U.S. House Speaker John Boehner (R-OH) arrives to speak to the media on the ''fiscal cliff'' on Capitol Hill in Washington, December 21, 2012.

WILLIAMSBURG, Virginia | Fri Jan 18, 2013 2:59pm EST

WILLIAMSBURG, Virginia (Reuters) - House Republican leaders on Friday said they would seek to pass a three-month extension of federal borrowing authority next week to buy time - on pain of losing their own paychecks - for the Democratic-controlled Senate to pass a budget plan that shrinks budget deficits.

The plan, hatched at a House Republican retreat, marks a new strategy from the party to break a budget deadlock by forcing the Senate to act first.

The Treasury needs congressional authorization to raise the current $16.4 trillion limit on U.S. debt sometime between mid-February and early March.

The Senate has not passed a formal budget resolution in nearly four years, while the House has passed budgets that have died in the Senate.

Under the planned legislation, House Majority Leader Eric Cantor said if the Senate or the House fail to pass a budget by April 15, lawmakers' pay would be withheld.

"Next week, we will authorize a three-month temporary debt limit increase to give the Senate and House time to pass a budget," Cantor said in an emailed statement.

"If the Senate or House fails to pass a budget in that time, members of Congress will not be paid by the American people for failing to do their job. No budget, no pay," he said on the last day of a House Republican retreat in Williamsburg.

U.S. House Speaker John Boehner said there should be no long-term increase in the federal debt limit until the Senate passes a budget, and House Republicans will try to force the Senate into action to cut spending.

"We are going to pursue strategies that will obligate the Senate to finally join the House in confronting the government's spending problem. The principle is simple: no budget, no pay," Boehner said in excerpts of his closing remarks to the retreat at a golf resort in Williamsburg.

Adam Jentleson, a spokesman for Senate Majority Leader Harry Reid, said the Senate would consider the increase if it was "clean."

"It is reassuring to see Republicans beginning to back off their threat to hold our economy hostage," Jentleson said in an emailed statement. "If the House can pass a clean debt ceiling increase to avoid default and allow the United States to meet its existing obligations, we will be happy to consider it."

Congress has relied largely on stop-gap funding measures to keep government agencies and programs running.

A House Republican leadership aide said it was not currently anticipated that the three-month debt limit increase legislation would include spending cuts. Although Boehner has previously sought at least $1 in long-term spending cuts for every dollar of debt limit increase, the aide said that the reforms associated with requiring budgets from both chambers would meet the speaker's requirements.

Spending cuts would be demanded of any longer term debt limit increase, the aide said, and Congress would still have to continue dealing with two other fiscal deadlines, the March 1 launch of automatic spending cuts, and government funding legislation that is needed by March 27.

(Reporting by David Lawder; Editing by Jackie Frank)

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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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WASHINGTON | Fri Jan 18, 2013 2:27pm EST

WASHINGTON (Reuters) - In almost all U.S. states, jobless rates ended 2012 lower than where they began, according to Labor Department data released on Friday that also showed unemployment rates fell from November in less than half the states.

From December 2011, 42 states and the District of Columbia registered unemployment rate decreases from a year earlier while six states recorded increases, and two states had no change, according to the report.

Since November, though, 22 states recorded unemployment rate decreases, while 16 states and the District of Columbia registered increases and 12 states had no change.

The monthly changes were less uniform across the country, suggesting the speed of economic recovery varied geographically.

The national unemployment rate was 7.8 percent in December, unchanged from November but down from 8.5 percent in December 2011.

North Dakota's rate ticked up from November to 3.2 percent, although the state continued to have the lowest unemployment rate in the nation due to the natural gas boom.

The rate was very close to that in December 2011, 3.3 percent, and, according to Michael Ziesch, co-manager of the state's Labor Market Information agency, "December rates have always posted an increase from (the) prior month as we see a normal increase in seasonal unemployment."

Nevada and Rhode Island held the highest unemployment rates in the country, 10.2 percent each in December, although both saw the rates drop from the month before. For Rhode Island, it was the lowest rate since March 2009.

Nevada had the biggest decline of all the states from November, when its rate was 10.8 percent, helped by growth in the state's large leisure and hospitality sector and by retail. Moreover, its rate in December was the lowest since February 2009.

