Iran upbeat on nuclear talks, West still wary

ALMATY (Reuters) - Iran was upbeat on Wednesday after talks with world powers about its nuclear work ended with an agreement to meet again, but Western officials said it had yet to take concrete steps to ease their fears about its atomic ambitions.

Rapid progress was unlikely with Iran's presidential election, due in June, raising domestic political tensions, diplomats and analysts had said ahead of the February 26-27 meeting in the Kazakh city of Almaty, the first in eight months.

The United States, China, France, Russia, Britain and Germany offered modest sanctions relief in return for Iran curbing its most sensitive nuclear work but made clear that they expected no immediate breakthrough.

In an attempt to make their proposals more palatable to Iran, the six powers appeared to have softened previous demands somewhat, for example regarding their requirement that the Islamic state ship out its stockpile of higher-grade uranium.

Iran's chief nuclear negotiator Saeed Jalili said the powers had tried to "get closer to our viewpoint", which he said was positive.

In Paris, U.S. Secretary of State John Kerry commented that the talks had been "useful" and that a serious engagement by Iran could lead to a comprehensive deal in a decade-old dispute that has threatened to trigger a new Middle East war.

Iran's foreign minister said in Vienna he was "very confident" an agreement could be reached and Jalili, the chief negotiator, said he believed the Almaty meeting could be a "turning point".

However, one diplomat said Iranian officials at the negotiations appeared to be suggesting that they were opening new avenues, but it was not clear if this was really the case.

Iran expert Dina Esfandiary of the International Institute for Strategic Studies said: "Everyone is saying Iran was more positive and portrayed the talks as a win."

"I reckon the reason for that is that they are saving face internally while buying time with the West until after the elections," she said.

The two sides agreed to hold expert-level talks in Istanbul on March 18 to discuss the powers' proposals, and return to Almaty for political discussions on April 5-6, when Western diplomats made clear they wanted to see a substantive response from Iran.

"Iran knows what it needs to do, the president has made clear his determination to implement his policy that Iran will not have a nuclear weapon," Kerry said.

A senior U.S. official in Almaty said, "What we care about at the end is concrete results."

ISRAELI WARNING

Israel, assumed to be the Middle East's only nuclear-armed power, was watching the talks closely. It has strongly hinted it might attack Iran if diplomacy and sanctions fail to ensure that it cannot build a nuclear weapon. Iran denies any such aim.

Israeli Prime Minister Benjamin Netanyahu said economic sanctions were failing and urged the international community to threaten Iran with military action.

Western officials said the offer presented by the six powers included an easing of a ban on trade in gold and other precious metals, and a relaxation of an import embargo on Iranian petrochemical products. They gave no further details.

In exchange, a senior U.S. official said, Iran would among other things have to suspend uranium enrichment to a fissile concentration of 20 percent at its Fordow underground facility and "constrain the ability to quickly resume operations there".

The official did not describe what was being asked of Iran as a "shutdown" of the plant as Western diplomats had said in previous meetings with Iran last year.

Iran says it has a sovereign right to enrich uranium for peaceful purposes, and wants to fuel nuclear power plants so that it can export more oil.

But 20-percent purity is far higher than that needed for nuclear power, and rings alarm bells abroad because it is only a short technical step away from weapons-grade uranium. Iran says it produces higher-grade uranium to fuel a research reactor.

Iran's growing stockpile of 20-percent-enriched uranium is already more than half-way to a "red line" that Israel has made clear it would consider sufficient for a bomb.

In Vienna on Wednesday, a senior U.N. nuclear agency official told diplomats in a closed-door briefing that Iran was technically ready to sharply increase this higher-grade enrichment, two Western diplomats said.

"Iran can triple 20 percent production in the blink of an eye," one of the diplomats said.

The U.S. official in Almaty said the powers' latest proposal would "significantly restrict the accumulation of near-20-percent enriched uranium in Iran, while enabling the Iranians to produce sufficient fuel" for their Tehran medical reactor.

This appeared to be a softening of a previous demand that Iran ship out its stockpile of higher-grade enriched uranium, which it says it needs to produce medical isotopes.

Iran has often indicated that 20-percent enrichment could be up for negotiation if it received the fuel from abroad instead.

Jalili suggested Iran could discuss the issue, although he appeared to rule out shutting down Fordow. He said the powers had not made that specific demand.

The Iranian rial, which has lost more than half its foreign exchange value in the last year as sanctions bite, rose some 2 percent on Wednesday, currency tracking websites reported.

(Additional reporting by Fredrik Dahl and Yeganeh Torbati in Almaty, Georgina Prodhan in Vienna, Zahra Hosseinian in Zurich, Gabriela Baczynska in Moscow, Dan Williams in Jerusalem and Marcus George in Dubai; Writing by Timothy Heritage and Fredrik Dahl; Editing by Louise Ireland)

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Italy parties seek way out of election stalemate

ROME (Reuters) - Italy's stunned political parties searched for a way forward on Tuesday after an inconclusive election gave none of them a parliamentary majority and threatened prolonged instability and a renewal of the European financial crisis.

The results, notably the dramatic surge of the anti-establishment 5-Star Movement of comic Beppe Grillo, left the center-left bloc with a majority in the lower house but without the numbers to control the upper chamber, the Senate.

Financial markets fell sharply at the prospect of a stalemate that reawakened memories of the crisis that pushed Italy's borrowing costs toward unsustainably high levels and brought the euro zone to the brink of collapse in 2011.

"The winner is: Ingovernability," ran the headline in Rome newspaper Il Messaggero, reflecting the deadlock the country will have to confront in the next few weeks as sworn enemies are forced to work together to form a government.

Ratings agency Standard & Poor's said on Tuesday that policy choices of the next Italian government would be crucial for the country's creditworthiness, underlining the need for a coalition that can agree on new reforms.

Pier Luigi Bersani, head of the center-left Democratic Party (PD), has the difficult task of trying to agree a "grand coalition" with former prime minister Silvio Berlusconi, the man he blames for ruining Italy, or striking a deal with Grillo, a completely unknown quantity in conventional politics.

The alternative is new elections either immediately or within a few months, although both Berlusconi and Bersani have indicated that they want to avoid a return to the polls if possible: "Italy cannot be ungoverned and we have to reflect," Berlusconi said in an interview on his own television station.

For his part, Grillo, whose movement won the most votes of any single party, has indicated that he believes the next government will last no more than six months.

"They won't be able to govern," he told reporters on Tuesday. "Whether I'm there or not, they won't be able govern."

He said he would work with anyone who supported his policy proposals, which range from anti-corruption measures to green-tinted energy measures but rejected suggestions of entering a formal coalition: "It's not time to talk of alliances... the system has already fallen," he said.

The election, a massive rejection of the austerity policies applied by Prime Minister Mario Monti with the backing of international leaders from U.S. President Barack Obama to German Chancellor Angela Merkel, caused consternation across Europe.

German Finance Minister Wolfgang Schaeuble put a brave face on it, saying "that's democracy".

Spanish Foreign Minister Jose Manuel Garcia-Margallo was more pessimistic.

"This is a jump to nowhere that does not bode well either for Italy or Europe," he said.

A long recession and growing disillusionment with mainstream parties and tax-raising austerity fed a bitter public mood and contributed to the massive rejection of Monti, whose centrist coalition was relegated to the sidelines.

Projections by the Italian center for Electoral Studies showed that the center-left will have 121 seats in the Senate, against 117 for the center-right alliance of Berlusconi's PDL and the regionalist Northern League. Grillo would take 54.

That leaves no party with the majority in a chamber which a government must control to pass legislation.

"THE BELL IS RINGING"

On a visit to Germany, President Giorgio Napolitano said he would not comment until the parties had consulted with each other and Bersani called on Berlusconi and Grillo to "assume their responsibilities" to ensure Italy could have a government.

He warned that the election showed austerity policies alone were no answer to the economic crisis and said the result carried implications beyond Italy.

"The bell is ringing for Europe as well," he said in his first public comments since the election.

He said he would present a limited number of reform proposals to parliament, focusing on jobs, institutional reform and European policy.

