Japan stocks rally to near four-year highs, yen resumes fall after G20

TOKYO (Reuters) - Japanese shares surged 2.1 percent on Monday and were on the brink of revisiting four-year highs tapped recently, as the yen slumped after Tokyo dodged direct criticism from G20 peers on its aggressive reflation plans that have weakened the currency.

The G20 opted not to single out Tokyo, but committed members to refrain from competitive devaluations and said monetary policy would be directed only at price stability and growth. Japan said this decision is a green light to pursue its expansionary policies.

The market's focus is now on Prime Minister Shinzo Abe's nominee for the next Bank of Japan governor. Abe is expected to announce his choice in coming days.

Sources told Reuters on Friday that former top financial bureaucrat Toshiro Muto is leading the field of candidates to govern the bank. He may intensify stimulus efforts to energise the economy but might not pursue unconventional easing measures.

"The G20 basically gave tacit approval for currency weakening as a result of monetary easing, and not intervention. So that puts focus on what the BOJ will do next. As long as the BOJ shows its seriousness about stamping out deflation, the yen's decline will likely be tolerated," said Citibank Japan chief FX strategist Osamu Takashima.

The dollar gained 0.5 percent to 93.97 yen inching closer to its highest since May 2010 of 94.465 hit on February 11. The euro added 0.3 percent to 125.34 yen, still below its peak since April 2010 of 127.71 yen touched on February 6.

The Nikkei average <.n225> closed up 2.1 percent as exporters and banks led the pack on the softening yen, after surging as much 2.4 percent earlier to come close to its highest level since September 2008 of 11,498.42 tapped on February 6. <.t/>

"The G20 effect is already seen in Abe's general comments on forex today which steered away from giving specifics on a preferred level or direction for the yen," said Yunosuke Ikeda, a senior FX strategist at Nomura Securities.

Abe said on Monday that the BOJ's monetary easing is aimed at beating deflation, not at manipulating the forex market and weakening the yen, and said correcting excessive yen rises would be an appropriate policy direction. Previously, Japanese officials have noted that the current yen selling was a correction to the past excessive yen strength.

The yen's weakness weighed on emerging Asian currencies while South Korean shares <.ks11> eased 0.3 percent on concerns about the eroding competitive edge for the country's exporters.

Japan will keep pursuing its current policy, said Yuna Park, a currency and bond analyst at Dongbu Securities in Seoul. "The rest of Asia will not just wait and see. That will put more pressure on Asian currencies," he said.

A weaker yen would make other currencies relatively stronger against the dollar and fuel speculation that other Asian countries could step in to curb the strength of their currencies, Nomura's Ikeda said.

The MSCI's broadest index of Asia-Pacific shares outside Japan <.miapj0000pus> paused, after moving in a narrow range. The pan-Asian index briefly hit a 18-1/2-month high on Friday and had its best performance since the week of January 6 with a 1.2 percent weekly gain.

Australian shares led the pan-Asian index with a 0.6 percent rise as a string of earnings reports supported a view that the local economy was in better-than-expected shape.

Markets in China and Taiwan resumed trading after a week-long holiday.

Indonesian stocks <.jkse> inched up 0.1 percent after setting a record high for a fifth straight session on Friday, while shares in Thailand <.seti> were up 0.2 percent as the country's economy grew a robust 3.6 percent in the fourth quarter from the previous three months.

European markets may track lower, with financial spreadbetters predicting London's FTSE 100 <.ftse>, Paris's CAC-40 <.fchi> and Frankfurt's DAX <.gdaxi> would open down 0.1 percent. U.S. stock futures were barely changed. U.S. markets will be closed on Monday for the President's Day holiday. <.l><.eu><.n/>

STOCKS CONSOLIDATE

Data from EPFR Global on Friday underscored that a consolidation was underway in global equities after their recent rally. It showed investors worldwide pulled $3.62 billion from U.S. stock funds in the latest week, the most in ten weeks after taking a neutral stance the prior week. But demand for emerging market equities remained strong, with investors putting $1.81 billion in new cash into stock funds, the fund-tracking firm said.

