WASHINGTON | Thu Aug 9, 2012 3:46pm EDT

WASHINGTON (Reuters) - State retirement systems continued to rebound in 2011, with cash and investment holdings rising 14.6 percent to $2.5 trillion, the U.S. Census reported on Thursday.

"The 2011 earnings reached pre-market downturn levels, showing a 2.1 percent increase from 2007," the Census found, noting it was the second consecutive year of gains.

The increase from 2010, however, is likely not enough to substantially narrow states' yawning pension gaps. According to the Census, total pension obligations increased 3.7 percent in 2011 to $3.4 trillion.

Earlier this summer, the Pew Center on the States estimated pension systems were short $757 billion to pay for future benefits, based on data for the fiscal year that ended June 30, 2010.

"To close the pension gap, the rate of growth in assets needs to exceed the rate of growth in liabilities," said Keith Brainard, research director the National Association of State Retirement Administrators. "And really for the last 11 years, due to crummy investment markets, the liabilities, or the obligations, have been growing faster than assets."

Taxpayers worry that states, which for the most part are bound by law to make good on retirement promises to employees, will have to pull money from essential services to cover pension benefits. Employees, meanwhile, are alarmed that they will see greatly diminished retirement payments, which is especially troubling to those in states where public workers do not receive Social Security benefits.

"States have been digging themselves into this pension hole for some time," Kil Huh, Pew's research director, said in a presentation to the National Conference of State Legislatures on Wednesday.

The fight over the underfunding of public pensions has engulfed most of the country. Over the last three years almost all states have reformed their pension systems while members of the U.S. Congress have floated different ideas for reshaping the plans' financial structures.

Historically, many states made contributions to their retirement systems that were far less than what actuaries recommended. When the 2007-09 economic recession hit revenue hard, states pulled back pension funding even further. Meanwhile, the financial crisis blew a hole in the funds' investment earnings, with those investments losing $511.5 billion in 2009.

According to the Census, the 2011 growth in assets was fueled by investment gains, in the United States and abroad.

Pension revenue increased by almost a third over the year, to $516.5 billion, with earnings on investments rising $410.6 billion in 2011, the Census reported. Investments provide the lion's share of public pension revenue -- representing 79.5 percent of total revenue in 2011.

The Census found that corporate stock investments, which made up 34.3 percent of the funds' total holdings in 2011, increased 13.8 percent to $873.2 billion, while foreign securities, representing 17.5 percent of holdings, were up 24.1 percent to $446 billion. U.S. government securities, 8.1 percent of holdings, were up 7.4 percent to $206.6 billion.

Only corporate bonds decreased, dropping 2.1 percent to $349.7 billion.

Still, government contributions to pensions, essentially the taxpayers' portion, also rose, by 10.7 percent to $71.7 billion in 2011. Employee contributions were up 3 percent to $34.2 billion.

Many states have recently asked employees to put more money into retirement systems, but those amounts are "being offset by lower employment, which is fewer people paying in," said Brainard. "And those who are paying in, their salaries are not growing in any meaningful way."

State and local payrolls have shrunk by about 3.5 percent over the last four years, while the salaries used to determine pension contribution amounts are growing around 1 percent a year, according to Brainard. Before the recession, employee pension contributions grew closer to 5 percent or 6 percent a year.

No one can say for certain that pension assets have continued to rise in 2012. Recent Census and private reports show that their investments are struggling, with Wilshire Associates on Monday reporting public pension investments had a median loss of 1.73 percent in the second quarter.

Ultimately, pension reforms have required employees to take less in benefits or pay more into the systems, or on some occasions, do both. The effects of the reforms could take years to show up in funds' balance sheets, especially because many only apply to new employees.

BENEFIT PAYMENTS INCREASE

The Census found that benefit payments increased 8.2 percent to $176.8 billion in 2011. The number of those receiving benefits also rose, by 4.4 percent to 7.33 million people.

"For every beneficiary receiving periodic benefit payments there were almost twice as many contributors paying into pension systems in 2011," the Census reported, although in Nebraska and Texas there were around three workers putting money into the retirement systems for every beneficiary.