"I'm pleased that we've ended the year on a positive note, with four straight months of decline in the unemployment rate and a gain of nearly 19,000 jobs in December compared to a year ago, but we have much more room for improvement," Governor Brian Sandoval said in a statement.

In December, Florida's rate was the lowest since November 2008, 8 percent, and nearly 2 percentage points below its rate in December 2011.

"Trends show that we are also experiencing growth in many different economic indicators that are key to job creation. Housing starts are on the rise, businesses and families continue to move to Florida and more jobs are being created," said Florida Gov. Rick Scott in a statement.

Cuts to local government staffs and construction crews in December were offset by a growing services sector, state data showed.

The trend will likely continue into 2013, with Standard & Poor's saying on Thursday it expects "total nonfarm employment growth to rise 1.6 percent in 2013," in the eastern Atlantic region, which includes Florida, due to increasing tourism.

When looking at nonfarm payroll employment, 27 states added jobs in December from November, while 23 lost jobs. New York's increase of 35,100 jobs was the greatest in the country, followed by New Jersey at 30,200. California shed the most the jobs, 17,500, followed by Florida, 15,300.

The large jumps in New York and New Jersey, and increases in neighboring Connecticut, likely showed the impact of Superstorm Sandy, according to analysts at J.P. Morgan. Employers likely cut jobs in November immediately after the storm, and then boosted their payrolls in December, they said.

"Today's release, beyond confirming that Sandy did some temporary damage to employment in New Jersey and New York, doesn't really provide any new information: the labor market continues its slow improvement along its all too familiar rocky road," said Philippa Dunne and Doug Henwood, who track states' economic conditions for The Liscio Report.

(Additional reporting by Karen Pierog in Chicago, Michael Connor in Miami, and Hilary Russ in New York; Editing by Chizu Nomiyama)

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WASHINGTON | Fri Jan 18, 2013 3:36pm EST

WASHINGTON (Reuters) - A U.S. trade panel on Friday narrowly approved punitive duties for five years on hundreds of millions of dollars of wind towers from China and Vietnam.

The U.S. International Trade Commission voted 3-3 that U.S. producers were either materially injured or threatened with material injury by unfairly priced and subsidized imports from the two countries.

A tie vote goes to the petitioner in U.S. anti-dumping and countervailing duty cases.

The United States imported $222 million of wind towers from China last year and about $79 million from Vietnam.

The tall steel towers support turbines that generate electricity from the wind.

U.S. producers have complained that unfair Asian competition was forcing them to close plants and shed jobs.

The ITC vote clears the way for the Commerce Department to issue anti-dumping and countervailing duty orders on the wind towers.

The department announced its final duty determinations last month in the case.

It set final anti-dumping duties ranging from 44.99 to 70.63 percent on utility-scale towers manufactured in China and additional countervailing duties of 21.86 to 34.81 percent to combat Chinese government subsidies.

The department slapped final anti-dumping duties of 51.40 to 58.49 percent on wind towers from Vietnam. There was not a subsidy component to the complaint against Vietnam.

Importers have been required since last year to post bonds or cash deposits based on preliminary anti-dumping and countervailing duty rates.

(Reporting by Doug Palmer; Editing by Cynthia Osterman)

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Women walk out of an Internal Revenue Service office in New York April 18, 2011.

WASHINGTON | Thu Jan 17, 2013 11:02pm EST

WASHINGTON (Reuters) - Non-U.S. pension funds and mutual funds were spared the full brunt of new U.S. information-reporting rules on overseas accounts meant to catch Americans who dodge U.S. taxes by keeping their assets offshore.

Chiefly targeting banks, the Foreign Account Tax Compliance Act (FATCA) rules, published by the U.S. Treasury on Thursday, require foreign financial institutions with $50,000 of any American taxpayer's assets to report the holdings to the U.S. Internal Revenue Service.

The Treasury rejected a request by businesses, banks and foreign investment funds to delay a January 2014 start date for big penalties imposed on individuals and financial firms that do not comply with the law.

