Fed likely to expand QE with economy still slow

WASHINGTON: Economists expect the Federal Reserve (Fed) to add to its stimulus efforts with an expanded bond-buying program Wednesday when it concludes its last policy board meeting of 2012 amid still-slow growth.

With the US economy still sluggish despite two years and hundreds of billions of US dollars of quantitative easing (QE) operations, the Federal Open Market Committee (FOMC) is expected to stick to its guns at the end of its two day meeting.

Gathering just before its "Twist" asset-swap operation expires at year-end, signs are that the FOMC will replace it with more outright bond purchases aimed at lowering interest rates to encourage businesses to invest and hire.

With unemployment still stubbornly high, inflation low, and politicians still battling over averting the looming fiscal cliff, the FOMC has all the reason it needs to expand its QE operations.

But by how much depends on just how weak or strong the Fed's top officials judge economic growth to be.

Data released on Friday showed US unemployment rates falling to 7.7 per cent in November, which while still unhealthy seems to confirm the slow but steady downtrend in the rate.

Some economists say the figure is innately weak -- and so justifying more Fed easing -- because it has fallen in a large part because of a rise in labour market dropouts, rather than from job creation.

But others argue that, having continued to fall even after the devastating Hurricane Sandy wreaked havoc on the northeast US economy in November, the jobless rate represents a tightening of the labour market, a sign of economic resilience.

How the Fed interprets the data will be clear when it releases its policy conclusions at and its economic forecasts.

With its benchmark interest rate already at a bare-bottom 0-0.25 per cent since December 2008, the Fed's main policy tool is its bond and mortgage-backed security purchases, through which it has been holding down long-term interest rates.

The cutoff of Operation Twist, which involves swapping about US$45 billion a month in short-term assets with long-term ones, will leave the Fed with only its open-ended QE3 bond purchases in place, worth US$40 billion a month.

Public comments from a number of individual Fed officials, and the minutes of the last FOMC meeting, show support for expanding those purchases to ensure liquidity remains easy.

A wild card in all this is the Washington battle over the fiscal cliff, the automatic tax hikes and sharp spending cuts that could send the country back into recession if politicians cannot compromise.

With a deadline at the end of the year, the White House and congressional Republicans appeared still far apart on an alternative deficit reduction plan that could avert the cliff.

The Fed's Beige Book survey of regional economies, compiled to help FOMC members decide their direction, showed widespread worry among businesses over the standoff.

And in late November Fed Chairman Ben Bernanke warned that the cliff's US$500 billion crunch on the economy starting from January 1 "would pose a substantial threat to the recovery."

Asked what the central bank could do, he replied: "I don't think the Fed has the tools to offset that."

That aside, economists differ on how much new QE the Fed could add: US$45 billion a month to match the value of the Twist swaps, or less if the FOMC sees the economy gaining.

"We see some risk that the new purchase program will be somewhat smaller than the US$45 billion per month widely expected," said Jim O'Sullivan of High Frequency Economics.

"The continued downtrend in the unemployment rate is a key reason we think officials might not fully replace the amount of long-term purchases under operation Twist."

The US dollar has steadily weakened since Monday ahead of the FOMC decision, losing more than one cent to the euro to US$1.3036 early Wednesday.

But David Song, a forex markets analyst at Daily FX, was bullish on the greenback.

"It seems as though the central bank is nearing the end of its easing cycle as Chairman Ben Bernanke holds an improved outlook for 2013. In light of the more broad-based recovery in the world's largest economy, Chairman Bernanke may strike a more neutral tone for monetary policy, and a shift in central bank rhetoric may pave the way for a US dollar rally."

- AFP/jc

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Square to ink payment-processing deal with Burberry -- report

A merchant accepting Square's mobile payments lets potential buyers know that at an antiques fair in Alameda, Calif.

(Credit:
James Martin/CNET)

Square has lined up its first luxury brand partner, a new report claims.

Square and Burberry are testing out a deal to see how the company's payment processing might work in the fashion brand's boutiques, The Next Web is reporting today, citing people who claim to have knowledge of the deal. The announcement could be made soon.

Interestingly, Burberry CTO John Douglas might have scooped the companies. On Twitter last week, Douglas said that Square was "live in our Burberry Brit store in San Francisco." The Next Web's sources say that there is indeed a Square installation in Burberry's Westfield store in San Francisco.

