Syrian rocket attack on Aleppo kills 20: activists

AMMAN (Reuters) - A Syrian army rocket attack on a rebel-held district in the city of Aleppo killed at least 20 people and another 25 were missing, opposition activists said on Tuesday.

The missile was identified from its remains as a Scud-type rocket that government forces have increasingly used in areas under opposition control in the province of Aleppo and in the province of Deir a-Zor to the east, they said.

"The rocket brought down three adjacent buildings in Jabal Badro district. The bodies are being dug up gradually. Some, including children, have died in hospitals," Mohammad Nour said by phone from Aleppo. He said testimony from survivors indicated that 25 people were still under the rubble.

Video footage showed dozens of people scouring the site for missing victims and inspecting the damage. A body was being pulled from under a collapsed concrete structure. At a nearby hospital, a baby said to have been dug out from under the wreckage was shown dying in the hands of doctors.

Abdeljabbar al-Akeidi, head of the rebel Aleppo Military Council in Syria's largest city and erstwhile commercial hub, was shown in video footage inspecting the scene.

Syrian opposition fighters have captured several army bases in Aleppo in the last two months, depriving the army of secure sites from which troops have been firing artillery at rebel-held districts of the city and surrounding rural areas.

Rocket salvoes over the last week have hit the towns of Tel Rifaat and Dar Izza in rural Aleppo, as well the eastern towns of Albu Kamal and Mou Hassan near the border with Iraq.

Abu Mujahed of the Sham News Network opposition group in Aleppo said that although rebels were present in Jabal Badro, the area on the city's eastern edge had little strategic value.

"Jabal Badro has been with the opposition for months and life was normal in the district. Shops were open and people were going to work," Abu Mujahed said. "Using a devastating weapon like a Scud aims to stir anger against the (rebel) Free Syrian Army and undermine its base of popular support."

Syria has been convulsed by an uprising and civil war for almost two years, with an estimated 70,000 people killed, and U.N. investigators say war crimes, including deliberate attacks on civilians, have been committed by both sides.

(Reporting by Khaled Yacoub Oweis, Amman newsroom; Editing by Mark Heinrich)

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Pakistani Shi'ites call off protests after Quetta bombing arrests

QUETTA, Pakistan (Reuters) - Pakistani Shi'ites agreed to bury those killed in the most recent sectarian bombing, ending four days of protests, after the government said on Tuesday it had arrested 170 suspects linked to the attack.

Saturday's bombing in the northwestern city of Quetta killed 85 people. In an echo of a protest last month after a similar attack left nearly 100 dead, grieving relatives refused to bury their kin in a powerful rebuke to a government they say has repeatedly failed to protect them.

On Tuesday, Shi'ite leaders called off the protest after Information Minister Qamar Zaman Kaira said four suspects had been killed and 170 people arrested within hours of the government announcing an operation against the militants.

"The operation will go on until all culprits are nabbed," Kaira said.

It was unclear how Pakistan's security forces were able to locate so many suspects in such a short period of time, or why they had not moved to do so before.

Pakistan has a poor record when it comes to prosecuting terrorism suspects. More than 60 percent of suspects brought before anti-terrorism courts in Punjab province were released in 2011, the most recent year for which data is available.

"All our demands have been met," said Shi'ite leader Amin Shaheedi. "The government has assured us that Quetta will be protected now and such incidents will not be repeated."

Interior Minister Rehman Malik said the government had also replaced the provincial police chief and offered to heavily fortify the Hazara Shi'ite enclave in Quetta. Those who come out risk being killed.

The Hazara are a distinctive ethnic group whose features and dialect make them easy targets for Sunni militants.

Protests in support of the Shi'ites in Quetta were also held in other cities across the country.

In the commercial hub of Karachi, protesters blocked the road to the airport. In the capital of Islamabad, protesters gathered outside the Supreme Court, where the powerful chief justice has opened hearings into the violence.

He is demanding reports from intelligence services on what they are doing to counter the threat from the Sunni sectarian group Lashkar-e-Jhangvi.

The LeJ claimed responsibility for both Saturday's bombing and one last month that claimed nearly 100 lives. Their campaign of bombings and assassinations of minority Shi'ites is a bid to destabilize nuclear-armed Pakistan and install a Sunni theocracy.

