Wall Street Week Ahead: A lump of coal for "Fiscal Cliff-mas"

NEW YORK (Reuters) - Wall Street traders are going to have to pack their tablets and work computers in their holiday luggage after all.

A traditionally quiet week could become hellish for traders as politicians in Washington are likely to fall short of an agreement to deal with $600 billion in tax hikes and spending cuts due to kick in early next year. Many economists forecast that this "fiscal cliff" will push the economy into recession.

Thursday's debacle in the U.S. House of Representatives, where Speaker John Boehner failed to secure passage of his own bill that was meant to pressure President Obama and Senate Democrats, only added to worry that the protracted budget talks will stretch into 2013.

Still, the market remains resilient. Friday's decline on Wall Street, triggered by Boehner's fiasco, was not enough to prevent the S&P 500 from posting its best week in four.

"The markets have been sort of taking this in stride," said Sandy Lincoln, chief market strategist at BMO Asset Management U.S. in Chicago, which has about $38 billion in assets under management.

"The markets still basically believe that something will be done," he said.

If something happens next week, it will come in a short time frame. Markets will be open for a half-day on Christmas Eve, when Congress will not be in session, and will close on Tuesday for Christmas. Wall Street will resume regular stock trading on Wednesday, but volume is expected to be light throughout the rest of the week with scores of market participants away on a holiday break.

For the week, the three major U.S. stock indexes posted gains, with the Dow Jones industrial average <.dji> up 0.4 percent, the S&P 500 <.spx> up 1.2 percent and the Nasdaq Composite Index <.ixic> up 1.7 percent.

Stocks also have booked solid gains for the year so far, with just five trading sessions left in 2012: The Dow has advanced 8 percent, while the S&P 500 has climbed 13.7 percent and the Nasdaq has jumped 16 percent.

IT COULD GET A LITTLE CRAZY

Equity volumes are expected to fall sharply next week. Last year, daily volume on each of the last five trading days dropped on average by about 49 percent, compared with the rest of 2011 - to just over 4 billion shares a day exchanging hands on the New York Stock Exchange, the Nasdaq and NYSE MKT in the final five sessions of the year from a 2011 daily average of 7.9 billion.

If the trend repeats, low volumes could generate a spike in volatility as traders keep track of any advance in the cliff talks in Washington.

"I'm guessing it's going to be a low volume week. There's not a whole lot other than the fiscal cliff that is going to continue to take the headlines," said Joe Bell, senior equity analyst at Schaeffer's Investment Research, in Cincinnati.

"A lot of people already have a foot out the door, and with the possibility of some market-moving news, you get the possibility of increased volatility."

Economic data would have to be way off the mark to move markets next week. But if the recent trend of better-than-expected economic data holds, stocks will have strong fundamental support that could prevent selling from getting overextended even as the fiscal cliff negotiations grind along.

Small and mid-cap stocks have outperformed their larger peers in the last couple of months, indicating a shift in investor sentiment toward the U.S. economy. The S&P MidCap 400 Index <.mid> overcame a technical level by confirming its close above 1,000 for a second week.

"We view the outperformance of the mid-caps and the break of that level as a strong sign for the overall market," Schaeffer's Bell said.

"Whenever you have flight to risk, it shows investors are beginning to have more of a risk appetite."

Evidence of that shift could be a spike in shares in the defense sector, expected to take a hit as defense spending is a key component of the budget talks.

The PHLX defense sector index <.dfx> hit a historic high on Thursday, and far outperformed the market on Friday with a dip of just 0.26 percent, while the three major U.S. stock indexes finished the day down about 1 percent.

Following a half-day on Wall Street on Monday ahead of the Christmas holiday, Wednesday will bring the S&P/Case-Shiller Home Price Index. It is expected to show a ninth-straight month of gains.

U.S. jobless claims on Thursday are seen roughly in line with the previous week's level, with the forecast at 360,000 new filings for unemployment insurance, compared with the previous week's 361,000.

(Wall St Week Ahead runs every Friday. Questions or comments on this column can be emailed to: rodrigo.campos(at)thomsonreuters.com)

(Reporting by Rodrigo Campos; Additional reporting by Chuck Mikolajczak; Editing by Jan Paschal)

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Douglas wins AP female athlete of the year honors

When Gabby Douglas allowed herself to dream of being the Olympic champion, she imagined having a nice little dinner with family and friends to celebrate. Maybe she'd make an appearance here and there.

"I didn't think it was going to be crazy," Douglas said, laughing. "I love it. But I realized my perspective was going to have to change."

Just a bit.

The teenager has become a worldwide star since winning the Olympic all-around title in London, the first African-American gymnast to claim gymnastics' biggest prize. And now she has earned another honor. Douglas was selected The Associated Press' female athlete of the year, edging out swimmer Missy Franklin in a vote by U.S. editors and news directors that was announced Friday.

"I didn't realize how much of an impact I made," said Douglas, who turns 17 on Dec. 31. "My mom and everyone said, 'You really won't know the full impact until you're 30 or 40 years old.' But it's starting to sink in."

In a year filled with standout performances by female athletes, those of the pint-sized gymnast shined brightest. Douglas received 48 of 157 votes, seven more than Franklin, who won four gold medals and a bronze in London. Serena Williams, who won Wimbledon and the U.S. Open two years after her career was nearly derailed by a series of health problems, was third (24).

Britney Griner, who led Baylor to a 40-0 record and the NCAA title, and skier Lindsey Vonn each got 18 votes. Sprinter Allyson Felix, who won three gold medals in London, and Carli Lloyd, who scored both U.S. goals in the Americans' 2-1 victory over Japan in the gold-medal game, also received votes.

"One of the few years the women's (Athlete of the Year) choices are more compelling than the men's," said Julie Jag, sports editor of the Santa Cruz Sentinel.

Douglas is the fourth gymnast to win one of the AP's annual awards, which began in 1931, and first since Mary Lou Retton in 1984. She also finished 15th in voting for the AP sports story of the year.

Douglas wasn't even in the conversation for the Olympic title at the beginning of the year. That all changed in March when she upstaged reigning world champion and teammate Jordyn Wieber at the American Cup in New York, showing off a new vault, an ungraded uneven bars routine and a dazzling personality that would be a hit on Broadway and Madison Avenue.

She finished a close second to Wieber at the U.S. championships, then beat her two weeks later at the Olympic trials. With each competition, her confidence grew. So did that smile.

By the time the Americans got to London, Douglas had emerged as the most consistent gymnast on what was arguably the best team the U.S. has ever had.

She posted the team's highest score on all but one event in qualifying. She was the only gymnast to compete in all four events during team finals, when the Americans beat the Russians in a rout for their second Olympic title, and first since 1996. Two nights later, Douglas claimed the grandest prize of all, joining Retton, Carly Patterson and Nastia Liukin as what Bela Karolyi likes to call the "Queen of Gymnastics."