However forming an alliance may be long and difficult and could test the sometimes fragile internal unity of the mainstream parties.

"The idea of a majority without Grillo is unthinkable. I don't know if anyone in the PD is considering it but I'm against it," said Matteo Orfini, a member of Bersani's PD secretariat.

"The idea of a PD-PDL government, even if it's backed by Monti, doesn't make any sense," he said.

For his part, Berlusconi won a boost when his Northern League ally Roberto Maroni won the election to become regional president of Lombardy, Italy's economic heartland and one of the richest and most productive areas of Europe.

For Italian business, with an illustrious history of export success, the election result brought dismay that there would be no quick change to what they see as a regulatory sclerosis that has kept the economy virtually stagnant for a decade.

"This is probably the worst possible scenario," said Francesco Divella, whose family began selling pasta under its eponymous brand in 1890 in the southern region of Puglia.

Berlusconi's campaign, mixing sweeping tax cut pledges with relentless attacks on Monti and Merkel, echoed many of the themes pushed by Grillo and underlined the increasingly angry mood of the Italian electorate.

But even if the next government turns away from the tax hikes and spending cuts brought in by Monti, it will struggle to revive an economy that has scarcely grown in two decades.

Monti was widely credited with tightening Italy's public finances and restoring its international credibility after the scandal-plagued Berlusconi, who is currently on trial for having sex with an under-age prostitute.

However, Monti struggled to pass the kind of structural reforms needed to improve competitiveness and lay the foundations for a return to economic growth. A weak center-left government may not find it any easier.

The view from some voters, weary of the mainstream parties, was unrepentant: "It's good," said Roger Manica, 28, a security guard in Rome, who voted for the center-left PD.

"Next time I'll vote 5-Star. I like that they are changing things, even if it means uncertainty. Uncertainty doesn't matter to me, for me what's important is a good person who gets things done," he said. "Look how well they've done."

(Additional reporting by Barry Moody, Gavin Jones, Lisa Jucca, Steven Jewkes, Steve Scherer, Catherine Hornby and Massimiliano Di Giorgio, Annika Breidthardt in Berlin. Writing by Philip Pullella and James Mackenzie; Editing by Peter Graff)

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Huge protest vote pushes Italy towards deadlock

ROME (Reuters) - A huge protest vote by Italians enraged by economic hardship and political corruption pushed the country towards deadlock after an election on Monday, with voting projections showing no coalition strong enough to form a government.

With more than two thirds of the vote counted, the projections suggested the center left could have a slim lead in the race for the lower house of parliament.

But no party or likely coalition appeared likely to be able to form a majority in the upper house or Senate, creating a deadlocked parliament - the opposite of the stable result that Italy desperately needs to tackle a deep recession, rising unemployment and a massive public debt.

Such an outcome has the potential to revive fears over the euro zone debt crisis, with prospects of a long period of uncertainty in the zone's third largest economy.

Italian financial markets took fright after rising earlier on hopes for a stable and strong center-left led government, probably backed by outgoing technocrat premier Mario Monti.

The projected result was a stunning success for Genoese comic Beppe Grillo, leader of the populist 5-Star Movement, who toured the country in his first national election campaign hurling obscenity-laced insults against a discredited political class.

With vague election promises and a team of almost totally unknown candidates, the shaggy haired comedian channeled pure public anger against what many see as a sclerotic and useless political system.

The likely result was also a humiliating slap in the face for colorless center-left leader Pier Luigi Bersani, who appeared to have thrown away a 10-point opinion poll lead less than two months ago against Silvio Berlusconi's center right.

Berlusconi, 76, who staged an extraordinary comeback from sex and corruption scandals since diving into the campaign in December, appeared to be leading in the Senate race, but Grillo's projected bloc of Senators would leave him well short of a majority.

Projections gave Bersani's center-left alliance a lead of less than one percentage point in the lower house. If confirmed, that would be enough to control the chamber because of election laws that guarantee a 54 percent majority to the party with the largest share of the vote.

In the Senate the picture was different. The latest projection from RAI state television showed Berlusconi's bloc winning 112 Senate seats, the center-left 105 and Grillo 64, with Monti languishing on only 20 after a failed campaign which never took off. The Senate majority is 158.

Berlusconi, a master politician and communicator, wooed voters with a blitz of television appearances and promises to refund a hated housing tax despite accusations from opponents that this was an impossible vote buying trick.

Grillo has attacked all sides in the campaign and ruled out a formal alliance with any group although it was not immediately known how he would react to his stunning success or how his supporters would behave in parliament.

DANGER OF NEW ELECTION

A bitter campaign, fought largely over economic issues, made some investors fear a return of the kind of debt crisis that took the euro zone close to disaster and brought the technocrat Monti to office, replacing Berlusconi, in 2011.

The projected results showed more than half of Italians had voted for the anti-euro platforms of Berlusconi and Grillo.

Officials from both center and left warned that the looming deadlock could make Italy ungovernable and force new elections.

A center-left government either alone or ruling with Monti had been seen by investors as the best guarantee of measures to combat a deep recession and stagnant growth in Italy, which is pivotal to stability in the currency union.

The benchmark spread between Italian 10-year bonds and their German equivalent widened from below 260 basis points to above 300 and the Italian share index lost all its previous gains after projections of the Senate result.

"These projections suggest that we are heading for an ungovernable situation", said Mario Secchi, a candidate for Monti's centrist movement.

Stefano Fassina, chief economic official for Bersani's center-left, said: "The scenario from the projections we have seen so far suggests there will be no stable government and we would need to return to the polls."

If the results are confirmed the only possibility looks like a "grand coalition" combining right and left, like the one Monti led for a year. But politicians said before the vote this could not work for long and would struggle to work decisively.

Monti helped save Italy from a debt crisis when Rome's borrowing costs were spiraling out of control, but few Italians now see him as the savior of the country, in its longest recession for 20 years.

Grillo's movement rode a huge wave of voter anger about both the pain of Monti's austerity program and a string of political and corporate scandals. It had particular appeal for a frustrated younger generation shut out of full-time jobs.

"I'm sick of the scandals and the stealing," said Paolo Gentile, a 49-year-old Rome lawyer who voted for 5-Star.

"We need some young, new people in parliament, not the old parties that are totally discredited."

Berlusconi, a billionaire media tycoon, exploited anger against Monti's austerity program, accusing him of being a puppet of German Chancellor Angela Merkel, but in many areas Grillo was a bigger beneficiary of public discontent.

Italy desperately needs a strong, reform-minded government to revive growth after two decades of stagnation and address problems ranging from record youth unemployment to a dysfunctional justice system and a bloated public sector.

Italians wrung their hands at prospects of an inconclusive result that will mean more delays to these reforms.

"It's a classic result. Typically Italian. It means the country is not united. It is an expression of a country that does not work. I knew this would happen," said 36-year-old Rome office worker Roberta Federica.

Another office worker, Elisabetta Carlotta, 46, shook her head in disbelief. "We can't go on like this," she said.

(Additional reporting by Stefano Bernabei, Steve Scherer, Gavin Jones, Naomi O'Leary and Giuseppe Fonte in Rome and Lisa Jucca in Milan; Writing by Barry Moody; Editing by Peter Graff)

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Abe vows to revive Japanese economy, sees no escalation with China

WASHINGTON (Reuters) - Japanese Prime Minister Shinzo Abe told Americans on Friday "I am back and so is Japan" and vowed to get the world's third biggest economy growing again and to do more to bolster security and the rule of law in an Asia roiled by territorial disputes.

Abe had firm words for China in a policy speech to a top Washington think-tank, but also tempered his remarks by saying he had no desire to escalate a row over islets in the East China Sea that Tokyo controls and Beijing claims.

"No nation should make any miscalculation about firmness of our resolve. No one should ever doubt the robustness of the Japan-U.S. alliance," he told the Center for Strategic and International Studies.

"At the same time, I have absolutely no intention to climb up the escalation ladder," Abe said in a speech in English.