Square has been growing in leaps and bounds. The company, which offers a free accessory that attaches to an iPhone or
iPad and process payments, announced last month that it's now handling $10 billion in transactions every year. Just two months prior, that figure stood at $8 billion.

Central to Square's success is partnering with major vendors. Starbucks has integrated Square's service into 7,000 U.S. stores. That Burberry is now testing it out is even more good news for the company.

CNET has contacted Square for comment on The Next Web's report. We will update this story when we have more information.

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Motive unclear in Oregon mall shooting that left three dead

PORTLAND, Ore. A masked gunman wearing camouflage opened fire Tuesday in a busy Portland mall, leaving the gunman and two others dead and one person injured, and forcing the mall's Santa Claus and hundreds of Christmas shoppers and employees to flee or hide among store displays.

Austin Patty, 20, who works at Macy's, said he saw a man in a white mask carrying a rifle and wearing a bulletproof vest. He heard the gunman say, "I am the shooter," as if announcing himself. A series of rapid-fire shots in short succession followed as Christmas music played. Patty said he ducked to the ground and then ran.

His Macy's co-worker, Pam Moore, told The Associated Press the gunman was short, with dark hair. Witnesses said he started firing just outside Macy's in the food court of Clackamas Town Center.

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Cell phone video: Ore. mall evacuated after shooting

Brance Wilson, the mall Santa, said he heard gunshots and dove for the floor. By the time he looked up, seconds later, everyone around him had cleared out. Merchandise was scattered in some stores as he made his way to the door.

"Santa will be back," Wilson said. "It's not going to keep Santa away from the mall."

Workers and shoppers rushed out of the mall and into stores'backrooms for safety as teams of police officers came inside to find the shooter. Authorities went store-to-store to confirm that there was only one shooter and to escort hiding shoppers outside.

Police said they have tentatively identified the gunman but would not release his name or give any information on a possible motive. They said he apparently killed himself, adding that they did not fire any shots.

Officials said a female teenager was also shot and was in serious condition at a Portland hospital.

"We have a young lady in the hospital fighting for her life right now," Clackamas County Sheriff Craig Roberts at a news conference late Tuesday.

Earlier, Roberts told reporters, "There was about 10,000 people at the mall, so there were a huge amount of people running in different directions, and it was chaos for a lot of citizens."

Witnesses reported hearing multiple gunshots, anywhere from 15 to 20, or even more.

"At first no one really knew what was going down," Mario, a kiosk worker inside the mall, told CBS affiliate KOIN in Portland. "We heard six shots at first, and then people scattered like crazy, everybody left."

Clackamas County Sheriff's Office Sgt. Adam Phillips said the victims were shot in an "open area" of the mall.

Clackamas Town Center is one of the Portland area's biggest and busiest malls, with 185 stores and a 20-screen movie theater. It would remain closed at least through Wednesday, Roberts said.

Shaun Wik, 20, from Fairview, said he was Christmas shopping with his girlfriend and opened a fortune cookie at the food court. Inside was written: "Live for today. Remember yesterday. Think of tomorrow."

As he read it, he heard three shots. He heard a man he believes was the gunman shout, "Get down!" but Wik and his girlfriend ran. He heard seven or eight more shots. He didn't turn around.

"If I had looked back, I might not be standing here," Wik said. "I might have been one of the ones who got hit."

Holli Bautista, 28, said she was shopping at Macy's for a Christmas dress for her daughter when she heard pops that sounded like firecrackers.

"I heard people running and screaming and saying `Get out, there's somebody shooting,"' she told the AP.

She said hundreds of shoppers and mall employees started running, and she and dozens of other people were trying to escape through a department store exit.

Tiffany Turgetto and her husband were leaving Macy's through the first floor when they heard gunshots coming from the second floor of the mall. They were able to quickly leave through a Barnes & Noble bookstore before the police arrived and locked down the mall.

"I had left my phone at home. I was telling people to call 911. Surprisingly, people are around me, no one was calling 911. I think people were in shock."

