U.S. intelligence set back when Libya base abandoned

By Mark Hosenball

WASHINGTON (Reuters) - U.S. intelligence efforts in Libya have suffered a significant setback due to the abandonment and exposure of a facility in Benghazi, Libya identified by a newspaper as a "CIA base" following a congressional hearing this week, according to U.S. government sources.

The intelligence post, located 1.2 miles (2 km) from the U.S. mission that was targeted by militants in a September 11 attack, was evacuated of Americans after the assault that killed Ambassador Christopher Stevens. Three other Americans died in the attacks on U.S.-occupied buildings, including two who were hit in a mortar blast at the secret compound.

The publication of satellite photos showing the site's location and layout have made it difficult, if not impossible, for intelligence agencies to reoccupy the site, according to government sources, speaking on condition of anonymity.

The post had been a base for, among other things, collecting information on the proliferation of weaponry looted from Libyan government arsenals, including surface-to-air missiles, the sources said. Its security features, including some fortifications, sensors and cameras, were more advanced than those at rented villa where Stevens died, they said.

The sources said intelligence agencies will find other ways to collect information in Libya in the aftermath of last year's toppling of long-time leader Muammar Gaddafi.

"Benghazi played a critical role in the emergence of the new Libya and will continue to do so. It makes sense that we would return there to continue to build relationships," one U.S. official said.

Public discussion of the top-secret location began with a contentious Wednesday hearing of the House of Representatives Committee on Oversight and Government Reform, which was investigating whether security lapses put Americans at risk.

The State Department displayed a satellite photograph showing two locations - the rented villa that served as a special diplomatic mission and the compound that officials had cryptically described as an "annex" or "safe house" for diplomatic personnel.

Both compounds were attacked by militants believed to be tied to al Qaeda. After the diplomatic complex was overrun, U.S. and Libyan personnel rushed by car to the second site, where they fought off two more waves of assaults, officials said.

Charlene Lamb, a top official in the State Department's Bureau of Diplomatic Security, told lawmakers that the secret compound took "as many as three direct hits."

Two U.S. security officials, Glen Doherty and Tyrone Woods, were killed there in what U.S. officials described as an unlucky mortar strike. As many as 37 people eventually escaped to Benghazi's airport.

When the satellite photo was displayed, a senior committee Republican, Representative Jason Chaffetz, complained that the discussion was drifting into "classified issues that deal with sources and methods," and the photo was removed from public display. No one at the hearing used the term "CIA base" to describe the facility.

'BONEHEADED QUESTIONING'

The next morning, Dana Milbank, a Washington Post columnist, wrote that the committee's "boneheaded questioning" of State Department witnesses left little doubt that the compound in the pictures was a "CIA base."

The Center for American Progress, a Washington think tank with ties to the Obama White House, followed up with a blog post accusing Republicans of revealing the "Location Of Secret CIA Base."

On Friday, Representative Dutch Ruppersberger, top Democrat on the House Intelligence Committee, accused Republicans of mishandling secret information.

Spokespeople for the State Department and White House had no comment. The CIA also had no comment.

Oversight committee spokesman Frederick Hill said committee Democrats made matters worse by asking questions about the satellite photos. "Even after Republicans objected, Democrats continued to ask questions that led State officials to put even more sensitive information about who worked there into the public realm," Hill said.

The dispute over who was responsible for identifying the base is the latest case in which intelligence agencies - particularly the CIA - have been dragged into a political fray over the Benghazi attack.

The Obama administration's handling of the Benghazi attacks has become fodder for criticism from Republican presidential candidate Mitt Romney and running mate Paul Ryan ahead of the November 6 election.

Intelligence officials are not happy at being drawn into the political battle. Paul Pillar, one of the CIA's former most senior analysts, said the agency is sure to be dismayed at how its sensitive work has been dragged into the debate.

"They're trying to do the best they can with fragmentary and incomplete information. No doubt they are very unhappy that this issue is now being exploited for political purposes," Pillar said.

(Reporting by Mark Hosenball; Editing by Marilyn W. Thompson and Will Dunham)

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PayPal plans first job cuts since 2008 financial crisis

By Alistair Barr

SAN FRANCISCO (Reuters) - PayPal is planning to cut as much as 3 percent of its workforce as the payments division of eBay Inc looks to streamline its operations under new President David Marcus, a person familiar with the situation said on Friday.

The reductions are expected to total between 300 and 400 and be focused in product development, technology and marketing, the person said on condition of anonymity because the plans are not public. PayPal has almost 13,000 employees.