After meeting U.S. President Barack Obama on his first trip to Washington since taking office in December in a rare comeback to Japan's top job, he said he told Obama that Tokyo would handle the islands issue "in a calm manner."

"We will continue to do so and we have always done so," he said through a translator, while sitting next to Obama in the White House Oval Office.

Tension surged in 2012, raising fears of an unintended military incident near the islands, known as the Senkaku in Japan and the Diaoyu in China. Washington says the islets fall under a U.S.-Japan security pact, but it is eager to avoid a clash in the region.

Abe said he and Obama "agreed that we have to work together to maintain the freedom of the seas and also that we would have to create a region which is governed based not on force but based on an international law."

Abe, whose troubled first term ended after just one year when he abruptly quit in 2007, has vowed to revive Japan's economy with a mix of hyper-easy monetary policy, big spending, and structural reform. The hawkish leader is also boosting Japan's defense spending for the first time in 11 years.

"Japan is not, and will never be, a tier-two country," Abe said in his speech. "So today ... I make a pledge. I will bring back a strong Japan, strong enough to do even more good for the betterment of the world."

'ABENOMICS' TO BOOST TRADE

The Japanese leader stressed that his "Abenomics" recipe would be good for the United States, China and other trading partners.

"Soon, Japan will export more, but it will import more as well," Abe said in the speech. "The U.S. will be the first to benefit, followed by China, India, Indonesia and so on."

The United States and Japan agreed language during Abe's visit that could set the stage for Tokyo to join negotiations soon on a U.S.-led regional free trade agreement known as the Trans-Pacific Partnership.

In a carefully worded statement following the meeting between Obama and Abe, the two countries reaffirmed that "all goods would be subject to negotiations if Japan joins the talks with the United States and 10 other countries.

At the same time, the statement envisions a possible outcome where the United States could maintain tariffs on Japanese automobiles and Japan could still protect its rice sector.

"Recognizing that both countries have bilateral trade sensitivities, such as certain agricultural products for Japan and certain manufactured products for the United States, the two governments confirm that, as the final outcome will be determined during the negotiations, it is not required to make a prior commitment to unilaterally eliminate all tariffs upon joining the TPP negotiations," the statement said.

Abe repeated that Japan would not provide any aid for North Korea unless it abandoned its nuclear and missile programs and released Japanese citizens abducted decades ago to help train spies.

Pyongyang admitted in 2002 that its agents had kidnapped 13 Japanese in the 1970s and 1980s. Five have been sent home, but Japan wants better information about eight who Pyongyang says are dead and others Tokyo believes were also kidnapped.

Abe also said he hoped to have a meeting with new Chinese leader Xi Jinping, who takes over as president next month, and would dispatch Finance Minister Taro Aso to attend the inauguration of incoming South Korean President Park Geun-hye next week.

(Additional reporting by Jeff Mason and Doug Palmer; Editing by David Brunnstrom and Paul Simao)

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French, Malian forces fight Islamist rebels in Gao

GAO, Mali (Reuters) - French and Malian troops fought Islamists on the streets of Gao and a car bomb exploded in Kidal on Thursday, as fighting showed little sign of abating weeks before France plans to start withdrawing some forces.

Reuters reporters in Gao in the country's desert north said French and Malian forces fired at the mayor's office with heavy machineguns after Islamists were reported to have infiltrated the Niger River town during a night of explosions and gunfire.

French Defense Minister Jean-Yves Le Drian told a news conference in Brussels that Gao was back under control after clashes earlier in the day.

"Malian troops supported by French soldiers killed five jihadists and the situation is back to normal," he said.

In Kidal, a remote far north town where the French are hunting Islamists, residents said a car bomb killed two. A French defense ministry source reported no French casualties.

French troops dispatched to root out rebels with links to al Qaeda swiftly retook northern towns last month. But they now risk being bogged down in a guerrilla conflict as they try to help Mali's weak army counter bombings and raids.

"There was an infiltration by Islamists overnight and there is shooting all over the place," Sadou Harouna Diallo, Gao's mayor, told Reuters by telephone earlier in the day, saying he was not in his office at the time.

Gao is a French hub for operations in the Kidal region, about 300 km (190 miles) northeast, where many Islamist leaders are thought to have retreated and foreign hostages may be held.

"They are black and two were disguised as women," a Malian soldier in Gao who gave his name only as Sergeant Assak told Reuters during a pause in heavy gunfire around Independence Square.

Six Malian military pickups were deployed in the square and opened fire on the mayor's office with the heavy machineguns. Two injured soldiers were taken away in an ambulance.

French troops in armored vehicles later joined the battle as it spilled out into the warren of sandy streets, where, two weeks ago, they also fought for hours against Islamists who had infiltrated the town via the nearby river.

Helicopters clattered over the mayor's office, while a nearby local government office and petrol station was on fire.

A Gao resident said he heard an explosion and then saw a Malian military vehicle on fire in a nearby street.

Paris has said it plans to start withdrawing some of its 4,000 troops from Mali next month. But rebels have fought back against Mali's weak and divided army, and African forces due to take over the French role are not yet in place.

Islamists abandoned the main towns they held but French and Malian forces have said there are pockets of Islamist resistance across the north, which is about the size of France.

CAR BOMB

Residents reported a bomb in the east of Kidal on Thursday.

"It was a car bomb that exploded in a garage," said one resident who went to the scene but asked not to be named.

"The driver and another man were killed. Two other people were injured," he added.

A French defense ministry official confirmed there had been a car bomb but said it did not appear that French troops, based at the town's airport, had been targeted.

Earlier this week, a French soldier was killed in heavy fighting north of Kidal, where French and Chadian troops are hunting Islamists in the Adrar des Ifoghas mountains, which border Algeria.

Operations there are further complicated by the presence of separatist Tuareg rebels, whose rebellion triggered the fighting in northern Mali last year but were sidelined by the better-armed Islamists.

Having dispatched its forces to prevent an Islamist advance south in January, Paris is eager not to become bogged down in a long-term conflict in Mali. But their Malian and African allies have urged French troops not to pull out too soon.

(Additional reporting by Emanuel Braun in Gao, Adama Diarra in Bamako, David Lewis and John Irish in Dakar and Adrian Croft in Brussels; Writing by David Lewis; Editing by Jason Webb and Roger Atwood)

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French general urges EU to equip "impoverished" Mali army

BAMAKO, Mali (Reuters) - The European Union should complement a mission to train Mali's army, routed by rebels last year, by providing equipment from uniforms to vehicles and communications technology, a French general said on Wednesday.

General Francois Lecointre, appointed to head the EU training mission to Mali (EUTM) that was formally launched this week, said in Bamako equipping the "very impoverished" and disorganized Malian army was as important as training it.

Europe, along with the United States, has backed the French-led military intervention in Mali which since January 11 has driven al Qaeda-allied Islamist insurgents out of the main northern towns into remote mountains near Algeria's border.

European governments have ruled out sending combat troops to join French and African soldiers pursuing the Islamist rebels.

But the EU is providing a 500-strong multinational training force that will give military instruction to Malian soldiers for an initial period of 15 months at an estimated cost of 12.3 million euros ($16.45 million).

While hailing what he called the EU's "courageous, novel, historic" decision to support Mali, Lecointre told a news conference the Malian army's lack of equipment was a problem.

"I know the Malian state is poor, but the Malian army is more than poor," the French general told a news conference, adding that it urgently needed everything from uniforms and weapons to vehicles and communications equipment.

Last year, when Tuareg separatist forces swelled by weapons and fighters from the Libyan conflict swept out of the northern deserts, a demoralized and poorly-led Malian army collapsed and fled before them, abandoning arms and vehicles.

Mali's military was further shaken by a March 22 coup by junior officers who toppled President Amadou Toumani Toure, sowing division among rival army factions. Islamist radicals allied to al Qaeda later hijacked the victorious Tuareg rebellion to occupy the northern half of the country.

In a fast-charging military campaign led by Paris, French and African troops have driven the jihadists out of principal northern towns like Gao and Timbuktu, and are fighting the rebels in the Adrar des Ifoghas mountains.