The average annual benefit payment for state-administered pensions across the country was $24,137. Connecticut had the highest average annual benefit, $37,954, and five other states -- Colorado, Massachusetts, California, Rhode Island and Nevada -- had annual payments of more than $30,000.

Twenty states had average annual benefit payments of less $20,000, with North Dakota the lowest at an average of $14,311.

(Additional reporting by Karen Pierog in Chicago; Editing by Leslie Adler and Steve Orlofsky)

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Israeli soldiers guard the border with Egypt at the Kerem Shalom crossing, a military zone where the borders of Israel, Egypt and Gaza intersect, and where an Egyptian military vehicle that was seized by Islamist gunmen tried to storm the border into Israel on Sunday, August 8, 2012.

CAIRO | Thu Aug 9, 2012 5:10am EDT

CAIRO (Reuters) - Egyptian police fought gunmen in northern Sinai's main town of al-Arish on Thursday, state television reported, a day after security forces began a crackdown on Islamist militants in the region.

"Clashes resumed between armed men and police forces in front of police station number two in al-Arish," Nile News television reported, citing its correspondent there.

It did not identify the gunmen. No further details were available and security officials could not immediately be reached for comment. A Reuters correspondent in al-Arish said the town was now calm after the reported clashes.

The army's security sweep follows an attack on border guards on Sunday by gunmen who then stormed through an Israeli border crossing. Israel said it was a "wake-up call" for Egypt to take a firmer grip on a region threatened by growing lawlessness.

Egyptian aircraft struck at suspected militant targets near the border and troops raided villages on Wednesday after Sunday's attack in which 16 Egyptian border guards were killed.

The Egyptian army was bringing in extra troops, tanks and other armored vehicles to al-Arish on Thursday to expand the security operation, a security source said.

(Reporting by Yasmine Saleh; Additional reporting by Yusri Mohamed; Writing by Tom Pfeiffer; Editing by Alistair Lyon)

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HEFEI, China | Thu Aug 9, 2012 5:14am EDT

HEFEI, China (Reuters) - China's most politically sensitive trial in three decades ended in just about seven hours on Thursday after the wife of ousted Politburo member Bo Xilai did not contest charges of murdering a British businessman, a court official said.

A verdict will be delivered at a later date.

The official's account of the closed-door hearing in the eastern Chinese city of Hefei signals that Gu Kailai and a family aide are sure to be convicted in a case that has ended her husband's career and rocked China's leadership.

"The trial finished this afternoon and the court adjourned," official Tang Yigan told reporters. "The trial committee will announce the verdict after discussion. The date of the verdict will be announced.

"The accused (Gu) Kailai and Zhang Xiaojun did not raise objections to the facts and the charges of intentional homicide."

Gu's trial is seen by many Chinese as part of a push against Bo, an ambitious populist who made powerful enemies as he campaigned to join the next generation of top central leaders.

Bo was formerly considered a contender for the inner sanctum of power - the party's Politburo Standing Committee - in a once-in-a-decade leadership transition that is currently underway. The new leadership is expected to be unveiled in October.

Gu and her co-accused were charged with poisoning Briton Neil Heywood, a family friend, last year. The official said the court was told Zhang, the family aide, had put poison in a drink of water that Gu then gave to Heywood who was drunk at the time.

His body was found last November in a hotel in Chongqing, the city where Bo was the Communist Party chief.

Gu and Zhang face the death penalty if convicted. But many legal experts expect Gu will be convicted but only sentenced to a lengthy jail term.

Entry to the courtroom, in the capital of Anhui province, was restricted but two British diplomats were invited to be present because of the nationality of the victim. Journalists were not allowed in.

As the trial took place, police dragged away two Bo supporters into an unmarked car after they had appeared outside the courthouse, singing patriotic songs that were the trademark of Bo's populist leadership style and condemning the trial as a sham.

"I don't believe it. This case was decided well in advance," Hu Jiye, a middle-aged man wearing a T-shirt and baseball cap, told foreign reporters at the rear of the court building, which was cordoned off by dozens of police standing in heavy rain.

Hu and his friend were then shoved by plainclothed police into a car. His companion, also a middle-aged man, struggled, yelling "Why are you taking me? Why are you taking me?"

