Wall Street ends flat as investors seek new catalysts

NEW YORK (Reuters) - Stocks ended a quiet session with slight moves on Monday as investors found few reasons to keep pushing shares higher following a six-week advance, though the longer-term trend was still viewed as positive.

The benchmark index is up more 6.4 percent in 2013, putting both the S&P 500 and Dow industrials near multi-year highs. The S&P is less than 4 percent from its all-time intraday high of 1,576.09, hit in October 2007.

"This is still a market that looks terrific, but when you're up for six weeks in a row, everyone is going to want to take a pause going into the seventh week even if there is no bad news out there," said Eric Kuby, chief investment officer at North Star Investment Management in Chicago.

Volume was light, with about 4.812 billion shares changing hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, well below the daily average so far this year of about 6.48 billion shares.

Wall Street was modestly lower throughout the session but regained some ground in the final hour of trading as Google Inc rebounded off earlier losses. Shares of the Internet search giant dipped 0.4 percent to $782.42, recovering from earlier declines of 1 percent after the company said in a filing former chief executive Eric Schmidt is selling roughly 42 percent of his stake in the company.

Also in the tech space, Apple Inc rose up 1 percent to $479.93 after the New York Times reported the iPhone maker was experimenting with the design of a device similar to a wristwatch.

The Federal Reserve's Vice Chair Janet Yellen, seen as a potential successor to Fed Chairman Ben Bernanke next year, said the Fed is still aggressively stimulating an anemic U.S. economic recovery that has failed to bring rapid progress on employment.

The Dow Jones industrial average <.dji> was down 21.81 points, or 0.16 percent, at 13,971.16. The Standard & Poor's 500 Index <.spx> was down 0.92 points, or 0.06 percent, at 1,517.01. The Nasdaq Composite Index <.ixic> was down 1.87 points, or 0.06 percent, at 3,192.00.

Upbeat U.S. and Chinese data last week helped the S&P 500 extend its weekly winning streak to six. The index gained about 8 percent over that period.

Equities have been strong performers lately and many investors have used any declines in the market as opportunities to buy.

"Everyone wants to buy on a dip in this market, but if you're on the sidelines right now, the decline we're seeing today just isn't the kind you would jump in on," Kuby said.

President Barack Obama will describe his plan for spurring the economy in his State of the Union address on Tuesday. He is expected to offer proposals for investment in infrastructure, manufacturing, clean energy and education.

Opposition has grown to the $24.4 billion buyout of Dell Inc , the No. 3 personal computer maker, as three of the largest investors joined Southeastern Asset Management on Friday in raising objections. Dell said in a regulatory filing it had considered many strategic options before opting to go private in a buyout led by Chief Executive Michael Dell.

Dell shares hovered near $13.65, the buyout offer price.

Regeneron Pharmaceuticals Inc shares rose 2.7 percent at $170.35 after it said longtime drug development partner Sanofi plans to boost its stake.

Moody's Corp was one of the strongest percentage gainers on the S&P 500, rising 4.9 percent to $45.49. Last week the stock plunged 22 percent after the U.S. government launched a civil lawsuit against the company. The sell-off marked the stock's worst week since October 2008.

About 53 percent of stocks traded on the New York Stock Exchange closed lower while slightly more Nasdaq-listed stocks closed in negative territory.

(Editing by Nick Zieminski)

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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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Adele: These Days, I'm Only Singing Lullabies

Mom & Babies
Celebrity Baby Blog

02/10/2013 at 09:31 PM ET

Jordan Strauss/Invision/AP

Adele may have started her day off at dawn, but the early morning wake up call came courtesy of her son — not her glam squad.

“I’ve been up since 6 a.m. so I’m quite tired, but it’s nice,” Adele, who won best pop solo performance for her hit, “Set Fire to the Rain,” told reporters backstage at the Grammy Awards Sunday.

“I haven’t been as stressed out,” she said. “In life you have to prioritize what you stress about and worry about when you have a child.”

And just as her primping for the big show took a backseat to baby boy — reportedly named Angelo — Adele admits any upcoming albums are coming along at a much more slower pace than usual.

“I’ve been having lots of meetings and I’ve been out of the loop really,” the new mom, who arrived in Los Angeles before the Golden Globes, explains. “I’ve been singing my baby nursery rhymes so I don’t really know what’s cool and what’s not.”