HUMAN RIGHTS INSTRUCTION

Flanked by Mali's armed forces chief, General Ibrahima Dembele, Lecointre said he was disappointed that a meeting of international donors last month pledged funds for an African military force, known as AFISMA, being deployed in Mali, but included "very few" contributions for the Malian army itself.

"The European Union needs to invest today in the equipping of the Malian army and not just in its training," the general said, adding he would make this point strongly in a report to EU member state representatives early next month.

Asked how much re-equipping the army would cost, he said it would be "much more" than the 12 million euros of EU financing for the training mission, but could not give a precise estimate.

Starting early in April, the EU mission will start instructing Malian soldiers with a plan to train four new battalions of 600-700 members each, formed from existing enlisted men and new recruits.

Lecointre said the EU training would include instruction in human rights. Demands for this increased after allegations by Malian civilians and international human rights groups that Malian soldiers were executing Tuaregs and Arabs accused of collaborating with Islamist rebels.

The European training contingent is drawn from a range of European countries, but the main contributors would be France, Germany, Italy, Spain and Britain, EUTM officers said.

Mali's army has received foreign training before - several battalions that fled before the rebels last year were trained by the U.S. military and the leader of the March 22 coup, Captain Amadou Sanogo, attended training courses in the United States.

Dembele said U.S. training failed to forge cohesion among Malian units and he hoped the EU training would achieve this.

The United States, which halted direct support for the Malian military after last year's coup, could eventually resume aid if planned national elections in July fully restore democracy to the West African country.

Washington is providing airlift, refuelling and intelligence support to the French-led military intervention in Mali. ($1 = 0.7479 euros)

(Reporting by Pascal Fletcher; Editing by Jason Webb)

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Syria "Scud-type" missile said to kill 20 in Aleppo

AMMAN (Reuters) - A Syrian missile killed at least 20 people in a rebel-held district of Aleppo on Tuesday, opposition activists said, as the army turns to longer-range weapons after losing bases in the country's second-largest city.

The use of what opposition activists said was a large missile of the same type as Russian-made Scuds against an Aleppo residential district came after rebels overran army bases over the past two months from which troops had fired artillery.

As the uprising against President Bashar al-Assad, now a civil war, nears its two-year mark, rebels also landed three mortar bombs in the rarely-used presidential palace compound in the capital Damascus, opposition activists said on Tuesday.

The United Nations estimates 70,000 people have been killed in the conflict between largely Sunni Muslim rebels and Assad's supporters among his minority Alawite sect. An international diplomatic deadlock has prevented intervention, as the war worsens sectarian tensions throughout the Middle East.

A Russian official said on Tuesday that Moscow, which is a long-time ally of Damascus, would not immediately back U.N. investigators' calls for some Syrian leaders to face the International Criminal Court for war crimes.

Moscow has blocked three U.N. Security Council resolutions that would have increased pressure on Assad.

Casualties are not only being caused directly by fighting, but also by disruption to infrastructure and Syria's economy.

An estimated 2,500 people in a rebel-held area of northeastern Deir al-Zor province have been infected with typhoid, which causes diarrhea and can be fatal, due to drinking contaminated water from the Euphrates River, the World Health Organization (WHO) said on Tuesday.

"There is not enough fuel or electricity to run the pumps so people drink water from the Euphrates which is contaminated, probably with sewage," the WHO representative in Syria, Elisabeth Hoff, told Reuters by telephone.

The WHO had no confirmed reports of deaths so far.

BURIED UNDER RUBBLE

In northern Aleppo, opposition activists said 25 people were missing under rubble of three buildings hit by a several-meter-long missile. They said remains of the weapon showed it to be a Scud-type missile of the type government forces increasingly use in Aleppo and in Deir a-Zor.

NATO said in December Assad's forces fired Scud-type missiles. It did not specify where they landed but said their deployment was an act of desperation.

Bodies were being gradually dug up, Mohammad Nour, an activist, said by phone from Aleppo.

"Some, including children, have died in hospitals," he said.

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

Reuters could not independently verify the reports.

Opposition activists also reported fighting near the town of Nabak on the Damascus-Homs highway, another route vital for supplying forces in the capital loyal to Assad, whose family has ruled Syria since the 1960s.

Rebels moved anti-aircraft guns into the eastern Damascus district of Jobar, adjacent to the city centre, as they seek to secure recent gains, an activist said.

"The rebels moved truck-mounted anti-aircraft guns to Jobar and are now firing at warplanes rocketing the district," said Damascus activist Moaz al-Shami.

Russian Deputy Foreign Minister Gennady Gatilov told a news conference a U.N. war crimes report, which accuses military leaders and rebels of terrorizing civilians, was "not the path we should follow ... at this stage it would be untimely and unconstructive."

Syria is not party to the Rome Statute that established the ICC and the only way the court can investigate the situation is if it receives a referral from the Security Council, where Moscow is a permanent member.

(Writing by Oliver Holmes; Editing by Jason Webb)

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Time to refer Syrian war crimes to ICC: U.N. inquiry

GENEVA (Reuters) - United Nations investigators said on Monday that Syrian leaders they had identified as suspected war criminals should face the International Criminal Court (ICC).

The investigators urged the U.N. Security Council to "act urgently to ensure accountability" for violations, including murder and torture, committed by both sides in an uprising and civil war that has killed about 70,000 people since March 2011.

"Now really it's time ... We have a permanent court, the International Criminal Court, who would be ready to take this case," Carla del Ponte, a former ICC chief prosecutor who joined the U.N. team in September, told a news briefing in Geneva.

But because Syria is not party to the Rome Statute that established the ICC, the only way the court can investigate the situation is if it receives a referral from the Security Council. Russia, Assad's long-standing ally and a permanent veto-wielding member of the council, has opposed such a move.

"We cannot decide. But we pressure the international community to decide because it's time to act," del Ponte said.

Brazilian expert Paulo Pinheiro, who leads the U.N. inquiry set up in 2011, said: "We are in very close dialogue with all the five permanent members and with all the members of the Security Council, but we don't have the key that will open the path to cooperation inside the Security Council."

His team of some two dozen experts is tracing the chain of command in Syria to establish criminal responsibility and build a case for eventual prosecution.

"Of course we were able to identify high-level perpetrators," del Ponte said, adding that these were people "in command responsibility...deciding, organizing, planning and aiding and abetting the commission of crimes".

She said it was urgent for the Hague-based war crimes tribunal to take up cases of "very high officials", but did not identify them, in line with the inquiry's practice.

"We have crimes committed against children, rape and sexual violence. We have grave concerns. That is also one reason why an international body of justice must act because it is terrible."

Del Ponte, who tried former Yugoslav President Slobodan Milosevic at the International Criminal Tribunal for the Former Yugoslavia on war crimes charges, said the ICC prosecutor would need to deepen the investigation on Syria before an indictment could be prepared.

Karen Koning AbuZayd, an American member of the U.N. team, told Reuters it had information pointing to "people who have given instructions and are responsible for government policy, people who are in the leadership of the military, for example".

The inquiry's third roster of suspects, building on lists drawn up in the past year, remains secret. It will be entrusted to U.N. High Commissioner for Human Rights Navi Pillay upon expiry of its mandate at the end of March, the report said.

Pillay, a former ICC judge, said on Saturday Assad should be investigated for war crimes, and called for outside action on Syria, including possible military intervention.

Pinheiro said the investigators would not speak publicly about "numbers, names or levels" of suspects.

SEVEN MASSACRES IDENTIFIED

The investigators' latest report, covering the six months to mid-January, was based on 445 interviews conducted abroad with victims and witnesses, as they have not been allowed into Syria.

"We identified seven massacres during the period, five on the government side, two on the armed opponents' side. We need to enter the sites to be able to confirm elements of proof that we have," del Ponte said.

The U.N. report said the ICC was the appropriate institution for the fight against impunity in Syria. "As an established, broadly supported structure, it could immediately initiate investigations against authors of serious crimes in Syria."

Government forces have carried out shelling and air strikes across Syria including Aleppo, Damascus, Deraa, Homs and Idlib, the 131-page report said, citing corroborating satellite images.