INTERNET CHATTER CENSORED

State censorship of Internet chatter on the trial was swifter than normal on Thursday, with users of China's popular Twitter-like service Sina Weibo playing cat and mouse with censors to discuss the case, using word play to try and get around the controls.

Gu, herself a career lawyer, was defended by a state-appointed lawyer with meager experience in criminal cases, leaving little doubt she will be convicted.

The state has decided who will represent Gu, denying her the use of a family lawyer - a move that has also prompted Gu's 90-year-old mother, Fan Xiucheng, to recently complain to the Justice Ministry, according to a source close to the family.

"The answer (from the ministry) was that the legal process did not have to be fully carried out in this case and that Fan should stop pestering them," the source said.

The trial of Gu, glamorous daughter of the ruling Communist Party aristocracy, is the most sensational since the conviction of the Gang of Four more than 30 years ago for crimes during the 1966-76 Cultural Revolution.

But despite British calls for the case to be handled fairly and to unearth the truth around Heywood's death, her defense has instead been entrusted to two provincial lawyers.

The two lawyers, Jiang Min and Zhou Yuhao, could not be reached for comment but a search of public information shows the more senior attorney, Jiang, is a specialist in financial cases and that neither has any obvious connection to the Bo family.

A newspaper profile of Jiang from 2005, which was posted on Jiang's own website, quoted him as saying that he was "an expert in financial law, who rarely conducts criminal defenses", although he has represented some officials accused of corruption in the more than 20 years he has been practicing law.

Little is known of Gu's other lawyer, Zhou, except that he, like Jiang, is from Anhui province. Provincial capital Hefei is a bustling city more than 1,000 km (650 miles) east of the scene of the alleged crime - Chongqing, the vast municipality formerly ruled by Bo.

GREEDY WIFE OR PROTECTIVE MOTHER?

Police sources initially claimed Gu had poisoned Heywood in a dispute over an illicit financial transaction she had wanted him to help her complete, and they portrayed Gu as a greedy wife who was translating her husband's connections into dollars.

But when Gu was formally indicted, the official allegation instead hinted at a personal motive, saying Heywood had made unspecified threats against her son Bo Guagua, a factor that may count as a mitigating circumstance and help Gu avoid execution.

The younger Bo, who is believed to be still in the United States after graduating from Harvard this summer, told CNN in an e-mail that he had submitted a witness statement to the court.

"I hope that my mother will have the opportunity to review them," he added. "I have faith that facts will speak for themselves." CNN said he did not elaborate.

The trial and sentencing of both Gu and Zhang are widely seen as a prelude to a possible criminal prosecution of Bo, who is being detained for violating party discipline - an accusation that covers corruption, abuse of power and other misdeeds.

Bo, who was a favorite of party leftists by promoting himself as a friend of the poor and an enemy of corruption, was sacked as Chongqing party chief in March after his police chief, Wang Lijun, identified Gu as a suspect in Heywood's death.

On Thursday morning, there was no sign of Gu's elderly mother, nor of any members of Heywood's family in or around the courtroom.

(Additional reporting by Chris Buckley, Benjamin Kang Lim and Ben Blanchard in BEIJING; Writing by Mark Bendeich; Editing by Raju Gopalakrishnan)

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U.S. President Barack Obama greets members of the audience after delivering remarks at an election campaign fundraiser in Stamford, Connecticut, August 6, 2012.

WASHINGTON | Wed Aug 8, 2012 8:15pm EDT

WASHINGTON (Reuters) - Americans are increasingly pessimistic about the future but voters do not seem to be holding it against Democratic President Barack Obama, who slightly expanded his lead over Republican rival Mitt Romney this month, a new Reuters/Ipsos poll says.

Three months before the November 6 presidential election, nearly two-thirds of Americans think the country is moving in the wrong direction. Only 31 percent say it is moving in the right direction - the lowest number since December 2011.

But Obama's lead over Romney among registered voters was 49 percent to 42 percent, up slightly from the 6-point advantage the president held a month earlier over the former Massachusetts governor.

The results of the monthly poll - in which a majority of voters agreed that the economy is the most important problem facing the United States - suggest that the Obama campaign's efforts to paint Romney as being out of touch with the concerns of middle-class Americans could be preventing the Republican from gaining momentum in the race.