– Anya Leon with reporting by Melody Chiu

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After early start, worst of flu season may be over

NEW YORK (AP) — The worst of the flu season appears to be over.

The number of states reporting intense or widespread illnesses dropped again last week, and in a few states there was very little flu going around, U.S. health officials said Friday.

The season started earlier than normal, first in the Southeast and then spreading. But now, by some measures, flu activity has been ebbing for at least four weeks in much of the country. Flu and pneumonia deaths also dropped the last two weeks, the Centers for Disease Control and Prevention reported.

"It's likely that the worst of the current flu season is over," CDC spokesman Tom Skinner said.

But flu is hard to predict, he and others stressed, and there have been spikes late in the season in the past.

For now, states like Georgia and New York — where doctor's offices were jammed a few weeks ago — are reporting low flu activity. The hot spots are now the West Coast and the Southwest.

Among the places that have seen a drop: Lehigh Valley Hospital-Cedar Crest in Allentown, Pa., which put up a tent outside its emergency room last month to help deal with the steady stream of patients. There were about 100 patients each day back then. Now it's down to 25 and the hospital may pack up its tent next week, said Terry Burger, director of infection control and prevention for the hospital.

"There's no question that we're seeing a decline," she said.

In early December, CDC officials announced flu season had arrived, a month earlier than usual. They were worried, saying it had been nine years since a winter flu season started like this one. That was 2003-04 — one of the deadliest seasons in the past 35 years, with more than 48,000 deaths.

Like this year, the major flu strain was one that tends to make people sicker, especially the elderly, who are most vulnerable to flu and its complications

But back then, that year's flu vaccine wasn't made to protect against that bug, and fewer people got flu shots. The vaccine is reformulated almost every year, and the CDC has said this year's vaccine is a good match to the types that are circulating. A preliminary CDC study showed it is about 60 percent effective, which is close to the average.

So far, the season has been labeled moderately severe.

Like others, Lehigh Valley's Burger was cautious about making predictions. "I'm not certain we're completely out of the woods," with more wintry weather ahead and people likely to be packed indoors where flu can spread around, she said.

The government does not keep a running tally of flu-related deaths in adults, but has received reports of 59 deaths in children. The most — nine — were in Texas, where flu activity was still high last week. Roughly 100 children die in an average flu season, the CDC says

On average, about 24,000 Americans die each flu season, according to the CDC.

According to the CDC report, the number of states with intense activity is down to 19, from 24 the previous week, and flu is widespread in 38 states, down from 42.

Flu is now minimal in Florida, Kentucky, Maine, Montana, New Hampshire and South Carolina.

___

Online:

CDC: http://www.cdc.gov/flu/

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US Air, AMR near $11 billion merger, deal seen within week : sources

NEW YORK (Reuters) - US Airways Group Inc and AMR Corp are nearing an $11 billion merger that would create the world's largest airline and could announce a deal within a week, after resolving key differences on valuation and management structure, people familiar with the matter said.

Under terms of a deal that are still being finalized, US Airways Chief Executive Doug Parker would become CEO, while AMR's Tom Horton would serve as non-executive chairman of the board until spring of 2014, when the combined company holds its first annual meeting, the sources said.

The deal would come more than 14 months after the parent of American Airlines filed for bankruptcy in November 2011, and would mark the last combination of legacy U.S. carriers, following the Delta-Northwest and United-Continental mergers.

The all-stock merger is expected to value the combined carrier at between $10.5 billion and $11 billion, and would give AMR creditors 72 percent of the ownership in the new company and US Airways shareholders the rest, they said.

The board of each airline is expected to meet in the middle of the coming week to vote on the proposed deal, and an announcement would likely come in the latter part of the week, the sources said, asking not to be named because the matter is not public.

Negotiations are continuing and could still be delayed or fall apart, they cautioned.

The companies had initially tried to schedule board meetings for Monday, the day that AMR's creditors committee planned to convene, and had aimed to announce a deal as soon as Tuesday, sources told Reuters previously.

But AMR needed more time to finalize details and the boards of the two airlines are now not expected to gather until around Wednesday, the sources said.