Sectarian attacks dramatically increased last year, killing more than 400 Shi'ites across Pakistan.

On Monday, a Shi'ite doctor famed for his charity work was shot dead along with his 11-year-old son as he took the boy to school in the eastern city of Lahore. Community leaders said it seemed to be a sectarian attack.

The violence has called into question whether the government can secure the country ahead of elections expected in May.

(Additional reporting by Mehreen Zahra-Malik, Writing By Katharine Houreld; Editing by Jeremy Laurence)

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Nigerian "terrorists" nab French tourists in Cameroon: Hollande

YAOUNDE/DAKAR (Reuters) - Islamist militants from neighboring Nigeria abducted a French family of seven, including four children, in northern Cameroon on Tuesday, French President Francois Hollande said.

The risk of attacks on French nationals and interests in Africa has risen since France sent forces into Mali last month to help oust Islamist rebels occupying the country's north.

"They (French family) have been taken by a terrorist group that we know and that is in Nigeria," Hollande told reporters during a visit to Greece.

Armed men on motorcycles intercepted the family in their car at 0700 GMT and forced them to drive to the nearby Nigerian border, an aide to the governor of the province told Reuters, and the four-wheel drive vehicle was later found abandoned.

Islamist radicals in northern Nigeria now pose the biggest threat to stability in Africa's top oil-producing state.

Western governments are concerned that Nigeria's Boko Haram Islamists may link up with groups elsewhere in a region with poorly secured borders, especially al Qaeda's North African wing AQIM given the conflict in nearby Mali.

The seven French nationals were abducted in Dabanga about 10 km (six miles) from the Nigerian border near the Waza national park, where they had spent the night in the extreme north of Cameroon, an area where Westerners often go for holidays.

The parents of the family, which included two boys and two girls, worked in a French firm based in Cameroon, Hollande said.

It was the first case of foreigners being seized in the mostly Muslim north of Cameroon, a former French colony.

"I see the hand of Boko Haram in that part of Cameroon. France is in Mali, and it will continue until its mission is completed," Hollande said.

France intervened in Mali last month when Islamist rebels, after hijacking a rebellion by ethnic Tuareg MNLA separatists to seize control of the north in the confusion following a military coup, pushed south towards the capital Bamako.

Eight French citizens are already being held in West Africa's Sahel region by al Qaeda-affiliated groups.

"It shows that the fight against terrorist groups is a necessity as they threaten all of Africa," French foreign minister Laurent Fabius told reporters.

Cameroon Information Minister Issa Tchiroma Bakary said he could not confirm the kidnapping report for now.

TRACES OF BOKO HARAM

Cameroon is a largely secular state where 70 percent of the population is Christian and about 24 percent moderate Muslim. Most Cameroon Muslims live in the three northern regions of the country. Until now, there have been no known links between Muslims in north Cameroon and Islamists in northern Nigeria.

Most kidnappings of Western nationals in the region have been committed by pirates operating off Cameroon's southern Bakassi peninsula and the Gulf of Guinea, though the French foreign ministry advises against all travel in the north.

Charles Gurdon, managing director of Menas Associates, a London-based risk analysis consultancy, said there had been growing concerns over a possible spillover from Nigeria into the north of Cameroon.

"Traces of ... Boko Haram had been discovered (in Cameroon), but the Cameroon government has been covertly trying to undermine the threat," he said.

On Sunday, seven foreigners were snatched from the compound of Lebanese construction company Setraco in northern Nigeria's Bauchi state, and al Qaeda-linked Ansaru took responsibility.

Northern Nigeria is increasingly afflicted by attacks and kidnappings by Islamist militants. Ansaru, which rose to prominence only in recent months, has also claimed the abduction in December of a French national who is still missing.

An Ansaru said the abductions were driven by "the atrocities done to the religion of Allah by the European countries in many places, such as Afghanistan and Mali."

Ansaru is thought to have loose ties to Boko Haram, which has killed hundreds during a three-year-long insurgency focused mostly on the security forces, religious targets and politicians, rather than foreigners.