"The overall 'right track, wrong track' is worse than last month - the news hasn't been great lately," said Ipsos pollster Chris Jackson. "But Obama seems to be, to some extent, inoculated against some of the worst of that."

The telephone poll of 1,168 adults, including 1,014 registered voters, was taken from August 2 to August 6. During that period, the Labor Department reported that U.S. employers hired the most workers in five months but that the nation's jobless rate had risen to 8.3 percent from 8.2 percent.

Even so, in a reversal from July, registered voters thought Obama was stronger than Romney in dealing with jobs and the economy, and with tax issues.

The poll indicated that 46 percent of registered voters thought Obama was stronger on jobs and the economy, compared with 44 percent for Romney. And on tax matters, 49 percent saw Obama as stronger, compared with 38 percent for Romney.

In an advertising blitz that has been focused on a dozen politically divided states, Obama and his Democratic allies have been hammering Romney's record as a private equity executive at Bain Capital, accusing him of plundering companies and shipping jobs overseas.

'KITCHEN SINK' STRATEGY

The Obama team's ads also have questioned why Romney - who has an estimated fortune of up to $250 million - will not release more than two years of tax returns, and have suggested that Romney has paid far lower tax rates than most Americans.

"The Democrats' current strategy of just pummeling Romney on Bain and on the economy has been kind of a kitchen sink thing," Jackson said. "Even if it's not necessarily hurt Romney, it's given him no opportunity to build a lead."

Obama's new lead on the issue of jobs and the economy is particularly significant, Jackson said.

"That is the key issue in this race," he said. "For Romney to be able to make a convincing argument and to win the election, he's going to have to have a fairly significant lead over Obama on that measure."

Jackson said Romney - who has based his campaign on the notion that he would be better than Obama at dealing with the economy - likely needs to have at least a 5- to 8-point lead over Obama on the jobs and economy issue to win the election.

"There's certainly no case at the moment that Romney's building some sort of momentum toward victory here," Jackson said.

The Reuters/Ipsos survey, conducted over landline and cell phones, has a margin of error of 3 percent for all adults and 3.4 percent for registered voters.

(For the full poll, please click on the following link: here)

(Editing by David Lindsey and Vicki Allen)

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* Shareholder equity ratio at 2.2 pct in June vs 4.6 pct in March

* Keeps full-year operating profit outlook at 50 bln yen

* Shares drop 2.2 pct ahead of results

TOKYO, Aug 9 (Reuters) - Japan's Olympus Corp suffered a further deterioration in its ability to meet financial obligations as quarterly earnings slumped, adding pressure on the scandal-hit company to enter into a capital deal.

Shareholders' equity fell to 2.2 percent of total assets in June from 4.6 percent in March, the company said on Thursday. That takes Olympus further away from the 20 percent level widely regarded by analysts as indicative of financial stability.

Olympus needs a capital injection before its business year ends in March 2013, Senior Executive Managing Officer Yasuo Takeuchi told reporters at a briefing.

The 93-year-old manufacturer of cameras and medical equipment has held talks with several Japanese companies including FujiFilm Holdings and Sony Corp on a capital tie-up as it tries to mend its severely depleted balance sheet hit by a massive accounting scandal last year.

Olympus booked a 60 percent slump in operating profit to 2.12 billion yen ($27.05 million) for April-to-June as an operating loss at its camera division and a stronger yen offset a profit gain at its medical equipment division.

The company kept its full-year operating profit forecast at 50 billion yen.

Olympus posted a net loss of 49 billion yen in the year ended March 31, after admitting in November to a decade-long scheme of falsifying financial statements and hiding investment losses.

The company has promised investors it will boost its shareholders' equity ratio to 30 percent in five years. To raise it to 10 percent, Olympus said it needs to find some 50 billion yen in fresh capital.

Sources familiar with the matter have said Olympus is in final talks with Sony to accept a cash injection in return for a stake, while medical device maker Terumo Corp said last month it is seeking to form a joint holding company with Olympus as part of a 50 billion-yen capital infusion plan.