But while plenty of other athletes won gold medals in London, none captivated the public quite like Gabby.

Fans ask for hugs in addition to photographs and autographs, and people have left restaurants and cars upon spotting her. She made Barbara Walters' list of "10 Most Fascinating People," and Forbes recently named her one of its "30 Under 30." She has deals with Nike, Kellogg Co. and AT&T, and agent Sheryl Shade said Douglas has drawn interest from companies that don't traditionally partner with Olympians or athletes.

"She touched so many people of all generations, all diversities," Shade said. "It's her smile, it's her youth, it's her excitement for life. ... She transcends sport."

Douglas' story is both heartwarming and inspiring, its message applicable those young or old, male or female, active or couch potato. She was just 14 when she convinced her mother to let her leave their Virginia Beach, Va., home and move to West Des Moines, Iowa, to train with Liang Chow, Shawn Johnson's coach. Though her host parents, Travis and Missy Parton, treated Douglas as if she was their fifth daughter, Douglas was so homesick she considered quitting gymnastics.

She's also been open about her family's financial struggles, hoping she can be a role model for lower income children.

"I want people to think, 'Gabby can do it, I can do it,'" Douglas said. "Set that bar. If you're going through struggles or injuries, don't let it stop you from what you want to accomplish."

The grace she showed under pressure — both on and off the floor — added to her appeal. When some fans criticized the way she wore her hair during the Olympics, Douglas simply laughed it off.

"They can say whatever they want. We all have a voice," she said. "I'm not going to focus on it. I'm not really going to focus on the negative."

Besides, she's having far too much fun.

Her autobiography, "Grace, Gold and Glory," is No. 4 on the New York Times' young adult list. She, Wieber and Fierce Five teammates Aly Raisman and McKayla Maroney recently wrapped up a 40-city gymnastics tour. She met President Barack Obama last month with the rest of the Fierce Five, and left the White House with a souvenir.

"We got a sugar cookie that they were making for the holidays," Douglas said. "I took a picture of it."

Though her busy schedule hasn't left time to train, Douglas insists she still intends to compete through the Rio de Janeiro Olympics in 2016.

No female Olympic champion has gone on to compete at the next Summer Games since Nadia Comaneci. But Douglas is still a relative newcomer to the elite scene — she'd done all of four international events before the Olympics — and Chow has said she hasn't come close to reaching her full potential. She keeps up with Chow through email and text messages, and plans to return to Iowa after her schedule clears up in the spring.

Of course, plenty of other athletes have said similar things and never made it back to the gym. But Douglas is determined, and she gets giddy just talking about getting a new floor routine.

"I think there's even higher bars to set," she said.

Because while being an Olympic champion may have changed her life, it hasn't changed her.

"I may be meeting cool celebrities and I'm getting amazing opportunities," she said. "But I'm still the same Gabby."

___

AP Projects Editor Brooke Lansdale contributed to this report.

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Annual bird counts give scientists climate clues

MAD ISLAND, Texas (AP) — Armed with flashlights, recordings of bird calls, a small notebook and a stash of candy bars, scientist Rich Kostecke embarked on an annual 24-hour Christmastime count of birds along the Texas Gulf Coast. Yellow rail. Barn owl. Bittern. Crested Cara-Cara. Kostecke rattled off the names and scribbled them in his notebook.

His data, along with that from more than 50 other volunteers spread out into six groups across the 7,000-acre Mad Island preserve, will be analyzed regionally and then added to a database with the results of more than 2,200 other bird counts going on from mid-December to Jan. 5 across the Western Hemisphere.

The count began in 1900 as a National Audubon Society protest of holiday hunts that left piles of bird and animal carcasses littered across the country. It now helps scientists understand how birds react to short-term weather events and may provide clues as to how they will adapt as temperatures rise and climate changes.

“Learning the changes of habit in drought could help us know what will happen as it gets warmer and drier,” said Kostecke, a bird expert and associate director of conservation, research and planning at the Nature Conservancy in Texas.

Scientists saw birds change their habits during last year’s historic drought that parched most of Texas. Some birds that normally winter on the coast — such as endangered whooping cranes — arrived and immediately turned back when they couldn’t find enough food. Other birds didn’t even bother flying to the coast. Snowy owls, who sometimes migrate from the Arctic to Montana, suddenly showed up as far south as Texas.

There has been some rain this year, but Texas still hasn’t fully recovered from the drought and many areas remain unusually dry. Wetlands, a crucial bird habitat, have been damaged. Trees and brush are dead or brown. There are fewer flooded rice fields, prime foraging grounds for birds. And sandhill cranes, for the second winter in a row, are staying in Nebraska.

An initial report on the 24-hour count that began midnight Monday and ended midnight Tuesday included 233 different species — a drop of 11 from last year when 244 were counted on Mad Island. While the area likely still has one of the United States’ most diverse bird populations, the species that were missing raise questions.

Where are the wild turkeys? Why were no black rails found? What about fox sparrows and the 13 other species that are commonly counted on the preserve? Where have they gone?

“There are several possibilities,” Kostecke surmised. “Conditions may be better in the east, like Louisiana. Some may still be north, because it’s been mild, and they tend to follow the freeze line.”

With weather in the north still relatively warm, some birds might choose to stay put and conserve energy for the nesting season, Kostecke added.

Similar changes in bird behavior could be seen this year in the Midwest and parts of the South, areas that have been gripped by a massive drought that covered two-thirds of the nation at its height. The drought’s severity is unusual, but scientists warn that such weather could become more common with global warming. Birds — as well as other animals — will have to adapt, and the data collected in the Christmas count gives crucial insight on how they might do that.

The dataset is notable for its size and the decades that it covers. Along with showing how birds adapt to climate change, it reveals the impact of environmental changes, such as habitat loss, which has contributed to a 40 percent decline in bird numbers during the past 40 years, said Gary Langham, vice president and chief scientist for the National Audubon Society.

“We’ve converted the landscape dramatically, and then you add climate change to the mix … and the results are more alarming,” Langham said.

Scientists have used the data to predict bird populations and behavior in 2020, 2050 and 2080. They also could use it to advance conservation work or calls for emergency action, he said.

Birds, though, are only one part of an ecosystem. As they move from place to place, they encounter new predators and species that may be competing for the same food. Vegetation also is changing as the Earth warms and some areas become more drought-prone. What happens as all these changes take place?

“It’s the million dollar question. When you have that kind of ecological disruption, no one knows what happens,” Langham said. “There are going to be winners and losers. There will be some that become more common, and some that will go extinct.”

The survivors are the big unknown.

___

Online:

Christmas Bird Count: http://birds.audubon.org/christmas-bird-count

___

Plushnick-Masti can be followed on Twitter at https://twitter.com/RamitMastiAP

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Will media stay on gun story?

