A shopper walks down an aisle in a newly opened Walmart Neighborhood Market in Chicago in this September 21, 2011 file photo.

NEW YORK | Fri Jan 18, 2013 1:44pm EST

NEW YORK (Reuters) - Consumer sentiment unexpectedly deteriorated for a second straight month to its lowest in over a year in January, with many consumers citing fallout from the recent "fiscal cliff" debate in Washington, a survey released on Friday showed.

The sharp drop in sentiment over the last two months coincides with rancorous federal budget negotiations that have led to higher taxes for many Americans.

Just weeks after that deal, President Barack Obama and Republican lawmakers are expected to enter another tough round of negotiations over spending cuts, which could dent consumer confidence still further.

"The handling of the fiscal cliff talks and the realization that paychecks are going to be smaller due to the sunset of the payroll tax holiday are probably weighing on consumer attitudes at the moment," said Thomas Simons, a money market economist at Jefferies & Co. in New York.

While most of the scheduled tax hikes and spending cuts forming the fiscal cliff were avoided when Congress struck a deal on January 1, most U.S. workers saw their take-home salary diminished by the expiry of two percentage-point cut in payroll taxes.

"With the debt ceiling yet to be tackled and more political acrimony on the way, we suspect that confidence has room to deteriorate further," Simons said.

The Thomson Reuters/University of Michigan's preliminary reading on the overall index of consumer sentiment came in at 71.3, down from 72.9 the month before. The index was at its lowest since December 2011. It was also below the median forecast of 75 among economists polled by Reuters.

"The most unique aspect of the early January data was that an all-time record number of consumers - 35 percent - negatively referred to the fiscal cliff negotiations," survey director Richard Curtin said in a statement.

"Importantly, the debt ceiling debate is still upcoming and could further weaken confidence," he said.

House Republicans have signaled they might support a short-term extension of U.S. borrowing authority when the government exhausts that capacity sometime between mid-February and early March. A failure by Congress to raise this debt ceiling could result in a market-rattling government default.

On Friday, Republican House Majority Leader Eric Cantor said the House would consider a bill next week to extend the debt limit by three months in order to force the Senate to pass a budget.

U.S. stocks remained little changed after the data. The S&P 500 .SPX hit a five-year high in the last session. But on Friday, a weak outlook from Intel (INTC.O) offset encouraging data out of China and a fourth-quarter profit at Morgan Stanley (MS.N).

So far there has been a disconnect between what consumers say and do. U.S. retail sales increased a better-than-expected 0.5 percent in December. But given the recent weakening in sentiment investors will be watching for any signs that spending is starting to slip.

"The impact on consumers will be from the hike in the social security tax. That is undoubtedly going to hit discretionary spending. So this may be a signal of things to come," said Michael Woolfolk, a senior currency strategist at BNY Mellon in New York.

The consumer survey's barometer of current economic conditions fell to 84.8 from 87.0 and was below a forecast of 88.0. The gauge hit its lowest since July.

The survey's gauge of consumer expectations also slipped, hitting its lowest since November 2011 at 62.7 from 63.8, and was below an expected 65.2.

The survey's one-year inflation expectations rose to 3.4 percent from 3.2 percent, while the survey's five-to-10-year inflation outlook was unchanged at 2.9 percent.

(Additional reporting by Steven C. Johnson and Ellen Freilich; Editing by Andrea Ricci)

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BRUSSELS | Fri Jan 11, 2013 10:24am EST

BRUSSELS (Reuters) - EU officials are to debate a new set of tax proposals to promote clean fuel and erode fiscal advantages that have made diesel relatively cheap, a document seen by Reuters showed.

The Commission has long been seeking to change energy taxation, but some member states have repeatedly thwarted progress and are likely to continue to do so.

Taxation law in the European Union requires the unanimity of all 27 member states, which is almost impossible to achieve.

Luxembourg, for instance, has been generating revenue through particularly low taxes on diesel, meaning vehicles, notably lorries carrying freight, stop in the centrally located nation to refuel.

Ahead of a working party meeting on January 23 that will bring together representatives of member states, an internal European presidency note dated January 9 on minimum rates for energy products revives the idea of taxing fuels according to carbon dioxide emissions and energy content.

For now, fuel is taxed based on volume.

While trying to lower carbon emissions, the Commission, the EU executive, has said it is "fuel neutral" when it comes to setting minimum taxation levels.

Because a liter of diesel contains more energy and more carbon than a liter of gasoline, the changes under discussion, if agreed, could mean minimum tax rates per liter of diesel would eventually be higher than for gasoline.

Currently diesel is cheaper than petrol in nearly all EU states, with Britain a notable exception.

While offering some exemptions, the new proposals would over time provide incentives for sustainable biofuels, as well as natural gas and liquefied petroleum gas (LPG).