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Mall Gunman Wanted to Kill 'Total Strangers'

The masked gunman who opened fire in the crowded Clackamas Town Center mall in suburban Portland, Ore., killing two and seriously injuring a third before killing himself, was trying to "kill as many people as possible."

The shooter, wearing a white hockey mask, black clothing and a bullet proof vest, tore through the mall just before 3:30 p.m. Tuesday, entering through a Macy's store and heading to the food court and public areas spraying bullets, according to witness reports.

Police have identified the gunman, but have not released his name, Sheriff Craig Roberts told "Good Morning America."

"We have been able to identify the shooter over this last night," Roberts said. "I believe, at least from the information that's been provided to me at this point in time, it really was a killing of total strangers. To my knowledge at this point in time he was really trying, I think, to kill as many people as possible."

Police have not released the names of the shooter's victims. Clackamas County Sheriff's Department Lt. James Rhodes said authorities are in the process of notifying victims' families.

The injured victim, identified by hospital officials as Kristina Shevchenko, has been taken to a hospital, according to Roberts.

PHOTOS: Oregon Mall Shooting

Craig Mitchelldyer/Getty Images

Oregon Mall Shooting: 'Killing of Total Strangers' Watch Video

Oregon Mall Shooting: Woman on Macy's Employee's Heroism Watch Video

Oregon Mall Shooting: At Least 3 People Dead Watch Video

Nadia Telguz, who said she was a friend of Shevchenko, told ABC News affiliate KATU-TV in Portland that the woman was expected to recover.

"My friend's sister got shot," Teleguz told KATU. "She's on her way to (Oregon Health and Science University Hospital). They're saying she got shot in her side and so it's not life-threatening, so she'll be OK."

Witnesses from the shooting rampage said that a young man who appeared to be a teenager, ran through the upper level of Macy's to the mall food court, firing multiple shots, one right after the other, with what is believed to be a black, semi-automatic rifle.

By 4:40 p.m., police reported finding a group of people hiding in a storeroom. In a surreal moment, even the mall Santa was seen running for his life.

"I didn't know where the gunman was, so I decided to kind of eased my way out," said the mall Santa, who the AP identified as 68-year-old Brance Wilson.

More than 10,000 shoppers were at the mall during the day, according to police. Roberts said that officers responded to the scene of the shooting within minutes, and four SWAT teams swept the 1.4 million-square-foot building searching for the shooter. He was eventually found dead, an apparent suicide.

"I can confirm the shooter is dead of an apparent self-inflicted gunshot wound," Rhodes said. "By all accounts there were no rounds fired by law enforcement today in the mall."

Roberts said more than 100 law enforcement officers responded to the shooting, and the FBI and Bureau of Alcohol, Tobacco and Firearms are working with local agencies to trace the shooter's weapon.

Cell phone video shot at the scene shows the chaos soon after the shooting. When police arrived they were met head on by terrified shoppers, children and employees streaming out. Customers, even a little girl, were being lead out with their hands up.

"I think a variety of things happened that I think this could have been much, much worse," Roberts told "GMA." "And to give you some ideas, we got the call at 3:29, we had someone on scene within a minute, 30 seconds.

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North Korea launches rocket , raising nuclear arms stakes

SEOUL/TOKYO (Reuters) - North Korea successfully launched a rocket on Wednesday, boosting the credentials of its new leader and stepping up the threat the isolated and impoverished state poses to opponents.

The rocket, which North Korea says put a weather satellite into orbit, has been labeled by the United States, South Korea and Japan as a test of technology that could one day deliver a nuclear warhead capable of hitting targets as far away as the continental United States.

"The satellite has entered the planned orbit," a North Korean television news reader clad in traditional Korean garb announced, after which the station played patriotic songs with the lyrics "Chosun (Korea) does what it says".

The rocket was launched just before 10 a.m. (0100 GMT), according to defense officials in South Korea and Japan, and was more successful than a rocket launched in April that flew for less than two minutes.

The North American Aerospace Defense Command (NORAD) said that it "deployed an object that appeared to achieve orbit", the first time an independent body has verified North Korean claims.

North Korea followed what it said was a similar successful launch in 2009 with a nuclear test that prompted the U.N. Security Council to stiffen sanctions that it originally imposed in 2006 after the North's first nuclear test.