STORY HIGHLIGHTS

• Howard Kurtz: Conventional wisdom is that media will lose interest in guns


• He says that's been the pattern of media behavior after Columbine, other shootings


• This time seems like it might be different, he says


• Kurtz: Reporters profoundly shaken by story, should stay on it

Editor's note: Howard Kurtz is the host of CNN's "Reliable Sources" and is Newsweek's Washington bureau chief. He is also a contributor to the website Daily Download.

(CNN) -- The conventional wisdom is that Newtown has just a few more days to run as a major media story.

The reporters are pulling out of the grief-stricken Connecticut town, which means no more live shots every hour. The White House press corps responded to President Obama's announcement Wednesday of a task force on gun control with the first three reporters asking about the impending fiscal cliff. And after every previous mass shooting, from Columbine to Aurora, the media's attention has soon drifted away.

But I believe this time will be different.

Howard Kurtz

I believe the horror of 20 young children being gunned down has pricked the conscience of those in the news business, along with the rest of America.

I could be wrong, of course. The press is notorious for suffering from ADD.

But every conversation I've had with journalists has quickly drifted to this subject and just as quickly turned intense. Most have talked about how their thoughts have centered on their children, and grandchildren, and the unspeakable fear of anything happening to them. All have spoken about how hard it is to watch the coverage, and many have recalled crying as they watch interviews with the victims' families, or even when Obama teared up while addressing the nation.

Watch: Blaming Jon Stewart for the Newtown Shootings?

I've watched Fox's Megyn Kelly choke back tears on the air after watching an interview from Newtown. I've heard CNN's Don Lemon admit that he is on the verge of crying all the time. I've seen MSNBC's Joe Scarborough, a former Republican congressman, say that day in Connecticut "changed everything" and prompted him to rethink his longstanding opposition to gun control, which earned him top ratings from the NRA.

Maybe Newtown will be the 9/11 of school safety.

Watch: Media Fantasy: Touting Ben Affleck (Uh Huh) for the Senate

The media paid scant attention to gun control in the past, in part because of a conviction that the NRA would block any reform on Capitol Hill. At the same time, they took their cue from the fact that officeholders in both parties were avoiding the issue at all costs—Republicans because they mainly support the status quo, Democrats because they mostly deem it political poison.

But since when is it our job solely to take dictation from pols? When it comes to subjects like climate change and same-sex marriage, the press has been out ahead of the political establishment. Given the carnage in Newtown as the latest example, journalists should demand whether we can do better. The fact that Obama now promises to submit gun legislation to Congress will help the narrative, but it shouldn't be a mandatory requirement for coverage.

Watch: From Joe Scarborough to Rush Limbaugh, the conservative media meltdown

This is not a plea for a press-driven crusade for gun control. In fact, it's imperative that journalists be seen as honest brokers who are fair to all sides. MSNBC anchor Thomas Roberts, in an interview with Republican Rep. Jack Kingston of Georgia, who opposes gun restrictions, said: "So we need to just be complacent in the fact that we can send our children to school to be assassinated." That is demonization, just as some conservative pundits are unfairly accusing liberal commentators who push for gun control of "politicizing" a tragedy or of pushing God out of the public schools.

The question of school safety extends beyond guns to mental illness and societal influences. With even some NRA supporters asking why law-abiding hunters need automatic rifles with high-capacity magazines, it's time for a nuanced debate that goes beyond the usual finger-pointing. Bob Costas got hammered for using an NFL murder-suicide to raise the gun issue during a halftime commentary, but he was right to broach the subject.

Here is where the media have not just an opportunity but a responsibility. The news business has no problem giving saturation coverage to such salacious stories as David Petraeus' dalliance with Paula Broadwell. Isn't keeping our children safe from lunatics far more important by an order of magnitude?

I think the press is up to the challenge. Based on what I've heard in the voices of people in the profession, they will not soon forget what happened in Newtown. And they shouldn't let the rest of us forget either.

Follow @CNNOpinion on Twitter

Join us at Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of Howard Kurtz.

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Hot plate sparked fire that killed 2 kids, fire department says

A 3-year-old boy and 2-year-old girl died this morning after they and two other children were left home alone in the Englewood neighborhood, officials say. (Posted Dec. 22nd, 2012)

A young boy and girl died this morning after they and two other children were left home alone in the Englewood neighborhood on the South Side, officials say.

The girl, 2, and the boy, 3, were found in a back bedroom after firefighters cut through burglar bars on the brick and stone two-flat in the 6400 block of South Paulina Street.

"Please, sergeant, please," a relative pleaded with an officer outside the home. "They're 2 and 3 years old."

A hot plate being used for heat sparked the fire while the four children, alone in the apartment, slept in two bedrooms, according to fire officials. Police said the children's mother and aunt were being questioned.

The surviving children, a 7-year-old boy and his 4-year-old brother, were rescued by an aunt and interviewed by investigators at a neighbor's home.

Darnell, 7, said he and Marquis, 4, had fallen asleep watching Batman cartoons. The two other children -- his 2-year-old sister and 3-year-old cousin -- were asleep in another bedroom. When he woke up, the fire was already burning.

"When the fire started, everything shut off," Darnell said.

The boy said he and Marquis were in a bedroom by the kitchen and "the fire was in the front room where the couch is at. When we saw the fire, it was like in the front room, then it was by the bathroom door."

Darnell said his aunt came rushing through the front door. "When (she) saw the fire, she called all our names. When I opened the door, she told me, 'Come on, the fire's getting closer.' I coughed, my auntie was choking. My sister was banging on the door.

"When we got outside, police passed us, then drove backward and came up because there was a fire," he said.

Darnell and Marquis were brought to a neighbor's house, where investigators from the Bomb and Arson unit and the Office of Fire Investigations (OFI) talked to them.

The investigator from OFI squatted down while talking to the boys. Only Darnell spoke. Marquis was quiet the entire time. Darnell spoke to a Tribune reporter afterward as he sat with four neighbors, all adults, in their home.

The children were later taken into protective custody by the Department of Children and Family Services.

When firefighters arrived around 3:30 a.m., they weren't able to get into the home because of intense heat and fire, a Chicago Fire Department official said. Fire was heavy throughout the basement and first floor, he said.

Firefighters cut through burglar bars on the windows, he said.

Firefighters eventually found the two children cuddled up in a bed, fire officials said at a news conference.

The basement windows were all shattered. A white Christmas tree, smudged with smoke, stood near front room window.

A neighbor told an investigator that the second-floor tenants recently moved out of the brick and stone two-flat.

pnickeas@tribune.com

Twitter: @PeterNickeas

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Vice president quits as Egypt votes on constitution

CAIRO (Reuters) - Egypt's vice-president resigned on Saturday as Egyptians voted in a referendum that is expected to approve a new constitution that lays the foundations for the country's transition to democracy but will strip him of his role.