Olympus maintained on Thursday that it is in talks with several companies on financial support.

In an unusual turn of events, Terumo slapped its potential partner with a lawsuit last week for failing to disclose its accounting fraud before signing a business and capital tie-up with the medical equipment maker seven years ago.

In a regulatory filing on Thursday, Olympus said it expects creditors to continue providing loans despite the fact that misreported financial statements in the past meant it had violated covenants on some loans.

Shares in Olympus settled 2.2 percent lower before the earnings announcement. Tokyo's benchmark Nikkei average rose 1.1 percent. ($1 = 78.3600 Japanese yen) (Reporting by Mari Saito; Editing by Ryan Woo)

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* Rebels use captured tank to attack airbase

* Military airfield could be used to reinforce Aleppo

* Damascus district under government attack

By Hadeel Al Shalchi

ALEPPO, Syria, Aug 2 (Reuters) - Syrian rebels turned the gun of a captured tank against government forces on Thursday, shelling a military airbase expected to be used as a staging post for army reinforcements in the battle for Aleppo.

President Bashar al-Assad's troops meanwhile bombarded the strategic Salaheddine district in Aleppo itself with tank and artillery fire while rebels tried to consolidate their hold on areas they have seized.

In the capital Damascus, troops overran a suburb on Wednesday and killed at least 35 people, mostly unarmed civilians, residents and activist organisations said.

The fighting for Syria's two biggest cities highlights the country's rapid slide into full-scale civil war 17 months on from the peaceful street protests that marked the start of the anti-Assad uprising.

World powers have watched with mounting concern as diplomatic efforts to find a negotiated solution have faltered and violence that has already claimed an estimated 18,000 lives worsens.

More than 180 people were killed in Syria on Wednesday, 133 of them civilians and 45 of them members of Assad's forces, according to the opposition Syrian Observatory for Human Rights.

The rebels' morale was boosted when they turned a government tank's gun on the Menakh airbase 35 km (25 miles) north of Aleppo - a possible staging post for army reinforcements.

"We hit the airport using a tank that we captured from the Assad army. We attacked the airport a few times but we have decided to retreat at this time," a rebel fighter named Abu Ali told Reuters.

The pro-opposition Observatory said government forces at the airbase had used artillery and rocket launchers to bombard the town of Tel Rifaat, which lies between the airbase and Aleppo, Syria's commercial centre.

Reuters correspondents heard heavy weapons fire on Thursday morning from Salaheddine in southwest Aleppo, a gateway to the city of 2.5 million people that has been fought over for the past week.

Heavily armed government troops are trying to drive a force of a few thousand rebel fighters from the city in battle whose outcome could be a turning point in the conflict.

Although government forces have made concerted efforts to take Salaheddine, a full-out assault on the city as a whole has yet to take place.

Mobile phone connections have been cut since Wednesday evening, leading to speculation among residents that an increase in military action might be imminent.

The rebels are consolidating areas they control in Aleppo, attacking police posts and minor military installations with some success. They claim to have seized three police stations this week.

NEW ATROCITIES ALLEGED

In Damascus, still a government stronghold but a scene of combat in the past two weeks, government troops faced new accusations of atrocities after they overran a suburb on Wednesday.

"When the streets were clear we found the bodies of at least 35 men," a resident, who gave his name as Fares, said by phone from Jdeidet Artouz, southwest of Damascus.

"Almost all of them were executed with bullets to their face, head and neck in homes, gardens and basements."

Syrian state television said "dozens of terrorists and mercenaries surrendered or were killed" when the army raided Jdeidet Artouz and its surrounding farmlands.

In a rallying cry to his troops on Wednesday, Assad said their battle against rebels would decide Syria's fate.

But his call-to-arms, in a written statement, gave no clues to his whereabouts two weeks after a bomb attack on his inner circle.

Assad, who succeeded his late father Hafez 11 years ago to perpetuate the family's rule of Syria, has not spoken in public since the bombing in Damascus killed four of his close security aides, although he has appeared in recorded clips on television.

His low public profile has fuelled speculation about his grip on power since the attack in which his brother-in-law died.

FOOD RUNNING SHORT

The fighting in Salaheddine district, part of a rebel-held arc stretching to the northeast of Aleppo, has left neither side in full control.