(Additional reporting by John Irish and Diadie Ba in Dakar, Jean-Baptiste Vey in Athens, Vicky Buffery and Alexandria Sage in Paris; Writing by John Irish; Editing by Mark Heinrich)

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Pressure mounts on Israel over Palestinian prisoner fast

RAMALLAH, West Bank (Reuters) - Hundreds of Palestinian prisoners in Israeli jails declared a one-day fast on Tuesday in solidarity with four inmates whose hunger strike has fuelled anti-Israel protests in the occupied West Bank.

Samer al-Issawi, one of the four Palestinians who have been on hunger strike, has been refusing food, intermittently, for more than 200 days. His lawyer says his health has deteriorated.

Gaunt and wheelchair-bound, Issawi appeared on Tuesday before a Jerusalem civil court, which deferred releasing him for at least another month.

The prisoners' campaign for better conditions and against detention without trial has touched off violent protests over the past several weeks outside an Israeli military prison and in West Bank towns.

In the Gaza Strip, the Islamic Jihad group said a truce with Israel that ended eight days of fighting in November could unravel if any hunger striker died.

The Palestinian Prisoners Club, which looks after the welfare of inmates and their families, said 800 prisoners were taking part in the day-long fast.

Issawi was among 1,027 jailed Palestinians freed by Israel in 2011 in exchange for Gilad Shalit, a soldier who was abducted on the Gaza border by Hamas, the Islamist militant group that now rules the enclave.

Issawi and Ayman Sharawneh, who has also been on hunger strike, are among 14 Palestinians who have been re-arrested by Israel since being released in the Shalit trade.

Ofir Gendelman, a spokesman for Israeli Prime Minister Benjamin Netanyahu, wrote on Twitter that Issawi and Sharawneh were detained "because they violated the terms of the Shalit deal by returning to illegal activities which pose a threat".

INTERNATIONAL CONCERN

Palestinian negotiator Saeb Erekat said he had been in contact with Israel and urged it to release the men. He said Egypt, which helped mediate the Shalit prisoner swap and also negotiated an end to a Palestinian mass hunger strike in Israeli jails last year, was trying to end the new protest.

Israel has defused previous long-term hunger strikes among the some 4,700 Palestinians in its jails by agreeing to release individuals or deporting them to Gaza - a prospect rejected by the four prisoners, who hail from Jerusalem and the West Bank.

The Quartet of Middle East negotiators - the United States, Russia, the United Nations and European Union - have expressed concern at the hunger strike.

In a statement on Monday, France's Foreign Ministry urged Israel "to be sensitive to the risk of a tragic outcome and to take appropriate measures as a matter of urgency".

The statement said "administrative detention must remain an exceptional measure of limited duration and be carried out with due regard for fundamental safeguards".

Israel holds some Palestinians in "administrative detention" based on evidence presented in a closed military court. It says the practice pre-empts militant attacks against it while keeping its counter-intelligence sources and tactics secret.

There were some 178 administrative detainees in Israeli jails in January, down from just over 300 around the time of another Palestinian hunger strike campaign last spring, according to Palestinian rights group Addameer.

"The battle waged by me and by my heroic colleagues ... is everyone's battle, the battle of the Palestinian people against the occupation and its prisons," Issawi said in a message conveyed to the Palestinian Ministry of Prisoners last week.

(Additional reporting by Nidal al-Mughrabi in Gaza and Ali Sawafta in Ramallah; Editing by Alison Williams)

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Venezuela's Maduro would win vote if Chavez goes: poll

CARACAS (Reuters) - Venezuelan Vice President Nicolas Maduro would win a presidential vote should his boss Hugo Chavez's cancer force him out, according to the first survey this year on such a scenario in the South American OPEC nation.

Local pollster Hinterlaces gave Maduro 50 percent of potential votes, compared to 36 percent for opposition leader Henrique Capriles.

Chavez made a surprise return to Venezuela on Monday, more than two months after cancer surgery in Cuba, to continue treatment at home for the disease that is jeopardizing his 14-year socialist rule.

He has named Maduro, 50, a former bus driver and union activist, as his preferred successor.

Capriles, 40, a center-left state governor who lost to Chavez in a presidential vote last year, likely would run again.