The job cuts will be PayPal's first major reductions since the financial crisis in 2008.

Marcus became president of PayPal earlier this year after eBay acquired Zong, the mobile payments start-up he ran.

Since taking over, Marcus has been trying to shift PayPal's focus more to the consumer. He has also been working to speed up the product development process, which has become bogged down in lengthy procedures in recent years.

"We have told PayPal employees about plans under way to strengthen and simplify how we create and deliver consistently great products and brand experiences to our customers," a PayPal spokesman said in a statement emailed to Reuters.

He declined to comment on how such plans may affect jobs at the company.

In the last few years, PayPal has spent a lot of money to develop new products and buy up companies, hurting margins, Gil Luria, a managing director with Wedbush Securities told Reuters.

"Now that products such as the mobile wallet are ready to be introduced, looks like they are ready to tighten up and let margins go up from here," Luria said.

PayPal's plans for job cuts were reported earlier on Friday by Bloomberg News.

(Reporting by Alistair Barr, additional writing by Phil Wahba; Editing by Jan Paschal, Bernard Orr)

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Gold headed for biggest weekly loss in two months

SINGAPORE (Reuters) - Gold was little changed on Friday, holding on to gains in the previous session when the dollar eased from a one-month high, but bullion was headed for its biggest weekly drop in two months.

FUNDAMENTALS

* Spot gold was little changed at $1,768.49 an ounce by 0015 GMT, on course for a 0.7-percent weekly loss, its sharpest one-week fall in two months.

* U.S. gold traded nearly flat at $1,770.40.

* The number of Americans filing new claims for jobless benefits slid last week to the lowest level in more than four and a half years, according to government data that may provide a boost to President Barack Obama a month before voters go to the polls.

* The IMF on Thursday backed giving debt-burdened Greece and Spain more time to reduce their budget deficits, cautioning that cutting too far, too fast, would do more harm than good.

* Next year offers only a slight improvement for a global economy hit by recession in Europe and slowing or moribund growth in Asia and the United States, according to Reuters polls of hundreds economists worldwide.

* Holdings of gold-backed exchange-traded funds fell for the first time in two weeks on Thursday. Holdings edged down 44,965 ounces from a record high of 75.03 million ounces.

* The tension between Turkey and Syria helped support safe- haven sentiment.

* Spot silver edged up 0.2 percent to $34.06, but was headed for a 1.2-percent fall this week, its biggest weekly loss in three months.

MARKET NEWS

* U.S. stocks ended flat on Thursday after gains brought by a sign of improvement in the labour market were erased in part by a drop in Apple shares after a legal setback in a court ruling.

* The dollar held steady on Friday, after coming off a one-month high in the previous session.

(Reporting by Rujun Shen; Editing by Eric Meijer)

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Asian stocks steady, set for losing week on growth concerns

By Alex Richardson

SINGAPORE (Reuters) - Asian stocks and the euro steadied on Friday, but were on course for a losing week as worries about weak corporate earnings and slowing global economic growth limit the appeal of riskier assets.

Mining stocks, sold off earlier in the week, led gains after a bounce in copper and iron ore prices on Thursday.

MSCI's broadest index of Asia Pacific shares outside Japan edged up 0.1 percent, with the materials sub-index gaining 0.4 percent. Japan's Nikkei was flat after closing at its lowest in two months on Thursday.

The MSCI Asia ex-Japan index is down just over 1 percent on the week, while the Nikkei has shed more than 3.5 percent.

"Later today in the U.S., J.P. Morgan will release its earnings," said Kenichi Hirano, operating officer at Tachibana Securities in Tokyo. "Then we'll have more earnings next week, and the expectations are not high. If results are disappointing, stocks will sell off, so that makes it difficult to buy now."

Wall Street stocks ended flat on Thursday after gains brought by signs of improvement in the jobs market were erased in part by a drop in Apple shares

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After BAE-EADS: small deals, not mega-mergers

By Andrea Shalal-Esa and Soyoung Kim

WASHINGTON/NEW YORK (Reuters) - The collapse of the proposed merger between BAE Systems Plc and EADS will shift the focus to smaller deals among global weapons makers as companies strive to keep revenue rising in the face of cuts in military spending by the United States and Europe.

Industry executives and bankers do not see other mega-deals on the horizon for now, after the $45 billion UK-French-German talks collapsed on Wednesday. The failure showed how easily a deal of that scale can be derailed by competing interests of different countries, despite commercial logic.