"Government forces and affiliated militias have committed extra-judicial executions, breaching international human rights law. This conduct also constitutes the war crime of murder. Where murder was committed as part of a widespread or systematic attack against a civilian population, with knowledge of that attack, it is a crime against humanity," the report said.

Those forces have targeted bakery queues and funeral processions to spread "terror among the civilian population".

Rebels fighting to topple Assad have also committed war crimes including murder, torture, hostage-taking and using children under age 15 in hostilities, the U.N. report said.

"They continue to endanger the civilian population by positioning military objectives inside civilian areas" and rebel snipers had caused "considerable civilian casualties", it said.

George Sabra, a vice president of the opposition Syrian National Coalition, asked about the U.N. report, told Reuters at a conference in Stockholm: "We condemn all kind of crimes, regardless who did it.

"We can't ignore that some mistakes have been made and maybe still happen right now. But nobody also can ignore that the most criminal file is that of the regime."

(This story has been corrected to fix name of Milosevic tribunal in 11th paragraph)

(Reporting by Stephanie Nebehay; additional reporting by Anna Ringstrom in Stockholm; Editing by Mark Heinrich)

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Ecuador's Correa cruises to re-election victory

QUITO (Reuters) - Ecuadorean President Rafael Correa swept to a re-election victory on Sunday that allows him to strengthen state control over the OPEC nation's economy and gives a timely boost to Latin America's alliance of socialist leaders.

Correa won 58 percent of the votes compared with 24 percent for runner-up Guillermo Lasso, according to preliminary results released by the electoral authority based on almost 30 percent of the votes counted.

"Nobody can stop this revolution," a jubilant Correa told supporters from the balcony of the presidential palace, after claiming victory.

"We are making history, we are building our own homeland which is Ecuador and the great homeland which is Latin America."

The combative, U.S.-trained economist took power in 2007 and has won strong support among the poor by using booming oil revenues to build roads, hospitals and schools in rural areas and shantytowns.

"He has breathed new life into the country with the infrastructure and social programs. He has allowed the country to recover its dignity," said Rosa Patino, 40, a municipal worker in Quito.

DEDICATES WIN TO CHAVEZ

Correa, 49, may now be in line to become Latin America's main anti-American voice and de facto leader of the ALBA bloc of leftist governments as Venezuelan President Hugo Chavez has been silenced during his battle with cancer.

Correa said he dedicated his victory to Chavez.

The principal challenge in Correa's new four-year term will be wooing investors needed to boost stagnant oil production and spur the mining industry. A $3.2 billion debt default in 2008 and aggressive oil contract negotiations scared many off.

Critics view Correa as an authoritarian leader who has curbed media freedom and appointed aides to top posts in the judiciary.

"This government has not given us anything good, only insults and taxes. We're tired of all that. I'm concerned that this government has alliances with communist countries," said Celeste Guerrero, a 68-year-old pensioner in Guayaquil.

Even some supporters disapprove of his tempestuous outbursts, confrontations with media and bullying of adversaries.

But the fractured opposition failed to make a consolidated challenge. It fielded seven candidates, making it easy for Correa, and he is now on track for a decade in office.

That is rare stability in a country where three presidents were pushed from office by coups or street protests in the decade before Correa took power in 2007.

He is already the longest-serving president since the return to democracy in the 1970s following a military dictatorship.

Correa's success has hinged in part on high oil prices that allowed for liberal state spending, including boosting cash handouts to 2 million people, and spurred solid economic growth.

He is likely to continue spending heavily to maintain his high popularity, but state revenues would dry up if oil prices fell.

He now hopes to diversify the economy away from its dependence on oil, in part by bringing in new investment for the mining sector. Despite promising reserves of gold and copper, mining operations have barely gotten off the ground.

In a news conference on Sunday after polls closed, Correa played down the need for more foreign investment. He insisted the ultimate goal was to ensure economic growth rather than "mortgaging" the country to bring in cash from abroad.

"We welcome foreign investment, and we're already getting plenty of it," Correa said. "Ecuador is one of the most successful economies in Latin America."

Lasso, a wealthy ex-banker and Correa's closest rival, had tried to woo voters with promises of lower taxes.

CONGRESS BATTLE

The other six opposition candidates included former Correa ally Alberto Acosta, former President Lucio Gutierrez and banana magnate and five-time presidential candidate Alvaro Noboa.

Pollsters say some of them focused their campaigns on attacking Correa and failed to put forward concrete proposals to entice voters.

Ecuadoreans also chose a new Congress on Sunday.

The ruling Alianza Pais party was expected to win a majority in the legislature, which would let Correa push ahead with controversial reforms, including a media law and changes to mining legislation, without having to negotiate with rivals.

The results of the vote for Congress are not expected to be known for several days.

Correa never shies away from a fight, be it with international bondholders, oil companies, local bankers, the Catholic Church or media that criticize his policies.

He vowed on Sunday to expand state regulations over media groups he has called "dogs" and "hired assassins."

"One of the things we have to fix is an unethical and unscrupulous press that wants to judge, legislate and govern," Correa said. "That goes against the rule of law and we will not allow it."

His criticism of the U.S. "empire" and his clashes with foreign investors and the World Bank have fueled Correa's popularity as a strong-minded leader who stands up to foreign powers that many say meddled in Ecuador's affairs for decades.

He took the global limelight last year when he granted asylum to WikiLeaks' founder Julian Assange. Critics say he did it to brush off accusations that he is curbing freedom of expression in Ecuador.

(Additional reporting by Jose Llangari and Eduardo Garcia in Quito and Yuri Garcia in Guayaquil; Editing by Kieran Murray, Andrew Cawthorne and Eric Beech)

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Bomb kills 64 in Pakistan's Quetta

QUETTA, Pakistan (Reuters) - Sixty-four people including school children died on Saturday in a bomb attack carried out by extremists from Pakistan's Sunni Muslim majority, police said.

A spokesman for Lashkar-e-Jhangvi, a Sunni group, claimed responsibility for the bomb in Quetta, which caused casualties in the town's main bazaar, a school and a computer center. Police said most of the victims were Shi'ites.

Burned school bags and books were strewn around.

"The explosion was caused by an improvised explosive device fitted to a motorcycle," said Wazir Khan Nasir, deputy inspector general of police in Quetta.

"This is a continuation of terrorism against Shi'ites."

"I saw many bodies of women and children," said an eyewitness at a hospital. "At least a dozen people were burned to death by the blast."

Most Western intelligence agencies have regarded the Pakistani Taliban and al Qaeda as the gravest threat to nuclear-armed Pakistan, a strategic U.S. ally.

But Pakistani law enforcement officials say Lashkar-e-Jhangvi has become a formidable force.

TENSIONS

Last month the group said it carried out a bombing in Quetta that killed nearly 100 people, one of Pakistan's worst sectarian attacks. Thousands of Shi'ites protested in several cities after that attack.

Pakistani intelligence officials say extremist groups, led by Lashkar-e-Jhangvi, 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, and the perpetrators are almost never caught. Some hardline Shi'ite groups have hit back by killing Sunni clerics.

The growing sectarian violence has hurt the credibility of the government, which has already faced criticism ahead of elections due in May for its inability to tackle corruption and economic stagnation.

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

Emotions over the issue are highly potent even today, pushing some countries, including Iraq five years ago, to the brink of civil war.

Pakistan is nowhere near that stage but officials worry that Sunni extremist groups have succeeded in dramatically ratcheting up tensions and provoking revenge attacks in their bid to destabilize the country.

(Reporting by Jibran Ahmed; Writing by Michael Georgy; Editing by Stephen Powell)

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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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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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Iran suggests progress, but no deal, in U.N. atom talks

DUBAI (Reuters) - Iran indicated that some progress was made in talks with the U.N. nuclear watchdog on Wednesday, but that the two sides again failed to finalize an elusive framework deal over the Islamic state's disputed atomic activity.

Iran's ambassador to the International Atomic Energy Agency (IAEA), Ali Asghar Soltanieh, said a new meeting would be held, without giving a date. There was no immediate comment from the IAEA about the one-day meeting in Tehran.

