Iran upbeat on nuclear talks, West still wary

ALMATY (Reuters) - Iran was upbeat on Wednesday after talks with world powers about its nuclear work ended with an agreement to meet again, but Western officials said it had yet to take concrete steps to ease their fears about its atomic ambitions.

Rapid progress was unlikely with Iran's presidential election, due in June, raising domestic political tensions, diplomats and analysts had said ahead of the February 26-27 meeting in the Kazakh city of Almaty, the first in eight months.

The United States, China, France, Russia, Britain and Germany offered modest sanctions relief in return for Iran curbing its most sensitive nuclear work but made clear that they expected no immediate breakthrough.

In an attempt to make their proposals more palatable to Iran, the six powers appeared to have softened previous demands somewhat, for example regarding their requirement that the Islamic state ship out its stockpile of higher-grade uranium.

Iran's chief nuclear negotiator Saeed Jalili said the powers had tried to "get closer to our viewpoint", which he said was positive.

In Paris, U.S. Secretary of State John Kerry commented that the talks had been "useful" and that a serious engagement by Iran could lead to a comprehensive deal in a decade-old dispute that has threatened to trigger a new Middle East war.

Iran's foreign minister said in Vienna he was "very confident" an agreement could be reached and Jalili, the chief negotiator, said he believed the Almaty meeting could be a "turning point".

However, one diplomat said Iranian officials at the negotiations appeared to be suggesting that they were opening new avenues, but it was not clear if this was really the case.

Iran expert Dina Esfandiary of the International Institute for Strategic Studies said: "Everyone is saying Iran was more positive and portrayed the talks as a win."

"I reckon the reason for that is that they are saving face internally while buying time with the West until after the elections," she said.

The two sides agreed to hold expert-level talks in Istanbul on March 18 to discuss the powers' proposals, and return to Almaty for political discussions on April 5-6, when Western diplomats made clear they wanted to see a substantive response from Iran.

"Iran knows what it needs to do, the president has made clear his determination to implement his policy that Iran will not have a nuclear weapon," Kerry said.

A senior U.S. official in Almaty said, "What we care about at the end is concrete results."

ISRAELI WARNING

Israel, assumed to be the Middle East's only nuclear-armed power, was watching the talks closely. It has strongly hinted it might attack Iran if diplomacy and sanctions fail to ensure that it cannot build a nuclear weapon. Iran denies any such aim.

Israeli Prime Minister Benjamin Netanyahu said economic sanctions were failing and urged the international community to threaten Iran with military action.

Western officials said the offer presented by the six powers included an easing of a ban on trade in gold and other precious metals, and a relaxation of an import embargo on Iranian petrochemical products. They gave no further details.

In exchange, a senior U.S. official said, Iran would among other things have to suspend uranium enrichment to a fissile concentration of 20 percent at its Fordow underground facility and "constrain the ability to quickly resume operations there".

The official did not describe what was being asked of Iran as a "shutdown" of the plant as Western diplomats had said in previous meetings with Iran last year.

Iran says it has a sovereign right to enrich uranium for peaceful purposes, and wants to fuel nuclear power plants so that it can export more oil.

But 20-percent purity is far higher than that needed for nuclear power, and rings alarm bells abroad because it is only a short technical step away from weapons-grade uranium. Iran says it produces higher-grade uranium to fuel a research reactor.

Iran's growing stockpile of 20-percent-enriched uranium is already more than half-way to a "red line" that Israel has made clear it would consider sufficient for a bomb.

In Vienna on Wednesday, a senior U.N. nuclear agency official told diplomats in a closed-door briefing that Iran was technically ready to sharply increase this higher-grade enrichment, two Western diplomats said.

"Iran can triple 20 percent production in the blink of an eye," one of the diplomats said.

The U.S. official in Almaty said the powers' latest proposal would "significantly restrict the accumulation of near-20-percent enriched uranium in Iran, while enabling the Iranians to produce sufficient fuel" for their Tehran medical reactor.

This appeared to be a softening of a previous demand that Iran ship out its stockpile of higher-grade enriched uranium, which it says it needs to produce medical isotopes.

Iran has often indicated that 20-percent enrichment could be up for negotiation if it received the fuel from abroad instead.

Jalili suggested Iran could discuss the issue, although he appeared to rule out shutting down Fordow. He said the powers had not made that specific demand.

The Iranian rial, which has lost more than half its foreign exchange value in the last year as sanctions bite, rose some 2 percent on Wednesday, currency tracking websites reported.

(Additional reporting by Fredrik Dahl and Yeganeh Torbati in Almaty, Georgina Prodhan in Vienna, Zahra Hosseinian in Zurich, Gabriela Baczynska in Moscow, Dan Williams in Jerusalem and Marcus George in Dubai; Writing by Timothy Heritage and Fredrik Dahl; Editing by Louise Ireland)

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Italy faces stalemate after election shock

ROME (Reuters) - Italy faced political deadlock on Tuesday after a stunning election that saw the anti-establishment 5-Star Movement of comic Beppe Grillo become the strongest party in the country but left no group with a clear majority in parliament.

"The winner is: Ingovernability," was the headline in the Rome newspaper Il Messaggero, echoing the sentiment of a shock stalemate the country would have to confront in the next few weeks as sworn enemies would be forced to work together to form a government.

The center-left coalition led by Pier Luigi Bersani won the lower house by around 125,000 votes and claimed the most seats in the Senate but was short of the majority in the upper house that it would need to govern.

Bersani claimed victory but said it was obvious that Italy was in "a very delicate situation."

Neither Grillo, a comedian-turned-politician who previously ruled out any alliance with another party, nor Silvio Berlusconi's center-right bloc, which threatened to challenge the close tally, showed any immediate willingness to negotiate.

Commentators said all of Grillo's adversaries had underestimated the appeal of a grass-roots movement that called itself a "non-party," particularly its allure among young Italians who find themselves without jobs and the prospect of a decent future.

"The 'non-party' has become the largest party in the country," said Massimo Giannini, commentator for the Rome newspaper La Repubblica.

World financial markets reacted nervously to the prospect of a government stalemate in the euro zone's third-largest economy with memories still fresh of the financial crisis that took the 17-member currency bloc to the brink of collapse in 2011.

The euro skidded to an almost seven-week low against the dollar in Asia on fears about the euro zone's debt crisis. It fell as far as $1.3042, its lowest since January 10.

Italy's borrowing costs have come down in recent months, helped by the promise of European Central Bank support but the election result confirmed fears that it would not produce a government strong enough to implement effective reforms.

Grillo's surge in the final weeks of the campaign threw the race open, with hundreds of thousands turning up at his rallies to hear him lay into targets ranging from corrupt politicians and bankers to German Chancellor Angela Merkel.

In just three years, his 5-Star Movement, heavily backed by a frustrated generation of young Italians increasingly shut out from permanent full-time jobs, has grown from a marginal group to one of the most talked about political forces in Europe.

Its score of 25.5 percent in the lower house was just ahead of the 25.4 percent for Bersani's Democratic Party, which ran in a coalition with the leftist SEL party and it won almost 8.7 million votes overall, more than any other single party.

"The 5-Star Movement is the real winner of the election," said SEL leader Nichi Vendola, who said that his coalition would have to deal with Grillo, who mixes fierce attacks on corruption with policies ranging from clean energy to free Internet.

RECESSION

"It's a classic result. Typically Italian," said Roberta Federica, a 36-year-old office worker in Rome. "It means the country is not united. It is an expression of a country that does not work. I knew this would happen."

A long recession and growing disillusion with mainstream parties fed a bitter public mood that saw more than half of Italian voters back parties that rejected the austerity policies pursued by Prime Minister Mario Monti with the backing of Italy's European partners.

Monti suffered a major setback. His centrist grouping won only 10.6 percent and two of his key centrist allies, Pier Ferdinando Casini and lower house speaker Gianfranco Fini, both of whom have been parliamentarians for decades, were booted out.

"It's not that surprising if you consider how much delusion there was with politics in its traditional forms," Monti said.

Berlusconi's campaign, mixing sweeping tax cut pledges with relentless attacks on Monti and Merkel, echoed many of the themes pushed by Grillo and underlined the increasingly angry mood of the Italian electorate.

Stefano Zamagni, an economics professor at Bologna University said the result showed that a significant share of Italians "are fed up with following the austerity line of Germany and its northern allies."

"These people voted to stick one up to Merkel and austerity," he said.

Election rules give the center-left a solid majority in the lower house, despite its slim advantage in terms of votes, but without the Senate it will not be able to pass legislation.