The AMR creditors committee is still meeting on Monday in New York, as initially scheduled, and will continue discussions as the airlines finalize negotiations, they added.

A lawyer for the creditors committee declined to comment. Representatives for AMR and US Airways declined to comment.

A combination with US Airways would create the world's top airline by passenger traffic and help the two carriers better compete with rivals United Continental Holdings and Delta Air Lines Inc .

A near-$11 billion valuation of the combined American-US Airways compares to some $12.4 billion market capitalization for Delta, and $8.7 billion for United Continental.

The currently planned equity split ratio between AMR creditors and US Airways shareholders implies a roughly $3 billion valuation for US Airways and some $7.5 billion to $8 billion valuation for AMR.

NEW AMERICAN AIRLINES

US Airways will follow through on its agreement with AMR labor unions last year that the combined carrier would be branded American Airlines and be based in Fort Worth, Texas, where AMR is currently based, sources said. US Airways has its headquarters in Tempe, Arizona.

As part of the merger, US Airways will also leave the Star Alliance to join the oneworld global airline alliance, of which American Airlines is an anchor member along with British Airways, the people familiar with the matter said.

The airlines are estimating that a merger will bring about $1 billion in revenue and cost benefits, they said.

Horton rebuffed an aggressive takeover push from US Airways early in the bankruptcy process, saying the airline preferred to exit court protection on its own and consider a deal later. But after several months of talks with its own creditors as well as with US Airways, Horton has softened his approach and agreed to consider all options.

A combined American-US Airways would provide the scale to match bigger rivals that are upgrading service and expanding international routes. The merged company would have revenue of $38.69 billion based on 2012 figures, ahead of United Continental which had revenue of $37.15 billion last year.

The new American would have a solid presence on the important U.S. East and West coasts and on North Atlantic routes, given American's revenue-sharing joint venture with British Airways and Iberia.

(Reporting by Soyoung Kim in New York, additional reporting by Nick Brown and Karen Jacobs; Editing by Sandra Maler)

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Israel's Lieberman says Palestinian peace accord impossible

JERUSALEM (Reuters) - Israel has no chance of signing a permanent peace accord with the Palestinians and should instead seek a long-term interim deal, the most powerful political partner of Prime Minister Benjamin Netanyahu said on Saturday.

The remarks by Avigdor Lieberman, an ultranationalist whose joint party list with Netanyahu narrowly won a January 22 election while centrist challengers made surprise gains, seemed designed to dampen expectations at home and abroad of fresh peacemaking.

A spring visit to Israel and the Palestinian territories by U.S. President Barack Obama, announced this week, has stirred speculation that foreign pressure for a diplomatic breakthrough could build - though Washington played down that possibility.

In a television interview, ex-foreign minister Lieberman linked the more than two-year-old impasse to pan-Arab political upheaval that has boosted Islamists hostile to the Jewish state.

These include Hamas, rivals of U.S.-backed Palestinian President Mahmoud Abbas, who control the Gaza Strip and spurn coexistence with Israel though they have mooted extended truces.

"Anyone who thinks that in the center of this socio-diplomatic ocean, this tsunami which is jarring the Arab world, it is possible to arrive at the magic solution of a comprehensive peace with the Palestinians does not understand," Lieberman told Israel's Channel Two.

"This is impossible. It is not possible to solve the conflict here. The conflict can be managed and it is important to manage the conflict ... to negotiate on a long-term interim agreement."

Abbas broke off talks in late 2010 in protest at Israel's settlement of the occupied West Bank. He angered Israel and the United States in November by securing a U.N. status upgrade that implicitly recognized Palestinian independence in all the West Bank, East Jerusalem and Gaza.

Israel insists it will keep East Jerusalem and swathes of West Bank settlements under any eventual peace deal. Most world powers consider the settlements illegal because they take up land seized in the 1967 Middle East war.

Lieberman, himself a West Bank settler, said the ball was "in Abu Mazen's (Abbas') court" to revive diplomacy.

Abbas has demanded Israel first freeze all settlement construction. With two decades gone since Palestinians signed their first interim deal with Israel, he has ruled out any new negotiations that do not solemnize Palestinian statehood.

Netanyahu's spokesman Mark Regev noted that Lieberman, in the Channel Two interview, had said he was expressing his own opinion.