The IAEA had hoped to bridge persistent differences with Iran preventing the U.N. agency from restarting a long-stalled investigation into suspected nuclear weapons research by Tehran. Iran says the allegations are forged and baseless.

The apparent absence of a breakthrough deal in Wednesday's discussions in the Iranian capital will come as no surprise for Western diplomats, who have accused Iran of stonewalling the IAEA for years, a charge Tehran rejects.

World powers were watching the IAEA-Iran talks for signs that Tehran may finally be ready to start addressing their concerns over its nuclear program, which Tehran says is peaceful but the West fears is aimed at developing weapons.

Soltanieh said Iran and the IAEA had agreed on "some points" in the text of a planned framework agreement on how the IAEA should carry out its investigation, without giving details.

There was no immediate comment from the IAEA, which has been trying for more than a year to nail down such an accord giving it access to officials, documents and sites it says it needs for its inquiry in Iran.

"In addition to removing some differences and agreeing on some points in the text ... the two sides decided to review and exchange views about the new proposals that were given in this meeting, in the next meeting," Soltanieh said, according to Fars news agency.

AGREEMENT "NEAR" - STATE TV

Press TV, Iran's English-language state broadcaster, cited Soltanieh as saying that the remaining differences would be discussed in the next Iran-IAEA meeting. "Iran, IAEA near agreement on structured framework," it said in a headline.

The IAEA's immediate priority is to visit the Parchin military base southeast of Tehran, where it suspects explosives tests relevant to nuclear weapons may have taken place, perhaps a decade ago, an accusation Tehran denies.

The United States late last year set a March deadline for Iran to start cooperating in substance with the IAEA's investigation, warning Tehran that it might otherwise be referred to the U.N. Security Council.

Iran was first reported to the U.N. Security Council over its nuclear program by the IAEA's 35-nation board in 2006, and was then punished with U.N. sanctions.

The Islamic Republic denies Western allegations that its nuclear energy program is geared to developing the capability to produce atomic bombs. Iran says it is stockpiling enriched uranium only for civilian energy purposes.

On February 26, Iran and the six world powers are due, after a break of eight months to resume separate, broader negotiations in Kazakhstan aimed at finding a diplomatic settlement to the decade-old dispute and avert the threat of a new war in the Middle East.

The stakes are high: Israel, assumed to be the Middle East's only nuclear-armed power, has strongly hinted that it might take military action to prevent its foe acquiring weapons of mass destruction.

The six powers - the United States, Russia, China, France, Britain and Germany - want Iran to curb uranium enrichment and cooperate fully with the IAEA investigation.

Iran wants them to recognize what it sees as its right to refine uranium for peaceful purposes, and an easing of sanctions, which are hurting its oil-dependent economy.

(Additional reporting by Zahra Hosseinian in Zurich and Fredrik Dahl in Vienna; Editing by Michael Roddy)

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North Korean nuclear test draws anger, including from China

SEOUL (Reuters) - North Korea conducted its third nuclear test on Tuesday in defiance of U.N. resolutions, drawing condemnation from around the world, including from its only major ally, China, which summoned the North Korean ambassador to protest.

Pyongyang said the test was an act of self-defense against "U.S. hostility" and threatened stronger steps if necessary.

The test puts pressure on U.S. President Barack Obama on the day of his State of the Union speech and also puts China in a tight spot, since it comes in defiance of Beijing's admonishments to North Korea to avoid escalating tensions.

The U.N. Security Council held an emergency meeting at which its members, including China, "strongly condemned" the test and vowed to start work on appropriate measures in response, the president of the council said.

North Korean leader Kim Jong-un, the third of his line to rule the country, has presided over two long-range rocket launches and a nuclear test during his first year in power, pursuing policies that have propelled his impoverished and malnourished country closer to becoming a nuclear weapons power.

North Korea said the test had "greater explosive force" than those it conducted in 2006 and 2009. Its KCNA news agency said it had used a "miniaturized" and lighter nuclear device, indicating it had again used plutonium, which is suitable for use as a missile warhead.

China, which has shown signs of increasing exasperation with the recent bellicose tone of its reclusive neighbor, summoned the North Korean ambassador in Beijing and protested sternly, the Foreign Ministry said.

Foreign Minister Yang Jiechi said China was "strongly dissatisfied and resolutely opposed" to the test and urged North Korea to "stop any rhetoric or acts that could worsen situations and return to the right course of dialogue and consultation as soon as possible".

Analysts said the test was a major embarrassment to China, which is a permanent member of the Security Council and North Korea's sole major economic and diplomatic ally.

Obama called the test a "highly provocative act" that hurt regional stability.

"The danger posed by North Korea's threatening activities warrants further swift and credible action by the international community. The United States will also continue to take steps necessary to defend ourselves and our allies," Obama said.

U.S. Ambassador to the United Nations Susan Rice said Washington and its allies intended to "augment the sanctions regime" already in place due to Pyongyang's previous atomic tests. North Korea is already one of the most heavily sanctioned states in the world and has few external economic links that can be targeted.

Japanese Prime Minister Shinzo Abe said the test was a "grave threat" that could not be tolerated.

Russian Foreign Minister Sergei Lavrov urged North Korea to abandon its nuclear arms program and return to talks. NATO condemned the test as an "irresponsible act."

South Korea, still technically at war with North Korea after a 1950-53 civil war ended in a mere truce, also denounced the test. Obama spoke to South Korean President Lee Myung-bak on Tuesday and told him the United States "remains steadfast in its defense commitments" to Korea, the White House said.

MAXIMUM RESTRAINT

North Korea's Foreign Ministry said the test was "only the first response we took with maximum restraint".

"If the United States continues to come out with hostility and complicates the situation, we will be forced to take stronger, second and third responses in consecutive steps," it said in a statement carried by the official KCNA news agency.

North Korea - which gave the U.S. State Department advance warning of the test - often threatens the United States and its "puppet", South Korea, with destruction in colorful terms.

North Korea told the U.N. disarmament forum in Geneva that it would never bow to resolutions on its nuclear program and that prospects were "gloomy" for the denuclearization of the divided Korean peninsula because of a "hostile" U.S. policy.

Suzanne DiMaggio, an analyst at the Asia Society in New York, said North Korea had embarrassed China with the test. "China's inability to dissuade North Korea from carrying through with this third nuclear test reveals Beijing's limited influence over Pyongyang's actions in unusually stark terms," she said.

Mark Fitzpatrick of the International Institute for Strategic Studies think tank, said: "The test is hugely insulting to China, which now can be expected to follow through with threats to impose sanctions."

The magnitude of the explosion was roughly twice that of the 2009 test, according to the Vienna-based Comprehensive Nuclear-Test Ban Treaty Organization. The U.S. Geological Survey said that a seismic event measuring 5.1 magnitude had occurred.

U.S. intelligence agencies were analyzing the event and found that North Korea probably conducted an underground nuclear explosion with a yield of "approximately several kilotons", the Office of the Director of National Intelligence said.

Nuclear experts have described Pyongyang's previous two tests as puny by international standards. The yield of the 2006 test has been estimated at less than 1 kiloton (1,000 tons of TNT equivalent) and the second at some 2-7 kilotons, compared with 20 kilotons for a Nagasaki-type bomb.

Initial indications are that the test involved the latest version of a plutonium-based prototype weapon, according to one current and one former U.S. national security official. Both previous tests involved plutonium. If it turns out the test was of a new uranium-based weapon, it would show that North Korea has made more progress on uranium enrichment than previously thought.

The United States uses WC-135 Constant Phoenix "sniffer" aircraft to collect samples to identify nuclear explosions. These would need to be deployed quickly to detect whether highly enriched uranium rather than plutonium was used because uranium decays to undetectable levels within a matter of days. Plutonium takes much longer to decay.

North Korea trumpeted news of the test on its state television channel to patriotic music against a backdrop of its national flag.

"It was confirmed that the nuclear test that was carried out at a high level in a safe and perfect manner using a miniaturized and lighter nuclear device with greater explosive force than previously did not pose any negative impact on the surrounding ecological environment," KCNA said.