On Al-Sharqeya Street, residents and shop owners looked in awe at the damage. Some searched through what was left of their buildings - huge piles of concrete and twisted metal.

"I saw death before my eyes," said Abu Ahmed as he abandoned his home. "I was hiding in the alleyway of my building when I heard the whiz of the artillery. Look at my street now."

They said the damage was caused by helicopter fire targeting a rebel brigade based in a school. It missed the school and hit the residential buildings instead.

"This dog Assad and his men are so blind they can't even target a brigade properly," said Abu Ahmed, waving a plastic bag with his meagre belongings inside.

State television said on Wednesday the army was pursuing remaining "terrorists" in one Aleppo district and had killed several, including foreign Arab fighters.

Some foreign fighters, including militant Islamists, have joined the battle against Assad, who accuses outside powers of financing and arming the insurgents.

Aleppo had long stayed aloof from the uprising but many of its 2.5 million residents are now caught up in battle zones, facing shortages of food, fuel, water and cooking gas. Thousands have fled and hospitals and makeshift clinics can barely cope with casualties after more than a week of combat.

"The humanitarian situation is deteriorating in Aleppo and food needs are growing rapidly," said the World Food Programme, announcing plans to send emergency food supplies for up 28,000 people.

The U.N. Food and Agriculture Organisation said up to three million Syrians are likely to need food and other aid in the next 12 months because the conflict has prevented farmers from harvesting their crops.

U.S. SUPPORT

In a shift toward increased foreign involvement in the war, U.S. President Barack Obama signed a secret order authorizing American support for the rebels, according to U.S. sources familiar with the matter.

The order, approved earlier this year, broadly permits the CIA and other U.S. agencies to provide support that could help the rebels oust Assad.

The lightly armed insurgents are battling a well-equipped army that has overwhelming superiority on paper. But the rebels have managed to capture some tanks and heavy weapons and their ranks are swelled by army defectors.

The rebels, however, are united mostly by loathing of Assad, and have failed to come together despite pressure from the West, Turkey and Sunni-ruled Arab states who back their cause.

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1 of 3. An exterior view of the Standard Chartered headquarters is seen in London August 7, 2012.

WASHINGTON/LONDON | Wed Aug 8, 2012 8:14pm EDT

WASHINGTON/LONDON (Reuters) - Cowboy local regulator or the exposer of lax federal bureaucrats?

That's the key question being asked about New York banking regulator Benjamin Lawsky after his explosive charge that London's Standard Chartered bank abetted $250 billion of money-laundering transactions with Iran.

Standard Chartered won help Wednesday from Britain's central bank governor, who portrayed Lawsky as marching to his own tune, and marching out of step with federal regulators in Washington. "One regulator, but not the others, has gone public while the investigation is still going on," the Bank of England's Mervyn King said at a news conference in London.

The U.S. Treasury Department, in a letter responding to a request for clarification from British authorities, said it takes sanctions violations seriously.

The British bank lost over a quarter of its market value in 24 hours after Lawsky, the head of New York State's Department of Financial Services, threatened Monday to cancel Standard Chartered's state banking license, which is critical for dealing in dollars. Lawsky called Standard Chartered a "rogue institution" for breaking U.S. sanctions against Iran.

Standard Chartered shares bounced 7.1 percent on Wednesday to close in London at 13.15 pounds, up from a three-year low of 10.92 hit on Tuesday. They were still down 18 percent since the regulator's threat, which Chief Executive Peters Sands said was "disproportionate" and came as a "complete surprise."

Meanwhile, Reuters Breakingviews reported that the U.S. Federal Reserve has asked Standard Chartered's New York office to report in every few hours on its liquidity position, according to people familiar with the situation. The concern is that the possibility of Standard Chartered losing its New York license could spook trading counterparties or depositors, although there is no suggestion that this is happening, Breakingviews said.

The bank's top executives, some like Sands scrambling back from summer vacations, worked on a defense strategy. So far, the executives have contested the regulator's figures and his interpretation of the law, but they have given little further detail. The bank says only a tiny proportion of its Iran-related deals - less than $14 million - was questionable under U.S. sanctions rules.