The announcement completes the rule-writing process for FATCA, a law that Congress passed in March 2010 after a Swiss bank scandal revealed that U.S. taxpayers had hidden millions of dollars overseas from the IRS.

Certain retirement funds, life insurance and other "low-risk" financial products held abroad that are not considered vehicles for dodging taxes are exempted from reporting their U.S. account holders' information to the IRS. Financial firms and foreign governments had been calling for these exemptions.

The law, the first of its kind globally, has been decried by companies and U.S.-ally countries as unilateral, over-reaching and a breach of privacy. U.S. law requires that Americans pay taxes on their global income, not just domestic.

Treasury officials are hoping to sign up more than 50 countries with FATCA agreements and kick-start a dragnet of tax enforcement.

"The real story here is that looks like it is going to become a global model," Manal Corwin, deputy assistant Treasury secretary for international tax affairs, told Reuters in an interview.

Companies affected by the new rules, including BlackRock, Western Union and Prudential, may spend more than $100 million each to comply with the law. Some firms are asking Treasury for additional time to prepare.

Financial institutions that refuse to comply with the law will be effectively shut out of U.S. securities markets.

The businesses must report to the IRS - in English - account holders' names, addresses, account balances plus dividends and interest. The first reports are due in 2015.

The roughly 500 pages of final rules, which were initially proposed in February 2012, give breathing room to some asset managers, such as mutual funds, for how they need to report investors' information.

Treasury has not started registering financial firms, but it must do so by July 15, 2013. The final rules said firms must register by October 25, 2013, to avoid next year's penalties.

The rules also incorporate the government-to-government agreements Treasury has been signing with countries to get their local firms compliant with the law. Norway became the seventh country to forge an agreement, Treasury said on Thursday.

GOVERNMENT PACTS

Soon after Congress passed FATCA, Treasury officials surmised the law could not be broadly implemented as intended. Too many foreign firms would be breaking domestic laws by reporting client information to the IRS.

The government agreements offer a workaround. The United Kingdom, Mexico, Denmark, Ireland, Switzerland and Spain are finalizing FATCA agreements.

Though the pacts help firms comply with FATCA, they have added new headaches for some international companies.

Some of the agreements include a reciprocal information-sharing provision, under which the IRS will deliver taxpayer information to a foreign government about its citizens living in the United States.

This reciprocal provision has raised privacy concerns, specifically with the Mexico agreement, signed in November.

Corwin said Treasury and IRS vetted the Mexican tax-collecting agency and checked with other U.S. agencies that share sensitive information with Mexico before signing the deal.

Foreign financial firms may be spared FATCA penalties next year if their native governments are on the verge of completing FATCA legislation, Corwin said.

Firms have been waiting for the final rules to finish their preparations, said Ellen Zimiles, a managing director for consulting firm Navigant. Firms may still get relief on the penalty start date as the deadline approaches, she said.

"It's always a little game of chicken" between Treasury and businesses, Zimiles said.

(This story corrects story to remove paras 18-20 as BlackRock executive comments were made before rules were published)

(Editing by Howard Goller, Steve Orlofsky, M.D. Golan, Gary Hill)

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U.S. House Speaker John Boehner (R-OH) (R) and House Majority Leader Eric Cantor (R-VA) speak to the media on the ''fiscal cliff'' on Capitol Hill in Washington, December 21, 2012.

WASHINGTON | Fri Jan 18, 2013 6:37pm EST

WASHINGTON (Reuters) - Republicans in the House of Representatives backed away on Friday from a fiscal clash with President Barack Obama next month that could have risked a government default and chaos in financial markets, shifting to a new, less aggressive stance.

Top Republican leaders, meeting in Williamsburg, Virginia, said they were prepared to allow the U.S. government to borrow enough money to keep it fully operating for the next three months without demanding immediate spending cuts from Obama.

Instead, the Republicans, who control the House, will require as part of the legislation raising the debt ceiling that the Democratic-led Senate pass a budget plan by April 15.

If the Senate fails to act, they said, members of Congress would not get paid. How that might work in practice, in light of existing budget law and constitutional restrictions on changing congressional salaries in the middle of a term, was unclear. House Republicans hope to pass the legislation next week.