Commodities markets awaited clues on demand from China, the top consumer.

"China's overall economy is still strong, so the appetite for base metals after Chinese New Year will gradually pick up," said Helen Lau, senior commodity analyst at UOB-Kay Hian in Hong Kong.

London copper fell 0.4 percent to $8,170 a tonne as traders played catch up after a week-long holiday in China, with worries about the euro zone economy weighing on sentiment.

U.S. crude fell 0.2 percent to $95.68 a barrel but Brent inched up 0.1 percent to $117.82.

Gold rebounded from a six-month low on bargain hunting and as jewellers in China returned to the physical market after the Lunar New Year holiday.

(Additional reporting by Jongwoo Cheon; and Melanie Burton in Singapore; Editing by Shri Navaratnam and Eric Meijer)

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Pakistani governor criticizes security forces after bombing

QUETTA, Pakistan (Reuters) - A provincial official criticized Pakistani security forces on Sunday after a bombing targeting the Shi'ite Hazara community killed 80 people in the northwestern city of Quetta.

"The terrorist attack on the Hazara Shi'ite community in Quetta is a failure of the intelligence and security forces," Nawab Zulfiqar Ali Magsi, governor of Baluchistan province, said while touring a hospital.

"We had given a free hand to security (forces) to take action against terrorist and extremist groups, but despite that the Quetta incident took place."

The death toll from Saturday's bombing rose overnight to 80, with most of the casualties in the main bazaar of the town, capital of Baluchistan, near the border with Afghanistan.

Most of the dead were Hazaras, a Shi'ite ethnic group. A senior security official said the figure could rise as 20 people were critically wounded.

Pakistan's government, already unpopular over a range of issues such as poverty and power cuts ahead of elections expected in a few months, is under mounting pressure to go after hardline Sunni extremists who regard Shi'ites as non-Muslims.

A spokesman for Lashkar-e-Jhangvi (LeJ), a Sunni group, claimed responsibility for the bomb in Quetta, which also caused casualties near a school and a computer center.

LeJ has also said it was behind a bombing last month in Quetta which killed nearly 100 people, one of Pakistan's worst sectarian attacks.

Shi'ite political organizations have called for a strike in Quetta to protest against the latest carnage. Many shops and bazaars are closed. Relatives of the wounded responded for an appeal for blood made by hospitals.

Pakistani intelligence officials say extremist groups, led by LeJ, have escalated their bombings and shootings of Shi'ites to trigger violence that would pave the way for a Sunni theocracy in U.S.-allied Pakistan.

More than 400 Shi'ites were killed in Pakistan last year, many by hitmen or bombs. Some hardline Shi'ite groups have struck back by killing Sunni clerics.

The schism between Sunnis and Shi'ites developed after the Prophet Muhammad died in 632 when his followers could not agree on a successor.

(Reporting by Gul Yousufzai; Editing by Ron Popeski)

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Beyoncé's Life Is But a Dream: The Best Moments

TV Watch

By Aaron Parsley

02/16/2013 at 11:05 PM EST

I am ... still singing!

Beyoncé's HBO documentary, Life Is But a Dream, aired Saturday night and it was a 90-minute whirlwind of music, dance and emotion. And though the singer, 31, has been everywhere recently (the Inauguration, the Super Bowl halftime show, Oprah's Next Chapter), the film was full of new and exciting moments. Here are my favorites:

Baby Bey: A home movie of Beyoncé as a little girl playing with bees made my jaw drop. The scene seems to prove what her fans believe: that she was born to be a superstar known as Queen B. I also loved seeing her singing – and being a typical, giggling teenager – with her sister Solange and Kelly Rowland.