Chavez still has not spoken in public since his December 11 operation in Cuba. Venezuelans were debating on Tuesday the various possible scenarios after his homecoming - from full recovery to resignation or even death from the cancer.

There was widespread expectation Chavez would soon be formally sworn in for his new six-year term at the Caracas military hospital where officials said he was staying. The January 10 ceremony was postponed while he was in Cuba.

"The president's timeline is strictly linked to his medical evolution and recovery," said Rodrigo Cabezas, a senior member of Chavez's ruling Socialist Party who, like other officials, would not comment on when he might be sworn in.

CAPRILES ANGRY

Should Chavez be forced out, Venezuela's constitution stipulates an election must be held within 30 days, giving Capriles and the opposition Democratic Unity coalition another chance to end the socialists' lengthy grip on power.

Capriles, who crossed swords with Hinterlaces at various points during the presidential election, again accused its director, Oscar Schemel, of bias in the latest survey.

"That man is not a pollster, he's on the government's payroll," Capriles told local TV.

"He said in December I would lose the Miranda governorship," he added, referring to his defeat of government heavyweight Elias Jaua, now foreign minister, in that local race.

Opinion surveys are notoriously controversial and divergent in Venezuela, with both sides routinely accusing pollsters of being in the pocket of the other. But Hinterlaces successfully forecast Chavez's win with 55 percent of the vote in October.

Its latest poll was of 1,230 people between January 30-February 9.

Polls last year showed Capriles - an energetic basketball-playing lawyer who admires Brazil's centrist mix of free-market economics with strong social welfare policies - as more popular than any of Chavez's senior allies.

But Chavez's personal blessing of Maduro, on the eve of his last cancer surgery, has transformed his status and made him the heir apparent for many of the president's supporters.

As de facto leader since mid-December, Maduro also has built up a stronger public profile, copying the president's techniques of endless live TV appearances, especially to inaugurate new public works or promote popular policies like subsidized food.

He lacks Chavez's charisma, however, and opponents have slammed him as a "poor imitation" and incompetent.

EMOTION

Local analyst Luis Vicente Leon said that should Chavez die, Maduro would benefit from the emotion unleashed among his millions of passionate supporters in Venezuela.

"The funeral wake for Chavez would merge into the election campaign," he told a local newspaper, noting how Argentine President Cristina Fernandez's popularity surged when her husband and predecessor Nestor Kirchner died in 2010.

Maduro already has implemented an unpopular devaluation of the local currency and said more economic measures are coming this week in what local economists view as austerity measures after blowout spending prior to last year's election.

In Caracas, the streets were quieter after tumultuous celebrations of Chavez's homecoming by supporters on Monday. A few journalists stood outside the military hospital.

Prayer vigils were planned in various parts of Venezuela.

"We hope Chavez will stay governing because he is a strong man," supporter Cristina Salcedo, 50, said in Caracas.

Student demonstrators who had chained themselves near the Cuban Embassy last week, demanding more information on Chavez's condition, called off their protest after his return.

Until photos were published of him on Friday, the president had not been seen by the public since his six-hour December 11 operation, the fourth since cancer was detected in mid-2011.

The government has said Chavez is breathing through a tracheal tube and struggling to speak.

Bolivian President Evo Morales arrived in Caracas on Tuesday in the hope of visiting his friend and fellow leftist.

(Additional reporting by Deisy Buitrago, Mario Naranjo, Girish Gupta in Caracas, Carlos Quiroga in La Paz; Editing by Bill Trott)

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Israel confirms Australian's suicide in judge's inquiry

JERUSALEM (Reuters) - Israel released details on Tuesday about the 2010 jailhouse suicide of an Australian immigrant reported to have been a disgraced Mossad spy, saying he hanged himself in his cell and no foul play was involved.

The affair was kept under wraps until it emerged last week with an Australian television expose that identified the dead man as 34-year-old Ben Zygier, a likely Israeli foreign intelligence recruit held for suspected security offences.

Without explicitly naming Zygier, Israel has confirmed that at the time it had a dual citizen in custody and under alias to stem serious harm to national interests, on which it would not elaborate. The December 15 date it gave for the detainee's death matched that etched on the Melbourne-born Jew's gravestone.