North Korea is banned from developing nuclear and missile-related technology under U.N. resolutions, although Kim Jong-un, the youthful head of state who took power a year ago, is believed to have continued the state's "military first" programs put in place by his late father, Kim Jong-Il.

North Korea hailed the launch as celebrating the prowess of all three members of the Kim family to rule since it was founded in 1948.

"At a time when great yearnings and reverence for Kim Jong-il pervade the whole country, its scientists and technicians brilliantly carried out his behests to launch a scientific and technological satellite in 2012, the year marking the 100th birth anniversary of President Kim Il Sung," its KCNA news agency said. Kim Il Sung, the current leader's grandfather, was North Korea's first leader.

The United States condemned the launch as "provocative" and a breach of U.N. rules, while Japan's U.N. envoy called for a Security Council meeting. However, diplomats say further tough sanctions are unlikely from the Security Council as China, the North's only major ally, will oppose them.

"The international community must work in a concerted fashion to send North Korea a clear message that its violations of United Nations Security Council resolutions have consequences," the White House said in a statement.

U.S. intelligence has linked North Korea with missile shipments to Iran. Newspapers in Japan and South Korea have reported that Iranian observers were in the North for the launch, something Iran has denied.

Japan's likely next prime minister, Shinzo Abe, who is leading in opinion polls ahead of an election on Sunday and who is known as a hawk on North Korea, called on the United Nations to adopt a resolution "strongly criticizing" Pyongyang.

A North Korean Foreign Ministry spokesman reiterated that the rocket was a "peaceful project".

"The attempt to see our satellite launch as a long-range missile launch for military purposes comes from hostile perception that tries to designate us a cause for security tension," KCNA cited the spokesman as saying.

"STUMBLING BLOCK"

China had expressed "deep concern" prior to the launch which was announced a day after a top politburo member, representing new Chinese leader Xi Jinping, met Kim Jong-un in Pyongyang.

On Wednesday, its tone was measured, regretting the launch but calling for restraint on any counter-measures, in line with a policy of effectively vetoing tougher sanctions.

"China believes the Security Council's response should be cautious and moderate, protect the overall peaceful and stable situation on the Korean peninsula, and avoid an escalation," Chinese Foreign Ministry spokesman Hong Lei told journalists.

Bruce Klingner, a Korea expert at the Heritage Foundation, said: "China has been the stumbling block to firmer U.N. action and we'll have to see if the new leadership is any different than its predecessors."

A senior adviser to South Korea's president said last week it was unlikely there would be action from the United Nations and Seoul would expect its allies to tighten sanctions unilaterally.

Kim Jong-un, believed to be 29 years old, took power when his father died on December 17 last year and experts believe the launch was intended to commemorate the first anniversary of his death. The April launch was timed for the centennial of the birth of Kim Il Sung.

Wednesday's success puts the North ahead of the South which has not managed to get a rocket off the ground.

"This is a considerable boost in establishing the rule of Kim Jong-un," said Cho Min, an expert at the Korea Institute of National Unification.

There have been few indications the secretive and impoverished state, where the United Nations estimates a third of people are malnourished, has made any advances in opening up economically over the past year.

North Korea remains reliant on minerals exports to China and remittances from tens of thousands of its workers overseas.

Many of its 22 million people need handouts from defectors, who have escaped to South Korea, for basic medicines.

Given the puny size of its economy - per capita income is less than $2,000 a year - one of the few ways the North can attract world attention is by emphasizing its military threat.

It wants the United States to resume aid and to recognize it diplomatically, although the April launch scuppered a planned food deal.

The North is believed to be some years away from developing a functioning nuclear warhead although it may have enough plutonium for about half a dozen nuclear bombs, according to nuclear experts.

It has also been enriching uranium, which would give it a second path to nuclear weapons as it sits on big natural uranium reserves.

"A successful launch puts North Korea closer to the capability to deploy a weaponized missile," said Denny Roy, a senior fellow at the East-West Center in Hawaii.

"But this would still require fitting a weapon to the missile and ensuring a reasonable degree of accuracy. The North Koreans probably do not yet have a nuclear weapon small enough for a missile to carry."

The North says its work is part of a civil nuclear program although it has also boasted of it being a "nuclear weapons power".