Authorities extended voting by four hours in the second and decisive round of the plebiscite on an Islamist-drafted constitution that the opposition has criticized as divisive and likely to cause more unrest.

Just hours before polls closed, Vice President Mahmoud Mekky announced his resignation, saying he wanted to quit last month but stayed on to help President Mohamed Mursi tackle a crisis that blew up when the Islamist leader assumed wide powers.

Mekky, a prominent judge who said he was uncomfortable in politics, disclosed earlier he had not been informed of Mursi's power grab. However, the timing of Mekky's move appeared linked to the fact there is no vice-presidential post under the draft constitution.

In a resignation letter, Mekky said that although he had held on in the post he had "realized for some time that the nature of political work did not suit my professional background as a judge".

Islamist supporters of Mursi say the charter is vital to move towards democracy, nearly two years after an Arab Spring revolt overthrew authoritarian ruler Hosni Mubarak. It will help restore stability needed to fix a struggling economy, they say.

But the opposition says the document is divisive and has accused Mursi of pushing through a text that favors his Islamist allies while ignoring the rights of Christians, who make up about 10 percent of the population, as well as women.

"I'm voting 'no' because Egypt can't be ruled by one faction," said Karim Nahas, 35, a stockbroker, heading to a polling station in Giza, a province included in this round of voting which covers parts of greater Cairo.

At another polling station, some voters said they were more interested in ending Egypt's long period of political instability than in the Islamist aspects of the charter.

"We have to extend our hands to Mursi to help fix the country," said Hisham Kamal, an accountant.

Queues formed at some polling stations around the country and voting was extended by four hours to 11 p.m. (2100 GMT).

Unofficial tallies are likely to emerge within hours of the close, but the referendum committee may not declare an official result for the two rounds until Monday, after hearing appeals.

CHEATING ALLEGED

As polling opened on Saturday, a coalition of Egyptian rights groups reported a number of alleged irregularities.

They said some polling stations had opened late, that Islamists urging a "yes" vote had illegally campaigned at some stations, and complained of irregularities in voter registration irregularities, including the listing of one dead person.

Last week's first round of voting gave a 57 percent vote in favour of the constitution, according to unofficial figures.

Analysts expect another "yes" on Saturday because the vote covers rural and other areas seen as having more Islamist sympathizers. Islamists may also be able to count on many Egyptians who are simply exhausted by two years of upheaval.

Among the provisions of the new basic law are a limit of two four-year presidential terms. It says the principles of sharia law remain the main source of legislation but adds an article to explain this further. It also says Islamic authorities will be consulted on sharia - a source of concern to Christians and other non-Muslims.

If the constitution is passed, a parliamentary election will be held in about two months. If not, an assembly will have to be set up to draft a new one.

After the first round of voting, the opposition said alleged abuses meant the first stage of the referendum should be re-run.

But the committee overseeing the two-stage vote said its investigations showed no major irregularities in voting on December 15, which covered about half of Egypt's 51 million voters.

MORE UNREST

Even if the charter is approved, the opposition say it is a recipe for trouble since it has not received sufficiently broad backing from the population. They say the result may go in Mursi's favour but it will not be a fair vote.

"I see more unrest," said Ahmed Said, head of the liberal Free Egyptians Party and a member of the National Salvation Front, an opposition coalition formed after Mursi expanded his powers on November 22 and then pushed the constitution to a vote.

Protesters accused the president of acting like a pharaoh, and he was forced to issue a second decree two weeks ago that amended a provision putting his decisions above legal challenge.

Said cited "serious violations" on the first day of voting, and said anger against Mursi and his Islamist allies was growing. "People are not going to accept the way they are dealing with the situation."

At least eight people were killed in protests outside the presidential palace in Cairo this month. Islamists and rivals clashed on Friday in the second biggest city of Alexandria, hurling stones at each other. Two buses were torched.

The head of the Muslim Brotherhood, an Islamist group that represents Mursi's power base, said the vote was an opportunity for Egypt to move on.

"After the constitution is settled by the people, the wheels in all areas will turn, even if there are differences here and there," the Brotherhood's supreme guide, Mohamed Badie, said as he went to vote in Beni Suef, south of Cairo.

"After choosing a constitution, all Egyptians will be moving in the same direction," he said.

The vote was staggered after many judges refused to supervise the ballot, meaning there were not enough to hold the referendum on a single day nationwide.

The first round was won by a slim enough margin to buttress opposition arguments that the text was divisive. Opponents who include liberals, leftists, Christians and more moderate-minded Muslims accuse Islamists of using religion to sway voters.

Islamists, who have won successive ballots since Mubarak's overthrow, albeit by narrowing margins, dismiss charges that they are exploiting religion and say the document reflects the will of a majority in the country where most people are Muslim.

(Additional reporting by Tamim Elyan; Writing by Edmund Blair and Giles Elgood; Editing by Mark Trevelyan and Jason Webb)

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Wall Street slides as fiscal deal unlikely before 2013

NEW YORK (Reuters) - U.S. stocks tumbled more than 1 percent on Friday after a Republican proposal for averting the "fiscal cliff" failed to pass, diminishing hopes that a deal would be reached soon in Washington.

Trading was volatile as investors reckoned a fiscal agreement between the White House and Republicans before the end of the year was unlikely. Lower volume ahead of the Christmas and New Year holidays exaggerated market swings further, and the CBOE Volatility Index, or VIX, <.vix> was up 6.5 percent.

Late on Thursday, Republican House Speaker John Boehner failed to muster enough votes from his party to pass a tax bill, dubbed "Plan B," to avert the so-called fiscal cliff, $600 billion of tax hikes and spending cuts due to start in January. If U.S. lawmakers don't agree soon on a budget that avoids the cliff, the U.S. economy could tip into recession.

"The failure with Plan B was disappointing, if not terribly surprising, but now there's a real lack of clarity about what will happen and markets hate that," said Mike Hennessy, managing director of investments for Morgan Creek in Chapel Hill, North Carolina.

The lack of support for Plan B, which called for tax increases on those who earn $1 million or more a year, suggested it would be difficult to get Republican support for the more expansive tax increases that President Barack Obama has urged. That, in turn, reduces the possibility of an agreement between the White House and Republicans before the end of the year.

Earlier on Friday, Boehner said congressional leaders and Obama must try to move on and work together.

While Friday's stock market slide reflected investors' anxiety, it wasn't a large enough drop to suggest they believed a deal would be reached too late to avoid damage to the economy, said Mark Lehmann, president of JMP Securities, in San Francisco.

"You could have easily woken up today and seen the market down 300 or 400 points, and everyone would have said, 'That's telling you this is really dire,'" Lehmann said.

"I think if you get into mid-January and (the talks) keep going like this, you get worried, but I don't think we're going to get there."