Calculations by the Italian Centre for Electoral Studies, part of LUISS university in Rome, gave 121 seats to Bersani's coalition, 117 to Berlusconi, 54 for Grillo and 22 to the centrist coalition led by Monti.

That leaves no party or likely alliance with the 158 seats needed to form a Senate majority.

Even if the next government turns away from the tax hikes and spending cuts brought in by Monti, it will struggle to revive an economy that has scarcely grown in two decades.

Monti was widely credited with tightening Italy's public finances and restoring its international credibility after the scandal-plagued Berlusconi, whom he replaced as the 2011 financial crisis threatened to spin out of control.

But he struggled to pass the kind of structural reforms needed to improve competitiveness and lay the foundations for a return to economic growth and a weak center-left government may not find it any easier.

(Writing by Philip Pullella; Additional reporting by Barry Moody, Gavin Jones, Catherine Hornby and Naomi O'Leary; Editing by Lisa Shumaker)

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Cuban leader Raul Castro says he will retire in 2018

HAVANA (Reuters) - Cuban President Raul Castro announced on Sunday he will step down from power after his second term ends in 2018, and the new parliament named a 52-year-old rising star to become his first vice president and most visible successor.

"This will be my last term," Castro, 81, said shortly after the National Assembly elected him to a second five-year tenure.

In a surprise move, the new parliament also named Miguel Diaz-Canel as first vice president, meaning he would take over if Castro cannot serve his full term.

Diaz-Canel is a member of the political bureau who rose through the Communist Party ranks in the provinces to become the most visible possible successor to Castro.

Raul Castro starts his second term immediately, leaving him free to retire in 2018, aged 86.

Former President Fidel Castro joined the National Assembly meeting on Sunday, in a rare public appearance. Since falling ill in 2006 and ceding the presidency to his brother, the elder Castro, 86, has given up official positions except as a deputy in the National Assembly.

The new government will almost certainly be the last headed up by the Castro brothers and their generation of leaders who have ruled Cuba since they swept down from the mountains in the 1959 revolution.

Cubans and foreign governments were keenly watching whether any new, younger faces appeared among the Council of State members, in particular its first vice president and five vice presidents.

Their hopes were partially fulfilled with Diaz-Canel's ascension. He replaces former first vice president, Jose Machado Ventura, 82, who will continue as one of five vice presidents.

Commander of the Revolution Ramiro Valdes, 80, and Gladys Bejerano, 66, the comptroller general, were also re-elected as vice presidents.

Two other newcomers, Mercedes Lopez Acea, 48, first secretary of the Havana communist party, and Salvador Valdes Mesa, 64, head of the official labor federation, also earned vice presidential slots.

Esteban Lazo, a 68-year-old former vice president and member of the political bureau of the Communist Party, left his post upon being named president of the National Assembly on Sunday. He replaced Ricardo Alarcon, who served in the job for 20 years.

Six of the Council's top seven members sit on the party's political bureau which is also lead by Castro.

Castro's announcement came as little surprise to Cuban exiles in Miami.

"It's no big news. It would have been big news if he resigned today and called for democratic elections," said Alfredo Duran, a Cuban-American lawyer and moderate exile leader in Miami who supports lifting the U.S. trade embargo against Cuba. "I wasn't worried about him being around after 2018," he added.

The National Assembly meets for just a few weeks each year and delegates its legislative powers between sessions to the 31-member Council of State, which also functions as the executive through the Council of Ministers it appoints.

Eighty percent of the 612 deputies, who were elected in an uncontested vote February 3, were born after the revolution.

EFFORT TO PROMOTE YOUNGER GENERATION

Raul Castro, who officially replaced his ailing brother as president in 2008, has repeatedly said senior leaders should hold office for no more than two five-year terms.

"Although we kept on trying to promote young people to senior positions, life proved that we did not always make the best choice," Castro said at a Communist Party Congress in 2011.

"Today, we are faced with the consequences of not having a reserve of well-trained replacements ... It's really embarrassing that we have not solved this problem in more than half a century."

Speaking on Sunday, Castro hailed the composition of the new Council of State as an example of what he had said needed to be accomplished.

"Of the 31 members, 41.9 percent are women and 38.6 percent are black or of mixed race. The average age is 57 years and 61.3 percent were born after the triumph of the revolution," he said.

The 2011 party summit adopted a more than 300-point plan aimed at updating Cuba's Soviet-style economic system, designed to transform it from one based on collective production and consumption to one where individual effort and reward play a far more important role.

Across-the-board subsidies are being replaced by a comprehensive tax code and targeted welfare.

Raul Castro has encouraged small businesses and cooperatives in retail services, farming, minor manufacturing and retail, and given more autonomy to state companies which still dominate the economy.

The party plan also includes an opening to more foreign investment.

At the same time, Cuba continues to face a U.S. administration bent on restoring democracy and capitalism to the island and questions about the future largess of oil rich Venezuela with strategic ally Hugo Chavez battling cancer.

(Editing by Kieran Murray and Vicki Allen)

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Italians head to polls in crucial vote for euro zone

ROME (Reuters) - Polling stations opened for the first day of voting on Sunday in an election to choose a successor to the technocrat government of Mario Monti, appointed just over a year ago to save Italy from financial crisis.

Voting began at 8 a.m. and will go on to 10 p.m. (2100 GMT)Polls will re-open on Monday at 7 a.m. and remain open until 3 p.m. (1400 GMT), with the first exit polls for both the lower house and Senate expected soon afterwards.

The election, in the middle of a deep recession, is being closely watched by financial markets amid concern that it may fail to produce a clear winner capable of continuing the broad course of budget discipline and economic reform begun by Monti and backed by Italy's European partners.

The last opinion polls published before a pre-election blackout two weeks ago put a center-left coalition led by Pier Luigi Bersani in the lead although former prime minister Silvio Berlusconi had been closing the gap.

Uncertainty over the result has been increased by a surge in support for the anti-establishment 5-Star Movement of comedian Beppe Grillo who has ridden a wave of public anger against corruption and privilege in Italy's political elite.

(Reporting by Catherine Hornby; Editing by Alison Williams)

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Abe vows to revive Japanese economy, sees no escalation with China

WASHINGTON (Reuters) - Japanese Prime Minister Shinzo Abe told Americans on Friday "I am back and so is Japan" and vowed to get the world's third biggest economy growing again and to do more to bolster security and the rule of law in an Asia roiled by territorial disputes.

Abe had firm words for China in a policy speech to a top Washington think-tank, but also tempered his remarks by saying he had no desire to escalate a row over islets in the East China Sea that Tokyo controls and Beijing claims.

"No nation should make any miscalculation about firmness of our resolve. No one should ever doubt the robustness of the Japan-U.S. alliance," he told the Center for Strategic and International Studies.

"At the same time, I have absolutely no intention to climb up the escalation ladder," Abe said in a speech in English.

After meeting U.S. President Barack Obama on his first trip to Washington since taking office in December in a rare comeback to Japan's top job, he said he told Obama that Tokyo would handle the islands issue "in a calm manner."

"We will continue to do so and we have always done so," he said through a translator, while sitting next to Obama in the White House Oval Office.

Tension surged in 2012, raising fears of an unintended military incident near the islands, known as the Senkaku in Japan and the Diaoyu in China. Washington says the islets fall under a U.S.-Japan security pact, but it is eager to avoid a clash in the region.

Abe said he and Obama "agreed that we have to work together to maintain the freedom of the seas and also that we would have to create a region which is governed based not on force but based on an international law."

Abe, whose troubled first term ended after just one year when he abruptly quit in 2007, has vowed to revive Japan's economy with a mix of hyper-easy monetary policy, big spending, and structural reform. The hawkish leader is also boosting Japan's defense spending for the first time in 11 years.

"Japan is not, and will never be, a tier-two country," Abe said in his speech. "So today ... I make a pledge. I will bring back a strong Japan, strong enough to do even more good for the betterment of the world."

'ABENOMICS' TO BOOST TRADE

The Japanese leader stressed that his "Abenomics" recipe would be good for the United States, China and other trading partners.

"Soon, Japan will export more, but it will import more as well," Abe said in the speech. "The U.S. will be the first to benefit, followed by China, India, Indonesia and so on."

Abe said Obama welcomed his economic policy, while Deputy Chief Cabinet Secretary Katsunobu Kato said the two leaders did not discuss currencies, in a sign that the U.S. does not oppose "Abenomics" despite concern that Japan is weakening its currency to export its way out of recession.

The United States and Japan agreed language during Abe's visit that could set the stage for Tokyo to join negotiations soon on a U.S.-led regional free trade agreement known as the Trans-Pacific Partnership.