(Additional reporting by Jumin Park and Yoo Choonsik in SEOUL; David Alexander, Matt Spetalnick and Paul Eckert in WASHINGTON; Linda Sieg in TOKYO, Sui-Lee Wee and Michael Martina in BEIJING,; Rosmarie Francisco in MANILA; Writing by David Chance; Editing by Raju Gopalakrishnan and Robert Birsel)

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US trade gap widens in October as exports fall

WASHINGTON - The US trade deficit widened in October as exports fell sharply from the prior month amid a slowing global economy, government data released Tuesday showed.

The trade gap increased to US$42.2 billion from a revised US$40.3 billion in September, the Commerce Department said.

Exports fell by 3.6 percent, while imports fell by 2.1 percent.

The decline in exports was the sharpest since January 2009, led by a 4.8 percent drop in goods exports.

"Trade looks to contribute slightly to US GDP growth again in the current quarter, but pronounced weakness in exports and imports says all there is to say about the US economy's momentum," said Sal Guatieri at BMO Capital Markets.

The politically sensitive trade shortfall with China, one of the United States' biggest trading partners, expanded to a record US$28.1 billion, bringing the year's 10-month total to US$245.5 billion.

The three-month average trade deficit rose to US$41.7 billion in October from US$41.5 billion in September.

- AFP/ir

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WiLAN sues RIM over BlackBerry Bluetooth technology

Research In Motion has been hit with a new lawsuit from WiLAN.

WiLAN, which derives its revenue from licensing patents to vendors, says that it filed the patent infringement claim against RIM in the Southern District of Florida. The company says that RIM is violating Patent No. 6,260,168 related to Bluetooth technologies.

WiLAN has a long history of initiating litigation to get companies to license its patents. Founded in 1992, the firm calls itself a "leading technology innovation and licensing company." According to the firm, it currently licenses its intellectual property to over 260 companies around the world that offer a range of products, including "3G and 4G handsets, Wi-Fi enabled laptops, [and] Wi-Fi and broadband routers." All told, WiLAN has over 3,000 issued or pending patents.

The Bluetooth patents, however, have proven to be one of the more popular ways for WiLAN to target vendors. In 2010, the company sued nearly 20 of the tech industry's largest companies, including Apple and Sony, for alleged infringement of Bluetooth patents.

Last year, WiLAN launched several more lawsuits against Apple, HP, Dell, and others, over their alleged violation of patents related to CDMA, HSPA, Wi-Fi, and LTE.

The new patent infringement claim against RIM claims that the handset maker's violations extend across a wide array of products, including the BlackBerry Bold and Torch. RIM's defunct BlackBerry PlayBook
tablet is also included in the filing.

WiLAN hasn't said how much it's seeking in damages.

CNET has contacted RIM for comment on the lawsuit. We will update this story when we have more information.

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Mandela "responding" to treatment for infection

JOHANNESBURG South Africa's former President Nelson Mandela is suffering from a recurring lung infection and is responding to medical treatments, the nation's presidency said Tuesday.

The ailing Mandela, 94, has been hospitalized since Saturday for medical tests at 1 Military Hospital near South Africa's capital, Pretoria.

34 Photos

Nelson Mandela

The announcement ended speculation about what was troubling the ailing anti-apartheid icon. Government officials had declined repeatedly to say what caused the nation's military, responsible for Mandela's care, to hospitalize the leader over the last few days. That caused growing concern in South Africa, a nation of 50 million people that largely reveres Mandela for being the nation's first democratically elected president who sought to bring the country together after centuries of racial division.

The tests Mandela underwent at the hospital detected the lung infection, said presidential spokesman Mac Maharaj in a statement.

"Madiba is receiving appropriate treatment and he is responding to the treatment," Maharaj said, referring to Mandela by his clan name as many do in South Africa in a sign of affection.

In January 2011, Mandela was admitted to a Johannesburg hospital for what officials initially described as tests but what turned out to be an acute respiratory infection. The chaos that followed Mandela's stay at that public hospital, with journalists and the curious surrounding it and entering wards, saw the South African military take charge of his care and the government control the information about his health. In recent days many in the press and public have complained about the lack of concrete details that the government has released about Mandela's condition.