Republican leaders, including House Speaker John Boehner and Majority Leader Eric Cantor, made the announcement after an annual retreat at a resort in Williamsburg, where members listened to pollsters describe the party's decline in standing among American voters.

It followed a humiliating defeat in the "fiscal cliff" battle that ended on New Year's Day with Obama getting tax increases he sought on the wealthy without committing to significant budget cuts Republicans were seeking in return.

World equity and oil prices rebounded after the statement by the Republican leaders.

STRATEGIC SHIFT

The announcement marked a major climbdown for Republicans, who have seen the debt ceiling as their strongest point of leverage in Washington's partisan spending wars, despite the consternation it caused the White House, global financial markets and public opinion.

The White House on Friday welcomed the three-month extension plan as long as it was not conditioned on spending cuts. Obama has argued that negotiations on spending cuts should be part of larger deficit reduction talks, and not be tied to the debt ceiling.

"We are encouraged that there are signs that Congressional Republicans may back off their insistence on holding our economy hostage to extract drastic cuts in Medicare, education and programs middle class families depend on," White House spokesman Jay Carney said in a statement.

Adam Jentleson, a spokesman for Senate Majority Leader Harry Reid, also said the Republican approach was reassuring.

"If the House can pass a clean debt ceiling increase to avoid default and allow the United States to meet its existing obligations, we will be happy to consider it," he said in a statement.

A spokesman for House Democratic leader Nancy Pelosi was less receptive. "This proposal does not relieve the uncertainty faced by small businesses, the markets and the middle class. This is a gimmick unworthy of the challenges we face and the national debate," Drew Hammill said.

The details on the new Republican approach appeared less pressing to party leaders than defusing the politically and economically explosive debt ceiling battle that was expected in late February and early March.

The Treasury needs congressional authorization to raise the current $16.4 trillion U.S. debt limit sometime between mid-February and early March. How long a debt ceiling lasts - a few months or a few years - depends on the amount of borrowing authorized.

Republicans had promised to use the occasion to demand deep spending cuts from Obama and his Democrats, and some had said they were willing to push the government to the brink of default if their demands were not met.

That sort of rhetoric all but vanished on Friday.

"Next week, we will authorize a three month temporary debt limit increase to give the Senate and House time to pass a budget," Cantor said in a statement.

"Furthermore, if the Senate or House fails to pass a budget in that time, Members of Congress will not be paid by the American people for failing to do their job. No budget, no pay."

The statement made no mention of the 27th Amendment to the U.S. Constitution, which says that no law "varying the compensation" of members of Congress shall take effect until after an intervening congressional election.

The plan aims to draw the Senate into action to shrink deficits. The Senate has failed to pass a formal budget resolution in nearly four years, and it has taken no action on House-passed Republican budgets.

Mitch McConnell of Kentucky, the Senate's Republican minority leader, said in a statement he welcomed the pressure on his Democratic counterparts who had "prevented this body from performing its most basic of duties: passing a federal budget."

RETREAT REFLECTION

A key theme to emerge at the Williamsburg conference was a willingness to pursue more incremental steps on deficit reduction. Rather than one massive deal, each fiscal deadline would represent an opportunity to find savings.

After the deadline for a debt ceiling increase, Congress faces a March 1 deadline to avert automatic spending cuts, and the March 27 expiration of funding for government agencies and programs. A three-month debt limit extension would add a further deadline in April or May.

Representative Mick Mulvaney of South Carolina, one of the House's most conservative budget hawks, said he had concluded that smaller steps were the best path forward in dealing with the immediate fiscal crisis.

Instead of passing regular budgets to try to reduce spending, Congress has relied largely on stop-gap spending measures, known as continuing resolutions, to keep the government running.

Senate leaders have said there was no need to pass a budget for the past two fiscal years because the last major budget deal in 2011 set spending levels that were more legally enforceable.

A House Republican leadership aide said it was not anticipated the three-month debt limit legislation would include spending cuts.

Although Boehner previously sought at least $1 in long-term spending cuts for every dollar of debt limit increase, the aide said the reforms associated with requiring budgets from both chambers would meet the speaker's requirements.