North Korea linked the test to its technical prowess in launching a long-range rocket in December, a move that triggered the U.N. sanctions, backed by China, that Pyongyang said prompted it to take Tuesday's action.

The North's ultimate aim, Washington believes, is to design an intercontinental ballistic missile capable of carrying a nuclear warhead that could hit the United States. North Korea says the program is aimed at putting satellites in space.

Despite its three nuclear tests and long-range rocket tests, North Korea is not believed to be close to manufacturing a nuclear missile capable of hitting the United States.

It used plutonium in previous nuclear tests and before Tuesday there had been speculation that it would use highly enriched uranium so as to conserve its plutonium stocks, as testing eats into its limited supply of materials to construct a nuclear bomb.

"VICIOUS CYCLE"

When Kim Jong-un, who is 30, took power after his father's death in December 2011, there were hopes that he would bring reforms and end Kim Jong-il's "military first" policies.

Instead, North Korea, whose economy is smaller than it was 20 years ago and where a third of children are believed to be malnourished, appears to be trapped in a cycle of sanctions followed by further provocations.

"The more North Korea shoots missiles, launches satellites or conducts nuclear tests, the more the U.N. Security Council will impose new and more severe sanctions," said Shen Dingli, a professor at Shanghai's Fudan University. "It is an endless, vicious cycle."

Options for the international community appear to be in short supply. Diplomats at the United Nations said negotiations on new sanctions could take weeks since China is likely to resist tough new measures for fear they could lead to further retaliation by the North Korean leadership.

Beijing has also been concerned that tougher sanctions could further weaken North Korea's economy and prompt a flood of refugees into China.

Tuesday's action appeared to have been timed for the run-up to February 16 anniversary celebrations of Kim Jong-il's birthday, as well as to achieve maximum international attention.

Significantly, the test comes at a time of political transition in China, Japan and South Korea, and as Obama begins his second term. The U.S. president will likely have to tweak his State of the Union address due to be given on Tuesday.

Japanese Prime Minister Shinzo Abe is bedding down a new government and South Korea's new president, Park Geun-hye, is preparing to take office on February 25.

China too is in the midst of a once-in-a-decade leadership transition to Xi Jinping, who takes office in March. Both Abe and Xi are staunch nationalists.

The longer-term game plan from Pyongyang may be to restart international talks aimed at winning food and financial aid. China urged it to return to the stalled "six-party" talks on its nuclear program, hosted by China and including the two Koreas, the United States, Japan and Russia.

Its puny economy and small diplomatic reach mean that North Korea struggles to win attention on the global stage - other than through nuclear tests and attacks on South Korea, the last of which was made in 2010.

"Now the next step for North Korea will be to offer talks... - any form to start up discussion again to bring things to their advantage," predicted Jeung Young-tae, senior research fellow at the Korea Institute for National Unification in Seoul.

(Additional reporting by Jack Kim, Christine Kim and Jumin Park in SEOUL; Linda Sieg in TOKYO; Louis Charbonneau and Michelle Nichols at the UNITED NATIONS; Fredrik Dahl in VIENNA; Michael Martina and Chen Aizhu in BEIJING; Mette Fraende in COPENHAGEN; Adrian Croft, Charlie Dunmore and Justyna Pawlak in BRUSSELS; Mark Hosenball, Paul Eckert, Roberta Rampton, Tabassum Zakaria and Jeff Mason in WASHINGTON; Editing by Nick Macfie, Claudia Parsons and David Brunnstrom)

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Pope's sudden resignation sends shockwaves through Church

VATICAN CITY (Reuters) - Pope Benedict stunned the Roman Catholic Church on Monday when he announced he would stand down, the first pope to do so in 700 years, saying he no longer had the mental and physical strength to carry on.

Church officials tried to relay a climate of calm confidence in the running of a 2,000-year-old institution, but the decision could lead to uncertainty in a Church already besieged by scandal for covering up sexual abuse of children by priests.

The soft-spoken German, who always maintained that he never wanted to be pope, was an uncompromising conservative on social and theological issues, fighting what he regarded as the increasing secularization of society.

It remains to be seen whether his successor will continue such battles or do more to bend with the times.

Despite his firm opposition to tolerance of homosexual acts, his eight year reign saw gay marriage accepted in many countries. He has staunchly resisted allowing women to be ordained as priests, and opposed embryonic stem cell research, although he retreated slightly from the position that condoms could never be used to fight AIDS.

He repeatedly apologized for the Church's failure to root out child abuse by priests, but critics said he did too little and the efforts failed to stop a rapid decline in Church attendance in the West, especially in his native Europe.

In addition to child sexual abuse crises, his papacy saw the Church rocked by Muslim anger after he compared Islam to violence. Jews were upset over rehabilitation of a Holocaust denier. During a scandal over the Church's business dealings, his butler was accused of leaking his private papers.

In an announcement read to cardinals in Latin, the universal language of the Church, the 85-year-old said: "Well aware of the seriousness of this act, with full freedom I declare that I renounce the ministry of Bishop of Rome, Successor of St Peter ...

"As from 28 February 2013, at 20:00 hours (1900 GMT) the See of Rome, the See of St. Peter will be vacant and a conclave to elect the new Supreme Pontiff will have to be convoked by those whose competence it is."

POPE DOESN'T FEAR SCHISM

Benedict is expected to go into isolation for at least a while after his resignation. Vatican spokesman Father Federico Lombardi said Benedict did not intend to influence the decision of the cardinals in a secret conclave to elect a successor.

A new leader of the world's 1.2 billion Roman Catholics could be elected as soon as Palm Sunday, on March 24, and be ready to take over by Easter a week later, Lombardi said.

Several popes in the past, including Benedict's predecessor John Paul, have refrained from stepping down over their health, because of the division that could be caused by having an "ex-pope" and a reigning pope alive at the same time.

Lombardi said the pope did not fear a possible "schism", with Catholics owing allegiances to a past and present pope in case of differences on Church teachings.

He indicated the complex machinery of the process to elect a new pope would move quickly because the Vatican would not have to wait until after the elaborate funeral services for a pope.

It is not clear if Benedict will have a public life after he resigns. Lombardi said Benedict would first go to the papal summer residence south of Rome and then move into a cloistered convent inside the Vatican walls.

The resignation means that cardinals from around the world will begin arriving in Rome in March and after preliminary meetings, lock themselves in a secret conclave and elect the new pope from among themselves in votes in the Sistine Chapel.

There has been growing pressure on the Church for it to choose a pope from the developing world to better reflect where most Catholics live and where the Church is growing.

"It could be time for a black pope, or a yellow one, or a red one, or a Latin American," said Guatemala's Archbishop Oscar Julio Vian Morales.

The cardinals may also want a younger man. John Paul was 58 when he was elected in 1978. Benedict was 20 years older.

"We have had two intellectuals in a row, two academics, perhaps it is time for a diplomat," said Father Tom Reese, senior fellow at the Woodstock Theological Center at Georgetown University. "Rather than electing the smartest man in the room, they should elect the man who will listen to all the other smart people in the Church."

Liberals have already begun calling for a pope that would be more open to reform.

"The current system remains an 'old boy's club' and does not allow for women's voices to participate in the decision of the next leader of our Church," said the Women's Ordination Conference, a group that wants women to be able to be priests.

"GREAT COURAGE"

The last pope to resign willingly was Celestine V in 1294 after reigning for only five months, his resignation was known as "the great refusal" and was condemned by the poet Dante in the "Divine Comedy". Gregory XII reluctantly abdicated in 1415 to end a dispute with a rival claimant to the papacy.

Lombardi said Benedict's stepping aside showed "great courage". He ruled out any specific illness or depression and said the decision was made in the last few months "without outside pressure". But the decision was not without controversy.

"This is disconcerting, he is leaving his flock," said Alessandra Mussolini, a parliamentarian who is granddaughter of Italy's wartime dictator. "The pope is not any man. He is the vicar of Christ. He should stay on to the end, go ahead and bear his cross to the end. This is a huge sign of world destabilization that will weaken the Church."