Mandela has had a series of health problems in his life. He contracted tuberculosis during his years in prison and had surgery for an enlarged prostate gland in 1985. In 2001, Mandela underwent seven weeks of radiation therapy for prostate cancer, ultimately beating the disease.

In February, Mandela spent a night in a hospital for a minor diagnostic surgery to determine the cause of an abdominal complaint.

Mandela was a leader in the struggle against racist white rule in South Africa and for preaching reconciliation once he emerged from prison in 1990 after 27 years behind bars. He won South Africa's first truly democratic elections in 1994, serving one five-year term. The Nobel laureate later retired from public life to live in his remote village of Qunu, in the Eastern Cape, and last made a public appearance when his country hosted the 2010 World Cup soccer tournament.

Mandela disengaged himself with the country's politics fairly successfully over the last decade and has grown increasing frail in recent years.

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Closing Tax Loopholes Not Enough to Avert 'Cliff'?

Closing "corporate tax loopholes" sure sounds good to the average, non-corporate American -- so good, in fact, that politicians talk about it all the time.

House Speaker John Boehner's fiscal-cliff proposal purports to raise $1.6 trillion in revenue by "clos[ing] special-interest loopholes and deductions while lowering rates."

The White House, meanwhile, has complained that Boehner hasn't offered specific loopholes to cut.

On the other side of the aisle, House Democrats have repeatedly offered up "closing overseas tax loopholes" as a means to pay for spending bills -- a plan Republicans routinely reject. In the last two and a half years, President Obama has often been heard griping about writeoffs for corporate jets.

For both Republicans and Democrats, "corporate tax loopholes" are an old saw. But, like most things in politics, raising revenue from "loopholes" gets a bit stickier when the specifics are hashed out.

A misconception about tax "loopholes," some experts say, is that they're loopholes -- gaps in the tax law that corporations have exploited against the law's intent.

Carolyn Kaster/AP Photo; Pablo Martinez Monsivais/AP Photo

Fiscal Cliff Battle: President Obama vs. Speaker John Boehner Watch Video

"Most of these proposals were not 'loopholes,' these were incentives," said Eric Toder, co-director of the left-leaning Tax Policy Center.

For example, take the research-and-development tax credit. During the campaign, both Obama and Mitt Romney suggested making it permanent.

"One wouldn't call the research credit a loophole," Toder said.

Cashing in by closing the biggest "loopholes" could be a politically fraught endeavor. To generate meaningful revenue, House Republicans would have to sign off on measures that raised it from taxing the overseas profits of multinational corporations, from ending immediate writeoffs of equipment purchases, or from ending a credit for domestic manufacturing.

When the Joint Committee on Taxation scored some of these provisions, as part of a tax-reform bill pushed by Democratic Sen. Ron Wyden and then-GOP-senator Judd Gregg, it found the government could save significantly:

Savings Over 10 Years: 2011-2021

Taxing Overseas Profits of Multinational Corps: $582.7 billion. In other words, the "overseas tax loophole" Democrats are fond of trashing. While most countries with large economies tax only profits made at home, the U.S. code taxes all income everywhere. To offset the different, U.S. multinational corporations receive credits to prevent double taxing. They also can defer paying any tax on foreign income, until they transfer the money back to the United States.

Taxing that profit could generate significant revenue. But this could be controversial, and large corporations would fight it. A senior aide to one business lobbying group said ending foreign-income deferral would amount to double-taxing U.S. companies and put them at a disadvantage to foreign competitors; one supporter of ending deferral suggested U.S. companies have been able to hide profits overseas, avoiding taxes altogether.

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IMF loan to Egypt delayed amid political turmoil

CAIRO (Reuters) - A vital $4.8 billion International Monetary Fund loan to Egypt will be delayed until next month, its finance minister said on Tuesday, intensifying the political crisis gripping the Arab world's most populous nation.

As rival factions gathered in Cairo for a new round of demonstrations, Finance Minister Mumtaz al-Said said the delay in the loan agreement was intended to allow time to explain a heavily criticised package of economic austerity measures to the Egyptian people.

The announcement came after President Mohamed Mursi on Monday backed down on planned tax increases, seen as key for the loan to go ahead. Opposition groups had greeted the tax package, which included duties on alcoholic drinks, cigarettes and a range of goods and services, with furious criticism.