(Editing by Fred Barbash and Peter Cooney)

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SAN FRANCISCO | Fri Jan 18, 2013 8:07pm EST

SAN FRANCISCO (Reuters) - Evan Williams and Biz Stone, the co-founders of Twitter, have leased three sprawling floors in a historic downtown San Francisco tower for their low-profile start-up incubator, The Obvious Corporation.

Obvious said Friday it leased 75,000 square feet at the busy 760 Market Street location - known as the Phelan Building - in one of the city's larger commercial real estate deals in recent months.

The downtown space will be able to hold roughly 500 employees and signals ambitions at Obvious, which was re-constituted when Williams and Stone both left Twitter in 2011.

The incubator, with no more than two dozen employees, has mostly stayed out of the press except when it unveiled two new blogging platforms called Medium and Branch last September.

Although still thinly staffed, Obvious's new space is larger than start-up Pinterest's recently inked lease in the city.

"We need the right space from which to grow the Medium team and position Obvious to focus on bringing our new ideas to life," Obvious CEO Williams said in a statement Friday about the new lease.

The company will occupy the seventh, eighth and ninth floors of the triangular building, which wraps around a central courtyard, said Jenny Haeg, a real estate agent who has brokered leases for Square Inc, Dropbox, Airbnb and other large tech startups.

(Reporting by Gerry Shih; Editing by Bob Burgdorfer)

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1 of 4. A visitor tries Apple Inc's iPad at an electronics store in central Seoul January 18, 2013. Sharp Corp has nearly halted production of 9.7-inch screens for Apple Inc's iPad, two sources said, as demand shifts to its smaller iPad mini.

TOKYO/SEOUL | Fri Jan 18, 2013 3:48pm EST

TOKYO/SEOUL (Reuters) - Sharp Corp has nearly halted production of 9.7-inch screens for Apple Inc's iPad, two sources said, possibly as demand shifts to its smaller iPad mini.

Sharp's iPad screen production line at its Kameyama plant in central Japan has fallen to the minimal level to keep the line running this month after a gradual slowdown began at the end of 2012 as Apple manages its inventory, the industry sources with knowledge of Sharp's production plans told Reuters.

Sharp has stopped shipping iPad panels, the people with knowledge of the near total production shutdown said. The exact level of remaining screen output at Sharp was not immediately clear but it was extremely limited, they said.

Company spokeswoman Miyuki Nakayama said: "We don't disclose production levels."

Apple officials, contacted late in the evening after normal business hours in California, did not have an immediate comment.

The sources didn't say exactly why production had nearly halted. Among the possibilities are a seasonal drop in demand, a switch to another supplier, a shift in the balance of sales to the mini iPad, or an update in the design of the product.

Macquarie Research has estimated that iPad shipments will tumble nearly 40 percent in the current quarter to about 8 million from about 13 million in the fourth quarter, although Apple's total tablet shipments will show a much smaller decrease due to strong iPad mini sales.

APPLE SHARES

Any indication that iPad sales are struggling could add to concern that the appeal of Apple products is waning after earlier media reports said it is slashing orders for iPhone 5 screens and other components from its Asian suppliers.

Those reports helped knock Apple's shares temporarily below $500 this week, the first time its stock had been below the threshold mark in almost one year.

Apple, the reports said, has asked state-managed Japan Display, Sharp and LG Display to halve supplies of iPhone panels from an initial plan for about 65 million screens in January-March. Apple is losing ground to Samsung, as well as emerging rivals including China's Huawei Technologies Co Ltd and ZTE Corp.

NO BIG CHANGE AT OTHER MAKERS

In addition to Sharp, Apple also buys iPad screens from LG Display Co Ltd, its biggest supplier, and Samsung Display, a flat-panel unit of Samsung Electronics.

Both LG Display and Samsung Display declined to comment.

A source at Samsung Display, however, said there had not been any significant change in its panel business with Apple, which has been steadily reducing panel purchases from the South Korean firm.

A person who is familiar with the situation at LG Display said iPad screen production in the current quarter had fallen from the previous quarter ending in December, mainly due to weak seasonal demand that is typical after the busy year-end holiday sales period.

Sterne Agee analyst Shaw Wu said some of the product cutbacks at Sharp are probably seasonal.