Cardinal Stanislaw Dziwisz, secretary to the late Pope John Paul, said the former pope had stayed on despite failing health for the last decade of his life as he believed "you cannot come down from the cross."

While the pope had slowed down recently - he started using a cane and a wheeled platform to take him up the long aisle in St Peter's Square - he had given no hint recently that he was considering such a dramatic decision.

Elected in 2005 to succeed the enormously popular John Paul, Benedict never appeared to feel comfortable in the job.

"MIND AND BODY"

In his announcement, the pope told the cardinals that in order to govern "... both strength of mind and body are necessary, strength which in the last few months, has deteriorated in me to the extent that I have had to recognize my incapacity to adequately fulfill the ministry entrusted to me."

Before he was elected pope, the former Cardinal Joseph Ratzinger was known as "God's rottweiler" for his stern stand on theological issues. After a few months, he showed a milder side but he never drew the kind of adulation that had marked the 27-year papacy of his predecessor John Paul.

U.S. President Barack Obama extended prayers to Benedict and best wishes to those who would choose his successor.

German Chancellor Angela Merkel said the pope's decision must be respected if he feels he is too weak to carry out his duties. British Prime Minister David Cameron said: "He will be missed as a spiritual leader to millions."

The Archbishop of Canterbury, leader of the worldwide Anglican communion, said he had learned of the pope's decision with a heavy heart but complete understanding.

CHEERS AND SCANDAL

Elected to the papacy on April 19, 2005, Benedict ruled over a slower-paced, more cerebral and less impulsive Vatican.

But while conservatives cheered him for trying to reaffirm traditional Catholic identity, his critics accused him of turning back the clock on reforms by nearly half a century and hurting dialogue with Muslims, Jews and other Christians.

After appearing uncomfortable in the limelight at the start, he began feeling at home with his new job and showed that he intended to be pope in his way.

Despite great reverence for his charismatic, globe-trotting predecessor -- whom he put on the fast track to sainthood and whom he beatified in 2011 -- aides said he was determined not to change his quiet manner to imitate John Paul's style.

A quiet, professorial type who relaxed by playing the piano, he showed the gentle side of a man who was the Vatican's chief doctrinal enforcer for nearly a quarter of a century.

The first German pope for some 1,000 years and the second non-Italian in a row, he traveled regularly, making about four foreign trips a year, but never managed to draw the oceanic crowds of his predecessor.

The child abuse scandals hounded most of his papacy. He ordered an official inquiry into abuse in Ireland, which led to the resignation of several bishops.

Scandal from a source much closer to home hit in 2012 when the pontiff's butler, responsible for dressing him and bringing him meals, was found to be the source of leaked documents alleging corruption in the Vatican's business dealings.

Benedict confronted his own country's past when he visited the Nazi death camp at Auschwitz. Calling himself "a son of Germany", he prayed and asked why God was silent when 1.5 million victims, most of them Jews, were killed there.

Ratzinger served in the Hitler Youth during World War Two when membership was compulsory. He was never a member of the Nazi party and his family opposed Adolf Hitler's regime.

(Additional reporting by James Mackenzie, Barry Moody, Cristiano Corvino, Alexandra Hudson in Berlin, and Dagamara Leszkowixa in Poland; Editing by Peter Graff)

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Gunbattle rocks Gao after rebels surprise French, Malians

GAO, Mali (Reuters) - Islamist insurgents launched a surprise raid in the heart of the Malian town of Gao on Sunday, battling French and local troops in a blow to efforts to secure Mali's recaptured north.

Local residents hid in their homes or crouched behind walls as the crackle of gunfire from running street battles resounded through the sandy streets and mud-brick houses of the ancient Niger River town, retaken from Islamist rebels last month by a French-led offensive.

French helicopters clattered overhead and fired on al Qaeda-allied rebels armed with AK-47s and rocket-propelled grenades who had infiltrated the central market area and holed up in a police station, Malian and French officers said.

The fighting inside Gao was certain to raise fears that pockets of determined Islamists who have escaped the lightning four-week-old French intervention in Mali will strike back with guerrilla attacks and suicide bombings.

After driving the bulk of the insurgents from major northern towns such as Timbuktu and Gao, French forces are trying to search out their bases in the remote and rugged Adrar des Ifoghas mountains, far up in the northeast.

But with Mali's weak army unable to secure recaptured zones, and the deployment of a larger African security force slowed by delays and kit shortages, vast areas to the rear of the French forward lines now look vulnerable to guerrilla activity.

"They infiltrated the town via the river. We think there were about 10 of them. They were identified by the population and they went into the police station," said General Bernard Barrera, commander of French ground operations in Mali.

He told reporters in Gao that French helicopters had intervened to help Malian troops pinned down by the rebels, who threw grenades from rooftops.

Malian gendarme Colonel Saliou Maiga told Reuters the insurgents intended to carry out suicide attacks in the town.

SUICIDE BOMBERS

No casualty toll was immediately available. But a Reuters reporter in Gao saw one body crumpled over a motorcycle. Malian soldiers said some of the raiders may have come on motorbikes.

The gunfire in Gao erupted hours after French and Malian forces reinforced a checkpoint on the northern outskirts that had been attacked for the second time in two days by a suicide bomber.

Abdoul Abdoulaye Sidibe, a Malian parliamentarian from Gao, said the rebel infiltrators were from the MUJWA group that had held the town until French forces liberated it late last month.

MUJWA is a splinter faction of al Qaeda's North African wing AQIM which, in loose alliance with the home-grown Malian Islamist group Ansar Dine, held Mali's main northern urban areas for 10 months until the French offensive drove them out.

Late on Saturday, an army checkpoint in Gao's northern outskirts came under attack by a group of Islamist rebels who fired from a road and bridge that lead north through the desert scrub by the Niger River to Bourem, 80 km (50 miles) away.

"Our soldiers came under heavy gunfire from jihadists from the bridge ... At the same time, another one flanked round and jumped over the wall. He was able to set off his suicide belt," Malian Captain Sidiki Diarra told reporters.

The bomber died and one Malian soldier was lightly wounded, he added. In Friday's motorbike suicide bomber attack, a Malian soldier was also injured.

Diarra described Saturday's bomber as a bearded Arab.

Since Gao and the UNESCO World Heritage city of Timbuktu were retaken last month, several Malian soldiers have been killed in landmine explosions on a main road leading north.

French and Malian officers say pockets of rebels are still in the bush and desert between major towns and pose a threat of hit-and-run guerrilla raids and bombings.

"We are in a dangerous zone... we can't be everywhere," a French officer told reporters, asking not to be named.

One local resident reported seeing a group of 10 armed Islamist fighters at Batel, just 10 km (6 miles) from Gao.

OPERATIONS IN NORTHEAST

The French, who have around 4,000 troops in Mali, are now focusing their offensive operations several hundred kilometers (miles) north of Gao in a hunt for the Islamist insurgents.

On Friday, French special forces paratroopers seized the airstrip and town of Tessalit, near the Algerian border.

From here, the French, aided by around 1,000 Chadian troops in the northeast Kidal region, are expected to conduct combat patrols into the Adrar des Ifoghas mountains.

The remaining Islamists are believed to have hideouts and supply depots in a rugged, sun-blasted range of rocky gullies and caves, and are also thought to be holding at least seven French hostages previously seized in the Sahel.

The U.S. and European governments back the French-led operation as a defense against Islamist jihadists threatening wider attacks, but rule out sending their own combat troops.

To accompany the military offensive, France and its allies are urging Mali authorities to open a national reconciliation dialogue that addresses the pro-autonomy grievances of northern communities like the Tuaregs, and to hold democratic elections.

Interim President Dioncounda Traore, appointed after a military coup last year that plunged the West African state into chaos and led to the Islamist occupation of the north, has said he intends to hold elections by July 31.

But he faces splits within the divided Malian army, where rival units are still at loggerheads.

(Additional reporting by Tiemoko Diallo and Adama Diarra in Bamako; Writing by Joe Bavier and Pascal Fletcher; Editing by Kevin Liffey)

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