The Heartbreak: From her frank discussion of firing her father as a manager to hearing "the saddest song" she's ever written after having miscarriage, the film – which Beyoncé produced and directed herself – had raw, emotional moments.

Mrs. Carter: Life is like a dream for Beyoncé and husband Jay-Z, who surprisingly shared intimate moments together – giddy over her pregnancy, singing Coldplay's "Yellow" to each other, enjoying solitude on a boat in an undisclosed, exotic location. You could feel the love when she toasted him on his birthday.

Blue Ivy: How cute is she?! When Beyoncé and Jay's baby girl, who turned 1 in January, appeared on the screen at the premiere of Life Is But a Dream at New York's Ziegfeld Theater, the crowd gasped and then let out a collective "aww." And I jammed my fingers on the TV screen the first time I watched, trying to pinch those cheeks. Seeing Beyoncé at home with a baby on her hip was a powerful reminder that the fierce superstar is human afterall.

The Music: Of course! Seeing her sing "Listen" with a gorgeously altered ending in a car convinced me of one thing: Beyoncé is definitely not human! I also loved seeing everything that went into her epic Billboard Music Awards performance of "Run the World (Girls)." I just wish I could do that dance. And is it me or does "Resentment" get grittier and angrier every time she performs it?

Praise Beysus and long live the Queen B!

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UN warns risk of hepatitis E in S. Sudan grows

GENEVA (AP) — The United Nations says an outbreak of hepatitis E has killed 111 refugees in camps in South Sudan since July, and has become endemic in the region.

U.N. refugee agency spokesman Adrian Edwards says the influx of people to the camps from neighboring Sudan is believed to be one of the factors in the rapid spread of the contagious, life-threatening inflammatory viral disease of the liver.

Edwards said Friday that the camps have been hit by 6,017 cases of hepatitis E, which is spread through contaminated food and water.

He says the largest number of cases and suspected cases is in the Yusuf Batil camp in Upper Nile state, which houses 37,229 refugees fleeing fighting between rebels and the Sudanese government.

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After decent rally, perhaps time for a pause

NEW YORK (Reuters) - Stocks could struggle to extend their seven-week winning streak as the quarterly earnings period draws to a close and the market bumps into strong technical resistance.

Many analysts say the market could spend the next few weeks consolidating gains that have lifted the benchmark Standard & Poor's 500 <.spx> by 6.6 percent since the start of the year.

The S&P 500 ended up 0.1 percent for the week, recovering from a late sell-off on Friday after a Bloomberg report about slow February sales at Wal-Mart triggered a slide in the retailer's shares. It was the index's seventh week of gains.

Odds of a pullback are increasing, with the market in slightly overbought territory, said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.

"I do suspect the closing of the earnings season will lead to at least a pause and possibly a pullback," Zaro said. The S&P 500 could shave 3 to 5 percent between now and early April, he said.

Fourth-quarter earnings have mostly beaten expectations. Year-over-year profit growth for S&P 500 companies is now estimated at 5.6 percent, up from a January 1 forecast for 2.9 percent growth, and 70 percent of companies are exceeding analyst profit expectations, above the 62 percent long-term average, according to Thomson Reuters data.

On Thursday, Wal-Mart, the world's largest retailer, is due to report results, unofficially closing out the earnings period. Investors will be keen to see its quarterly numbers, especially after the Friday's news report that rattled investors.

The S&P 500 has gained 4.3 percent since Alcoa kicked off the earnings season on January 8.

The approaching March 1 deadline for across-the-board federal budget cuts unless Congress reaches a compromise adds another reason for caution, especially with recent economic data indicating the recovery remains bumpy.

Manufacturing output fell 0.4 percent last month, the Federal Reserve said on Friday, but production in November and December was much stronger than previously thought.

TESTING RESISTANCE

The S&P 500 has been trading near five-year highs, and it notched its highest level since November 2007 this week. But the gains have pushed the benchmark index almost as far as it is likely to go in the near term, with strong resistance hovering around 1,525 and 1,540, one analyst said.