DIESEL WORRIES

Diesel use is a major concern for the Commission because the European Union's refineries cannot produce enough of it and the bloc often has to import diesel, while exporting surplus gasoline, sometimes at a loss.

Diesel fumes have also been named as a cancer risk by the World Health Organization.

Earlier this week, Environment Commissioner Janez Potocnik said it was crucial to reduce diesel emissions as part of efforts to improve air quality.

He is pressing to improve the accuracy of vehicle testing because, especially for diesel vehicles, there are major discrepancies between emissions recorded in the laboratory and "real-world" emissions generated in day-to-day use.

Algirdas Semeta, the European commissioner in charge of taxation policy, has sought to fend off potential opposition to any tax changes from diesel-engine giants, such as Volkswagen, saying a slow phase-in would give plenty of time to adapt engine requirements.

Environmental groups agree diesel needs to be taxed more.

A group of non-governmental organizations in December wrote to EU finance ministers in a letter seen by Reuters calling on them "to support a significant increase in the minimum levels of taxation of diesel fuel for transport purposes".

Luxembourg's diesel rates are good for generating revenue for it, but so-called "tank tourism" was negative for the nation's neighbors, said the letter, signed by more than 30 campaign groups.

Environment groups have also raised concerns about whether biofuels classed as sustainable really are.

The European Commission last year approved a scheme that would certify as sustainable transport fuel made from palm oil, which has been condemned by environmental groups as one of the most damaging sources of biodiesel.

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1 of 4. A policeman films his co-workers trying to persuade protesters from gathering near the Beijing Olympic Tower December 22, 2012.

SHANGHAI | Sat Dec 22, 2012 2:07am EST

SHANGHAI (Reuters) - As the end of middle school approached this year, Zhan Haite, 15, faced two choices: attend vocational school in Shanghai in the fall or move to her ancestral home in distant Jiangxi province to take the high school entrance exam and study there.

Taking the test and going to senior high school in cosmopolitan Shanghai, where she had lived since she was four, was not an option.

Zhan is one of millions of children whose parents belong to China's vast migrant workforce and are barred from taking senior high school or college entrance exams where they live by half-century-old policies on household registration, or hukou.

The hukou system has split China's population in two for decades, affording different privileges and opportunities to urban and rural residents. It is a major challenge for China's new economic policymakers under Premier-in-waiting Li Keqiang as they try to push urbanization as an engine of growth.

Not content with her choices, Zhan launched a microblog in May where she argued her case online, igniting a heated national debate.

In the process, she has become the poster child for a loose-knit but growing campaign for equal education opportunities.

"She is, of course, very important because she is a victim, and all along we have been hoping one of the children who have been hurt by these policies would stand up and represent all the victims so that the community more broadly can pay attention to the issue," said Xu Zhiyong, a Beijing civil rights lawyer, who has campaigned for people like Zhan.

Zhan, who has been home schooling since May, seems comfortable in the role.

"I am representative of students like me, our needs, our hopes," she said in her the two-bedroom apartment where she lives with her parents, grandmother, brother and sister.

"People should be able to take the tests where they study. There is no need to debate this."

SECOND-CLASS CITIZENS

But there has been debate, and people have taken to the streets. Beijing police on Saturday broke up a small protest and detained some of the demonstrators calling for hukou reform.

"We are doing this for the right of our children to an education," one of the protesters, who gave his family name as Tie, told Reuters on a freezing street.

"We want them to get rid of these restricting rules on household registration and give equal rights to education. We will keep fighting for it," he added.

For as long as there have been migrants after market reforms started more than three decades ago there have been complaints about the hukou system's inadequacies. Discussion of hukou reform has circulated for years, but steps have been cautious.

China's 230 million migrant workers have been the oarsmen of the world's second-biggest economy but have long been treated as second-class citizens with unequal access to education, health and other services tied to official residence status.

The education issue has been particularly divisive.

Zhan's father, Zhan Quanxi, was detained for several days this month after publicly protesting for education rights in central Shanghai, but criminal charges were dropped.

Still, his online posts have been met with sharp criticism from Shanghai hukou holders, some of whom have claimed to be part of a "Shanghai Defence Alliance".

The verbal mud slinging reflects a battle over turf in big cities where high school seats can help students get into top universities, said Ralph Litzinger, an anthropology professor at Duke University who studies Chinese migrant issues.

"In an increasingly stratified and almost insanely competitive society, of which the rural-urban hukou system is one part, Zhan Haite's case is ultimately, in my view, about uncertain and unpredictable Chinese futures," he said.

(Additional reporting by Maxim Duncan and Ben Blanchard in BEIJING; Editing by Nick Macfie)

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