"The March quarter is almost always weaker than the December quarter," he said, adding that Apple also consolidates suppliers of certain components during quarters with weaker demand. "The Korean manufacturers are more efficient and typically have lower costs."

Apple's iPad sales may have also suffered amid a weak Christmas shopping period that hurt other consumer gadget makers as well.

CROWD OF RIVAL PRODUCTS

Apple also faces stiffening competition in tablets from a growing crowd of rival products from makers including Samsung with its Galaxy and Microsoft Corp's Surface. A consumer shift to smaller 7-inch screen devices, which Apple responded to late last year by launching its iPad mini for $329, are adding pressure.

BNP Paribas expects the iPad mini will eat into sales of the full-sized iPad, with the mini rise to 60 percent of total iPad shipments in the January-March quarter.

Looking to cut into Apple's market share in the smaller segment are Amazon.com Inc with its Kindle and Google Inc with its Nexus 7.

CEO Tim Cook, who is credited with building Apple's Asian supply chain, has overseen several gadget launches, including the iPhone 5, the latest iPad models and the iPad mini during his first year, is under pressure to deliver the kind of product innovations that wowed consumers during Steve Jobs' tenure to keep his company's profit growth stellar.

Sharp, which also supplies screens for the iPhone, has been working with its main banks on a restructuring plan after posting a $5.6 billion loss for the past fiscal year. To secure emergency financing from lenders including Mizuho Financial Group and Mitsubishi Financial Group it had mortgaged its domestic factories and offices including the one building screens for Apple.

In December, Qualcomm Inc agreed to invest as much as $120 million in Sharp and the two companies said they would work to develop new power-saving screens.

(Additional reporting by Poornima Gupta in San Francisco; Writing by Tim Kelly; Editing by Ken Wills and Richard Chang)

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A Hewlett-Packard logo is seen at the company's Executive Briefing Center in Palo Alto, California January 16, 2013.

NEW YORK | Fri Jan 18, 2013 4:10pm EST

NEW YORK (Reuters) - A U.S. investor activist group affiliated with large labor unions is asking Hewlett-Packard Co to replace its auditor, Ernst & Young, over the technology giant's troubled acquisition of UK software company Autonomy.

Change to Win Investment Group (CtW), based in Washington, D.C., also is seeking a revamp of HP's audit committee, which is responsible for overseeing Ernst & Young's long-standing relationship as the auditor that reviews HP's books.

Spokesmen for HP and Ernst & Young declined to comment.

Labor union pension funds own large stakes in many U.S. companies and often use them as platforms to push for changes in how those corporations are managed. Union pension funds tied to CtW invest more than $200 billion in stocks, including shares in HP, said CtW in a letter to an HP board member on Thursday.

CtW questioned why Ernst & Young did not spot problems at Autonomy. "HP is clearly a company facing serious challenges," CtW said in its letter. "Unfortunately, the highly conflicted, decade-long relationship between Ernst & Young and HP cannot provide shareholders with the reassurance they need."

Auditors are outside accounting firms retained by corporations to vet their books regularly and offer an opinion on the validity of financial results. The four firms that dominate auditing worldwide - Ernst & Young, KPMG, Deloitte and PricewaterhouseCoopers - are faced with ever-rising scrutiny of their role in investor losses and accounting lapses.

The CtW letter was addressed to Rajiv Gupta, chairman of the corporate governance committee of HP's board. It was signed by William Patterson, executive director of CtW Investment Group.

Gupta could not be reached for comment.

HP, AUTONOMY CLASH

HP said in November that it overpaid for Autonomy in 2011. HP accused Autonomy of serious accounting improprieties. Autonomy has rejected the allegations and said HP was looking for "scapegoats."

CtW urged HP to name an independent special master to investigate and report to shareholders on the Autonomy deal, as well as on an earlier acquisition of Electronic Data Systems Corp (EDS), which CtW said was "equally disastrous."

HP has said it is deferring to U.S. and UK regulators to investigate the allegations it has made against Autonomy.

HP in August swung to an $8.9 billion quarterly loss as it swallowed a write-down linked to its $13.9 billion purchase of EDS. That was followed in November by an $8.8 billion writedown on Autonomy's value, which HP blamed largely on improper accounting at the software company.