Asked how Netanyahu saw peace prospects for an accord with the Palestinians, Regev referred to a speech on Tuesday in which the conservative prime minister said that Israel, while addressing threats by its enemies, "must also pursue secure, stable and realistic peace with our neighbors".

Netanyahu has previously spoken in favor of a Palestinian state, though he has been cagey on its borders and whether he would be prepared to dismantle Israeli settlements.

Lieberman's role in the next coalition government is unclear as he faces trial for corruption. If convicted, he could be barred from the cabinet. Lieberman denies wrongdoing and has said he would like to regain the foreign portfolio, which he surrendered after his indictment was announced last year.

(Writing by Dan Williams; Editing by Stephen Powell)

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Tiger Woods & Lindsey Vonn Are 'Spending More Time' Together: Source

Buzz

By Steve Helling

02/09/2013 at 06:00 PM EST

Tiger Woods and Lindsey Vonn

Mick Tsikas/Reuters/Landov; Luis Guerra/Ramey

It was quite the gesture.

After Lindsey Vonn suffered a devastating injury during the Alpine World Championships in Austria, she got a bit of help from Tiger Woods. Walking on crutches, Vonn – who tore two ligaments in her right knee and fractured her shin when she crashed on Tuesday ­– boarded Woods's private jet to return home.

Is it a sign that the rumored relationship between Woods and Vonn is heating up?

"Tiger and Lindsey have been friends for a while, and nothing started out romantically at all," a source tells PEOPLE. "But they really have a lot in common and got closer and closer. He still refers to her as 'my very good friend,' but he's been spending more and more time talking to her – and talking about her."

Last month, Vonn's reps kept mum about the rumored relationship, telling PEOPLE that her "focus is solely on competing and on defending her titles and thus she will not participate in any speculation surrounding her personal life at this time."

But the source close to Woods tells PEOPLE that Woods, 37, and Vonn. 28, talk and text frequently.

"Tiger really does want a woman who he can have good conversations with," he says. "He wants shared interests and outlooks. He is finding that with [Lindsey]."

Woods made international headlines in 2009 when he was linked to dozens of women while still married to his ex-wife, Elin Nordegren.

Since then, he has dated sporadically, but struggled to find someone who wanted a relationship for the right reasons.

"She's not freaked out by his past, and that's really appealing to him," says the source. "He really does deserve to be happy. He has been flogging himself for three years, and it's good to see him moving forward."

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After early start, worst of flu season may be over

NEW YORK (AP) — The worst of the flu season appears to be over.

The number of states reporting intense or widespread illnesses dropped again last week, and in a few states there was very little flu going around, U.S. health officials said Friday.

The season started earlier than normal, first in the Southeast and then spreading. But now, by some measures, flu activity has been ebbing for at least four weeks in much of the country. Flu and pneumonia deaths also dropped the last two weeks, the Centers for Disease Control and Prevention reported.

"It's likely that the worst of the current flu season is over," CDC spokesman Tom Skinner said.

But flu is hard to predict, he and others stressed, and there have been spikes late in the season in the past.

For now, states like Georgia and New York — where doctor's offices were jammed a few weeks ago — are reporting low flu activity. The hot spots are now the West Coast and the Southwest.

Among the places that have seen a drop: Lehigh Valley Hospital-Cedar Crest in Allentown, Pa., which put up a tent outside its emergency room last month to help deal with the steady stream of patients. There were about 100 patients each day back then. Now it's down to 25 and the hospital may pack up its tent next week, said Terry Burger, director of infection control and prevention for the hospital.

"There's no question that we're seeing a decline," she said.

In early December, CDC officials announced flu season had arrived, a month earlier than usual. They were worried, saying it had been nine years since a winter flu season started like this one. That was 2003-04 — one of the deadliest seasons in the past 35 years, with more than 48,000 deaths.

Like this year, the major flu strain was one that tends to make people sicker, especially the elderly, who are most vulnerable to flu and its complications

But back then, that year's flu vaccine wasn't made to protect against that bug, and fewer people got flu shots. The vaccine is reformulated almost every year, and the CDC has said this year's vaccine is a good match to the types that are circulating. A preliminary CDC study showed it is about 60 percent effective, which is close to the average.