Easing a gag order, an Israeli court allowed the publication on Tuesday of the results of a judge's inquiry, completed two months ago, into the death.

The investigation showed the prisoner looped a wet sheet around his neck, tied it to the bars of a bathroom window in his cell and hanged himself, choking to death.

Israeli media reported the bathroom area was not covered, for privacy reasons, by closed-circuit television cameras that transmitted images from other parts of the isolation cell.

Ruling out foul play on the basis of medical and physical evidence, Judge Dafna Blatman-Kardai said entry to the cell was monitored by cameras and examination of their footage showed no one "intervened in causing the death of the deceased".

She said his family - which has not commented publicly on the case - agreed with the findings.

"A small amount of sedative was found in his blood. There was no alcohol or drugs. This does not change my determination ... about the cause of death," a forensic medical expert was quoted as saying in the judge's report.

Civil liberties groups and some lawmakers in Israel, protesting at the state censorship restricting local reporting on the case, have demanded to know whether Zygier's rights were violated by his months of incarceration, isolated from other inmates, and whether his death could have been prevented.

Those calls were echoed in Australia, where media suggested Zygier had been suspected of betraying Mossad missions to Canberra's spy services. Australia was angered in 2010 by the fraudulent use of its passports in the assassination of a Hamas arms procurer in Dubai, which the Gulf emirate blamed on Israel.

NEGLIGENCE IN QUESTION

In her report, the judge said there was prima facie evidence that the Prisons Authority had been negligent, noting that it had received special instructions on supervising the prisoner to prevent a possible suicide.

A Justice Ministry spokesman said state prosecutors would decide whether charges will be brought.

A source briefed on the affair told Reuters that Israel has since installed biometric detectors in the toilet stalls of high-risk prisoners, designed to summon guards within seconds should they stop breathing or display other signs of distress.

Responding to the media reports about Zygier, Israeli Internal Security Minister Yitzhak Aharonovitch told parliament on Monday that the detainee had received frequent family visits and been "supervised by mental-health support and treatment systems, both external and those of the Prisons Service".

Zygier also consulted with Israeli lawyers, one of whom, Avigdor Feldman, said he saw the married father of two shortly before his death to discuss "grave charges" on which he had been indicted, and the possibility of a plea bargain.

"I met with a balanced person ... who was rationally weighing his legal options," Feldman told Israeli television last week, adding Zygier had denied the charges against him.

"His interrogators told him he could expect lengthy jail time and be ostracized from his family and the Jewish community. There was no heart string they did not pull, and I suppose that ultimately brought about the tragic end."

Feldman declined to comment on an Israeli newspaper report that Zygier faced between 10 and 20 years in prison.

Deputy Prime Minister Dan Meridor on Saturday called Zygier's death a "tragedy" but said his treatment was justified.

(Additional reporting by Maayan Lubell; Writing by Dan Williams and Jeffrey Heller; Editing by Mark Heinrich)

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Italy's centre-left moves to reassure doubters

ROME (Reuters) - Italy's centre-left moved on Tuesday to quash fears that it will form a weak government after next weekend's election, saying it was committed to rapid economic reform and that outgoing premier Mario Monti must have a frontline political role.

"We are fully aware that inertia is not an option. We have no time to waste. Italy's problems are very serious and we cannot afford more recession or stagnation ... we need to deliver in terms of jobs, income, simplification," said Stefano Fassina, chief economic official in the centre-left Democratic Party.

Although markets have remained largely sanguine about the result of the February 24-25 vote, there have been rumbles this week about the chances that it will bring instability or a weak, left-leaning government unable or unwilling to carry out the difficult reforms needed to make Italy competitive.

A centre-left coalition headed by Democratic Party (PD) leader Pier Luigi Bersani is widely expected to win the vote and the most recent polls show it 4-5 points ahead of Silvio Berlusconi's centre-right.

But pollsters expect Bersani to fall short of a controlling majority in the Senate, which has equal law-making powers to the lower house, forcing it to seek support from Monti's centrists and raising the specter of a government split by disputes.

Fassina, who comes from the PD's left-wing, dismissed these fears and the suggestion that Monti, the technocrat who led Italy out of a major financial crisis last year, would refuse to ally with a centre-left coalition because of the suspicion it would be dominated by trade unions and leftists.