"Of course the delay will have some economic impact, but we are discussing necessary measures (to address that) during the coming period," the minister told Reuters, adding: "I am optimistic ... everything will be well, God willing."

Prime Minister Hisham Kandil said Egypt had requested that the loan be delayed by a month.

"The challenges are economic not political and must be dealt with aside from politics," he told a news conference.

Kandil said the reforms would not hurt the poor. In a bid to rebuild consensus, he said there would be a national dialogue about the economic program next week.

GUNMEN OPEN FIRE

On the streets of the capital, tensions ran high after nine people were hurt when gunmen fired at protesters camping in Tahrir Square, according to witnesses and Egyptian media.

The opposition has called for a major demonstration it hopes will force Mursi to postpone a referendum on a new constitution.

Thousands of flag-waving Islamist Mursi supporters, who want the vote to go ahead as planned on Saturday, assembled at a nearby mosque, setting the stage for further street confrontations in a crisis that has divided the nation of 83 million.

The upheaval following the fall of Hosni Mubarak last year is causing concern in the West, in particular the United States, which has given Cairo billions of dollars in military and other aid since Egypt made peace with Israel in 1979.

The turmoil has also placed a big strain on the economy, sending foreign currency reserves down to about $15 billion, less than half what they were before the revolt two years ago as the government has sought to defend the pound.

"Given the current policy environment, it's hardly a surprise that there's been a delay, but it is imperative that the delay is brief," said Simon Williams, HSBC economist in Dubai. "Egypt urgently needs that IMF accord, both for the funding it brings and the policy anchor it affords."

The IMF deal had been seen as giving a seal of approval to investors and donors about the government's economic plans, vital for drawing more cash into the economy to ease a crushing budget deficit and stave off a balance of payments crisis.

MASKED ATTACKERS

In central Cairo, police cars surrounded Tahrir Square in central Cairo, the first time they had appeared in the area since November 23, shortly after a decree by Mursi awarding himself sweeping temporary powers that touched off widespread protests.

The attackers, some masked, also threw petrol bombs that started a small fire, witnesses said.

"The masked men came suddenly and attacked the protesters in Tahrir. The attack was meant to deter us and prevent us from protesting today. We oppose these terror tactics and will stage the biggest protest possible today," said John Gerges, a Christian Egyptian who described himself as a socialist.

The latest bout of unrest has so far claimed seven lives in clashes between the Islamist Muslim Brotherhood and opponents who are also besieging Mursi's presidential palace.

The elite Republican Guard which protects the palace has yet to use force to keep protesters away from the graffiti-daubed building, now ringed with tanks, barbed wire and concrete barricades.

The army has told all sides to resolve their differences through dialogue, saying it would not allow Egypt to enter a "dark tunnel". For the period of the referendum, the army has been granted police powers by Mursi, allowing it to arrest civilians.

The army has portrayed itself as the guarantor of the nation's security, but so far it has shown no appetite for a return to the bruising front-line political role it played after the fall of Mubarak, which severely damaged its standing.

OPPOSITION MARCHES

Leftists, liberals and other opposition groups have called for marches to the presidential palace later on Tuesday to protest against the hastily arranged constitutional referendum planned for December 15, which they say is polarising the country and could put it in a religious straightjacket.

Mohamed ElBaradei, a prominent opposition leader and Nobel prize winner, called for dialogue with Mursi and said the referendum should be postponed for a couple of months due to the chaotic situation.

"This revolution was not staged to replace one dictator with another," he said in an interview with CNN.

Outside the presidential palace, anti-Mursi protesters huddled together in front of their tents, warming themselves beside a bonfire in the winter air.

"The referendum must not take place. The constitution came after blood was spilt. This is not how a country should be run," said Ali Hassan, a man in his 20s.

Opposition leaders want the referendum to be delayed and hope they can get sufficiently large numbers of protesters on the streets to change Mursi's mind.

Islamists, who dominated the body that drew up the constitution, have urged their followers to turn out "in millions" in a show of support for the president and for a referendum they feel sure of winning.

The opposition says the draft constitution fails to embrace the diversity of the population, a tenth of which is Christian, and invites Muslim clerics to influence lawmaking.

(Writing by Giles Elgood; Editing by Peter Graff and Will Waterman)

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