As a result, the index is set to move sideways, said Dave Chojnacki, market technician at Street One Financial in Huntington Valley, Pennsylvania. "We just don't have the volume or the catalyst right now" to go above those levels, he said.

At the same time, other analysts say, the market has not shown significant signs of slowing, including a break below 15- and 30-day moving averages.

Such moves would be needed to show that momentum is slowing or that the market is at risk of a correction, said Todd Salamone, director of research for Schaeffer's Investment Research in Cincinnati, Ohio. The S&P 500's 14-day moving average is at 1,511 while the 30-day is at 1,494. The index closed Friday at 1,519.

Recent M&A activity, including news this week of a merger between American Airlines and US Airways Group , helped provide some strength for the market this week and optimism that more deals may be on the way.

In the coming days, the market will focus on minutes from the latest Federal Reserve meeting, due to be released on Wednesday, which could provide support if they suggest the Fed will remain on its current course of aggressive monetary easing.

The Fed minutes released in January spooked markets a bit when they revealed that some Fed officials thought it would be appropriate to consider ending asset purchases later in 2013. U.S. Treasury yields rose on that news, though market worries about a near-term end to quantitative easing have since faded.

Among other companies expected to report earnings next week are Nordstrom , Hewlett-Packard and Marriott International

(Reporting By Caroline Valetkevitch; Editing by Leslie Adler)

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Exclusive: North Korea tells China of preparations for fresh nuclear test - source

BEIJING (Reuters) - North Korea has told its key ally, China, that it is prepared to stage one or even two more nuclear tests this year in an effort to force the United States into diplomatic talks, said a source with direct knowledge of the message.

Further tests could also be accompanied this year by another rocket launch, said the source, who has direct access to the top levels of government in both Beijing and Pyongyang.

North Korea conducted its third nuclear test on Tuesday, drawing global condemnation and a stern warning from the United States that it was a threat and a provocation.

"It's all ready. A fourth and fifth nuclear test and a rocket launch could be conducted soon, possibly this year," the source said, adding that the fourth nuclear test would be much larger than the third, at an equivalent of 10 kilotons of TNT.

The tests will be undertaken, the source said, unless Washington holds talks with North Korea and abandons its policy of what Pyongyang sees as attempts at regime change.

North Korea also reiterated its long-standing desire for the United States to sign a final peace agreement with it and establish diplomatic relations, he said. North Korea remains technically at war with both the United States and South Korea after the Korean war ended in 1953 with a truce.

In Washington, U.S. State Department spokeswoman Victoria Nuland urged North Korea to "refrain from additional provocative actions that would violate its international obligations" under three different sets of U.N. Security Council resolutions that prohibit nuclear and missile tests.

North Korea "is not going to achieve anything in terms of the health, welfare, safety, future of its own people by these kinds of continued provocative actions. It's just going to lead to more isolation," Nuland told reporters.

The Pentagon also weighed in, calling North Korea's missile and nuclear programs "a threat to U.S. national security and to international peace and security."

"The United States remains vigilant in the face of North Korean provocations and steadfast in our defense commitments to allies in the region," said Pentagon spokeswoman Major Catherine Wilkinson.

Initial estimates of this week's test from South Korea's military put its yield at the equivalent of 6-7 kilotons, although a final assessment of yield and what material was used in the explosion may be weeks away.

North Korea's latest test, its third since 2006, prompted warnings from Washington and others that more sanctions would be imposed on the isolated state. The U.N. Security Council has only just tightened sanctions on Pyongyang after it launched a long-range rocket in December.

Pyongyang is banned under U.N. sanctions from developing missile or nuclear technology after its 2006 and 2009 nuclear tests.

North Korea worked to ready its nuclear test site, about 100 km (60 miles) from its border with China, throughout last year, according to commercially available satellite imagery. The images show that it may have already prepared for at least one more test, beyond Tuesday's subterranean explosion.