Banking shares, which outperform in times of economic expansion and have led the market on signs of progress with resolving the fiscal impasse, led declines. Citigroup Inc fell 1.8 percent to $39.44, while Bank of America slid 2.4 percent to $11.24. The KBW Banks index <.bkx> lost 1.4 percent.

The Dow Jones industrial average <.dji> dropped 147.89 points, or 1.11 percent, to 13,163.83. The Standard & Poor's 500 Index <.spx> fell 17.08 points, or 1.18 percent, to 1,426.61. The Nasdaq Composite Index <.ixic> lost 39.90 points, or 1.31 percent, to 3,010.49.

Even with the declines, the S&P 500 is up nearly 1 percent for the week and about 13 percent for the year, though uncertainty over the cliff may prompt many traders to lock in gains as the year draws to a close.

The day's round of data indicated the economy was surprisingly resilient in November; consumer spending rose by the most in three years and a gauge of business investment jumped.

But separate data showed consumer sentiment slumped in December. The S&P Retail Index <.spxrt> fell 1.3 percent.

U.S.-listed shares of Research in Motion sank 19.8 percent to $11.32 after the Canadian company, which makes the BlackBerry, reported its first-ever decline in its subscriber numbers on Thursday. A new fee structure for its high-margin services segment also concerned investors.

Herbalife dropped for an eighth day in a row. Investor Bill Ackman on Thursday ramped up his campaign against the company. Herbalife skidded 17.8 percent to $27.72 and has shed more than 35 percent this week.

(Additional reporting by Ryan Vlastelica; Editing by Bernadette Baum)

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Douglas wins AP female athlete of the year honors

When Gabby Douglas allowed herself to dream of being the Olympic champion, she imagined having a nice little dinner with family and friends to celebrate. Maybe she'd make an appearance here and there.

"I didn't think it was going to be crazy," Douglas said, laughing. "I love it. But I realized my perspective was going to have to change."

Just a bit.

The teenager has become a worldwide star since winning the Olympic all-around title in London, the first African-American gymnast to claim gymnastics' biggest prize. And now she has earned another honor. Douglas was selected The Associated Press' female athlete of the year, edging out swimmer Missy Franklin in a vote by U.S. editors and news directors that was announced Friday.

"I didn't realize how much of an impact I made," said Douglas, who turns 17 on Dec. 31. "My mom and everyone said, 'You really won't know the full impact until you're 30 or 40 years old.' But it's starting to sink in."

In a year filled with standout performances by female athletes, those of the pint-sized gymnast shined brightest. Douglas received 48 of 157 votes, seven more than Franklin, who won four gold medals and a bronze in London. Serena Williams, who won Wimbledon and the U.S. Open two years after her career was nearly derailed by a series of health problems, was third (24).

Britney Griner, who led Baylor to a 40-0 record and the NCAA title, and skier Lindsey Vonn each got 18 votes. Sprinter Allyson Felix, who won three gold medals in London, and Carli Lloyd, who scored both U.S. goals in the Americans' 2-1 victory over Japan in the gold-medal game, also received votes.

"One of the few years the women's (Athlete of the Year) choices are more compelling than the men's," said Julie Jag, sports editor of the Santa Cruz Sentinel.

Douglas is the fourth gymnast to win one of the AP's annual awards, which began in 1931, and first since Mary Lou Retton in 1984. She also finished 15th in voting for the AP sports story of the year.

Douglas wasn't even in the conversation for the Olympic title at the beginning of the year. That all changed in March when she upstaged reigning world champion and teammate Jordyn Wieber at the American Cup in New York, showing off a new vault, an ungraded uneven bars routine and a dazzling personality that would be a hit on Broadway and Madison Avenue.

She finished a close second to Wieber at the U.S. championships, then beat her two weeks later at the Olympic trials. With each competition, her confidence grew. So did that smile.

By the time the Americans got to London, Douglas had emerged as the most consistent gymnast on what was arguably the best team the U.S. has ever had.

She posted the team's highest score on all but one event in qualifying. She was the only gymnast to compete in all four events during team finals, when the Americans beat the Russians in a rout for their second Olympic title, and first since 1996. Two nights later, Douglas claimed the grandest prize of all, joining Retton, Carly Patterson and Nastia Liukin as what Bela Karolyi likes to call the "Queen of Gymnastics."

But while plenty of other athletes won gold medals in London, none captivated the public quite like Gabby.

Fans ask for hugs in addition to photographs and autographs, and people have left restaurants and cars upon spotting her. She made Barbara Walters' list of "10 Most Fascinating People," and Forbes recently named her one of its "30 Under 30." She has deals with Nike, Kellogg Co. and AT&T, and agent Sheryl Shade said Douglas has drawn interest from companies that don't traditionally partner with Olympians or athletes.

"She touched so many people of all generations, all diversities," Shade said. "It's her smile, it's her youth, it's her excitement for life. ... She transcends sport."

Douglas' story is both heartwarming and inspiring, its message applicable those young or old, male or female, active or couch potato. She was just 14 when she convinced her mother to let her leave their Virginia Beach, Va., home and move to West Des Moines, Iowa, to train with Liang Chow, Shawn Johnson's coach. Though her host parents, Travis and Missy Parton, treated Douglas as if she was their fifth daughter, Douglas was so homesick she considered quitting gymnastics.

She's also been open about her family's financial struggles, hoping she can be a role model for lower income children.

"I want people to think, 'Gabby can do it, I can do it,'" Douglas said. "Set that bar. If you're going through struggles or injuries, don't let it stop you from what you want to accomplish."

The grace she showed under pressure — both on and off the floor — added to her appeal. When some fans criticized the way she wore her hair during the Olympics, Douglas simply laughed it off.

"They can say whatever they want. We all have a voice," she said. "I'm not going to focus on it. I'm not really going to focus on the negative."

Besides, she's having far too much fun.

Her autobiography, "Grace, Gold and Glory," is No. 4 on the New York Times' young adult list. She, Wieber and Fierce Five teammates Aly Raisman and McKayla Maroney recently wrapped up a 40-city gymnastics tour. She met President Barack Obama last month with the rest of the Fierce Five, and left the White House with a souvenir.

"We got a sugar cookie that they were making for the holidays," Douglas said. "I took a picture of it."

Though her busy schedule hasn't left time to train, Douglas insists she still intends to compete through the Rio de Janeiro Olympics in 2016.

No Olympic champion has gone on to compete at the next Summer Games, but Douglas is still a relative newcomer to the elite scene — she'd done all of four international events before the Olympics — and Chow has said she hasn't come close to reaching her full potential. She keeps up with Chow through email and text messages, and plans to return to Iowa after her schedule clears up in the spring.

Of course, plenty of other athletes have said similar things and never made it back to the gym. But Douglas is determined, and she gets giddy just talking about getting a new floor routine.

"I think there's even higher bars to set," she said.

Because while being an Olympic champion may have changed her life, it hasn't changed her.