So far, the season has been labeled moderately severe.

Like others, Lehigh Valley's Burger was cautious about making predictions. "I'm not certain we're completely out of the woods," with more wintry weather ahead and people likely to be packed indoors where flu can spread around, she said.

The government does not keep a running tally of flu-related deaths in adults, but has received reports of 59 deaths in children. The most — nine — were in Texas, where flu activity was still high last week. Roughly 100 children die in an average flu season, the CDC says

On average, about 24,000 Americans die each flu season, according to the CDC.

According to the CDC report, the number of states with intense activity is down to 19, from 24 the previous week, and flu is widespread in 38 states, down from 42.

Flu is now minimal in Florida, Kentucky, Maine, Montana, New Hampshire and South Carolina.

___

Online:

CDC: http://www.cdc.gov/flu/

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Stocks end higher for sixth straight week, tech leads

NEW YORK (Reuters) - The Nasdaq composite stock index closed at a 12-year high and the S&P 500 index at a five-year high, boosted by gains in technology shares and stronger overseas trade figures.

The S&P 500 also posted a sixth straight week of gains for the first time since August.

The technology sector led the day's gains, with the S&P 500 technology index <.splrct> up 1.0 percent. Gains in professional network platform LinkedIn Corp and AOL Inc after they reported quarterly results helped the sector.

Shares of LinkedIn jumped 21.3 percent to $150.48 after the social networking site announced strong quarterly profits and gave a bullish forecast for the year.

AOL Inc shares rose 7.4 percent to $33.72 after the online company reported higher quarterly profit, boosted by a 13 percent rise in advertising sales.

Data showed Chinese exports grew more than expected, a positive sign for the global economy. The U.S. trade deficit narrowed in December, suggesting the U.S. economy likely grew in the fourth quarter instead of contracting slightly as originally reported by the U.S. government.

"That may have sent a ray of optimism," said Fred Dickson, chief market strategist at D.A. Davidson & Co in Lake Oswego, Oregon.

Trading volume on Friday was below average for the week as a blizzard swept into the northeastern United States.

The U.S. stock market has posted strong gains since the start of the year, with the S&P 500 up 6.4 percent since December 31. The advance has slowed in recent days, with fourth-quarter earnings winding down and few incentives to continue the rally on the horizon.

"I think we're in the middle of a trading range and I'd put plus or minus 5.0 percent around it. Fundamental factors are best described as neutral," Dickson said.

The Dow Jones industrial average <.dji> ended up 48.92 points, or 0.35 percent, at 13,992.97. The Standard & Poor's 500 Index <.spx> was up 8.54 points, or 0.57 percent, at 1,517.93. The Nasdaq Composite Index <.ixic> was up 28.74 points, or 0.91 percent, at 3,193.87, its highest closing level since November 2000.

For the week, the Dow was down 0.1 percent, the S&P 500 was up 0.3 percent and the Nasdaq up 0.5 percent.

Shares of Dell closed at $13.63, up 0.7 percent, after briefly trading above a buyout offering price of $13.65 during the session.

Dell's largest independent shareholder, Southeastern Asset Management, said it plans to oppose the buyout of the personal computer maker, setting up a battle for founder Michael Dell.

Signs of economic strength overseas buoyed sentiment on Wall Street. Chinese exports grew more than expected in January, while imports climbed 28.8 percent, highlighting robust domestic demand. German data showed a 2012 surplus that was the nation's second highest in more than 60 years, an indication of the underlying strength of Europe's biggest economy.

Separately, U.S. economic data showed the trade deficit shrank in December to $38.5 billion, its narrowest in nearly three years, indicating the economy did much better in the fourth quarter than initially estimated.

Earnings have mostly come in stronger than expected since the start of the reporting period. Fourth-quarter earnings for S&P 500 companies now are estimated up 5.2 percent versus a year ago, according to Thomson Reuters data. That contrasts with a 1.9 percent growth forecast at the start of the earnings season.

Molina Healthcare Inc surged 10.4 percent to $31.88 as the biggest boost to the index after posting fourth-quarter earnings.

The CBOE Volatility index <.vix>, Wall Street's so-called fear gauge, was down 3.6 percent at 13.02. The gauge, a key measure of market expectations of short-term volatility, generally moves inversely to the S&P 500.