"Based on satellite imagery that showed there were the same activities in two tunnels, they have one tunnel left after the latest test," said Kune Y. Suh, a nuclear engineering professor at Seoul National University in South Korea.

Analysis of satellite imagery released on Friday by specialist North Korea website 38North showed activity at a rocket site that appeared to indicate it was being prepared for a launch (http://38north.org/2013/02/tonghae021413/).

NORTH 'NOT AFRAID' OF SANCTIONS

President Barack Obama pledged after this week's nuclear test "to lead the world in taking firm action in response to these threats" and diplomats at the U.N. Security Council have already started discussing potential new sanctions.

North Korea has said the test was a reaction to "U.S. hostility" following its December rocket launch. Critics say the rocket launch was aimed at developing technology for an intercontinental ballistic missile.

"(North) Korea is not afraid of (further) sanctions," the source said. "It is confident agricultural and economic reforms will boost grain harvests this year, reducing its food reliance on China."

North Korea's isolated and small economy has few links with the outside world apart from China, its major trading partner and sole influential diplomatic ally.

China signed up for international sanctions against North Korea after the 2006 and 2009 nuclear tests and for a U.N. Security Council resolution passed in January to condemn the latest rocket launch. However, Beijing has stopped short of abandoning all support for Pyongyang.

Sanctions have so far not discouraged North Korea from pursuing its nuclear ambitions.

"It is like watching the same movie over and over again," said Lee Woo-young, a professor at Seoul's University of North Korean Studies. "The idea that stronger sanctions make North Korea stop developing nuclear programs isn't effective in my view."

The source with ties to Beijing and Pyongyang said China would again support U.N. sanctions. He declined to comment on what level of sanctions Beijing would be willing to endorse.

"When China supported U.N. sanctions ... (North) Korea angrily called China a puppet of the United States," he said. "There will be new sanctions which will be harsh. China is likely to agree to it," he said, without elaborating.

He said however that Beijing would not cut food and fuel supplies to North Korea, a measure it reportedly took after a previous nuclear test.

He said North Korea's actions were a distraction for China's leadership, which was concerned that the escalations could inflame public opinion in China and hasten military build-ups in the region.

The source said he saw little room for compromise under North Korea's youthful new leader, Kim Jong-un. The third Kim to rule North Korea is just 30 years old and took over from his father in December 2011.

He appears to have followed his father, Kim Jong-il, in the "military first" strategy that has pushed North Korea ever closer to a workable nuclear missile at the expense of economic development.

"He is much tougher than his father," the source said.

(Additional reporting by Arshad Mohammed and Phillip Stewart in WASHINGTON; Writing by David Chance; Editing by Raju Gopalakrishnan, David Brunnstrom and Jackie Frank)

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Molly Sims: I Nursed a Little Vampire!

Mom & Babies
Celebrity Baby Blog

02/15/2013 at 01:00 PM ET

Following the birth of her baby boy, Molly Sims was ready to sink her teeth into breastfeeding.

The only problem? Her son Brooks Alan had beaten her to it.

“Early on in the hospital, they really want you to breastfeed, so I’m trying everything,” the model mama, 39, shared during a Wednesday appearance on Anderson Live.

“And I’m like, ‘Gosh, this really, really hurts.’ And they’re like, ‘Oh, we know.’”

Determined to find the root of the pain, Sims went searching in her newborn’s mouth — and was shocked at her discovery.

“I’m like, ‘Is there any way a baby could be born with a tooth?’” she recalls. “And they went, ‘Oh sweetie, I know you’re a model, but … babies aren’t born with teeth!’”

She continues: “Come to find out, my baby was born with a tooth!”

Courtesy ANDERSON LIVE

Despite countless attempts to successfully nurse — “I did nipple shields, nipple guards, supplemental nursing system, it was horrible,” the new mom says — Sims eventually decided to call it quits.