"I may be meeting cool celebrities and I'm getting amazing opportunities," she said. "But I'm still the same Gabby."

___

AP Projects Editor Brooke Lansdale contributed to this report.

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European Rocket Launches British and Mexican Satellites

PARIS — Europe’s Ariane 5 ECA heavy-lift rocket on Dec. 19 successfully launched telecommunications satellites for use by the British and Mexican governments in the rocket’s seventh and final campaign for 2012.

It was the 53rd consecutive success for Ariane 5, which has now gone 10 years without a failure.

The operators of the two satellites — the British Skynet 5D and the Mexsat Bicentenario — reported that both were sending signals and healthy in geostationary transfer orbit after separating from the Ariane 5 ECA upper stage.

The launch enabled the Evry, France-based Arianespace launch consortium to meet its goal of conducting 10 flights in 2012 — seven Ariane 5s, two Europeanized Soyuz vehicles and the inaugural flight of Europe’s Vega small-satellite launcher — from Europe’s Guiana Space Center spaceport on the northeast coast of South America.

Arianespace and European government officials hope that spreading the fixed spaceport costs over three vehicles in the coming years, coupled with upgrades expected for both Ariane 5 and Vega, will enable Arianespace to eke out a profit with a diminishing amount of annual government operating-cost support payments. [Photos: Amazing Night Launch of Ariane 5]

Ariane 5 ECA’s inability to generate a steady profit despite its decade of success and the fact that its direct competitors in the global commercial market have struggled in the past couple of years speaks volumes about the market’s business model, European government and industry officials say.

The Dec. 19 launch carried satellites ordered by commercial companies acting on behalf of government customers.

The Skynet 5D, built by Astrium Satellites under a contract with sister company Astrium Services, will be tested in orbit at 25 degrees east before moving to its operating slot at 53 degrees east in geostationary orbit.

The 4,800-kilogram Skynet 5D is the fourth, and likely the last, Skynet 5 satellite ordered under a 20-year partnership between the British Defence Ministry and Astrium Services. The contract runs to 2022, after which the ownership of the Skynet satellites will transfer to the British government, which will then likely organize a fresh competition for satellite services.

Astrium Services provides Skynet bandwidth to NATO and individual NATO governments in addition to its guaranteed service to British defense forces.

Riding in the lower position on the Ariane 5 ECA rocket was the Mexsat Bicentenario satellite, which will be used by the Mexican government to provide fixed telecommunications and Internet services to Mexican communications that are not attached to the country’s communications grid.

The 3,000-kilogram Mexsat, carrying eight Ku- and eight C-band transponders, was built by Orbital Sciences Corp. of Dulles, Va., under contract to Boeing Space and Intelligence Systems of El Segundo, Calif.

The Mexican government in 2010 selected Boeing to provide the three-satellite Mexsat system under a $ 1 billion contract that includes two large Boeing-built mobile communications satellites, set for launch in 2013 and 2014, and the smaller Bicentenario spacecraft.

The U.S. Export-Import Bank provided $ 922 million in loans to support the financing of the three satellites’ construction by the two U.S. manufacturers.

Gerardo Ruiz Esparza, Mexico’s secretary of communications and transport, which manages the Mexsat program, said the total Mexsat budget is around $ 1.6 billion. He said after the launch that the Mexican government is committed to delivering Internet access to all its citizens, and that Mexsat is central to that effort.

This story was provided by Space News, dedicated to covering all aspects of the space industry.

Copyright 2012 SPACE.com, a TechMediaNetwork company. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
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Goodbye, U.S. Postal Service?

This Christmas could be the Post Office's last, says John Avlon.

STORY HIGHLIGHTS

• The U.S. Postal Service is bleeding money and heading toward insolvency


• John Avlon: Congress can save the postal service in deal on the fiscal cliff


• He says the urgency is clear, let's hope for a Christmas miracle


• Avlon: But be prepared that Washington dysfunction can doom the postal service

Editor's note: John Avlon is a CNN contributor and senior political columnist for Newsweek and The Daily Beast. He is co-editor of the book "Deadline Artists: America's Greatest Newspaper Columns." He is a regular contributor to "Erin Burnett OutFront" and is a member of the OutFront Political Strike Team. For more political analysis, tune in to "Erin Burnett OutFront" at 7 ET weeknights.

(CNN) -- It's the time of year for dashing through the snow to the crowded post office, with arms full of holiday gifts for family and friends.

Not to break the atmosphere of holiday cheer, but this Christmas could be the last for the U.S. Postal Service. It is losing $25 million dollars a day and staring down insolvency -- unless Congress steps in to pass a reform package that reduces its costs.

With just a few days left in the congressional calendar, there is still some small hope for a Christmas miracle -- maybe the Postal Service can be saved as part of a deal on the fiscal cliff. But with even Hurricane Sandy relief stalled, skepticism is growing.

John Avlon

The real question is, what's taken them so long? After all, back in April the Senate passed an imperfect but bipartisan bill by 62-37. It would have saved some $20 billion, cut some 100 distribution centers, and reduced head count by an additional 100,000 through incentives for early retirement, while reducing red tape to encourage entrepreneurialism and keeping Saturday delivery in place for at least another two years. At the time, Sen. Tom Carper of Delaware said, "The situation is not hopeless; the situation is dire. My hope is that our friends over in the U.S. House, given the bipartisan steps we took this week, will feel a sense of urgency."

To which the House might as well have replied, "Not so much."

In August, the Postal Service defaulted for the first time, unable to make a $5.5 billion payment to fund future retirees' health benefits. The headline in Government Executive magazine said it all: "Postal Service defaults, Congress does nothing."

The usual suspects were at fault -- hyperpartisan politics and the ideological arrogance that always makes the perfect the enemy of the good.

House Oversight Committee Chairman Darrell Issa greeted the news of the Senate bill by calling it a "taxpayer-funded bailout." His primary complaint was that the Senate bill did not go far enough. He was not alone -- Postmaster General Patrick Donahoe also expressed disappointment at the scope of the Senate bill, saying that it fell "far short of the Postal Service's plan."

But Issa's alternative couldn't even get to a vote in the Republican-controlled House. And so nothing happened. Even after the USPS defaulted on a second $5.5 billion payment, the response was crickets.

Washington insiders said that action would be taken after the election, when lawmakers would be free to make potentially unpopular decisions. But despite a series of closed-door meetings, nothing has been done.

It's possible that the nearly $20 billion in savings could be part of a fiscal cliff deal. Sen. Joseph Lieberman has suggested that ending Saturday delivery, except for packages, could be part of a compromise that could save big bucks down the road. Another aspect of a savings plan could be suspending the USPS' onerous obligation to fully fund its pension costs upfront, a requirement that would push many businesses into bankruptcy. And last fiscal year, the post office posted a record $15.9 billion loss.