In a carefully worded statement following the meeting between Obama and Abe, the two countries reaffirmed that "all goods would be subject to negotiations if Japan joins the talks with the United States and 10 other countries.

At the same time, the statement envisions a possible outcome where the United States could maintain tariffs on Japanese automobiles and Japan could still protect its rice sector.

"Recognizing that both countries have bilateral trade sensitivities, such as certain agricultural products for Japan and certain manufactured products for the United States, the two governments confirm that, as the final outcome will be determined during the negotiations, it is not required to make a prior commitment to unilaterally eliminate all tariffs upon joining the TPP negotiations," the statement said.

Abe repeated that Japan would not provide any aid for North Korea unless it abandoned its nuclear and missile programs and released Japanese citizens abducted decades ago to help train spies.

Pyongyang admitted in 2002 that its agents had kidnapped 13 Japanese in the 1970s and 1980s. Five have been sent home, but Japan wants better information about eight who Pyongyang says are dead and others Tokyo believes were also kidnapped.

Abe also said he hoped to have a meeting with new Chinese leader Xi Jinping, who takes over as president next month, and would dispatch Finance Minister Taro Aso to attend the inauguration of incoming South Korean President Park Geun-hye next week.

(Additional reporting by Jeff Mason and Doug Palmer; Editing by David Brunnstrom and Paul Simao)

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Syrian opposition says Assad cannot be part of deal

CAIRO (Reuters) - The opposition Syrian National Coalition is willing to negotiate a peace deal to end the country's civil war but President Bashar al-Assad must step down and cannot be a party to any settlement, members agreed after debating a controversial initiative by their president.

The meeting of the 70-member Western, Arab and Turkish-backed coalition began on Thursday before Syrian Foreign Minister Walid al-Moualem is due for talks in Moscow, one of Assad's last foreign allies, and as U.N. mediator Lakhdar Brahimi renews efforts for a deal.

After an angry late night session in which coalition president Moaz Alkhatib came under strong criticism from Islamist and liberal members alike for proposing talks with Assad's government without setting what they described as clear goals, the coalition adopted a political document that demands Assad's removal and trial for the bloodshed, members said.

A draft document seen by Reuters that was circulated for debate said Assad cannot be party to any political solution and has to be tried, but did not directly call for his removal.

"We have adopted the political document that sets the parameters for any talks. The main addition to the draft is a clause about the necessity of Assad stepping step down," said Abdelbasset Sida, a member of the coalition's 12 member politburo who has criticized Alkhatib for acting alone.

"We removed a clause about a need for Russian and U.S. involvement in any talks and added that the coalition's leadership has to be consulted before launching any future initiatives," he added.

Still, the agreement marked a softening of tone by the coalition because previously it had insisted that Assad must step down before any talks with his government could begin.

In an indication that Syria's strongman remains defiant, Brahimi said Assad had told him he will remain president until his term ends in 2014 and then run for re-election.

Brahimi told al-Arabiya television he wants to see a transitional government formed in Syria that would not answer to any higher authority and lasts until U.N.-supervised elections take place in the country.

"I am of the view that U.N. peacekeepers should come to Syria as happened in other countries," Brahimi said.

BOMB, AIR STRIKES

The opposition front convened in Cairo on a day when a car bomb jolted central Damascus, killing 53 people, wounding 200 and incinerating cars on a busy highway close to the Russian Embassy and offices of the ruling Baath Party.

Syrian state television blamed the suicide blast on "terrorists". Central Damascus has been relatively insulated from the 23-month conflict that has killed around 70,000 people, but the bloodshed has shattered suburbs around the capital.

In the southern city of Deraa near the border with Jordan, activists said warplanes bombed the old quarter for the first time since March 2011, when the town set in a wheat-growing plain rose up against Assad, starting a national revolt.

A rebel officer in the Tawheed al-Janoub brigade which led an offensive this week in Deraa said there were at least five air strikes on Thursday. The Syrian Observatory for Human Rights said 18 people were killed, including eight rebel fighters.

Coalition member Munther Makhos, who was forced into exile in the 1970s for his opposition to Assad's father, the late President Hafez al-Assad, said supplies from Iran and Russia were giving government forces an awesome firepower advantage.

"It would be surreal to imagine that a political solution is possible. Bashar al-Assad will not send his deputy to negotiate his removal. But we are keeping the door open," Makhos said.

Makhos is the only Alawite in the Islamist-dominated coalition. The Alawite sect, an offshoot of Shi'ite Islam which accounts for about 10 percent of Syria's population but makes up most of the intelligence apparatus and dominates the army and the political system, has generally remained behind Assad.

With Alawites feeling increasingly threatened by a violent Sunni backlash, Alkhatib, a cleric from Damascus who played a role in the peaceful protest movement against Assad at the beginning of the uprising in 2011, has been calling on Alawites to join the revolution, saying their participation will help preserve the social fabric of the country.

Alkhatib's supporters say the initiative has popular support inside Syria from people who want to see a peaceful departure of Assad and a halt to the war that has increasingly pitted his fellow Alawites against Syria's Sunni Muslim majority.

But rebel fighters on the ground, over whom Alkhatib has little control, are generally against the proposal.

The Syrian Islamic Liberation Front, which represents armed brigades, said in a statement it was opposed to Alkhatib's initiative because it ignored the revolt's goal of "the downfall of the regime and all its symbols".

"We are demanding his accountability for the bloodshed and destruction he has wreaked. I think the message is clear enough," said veteran opposition campaigner Walid al-Bunni, who supports Alkhatib.

Alkhatib formulated the initiative in broad terms last month after talks with the Russian and Iranian foreign ministers in Munich but without consulting the coalition, catching the umbrella organization by surprise.

Among Alkhatib's critics is the Muslim Brotherhood, the only organized group in the political opposition.

A Brotherhood source said the group will not scuttle the proposal because it was confident Assad is not interested in a negotiated exit, which could help convince the international community to support the armed struggle for his removal.

"Russia is key," the source said, speaking on condition of anonymity. "We are showing the international community that we are willing to take criticism from the street but the problem is Assad and his inner circle. They do not want to leave."

PLAY FOR RUSSIA

Russia hopes Alkhatib will visit soon in search of a breakthrough. Bunni said Alkhatib would not go to Moscow without the coalition's approval and that he would not be there at the same time as Moualem.

"In my opinion Alkhatib should not go to Moscow until Russia stops sending arms shipments to the Assad regime," Bunni said.

Formal backing by the coalition for Alkhatib's initiative gives it more weight internationally and undermines Assad supporters' argument that the opposition is too divided to be considered a serious player, opposition sources said.

Coalition members and diplomats based in the region said Brahimi asked Alkhatib in Cairo last week to seek full coalition backing for his plan, which resembles the U.N. envoy's own ideas for a negotiated settlement.

One diplomat in contact with the opposition and the United Nations had said a coalition approval of Alkhatib's initiative could help change the position of Russia, which has blocked several United Nations Security Council resolutions on Syria.

The diplomat said only a U.N. resolution could force Assad to the negotiating table, and a U.N. "stabilization force" may still be needed to prevent an all-out slide into a civil war.

"Brahimi has little hope that Assad will agree to any serious talks," the diplomat said. "Differences are narrowing between the United States and Russia about Syria but Moscow remains the main obstacle for Security Council action."

(Editing by Paul Taylor and Mohammad Zargham)

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French general urges EU to equip "impoverished" Mali army

BAMAKO, Mali (Reuters) - The European Union should complement a mission to train Mali's army, routed by rebels last year, by providing equipment from uniforms to vehicles and communications technology, a French general said on Wednesday.

General Francois Lecointre, appointed to head the EU training mission to Mali (EUTM) that was formally launched this week, said in Bamako equipping the "very impoverished" and disorganized Malian army was as important as training it.

Europe, along with the United States, has backed the French-led military intervention in Mali which since January 11 has driven al Qaeda-allied Islamist insurgents out of the main northern towns into remote mountains near Algeria's border.

European governments have ruled out sending combat troops to join French and African soldiers pursuing the Islamist rebels.

But the EU is providing a 500-strong multinational training force that will give military instruction to Malian soldiers for an initial period of 15 months at an estimated cost of 12.3 million euros ($16.45 million).

While hailing what he called the EU's "courageous, novel, historic" decision to support Mali, Lecointre told a news conference the Malian army's lack of equipment was a problem.

"I know the Malian state is poor, but the Malian army is more than poor," the French general told a news conference, adding that it urgently needed everything from uniforms and weapons to vehicles and communications equipment.

Last year, when Tuareg separatist forces swelled by weapons and fighters from the Libyan conflict swept out of the northern deserts, a demoralized and poorly-led Malian army collapsed and fled before them, abandoning arms and vehicles.