“He was literally like a vampire on me for three months — it was unbelievable,” she says with a laugh. “Cut to I’m not breastfeeding and I’m proud of it.”

Now Brooks, 7 months, has moved on to other milestones — including crawling — and is already taking after his dad, Scott Stuber.

“He has the hairline of my husband. It’s like an Eddie Munster kind of hairline. It’s not so attractive, but [he'll] end up growing into it,” Sims says.

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States' choices set up national health experiment

WASHINGTON (AP) — President Barack Obama's health care overhaul is unfolding as a national experiment with American consumers as the guinea pigs: Who will do a better job getting uninsured people covered, the states or the feds?

The nation is about evenly split between states that decided by Friday's deadline they want a say in running new insurance markets and states that are defaulting to federal control because they don't want to participate in "Obamacare." That choice was left to state governments under the law: Establish the market or Washington will.

With some exceptions, states led by Democrats opted to set up their own markets, called exchanges, and Republican-led states declined.

Only months from the official launch, exchanges are supposed to make the mind-boggling task of buying health insurance more like shopping on Amazon.com or Travelocity. Millions of people who don't have employer coverage will flock to the new markets. Middle-class consumers will be able to buy private insurance, with government help to pay the premiums in most cases. Low-income people will be steered to safety net programs like Medicaid.

"It's an experiment between the feds and the states, and among the states themselves," said Robert Krughoff, president of Consumers' Checkbook, a nonprofit ratings group that has devised an online tool used by many federal workers to pick their health plans. Krughoff is skeptical that either the feds or the states have solved the technological challenge of making the purchase of health insurance as easy as selecting a travel-and-hotel package.

Whether or not the bugs get worked out, consumers will be able to start signing up Oct. 1 for coverage that takes effect Jan. 1. That's also when two other major provisions of the law kick in: the mandate that almost all Americans carry health insurance, and the rule that says insurers can no longer turn away people in poor health.

Barring last-minute switches that may not be revealed until next week, 23 states plus Washington, D.C., have opted to run their own markets or partner with the Obama administration to do so.

Twenty-six states are defaulting to the feds. But in several of those, Republican governors are trying to carve out some kind of role by negotiating with federal Health and Human Services Secretary Kathleen Sebelius. Utah's status is unclear. It received initial federal approval to run its own market, but appears to be reconsidering.

"It's healthy for the states to have various choices," said Ben Nelson, CEO of the National Association of Insurance Commissioners. "And there's no barrier to taking somebody else's ideas and making them work in your situation." A former U.S. senator from Nebraska, Nelson was one of several conservative Democrats who provided crucial votes to pass the overhaul.

States setting up their own exchanges are already taking different paths. Some will operate their markets much like major employers run their health plans, as "active purchasers" offering a limited choice of insurance carriers to drive better bargains. Others will open their markets to all insurers that meet basic standards, and let consumers decide.

Obama's Affordable Care Act remains politically divisive, but state insurance exchanges enjoy broad public support. Setting up a new market was central to former Republican presidential candidate Mitt Romney's health care overhaul as governor of Massachusetts. There, it's known as the Health Connector.

A recent AP poll found that Americans prefer to have states run the new markets by 63 percent to 32 percent. Among conservatives the margin was nearly 4-1 in favor of state control. But with some exceptions, including Idaho, Nevada and New Mexico, Republican-led states are maintaining a hands-off posture, meaning the federal government will step in.

"There is a sense of irony that it's the more conservative states" yielding to federal control, said Sandy Praeger, the Republican insurance commissioner in Kansas, a state declining to run its own exchange. First, she said, the law's opponents "put their money on the Supreme Court, then on the election. Now that it's a reality, we may see some movement."

They're not budging in Austin. "Texas is not interested in being a subcontractor to Obamacare," said Lucy Nashed, spokeswoman for Gov. Rick Perry, who remains opposed to mandates in the law.