"I'm watching the 14 level closely" on the CBOE Volatility index, said Bryan Sapp, senior trading analyst at Schaeffer's Investment Research. "The break below it at the beginning of the year signaled the sharp rally in January, and a rally back above it could be a sign to exercise some caution."

Volume was roughly 5.6 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.

Advancers outpaced decliners on the NYSE by nearly 2 to 1 and on the Nasdaq by almost 5 to 3.

(Additional reporting by Angela Moon; Editing by Bernadette Baum, Nick Zieminski, Kenneth Barry and Andrew Hay)

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China, Japan engage in new invective over disputed isles

BEIJING (Reuters) - China and Japan engaged on Friday in a fresh round of invective over military movements near a disputed group of uninhabited islands, fuelling tension that for months has bedeviled relations between the Asian powers.

An increasingly muscular China has been repeatedly at odds with others in the region over rival claims to small clusters of islands, most recently with fellow economic giant Japan which accused a Chinese navy vessel of locking radar normally used to aim weapons on a Japanese naval ship in the East China Sea.

China's Defence Ministry rejected Japan's complaint about the radar, its first comment on the January 30 incident. It said Japan's intrusive tracking of Chinese vessels was the "root cause" of the renewed tension.

A Japanese official dismissed the Chinese explanation for incident saying China's actions could be dangerous in the waters around the islets, known as Diaoyu in China and Senkaku in Japan, believed to be rich in oil and gas.

Japanese Prime Minister Shinzo Abe led his conservative party to a landslide election victory in December, promising to beef up the military and stand tough in territorial disputes.

On Thursday, another border problem was brought into focus when Japan said two Russian fighter jets briefly entered its air space near long-disputed northern islands, prompting Japan to scramble combat fighters. Russia denied the accusation.

The commander of U.S. forces in the Asia-Pacific said the squabble between Japan and China underlined the pressing need for rules to prevent such incidents turning into serious conflict.

"What we need in the South China Sea is a mechanism that prevents us turning our diplomacy over to young majors and young (naval) commanders ... to make decisions at sea that cause a problem (that escalates) into a military conflict that we might not be able to control," Admiral Samuel Locklear told a conference in the Indonesian capital.

China is in dispute with several Southeast Asian countries including the Philippines and Vietnam over parts of the South China Sea, which is potentially rich in natural resources.

Locklear said governments and their leaders had to understand the potential for things to get out of hand.

"In this case, I think that point has been made pretty clear," he said in reference to international reaction to the dispute between China and Japan.

"IRRESPONSIBLE"

China's Defence Ministry, in a faxed statement late on Thursday, said Japan's complaints did not "match the facts". The Chinese ship's radar, it said, had maintained regular alerting operations and the ship "did not use fire control radar".

The ministry said the Chinese ship was tracked by a Japanese destroyer during routine training exercises. Fire control radar pinpoints the location of a target for missiles or shells and its use can be considered a step short of actual firing.

Japan, the ministry said, had "made irresponsible remarks that hyped up a so-called China threat, recklessly created tension and misled international public opinion".

"Japanese warships and airplanes have often conducted long periods of close-range tracking and surveillance of China's naval ships and airplanes," the Chinese Defence Ministry said.

"This is the root cause of air and maritime security issues between China and Japan."

In Tokyo, Japan's Chief Cabinet Secretary Yoshihide Suga told a news conference Japan could not accept China's explanation and Japan's accusation came after careful analysis.

"We urge China to take sincere measures to prevent dangerous actions which could cause a contingency situation," Suga said.

Japanese Defence Minister Itsunori Onodera said this week that the radar incident could have become very dangerous very quickly, and it could have been seen as a threat of military force under U.N. rules.

Hopes had been rising recently for an easing of the tension, which was sparked, in part, by Japan's nationalization of three of the privately owned islets last September.

Fears that encounters between aircraft and ships could bring an unintended clash have given impetus to efforts to improve links, including a possible summit between Abe and Chinese leader Xi Jinping, who takes over as head of state in March.

(Additional reporting by Linda Sieg in TOKYO, Joathan Thatcher in JAKARTA; Editing by Ron Popeski and Robert Birsel)

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