money promised to them to lay down their weapons, and to free political prisoners.

"Otherwise ... (the alliance) will take it upon itself to do everything possible to change, sooner or later, this regime which has done nothing to bring justice and peace to the Central African Republic. Enough is enough," it said.

Early on Tuesday, the rebels entered Bria, a mining town with a population of about 40,000 which lies some 600 km (360 miles) from the capital Bangui.

"Fighting started about 5 a.m. today. We were woken by heavy gunfire. Most of the population started fleeing. The military base seems to be in the hands of the rebels," Bria's Mayor Moussa Gouman told Reuters by telephone as gunfire could be heard in the background.

A resident said that by late afternoon the rebels had seized control of the town.

The rebels have taken several towns in the north and north-east of the country including Ndele, Sam Ouandja, Bamingui and Ouadda during an advance that began last week.

Authorities in the capital declined to comment.

On Sunday, the rebels attacked government soldiers sent to retake Ndele which was seized on December 10.

"Our troops were ambushed by the rebels on (Sunday) night. Forty of them are unaccounted for as we speak," a CAR army captain told Reuters, requesting not to be named.

"Two of our vehicles loaded with weapons, ammunition and fuel supplies for our men were also seized by the rebels," he said.

Instability in landlocked CAR, roughly the size of former colonial master France, has discouraged major investment in its timber, gold, uranium and diamond deposits.

France said it was "extremely concerned" by the fighting.

"These attacks constitute a flagrant violation of the Libreville peace agreement, in that they undermine efforts to consolidate peace in Central African Republic," French Foreign Ministry spokesman Philippe Lalliot told journalists.

A 2006 advance by the nearly 3,000-strong UFDR on Bangui was only halted with the intervention of French armed forces before the peace deal was signed in April 2007.

The CPJP embarked on a separate rebellion with about 1,000 soldiers before agreeing a ceasefire, but most of the rebel groups remained armed.

A mix of local rebels, bandits, ethnic tensions and the spillover of conflicts from neighboring Chad, Sudan and Democratic Republic of Congo have undermined efforts to stabilize the nation which has suffered misrule since independence in 1960.

President Bozize took power in a 2003 coup and won a new mandate in January 2011 elections, which opponents dismissed as fraudulent.

(Additional reporting by John Irish in Paris and Bate Felix in Dakar; Writing by Bate Felix; Editing by Robin Pomeroy)

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Vietnam condemns China's sea claims as "serious violation"

HANOI/NEW DELHI (Reuters) - Vietnam condemned on Tuesday China's claims to disputed South China Sea islands as a serious violation of its sovereignty after saying it was setting up patrols to protect its fisheries and accusing Chinese boats of sabotage.

The condemnation of China's claims to the sea and its numerous reefs and tiny islands was the strongest yet from Vietnam since tension flared this year and came after India declared itself ready to send navy ships to safeguard its interests in the disputed waters.

Claims by an increasingly powerful China over most of the South China Sea have set it directly against U.S. allies Vietnam and the Philippines, while Brunei, Taiwan and Malaysia also claim parts of the mineral-rich waters.

Vietnam's condemnation came a day after its state oil and gas company, Petrovietnam, accused Chinese boats of sabotaging an exploration operation by cutting a seismic cable being towed behind a Vietnamese boat.

Vietnam's Foreign Ministry spokesman condemned the cable cutting as well as some recent Chinese provincial regulations that identified the disputed Spratly and Paracel islands as Chinese, and a map that did the same thing.

"The actions of the Chinese side have seriously violated Vietnam's sovereignty over the two archipelagos," the spokesman, Luong Thanh Nghi, said in a statement.

Vietnamese Foreign Ministry officials met representatives of the Chinese embassy in Hanoi on Monday, Nghi said.

The Vietnamese officials handed over a diplomatic note "resolutely opposing the above mentioned actions by the Chinese side, asking China to respect Vietnam's sovereignty, to immediately stop such wrongful acts and not to repeat similar actions."

Earlier, Vietnam said civilian-led patrols, backed by marine police and a border force, would be deployed from January 25 to stop foreign vessels violating fishing laws in Vietnam's waters.

A decree on the Vietnamese patrols was signed on November 29, the day Chinese media announced new rules authorizing police in the southern Chinese province of Hainan to board and seize foreign ships in the South China Sea.