In Kansas, Praeger supported a state-run exchange, but lost the political struggle to Gov. Sam Brownback. She says Kansans will be closely watching what happens in neighboring Colorado, where the state will run the market. She doubts that consumers in her state would relish dealing with a call center on the other side of the country. The federal exchange may have some local window-dressing but it's expected to function as a national program.

Christine Ferguson, director of the Rhode Island Health Benefits Exchange, says she expects to see a big shift to state control in the next few years. "Many of the states have just run out of time for a variety of reasons," said Ferguson. "I'd be surprised if in the longer run every state didn't want to have its own approach."

In some ways, the federal government has a head start on the states. It already operates the Medicare Plan Finder for health insurance and prescription plans that serve seniors, and the Federal Employees Health Benefits Program. Both have many of the features of the new insurance markets.

Administration officials are keeping mum about what the new federal exchange will look like, except that it will open on time and people in all 50 states will have the coverage they're entitled to by law.

Joel Ario, who oversaw planning for the health exchanges in the Obama administration, says "there's a rich dialogue going on" as to what the online shopping experience should look like. "To create a website like Amazon is a very complicated exercise," said Ario, now a consultant with Manatt Health Solutions.

He thinks consumers should be able to get one dollar figure for each plan that totals up all their expected costs for the year, including premiums, deductibles and copayments. Otherwise, scrolling through pages of insurance jargon online will be a sure turn-off.

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After decent rally, perhaps time for a pause

NEW YORK (Reuters) - Stocks could struggle to extend their seven-week winning streak as the quarterly earnings period draws to a close and the market bumps into strong technical resistance.

Many analysts say the market could spend the next few weeks consolidating gains that have lifted the benchmark Standard & Poor's 500 <.spx> by 6.6 percent since the start of the year.

The S&P 500 ended up 0.1 percent for the week, recovering from a late sell-off on Friday after a Bloomberg report about slow February sales at Wal-Mart triggered a slide in the retailer's shares. It was the index's seventh week of gains.

Odds of a pullback are increasing, with the market in slightly overbought territory, said Bruce Zaro, chief technical strategist at Delta Global Asset Management in Boston.

"I do suspect the closing of the earnings season will lead to at least a pause and possibly a pullback," Zaro said. The S&P 500 could shave 3 to 5 percent between now and early April, he said.

Fourth-quarter earnings have mostly beaten expectations. Year-over-year profit growth for S&P 500 companies is now estimated at 5.6 percent, up from a January 1 forecast for 2.9 percent growth, and 70 percent of companies are exceeding analyst profit expectations, above the 62 percent long-term average, according to Thomson Reuters data.

On Thursday, Wal-Mart, the world's largest retailer, is due to report results, unofficially closing out the earnings period. Investors will be keen to see its quarterly numbers, especially after the Friday's news report that rattled investors.

The S&P 500 has gained 4.3 percent since Alcoa kicked off the earnings season on January 8.

The approaching March 1 deadline for across-the-board federal budget cuts unless Congress reaches a compromise adds another reason for caution, especially with recent economic data indicating the recovery remains bumpy.

Manufacturing output fell 0.4 percent last month, the Federal Reserve said on Friday, but production in November and December was much stronger than previously thought.

TESTING RESISTANCE

The S&P 500 has been trading near five-year highs, and it notched its highest level since November 2007 this week. But the gains have pushed the benchmark index almost as far as it is likely to go in the near term, with strong resistance hovering around 1,525 and 1,540, one analyst said.

As a result, the index is set to move sideways, said Dave Chojnacki, market technician at Street One Financial in Huntington Valley, Pennsylvania. "We just don't have the volume or the catalyst right now" to go above those levels, he said.

At the same time, other analysts say, the market has not shown significant signs of slowing, including a break below 15- and 30-day moving averages.

Such moves would be needed to show that momentum is slowing or that the market is at risk of a correction, said Todd Salamone, director of research for Schaeffer's Investment Research in Cincinnati, Ohio. The S&P 500's 14-day moving average is at 1,511 while the 30-day is at 1,494. The index closed Friday at 1,519.