Mali's military was further shaken by a March 22 coup by junior officers who toppled President Amadou Toumani Toure, sowing division among rival army factions. Islamist radicals allied to al Qaeda later hijacked the victorious Tuareg rebellion to occupy the northern half of the country.

In a fast-charging military campaign led by Paris, French and African troops have driven the jihadists out of principal northern towns like Gao and Timbuktu, and are fighting the rebels in the Adrar des Ifoghas mountains.

HUMAN RIGHTS INSTRUCTION

Flanked by Mali's armed forces chief, General Ibrahima Dembele, Lecointre said he was disappointed that a meeting of international donors last month pledged funds for an African military force, known as AFISMA, being deployed in Mali, but included "very few" contributions for the Malian army itself.

"The European Union needs to invest today in the equipping of the Malian army and not just in its training," the general said, adding he would make this point strongly in a report to EU member state representatives early next month.

Asked how much re-equipping the army would cost, he said it would be "much more" than the 12 million euros of EU financing for the training mission, but could not give a precise estimate.

Starting early in April, the EU mission will start instructing Malian soldiers with a plan to train four new battalions of 600-700 members each, formed from existing enlisted men and new recruits.

Lecointre said the EU training would include instruction in human rights. Demands for this increased after allegations by Malian civilians and international human rights groups that Malian soldiers were executing Tuaregs and Arabs accused of collaborating with Islamist rebels.

The European training contingent is drawn from a range of European countries, but the main contributors would be France, Germany, Italy, Spain and Britain, EUTM officers said.

Mali's army has received foreign training before - several battalions that fled before the rebels last year were trained by the U.S. military and the leader of the March 22 coup, Captain Amadou Sanogo, attended training courses in the United States.

Dembele said U.S. training failed to forge cohesion among Malian units and he hoped the EU training would achieve this.

The United States, which halted direct support for the Malian military after last year's coup, could eventually resume aid if planned national elections in July fully restore democracy to the West African country.

Washington is providing airlift, refuelling and intelligence support to the French-led military intervention in Mali. ($1 = 0.7479 euros)

(Reporting by Pascal Fletcher; Editing by Jason Webb)

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Syria "Scud-type" missile said to kill 20 in Aleppo

AMMAN (Reuters) - A Syrian missile killed at least 20 people in a rebel-held district of Aleppo on Tuesday, opposition activists said, as the army turns to longer-range weapons after losing bases in the country's second-largest city.

The use of what opposition activists said was a large missile of the same type as Russian-made Scuds against an Aleppo residential district came after rebels overran army bases over the past two months from which troops had fired artillery.

As the uprising against President Bashar al-Assad, now a civil war, nears its two-year mark, rebels also landed three mortar bombs in the rarely-used presidential palace compound in the capital Damascus, opposition activists said on Tuesday.

The United Nations estimates 70,000 people have been killed in the conflict between largely Sunni Muslim rebels and Assad's supporters among his minority Alawite sect. An international diplomatic deadlock has prevented intervention, as the war worsens sectarian tensions throughout the Middle East.

A Russian official said on Tuesday that Moscow, which is a long-time ally of Damascus, would not immediately back U.N. investigators' calls for some Syrian leaders to face the International Criminal Court for war crimes.

Moscow has blocked three U.N. Security Council resolutions that would have increased pressure on Assad.

Casualties are not only being caused directly by fighting, but also by disruption to infrastructure and Syria's economy.

An estimated 2,500 people in a rebel-held area of northeastern Deir al-Zor province have been infected with typhoid, which causes diarrhea and can be fatal, due to drinking contaminated water from the Euphrates River, the World Health Organization (WHO) said on Tuesday.

"There is not enough fuel or electricity to run the pumps so people drink water from the Euphrates which is contaminated, probably with sewage," the WHO representative in Syria, Elisabeth Hoff, told Reuters by telephone.

The WHO had no confirmed reports of deaths so far.

BURIED UNDER RUBBLE

In northern Aleppo, opposition activists said 25 people were missing under rubble of three buildings hit by a several-meter-long missile. They said remains of the weapon showed it to be a Scud-type missile of the type government forces increasingly use in Aleppo and in Deir a-Zor.

NATO said in December Assad's forces fired Scud-type missiles. It did not specify where they landed but said their deployment was an act of desperation.

Bodies were being gradually dug up, Mohammad Nour, an activist, said by phone from Aleppo.

"Some, including children, have died in hospitals," he said.

Video footage showed dozens of people scouring for victims and inspecting damage. A body was pulled from under collapsed concrete. At a nearby hospital, a baby said to have been dug out from wreckage was shown dying in the hands of doctors.

Reuters could not independently verify the reports.

Opposition activists also reported fighting near the town of Nabak on the Damascus-Homs highway, another route vital for supplying forces in the capital loyal to Assad, whose family has ruled Syria since the 1960s.

Rebels moved anti-aircraft guns into the eastern Damascus district of Jobar, adjacent to the city centre, as they seek to secure recent gains, an activist said.

"The rebels moved truck-mounted anti-aircraft guns to Jobar and are now firing at warplanes rocketing the district," said Damascus activist Moaz al-Shami.

Russian Deputy Foreign Minister Gennady Gatilov told a news conference a U.N. war crimes report, which accuses military leaders and rebels of terrorizing civilians, was "not the path we should follow ... at this stage it would be untimely and unconstructive."

Syria is not party to the Rome Statute that established the ICC and the only way the court can investigate the situation is if it receives a referral from the Security Council, where Moscow is a permanent member.

(Writing by Oliver Holmes; Editing by Jason Webb)

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Chavez back in Venezuela, on Twitter with four million followers

CARACAS (Reuters) - After Hugo Chavez spent two months out of the public eye for cancer surgery in Cuba, the Venezuelan government hailed his homecoming on Monday and said the president had achieved another milestone - four million followers on Twitter.

The 58-year-old flew back from Havana before dawn and was taken to a military hospital. No new details were given on his health, and there were no images of his arrival. Officials say his condition remains delicate.

The normally loquacious socialist leader, who is struggling to speak as he breathes through a tracheal tube, took to Twitter with a passion back in April 2010, tweeting regularly and encouraging other leftist Latin American leaders to do likewise.

His @chavezcandanga account quickly drew a big mixed following of fans, critics and others just curious to see how his famously long speeches and fiery anti-U.S. invective would work within the social media network's 140-character limit.

But as he fought the cancer and underwent weeks of grueling chemotherapy and radiation therapy, he began to tweet less and less frequently, before stopping altogether on November 1.

Early on Monday morning, he made his reappearance.

"It was 4:30, 5 a.m. He got to his room and surprised everyone: rat-tat-tat, he sent three or four messages, and at that moment fireworks began to go off around the country," Vice President Nicolas Maduro said in a televised cabinet meeting.

During the day, Maduro added, the president's number of followers had shot up to well over four million.

"It's incredible, in just a few hours ... he's the second most-followed president in the world (after Barack Obama), and the first if we make the comparison by per capita," he said.

Obama has more than 27 million Twitter followers and is No. 5 most followed globally. Chavez is Twitter's No. 190 globally.

4TH MILLION FOLLOWER

Maduro said Chavez's four millionth follower was a 20-year-old single Venezuelan woman named Alemar Jimenez from the gritty San Juan neighborhood in downtown Caracas, near the military hospital where the president arrived earlier in the day.

"She's one of the golden generation of youth who support the fatherland and have been waiting with growing love for commander Hugo Chavez," Maduro said, before presenting a dazzled-looking Jimenez to the cameras and giving her a bunch of flowers.

"We were really emotional" she said, recounting how she was with her mother when they heard Chavez had returned. "I sent him a message on Twitter saying he must get better."

There are still big questions over the president's health. He could have come back to govern from behind the scenes, or he may be hoping to ease political tensions and pave the way for a transition to Maduro, his preferred successor.

Chavez has often ordered followers to fight back against opposition critics of his self-styled revolution by using social media, leading from the front himself on Twitter and referring to the Internet as a "battle trench."

As his ranks of followers grew, Chavez said he hired 200 assistants to help him respond to messages - which he said were a great way to receive first-hand the requests, demands, complaints and denunciations of citizens in the thousands.

During his re-election campaign last year, the government launched an SMS text message service that forwards his tweets to cellphones that lack Internet service, broadening their reach to the poorest corners of the South American country.

"He's a communication revolution!" Maduro said, later unbuttoning his shirt on TV to show he was wearing a T-shirt bearing Chavez's eyes emblazoned across his chest.

For the tens of thousands who signed up on Monday to follow Chavez on Twitter, it is unclear how much will be posted there in the weeks and months ahead. Venezuela's 29 million people are mostly wondering something similar.