Monti, who is struggling to attract votes in the centre, said in an interview with Rome's Il Messaggero daily on Tuesday: "We have nothing in common with the left-wing coalition."

He has repeatedly urged Bersani to drop leftist ally Nichi Vendola of the small Left, Ecology and Freedom (SEL) party.

But Fassina told Reuters in an interview: "I guess that Monti, like us, wants to do something positive for this country. If we do not have a majority and Monti can provide the numbers for forming a stable government, why wouldn't he do it? What is the alternative? Another election in a couple of months?"

SAVIOUR

He added: "It would be difficult to explain to the rest of the world that the savior is not providing support for forming a government."

Fassina said the centre-left would seek an alliance with Monti to strengthen the government and reassure markets even if it had a majority by itself.

Despite Monti's lackluster political campaign, Fassina said the outgoing premier, "is an asset for Italy so in one way or another he should stay in the front line." Monti replaced Berlusconi in November 2011 as Italy slid towards a perilous debt crisis.

Fassina said the problems around an alliance stretching from Vendola to Monti "are enormously exaggerated," adding that Vendola had signed a pact to follow majority decisions in the coalition, in which the PD would be dominant.

"Vendola is not the extremist that people like to describe for electoral purposes," Fassina said, referring to the openly gay poet's 7-year tenure as governor of the southern region of Puglia where he has been widely described as a moderate. "There is a pretty good track record," Fassina said.

He added that he was less worried about Vendola than the danger that Monti would not get enough votes to help the centre-left form a majority because of the rise of the anti-establishment 5-Star Movement and Berlusconi's centre-right, describing them both as "populist forces"

Beppe Grillo, the 5-Star leader, has been boosted by a wave of recent corruption scandals and is now running third on close to 20 percent according to polls, well ahead of Monti.

But Fassina added: "Our feeling is that with Monti we will have a majority in the Senate large enough to have a stable government, this is what we understand from the latest polls."

He said the centre-left believed the most urgent reform in Italy was to streamline a notoriously bloated and inefficient public sector, address rampant corruption and transform a byzantine system of justice that causes years of delays in civil as well as criminal cases, a major disincentive to investment.

He said a plethora of local, central and regional authorities had caused paralysis and created hundreds of small and inefficient companies providing local services. The centre-left would close many of these companies and merge others.

Despite the feeling of many senior businessmen that reforming the labor market is the most urgent measure for a new government, Fassina said existing legislation was in line with the European average.

However, he said Monti's labor reforms had failed to close the gap between highly protected older workers and young people on precarious temporary contracts. The PD would encourage permanent contracts by cutting tax costs for companies.

Fassina said Berlusconi would try to retain enough influence to protect his personal interests through blocking anti-trust and anti corruption legislation and preventing an extension of the statute of limitations that has saved him in several fraud trials.

But if a stable government was formed after this election, Berlusconi would be marginalized and lose leadership of his People of Freedom party (PDL) within two years.

(Writing by Barry Moody; Editing by Giles Elgood)

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British shoppers may pay high price from horsemeat scandal

LONDON (Reuters) - For Britons worried last week's beef lasagne was in fact a helping of horse, peace of mind that such a meal will never reach dining tables again may come at a price.

Livestock specialists say that contrary to some public comments by supermarkets, ensuring a chain of quality from farm to table will cost money - particularly at the cheaper, ready-made meal end.

"How can you supply a meal for two people for a pound," said Andrew Hyde, managing director of British meat supplier Traymoor.

"I know what things cost and I know that if I was to put six ounces of quality mincemeat into a lasagne or a cottage pie then I would have to charge twice that price," he said.

The horsemeat scandal, which has triggered product recalls across Europe and damaged confidence in the food industry, erupted last month when tests in Ireland revealed some beef products sold there and in Britain contained equine DNA.

The British government has come under pressure to act and to explain lapses in quality control. Supermarkets, catering and restaurant firms, as well as food manufacturers, are battling to restore consumer confidence amid a welter of lurid headlines playing on a popular British queasiness about eating horsemeat.

Although Tesco, Britain's biggest retailer, has said raising standards "doesn't mean more expensive food," many in the meat industry are not convinced.