Instead, major defense companies likely will focus on possible combinations with smaller players such as Rockwell Collins , L-3 Communications Holdings Inc , SAIC Inc , ITT Exelis and Harris Corp , according to interviews with more than a dozen industry executives and bankers.

"None of the big players in the global defense industry seem inclined to do mega-mergers similar to the BAE-EADS proposal," said Loren Thompson, a Washington-based defense consultant who has advised BAE's U.S. unit and its competitors.

"The American companies are all at a place where they're not eager to grow in defense and are basically trying to secure their base, while the overseas companies have been chastened in watching the BAE-EADS transaction falter."

It is also unlikely that big U.S. prime defense contractors would bid for BAE Systems, even though the company is considered potentially "in play" after the failed merger, because of the potential complexity, these people said.

EADS said it would continue its aggressive hunt for takeover targets and alliances, especially with U.S. partners, though on a smaller scale than the BAE deal. EADS North America Chief Executive Sean O'Keefe said on Wednesday that EADS remained "undeterred" in its drive to increase its share of the U.S. defense market.

BAE's U.S. unit said it, too, would keep looking for possible mergers in the areas of cyber, intelligence, security, electronics and international businesses.

The scope of consolidation in the defense industry still hinges largely on how the U.S. Congress deals with $1.2 billion in mandatory budget cuts slated to start in 2013. Half of those cuts are for defense, and as long as those reductions threaten, mergers and acquisitions are expected to remain slow.

Worldwide aerospace and defense deals have totaled $5 billion so far in 2012, compared with $27.5 billion in all of 2011, when United Technology's $16.5 billion takeover of Goodrich boosted the total. This year's total also appears low compared with $6.7 billion in deals in 2010.

The effort by BAE and EADS to create the world's biggest aerospace and defense group underscored the effect of shrinking markets on big weapons makers. Many other major companies are scrambling to move into adjacent civilian or commercial markets, or find smaller takeover targets to keep revenues growing, bankers and senior industry executives said.

"Second-tier consolidation is much easier because the Defense Department is not against it," said a banker who requested anonymity, because he is not authorized to speak to the media.

"Had the EADS-BAE deal gone through and created a stronger global entity, clearly it would have increased the likelihood of U.S. consolidation at the prime level," said the banker. "The chances seem lower in the absence of the deal."

The U.S. Department of Defense has discouraged mergers among the leading U.S. prime contractors, but has said it is fully expecting takeovers, mergers and other actions among second- and third-tier suppliers, given the expected decline in defense spending in coming years.

A Pentagon official said last month that the department would have to rethink its views on top-tier mergers if Congress is unable to avert another $500 billion massive military spending cuts on top of the $487 billion in cuts already slated for the next decade.

NEW BAE DANCE PARTNER?

Almost all prime U.S. defense contractors considered merging with BAE Systems at various points in the past, and decided against it, several people familiar with the companies' thinking said.

Most were interested in BAE's North American operations and they remain wary of adding political risk that would come with being the UK government's prime contractor by pursuing the whole company, they said.

"There had been conversations for decades," said a senior industry adviser on condition of anonymity because he was not authorized to speak with the media. "But buying the whole BAE, with golden share and other things like dual-listing, dual-incorporation structure, U.S. guys say it's not worth it."

For its part, BAE Systems has repeatedly said it has no intention of selling the U.S. unit, which contributes more than half of the company's revenue.

BAE officials made clear in recent weeks that any move by the U.S. government to require divestitures as a condition for approving a merger with EADS would have been a deal-breaker.

Some sources cautioned that a new round of merger considerations involving BAE cannot be ruled out, given the challenging defense environment.

But most potential U.S. bidders have their own reasons for why the deal would not make sense right now.

Executives at Lockheed Martin Corp have said privately that they have no plans to pursue BAE, which is a key supplier on its troubled F-35 Joint Strike Fighter program. They say the company is squarely focused on its performance on the F-35, the Pentagon's largest weapons program, and does not need the distraction of integrating a major acquisition.

Boeing Co is more focused on its booming commercial business and expanding its position in the cyber and unmanned systems areas at the moment, according to company executives and analysts.

Raytheon Co's Chief Executive William Swanson has publicly discussed the immense challenges involved in absorbing such a large, complex company.

Northrop Grumman Corp just sold two units, including its lackluster shipbuilding business, to streamline the company, making an acquisition highly unlikely, according to company insiders.

Chief Executive Wes Bush is more focused on creating a high-performing defense company and maintaining profit margins, not acquiring a company whose revenues have been hard hit by the downturn in demand for ground combat vehicles, according to analysts and company executives.