(Additional reporting by Diego Ore; Editing by Todd Eastham)

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Ecuador's Correa in re-election triumph, eyes investment for growth

QUITO (Reuters) - Ecuadorean President Rafael Correa reveled in a sweeping re-election victory that allows him to deepen his socialist revolution even as he seeks to woo foreign investment in the resource-wealthy Andean nation.

The pugnacious 49-year-old economist trounced his nearest rival by more than 30 percentage points on Sunday to win a new four-year term. He has already been in power for six years, winning broad support with ambitious social spending programs.

Correa's resounding victory on Sunday could set him up to become Latin America's most outspoken critic of Washington as Venezuelan President Hugo Chavez is locked in a battle with cancer and may be unable to stay in power.

"We will be present wherever we can be useful, wherever we can best serve our fellow citizens and our Latin American brothers," Correa told supporters who celebrated in front of the presidential palace in Quito, waving the ruling Alianza Pais party's neon-green flags.

"This is not just a victory for Ecuador, this is a victory for the great homeland of Latin America," the beaming Correa said.

Correa is now the loudest voice in Latin America arguing against the free-market reforms promoted by Washington and in favor of state-driven economies and expanding ties with China.

Still, the continued success of Latin American socialism will depend on strong commodities prices that underpin generous social spending, and Correa needs to both improve Ecuador's stagnant oil production and spur a nascent mining industry.

In a sign he wants to deepen socialist reforms, Correa's legislative agenda includes a new law that would regulate television and newspaper content, part of his ongoing confrontation with opposition media.

He also plans a land reform campaign to redistribute idle land to the poor.

"Our Ecuador needs a president like Rafael Correa. He has been strong and has not allowed anyone to intimidate him," said Julieta Moira, an unemployed 46-year-old as she celebrated outside the presidential palace. "I'm very excited, happy and thankful."

Correa is also expected to seek changes to a mining law that would help close a deal with Canada's Kinross to develop a large gold reserve.

That will be a major test of his ability to offer investment security while ensuring the state keeps a large portion of revenue.

LEFTIST ALLIES

Chavez, in a statement sent by Venezuela's government, celebrated Correa's re-election as a triumph for the ALBA bloc of leftist nations in Latin America and the Caribbean. The group has been left rudderless since Chavez was sidelined with cancer.

"It is a victory for ALBA, for the Bolivarian and socialist forces of our America, and will help to consolidate an era of change," the statement said, referring to Venezuelan-born South American independence hero Simon Bolivar.

Correa dedicated his victory to Chavez, who is still in a Cuban hospital after undergoing his fourth surgery for cancer on December 11.

Correa's closest rival, Guillermo Lasso, became the face of Ecuador's opposition on Sunday after winning about 23 percent of votes.

The opposition fielded six other candidates including former Correa ally Alberto Acosta, former President Lucio Gutierrez and banana magnate and five-time presidential hopeful Alvaro Noboa.

Critics call Correa a dangerous authoritarian who has curbed media freedom and controlled state institutions. Even some supporters disapprove of his tempestuous outbursts, fights with media and bullying of adversaries.

Ecuadoreans also chose a new Congress on Sunday, and Correa said he expected the ruling Alianza Pais to win a majority.

That would let him avoid negotiating with rivals to pass proposed legislation, including the new media law and land reform measures.

Correa needs to lure investors to diversify the economy and finance the investment in social welfare and infrastructure that helped him win another four-year term.

Ecuador has been locked out of capital markets after a 2008 debt default on $3.2 billion in bonds, and Correa's government has taken an aggressive stance with oil companies to squeeze more revenue from their operations.

PRAGMATIC APPROACH

Foreign investment will be key to boosting oil production that has been stagnant for five years and to expanding a mining industry that has barely begun to tap the country's gold and copper reserves.

"We can't be beggars sitting on a sack of gold," is a catch phrase Correa has used in recent months to argue that Ecuador needs to better exploit its natural resources despite opposition from rural communities to some projects.

In that vein, U.S.-educated Correa appears to be cautiously willing to cut deals and soften his image as an anti-capitalist crusader.

"The advantages of our country for foreign investment are political stability, a strong macroeconomic performance ... and important stimulus to new private investment," he said last week while hosting Sheikh Hamad bin Khalifa al-Thani, the emir of gas-rich Qatar.

But in comments after his win on Sunday, he stressed that investment was not an end but a means to ensure growth. He promised Ecuador would not "mortgage" itself for foreign cash.

Foreign direct investment has generally been less than $1 billion a year since Correa took office in 2007. By comparison, neighboring Peru and Colombia last year received $7.7 billion and $13 billion, respectively.

"There is still a risk that Correa will seek to change terms for the mining sector once it is more developed, but for now, Correa will show signs of pragmatism as a means of kick-starting the sector," the political risk consultancy Eurasia Group said in an analysis anticipating his victory.

His government is also in talks with China to secure funding for the $12.5 billion Pacifico refinery, which would allow Ecuador to save up to $5 billion a year in fuel imports.

(Editing by Andrew Cawthorne, Kieran Murray and Mohammad Zargham)

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Ecuador votes for president, Correa seen winning new term

QUITO (Reuters) - Ecuadoreans vote for president on Sunday in a ballot expected to hand incumbent Rafael Correa a new term to advance his socialist agenda of heavy government spending and expansion of state power that critics slam as creeping authoritarianism.

Generous state outlays to expand access to healthcare, pave decrepit roads and build new schools have given the combative economist a strong base among the South American nation's poor.

Victory for Correa would cheer the leftist ALBA bloc of Latin American and Caribbean nations at a time when the group's indisputable leader, Venezuelan President Hugo Chavez, is struggling to recover from cancer.

Polls show Correa leading his closest rival by more than 35 percentage points.

Critics say Correa he is a despot who tolerates no dissent and is intent on amassing power. But the opposition's inability to unite behind a single candidate - seven opposition candidates are running - has helped give Correa a comfortable lead.

Former banker Guillermo Lasso is Correa's nearest rival in the polls, but surveys show him commanding only between 9 and 15 percent of the vote.

The Ecuadorean leader has built up an image of nationalist man-of-the-people through theatrical confrontation with oil companies and Wall Street investors.

POLITICAL STABILITY

The only Ecuadorean president in the past 20 years to complete a full term in office, he is admired for bringing political stability to a nation where leaders had been frequently toppled by violent street protests or military coups.

"We're done with the opportunists, they would take power and snatch up all the money and forget about their promises," Jorge Pazmino, 65, who upholsters vehicles, said on Thursday at Correa's final campaign rally in a working-class southern Quito neighborhood.

"Now we finally have a president who is getting things done. There's just nobody else to vote for," Pazmino added.

Pazmino said it was easier to get medical attention thanks to an overhaul of the social security system and credits the president with forcing employers to respect labor laws.

The Perfiles de Opinion polling firm recently showed Correa with 62 percent support. To avoid a second round, he needs to win at least 50 percent of the vote or 40 percent with a lead of 10 percentage points over the second-placed candidate.

Correa, 49, has ruled since 2007. In a new four-year term, he would face the challenge of securing financing after a 2008 debt default and wooing investors to boost oil output and kick-start the mining industry.

Opposition leaders call Correa a dictator in the making who is quashing free speech through hostile confrontation with media and squelching free enterprise through heavy taxation and constant regulatory changes.

Lasso has called Correa's "Citizens' Revolution" a fast food menu of unsuccessful economic policies copied from Ecuador's era of military rulers and leftist governments like Venezuela's Chavez.

"He'll have to explain how this development model is revolutionary if it's a copy of the dictatorship of the 1970s and depends on high prices for oil that is mortgaged to China in exchange for loans," Lasso said on Thursday at his final rally.

YOUTHFUL ENERGY

Correa has spent weeks on the campaign trail, from indigenous villages of the Andean highlands to urban slums in the bustling port city of Guayaquil, singing and dancing to play up an image of youthful energy.

An avid cyclist, Correa filmed one campaign spot showing him changing out of a sharp suit into biking clothes and then riding his bike over mountain peaks and past tropical fishing villages to show the improvement of roads under his leadership.

Even some Correa supporters acknowledge they find him brash and domineering. Sharp-tempered and quick to pick fights, he has remained in almost constant conflict with opposition media and on several occasions sued critical reporters and newspapers.

He also put himself on a collision course with the United States last year by letting WikiLeaks' founder Julian Assange take refuge at Ecuador's embassy in London and later offering the former computer hacker asylum.

Opposition leaders say the key to his longevity has been revamping state institutions to suit his needs and placing allies in key posts. In 2011, he called a referendum on a justice system overhaul, bypassing a hostile Congress in a move critics say boosted his control over the courts.