"It's going to lead to friction," Carl Thayer, a Southeast Asia security expert at the University of New South Wales in Australia, said of China's new rules that take effect from January 1 on boarding ships which "illegally enter" waters it claims.

"If it begins to assert these rights and isn't challenged, over time it becomes customary, it becomes practice."

On Monday, Petrovietnam said the seismic vessel had been operating outside the Gulf of Tonkin when the cable was severed on Friday. It had earlier been surveying the Nam Con Son basin further south - an area where Indian state-run explorer Oil and Natural Gas Corp (ONGC) has a stake in a Vietnamese gas field.

Petrovietnam posted on its website comments by the deputy head of exploration, Pham Viet Dung, in which he said the cable was repaired and the survey resumed the following day.

"The blatant violation of Vietnamese waters by Chinese fishing vessels not only violates the sovereignty ... of Vietnam but also interferes in the normal operations of Vietnamese fishermen and affects the maritime activities of Petrovietnam," Dung was quoted as saying.

Asked about the complaint, Chinese Foreign Ministry spokesman Hong Lei told a briefing in Beijing that China was checking the reports of the incident, which he said was understood to have taken place in an area of overlapping claims.

"Chinese fishing boats were operating in normal fishing activities," Hong said.

COLLISION COURSE?

India has also declared itself ready to deploy naval vessels to the South China Sea to protect its oil-exploration interests there, a new source of tension in a disputed area where fears of conflict have been growing steadily.

Indian navy chief, Admiral D.K Joshi, said on Monday that, while India was not a territorial claimant in the South China Sea, it was prepared to act, if necessary, to protect its maritime and economic interests in the region.

"When the requirement is there, for example, in situations where our country's interests are involved, for example ONGC ... we will be required to go there and we are prepared for that," Joshi told a news conference.

"Now, are we preparing for it? Are we having exercises of that nature? The short answer is yes," he said.

An Indian government spokesman on Tuesday played down the comments: "This is an issue for the parties concerned to resolve."

India is not the only non-claimant nation concerned about disruption to shipping or oil exploration in the South China Sea. The United States, a close ally to several of the Southeast Asian claimants, has also voiced concern at the prospect of China stopping international ships in contested waters.

India has sparred diplomatically with China in the past over its gas and oil exploration block off the coast of Vietnam.

Any display of naval assertiveness by India in the South China Sea would likely fuel concern that the navies of the two rapidly growing Asian giants could be on a collision course as they seek to protect trade routes and lock in the supply of coal, minerals and other raw material from foreign sources.

Joshi described the modernization of China's navy as "truly impressive" and a source of major concern for India.

Asked what China would do if Indian navy entered the South China Sea to protect its oil interests, the Chinese Foreign Ministry spokesman, Hong, said China had "indisputable sovereignty" over the sea's islands and surrounding waters.

"China opposes unilateral oil and gas development in disputed waters of the South China Sea. We hope that concerned countries respect China's position and rights, and respect efforts made through bilateral talks to resolve disputes."

Singapore, home to the world's second-busiest container port, joined the Philippines on Monday in expressing concern at the prospect of Chinese police boarding ships. The Philippines on Saturday condemned the Chinese plan as illegal.

Estimates for proven and undiscovered oil reserves in the South China Sea range as high as 213 billion barrels of oil, the U.S. Energy Information Administration said in a 2008 report. That would surpass the proven oil reserves of every country except Saudi Arabia and Venezuela, according to the BP Statistical Review.

On Monday, China's National Energy Administration said China aims to produce 15 billion cubic meters of natural gas a year from the South China Sea by 2015.

It said the sea would "form the main part" of China's offshore gas exploration plans.

(Reporting by Arup Roychoudhury and Mayank Bhardwaj in NEW DELHI, Kevin Lim in SINGAPORE, Ho Binh Minh in HANOI, Paul Carsten in Bangkok and Ben Blanchard in Beijing; Editing by Jason Szep and Robert Birsel)

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Netanyahu's Israeli settlement push could be ballot box boon

JERUSALEM (Reuters) - For Benjamin Netanyahu, plans to expand Israeli settlements may risk a diplomatic crisis with Europe but could prove a good bet at the ballot box.