Any combination with General Dynamics Corp could raise antitrust issues, since the General Dynamics and BAE both build the biggest U.S. combat vehicles, and on a global scale, submarines.

General Dynamics also is changing management, with Phebe Novakovic slated to take over as chief executive in January. The company has highlighted the importance of its balanced portfolio of commercial and military businesses, and may be reluctant to add more defense activities to its portfolio at a time when military spending is declining, analysts said.

Pentagon officials were open to a possible merger of BAE and EADS because it would have created a stronger, sixth prime competitor. But the agency could be more wary of a deal that involved a combination with one of the existing primes, some industry executives said.

(Reporting By Andrea Shalal-Esa in Washington and Soyoung Kim in New York; Editing by Alwyn Scott and Tim Dobbyn)

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Eat chocolate, win the Nobel Prize?

REUTERS - Of all the chocolate research out there, the most unabashed tribute to the "dark gold" has to be a study just published in one of the world's most prestigious medical journals.

Drum roll, please. The higher a country's chocolate consumption, the more Nobel laureates it spawns per capita, according to findings released in the New England Journal of Medicine.

The Swiss, of course, lead the pack, closely followed by the Swedes and the Danes. The U.S. is somewhere in the middle and the nation would have to up its cocoa intake by a whopping 275 million pounds (125 million kg) a year to produce one more laureate, said Franz Messerli, who did the analysis.

"The amount it takes, it's actually quite stunning, you know," said Messerli, who runs the hypertension program at St Luke's-Roosevelt Hospital in New York.

"The Swiss eat 120 bars - that is, 3-ounce bars (85 grams) - per year, for every man, woman and child. That's the average."

Messerli admitted the whole idea is absurd, although the data are legitimate and contain a few lessons about the fallibility of science.

He came up with the idea for the study after seeing a study that linked flavonoids, a type of antioxidants present in cocoa and wine, to better scores on cognitive tests. He began with industry data on chocolate intake in 23 countries and a list from Wikipedia ranking countries according to the number of Nobel laureates per capita.

"I started plotting this in a hotel room in Kathmandu, because I had nothing else to do, and I could not believe my eyes," he told Reuters Health. All the countries linked up neatly on a graph, with higher chocolate intake tied to more laureates.

It's not the first time scientists have found correlations that seem to defy all logic - and indeed may. The number of storks across Europe has been linked to birth rates, for instance, and sunspots have been tied to suicides in men.

Another possibility is that the link is real, but meaningless.

"National chocolate consumption is correlated with a country's wealth and high-quality research is correlated with a country's wealth," said Eric Cornell, an American physicist who shared the Nobel Prize for physics in 2001.

"So therefore chocolate is going to be correlated with high-quality research, but there is no causal connection there."

When it comes to chocolate, several researchers have suggested dark varieties might benefit the brain, the heart and even help cut excess weight.

Messerli, who is of Swiss origin, admits to daily chocolate consumption and said that despite the tongue-in-cheek tone, he does believe chocolate has real health effects - although people should stay away from the sweeter kinds.

"Personally I feel that milk chocolate makes you stupid," joked Cornell, who "attributed" his success to the large amount of chocolate he eats.

"Now dark chocolate is the way to go. It's one thing if you want like a medicine or chemistry Nobel Prize, ok, but if you want a physics Nobel Prize it pretty much has got to be dark chocolate."

But other researchers said the evidence is still far from impressive at best.

"Certainly I have never seen anything that has made me start adding (chocolate) to my diet," said Yoni Freedhoff, an assistant professor of family medicine at the University of Ottawa in Canada.

SOURCE: http://bit.ly/8H6vG1

(Reporting from New York by Frederik Joelving at Reuters Health; editing by Elaine Lies)

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Behind bars, Sandusky may face threats and isolation

By Barbara Goldberg

REUTERS - Jerry Sandusky will soon join about 6,700 other convicted sex offenders serving time in Pennsylvania's prison system, where he will be stripped of everything but his wedding band and a cheap watch, work for pennies per hour and likely be placed in protective custody.

Comforts are few, especially for sex offenders, and prison experts sketched a grim picture of Sandusky's days and years ahead after he was sentenced on Tuesday to 30 to 60 years behind bars for sexually abusing 10 boys over 15 years.

The 68-year-old former Penn State assistant football coach will be able to watch the team's games if he purchases a $200 prison-approved television and pays a $15 monthly cable TV bill, according to Susan McNaughton, spokeswoman for the Pennsylvania Department of Corrections.