Sources told Reuters that federal banking regulators in Washington, who had been probing Standard Chartered's Iran-related deals for more than two years, were surprised by the timing of Lawsky's charges and the stridency of his language.

Lawsky's Department of Financial Services had come to the conclusion the case was getting old and that it wanted to move forward, a person with knowledge of the situation said. The department told other agencies at a meeting in April that it planned to move forward with the case, the person said.

Members of Lawsky's office met representatives of Standard Chartered around May but did not inform the bank it planned to issue an order against it, the person said.

"This is a case about Iran, money laundering, and national security," Lawsky said in a statement on Wednesday. "We will continue to work closely with our law enforcement partners, both federal and state, in this effort. No bank, big or small, foreign or domestic, is above the law."

In Washington, Adam Szubin, director of the Treasury Department's Office of Foreign Assets Control, said in a letter to British authorities that his office is investigating Standard Chartered for "potential Iran-related violations as well as a broader set of potential sanctions violations."

The letter, which was dated Wednesday and obtained by Reuters, came in response to a British request for clarification of U.S. sanctions laws. Although much of the letter focused on so-called U-turn transactions, which are at the center of New York's allegations, the letter said it was not a comment on Lawsky's action.

The alleged U-turn transactions refer to money moved for Iranian clients among banks in the United Kingdom and Middle East and cleared through Standard Chartered's New York branch, but which neither started nor ended in Iran.

In London, King drew unfavorable comparisons between the handling of this case and other U.S. actions against British banks, such as the investigation of interest rate manipulation at Barclays PLC.

In the Barclays case, he said, all regulators in Britain and the United States produced coordinated reports after the investigation was complete.

"I think all the UK authorities would ask is that the various regulatory bodies that are investigating the particular case try to work together and refrain from making too many public statements until the investigation is completed," King said.

Standard Chartered's Sands, in his first public comments since the crisis arose, offered no major new information on the allegations, which the bank has been reviewing with authorities for the past two years.

"(We) fundamentally reject the overall picture and believe there are no grounds for them to take this action," he told reporters. The threat to cancel the bank's license to operate in New York would be "wholly disproportionate," he said.

Although Standard Chartered's business is concentrated in emerging markets, which has helped insulate it from the global financial crisis, it needs to be able to operate in New York so it can offer dealings around the world in U.S. dollars.

Also on Wednesday, Deloitte LLP, which was accused in Lawsky's order of wrongdoing in its role as an outside consultant to Standard Chartered, denied any misconduct. Deloitte was hired by Standard Chartered after U.S. authorities reprimanded the bank for similar lapses on transactions in 2004.

"Deloitte had no knowledge of any alleged misconduct by any Standard Chartered Bank employees and categorically denies that it aided in any way any violation of law by the bank," the firm said in a statement.

Specifically, Deloitte said it "absolutely did not delete" references to transactions from a report, contrary to an allegation in Lawsky's order.

CURSING THE AMERICANS

On Monday, Lawsky had reproduced what he said were quotes from an unidentified Standard Chartered executive director in a conversation in 2006 that demonstrated the bank's "obvious contempt" for U.S. banking regulations.

"You f---ing Americans. Who are you to tell us, the rest of the world, that we're not going to deal with Iranians?" the quote was rendered in documents released by the regulators.

People familiar with the situation said the bank's group finance director, Richard Meddings, one of five executive directors at the time, was the unnamed man.

Ray Ferguson, a bank executive who attended that meeting, told Reuters that while Meddings had used the expletive in a heated exchange, he did not, to his recollection, say the second part of the quote attributed to him about U.S. sanctions.

Meddings did not respond to repeated requests for comment.

Asked for the bank's view on the quote, Sands said: "We don't believe it's accurate." He defended the ethics of the bank, which he has run for six years: "I don't think there is anything wrong with the culture at Standard Chartered,"

Calling the allegations "very damaging", he said he would address "mistakes" that had been "clearly wrong", but said: "There were no systematic attempts to circumvent sanctions."

The BoE's King said he did not share the view held by some that the move in New York was part of a concerted U.S. effort to undermine London as a financial center, following the Barclays probe and a U.S. Senate panel report that criticized HSBC Holding's efforts to police suspect transactions.