"Producing high quality, fully traceable, high welfare standard livestock costs money to put on peoples' tables," said Peter Garbutt, chief livestock adviser for Britain's farmers union, the NFU.

He said consumers had to be more realistic.

Lawmakers are expected to respond to the scandal with further regulation to ensure an ongoing regime of product testing, quality assurance and policing of standards.

With DNA testing costing up to 500 pounds ($770) per sample, creating a robust regime will not come cheap.

PRICE RISES

Analysts reckon value lines, such as frozen beefburgers or spaghetti bolognese ready-meals, are currently so cheap and profit margins so thin that supermarkets have little room for manoeuvre.

They say that spells increased margin pressure for already squeezed suppliers and price rises for consumers.

"I don't think there's any way that we can escape the viewpoint that the price of having guaranteed food in terms of it contains what it says it contains is ultimately higher prices," said Neil Saunders of retail research agency Conlumino.

"We might be speaking about a couple of pence on an item, because this is a game about volume."

That would add to food price inflation, already running at 4.9 percent in the 12 weeks to January 20 as a result of high commodity prices, according to market researcher Kantar, causing a further squeeze on the budgets of shoppers reeling from meager wage rises and government austerity measures.

That is a scenario lawmakers fear.

"The consumer cannot be left to face a Catch-22 where they can either pay for food that complies with the highest standards of traceability, labeling and testing, or accept that they cannot trust the provenance and composition of the foods they eat," said Anne McIntosh, a legislator who chairs the cross-party Food and Rural Affairs Committee, which published a report into the scandal last week.

Food experts say globalization has helped the food industry grow, but has also created a vast system which has fuelled the risk of adulteration.

Mark Price, managing director of upmarket British grocer Waitrose, told Reuters the horsemeat scandal was the inevitable result of big grocers putting pressure on suppliers.

"If you have a competition that says: Who can sell the cheapest stuff? Inevitably at a point in time you will get something like this," he said.

Two Competition Commission investigations have cleared supermarkets of unduly pressuring suppliers.

Tesco CEO Philip Clarke said on Friday he had ordered a review of the firm's approach to its supply chain. He wants relationships with its suppliers to become more "transparent and collaborative".

Co-operative Group CEO Peter Marks similarly spoke of taking a closer look at its supply chain.

Meanwhile, although the horsemeat scandal has undermined grocers' relationship with customers, investors appear unperturbed.

Last week, the height of the crisis, shares in Britain's food retail sector rose 1.2 percent. So far this year the sector is up 6.2 percent.

($1 = 0.6460 British pounds)

(Editing by Jeremy Gaunt.)

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Armenian president promises security after election victory

YEREVAN (Reuters) - Armenian President Serzh Sarksyan promised on Tuesday to make the country secure and stable after cruising to victory in an election which international vote monitors said lacked real competition.

But Sarksyan faces a challenge in his second five-year term to prevent tensions increasing with Azerbaijan over the enclave of Nagorno-Karabakh that could lead to a new war in the South Caucasus, where pipelines carry Caspian oil and gas to Europe.

Preliminary results showed Sarksyan won 58.6 percent of votes cast in Monday's election, enough to avoid a run-off. But his victory provoked allegations of fraud from his opponents.

"Armenia chose the path towards a safe Armenia and I am happy and proud of the fact that every resident of Armenia will be on that path," Sarksyan, 58, told celebrating supporters.

Sarksyan's closest rival, U.S.-born former Foreign Minister Raffi Hovannisian, trailed on nearly 37 percent.

International observers said the vote was an improvement on recent elections in the former Soviet republic, including the 2008 presidential ballot in which 10 people were killed.

"However, the limited field of candidates meant that the election was not genuinely competitive," representatives of the Parliamentary Assembly of the Organization for Security and Cooperation in Europe said in a statement.

"The candidates who did run were able to campaign in a free atmosphere and to present their views to voters, but the campaign overall failed to engage the public's interest."

Several of Sarksyan's potential rivals, most notably former President Levon Ter-Petrosyan, decided not to run because they feared the election would be skewed in the president's favor.

A minor candidate was shot and wounded during campaigning, and police received 70 complaints of voting violations. The result was in line with opinion polls, however.