"As the nation creeps toward the 'fiscal cliff,' the U.S. Postal Service is clearly marching toward a financial collapse of its own," says Carper. "The Postal Service's financial crisis is growing worse, not better. It is imperative that Congress get to work on this issue and find a solution immediately. ... Recently key House and Senate leaders on postal reform have had productive discussions on a path forward, and while there may be some differences of opinion in some of the policy approaches needed to save the Postal Service, there is broad agreement that reform needs to happen -- the sooner the better."

The urgency couldn't be clearer -- but even at this yuletide 11th hour, signs of progress are slim to none. If Congress fails to pass a bill, we'll be back to square one in the new year, with the Senate needing to pass a new bill which will then have to be ratified by the House. There is just no rational reason to think that lift will be any easier in the next Congress than in the current lame duck Congress, where our elected officials are supposedly more free to do the right thing, freed from electoral consequences.

So as you crowd your local post office this holiday season, look around and realize that the clock is ticking. The Postal Service is fighting for its life. And Congress seems determined to ignore its cries for help.

"Neither rain nor snow nor sleet nor gloom of night" can stop the U.S. Postal Service from making its appointed rounds -- but congressional division and dysfunction apparently can.

Follow us on Twitter @CNNOpinion.

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The opinions expressed in this commentary are solely those of John Avlon.

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Captured bank robber makes polite appearance in court

Hezekiah Harper-Bey, 19, describes what he saw last night when FBI agents and Chicago police arrested Joseph Banks, who escaped from federal jail earlier this week. (Posted on: Dec. 21, 2012)

After a brazen escape and three days on the run, Joseph “Jose” Banks was quiet and respectful in court today as he made his initial appearance following his capture overnight on the North Side.

Banks, who was shackled at his wrists and ankles, answered questions from U.S. Magistrate Judge Sidney Schenkier politely – a sharp contrast to his defiant behavior during his trial last week on bank robbery charges in the same Dirksen U.S. Courthouse.

A lawyer did not fight Banks’ detention, knowing that would be futile for a convicted bank robber who had just made a daring escape early Tuesday from a federal jail in the South Loop, scaling down from some 15 stories with a rope fashioned from bedsheets.

Banks faces one count of escaping federal custody that carries a sentence of up to 5 years in prison on conviction. He also faces sentencing in March for his conviction last week on two bank robberies and two attempted holdups.

Banks was taken into custody by FBI agents and Chicago police around 11:30 p.m. Thursday in the 2300 block of North Bosworth Avenue, according to the FBI.

A neighbor, the Rev. Baggett Collier, said she heard a loud bang and looked out her window.

"We heard a big boom first," she said. "We thought a transformer burst or there was a traffic accident. Later, my daughter called and said police were out there. I went out and I saw him. He was cuffed. His head was down. I didn't hear him say anything. They got him into the wagon peacefully. The police were pretty calm bringing him out.

"He was just normal, Collier added. "There were so many police there."

She said agents also took into custody a man who was living in the townhouse where Banks was found. He also was in handcuffs and placed in another squadrol. "A really good guy, well-disciplined, somebody a mother would be proud of."

The man and his two teen-aged sons live in the townhouse with a woman and her two younger sons, Collier said. "Very humble people, they take very good care of their children."

Collier said she saw the woman last evening at a neighborhood store. "She seemed nervous and upset," she said. "Looking back, it's like she wanted to tell me something but was afraid to say anything. She had gotten what she wanted and just stood there. I said, 'How you doing?' She said, 'OK.' But you know when something doesn't seem right. I believe she might have been afraid."

Collier said she was shocked by the arrest. "I had talked to my daughter yesterday. I told her, 'I don't want you walking in the neighborhood because those robbers are out there.' "

Hezekiah Harper-Bey, 19, was watching television in his bedroom when he noticed a man outside wearing a white T-shirt and blue shorts. He heard a “loud boom” and looked outside to see the FBI with their guns pointed at the man, who turned out to be Banks.

“Then I saw him run past a little field and into a house,” he said. Harper-Bey said he walked outside and saw Banks in handcuffs.

“He had a white T-shirt with blue shorts. I saw him but I didn’t pay him no mind,” he said. “I just started to watch TV. That's when I heard the loud boom and that’s when I looked, then I put two and two together. I’m like, that was the bank robber. I never knew I could get the $60,000 (reward). I watched the news so I seen his face, so I knew it was him when I saw him.”

Banks was using a cell phone just minutes before the arrest, Harper-Bey said. “I thought he was a regular person who lived around here,” he said.  “Then I saw the FBI with their guns pointed out and they said he ran into a house. Then I went downstairs before he got into the wagon. That's when I saw him.

"It was like 30, 20 of them (FBI agents). There was a lot of them," Harper-Bey said. "He was in handcuffs, tied to the back. There were like three cops with him.

"Before he came out, they (FBI agents) came out with a shoebox and I’m thinking it’s the money. Two seconds later, he came out," Harper-Bey said. "He didn’t put up a fight."

He said he had not noticed Banks in the neighborhood before. Harper-Bey said he believes Banks had stayed inside the townhouse for days and no one in the neighborhood suspected he was there.

Another witness, Colm Marron, said he stepped out of a bar on Fullerton Avenue and saw about a half-dozen unmarked police cars gathering in the Walgreens parking lot around the corner from the building.

“They flew out, just down there,” he said, motioning from inside the bar toward Bosworth Avenue. Seconds later he heard a “huge bang.”

“I was surprised how loud the bang was. It wasn’t like any thunder I’ve ever heard,” he said. “There wasn’t any echo to it, just that loud, off the bat.”

A few minutes later, a handful of marked Chicago police cars arrived, he said.

Banks and his cellmate, Kenneth Conley, both convicted bank robbers awaiting sentencing, were last accounted for at 10 p.m. Monday during a routine bed check at the Metropolitan Correctional Center, authorities said.

About 7 a.m. Tuesday, jail employees arriving for work saw ropes made from bedsheets dangling from a hole in the wall near the 15th floor. The two had put clothing and sheets under blankets in their beds to throw off guards making nighttime checks, authorities said.

Cameras mounted to the side of the 28-story federal jail captured Banks and Conley sliding down the building shortly after 2:30 a.m. Tuesday, according to an employee who wished to remain anonymous.

The men left view briefly, but it was believed they landed on the roof of a garage below. Moments later, footage from a different camera showed them hopping a black fence marking the perimeter of the property, the employee said.

The FBI said a surveillance camera a few blocks from the jail showed the men, wearing light-colored clothing, hailing a taxi at Congress Parkway and Michigan Avenue. They also appeared to be wearing backpacks, according to the FBI.

The manhunt for the inmates included several high-profile raids Tuesday in the southwest suburbs of Tinley Park and New Lenox, where Conley's family and associates lived. Conley is still unaccounted for as of Friday morning.

A $50,000 reward for information leading to the capture of the two fugitives was announced by the FBI.