Correa has relied heavily on financing from China after a 2008 default on $3.2 billion in bonds left the country locked out of foreign credit markets. Lasso promises to cut taxes and spur entrepreneurship if he wins.

Other opposition candidates include banana magnate and five-time presidential candidate Alvaro Noboa, and former President Lucio Gutierrez, who was ousted in a 2005 coup.

Ecuadoreans also vote for a new legislature on Sunday, through the results are not expected to be in for several days. The Alianza Pais party also hopes to win more than 50 percent of the seats, up from around 42 percent now.

Investors will be watching Correa's new term for signs he is willing to compromise to bring in investment needed to raise stagnant oil production, boost the promising but still nascent mining sector, and expand power generation.

A major test will come this year in negotiations with Canada's Kinross to develop a large gold deposit.

(Additional reporting by Yuri Garcia in Guayaquil; Editing by Andrew Cawthorne and Will Dunham)

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Exclusive: North Korea tells China of preparations for fresh nuclear test - source

BEIJING (Reuters) - North Korea has told its key ally, China, that it is prepared to stage one or even two more nuclear tests this year in an effort to force the United States into diplomatic talks, said a source with direct knowledge of the message.

Further tests could also be accompanied this year by another rocket launch, said the source, who has direct access to the top levels of government in both Beijing and Pyongyang.

North Korea conducted its third nuclear test on Tuesday, drawing global condemnation and a stern warning from the United States that it was a threat and a provocation.

"It's all ready. A fourth and fifth nuclear test and a rocket launch could be conducted soon, possibly this year," the source said, adding that the fourth nuclear test would be much larger than the third, at an equivalent of 10 kilotons of TNT.

The tests will be undertaken, the source said, unless Washington holds talks with North Korea and abandons its policy of what Pyongyang sees as attempts at regime change.

North Korea also reiterated its long-standing desire for the United States to sign a final peace agreement with it and establish diplomatic relations, he said. North Korea remains technically at war with both the United States and South Korea after the Korean war ended in 1953 with a truce.

In Washington, U.S. State Department spokeswoman Victoria Nuland urged North Korea to "refrain from additional provocative actions that would violate its international obligations" under three different sets of U.N. Security Council resolutions that prohibit nuclear and missile tests.

North Korea "is not going to achieve anything in terms of the health, welfare, safety, future of its own people by these kinds of continued provocative actions. It's just going to lead to more isolation," Nuland told reporters.

The Pentagon also weighed in, calling North Korea's missile and nuclear programs "a threat to U.S. national security and to international peace and security."

"The United States remains vigilant in the face of North Korean provocations and steadfast in our defense commitments to allies in the region," said Pentagon spokeswoman Major Catherine Wilkinson.

Initial estimates of this week's test from South Korea's military put its yield at the equivalent of 6-7 kilotons, although a final assessment of yield and what material was used in the explosion may be weeks away.

North Korea's latest test, its third since 2006, prompted warnings from Washington and others that more sanctions would be imposed on the isolated state. The U.N. Security Council has only just tightened sanctions on Pyongyang after it launched a long-range rocket in December.

Pyongyang is banned under U.N. sanctions from developing missile or nuclear technology after its 2006 and 2009 nuclear tests.

North Korea worked to ready its nuclear test site, about 100 km (60 miles) from its border with China, throughout last year, according to commercially available satellite imagery. The images show that it may have already prepared for at least one more test, beyond Tuesday's subterranean explosion.

"Based on satellite imagery that showed there were the same activities in two tunnels, they have one tunnel left after the latest test," said Kune Y. Suh, a nuclear engineering professor at Seoul National University in South Korea.

Analysis of satellite imagery released on Friday by specialist North Korea website 38North showed activity at a rocket site that appeared to indicate it was being prepared for a launch (http://38north.org/2013/02/tonghae021413/).

NORTH 'NOT AFRAID' OF SANCTIONS

President Barack Obama pledged after this week's nuclear test "to lead the world in taking firm action in response to these threats" and diplomats at the U.N. Security Council have already started discussing potential new sanctions.

North Korea has said the test was a reaction to "U.S. hostility" following its December rocket launch. Critics say the rocket launch was aimed at developing technology for an intercontinental ballistic missile.

"(North) Korea is not afraid of (further) sanctions," the source said. "It is confident agricultural and economic reforms will boost grain harvests this year, reducing its food reliance on China."

North Korea's isolated and small economy has few links with the outside world apart from China, its major trading partner and sole influential diplomatic ally.

China signed up for international sanctions against North Korea after the 2006 and 2009 nuclear tests and for a U.N. Security Council resolution passed in January to condemn the latest rocket launch. However, Beijing has stopped short of abandoning all support for Pyongyang.

Sanctions have so far not discouraged North Korea from pursuing its nuclear ambitions.

"It is like watching the same movie over and over again," said Lee Woo-young, a professor at Seoul's University of North Korean Studies. "The idea that stronger sanctions make North Korea stop developing nuclear programs isn't effective in my view."

The source with ties to Beijing and Pyongyang said China would again support U.N. sanctions. He declined to comment on what level of sanctions Beijing would be willing to endorse.

"When China supported U.N. sanctions ... (North) Korea angrily called China a puppet of the United States," he said. "There will be new sanctions which will be harsh. China is likely to agree to it," he said, without elaborating.

He said however that Beijing would not cut food and fuel supplies to North Korea, a measure it reportedly took after a previous nuclear test.

He said North Korea's actions were a distraction for China's leadership, which was concerned that the escalations could inflame public opinion in China and hasten military build-ups in the region.

The source said he saw little room for compromise under North Korea's youthful new leader, Kim Jong-un. The third Kim to rule North Korea is just 30 years old and took over from his father in December 2011.

He appears to have followed his father, Kim Jong-il, in the "military first" strategy that has pushed North Korea ever closer to a workable nuclear missile at the expense of economic development.

"He is much tougher than his father," the source said.

(Additional reporting by Arshad Mohammed and Phillip Stewart in WASHINGTON; Writing by David Chance; Editing by Raju Gopalakrishnan, David Brunnstrom and Jackie Frank)

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Key U.S. general backs keeping Afghan forces at peak strength

WASHINGTON (Reuters) - The U.S. general nominated to oversee a vast region that includes Afghanistan on Thursday backed keeping Afghan forces at a peak strength of 352,000, contrary to current plans to shrink them after NATO declares the war over next year.

General Lloyd Austin, nominated to lead the U.S. military's Central Command, said at his Senate confirmation hearing that a more robust Afghan force, while more costly, would "hedge against any Taliban mischief" following America's longest war.

"Keeping the larger-size force would certainly reassure the Afghans, it would also reassure our NATO allies that we remain committed," Austin said.

The comments came two days after President Barack Obama announced in his State of the Union address that 34,000 U.S. troops - roughly half of the current U.S. force in Afghanistan - would be withdrawn by early 2014.

Obama reassured Americans that the costly, unpopular war was coming to an end, but he left unanswered bigger questions about America's exit strategy, including how many U.S. troops would stay in the country beyond 2014 to help train and advise the Afghans and to battle remnants of al Qaeda.

Obama also did not discuss the future size of the Afghan forces, although a White House fact sheet sent out after his address noted they would remain at 352,000 until "at least" early 2015.

Austin warned the Taliban would be waiting to test them.

"You could reasonably expect that an enemy that's been that determined, that agile, will very soon after we transition begin to try to test the Afghan security forces," Austin said.

Under current plans, the United States and its NATO allies will help build up the Afghan armed forces to 352,000 personnel, a number they are approaching, but the size of the force - which the allies will continue to fund - will be trimmed to 230,000 after 2015.

ECHOES OF IRAQ

The hearing frequently moved away from questions about the Afghan war and other current events to questions about Austin's past role as commander in Iraq, when a failure to strike an immunity deal for U.S. troops led to their total withdrawal in 2011.

Obama administration officials have warned that failure to strike an immunity deal with Afghanistan would also result in a pullout, but Afghan President Hamid Karzai and U.S. officials have expressed confidence a deal can be reached.

Republicans, who have criticized Obama's drawdown strategy in Afghanistan, noted that the president would have left a much smaller force in Iraq than Austin recommended, even if a deal had been struck.

Senator John McCain of Arizona lamented the lack of a U.S. presence in Iraq.

Pressed by Republicans, Austin acknowledged that the situation in Iraq was trending in a "problematic" direction, and agreed that a continued U.S. role would have helped bolster Iraqi forces.

When it came to Afghanistan, Senator Lindsay Graham of South Carolina warned Austin that if Obama sought an insufficient force for the post-2014 mission, he would refuse to vote for funding the war effort.