One British lawmaker, however, said the affair was part of a "political onslaught" in the United States against British banks.

"I think it's a concerted effort that's been organized at the top of the U.S. government. I think this is Washington trying to win a commercial battle to have trading from London shifted to New York," said John Mann, a member of parliament's finance committee, who also called for a parliamentary inquiry.

(Additional reporting by Nate Raymond, Patrick Temple-West, Sinead Cruise, Kelvin Soh, Anjuli Davies and Sarah White; Writing by Eddie Evans; Editing by Leslie Adler)

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Hard-edged reporting, insight and analysis, Reuters TV breaks ground creating informative news and financial videos. Showcasing Reuters’ 3000 award-winning journalists, Reuters TV delivers high-energy investigative journalism with concise explanations. Check it out and let us know what you think.

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Wed Aug 8, 2012 8:01pm EDT

n">(Reuters) - Pilots at AMR Corp's American Airlines rejected a tentative contract from the carrier by a wide margin on Wednesday, leaving a major issue unresolved with the bankrupt airline's most powerful employee group.

Failure to reach a consensual labor deal is a blow to American's efforts to develop a standalone reorganization plan, which relies on slashing debt and labor costs to return to profitability.

The development comes as the third-largest U.S. carrier has begun to review potential mergers, including a deal with US Airways Group, to determine whether merging with a rival will generate more recoveries for American's creditors than going it alone.

American's pilots and two other key labor groups have already declared their support for US Airways' proposal to merge with the larger rival. The groups each have a seat on American's nine-member unsecured creditors committee and have a say in how American restructures in bankruptcy.

Pilots could face stricter terms should the judge overseeing American's bankruptcy case now allow the carrier to end its current contract with the pilots union.

"We are disappointed with the outcome of today's voting results, as ratification of the pilot tentative agreement would have been an important step forward in our restructuring," American Airlines spokesman Bruce Hicks said in a statement.

He added the company must now await a ruling that will let it "implement the changes necessary to move forward with our restructuring." Bankruptcy rules give companies the right to abandon collective bargaining agreements and impose their own terms unilaterally.

The Allied Pilots Association said 61 percent of pilots that voted, or 4,600, rejected the tentative contract while 2,935 pilots voted in favor. The agreement, which included pay increases and the offer of a 13.5 percent equity stake in the New American, represented the carrier's best and last offer to pilots after years of unsuccessful talks.

Gregg Overman, a spokesman for the pilots union, said the decisive rejection of American's offer reflected "serious frustration" among pilots who want a better deal.

"Our pilots made significant concessions in 2003, they looked at those concessions as an investment and at this point, they believe their investment was squandered," he said.

Overman said the union expects to return to the bargaining table at some point, but does not know when that might happen.

Resolving labor issues would allow American Airlines to shift focus to its planned emergence from bankruptcy and whether it will do so alone or as part of a merger. Last month, the carrier began sending non-disclosure agreements to potential merger partners.

Also on Wednesday, the Transport Workers Union said two of its factions that represent mechanics and store clerks at American approved contract agreements that reduce concessions AMR had asked for.

Workers in mechanics and related classifications approved their agreement by a vote of 50.25 percent to 49.75 percent, the TWU said. The stores employees, who work closely with mechanics handling inventory and materials for plane maintenance, voted 79 percent to 21 percent in favor.

"Nobody is happy with a concessionary agreement, and our members are still waiting to see a business plan that instills confidence," TWU International President James Little said in a statement.

But Little added the current result was "a lot better than what our members would have faced with a court-imposed solution."

American Airlines is seeking just over $1 billion in cost cuts from its unions annually, a key factor in its decision to seek Chapter 11 protection from creditors last November.

US Airways President Scott Kirby said in April that his company's plan would cut from labor only the amount necessary to bring the company in line with industry standards -- about $800 million.

From the unionized pilots, US Airways is seeking $240 million in cuts, while AMR would cut $315 million from that group.

(Reporting by Karen Jacobs, Soyoung Kim and Nick Brown; Editing by Gerald E. McCormick, Gary Hill)

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