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Syrian rebels fight for strategic town in Hama province

BEIRUT (Reuters) - Rebels began to push into a strategic town in Syria's central Hama province on Thursday and laid siege to at least one town dominated by President Bashar al-Assad's minority sect, activists said.

The operation risks inflaming already raw sectarian tensions as the 21-month-old revolt against four decades of Assad family rule - during which the president's Alawite sect has dominated leadership of the Sunni Muslim majority - rumbles on.

Opposition sources said rebels had won some territory in the strategic southern town of Morek and were surrounding the Alawite town of al-Tleisia.

They were also planning to take the town of Maan, arguing that the army was present there and in al-Tleisia and was hindering their advance on nearby Morek, a town on the highway that runs from Damascus north to Aleppo, Syria's largest city and another battleground in the conflict.

"The rockets are being fired from there, they are being fired from Maan and al-Tleisia, we have taken two checkpoints in the southern town of Morek. If we want to control it then we need to take Maan," said a rebel captain in Hama rural area, who asked not to be named.

Activists said heavy army shelling had targeted the town of Halfaya, captured by rebels two days earlier. Seven people were killed, 30 were wounded, and dozens of homes were destroyed, said activist Safi al-Hamawi.

Hama is home to dozens of Alawite and Christian villages among Sunni towns, and activists said it may be necessary to lay siege to many minority areas to seize Morek. Rebels want to capture Morek to cut off army supply lines into northern Idlib, a province on the northern border with Turkey where rebels hold swathes of territory.

From an offshoot of Shi'ite Islam, Alawites have largely stood behind Assad, many out of fear of revenge attacks. Christians and some other minorities have claimed neutrality, with a few joining the rebels and a more sizeable portion of them supporting the government out of fear of hardline Islamism that has taken root in some rebel groups.

Activists in Hama said rebels were also surrounding the Christian town of al-Suqeilabiya and might enter the city to take out army positions as well as those of "shabbiha" - pro-Assad militias, the bulk of whom are usually Alawite but can also include Christians and even Sunnis.

"We have been in touch with Christian opposition activists in al-Suqeilabiya and we have told them to stay downstairs or on the lowest floor of their building as possible, and not to go outside. The rebels have promised not to hurt anyone who stays at home," said activist Mousab al-Hamdee, speaking by Skype.

He said he was optimistic that potential sectarian tensions with Christians could be resolved but that Sunni-Alawite strife may be harder to suppress.

SECTARIAN FEARS

U.N. human rights investigators said on Thursday that Syria's conflict was becoming more "overtly sectarian", with more civilians seeking to arm themselves and foreign fighters - mostly Sunnis - flocking in from 29 countries.

"They come from all over, Europe and America, and especially the neighboring countries," said Karen Abuzayd, one of the U.N. investigators, told a news conference in Brussels.

Deeper sectarian divisions may diminish prospects for post-conflict reconciliation even if Assad is ousted, and the influx of foreigners raises the risk of fighting spilling into neighboring countries riven by similar communal fault lines.

Some activists privately voiced concerns of sectarian violence, but the rebel commander in Hama said fighters had been told "violations" would not be tolerated and argued that the move to attack the towns was purely strategic.

"If we are fired at from a Sunni village that is loyal to the regime we go in and we liberate it and clean it," he said. "So should we not do the same when it comes to an Alawite village just because there is a fear of an all-out sectarian war? We respond to the source of fire."

President Vladimir Putin of Russia, Assad's main ally and arms supplier, warned that any solution to the conflict must ensure government and rebel forces do not merely swap roles and fight on forever. It appeared to be his first direct comment on the possibility of a post-Assad Syria.

The West and some Arab states accuse Russia of shielding Assad after Moscow blocked three U.N. Security Council resolutions intended to increase pressure on Damascus to end the violence, which has killed more than 40,000 people. Putin said the Syrian people would ultimately decide their own fate.

Assad's forces have been hitting back at rebel advances with heavy shelling, particularly along the eastern ring of suburbs outside Damascus, where rebels are dominant.

A Syrian security source said the army was planning heavy offensives in northern and central Syria to stem rebel advances, but there was no clear sign of such operations yet.

Rebels seized the Palestinian refugee district of Yarmouk earlier this week, which put them within 3 km (2 miles) of downtown Damascus. Heavy shelling and fighting forced thousands of Palestinian and Syrian residents to flee the Yarmouk area.

Rebels said on Thursday they had negotiated to put the camp - actually a densely packed urban district - back into the hands of pro-opposition Palestinian fighters. There are some 500,000 Palestinian refugees and their descendants living in Syria, and they have been divided by the uprising.

Palestinian factions, some backed by the government and others by the rebels, had begun fighting last week, a development that allowed Syrian insurgents to take the camp.

A resident in Damascus said dozens of families were returning to the camp but that the army had erected checkpoints. Many families were still hesitant to return.

LEBANON BORDER POST TAKEN

Elsewhere, Syrian insurgents took over an isolated border post on the western frontier with Lebanon earlier this week, local residents told Reuters on Thursday.

The rebels already hold much of the terrain along Syria's northern and eastern borders with Turkey and Iraq respectively.

They said around 20 rebels from the Qadissiyah Brigade overran the post at Rankus, which is linked by road to the remote Lebanese village of Tufail.

Video footage downloaded on the Internet on Thursday, dated December 16, showed a handful of fighters dressed in khaki fatigues and wielding rifles as they kicked down a stone barricade around a small, single-storey army checkpoint.

Syrian Interior Minister Ibrahim al-Shaar arrived in Lebanon on Wednesday for treatment of wounds sustained in a bomb attack on his ministry in Damascus a week ago.

Lebanese medical sources said Shaar had shrapnel wounds in his shoulder, stomach and legs but they were not critical.

The Syrian opposition has tried to peel off defectors from the government as well as from the army, though only a handful of high-ranking officials have abandoned Assad.

The conflict has divided many Syrian families. Security forces on Thursday arrested an opposition activist who is also the relative of Vice President Farouq al-Sharaa, the Syrian Observatory said. The man was arrested along with five other activists who are considered pacifists, it said.

Sharaa, a Sunni Muslim who has few powers in Assad's Alawite-dominated power structure, said earlier this week that neither side could win the war in Syria. He called for the formation of a national unity government.

(Reporting by Erika Solomon; Editing by Andrew Osborn)

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Wall Street extends gains on "cliff" hope

Stocks extended gains on Tuesday, with the Nasdaq up more than 1 percent, on hopes Washington was moving closer to a deal to avert the "fiscal cliff."

The Dow Jones industrial average <.dji> gained 85.62 points, or 0.65 percent, to 13,321.01. The Standard & Poor's 500 Index <.spx> rose 11.77 points, or 0.82 percent, to 1,442.13. The Nasdaq Composite Index <.ixic> added 30.29 points, or 1.01 percent, to 3,040.90.

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