With a January 22 election looming, the Israeli leader has defied long-standing international opposition to settlements and announced plans to build at least 3,000 more homes in the occupied West Bank and East Jerusalem after the United Nations' de facto recognition of Palestinian statehood.

Standing up to Europe, where a string of Israeli diplomats were summoned for reprimands by the governments of Britain, France, Spain, Sweden and Denmark on Monday, could help cement right-wing voter support for the conservative prime minister.

"We feared that politicians would clamber over themselves to show who could be tougher with the Palestinians. However we had hoped that Netanyahu would show more restraint. It didn't happen," said a Western diplomat in Jerusalem.

"We did not want the Palestinians to go to the United Nations during an Israeli election campaign precisely for this reason," the diplomat said.

Israel rebuffed European protests and appeals to reverse course on the settlement drive, saying it would "stand by its vital interests, even in the face of international pressure".

Settlement projects on land Israel captured in the 1967 Arab-Israeli War are considered illegal by most world powers and have routinely drawn condemnation from them. Some 500,000 Israelis and 2.5 million Palestinians live in the West Bank and East Jerusalem.

But this time, the government also ordered new "planning work" in one of the most highly sensitive areas of the West Bank known as "E1". Israeli housing on its barren hills could split the West Bank in two, denying the Palestinians a viable state.

Many Israelis have traditionally viewed the United Nations and many European governments as being particularly sympathetic to the Palestinian cause.

And in an aside by Netanyahu during a visit to the United States, Israel's main ally, he appeared to indicate he shared those sentiments.

"Americans get it," he said, referring to arguments he has made in support of his government's policies. "Europeans don't."

That has not always been the case as far as U.S. President Barack Obama is concerned, particularly on the settlement issue and the open question of whether Israel might attack Iran's nuclear program in defiance of Washington's calls to give diplomatic options more time.

But Obama has never been at the top of Israelis' popularity lists and friction between the two leaders seems not to have hurt Netanyahu in the opinion polls, which predict he will coast to victory in the upcoming ballot.

VOTER EXPECTATIONS

Tamir Sheafer, a political scientist at Jerusalem's Hebrew University, said Netanyahu's settlement move was "what his voters expect of him" and stemmed from internal political considerations.

"Maybe they are worried in (Netanyahu's) Likud that right-wing voters will opt instead for (the far-right religious)Habayit Hayehudi party," Sheafer said.

So far, European anger over the settlement plan has not led to any sanctions against Israel. Any punitive measures before the election would fuel arguments made by Netanyahu's political opponents that he was deepening its diplomatic isolation.

"I think there are electoral considerations (behind Netanyahu's settlement moves)," said Gideon Rahat, a Hebrew University political scientist. "But he's also used to (Europe and the United States) not bothering him much and now they seem to have changed the rules of the game."

Still, Sheafer said, "something very unusual or unexpected would have to happen for the next government not to be headed by Netanyahu - it's very simple mathematics, the center-left simply doesn't have enough parliamentary seats" to form a coalition.

With details of the future settler housing in the West Bank and East Jerusalem still sketchy and Israeli officials saying any construction in E1 would be more than a year away, Israel and Europe still have room to maneuver.

"We don't know where these units will be built. I don't think anyone knows. They are probably scurrying around now trying to figure out where they will be built," said Daniel Seidemann, an Israeli expert on settlements.

"This announcement was made for dramatic effect. That doesn't mean it won't happen, it means the dramatic effect precedes the decision," Seidemann said.

Tzipi Livni, a former foreign minister who is running in the upcoming poll as the head of a new centrist party, said in a statement that Netanyahu's settlement move "isolates Israel and encourages international pressure".

But she also appeared to suggest that Netanyahu might be bluffing.

"In any case (the construction) won't happen," she said.

(Additional reporting by Crispian Balmer and Allyn Fisher-Ilan; Writing by Jeffrey Heller; Editing by Andrew Osborn)

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U.S. court hearing set in Strauss-Kahn civil lawsuit

NEW YORK (Reuters) - Former International Monetary Fund head Dominique Strauss-Kahn and the hotel maid who accused him of sexual assault will appear in New York state court next week to brief a judge on the status of settlement talks in the maid's civil case against him.

The setting of the court date comes just days after a source familiar with the matter said the two sides had reached a preliminary agreement to settle the case.