Otherwise, privileges will be rare for Sandusky, who is now held in solitary confinement at a county jail but will be transferred in about a week to the Camp Hill State Correctional Institution, McNaughton said.

There he will be evaluated to determine which of the 25 state prisons will house him, McNaughton added.

"There are two kinds of people that inmates hate: snitches and people who play with kids," said prison consultant Larry Levine, an ex-convict who launched Wall Street Prison Consultants to advise clients about improving their life behind bars.

"They can't just dump this guy into the general population," Levine said, warning that others prisoners might try to beat or kill him.

Because his conviction as a child molester makes him a target in prison, he will likely be placed in isolation or protective custody, Levine said.

About 6,700 sex offenders are among the population of 51,300 inmates in Pennsylvania state prisons and are not kept in segregated units, according to McNaughton.

McNaughton said any inmate who is assessed as "vulnerable" to violence may be assigned to more-protective housing, either a single cell, a special unit or administrative custody.

"Every inmate's safety is of importance to the DOC, no matter who the offender is," McNaughton said.

When he enters state custody, Sandusky will be allowed to keep only his wedding ring and a watch valued at less than $50, McNaughton said.

He will trade his county-issued red jumpsuit for the state's brown slacks and matching shirt buttoned over a white undershirt, McNaughton added.

If he does not want to wear prison-issued shoes, he can buy Reebok, New Balance or Nike sneakers for $41 to $56 a pair from the commissary, according to McNaughton.

His first roll of toilet paper and deodorant comes with the cell but he will have to buy the rest. The commissary also sells a 28-cent pack of Ramen noodles, which he can prepare with warm water from his cell sink since hot plates are prohibited, McNaughton said.

Every morning at 7 a.m., he will awaken to a cold breakfast and then head for a job that pays 19 to 52 cents an hour, probably as a clerical worker. He will eat two hot meals and get outdoors during two exercise periods, McNaughton added.

Each month, Sandusky will be allowed five visits from a group of up to five people. But if he is kept in protective housing, he will remain separated from his visitors by a glass divider. Pennsylvania does not offer conjugal prison visits, according to McNaughton.

His new prison address could range from State Correctional Institution at Laurel Highlands, where older inmates are sometimes housed because it has a nursing-home capability, to Waymart, which serves inmates who are mentally ill. There is also Rockview, located just down the road from his home in State College, Pennsylvania.

"We don't necessarily plan to place offenders near their families," McNaughton said.

(Barbara Goldberg reported from New York; Editing by Paul Thomasch and Will Dunham)

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Fertilizer maker IFFCO sees potash deals post harvest

By Rod Nickel

REUTERS - Indian fertilizer buyers are unlikely to agree to new potash contracts with the world's two big suppliers until December at the earliest, the head of one of India's biggest fertilizer makers, Indian Farmers Fertiliser Co-operative (IFFCO), said.

Once the crop-growing season wraps up in December in parts of India, buyers like IFFCO will have a better idea of how much of the soil nutrient they need from Canpotex Ltd and Belarusian Potash Company, the off-shore potash marketing agencies for miners in Canada and Russia/Belarus respectively, said U.S. Awasthi, managing director of IFFCO.

IFFCO buys nutrients, including potash, to make into fertilizer products to sell to Indian farmers. Fertiliser makers get an idea of demand once farmers can assess their soils after the harvest.

"It all depends upon completion of our season sometime in November or early December," Awasthi said in an interview with Reuters from the eastern Canadian province of Quebec. "We (will) know really how much product is there and how long it's going to last."

Awasthi said the biggest impediment to negotiating contracts is soft demand from farmers. India will need to pay significantly less than the $490 per tonne of potash that it paid for its most recent contract with Canpotex, which expired earlier this year, he said, before saying later that it's "guesswork" to predict prices.

"Demand is down because of higher prices," he said.

The weakening rupee and a cut in Indian government fertilizer subsidies have made potash more expensive for Indian farmers. Awasthi said he doesn't expect India to restore its potash subsidy levels.

Weak demand from India has contributed to a stockpile of potash among North American producers, which was one-third larger in September than the five-year average. A new Canpotex contract with India had been expected as early as August this year, with some now expecting a deal as late as the first quarter 2013.

India and China buy Canadian potash through contracts renewed roughly annually, unlike other users, including Brazil, which buy on the spot market.

India imports all of its potash.

Potash Corp , Mosaic Co , Agrium Inc

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