"It can be as low as 9 or 10,000, that I will stand with them," Graham said.

"If they overrule the commanders and create a force that cannot in my view be successful, I cannot in good conscience vote to continue this operation."

Graham said he would vote for Austin's confirmation once Austin spoke with the former commander of the Afghan mission, General John Allen, about his recommendations to Obama and reported back to the committee about his opinion.

(Reporting by Phil Stewart; Editing by David Brunnstrom)

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South Korea unveils missile it says can hit North's leaders

SEOUL (Reuters) - South Korea unveiled a cruise missile on Thursday that it said can hit the office of North Korea's leaders, trying to address concerns that it is technologically behind its unpredictable rival which this week conducted its third nuclear test.

South Korean officials declined to say the exact range of the missile but said it could hit targets anywhere in North Korea.

The Defence Ministry released video footage of the missiles being launched from destroyers and submarines striking mock targets. The weapon was previewed in April last year and officials said deployment was now complete.

"The cruise missile being unveiled today is a precision-guided weapon that can identify and strike the window of the office of North Korea's leadership," ministry spokesman Kim Min-seok said told reporters.

North Korea has forged ahead with long-range missile development, successfully launching a rocket in December that put a satellite into orbit.

The North's ultimate aim, Washington believes, is to design an intercontinental ballistic missile capable of carrying a nuclear warhead that could hit the United States.

North Korea, which accuses the United States and its "puppet", South Korea, of war-mongering on an almost daily basis, is likely to respond angrily to South Korea flexing its muscles.

North Korea, technically still at war with the South after their 1950-53 conflict ended in a truce, not a peace treaty, carried out its third nuclear test on Tuesday, drawing condemnation from around the world including its only major ally China.

The test and the threat of more unspecified actions from Pyongyang have raised tensions on the Korean peninsula as the South prepares to inaugurate a new president on February 25.

"The situation prevailing on the Korean peninsula at present is so serious that even a slight accidental case may lead to an all-out war which can disturb the whole region," North Korea's official KCNA news agency said.

(Reporting by Ju-min Park; Editing by Nick Macfie)

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U.S. says to take lead to contain North Korea

SEOUL (Reuters) - U.S. President Barack Obama said North Korea's third nuclear test, in defiance of U.N. resolutions, was a threat and a provocation and that the United States would lead the world in responding.

North Korea has said Tuesday's test was an act of self-defense against "U.S. hostility" and threatened stronger steps if necessary.

"Provocations of the sort we saw last night will only isolate them further, as we stand by our allies, strengthen our own missile defense, and lead the world in taking firm action in response to these threats," Obama said in his State of the Union address, delivered 24 hours after the North's test.

North Korea tested nuclear devices in 2006 and 2009. But despite the three tests and a long-range rocket launch, it is not believed to be close to manufacturing a nuclear missile capable of targeting the United States.

But Washington believes the isolated state's ultimate aim is to design an intercontinental ballistic missile capable of carrying a nuclear warhead that could reach the continental United States. North Korea says its rocket program is aimed at putting satellites in space.

The latest test has drawn condemnation from around the world, including from China which for years has been the North's only major ally.

The U.N. Security Council held an emergency meeting at which its members, including China, "strongly condemned" the test and vowed to start work on appropriate measures in response, the president of the council said.

North Korean leader Kim Jong-un, the third member of his family to rule, has presided over two long-range rocket launches and a nuclear test during his first year in power, pursuing policies that have propelled his impoverished and malnourished country closer to becoming a nuclear weapons power.

North Korea said the test had "greater explosive force" than those in 2006 and 2009. Its KCNA news agency said it had used a "miniaturised" and lighter nuclear device, indicating it had again used plutonium, which is suitable for use as a missile warhead.

EXASPERATED

China, which has shown signs of increasing exasperation with the recent bellicose tone of its reclusive neighbor, summoned the North Korean ambassador in Beijing and protested sternly, the Chinese Foreign Ministry said.

Foreign Minister Yang Jiechi said China was "strongly dissatisfied and resolutely opposed" to the test and urged North Korea to "stop any rhetoric or acts that could worsen situations and return to the right course of dialogue and consultation as soon as possible".

Analysts said the test was a major embarrassment to China, which is a permanent member of the Security Council and North Korea's sole major economic and diplomatic ally.

Obama said the test would be a setback for North Korea's economic development.

"The regime in North Korea must know that they will only achieve security and prosperity by meeting their international obligations," he said.

U.S. ambassador to the United Nations Susan Rice said Washington and its allies intended to "augment the sanctions regime" already in place due to Pyongyang's previous atomic tests. North Korea is already one of the most heavily sanctioned states in the world and has few external economic links that can be targeted.

Japanese Prime Minister Shinzo Abe said the test was a "grave threat" that could not be tolerated.

Russian Foreign Minister Sergei Lavrov urged North Korea to abandon its nuclear arms program and return to talks. NATO condemned the test as an "irresponsible act."

South Korea, still technically at war with North Korea after a 1950-53 civil war ended in a truce, also denounced the test. Obama spoke to South Korean President Lee Myung-bak on Tuesday and told him the United States "remains steadfast in its defense commitments" to South Korea, the White House said.

MAXIMUM RESTRAINT

North Korea's Foreign Ministry said the test was "only the first response we took with maximum restraint".

"If the United States continues to come out with hostility and complicates the situation, we will be forced to take stronger, second and third responses in consecutive steps," it said in a statement carried by the KCNA news agency.

North Korea - which gave the U.S. State Department advance warning of the test - often threatens the United States and its "puppet", South Korea, with destruction in colourful terms.

North Korea told the U.N. disarmament forum in Geneva that it would never bow to resolutions on its nuclear program and that prospects were "gloomy" for the denuclearization of the divided Korean peninsula because of a "hostile" U.S. policy.

The magnitude of the explosion was roughly twice that of the 2009 test, according to the Vienna-based Comprehensive Nuclear-Test Ban Treaty Organization.

U.S. intelligence agencies were analyzing the event and found that North Korea probably conducted an underground nuclear explosion with a yield of "approximately several kilotons", the Office of the Director of National Intelligence said.

Nuclear experts have described the previous two tests as puny by international standards. The yield of the 2006 test has been estimated at less than 1 kiloton (1,000 tons of TNT equivalent) and the second at some 2-7 kilotons, compared with 20 kilotons for a Nagasaki-type bomb.

Initial indications are that the test involved the latest version of a plutonium-based prototype weapon, according to one current and one former U.S. national security official. Both previous tests involved plutonium. If it turns out the test was of a new uranium-based weapon, it would show that North Korea had made more progress on uranium enrichment than previously thought.

"VICIOUS CYCLE"

When Kim Jong-un, who is 30, took power after his father's death in December 2011, there were hopes that he would bring reforms and end Kim Jong-il's "military first" policies.

Instead, North Korea, whose economy is smaller than it was 20 years ago and where a third of children are believed to be malnourished, appears to be trapped in a cycle of sanctions followed by further defiance.

"The more North Korea shoots missiles, launches satellites or conducts nuclear tests, the more the U.N. Security Council will impose new and more severe sanctions," said Shen Dingli, a professor at Shanghai's Fudan University.

"It is an endless, vicious cycle."

Options for a response from the international community appear to be few. Diplomats at the United Nations said negotiations on new sanctions could take weeks since China is likely to resist tough new measures for fear they could lead to further retaliation by the North Korean leadership.

Significantly, the test comes at a time of political transition in China, Japan and South Korea, and as Obama begins his second term.

The North's longer-term game plan may be to restart international talks aimed at winning food and financial aid. China urged it to return to the stalled "six-party" talks on its nuclear programme, hosted by China and including the two Koreas, the United States, Japan and Russia.

(Additional reporting by Jack Kim, Christine Kim and Jumin Park in SEOUL; Linda Sieg in TOKYO; Louis Charbonneau and Michelle Nichols at the UNITED NATIONS; Fredrik Dahl in VIENNA; Michael Martina and Chen Aizhu in BEIJING; Mette Fraende in COPENHAGEN; Adrian Croft, Charlie Dunmore and Justyna Pawlak in BRUSSELS; Mark Hosenball, Paul Eckert, Roberta Rampton, Tabassum Zakaria and Jeff Mason in WASHINGTON; Editing by Raju Gopalakrishnan)

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North Korea conducts third nuclear test, sparks condemnation

SEOUL (Reuters) - North Korea conducted its third-ever nuclear test on Tuesday, a move likely to anger its main ally China and increase international action against Pyongyang and its new young leader, Kim Jong-un.