Hovannisian's Heritage Party alleged some ballots cast for opposition candidates had been thrown out. Up to 500 supporters gathered in Yerevan late on Tuesday, calling for Sarksyan to quit and promising more protests, but there was no violence.

EXPECTED OUTCOME

Armenians had expected Sarksyan to win and there was little celebrating. "I expect that things will get better in the next five years. And after that of course we will need to change (the president). That's all," said Yerevan resident Roza Atovyan.

Another woman in Yerevan, Elana Akapova, said: "The president has a lot of administrative power. Therefore it's natural that he received the majority of the vote."

The election result strengthens Sarksyan's hold on Armenia, which borders Iran, Georgia, Turkey and Azerbaijan, after his Republican Party won a parliamentary election last year.

Sarksyan's promises of economic recovery went down well with voters in the country of 3.2 million, where more than 30 percent live below the poverty line. The average monthly wage is about $300 and unemployment was 16 percent last year.

Armenia is an important potential ally for the West which is trying to ensure Iran does not develop nuclear weapons, although tightening international economic sanctions on its neighbors could affect Armenia's trade and economy.

Sarksyan has outlined no big policy changes and investors and foreign governments are worried by Armenia's fraught relations with Azerbaijan.

FEARS OF NEW CONFLICT

About 30,000 people were killed in the war over Nagorno-Karabakh in the 1990s and Azerbaijan uses its diplomatic and economic muscle to isolate Yerevan. It has vastly increased military spending in the last few years, alarming Yerevan.

Nagorno-Karabakh is an ethnic Armenian-majority enclave inside Azerbaijan, which Armenia-backed rebels wrested from Azeri troops. Firefights along the border still kill troops on both sides and experts say a wider conflict is possible.

Sarksyan has accused Azerbaijan of threatening a new conflict. Azerbaijan denies it is the aggressor and says Armenians should hand back control of the mountainous enclave.

"In terms of domestic policy, we should expect a continuation of deepening ties with the West and the European Union," said Richard Giragosian, director of the Regional Studies Centre think tank in Yerevan.

He ruled out a breakthrough over Nagorno-Karabakh, saying: "Both sides remain too far apart."

Without a shift in regional politics, durable economic growth will be difficult for Armenia while its borders with Azerbaijan and Turkey remain closed. Turkey shut the border in 1993 in solidarity with its ethnic kin in Azerbaijan.

Most regional pipeline projects between growing regional power Turkey and the oil and gas-producing Azerbaijan isolate Armenia, making Yerevan more dependent on ties with its Soviet-era master Moscow, which has a military base on Armenian soil.

In congratulating Sarksyan, Russian President Vladimir Putin on Tuesday expressed a desire to further strengthen ties with Yerevan, which has a collective security agreement with Moscow.

(Reporting by Hasmik Mrktchyan and Margarita Antidze; Writing by Timothy Heritage; Editing by Pravin Char)

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Netanyahu reaches first deal on new Israel government: source

JERUSALEM (Reuters) - Israeli Prime Minister Benjamin Netanyahu took his first step in forming a new government on Tuesday by reaching a coalition deal with former Foreign Minister Tzipi Livni, a political source said.

A draft copy of a five-page coalition deal, obtained by Reuters, said the centrist Livni would be named Justice Minister and would also resume a role similar to one she held in a previous government as a peace negotiator with the Palestinians.

Peace talks have been frozen since 2010, and the coalition deal said Netanyahu and Livni together would "work, upon the establishment of the new government, toward resuming the diplomatic process".

The deal would be the first for Netanyahu after weeks of negotiating with party heads since his right-wing Likud won a January 22 election, but came up short of a parliamentary majority.

Likud said in a statement the two party leaders would make a joint announcement in parliament later on Tuesday. A Likud source, speaking on condition of anonymity, told Reuters Livni had agreed to join Netanyahu's new government.

Netanyahu has another month to secure enough coalition partners to control at least half of the 120 seats in parliament. Likud, running on a joint ticket with another right-wing party, won 31 seats in the vote. Livni heads a small centrist party that won six.

(Reporting by Allyn Fisher-Ilan and Ari Rabinovitch; Editing by Tom Pfeiffer)

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