"The parties have been directed to appear before me on December 10 to report on the status of settlement discussions," Justice Douglas McKeon, the Bronx County Supreme Court judge overseeing the case, said on Tuesday. "If the case settles, this will be announced in open court on that date."

Strauss-Kahn's lawyers in the United States and France have acknowledged that a deal was under discussion but said last week that no settlement had been reached. They denied a report that the 63-year-old had agreed to pay the maid, Nafissatou Diallo, $6 million to end the lawsuit.

A source familiar with the case said the amount of any settlement would likely be the subject of a confidentiality agreement.

The scheduling of the status conference, however, may signal that a final deal has been reached. Lawyers for both Strauss-Kahn and Diallo did not immediately respond to requests for comment on Tuesday morning.

Diallo accused Strauss-Kahn of attacking her in his luxury hotel room in Manhattan on May 14, 2011. The allegations led to Strauss-Kahn's arrest, forced his resignation from the IMF and destroyed his status as a frontrunner for the French presidency.

The criminal charges were dropped in August 2011 after New York prosecutors developed doubts about Diallo's credibility. Diallo filed the civil lawsuit against Strauss-Kahn a few weeks before the case was dismissed.

Strauss-Kahn, who has said that the encounter with Diallo was a "moral error" but was entirely consensual, filed a countersuit against her, claiming defamation.

Even as the U.S. case appears close to an end, Strauss-Kahn is awaiting a decision by a French court on December 19 on whether to call off an investigation involving parties in Lille attended by prostitutes, where he risks trial on a charge of "aggravated pimping.

In recent months, Strauss-Kahn has been making an under-the-radar comeback with a handful of speaking engagements at private conferences and by setting up a business consultancy firm in Paris.

If the Lille case is dropped and Diallo ends her civil lawsuit, Strauss-Kahn would be freer to pursue his consultancy work and could even consider a return to public life in France, where he has been shunned since the Diallo scandal.

(Editing by Dan Burns and Jackie Frank)

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Sunni-Alawite clashes break out in Lebanon's Tripoli

TRIPOLI, Lebanon (Reuters) - Two men were killed and 12 wounded in sectarian clashes in the Lebanese port city of Tripoli on Tuesday between gunmen loyal to opposing sides in neighboring Syria's civil war, residents said.

The army cut off all roads leading to the area on Tuesday evening as militants launched rocket-propelled grenades at each other along Syria Street, a main thoroughfare that has become synonymous with fighting over the past year.

Tensions had been building since the deaths of at least 14 Lebanese and Palestinian gunmen from north Lebanon in a Syrian town close to the border. They appeared to have joined insurgents waging a 20-month-old revolt against Syrian President Bashar al-Assad.

Syrian state television has shown graphic footage of the dead men, riddled with gunshot wounds and lying in the grass.

Lebanon's Foreign Minister Adnan Mansour asked the Syrian ambassador to hand over the bodies of the men after their families protested in Tripoli to demand the Lebanese government return the dead and determine the whereabouts of the missing.

Tripoli's sectarian divisions have made it a flashpoint within Lebanon where violence from Syria has sometimes spilled over. The Syrian uprising is mostly being waged by Sunni Muslims and largely opposed by minorities like Assad's own Alawite sect.

Tripoli is a majority Sunni city and mostly supports the uprising next door, but the coastal city has an Alawite minority and clashes have erupted several times since the revolt began.

Residents said violence flared overnight when rocket-propelled grenades were fired by gunmen in the Sunni neighborhood of Bab al-Tabbaneh and the Alawite area of Jabal Mohsen.

Fighting then broke out on Tuesday morning after Sunni gunmen approached some Alawite shops.

(Additional reporting by Oliver Holmes and Laila Bassam in Beirut; Writing by Oliver Holmes; Editing by Jon Hemming)

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Putin ally and MP to table bill doubling jail time for graft

MOSCOW (Reuters) - An ally of President Vladimir Putin said on Tuesday she would table an amendment in parliament to double the maximum jail sentence for corruption to 20 years, urging fellow MPs to back a crackdown on one of Russia's most deep-seated problems.

The statement by Irina Yarovaya, head of a powerful parliamentary committee, appeared to be part of a Kremlin attempt to convince skeptical voters that Putin is serious about cracking down on financial crime.