U.N. Secretary-General Ban Ki-moon condemned North Korea's test, saying it was a "clear and grave violation" of U.N. Security Council resolutions.

South Korea said the size of the seismic activity indicated a nuclear explosion slightly larger than the North's two previous tests at 6-7 kilotons, although that is still relatively small. The Hiroshima bomb was around 20 kilotons.

The U.S. Geological Survey said that a seismic event measuring 5.1 magnitude had occurred on Tuesday, with North Korea later confirming the nuclear test.

"It was confirmed that the nuclear test that was carried out at a high level in a safe and perfect manner using a miniaturized and lighter nuclear device with greater explosive force than previously did not pose any negative impact on the surrounding ecological environment," KCNA said.

The test prompted the U.N. Security Council to call for an emergency meeting later on Tuesday and came as China celebrated the lunar new year, potentially increasing embarrassment for Beijing, the North's sole major economic and diplomatic ally.

"I think it will be proven to be a self-defeating and self-suffocating blunder on the part of the DPRK (Democratic People's Republic of Korea)," an Asian diplomat to the United Nations told Reuters in New York.

"They have chosen the worst timing to conduct this testing ... This will also be an open invitation to the international community to up the ante to corner the DPRK."

It may take days to ascertain whether the North used highly enriched uranium for the first time in the nuclear test, a move that would give it a second path to a nuclear weapon.

North Korea has used plutonium in previous tests and needs to conserve its stocks as testing eats into its limited supply of the material that could be used to construct a nuclear bomb.

The Vienna-based Comprehensive Nuclear-Test Ban Treaty Organization, the international atomic test monitor, said the event had hallmarks similar to the North's previous nuclear tests in 2006 and 2009.

"This act would constitute a clear threat to international peace and security, and challenges efforts made to strengthen global nuclear disarmament and non-proliferation," it said.

Japan immediately called for sanctions against North Korea whose December long-range rocket launch prompted new U.N. sanctions that Pyongyang said earlier would push it to undertake a third nuclear test.

South Korea's defense ministry said additional nuclear tests and rocket launches by the North should not be ruled out.

South Korea's Yonhap news agency said Pyongyang had informed China and the United States of its plans to test on Monday.

When new leader Kim Jong-un took office after his father's death in December 2011, there were hopes the youthful leader would bring economic reforms and end his father Kim Jong-il's "military first" policies that have seen the North declare itself a "nuclear weapons state".

Since taking office however, he has purged the military, pushed ahead with two long-range rocket launches, which critics say breach U.N. sanctions.

Tuesday's action appeared to have been timed for the run-up to February 16 anniversary celebrations of Kim Jong-il's birthday, as well as to achieved maximum international attention.

But options for the international community appear to be in short supply, as North Korea is already one of the most heavily sanctioned states on earth.

Significantly, the test comes at a time of political transition in China, Japan and South Korea, and as U.S. President Barack Obama begins his second term.

Japanese Prime Minister Shinzo Abe is bedding down a new government and South Korea's new president, Park Geun-hye, prepares to take office on February 25.

China too is in the midst of a once in a decade leadership transition to Xi Jinping, who takes office in March.

But the longer term game plan from Pyongyang may be to restart talks aimed at winning aide for its impoverished and stricken economy that is smaller than it was 20 years ago.

Its puny economy and small diplomatic reach means the North struggles to win attention on the global stage - other than through nuclear tests and attacks on South Korea, last made in 2010.

"Now the next step for North Korea will be to offer talks. They will either offer to restart six-party talks or military talks - any form to start up discussion again to bring things to their advantage," said Jeung Young-tae, senior research fellow at the Korea Institute for National Unification in Seoul.

(Additional reporting by Jack Kim, Christine Kim and Jumin Park in SEOUL; Linda Sieg in TOKYO; Louis Charbonneau at the UNITED NATIONS; Editing by Michael Perry and Paul Tait)

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Gunbattle rocks Gao after rebels surprise French, Malians

GAO, Mali (Reuters) - Islamist insurgents launched a surprise raid in the heart of the Malian town of Gao on Sunday, battling French and local troops in a blow to efforts to secure Mali's recaptured north.

Local residents hid in their homes or crouched behind walls as the crackle of gunfire from running street battles resounded through the sandy streets and mud-brick houses of the ancient Niger River town, retaken from Islamist rebels last month by a French-led offensive.

French helicopters clattered overhead and fired on al Qaeda-allied rebels armed with AK-47s and rocket-propelled grenades who had infiltrated the central market area and holed up in a police station, Malian and French officers said.

The fighting inside Gao was certain to raise fears that pockets of determined Islamists who have escaped the lightning four-week-old French intervention in Mali will strike back with guerrilla attacks and suicide bombings.

After driving the bulk of the insurgents from major northern towns such as Timbuktu and Gao, French forces are trying to search out their bases in the remote and rugged Adrar des Ifoghas mountains, far up in the northeast.

But with Mali's weak army unable to secure recaptured zones, and the deployment of a larger African security force slowed by delays and kit shortages, vast areas to the rear of the French forward lines now look vulnerable to guerrilla activity.

"They infiltrated the town via the river. We think there were about 10 of them. They were identified by the population and they went into the police station," said General Bernard Barrera, commander of French ground operations in Mali.

He told reporters in Gao that French helicopters had intervened to help Malian troops pinned down by the rebels, who threw grenades from rooftops.

Malian gendarme Colonel Saliou Maiga told Reuters the insurgents intended to carry out suicide attacks in the town.

SUICIDE BOMBERS

No casualty toll was immediately available. But a Reuters reporter in Gao saw one body crumpled over a motorcycle. Malian soldiers said some of the raiders may have come on motorbikes.

The gunfire in Gao erupted hours after French and Malian forces reinforced a checkpoint on the northern outskirts that had been attacked for the second time in two days by a suicide bomber.

Abdoul Abdoulaye Sidibe, a Malian parliamentarian from Gao, said the rebel infiltrators were from the MUJWA group that had held the town until French forces liberated it late last month.

MUJWA is a splinter faction of al Qaeda's North African wing AQIM which, in loose alliance with the home-grown Malian Islamist group Ansar Dine, held Mali's main northern urban areas for 10 months until the French offensive drove them out.

Late on Saturday, an army checkpoint in Gao's northern outskirts came under attack by a group of Islamist rebels who fired from a road and bridge that lead north through the desert scrub by the Niger River to Bourem, 80 km (50 miles) away.

"Our soldiers came under heavy gunfire from jihadists from the bridge ... At the same time, another one flanked round and jumped over the wall. He was able to set off his suicide belt," Malian Captain Sidiki Diarra told reporters.

The bomber died and one Malian soldier was lightly wounded, he added. In Friday's motorbike suicide bomber attack, a Malian soldier was also injured.

Diarra described Saturday's bomber as a bearded Arab.

Since Gao and the UNESCO World Heritage city of Timbuktu were retaken last month, several Malian soldiers have been killed in landmine explosions on a main road leading north.

French and Malian officers say pockets of rebels are still in the bush and desert between major towns and pose a threat of hit-and-run guerrilla raids and bombings.

"We are in a dangerous zone... we can't be everywhere," a French officer told reporters, asking not to be named.

One local resident reported seeing a group of 10 armed Islamist fighters at Batel, just 10 km (6 miles) from Gao.

OPERATIONS IN NORTHEAST

The French, who have around 4,000 troops in Mali, are now focusing their offensive operations several hundred kilometers (miles) north of Gao in a hunt for the Islamist insurgents.

On Friday, French special forces paratroopers seized the airstrip and town of Tessalit, near the Algerian border.

From here, the French, aided by around 1,000 Chadian troops in the northeast Kidal region, are expected to conduct combat patrols into the Adrar des Ifoghas mountains.

The remaining Islamists are believed to have hideouts and supply depots in a rugged, sun-blasted range of rocky gullies and caves, and are also thought to be holding at least seven French hostages previously seized in the Sahel.

The U.S. and European governments back the French-led operation as a defense against Islamist jihadists threatening wider attacks, but rule out sending their own combat troops.

To accompany the military offensive, France and its allies are urging Mali authorities to open a national reconciliation dialogue that addresses the pro-autonomy grievances of northern communities like the Tuaregs, and to hold democratic elections.

Interim President Dioncounda Traore, appointed after a military coup last year that plunged the West African state into chaos and led to the Islamist occupation of the north, has said he intends to hold elections by July 31.

But he faces splits within the divided Malian army, where rival units are still at loggerheads.

(Additional reporting by Tiemoko Diallo and Adama Diarra in Bamako; Writing by Joe Bavier and Pascal Fletcher; Editing by Kevin Liffey)

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