Ernst & Young was not Autonomy's auditor. But according to CtW, the accounting firm had an opportunity to spot Autonomy's problems when it reviewed the goodwill, or intangible value, that HP recorded for its acquisition of Autonomy.

However, one risk expert said CtW was putting the blame in the wrong place. A separate due diligence team, not the auditor, was responsible for determining the value of Autonomy, said Peter Bible, chief risk officer at EisnerAmper, an accounting and consulting firm.

"The auditors didn't buy the company, HP did. And the people inside HP ought to be the ones held accountable for the purchase price that was paid," Bible said.

CtW questioned whether Ernst & Young was independent enough to audit HP because of the large amount of non-audit services Ernst provided to HP, including tax consulting and lobbying.

Washington Council, a tax lobbying firm acquired by Ernst in 2000, lobbied for HP from 2000 to 2004, CtW said.

AUDITING, LOBBYING EYED

Government lobbying records and U.S. Securities and Exchange Commission filings show that Ernst & Young was HP's auditor while Washington Council was registered as a lobbyist for HP.

Reuters reported last week that the SEC was investigating whether Ernst violated auditor rules by letting its lobbying unit perform work for some major audit clients.

Ernst has said all of its services for audit clients undergo considerable scrutiny to be sure they are within the rules.

U.S. independence rules bar auditors from serving in an "advocacy role" for audit clients. The goal of this rule is to ensure that auditors are objective regarding companies they audit so that they can serve as watchdogs for investors.

It is not clear what type of lobbying activities would be barred under the prohibition against advocacy.

The 2002 Sarbanes-Oxley Act restricted the type of non-audit services that audit firms can provide, but broad exceptions were granted for tax consulting services.

CtW said that HP was out of step with its peers in using Ernst for significant services other than audit work. The other fees paid to Ernst are much higher than those paid by Dell Inc and Apple Inc to their audit firms, CtW said.

CtW also questioned the HP audit committee's willingness to allow Ernst to perform "multiple and conflicting roles" for HP.

Board audit committees hire and oversee outside auditors, while also governing non-audit services.

(Additional reporting by Sarah Lynch and David Ingram in Washington; Editing by Kevin Drawbaugh)

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An illustration picture shows a Google logo with two one Euro coins, taken in Munich January 15, 2013.

SAN FRANCISCO | Fri Jan 18, 2013 3:46pm EST

SAN FRANCISCO (Reuters) - Google Inc issued a rare advisory to Wall Street on Friday that analyst estimates for its fourth quarter financial results are flawed.

The world's No.1 search engine, which reports its quarterly results on Tuesday, said most analysts have not adjusted their estimates to reflect the pending $2.35 billion sale of the Motorola Home business.

The business must be presented separately from the results of Google's continuing operations under U.S. accounting rules, Google Treasurer Brent Callinicos wrote in a post on Google's investor relations Web page on Friday.

"As of this writing, a majority of Wall Street analysts who cover Google have not reflected the Home business as discontinued operations in their estimates," Callinicos wrote.

The discrepancy means the fourth-quarter net revenue that Google reports on Tuesday could appear to be less than the $12.34 billion average that analysts polled by Thomson Reuters I/B/E/S are expecting.

Raymond James analyst Aaron Kessler says his fourth-quarter net revenue estimate includes nearly $900 million from the Motorola Home business.

"They're saying that the headline number is going to be less than what most analysts have for Q4," said Kessler.

The advisory is a rare move for Google, which does not provide financial forecasts and typically has limited interactions with analysts. The company has in the past provided accounting advisories to analysts about the Motorola Mobility business, which Google acquired for $12.5 billion in May.

Google bought Motorola Mobility primarily for its large portfolio of communications patents and its mobile phone business.

In December, Google agreed to sell the Motorola Home television set-top box business to Arris Group Inc for $2.35 billion in cash and stock.

Analysts expect Google to report adjusted earnings of $10.56 per share for the fourth quarter.

"It's a little surprising that they're doing this the Friday before the report," said Kessler. "They should have put it out a week ago if they wanted analysts to change their numbers."

(Reporting By Alexei Oreskovic. Editing by Andre Grenon)

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