Former Defence Minister Anatoly Serdyukov is one of a number of officials to have been fired or placed under suspicion in corruption investigations in recent weeks. But opinion polls show many Russians are skeptical about the authorities' motives and the seriousness of their anti-corruption campaign.

Yarovaya, a member of the ruling United Russia party which dominates parliament, said she would propose changes to the law to increase the punishment for embezzlement involving public or state resources.

"Responsibility for these crimes should be higher than for economic crimes. I think ... it should be raised to 20 years in prison," she told a news conference.

The current maximum sentence for such crimes was 10 years in prison, she said. It was unclear whether the kind of amendment she is proposing would pass, but given her status it seems likely it would garner considerable support.

Corruption has blighted Russia since tsarist times with many foreign investors citing it as an obstacle to putting money into the world's largest country, two decades after the collapse of the Soviet Union.

Russia is ranked 143 out of 182 countries on Transparency International's Corruption Perceptions Index, tying with Nigeria on a table where number 1 is the best rank.

NEW LAW ON DECLARATIONS

Putin is widely regarded to have failed to curb corruption since he was first elected president in 2000, despite saying he would impose a "dictatorship of the law".

In his latest attempt to show he is cracking down on graft, he signed a law on Tuesday obliging ministers to declare their spending and that of their families, but even this met with skepticism.

Kirill Kabanov, an anti-corruption activist, told Ekho Moskvy radio that the law would not cover spending abroad, making it less effective.

In other graft cases, the head of the Russian satellite network Glonass has been dismissed in a fraud investigation and a regional governor arrested over accusations that he stole funds meant for September's Asia-Pacific Economic Cooperation summit.

An opinion poll by the independent Levada research center showed that all the recent talk of an anti-corruption campaign had failed to boost support for Putin or for Prime Minister Dmitry Medvedev.

The same survey also showed that some 40 percent of Russians thought the dismissal of Serdyukov was the start of a reshuffle of officials who have been abusing their posts. However, just as many people said they thought it was merely part of a power struggle between various interest groups around Putin.

Russia's Defence Ministry channels billions of dollars every year through the country's arms industry, the world's second-largest defence exporter. A military prosecutor said last year that one fifth of the military budget was stolen.

Putin named a loyalist, Sergei Shoigu, to head the ministry but few see corruption ending.

"This will not change the corruption schemes. This is just a bit of cleansing," said Natalia, a Moscow law student who declined to give her last name. "If it was a genuine fight with corruption, I'm afraid they would have to send all the ministers away".

(Additional reporting by Steve Gutterman; Editing by Andrew Osborn)

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Three killed after cargo ship sinks off Istanbul

ISTANBUL (Reuters) - At least three people were killed and nine others were missing after a cargo ship with a Ukrainian and Russian crew sank in a storm off Istanbul's Black Sea coast on Tuesday.

Two of those who died were rescuers killed when their boat hit rocks in swollen seas as they set off to search for survivors, shipping agency GAC Turkey said. Two other members of that rescue team were missing.

The Volgo Balt 199, which was carrying coal and had 11 Ukrainian and one Russian crew on board, sent an SOS signal at 0730 GMT off the town of Sile on Istanbul's provincial coast but contact with the vessel was lost shortly afterwards.

"Four people were rescued from the ship and one person was found dead. Rescue work continues to find others," Transport Minister Binali Yildirim told reporters.

"Conditions are getting worse because of bad weather. Rescue work is under way with the help of helicopters and boats from the coastguard," he said.

Oleksiy Agafontsev, director of Valship, the operator of the cargo ship, confirmed that four crew members had been rescued and one killed.

A second cargo ship with 14 crew members on board had experienced mechanical failure and was also at risk of sinking, GAC said. Television images showed the second vessel listing heavily in high seas.

Sile lies about 40 km (25 miles) east of the northern end of the Bosphorus Strait, the only maritime outlet for cargo from Black Sea countries, including Russian oil and grain.

Bad weather frequently forces the strait's closure in winter, but GAC said the Bosphorus remained open on Tuesday. About 10,000 vessels carrying 150 million tonnes of oil and petroleum products use the strait every year.

(Additional reporting by Olzhas Auyezov in Kiev; Writing by Nick Tattersall; Editing by Michael Roddy)

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