Recent M&A activity, including news this week of a merger between American Airlines and US Airways Group , helped provide some strength for the market this week and optimism that more deals may be on the way.

In the coming days, the market will focus on minutes from the latest Federal Reserve meeting, due to be released on Wednesday, which could provide support if they suggest the Fed will remain on its current course of aggressive monetary easing.

The Fed minutes released in January spooked markets a bit when they revealed that some Fed officials thought it would be appropriate to consider ending asset purchases later in 2013. U.S. Treasury yields rose on that news, though market worries about a near-term end to quantitative easing have since faded.

Among other companies expected to report earnings next week are Nordstrom , Hewlett-Packard and Marriott International

(Reporting By Caroline Valetkevitch; Editing by Leslie Adler)

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Key U.S. general backs keeping Afghan forces at peak strength

WASHINGTON (Reuters) - The U.S. general nominated to oversee a vast region that includes Afghanistan on Thursday backed keeping Afghan forces at a peak strength of 352,000, contrary to current plans to shrink them after NATO declares the war over next year.

General Lloyd Austin, nominated to lead the U.S. military's Central Command, said at his Senate confirmation hearing that a more robust Afghan force, while more costly, would "hedge against any Taliban mischief" following America's longest war.

"Keeping the larger-size force would certainly reassure the Afghans, it would also reassure our NATO allies that we remain committed," Austin said.

The comments came two days after President Barack Obama announced in his State of the Union address that 34,000 U.S. troops - roughly half of the current U.S. force in Afghanistan - would be withdrawn by early 2014.

Obama reassured Americans that the costly, unpopular war was coming to an end, but he left unanswered bigger questions about America's exit strategy, including how many U.S. troops would stay in the country beyond 2014 to help train and advise the Afghans and to battle remnants of al Qaeda.

Obama also did not discuss the future size of the Afghan forces, although a White House fact sheet sent out after his address noted they would remain at 352,000 until "at least" early 2015.

Austin warned the Taliban would be waiting to test them.

"You could reasonably expect that an enemy that's been that determined, that agile, will very soon after we transition begin to try to test the Afghan security forces," Austin said.

Under current plans, the United States and its NATO allies will help build up the Afghan armed forces to 352,000 personnel, a number they are approaching, but the size of the force - which the allies will continue to fund - will be trimmed to 230,000 after 2015.

ECHOES OF IRAQ

The hearing frequently moved away from questions about the Afghan war and other current events to questions about Austin's past role as commander in Iraq, when a failure to strike an immunity deal for U.S. troops led to their total withdrawal in 2011.

Obama administration officials have warned that failure to strike an immunity deal with Afghanistan would also result in a pullout, but Afghan President Hamid Karzai and U.S. officials have expressed confidence a deal can be reached.

Republicans, who have criticized Obama's drawdown strategy in Afghanistan, noted that the president would have left a much smaller force in Iraq than Austin recommended, even if a deal had been struck.

Senator John McCain of Arizona lamented the lack of a U.S. presence in Iraq.

Pressed by Republicans, Austin acknowledged that the situation in Iraq was trending in a "problematic" direction, and agreed that a continued U.S. role would have helped bolster Iraqi forces.

When it came to Afghanistan, Senator Lindsay Graham of South Carolina warned Austin that if Obama sought an insufficient force for the post-2014 mission, he would refuse to vote for funding the war effort.

"It can be as low as 9 or 10,000, that I will stand with them," Graham said.

"If they overrule the commanders and create a force that cannot in my view be successful, I cannot in good conscience vote to continue this operation."

Graham said he would vote for Austin's confirmation once Austin spoke with the former commander of the Afghan mission, General John Allen, about his recommendations to Obama and reported back to the committee about his opinion.

(Reporting by Phil Stewart; Editing by David Brunnstrom)

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